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.
One of the claims President Obama made in his State of the Union address was that his administration was engaged in cutting the red tape and doing away with regulations that stood in the way of prosperity.
There is no question that some regulations are outdated, unnecessary, or too costly. In fact, I’ve approved fewer regulations in the first three years of my presidency than my Republican predecessor did in his. I’ve ordered every federal agency to eliminate rules that don’t make sense. We’ve already announced over 500 reforms, and just a fraction of them will save business and citizens more than $10 billion over the next five years.
Of course, like many of his claims, the devil is in the details and upon closer scrutiny, the claim has no real foundation in fact.
His first claim is a carefully constructed lie as Free Enterprise points out:
The White House admits that its rules have so far cost $25 billion, which is much more than at the same point during the Clinton and George W. Bush administrations.
The claim is also couched in non-specifics for a reason. The “500 reforms” are mostly regulations with little or no monetary impact on those who have to satisfy them. However, the administration has added more rules that cross the magic 100 million dollar impact line than any other administration. And, of course, those require, by law, that the monetary impact be assessed. Here’s an example of one (PDF, pg 69):
Enforcement Fairness Act (5 U.S.C. 801 et seq.). This interim final rule:
a. Will have an annual effect on the economy of $100 million or more. This rule will affect every new well on the OCS, and every operator, both large and small must meet the same criteria for well construction regardless of company size. This rulemaking may have a significant economic effect on a substantial number of small entities and the impact on small businesses will be analyzed more thoroughly in an Initial Regulatory Flexibility Analysis. While large companies will bear the majority of these costs, small companies as both leaseholders and contractors supporting OCS drilling operations will be affected.
Considering the new requirements for redundant barriers and new tests, we estimate that this rulemaking will add an average of about $1.42 million to each new deepwater well drilled and completed with a MODU, $170 thousand for each new deepwater well drilled with a platform rig, and $90 thousand for each new shallow water well. While not an insignificant amount, we note this extra recurring cost is less than 2 percent of the cost of drilling a well in deepwater and around 1 percent for most shallow water wells.
b. Will not cause a major increase in costs or prices for consumers, individual industries, Federal, State, or local government agencies, or geographic regions. The impact on domestic deepwater hydrocarbon production as a result of these regulations is expected to be negative, but the size of the impact is not expected to materially impact the world oil markets. The deepwater GOM is an oil province and the domestic crude oil prices are set by the world oil markets. Currently there is sufficient spare capacity in OPEC to offset a decrease in GOM deepwater production that could occur as a result of this rule.
Therefore, the increase in the price of hydrocarbon products to consumers from the increased cost to drill and operate on the OCS is expected to be minimal. However, more of the oil for domestic consumption may be purchased from overseas markets because the cost of OCS oil and gas production will rise relative to other sources of supply. This shift would contribute negatively to our balance of trade.
These rules were proposed in the wake of the BP oil spill in the Gulf of Mexico (GOM). They clearly identify the effect of the rules. Ironically they include increased cost to consumers, more dependence on foreign oil, and a negative increase in the balance of trade – all problems the administration and most economists identify is problems to be solved if the economy is to move forward.
Now, some may argue that these rules were necessary. I’d argue that perhaps some new regulation was necessary, but it should have been a regulation which, to the best of its ability, mitigated the effects listed to the minimum, or eliminated them altogether. Instead, the regulators airily note the effects and then blow them off. In reality, regulators really don’t care if it costs consumers more, deepens our dependence on foreign oil or ups the balance of trade.
In the State of the Union address, Obama tried to grab the middle and pretend he is a friend to small business:
You see, an economy built to last is one where we encourage the talent and ingenuity of every person in this country. That means women should earn equal pay for equal work. (Applause.) It means we should support everyone who’s willing to work, and every risk-taker and entrepreneur who aspires to become the next Steve Jobs.
After all, innovation is what America has always been about. Most new jobs are created in start-ups and small businesses. So let’s pass an agenda that helps them succeed. Tear down regulations that prevent aspiring entrepreneurs from getting the financing to grow. (Applause.) Expand tax relief to small businesses that are raising wages and creating good jobs. Both parties agree on these ideas. So put them in a bill, and get it on my desk this year. (Applause.)
But again facts undermine the claim. As the Small Business Association reports, regulations disproportionately effect small businesses:
In the face of yet higher costs of federal regulations, the research shows that small businesses continue to bear a disproportionate share of the federal regulatory burden. The findings are consistent with those in Hopkins (1995), Crain and Hopkins (2001), and Crain (2005).
The research finds that the total costs of federal regulations have further increased from the level established in the 2005 study, as have the costs per employee. More specifically, the total cost of federal regulations has increased to $1.75 trillion, while the updated cost per employee for firms with fewer than 20 employees is now $10,585 (a 36 percent difference between the costs incurred by small firms when compared with their larger counterparts).
Say one thing while doing the opposite. Vintage Obama. Tomorrow’s Steve Jobs would have a very expensive uphill climb in today’s regulatory climate. The net effect? $1.75 trillion dollars of cost to small businesses, the place where “most jobs are created” per Obama.
The SBA also reports:
Environmental regulations appear to be the main cost drivers in determining the severity of the disproportionate impact on small firms. Compliance with environmental regulations costs 364 percent more in small firms than in large firms. The cost of tax compliance is 206 percent higher in small firms than the cost in large firms.
Those regulations are primarily driven by OSHA and EPA. And there’s no secret about the expansion of both regulators and regulation being pushed by Obama’s EPA focused on the environment.
The “good” news, however, this is one “shovel ready” project that seems to be creating jobs:
Large, small, global and regional — law firms are opening Washington offices at a rate not seen since before the recession, as they position themselves for work centered around the capital’s regulatory machinery.
Yes, I was being very facetious, however, when sharks smell blood in the water, they tend to gather in large numbers in anticipation of a feeding frenzy. Despite Obama’s claims to the contrary, there’s a reason this is happening, and it isn’t because the administration is lessening or cutting regulations, it is because it is imposing more and needs additional legal enforcement help (there’s also the side that will concentrate on defense).
Don’t forget, the $1.75 trillion dollar cost above applies to only small business. That means that the total cost of regulation is much higher than that. Also don’t forget, when Obama makes his claim about not passing as many regulations as previous administrations, that’s meaningless without an dollar effect numbers. As noted, in regulatory cost to the economy, he’s passed many more costly regulations at this point in his presidency than did the previous administration.
The bottom line, of course, is that A) you can’t believe a thing the man says and B) contrary to his claims, he’s imposed more cost on the economy via regulation, not less.
Finally, if you think it is bad now, wait until ObamaCare kicks in. One of the reasons law firms are beefing up their Washington DC presence is in anticipation of that law going into effect. If you think it’s a regulatory nightmare now, just wait. It’s going to get worse.
Sean Hackbarth, commenting on the increase in lawyers:
Resources spent on paperwork and re-jiggering business plans is less money going to business investment and job creation, but at least we know someone is benefiting from the regulatory pile-on.
Shovel-ready – and not in the good sense.
More on the increasing culture of dependency on government:
The percentage of people who do not pay federal income taxes, and who are not claimed as dependents by someone who does pay them, jumped from 14.8 percent in 1984 to 49.5 percent in 2009. This means that in 1984, 34.8 million tax filers paid no taxes; in 2009, 151.7 million paid nothing.
It is the conjunction of these two trends—higher spending on dependence-creating programs, and an ever-shrinking number of taxpayers who pay for these programs—that concerns those interested in the fate of the American form of government. Americans have always expressed concern about becoming dependent on government, even while understanding that life’s challenges cause most people, at one time or another, to depend on aid from someone else. Americans’ concern stems partly from deeply held views that life’s blessings are more readily obtained by independent people and that growing dependence on government erodes the spirit of personal and mutual responsibility created through family and civil society institutions. These views help explain the broad public support for welfare reform in the 1990s.
This ethic of self-reliance combined with a commitment to the brotherly care of those in need appears threatened in a much greater way today than when this Index first appeared in 2002. This year, 2012, marks another year that the Index contains significant retirements by baby boomers. Over the next 25 years, more than 77 million boomers will begin collecting Social Security checks, drawing Medicare benefits, and relying on long-term care under Medicaid. No event will financially challenge these important programs over the next two decades more than this shift into retirement of the largest generation in American history.
And yet we just got a budget from the President of the United States which essentially ignores that fact. Just like his previous three.
But more important than that is this culture of dependence that has perniciously grown in this country over the preceding decades fueled by politicians and the ideology of the left.
Libertarians and many Conservatives have been warning about this phenomenon for years. But in 2008, what had been a relatively slow ride to growing dependence became a ride on a rocket sled:
Not only did the federal government effectively take over half of the U.S. economy and expand public-sector debt by more than all previous governments combined, it also oversaw a second year of enormous expansion in total government debt at the federal level. Much of that growth in new debt can be traced to programs that encourage dependence.
In 40 plus years we’ve gone from a dependency percentage of 28.3% to over 70% in 2010. I don’t think anyone realized how big the change has been or what significance it has. But it has made us a nation of takers vs. makers.
As Heritage’s Bill Beach and Patrick Tyrrell explain, "the index score has grown by more than 15 times its original amount. This means that, keeping inflation neutral in the calculations, more than 15 times the resources were committed to paying for people who depend on government in 2010 than in 1962."
It is the same trap that countries like Greece were in and will result in the same collapse.
Ed Feulner adds some context to the increased percentage of dependence:
Perhaps the most startling part of the index concerns how much assistance is being distributed. Americans who rely on government receive an average $32,748 worth of benefits. How high is that? Higher than the average American’s disposable personal income: $32,446.
More than 67.3 million Americans rely on assistance from Washington for everything from food, shelter and clothing to college tuition and health care. These benefits cost federal taxpayers roughly $2.5 trillion annually.
So the president offers a 3.8 trillion dollar budget of which, according to these numbers, all but 1.3 trillion goes to “assistance”.
And in order to offset these “assistance” payments somewhat, the president decides that the only Constitutionally mandated expense within the budget – defense – has to pay the butcher’s bill.
We talk about “tipping points” often, but looking at that chart, I’m convinced that tipping point may have been passed years ago.
Some quotes to leave you with. Rep. Allen West, this past weekend said he has no problem with a safety net. His problem is “when that safety net becomes a hammock.” In this case a $32,000 hammock.
Alexis de Tocqueville reputedly said that the American republic will last only "until the majority discovers it can vote itself largess out of the public treasury." We’ve seen that majority discover it with a vengeance.
And finally, George Bernard Shaw said, ““Liberty means responsibility. That is why most men dread it.”
70% dependence says a majority now dreads “it”, and has decided it likes others, the makers, paying their way.
As one friend aptly described it on reviewing these numbers, “we’re screwed”.
The following statistics were released today on the state of the US Economy:
Despite strong core numbers, weak auto sales meant that retail sales were up a less-than-expected 0.4% for January. Ex-autos, retail sales rose 0.7%, and removing gasoline sales brings the core number to 0.6%.
In weekly store sales, ICSC-Goldman reports a weak -2.0% drop in sales, with the year-on-year rate at 2.8%. Redbook is also weak at a 2.7% same store sales increase from last year.
Export prices rose 0.2% for January, which is up 2.5% from last year. Import prices rose 0.3% for the month, and 7.1% for the year.
The NFIB Small Business Optimism Index rose very slightly to 93.9 in January.
The Ceridian-UCLA Pulse of Commerce Index fell 1.7% in January to a level of 93.17.
Business inventories rose 0.4% in December. Sales rose 0.7%, so the stock-to-sales ratio dropped to 1.26.
Representative Paul Ryan characterized the Obama budget as not a fiscal plan but “a political plan designed to help the President’s reelection.” Getting into the details seems to validate Ryan’s point.
He also pointed out that the debt crisis is the most predictable crisis imaginable and the president has "punted" again with this budget. Said Ryan, “Instead of an America built to last we get an America drowning in debt.”
The White House claims the Obama budget saves 4 trillion over and above the Budget Control Act. But in fact, the Obama budget rides the base line and throws more taxing and spending on top of it (while claiming to save 4 trillion). Analysis of the budget shows, at best, a savings of 300 billion over 10 years.
As for an “America Built To Last”, Obama approaches that in a very odd way. He goes after businesses and investors:
1. The top income rate would be raised to 39.6 percent vs. 35 percent today.
2. Under the “Buffett rule,” no household making over $1 million annually would pay less than 30 percent of their income in taxes.
3. Between now the end of a second Obama term, Obama proposes $707 billion in “net deficit reduction proposals.” Of that amount, only 16 percent is spending cuts.
4. The majority of small business profits would be taxed at 39.6 percent vs. 35 percent today.
5. The capital gains rate would rise to 25.0 percent (including the Obamacare surtax and deduction phase out) from 15 percent today.
6. The double-tax on corporate profits (including dividends) would increase to 64 percent based on the statutory corporate tax rate (58 percent using the effective tax rate), easily the highest among advanced economies.
7. The double tax on corporate profits (including capital gains) would increase to 51 percent (44 percent using the effective tax rate), also among the highest among advanced economies.
Those details alone are a basis for declaring his budget “dead on arrival” at Congress. These new taxes would take the tax revenue as a share of GDP to 20.1 percent in 2022. The historical average is 18 percent. In a time of deep recession, when government should be proposing economic, tax, labor and trade policies to create jobs and move the economy in a positive direction, Obama’s budget proposes to do exactly the opposite. The attack on small business, as well as corporations, points to a president out of touch with the problems of the economy. He claims to save 4 trillion on debt with these policies but in fact, his budget proposals add 6.7 trillion to the debt over the next 10 years and the debt-to-GDP ratio is predicted to be 74.2 percent this year and 76.5 percent in 2022.
And here’s the bottom line truth about policies such as Obama is pursuing:
Corporate taxes are paid by consumers in higher prices and by workers in lower wages – so much for the promise not to increase taxes on those making less than $250,000. Every good tax economist knows this, but the president chooses to ignore reality and demagogue the issue.
Given that, how does the White House justify such policies? Well, it simply makes up a rosy forecast for the future, that’s how. 3.4 percent in 2015, 4.1 percent in 2017 and 3.9 percent in 2018. As James Pethokoukis points out:
The U.S. economy has only seen a run like that three times in the past four decades.
Yet we’re supposed to believe that we’ll come roaring out of one of the longest and deepest recessions since the Great Depression with taxes focused mostly on business at a higher than historical rate? Not likely.
Meanwhile we’re being told by the President’s Chief of Staff that it is all the Republican’s fault that we don’t have a budget out of the Senate. Mistakenly claiming that it takes 60 votes to pass a budget, he points to the Republican Senators as the obstructionists.
Of course, on budget matters, it only takes a simple majority. And there are 53 Democratic Senators. If you recall, the Senate minority leader, Republican Mitch McConnell introduced and got votes on two budgets last year – the Ryan budget, voted down by Democrats and President Obama’s budget which was voted down 97-0. Harry Reid, however, has introduced no budget in over 1,000 days.
And the gimmicks:
At issue is how the government projects spending and deficits going forward. Of the $4 trillion in deficit reduction claimed by the White House, $3 trillion would come from a combination of tax increases and spending cuts. Another $900 billion would come from domestic spending caps agreed to with Republicans last year to resolve the impasse over raising the nation’s statutory borrowing limit.
But if Congress and the president did nothing, spending would actually fall by $2 trillion under current law. That is because automatic cuts to defense and nondefense programs totaling $1.2 trillion are already set to go in force in 2013. The Obama budget assumes those cuts will not happen. The president also assumes that sharp cuts to reimbursement rates for doctors treating Medicare patients will never be enforced, but the budget does not detail how those scheduled cuts will be prevented.
Republicans say that effectively negates $522 billion over 10 years, since Congress will have to figure out how to pay for the so-called Medicare doc fix.
Republicans also protest that Mr. Obama is "saving" nearly $1 trillion by not spending over the coming decade what the United States has spent each year on wars in Iraq and Afghanistan.
So the Obama savings are built on assuming the “Doc Fix” won’t be made and that war spending will remain at the current level (even with the withdrawal from Iraq and the coming withdrawal from Afghanistan) for 10 years – something obviously not the case. He’s built his 4 trillion in “savings” on 1 trillion in tax increases, 2 trillion on spending cuts already enacted into law (sequestration), 1 trillion assuming war spending will remain level for 10 years. Meanwhile most of his spending cuts come from where? The military, of course.
Finally, remember this?
“This is big,” wrote White House director of new media Macon Phillips in a February 23, 2009 blog post, ”the President today promised that by the end of his first term, he will cut in half the massive federal deficit we’ve inherited. And we’ll do it in a new way: honestly and candidly.”
Indeed, President Obama did make that promise that day, saying, “today I’m pledging to cut the deficit we inherited in half by the end of my first term in office. This will not be easy. It will require us to make difficult decisions and face challenges we’ve long neglected. But I refuse to leave our children with a debt that they cannot repay — and that means taking responsibility right now, in this administration, for getting our spending under control.”
This budget does none of the above. In fact, it’s not even close. There are no “difficult decisions” included. There are now “challenges” faced. As Rep. Ryan said, Obama has again “punted”.
This is indeed the most predictable crisis imaginable and again, the man who claimed he would do what is necessary to fix the problem has once again kicked the can down the road.
The following statistics were released today on the state of the US Economy:
The trade deficit in December widened to –$48.8 billion as import growth outpaced export growth. The deficit was somewhat worse than expected.
The University of Michigan’s Consumer Survey Center reports consumer sentiment declined to 72.5 last month.
I don’t imagine anyone would argue that it is supposed to be like this, however, this is reality in one city in one state and I’d guess that its true in most places to one degree or another. The place in question? San Francisco, where a woman wanted to open a simple ice cream shop.
Ms. Pries said it took two years to open the restaurant, due largely to the city’s morass of permits, procedures and approvals required to start a small business. While waiting for permission to operate, she still had to pay rent and other costs, going deeper into debt each passing month without knowing for sure if she would ever be allowed to open.
“It’s just a huge risk,” she said, noting that the financing came from family and friends, not a bank. “At several points you wonder if you should just walk away and take the loss.”
Ms. Pries said she had to endure months of runaround and pay a lawyer to determine whether her location (a former grocery, vacant for years) was eligible to become a restaurant. There were permit fees of $20,000; a demand that she create a detailed map of all existing area businesses (the city didn’t have one); and an $11,000 charge just to turn on the water.
Imagine how many potential business owners would have said “the hell with it” and, if possible, gone elsewhere or shelved the idea completely? Had that happened in this case, had the woman in question not had the patience of Job and enough money to weather the 2 years in question, 14 full and part-time workers wouldn’t be employed there.
That’s the problem with stories like this – its hard to get a handle on how many businesses have been discouraged by such a permitting and regulation regime, but you have to assume they are plenty.
It should not take two years for a government to say “okay” to a business. Nor should there be exorbitant fees associated with it.
Thankfully San Francisco has begun to recognize the enormity of its problem and attempt to do something about it. A little thing called “reality”, in the guise of the headquarters for Twitter, has finally begun to bring some government officials around:
“The city has had the reputation of being a difficult place, and a hostile place, to do business,” said Mark Farrell, the city supervisor who has the most private-sector experience (he still operates a venture capital firm). “We’re changing the dialogue.”
According to Mr. Farrell, a critical shift occurred last year when supervisors approved a tax incentive to keep the headquarters of Twitter, the social network, in the city after the company threatened to move.
But he admitted that such actions were relatively easy compared with reforming the city’s entrenched bureaucracy. “To change the inner workings of government is a longer proposition,” he said.
Christina Olague, a former Planning Commission president who was recently appointed city supervisor, said that planning codes governing businesses had ballooned over the years to become hundreds of pages long. “It’s so convoluted,” she said. “It’s so difficult for these businesses to move ahead.”
But the byzantine, time consuming and costly regulatory process, for the most part, still remains. Check out this animated video which illustrates how absurd it can be.
As we’ve said any number of times here, if government wants to play a role in the economy and the economic recovery, perhaps the best role it can play is, for the most part, to get the hell out of the way.
Today’s economic statistical releases:
Initial claims for unemployment fell 15,000 last week to 358,000, while the 4-week average dropped 11,000 to 366,250. This is strongly positive for job growth. Or it means that, after losing 7 million jobs since 2007, we’ve pretty much fired everyone who can usefully be fired.
The Bloomberg Consumer Comfort Index rose to -41.7 from -44.8 last week.
In wholesale trade, inventories rose a strong 1.0% in December, and a 1.3% rise in sales leaves the stock-to-sales ratio unchanged at 1.15.