Free Markets, Free People

Economy

Obama’s UAW speech fantasy, Kaus’s auto industry reality

Trying to justify the unjustifiable with a pep-rally like political speech to the UAW, Obama points to what he contends are the favorable results of his decision to intrude into the auto market and rearrange the bankruptcy process to favor his cronies.

I know our bet was a good one because I had seen it pay off firsthand.  But here’s the thing.  You don’t have to take my word for it.  Ask the Chrysler workers near Kokomo — (applause) — who were brought on to make sure the newest high-tech transmissions and fuel-efficient engines are made in America.  Or ask the GM workers in Spring Hill, Tennessee, whose jobs were saved from being sent abroad.  (Applause.)  Ask the Ford workers in Kansas City coming on to make the F-150 — America’s best-selling truck, a more fuel-efficient truck.  (Applause.)  And you ask all the suppliers who are expanding and hiring, and the communities that rely on them, if America’s investment in you was a good bet.  They’ll tell you the right answer. 

Of course Chrysler is now owned by a foreign auto company, courtesy of the Obama administration, Ford took no federal money and, had normal bankruptcy proceeded, taxpayers wouldn’t be out $80 billion dollars (still unpaid despite claims to the contrary) and a leaner, more competitive GM would be in existence.   Those suppliers would still be supplying and after the shakeout a more viable corporation would have come into existence.

uaw-gmInstead, the same GM is in existence boosted by taxpayer money.  As Micky Kaus points out, “You’d be successful in the short run too if the government gave you $80 billion dollars.”

Speaking of those GM workers in Spring Hill, TN, Kaus lays out another reality that the president doesn’t present:

Toyota and Honda are coming back online after the tsunami and Southeast Asia floods crippled production. VW is building roomy American-style cars in Tennessee using $14.50/hour non-union workers instead of $28/hour UAW workers. Hyundai is expanding rapidly. Competition is going to be vicious–it’s widely believed there’s still overcapacity in the industry. A new oil price spike could crimp sales of high-profit trucks. Will GM still be making money in 5 years? Or, I should say, will GM still be making money building cars in the U.S. (as opposed to importing them from China) in 5 years? I’m skeptical. I don’t think deficient corporate cultures change that easily. Normally we rely on the market to simply kill them off.

The two points to be made here are important.   One, GM’s current “success” is a result of huge infusion of taxpayer money.  Its problem was/is its corporate culture and its unions.  Neither problem have been addressed or fixed.  Instead, like Solyndra, they’ve simply been given an extension via the taxpayer that will eventually run out.  Secondly, as competing auto companies  using non-union labor continue to locate in right to work states and pay a competitive wage (but not the high end union wage), they will continue to take market share from GM, who is still stuck with that toxic corporate culture and grasping unions.

But, of course, Obama won’t care because he’ll be out of office.  This is the usual short term vote buying, just on a grander scale than we’ve ever seen it before.  Crony capitalism at its worst.

Long term viability?

Who cares?  Certainly not President Obama.

~McQ

Twitter: @McQandO

Economic Statistics for 28 Feb 12

The following statistics were released today on the state of the US Economy:

Durable goods orders fell -4.0% for January, but were still 8.1% higher than a year ago. Ex-transportation, orders fell -2.3% for the month, but were up 5.7% over last year.

Home prices are still falling, as Case-Schiller reports prices dropped a steep -0.5% in December. That’s down -4.0% from last December.

Consumer confidence jumped more than 9 points to 70.8. That’s still below the February 2011 index of 72.0, however.

The Richmond Fed Manufacturing Index jumped sharply, up 8 points to 20, indicating a strong increase in manufacturing in the district. This continues the trend of strong regional manufacturing reports we’ve been seeing, but is at odds with the weak durable goods orders data also released this morning.

State Street’s Investor Confidence Index says institutional investors may be getting skittish, as the index dropped to a very weak 86.5 in February.

In retail sales, Redbook reports a strong 3.4% year-over-year increase in same store sales. Conversely, ICSC-Goldman’s same-store sales index fell a big -1.0% for the week, and the year-over-year 2.7% increase is the lowest in three months.

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Dale Franks
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Economic Statistics for 27 Feb 11

The following statistics were released today on the state of the US Economy:

The National Association of Realtors reports the Pending Home Sales Index rose nearly 2 points to 97.0. Year-on-year, pending sales were up 5.6%.

In the Dallas Fed’s manufacturing survey, the business activity index rose to 17.8, and the production index rose to 11.2.

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Dale Franks
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Obama’s “all-of-the-above” energy policy is really a “some-of-the-favored-above” political strategy

As usual President Obama has said one thing while demonstrating another.  He claimed, in his much panned energy speech, that the right energy strategy is to pursue an “all of the above” policy which includes not only fossil fuel, but alternative fuels as well.

“If we’re going to avoid being at the mercy of these world events, we’ve got to have a sustained, all-of-the-above strategy that develops every available source of American energy.”

And he claims that’s what he’s done.  Of course that’s nonsense as has been demonstrated many times on this blog.  His administration has done everything in its power for the past three years to block oil exploitation on federal land.  His administration has issued fewer permits for shorter times, slow walked those which have been let and disapproved such projects as the Keystone XL pipeline which is critical to any “all-of-the-above” strategy.

To make the point that fossil fuels are not in his “all of the above” plan, one only need look at his recent corporate income tax proposal in which petroleum companies are singled out for punitive treatment.  Hardly the move of a person interested in what he’s claiming.

“Since it’s an election year, they’re already dusting off their three-point plans for $2 gas. I’ll save you the suspense: Step one is drill, step two is drill, and step three is keep drilling,” Obama said. “Well, the American people aren’t stupid. You know that’s not a plan. . . . It’s a strategy to get politicians through an election. You know there are no quick fixes to this problem, and you know we can’t just drill our to lower prices.”

We can’t drill ourselves to lower gas prices?  But of course we can, if we will.  Remember that for 25 years, Democrats, who’ve taken every opportunity to block additional drilling, tell us it takes 3 to 10 years for us to benefit from new drilling.  Well, here we are, a quarter century later still in the same shape we were then and we have this guy telling us we can’t lower prices by increasing production?

Really?  So is there a new law of economics at work none of us have been privy too?  Supply and demand no longer work?

Rising prices now are a symptom of failing to do what we should have done over the previous quarter century.  Because of that we remain (as does the market) vulnerable to problems in supply elsewhere.   Like Iran, which is now cutting supplies to Europe and causing the market to react with higher prices due to a smaller supply.

Econ 101.  gas_prices_large3

If we had been drilling and producing for 25 years, we or the market wouldn’t be as susceptible to those sorts of shocks.   There’d be more supply and a greater diversity of supply.  That means lower prices.   And it would certainly mean more oil security for us.  Whether or not much of it is exported is irrelevant.  In time of emergency we would have a domestic supply that could be diverted to secure our energy needs.

Instead, we have a president who is reduced to claiming Americans “aren’t stupid” while he treats them as if they are.

He claims that you can’t reduce the price of oil by drilling for more oil (you can’t lower prices by meeting demand with increased product?)?  Now who is stupid.

And speaking of politics, because of his failure to enable the exploitation of petroleum products during his term in office, what is the only option Obama has in his bag of tricks?  Looting the Strategic Petroleum Reserve in order to help his re-election chances.  Who is it that doesn’t have much of a plan?

If you’re not tired of the double-speak from this man, you’re not paying attention.  His energy speech was pure blarney.

“There is no silver bullet. There never has been,” Obama said. “It’s the easiest thing in the world to make phony election-year promises about lower gas prices.”

Nonsense.  There certainly is a “silver bullet” way of lowering gasoline prices.  Produce more of it.  The reason there is no “silver bullet” in the offing is because he and people like him have stood in the way of its production.

You can’t make a silver bullet if you won’t let anyone mine the silver.  And that is precisely what Mr. Obama and the Democrats have done for 25 years.

~McQ

Twitter: @McQandO

Economic Statistics for 23 Feb 12

The following statistics were released today on the state of the US Economy:

Initial jobless claims remain unchanged at 351,000 for the latest week. The 4-week moving average fell 7,000 to 359,000. The recent decreases in claims indicate that a positive Employment Situation report for the month.

The Bloomberg Consumer Comfort Index rose to the highest reading since April, 2008, coming in at -38.4. Of, course, that’s still a minus sign in front of that number.

The FHFA reports house prices improved a bit in December, rising 0.7%. That’s still down -0.8% on a year-over-year basis.

The Kansas City Fed Manufacturing Index came in well above expectations, rising from 7 last month to 13 in February.

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Dale Franks
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Energy prices are rising, but energy demand is declining.

We’ve been seeing some better—if not good—economic numbers lately, mainly in employment, but also in industrial production, and general business conditions. One might be tempted to believe there’s at least a mild recovery on the way. That’d be nice.

But I’m…troubled. First, there’s this:

Oil prices aren’t high right now. In fact, they are unusually low. Gasoline prices would have to rise by another $0.65 to $0.75 per gallon from where they are now just to be “normal”. And, because gasoline prices are low right now, it is very likely that they are going to go up more—perhaps a lot more…

In terms of judging whether the price of WTI is high or low, here is the price that truly matters: 0.0602 ounces of gold per barrel (which can be written as Au0.0602/bbl). What this number means is that, right now, a barrel of WTI has the same market value as 0.0602 ounces of gold.

During the 493 months since January 1, 1971, the price of WTI has averaged Au0.0732/bbl…

At this point, we can be certain that, unless gold prices come down, gasoline prices are going to go up—by a lot.

In other words, there’s at least an 18% price differential in the current price of oil compared to gold, compared to the historical average.

Another important thing to remember is that the current rise in energy prices does NOT appear to be related to demand for energy. According to the US Energy Information Agency, the US demand for both electricity and petroleum has been decreasing.

Statistics for energy use usually run a couple of months behind, but the recent figures for petroleum are that from August, 2011 until November 11, Total Crude Oil and Petroleum Products consumed, in thousands of barrels per month, fell from 593,757 to 562,019. Figures for the same months in 2010 are 609,517 and 569,312, respectively.

Similarly, the most recent electrical generation numbers, in millions of kilowatt hours, show that from August to November, 2011, total electricity consumption fell from 370,073 to 273,053. Both figures are about 2 million kWh less than the same months in 2010.

Now, maybe in the last two months there’s been a huge turnaround in energy consumption, but please note that the year-on-year demand is declining, and in general, has been since 2006.

So, if energy use is declining, while prices are increasing, and supply remains steady—or is increasing—then we can reasonably look to monetary reasons for the price increase, as the economic fundamentals do not explain the price changes.

The implications for energy prices, therefore, are not good. Start saving those pennies, kids.

For all the good it’ll do you.

Oh, and by the way, if the economy is recovering, why is energy demand decreasing, rather than increasing? Just asking.

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Dale Franks
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Had Christy Romer gotten her way, the stimulus could have been much worse

When Larry Summers and team were preparing a memo for Barack Obama on the planned stimulus, Christina Romer was a part of the effort.  The New Republic brings to light a conflict within that team about how much stimulus they should recommend.  As you recall, the final recommendation included two options.  Option one was a “modest” stimulus in the rage of $550 to $670 of legislated money (about the same amount that Paul Krugman first recommended).  The second option was for $850 billion and was the option Obama chose.

Summers mentions in the memo that in order to make a bigger impact on the “output gap”, a stimulus of over a trillion dollars was needed but most likely “not accomplish the goal” of reducing the “output gap” because of the “impact it would have on markets”.

Romer, on the other hand, felt that closing the “output gap” was much more important than the impact such a move might have on markets and recommended a much higher stimulus.  How much higher?  Approximately twice the level of the highest option presented to Obama of $850 billion.  That’s right, about $1.7 trillion dollars.  Romer claimed that doing so would bring the unemployment rate to “5.1%”.  But then, as we remember, the country was promised that if the stimulus that was eventually passed was made law, unemployment would remain under 8%.  

Of course it didn’t rising to 10.5%.  However the prediction came directly from the memo Summers presented to the president – $880 billion stimulus would create 3.4 million jobs and keep the unemployment rate at 7.3%..  Neither of those came true and the administration was reduced to claiming “saved” jobs in its defense.

Romer’s predictions were even rosier.  She believed that a $900 billion stimulus would create 3.75 million jobs and put the unemployment rate at 6.6%.  Again, not even close.

Yet, when you read the comments of others out there, you find some of them still implying that a larger stimulus would have been better for what ailed us.  That our problem was the size of the stimulus, not its design.

Of course that’s patent nonsense.  The stimulus failed because it was horribly designed and terribly executed.  And it was aimed at the wrong things.   It became a combination of slush fund for politicians and budget short-fall device for states.  Where what little was aimed at it supposed purpose (creating jobs) it failed.  We discovered that “shovel ready” was anything but.  Additionally it was used to bail out industries government had no business bailing out.

Whether it was $900 billion or $1.7 trillion, those facts wouldn’t have changed one bit.  About all that might have happened had Romer gotten her way is a few states might have been able to delay their financial reckoning for another year or so.

Noam Scheiber, the author of the TNR article (and an upcoming book on how the Obama White House “fumbled” the recovery) doesn’t go as far as to claim the larger stimulus would have been a better choice although he certainly implies it.  He argues that Obama wouldn’t have proposed it because Congress – even a totally Democratic Congress – wouldn’t have passed a $1.8 trillion dollar stimulus.

However, he argues, the inclusion of the higher stimulus number would have gotten Obama to “have felt a greater sense of urgency had he better understood how far he was from the ideal.”

First, I don’t agree that a Nancy Peolosi/Harry Reid controlled Congress wouldn’t have done exactly that, i.e. passed an almost $2 trillion dollar stimulus package.  One only has to remember how they steamrolled the health care bill through to doubt such a thing couldn’t have happened with a larger stimulus.  Secondly, it is highly debatable that Romer’s number was any sort of an “ideal”.

It was, at most, a “best guess” and given her predictions of the effect of a $900 billion stimulus (the size eventually passed) on job creation and unemployment, it is a suspect “best guess”.

And finally, regardless of the numbers proposed, it was a terribly designed and executed program that redefined “waste, fraud and abuse”.  Doubling that wouldn’t have made it better.

Unlike some out there lamenting Summers refusal to have included Romer’s recommendation, I applaud it.  That doesn’t mean I agree with the number he came up with, but to use Washington DC budgetspeak, he “saved” us about a trillion dollars.

~McQ

Twitter: @McQandO

Economic Statistics for 22 Feb 12

 

The following statistics were released today on the state of the US Economy:

ICSC-Goldman reports store sales were driven up 3% last week by Valentines Day. Sales are 3.2% higher than last year. Predictions for the whole month however, are still below trend. Redbook’s same-store sales rate, at only a 2.9% year-over-year increase last week, continues to hold almost at the lows for the year. Conversely, Redbook is signaling a strong 1.4% gain for the month, in opposition to the ICSC-Goldman forecast.

Existing home sales rose 4.3% in January to a 4.57 million annual rate. But the median price still fell sharply, down -4.6% to $154,700.

The Mortgage Bakers Association reports mortgage applications fell -4.5%, with purchase apps down -2.9%, and refinance apps down -4.8%.

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Dale Franks
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Economic Statistics for 21 Feb 12

This is a fairly thin week for economic data, and today only has one statistics release of any interest.

The Chicago Fed National Activity Index rose from 0.17 last month, to 0.22 this month. The 3 month moving average was up sharply, though, to 0.14 from last month’s -0.19. Production, consumption, and housing remain a drag on the economy, however.

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Dale Franks
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