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.
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.
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%.
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.
Or, as I recommend in my previous post, how do you make issues such as contraception relevant to the economy and point out its real cost?
Well, don’t forget, at base it is another government mandate. It is government deciding what private employers and insurers will cover and how they’ll cover it. It is obviously not “free” as they claim, but another in a long line of redistribution schemes cloaked in “good intentions” and the “common good”.
It is, in fact, just another straw on the back of the private insurance camel, the addition of which this administration hopes will eventually break its back and allow government to take over that role.
Having directed all insurance companies to provide it at “no cost” to their insured and falsely claiming to the public that they’re getting something for nothing, the administration takes a step toward that goal.
One major feature of the ACA [ObamaCare] is to put so many mandates on private insurance plans (abortion pills and contraception being just a couple of them) that it becomes increasingly difficult for employers to afford private health benefits for their employees.
As more and more employers have to dump private insurance, the idea is that people will demand a government replacement plan. Lurking in the back of the ACA is the public option, which will spring to life once enough people have lost their private insurance. (This can very well happen even if the Supreme Court declares the individual mandate unconstitutional.) Once it is activated, the public option will enroll more and more Americans until it effectively wipes private options off the table.
Socialized health care through the back door.
Precisely. There is more than one way to skin a cat. And that’s what is evident here. This is an alternative cat-skinning method.
The White House argues the new plan will save money for the health system.
"Covering contraception is cost neutral since it saves money by keeping women healthy and preventing spending on other health services," the White House said in a fact sheet.
"For example, there was no increase in premiums when contraception was added to the Federal Employees Health Benefit System and required of non-religious employers in Hawaii. One study found that covering contraception saved employees $97 per year, per employee."
But it isn’t cost neutral at all. And whatever an employee “saves” on the one hand, goes away plus some to cover the expense, because here’s reality:
[I]nsurers say there’s nothing "free" about preventing unwarranted pregnancies. They say the mandate also covers costly surgical sterilization procedures, and that in any case even the pill has up-front costs.
"Saying it’s revenue-neutral doesn’t mean it’s free and that you’re not paying for it," an industry source told The Hill.
Doctors still have to be paid to prescribe the pill, drugmakers and pharmacists have to be paid to provide it – and all that money has to come from insurance premiums, not future hypothetical savings, the source said.
And all of that cost is going to be paid for by those employees who are “saving” money in higher premiums – especially those 50 somethings who are no longer in the child bearing years and ‘saving’ nothing but paying for it anyway. By the way one of the ways to lower insurance cost is to do away with government mandates and let the insured choose what coverage they’d like to pay for. But government will have none of that. That would actually remove straws from the camel’s back.
Of course there are other free market approaches that would most likely be effective if government would allow them:
[P]arents who let their children become obese by feeding them irresponsibly should bear the financial cost of the extra health care that their children will require. This can, again, be done if private insurance companies are allowed to operate on the terms of free markets. Just like a smoker should have to pay a higher health insurance premium than a non-smoker, private insurance companies should be allowed to charge higher premiums of a family that eats themselves obese than of a family that eats responsibly and attends to their own health.
Find obesity to be a national problem? What’s the most effective way to fight it? Mandates and complicated and expensive government programs that only address the problem generally? Or making the obese pay for the consequences of their irresponsible behavior?
I know, how horribly anti-American – making people take responsibility for their actions (something the GOP claims to believe in) and pay their own costs. In the new America, apparently everyone has to pay, no one is held accountable and by the way, it “will be cheaper in the long run” if government does it.
The latter is the eternal promise of nanny government rarely if ever having come to fruition.
But, back to the title and the point – now if some want to add “and it’s against my religion”, fine, wonderful, great. That’s added impetus on top of the economic one to reject Obama’s argument. But it shouldn’t be the primary argument. Instead it should be an argument that voters add themselves among themselves. The broad economic argument about the real cost, not to mention the ideological argument against the growing social welfare state are extraordinarily powerful and appealing. If others want to add their own arguments in addition to this, fine and dandy.
That’s how you do it.
Actually, there’s a lot Ron Paul says I agree with, but there’s about 5 to 10% of what he says that makes him, at least to me, unsupportable.
But he and I see eye to eye on this thought (from an article about an interview he did with Candy Crowley):
Paul seemed almost baffled that everyone has been talking about social issues at a time when he and others are more concerned with preserving basic civil liberties and the economy.
Folks, for this election social issues is a loser. Sorry to be so blunt, and burst the social issue’s activists bubble, but this is the distraction the Obama administration badly needs and it is playing out pretty much as they hoped, with the candidates concentrating in an area that is so removed from the real problems of the day (and the real problems of the Obama record) that it gives relief.
Additionally, it gives visibility to the one area that usually scares the stuffing out of the big middle – the independents who are necessary to win any election (and, until this nonsense started, pretty much owned).
What is going on now is a self-destruction derby. And the tune is being called by the left (if you think the George Stephanopoulos question on contraception that started all this nonsense during one of the debates was delivered by an objective and unbiased journalist, I have some beachfront land in Arizona for you) and kept alive by the media.
How I see it is Americans, in general, don’t give much of a rat’s patootie about all this nonsense at this moment in history. They’ve watched their economic world collapse, they’re upside down in their houses (or have lost them), they’re seeing their children, great grandchildren and great, great grandchildren enslaved to government debt, they’re out of work and they’re suffering – economically.
And the GOP goes off on the usual nonsensical social issue tangent when there is a table laden with a feast of issues that are relevant to the problems with which the majority of Americans are concerned.
Really? Could we maybe see attacks on Obama for adding 4 trillion to the debt, or the highest unemployment rate in decades, or the failed stimulus, or his persistent attacks on fossil fuel even while we sit on more of it than most of the world combined but are getting much less benefit from that because of him? How about Keystone? Gulf permatorium? Solyndra? ObamaCare?
Instead what sort of attacks are made against Obama? Senior Obama Advisor: Rick Santorum’s ‘Phony Theology’ Comment ‘Well Over the Line’, which spawned, Santorum explains ‘phony theology’ comment, says Obama is ‘a Christian’ which results in, Santorum denies questioning Obama’s faith.
I cannot imagine a stupider subject being the focus of headlines at this time in our history nor a worse place for a GOP candidate than talking about other people’s faith or lack thereof. There is no upside to that. This is the sort of nonsense and ill discipline that has cost the GOP elections in the past, and is well on its way to doing it again.
The middle is watching and my guess is it is not happy with what it sees. If ever the GOP wanted to lay out a strategy to drive independents back to the Democrats, they’re well on their way. They are playing to every stereotype the left puts out about them.
Take a hint from the Clinton campaign GOP (as loath as they are to do so, I’m sure): “It’s the economy, stupid!”
Here are today’s statistics on the state of the economy:
Consumer prices rose 0.2% last month, and 2.9% for the last year. The core rate showed an 0.2% monthly rise and a 2.3% annual one.
The index of leading economic indicators posted a strong increase of 0.4% last month, after upwardly revised gains of 0.5 and 0.3% in the prior two months.
The following statistics were released today on the state of the US Economy:
Housing starts rose 1.5% to a 699,000 annual rate, following last month’s -1.9% drop. Housing permits declined to a 676,000 annual rate.
Initial claims for unemployment fell 13,000 last week to 348,000. The 4-week moving average fell to 365,250.
Producer prices rose 0.1% overall last month, but the core rate, which excludes food and energy, rose 0.4%.
The Bloomberg Consumer Comfort Index rose for the 4th straight week to reach the highest level in a year, which is…-39.8.
The Philadelphia Fed Survey’s General Business Conditions Index rose 3 points this month to 10.2.
You may find this interesting … I did. The New York Times editorialized about the minimum wage on the 12th of February. Unsurprisingly, they’re for raising it:
New York is an expensive place to live, and unaffordable for workers struggling on $7.25 an hour, the federal minimum wage. Nineteen other states, recognizing that the federal minimum is too low for survival, even with food stamps or other government assistance, have increased their minimum above that level. Lawmakers in Massachusetts raised it to $8 an hour. Connecticut’s is $8.25, and it is $9.04 an hour in Washington State.
It is time for New York to raise its minimum wage enough to help more than 600,000 struggling workers. Assembly Speaker Sheldon Silver is vigorously pushing a bill to raise the minimum to $8.50 an hour immediately and to adjust it each year for inflation. This should not be a controversial measure.
Want to know what would be a controversial measure, at least as far as the NYT would be concerned? George Mason University economics professor Donald J. Boudreaux (Café Hayek) answers the Times:
In the same spirit of demanding that government improve people’s economic well-being simply by ordering that people be paid more, allow me to make a similar plea on your behalf.
The newspaper business today is in difficult straits. So I hereby call upon the legislature in Albany to force you and other newspapers in New York to raise your subscription and advertising rates by 17.2 percent (the same percentage raise that you want to force low-skilled workers to demand from their employers). Voila! If your economic theory is correct, your profits will rise. And the magnitude of these higher profits, we can assume (just as you assume in the case of low-skilled workers), will be greater than any negative consequences that might be unleashed by such legislative interference in your ability to determine the terms on which you sell your services.
I. Loved. That. Answer.
It is the perfect comeback to those who would use the force of government to arbitrarily raise wages and commit your money to their priorities. As with most things, they’d never stand for you doing the same to them. Boudreaux’s answer highlights that in spades. It’s perfect. And he challenges them with “if your economic theory is correct …”. I laughed out loud reading that.
Oh, and we demand that the NYT adjust their subscription and advertising rates each year for inflation.
That shouldn’t be a controversial measure, should it?
You can hear the huffing and puffing in the NYT boardroom from here.
[HT: Villainous Company]
The following statistics were released today on the state of the US Economy:
The Mortgage Bankers’ Association reports that mortgage purchase applications fell -8.4%, while refinance apps rose just 0.8% last week. This brings the composite to a -1.0% drop.
The Empire State Manufacturing Survey’s General Business Conditions Index rose sharply to 19.53, the best reading in 18 months.
The Treasury reports that net demand for US securities was $17.9 billion in December, on $21.0 billion of sales, offset by $38.9 billion in sales of foreign securities from US accounts. Foreign buying of US long-term securities was weak, and foreigners were net sellers of US equities for the third month in a row.
The Fed reports industrial production was unchanged last month. Capacity utilization dropped to 78.5% from 78.6% in December.
The Housing Market Index rose sharply to 29 from last month’s 25. This is the 5th straight increase, and the second straight 4-point rise. One notes, however, that these increases have not yet shown up in the hard housing data.