President Obama is out telling workers at a trucking company in Hyattsville, Md that the new job numbers, 431,000 hired last month, shows the economy is “getting stronger by the day”.
Is it? It tells you something about credibility when you immediately question declarations like that, but that’s been the mantra for quite some time and it really hasn’t borne itself out as time progresses.
In this case 431,000 looks like a “good” number and seeing the unemployment rate drop from 9.9% to 9.7% would certainly seem to confirm that.
But the numbers really don’t support the spin. Of the 431,000 new jobs, 411,000 were temporary census jobs with the government that will go away at the end of the summer.
“The U.S. employment data was disappointing,” said Marc Chandler, global head of currency strategy at Brown Brothers Harriman, in a statement. Mr. Chandler noted that private-sector job creation, a crucial measure, reached only 41,000, compared with expectations for 180,000 and a three-month moving average of 155,600.
It only had a net gain of 20,000 private sector jobs, far below the 100,000 or so jobs necessary just to maintain the employment status quo.
As for the unemployment rate:
“The fact that the unemployment rate ticked down is not really good news,” he added, “as the decline in unemployment was not a function of more jobs but a reflection of people leaving the work force.”
The lack of private sector job growth is being hidden by massive hiring by government for the census.
“These new data do not present a picture of a healthy private-sector growth, and nothing closely resembling the job growth needed to dig us out of our very deep hole,” Lawrence Mishel, the president of the Economic Policy Institute, said in a statement.
He’s right – do the math. 8 million people have lost their private sector jobs since the recession began. As Mishel points out, these numbers don’t at all indicate an economy that is “getting stronger by the day”.
“You would need to be producing 150,000 to 200,000 jobs a month to be making a dent in this,” said Doug Roberts, chief investment strategist for Channel Capital Research.
When you begin seeing numbers like that – on a sustained basis – then you have some basis for saying the economy is “getting stronger by the day”.
Until then, it’s just so much spin.
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Not good news for a market that struggled even with the credit. The underlying weakness of the housing market again seems to be showing itself. And that’s not good news for the overall economy either. Diana Olick takes you through the numbers:
Everybody take a nice long look at today’s Pending Home Sales Index from the National Association of Realtors, because it’s just about the last positive picture we’re going to see for a while.
Those numbers she’s talking about show up in the May and June reports, but then she says, “look out”:
This index is based on contracts signed in August, and that’s how the credit was set up; you had to sign your contract by April 30th and close by June 30th in order to get your $8000 if you’re a first time buyer and $6500 if you’re a move up buyer.
And then came May, traditionally the height of the spring housing season.
Mortgage applications to purchase a home began to sink. Now, four weeks later, mortgage purchase applications are down nearly 40 percent from a month ago to their lowest level since April of 1997.
This is another indicator of a weak economy that still hasn’t yet sorted itself out yet. While the tax credits certainly helped sell some houses, it also hid that weakness that still exists. Look for the July report (Pending Home Sales Index) to again show we have a long way to go to full recovery.
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Yesterday the CBO director, Douglas Elmendorf, released a synopsis of its analysis of the Stimulus bill’s effect. The findings are listed below:
- Raised the level of real (inflation-adjusted) gross domestic product (GDP) by between 1.7 percent and 4.2 percent,
- Lowered the unemployment rate by between 0.7 percentage points and 1.5 percentage points,
- Increased the number of people employed by between 1.2 million and 2.8 million, and
- Increased the number of full-time-equivalent (FTE) jobs by 1.8 million to 4.1 million compared with what those amounts would have been otherwise. (Increases in FTE jobs include shifts from part-time to full-time work or overtime and are thus generally larger than increases in the number of employed workers.)
The effects of ARRA on output and employment are expected to increase further during calendar year 2010 but then diminish in 2011 and fade away by the end of 2012.
A few points – A) part of GDP calculation is government spending. Since we know how poor the rest of the economy was doing at the time of this analysis, most of the “increase” in GDP is government spending, not productive increases. B) the spread is monstrous and mostly meaningless – which is it 1.7 or 4.2? C) unemployment reductions are a result of spending. Further on in the report, it is claimed that 700,000 jobs were reported to have been created by the money. Whether or not those jobs were permanent or temporary is not mentioned, nor whether they still exist. Over 8 million are out of work. D) also note the final bullet – FTE can be as little as overtime.
So, with all of that understood, let’s go to the bill itself, something I mentioned yesterday via Keith Hennessey – H.R. 4213, The American Jobs and Closing Tax Loopholes Act of 2010. In reality, it is another deficit building “stimulus” bill. It’s main components are:
- increases infrastructure spending by $26 B over ten years;
- extends a raft of expiring tax provisions, mostly for one year
- provides funding relief for certain employer pension plans;
- raises a bunch of taxes, mostly on businesses and a certain kind of partnership income called “carried interest;”
- extends unemployment insurance benefits, increasing federal spending by $47 B over the next two years;
- increases Medicare payments for doctors through the end of 2013 for eighteen months at a $63 B cost;
- increases health insurance subsidies for the unemployed (through “COBRA”) by $8 B over the next two years; and
- increases federal Medicaid spending by $24 B for a six-month policy change.
And, as I mentioned yesterday, CBO scored this as a bill which thoroughly trashes PAYGO to the tune of an increase of $134 billion deficit.
But the CBO report at the top of this post is going to be used as the impetus and reason for going ahead with it because the Democrats are still firmly convinced to two things – you can spend your way out of economic trouble and per the CBO it’s working. Again, note the final paragraph in Elmandorf’s analysis cite. The supposed benefits of what has been spent to this point will “diminish in 2011 and fade away by the end of 2012.”
Enter HR 4213 and more deficit spending.
James Pethokoukis gives us 5 good reasons why “son of stimulus” is a very bad idea. But what caught my eye was a quote by one of the economists on President Obama’s deficit panel said yesterday:
The gross U.S. debt is approaching a level equivalent to 90 percent of the country’s gross domestic product, the level at which growth has historically declined, said Carmen Reinhart, a University of Maryland economist. When gross debt hits 90 percent of GDP, Reinhart told the commission during a hearing in the Capitol, growth “deteriorates markedly.” Median growth rates fall by 1 percent, and average growth rates fall “considerably more,” she said.
Reinhart said the commission shouldn’t wait to put in place a plan to rein in deficits. “I have no positive news to give,” she said. “Fiscal austerity is something nobody wants, but it is a fact.
It may be a fact, but it not a fact that this President or the Democrats want to face.
Meanwhile, other forces are at work in the economy which could very negatively impact all of this:
The M3 figures – which include broad range of bank accounts and are tracked by British and European monetarists for warning signals about the direction of the US economy a year or so in advance – began shrinking last summer. The pace has since quickened.
The stock of money fell from $14.2 trillion to $13.9 trillion in the three months to April, amounting to an annual rate of contraction of 9.6pc. The assets of insitutional money market funds fell at a 37pc rate, the sharpest drop ever.
“It’s frightening,” said Professor Tim Congdon from International Monetary Research. “The plunge in M3 has no precedent since the Great Depression. The dominant reason for this is that regulators across the world are pressing banks to raise capital asset ratios and to shrink their risk assets. This is why the US is not recovering properly,” he said.
Don’t tell that to the Dems or the administration – in their view, it is because we’re spending our rear ends of that we are recovering:
The US authorities have an entirely different explanation for the failure of stimulus measures to gain full traction. They are opting instead for yet further doses of Keynesian spending, despite warnings from the IMF that the gross public debt of the US will reach 97pc of GDP next year and 110pc by 2015.
Larry Summers, President Barack Obama’s top economic adviser, has asked Congress to “grit its teeth” and approve a fresh fiscal boost of $200bn to keep growth on track. “We are nearly 8m jobs short of normal employment. For millions of Americans the economic emergency grinds on,” he said.
It “grinds on” because of economic stupidity being demonstrated in the continuance of massive deficit spending, its effect on private markets and perpetually extended unemployment benefits that no one can afford.
Remember all the talk about the panic that led to TARP and how the cool, calm and collected Obama played the crisis just right? Yeah, well that was then and this is now:
David Rosenberg from Gluskin Sheff said the White House appears to have reversed course just weeks after Mr Obama vowed to rein in a budget deficit of $1.5 trillion (9.4pc of GDP) this year and set up a commission to target cuts. “You truly cannot make this stuff up. The US government is freaked out about the prospect of a double-dip,” he said.
And a spending panic is in the offing.
We keep hearing the likes of Paul Krugman tell us we’re not Greece. But when debt reaches 97% of GDP next year and 110% in 2015, I hope Krugman’s still around to tell us again why we’re not Greece, don’t you?
I wonder who will be there to bail us out?
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Read this carefully:
Paychecks from private business shrank to their smallest share of personal income in U.S. history during the first quarter of this year, a USA TODAY analysis of government data finds.
At the same time, government-provided benefits — from Social Security, unemployment insurance, food stamps and other programs — rose to a record high during the first three months of 2010.
What is being said here is not that government provided benefits are now more than private paychecks. Instead it is pointing to a trend brought on by the recession. It gives a bit of lie to those who are claiming that all is well and we’re well on the road to recovery. Those “government provided benefits” include unemployment benefits as well as other emergency benefits.
What does that mean? Well it should be fairly obvious:
The trend is not sustainable, says economist Donald Grimes. Reason: The federal government depends on private wages to generate income taxes to pay for its ever-more-expensive programs. Government-generated income is taxed at lower rates or not at all, he says. “This is really important,” Grimes says.
Yes it really is. It is much like the problems we face with Social Security – we have too few workers paying for too many retirees. Well, this trend faces exactly the same sort of problem. We have too few taxpayers paying for too many unemployed. So that means going more into debt to pay extended benefits.
And that includes the states as well. To this point, 32 states have borrowed $37.8 billion from the federal government (and you know where the fed got the money) to pay unemployment benefits.
Here are the numbers:
• Private wages. A record-low 41.9% of the nation’s personal income came from private wages and salaries in the first quarter, down from 44.6% when the recession began in December 2007.
•Government benefits. Individuals got 17.9% of their income from government programs in the first quarter, up from 14.2% when the recession started. Programs for the elderly, the poor and the unemployed all grew in cost and importance. An additional 9.8% of personal income was paid as wages to government employees.
Now, having gone through all of that, what is the next sentence in the USA Today article?
The shift in income shows that the federal government’s stimulus efforts have been effective, says Paul Van de Water, an economist at the liberal Center on Budget and Policy Priorities.
“It’s the system working as it should,” Van de Water says. Government is stimulating growth and helping people in need, he says. As the economy recovers, private wages will rebound, he says.
I’m sorry, but what in the hell is this man talking about? Unless “stimulus” has been redefined since I woke up this morning, the “stimulus” he’s talking about hasn’t “stimulated” anything but unemployment benefit payments. How does one claim, with 9.9% unemployment (U6 at 17.1%) and private wages at their lowest point in “US history”, that the “stimulus” has worked?
I think, instead, this proves you can find an economist somewhere to say pretty much whatever you want, and this one wants to parrot the liberal line. My understanding is the purpose of the “stimulus” was to “stimulate” growth in the private sector. And that simply hasn’t happened.
One economist does seem to understand what this all means:
Economist David Henderson of the conservative Hoover Institution says a shift from private wages to government benefits saps the economy of dynamism. “People are paid for being rather than for producing,” he says.
And we know many of them are riding the payments out as long as they can, now having adapted their lifestyle to the benefits they receive.
Where I come from, that doesn’t count as “stimulus”. That counts as unsustainable economic trouble.
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Apparently deaf to the people and under the political thumb of unions, Sen. Bob Casey (D-PA) has introduced legislation that would provide another $165 billion in bailouts for troubled union pension funds. In essence, the bill would use the existing Pension Benefit Guarantee Corp behind union pensions as well at an initial cost of $165 billion. In reality it would be an open ended bailout.
Of course the problem with the union pension funds is the unions have managed them and, even in the good times, managed them poorly:
As FOX Business Network’s Gerri Willis reported Monday, these pensions are in bad shape; as of 2006, well before the market dropped and recession began, only 6% of these funds were doing well.
Of course, bailing out these pension funds is the wrong thing to do for any numbers of reasons. First, of course, is the government has no business taking from taxpayers to prop up entities which have mismanaged their assets. In a free society, the “freedom to fail” is as much a part of that society as the freedom to succeed. We shouldn’t be in the business of trying to prevent bad consequences that result from bad or poor behavior and management (although the precedent has been set with the auto bailouts).
Secondly, this is an internal union problem – not a problem for the taxpayers. Union members should be dealing with management that has so badly managed their retirement assets, not the rest of us. Where was the membership when it became clear, much earlier than now, that this sort of problem existed and was getting worse?
It isn’t clear that this legislation will get anywhere (it shouldn’t), but it speaks to a mindset existent among politicians that is the target of many voters this year. The Casey’s of the Congress are who need to go. And I’d feel the same way if it was a GOP legislator trying to save some corporation from the results of its poor decisions.
The idea of government, via the taxpayers, is there to backstop every downturn resulting from poor private decisions and management is an idea which we need to forever banish from out thinking.
As an aside, President Obama has declared there would be no more bailouts. But this is a union we’re talking about here. Let’s see if he sticks by his guns or whether we ought to give his declaration as much credence as we would if he said he was never going to use a teleprompter again.
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Despite all the assurances by politicians that “things are turning around” and that while “we still have a long way to go”, we’ve “survived the disaster”, I’m not at all sure that’s true. Nor are a number of other people, to include Hale Stewart at FiveThirtyEight. He does an extensive analysis of why unemployment had “unexpectedly” stalled out after showing signs of recovery. He accompanies his analysis with a number of charts that demonstrate his point, but in essence his finding supports what we talked about last night on the podcast – the decline of the euro:
So, the central issue is a decreasing euro, which has led to an increasing dollar, which in turn has led to decreasing commodity prices. Recent reserve tightening issues in China have added downward pressure to commodity prices, which adds further evidence to the argument the US is facing an increased possibility of deflation.
That and a decrease leading economic indicators lead him to caution us that we may see a lack of further economic growth in the next 3 – 6 months unless a few things happen:
1.) A decrease in initial unemployment claims below the 450,000 level. In addition, the economy needs to keep up its current pace of job creation. Last month we had a great employment report. That needs to be repeated in the next report.
2.) The euro needs to stabilize. The European Union has proposed a massive $1 trillion dollar package, which was announced several weeks ago. However, the euro has continued to drop since that announcement. Markets are now concerned that austerity programs will hurt overall economic growth.
3.) Commodity prices need to rebound. An across the board drop in commodity prices indicates the markets think decreased demand is an issue going forward. An increase in commodity prices will indicate demand is picking up.
Keep your eye on number 2, because if the euro doesn’t stabilize the chances of 1 and 3 happening aren’t good. And that brings us to the second part of the story. Europe. It is there our fate lies at the moment. And it is a fragile thing:
If the trouble starts — and it remains an “if” — the trigger may well be obscure to the concerns of most Americans: a missed budget projection by the Spanish government, the failure of Greece to hit a deficit-reduction target, a drop in Ireland’s economic output.
But the knife-edge psychology currently governing global markets has put the future of the U.S. economic recovery in the hands of politicians in an assortment of European capitals. If one or more fail to make the expected progress on cutting budgets, restructuring economies or boosting growth, it could drain confidence in a broad and unsettling way. Credit markets worldwide could lock up and throw the global economy back into recession.
For the average American, that seemingly distant sequence of events could translate into another hit on the 401(k) plan, a lost factory shift if exports to Europe decline and another shock to the banking system that might make it harder to borrow.
“If what happened in Greece were to happen in a large country, it could fundamentally mark our times,” Angelos Pangratis, head of the European Union delegation to the United States, said Friday after a panel discussion on the crisis in Greece sponsored by the Greater Washington Board of Trade.
If you’re in the US that is not something you want to read. We’re talking, of course, of the possibility of a double dip recession with the second recession most likely more devastating than the first.
The writers of the Washington Post piece cited above don’t feel the “worst-case scenario” is a high probability noting that European countries have pledged hundreds of billions of dollars to fix the economic problems. And they repeat the assurance that the US economy “has been strengthening through the year” to include adding jobs and with higher consumer spending and better industrial output.
But, as FiveThirtyEight notes, that’s not at all what the leading economic indicators promise will continue. Manufacturer’s orders and supplier deliveries have dropped. Commodity prices have continued to slide (indicating demand has dropped) and building permits are way down. None of those promise that the economy is strengthening.
The Post goes on to paint Europe’s travail is at least temporary good news for the US. But I don’t see it – certainly not in the numbers Stewart cites. In fact I see it as more whistling past the grave yard. As they mention in their opening paragraphs, this all depends on a number of things going right among a group of European nations at financial risk for not doing what they should have been doing for years. My confidence in the ability of “the experts” to successfully negotiate the financial and economic mine field – given their history – is not at all as great as the Post’s. And, I’d further note, that while everyone is assuring everyone else that they have this crisis in hand, they’re winging it, having never done or had to do anything like this to the scale they’re now involved. The law of unintended consequences is sitting in waiting salivating at the possibilities this crisis presents.
Bottom line – keep your eye on the Euro and hope like hell the Europeans can pull off what they have to do to keep us out of a double-dip recession.
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I mentioned, a week or so ago, that it appeared the developing strategy the White House was going to use in the 2010 midterm elections was to again try running against Bush. The brain-trust behind this idea seems to think it will give President Obama the ability to “ride the wave of anti-incumbency by taking on an unpopular politician steeped in the partisan ways of Washington”. Except the most obvious partisan these last 16 months is Obama and he, in case he hasn’t noticed, is the “incumbent”.
I think Politico and Merle Black pretty much have it figured out when it comes to this sort of a strategy:
It’s a lot to ask an angry, finicky electorate to sort out. And even if Obama can rightfully make the case that the economy took a turn for the worse under Bush’s watch, he’s already made it – in 2008 and repeatedly in 2009.
It’s not clear that voters still want to hear it.
“If you’re the leader of a large corporation and you’re in power for a year and a half and you start off a meeting with your shareholders by blaming your predecessor, that wouldn’t go over very well,” said Merle Black, a political science professor at Emory University. “This is a very weak approach. … And I can’t imagine it having an impact on these very swing voters.”
Eventually, no matter hard one tries to wish it away, reality will smack you in the face. Hard.
As predicted was inevitable, today the Spanish newspaper La Gaceta runs with a full-page article fessing up to the truth about Spain’s “green jobs” boondoggle, which happens to be the one naively cited by President Obama no less than eight times as his model for the United States. It is now out there as a bust, a costly disaster that has come undone in Spain to the point that even the Socialists admit it, with the media now in full pursuit.
La Gaceta boldly exposes the failure of the Spanish renewable policy and how Obama has been following it. The headline screams: “Spain admits that the green economy as sold to Obama is a disaster.”
According to the Spanish government, the policy has been such a failure that electricity prices are skyrocketing and the economy is losing jobs as a result (emphasis added):
The internal report of the Spanish administration admits that the price of electricity has gone up, as well as the debt, due to the extra costs of solar and wind energy. Even the government numbers indicate that each green job created costs more than 2.2 traditional jobs, as was shown in the report of the Juan de Mariana Institute. Besides that, the official document is almost a copy point by point of the one that led to Calzada being denounced [lit. “vetoed”] by the Spanish Embassy in an act in the U.S. Congress.
The presentation recognizes explicitly that “the increase of the electric bill is principally due to the cost of renewable energies.” In fact, the increase in the extra costs of this industry explains more than 120% of the variation in the bill and has prevented the reduction in the costs of conventional electricity production to be reflected on the bills of the citizens.
Despite these facts, which quite frankly have been known for quite some time, the Obama administration is still planning to move ahead with its own policy based explicitly on the Spanish one. As Horner states:
That fight [over the “green economy” policy] begins anew next week with the likely Senate vote on S.J. Res. 26, the Murkowski resolution to disapprove of the Environmental Protection Agency’s attempt to impose much of this agenda through the regulatory back door without Congress ever having authorized such an enormous economic intervention.
Just as with the ObamaCare boondoggle that was rammed into law despite its (a) known problems that are only now being admitted to, (b) real costs that are only now becoming evident, and (c) unacceptability to the vast majority of Americans, Obama is going full steam ahead with this “green economy” nonsense. Regardless of facts or reality, this administration is dead set on re-creating America in the image it likes best (i.e. European social democracy), regardless of the costs. So long as we end up with all the bells and whistles that are the hallmarks of our European betters (e.g. universal health care, carbon taxes, depleted military, enhanced welfare state, overwhelming government controls of the economy, sufficiently apologetic “transnationalist” foreign policy), the actual results of that transformation are unimportant. We may end up an economic basket case a la Greece, but hey, at least we’ll have all the nanny-state accouterments necessary to commiserate with the cool European kids.
It’s gotten to the point where pointing out that the emperor has no clothes only results in naked orgies of Utopian spending. This cannot end well.
If you said jobless claims, you’d be right:
Initial claims for state unemployment benefits increased 25,000 to a seasonally adjusted 471,000 in the week ended May 15, the highest level since the week ended April 10, the Labor Department said.
Analysts polled by Reuters had expected claims to fall to 440,000 from the previously reported 444,000, which was revised marginally up to 446,000 in Thursday’s report.
The four-week moving average of new claims, which is considered a better measure of underlying labor market trends, rose 3,000 to 453,500.
To give you an idea of what the nation is facing in unemployment, a little chart to make the point:
Remember, President Obama continues to claim that without his pork laden “stimulus” package (something the “party of ‘no'” voted against as a bloc), things would have been much, much worse. Really?
And also remember that when he touted that “stimulus” he promised it would halt the unemployment slide at 8%. I assume the GOP sees his strategy, given the numbers and the promised results as an effective counter to his claim the “stimulus” worked.
On a non-political note, this week’s claims simply point out that we still have a long way to go before we begin to see a steady improvement in the unemployment rate. And, with the European crisis festering, we may see it get worse again, before it gets better.
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I just can’t help it – not that this is surprising or unexpected.
Venezuela’s economy is in trouble despite the country’s huge oil reserves. Blackouts plague major cities. Its inflation rate is among the world’s highest. Private enterprise has been so hammered, the World Bank says, that Venezuela is forced to import almost everything it needs.
This is socialism working again. Yes, yes, we’ll hear the naysayers claim that it “really isn’t socialism”, but of course, it is and, like all other attempts throughout the world and history, it is a dismal failure which has made the lives of the citizens of Venezuela worse, not better. Venezuela’s economy has contracted 3.3% in the past year.
Jose Guerra, a former Central Bank economist, says state intervention in private businesses is hitting the economy hard.
“The government is nationalizing, expropriating, or confiscating,” he says. “They are not creating new wealth; this is wealth that was already created.”
And, as expected, the government is badly mismanaging what it confiscates and nationalizes. Cities endure 4 hour blackouts daily, many during business hours.
This is not the way it was supposed to be. Venezuela is one of the world’s great energy powers. Its oil reserves are among the world’s largest and its hydroelectric plants are among the most potent.
But these days, Venezuela is being left behind: The rest of Latin America is expected to grow at a healthy rate this year, according to the World Bank.
Guerra, the former Central Bank economist, says the government must reconsider its policies — and drop the statist socialist model that Chavez adopted.
“The government has to consider that the socialist point of view is not so good for the economy,” Guerra says. “Chavez believes in the old-fashioned socialism. This kind of socialism is dead, definitely dead, it doesn’t apply to any country in the world.”
Of course it should be “dead, definitely dead” to the world, but it isn’t. Ignorant people like Chavez always believe that the myth of socialism and the supposed “social justice” it promises are workable solutions to what are the inequities and unfairness they see in a capitalist system. And when they finally grab power, they attempt to impose the promises of the myth with predictable results.
Of course, when committed this deeply, you don’t expect such a person to admit they’re wrong, but, instead to double down. Hugo Chavez doesn’t disappoint:
In a recent speech, Chavez acknowledged the economic troubles, but he said he wasn’t worried.
Instead, he spoke of a worldwide capitalist crisis, which he said provided a marvelous opportunity for Venezuela to push a new model.
Oh yeah, given the wreck that was Venezuela’s economy before the “capitalist crisis”, I’m sure there are untold numbers of countries just can’t wait to sign on to the “Venezuelan model” and all it promises:
The grill at Landi Nieto’s burger joint still works: It runs on gas. But customers eat in the dark, Nieto says, if they venture out at all in the first place.
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