Free Markets, Free People

unemployment

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Podcast for 31 May 09

In this podcast, Bruce, Michael, Billy, and Dale discuss the economy and the Sotomayor nomination.

The direct link to the podcast can be found here.

Observations

The intro and outro music is Vena Cava by 50 Foot Wave, and is available for free download here.

As a reminder, if you are an iTunes user, don’t forget to subscribe to the QandO podcast, Observations, through iTunes. For those of you who don’t have iTunes, you can subscribe at Podcast Alley. And, of course, for you newsreader subscriber types, our podcast RSS Feed is here. For podcasts from 2005 to 2007, they can be accessed through the RSS Archive Feed.


Podcast for 24 May 09

In this podcast, Bruce and Dale discuss discuss the president’s announcement of legal indefinite detention, and the economy.

The direct link to the podcast can be found here.

Observations

The intro and outro music is Vena Cava by 50 Foot Wave, and is available for free download here.

As a reminder, if you are an iTunes user, don’t forget to subscribe to the QandO podcast, Observations, through iTunes. For those of you who don’t have iTunes, you can subscribe at Podcast Alley. And, of course, for you newsreader subscriber types, our podcast RSS Feed is here. For podcasts from 2005 to 2007, they can be accessed through the RSS Archive Feed.


How…stimulating!

Apparently the Fed has decided that their doubling of the monetary base in the last 7 months has done so fantastically, that they’re ready to do more of it.

Some Federal Reserve officials are open to raising the amounts of mortgage and Treasury securities purchase programs beyond the $1.75 trillion that they have already committed to buying, according to minutes from the Fed’s April meeting.

Please pay no attention to the inflation lurking behind the curtain.  Our benevolent overlords have everything under control.  So, why more monetary loosening.

Officials, meanwhile, projected an even deeper recession than they expected three months earlier and a more sluggish recovery over the next two years as labor markets remain under pressure.

Huh.  So much for that “turned the corner’ crap from last month.  But that’s OK.  because, you see, if you’re in the middle of a bursted bubble cused by overly loose monetary policy in the first place, then the way to get back on track is an even looser monetary policy.  That’ll fix you right up, you see.

At least, that’s what the Harvard econo-boys tell us.  And they are, of course, the Best and Brightest.

Meanwhile, the DoL reports that weekly claims for unemployment for last week were revised upwards to 643,000, but this week’s numbers were only 628,500.  So, that’s a nice little downward tick.  Except that we’ve got all those upcoming claims from shutting down car dealerships for Chrysler and GM.  Let’s call that 2,000 dealerships with an average of–I’m just spit-balling, here–25 persons per dealership left unemployed.  Let’s call it 50,000 new claims ahead.


Predicted vs. Actual

Here’s an interesting little chart I found at Innocent Bystanders.  The light blue line is the Obama administration’s prediction of how terrible unemployment would be if we didn’t pass the stimulus plan.  The dark blue line is the prediction of how much better things would be we did pass it.  The dark red triangles show the actual unemployment statistics.

The Amazing Effectiveness of Stimulus

The Amazing Effectiveness of Stimulus

So, how’s that recovery plan working out for us?  Not so good, apparently.

I merely provide the chart for informational purposes.  I know it’s useless to make any criticisms of the actual performance of the plan, just as it was useless to predict that this is pretty much what would happen.

Besides, saying, “I told you so”, is so churlish and mean.


Economy: No Longer In “Free Fall”

While I appreciate the fact that we’re hearing a more positive spin from the Obama administration concerning the economy, the so-called “glimmers of hope” aren’t really anything but outliers.

Worse-than-expected news on unemployment and home sales Thursday dampened optimism that a broad economic recovery might be near.

Jobs losses aren’t expected to bottom out until the middle of 2010 and the housing market hasn’t bottomed out yet either:

Meanwhile, the National Association of Realtors said sales of existing homes fell 3 percent in March to a seasonally adjusted annual rate of 4.57 million units, with February revised down to 4.71 million units. Sales had been expected to fall to an annual rate of 4.7 million units, according to Thomson Reuters.

Per the analysis, the best reading of these economic indicators is that perhaps the “free fall” is coming to an end.

“The economic downturn remains intense, but it is no longer intensifying,” said Mark Zandi, chief economist at Moody’s Economy.com. “We are still falling, but we are no longer crashing.”

So, while we may have passed what some are terming the “crisis stage”, the economy is still contracting. I’m coming to believe that we may not see any real and meaningful “glimmers of hope” until mid 2010.

~McQ


Loser Spouts Off

Bob Shrum, perhaps best known for his masterful performance in shepherding John Kerry’s presidential race to…uh…it’s…conclusion, now sounds off about economic myths.

One of the most stubborn [myths] is what [John] Kennedy denounced at Yale—the notion that deficits are always evil and the balanced budget an inherent public good. This myth is now constantly exploited by do-nothing opponents of Obama’s recovery plan. On Sunday, George Stephanopoulos read a viewer’s complaint to Treasury Secretary Tim Geithner: “How do you justify printing money out of thin air?” Isn’t the inevitable consequence “hyperinflation?” Geithner calmly rebuked the cliché by pointing to the Federal Reserve’s capacity to counter inflation by raising interest rates once the economy is back on track.

Well, he’s cartainly right about that.  The Fed can always just raise interest rates.  It’s what Paul Volcker did as Fed Chairman in the late 70s and early 80s.  If by “back on track” he means that we can have an unemployment rate of 12%, as we did in 1982, and a Fed Funds rate of 14%, then, I guess he’d be right.  It certainly got rid of inflation.

After all, cutting spending now would accelerate, not reverse, the downturn, and trigger a spiral of declining federal revenues that could leave budget balancing out of reach no matter how deeply we cut.

And raising short-term interest rates by the Fed at some point in the future would…not?

This is elementary economics.

I certainly wouldn’t contradict that.

In reality, Roosevelt increased spending overall by 40 percent from 1933 to 1934, and the deficit by nearly a third. In the first five years of the New Deal, the gross domestic product rose more than 40 percent. The New Deal faltered not when FDR disdained conservative advice on deficits, but only when he briefly followed it. After Roosevelt drastically cut the deficit in his 1937 budget, the economy promptly tanked. When FDR reversed course, the economy turned around.

In reality, Roosevelt also increased tax rate; the top tax rate climbing from 63% to 79%.  No doubt his conservative critics encouraged that, too.  In other words, Roosevelt both decreased spending and increased taxes. In addition, there were new Social Security taxes in 1936 and 1937.  And a new corporate tax on undistributed earnings went into effect in 1937, too. If only we had some way to know what effect tax increases have on economic growth!

Oh, and the Fed doubled reserve requirements on banks from 1936 to 1937.

I wonder–pure speculation of course–if significant tax increases and contractions in the money supply might have, in some mysterious way, contributed to the economic downturn of 1937-1938.

Sadly, we may never know.

In 1933, FDR blew up a London economic summit that sought to set fixed currency exchange rates, a virtual return to the gold standard that would have hobbled his economic strategy.

In other words, FDR was a unilateralist cowboy who intentionally flaunted international consensus for his own political ends, and, incidentally, reversed course a year later.

There was a lot more stuff going on in 1933-1940 than simply government spending.  Not that you’d know it from reading Mr. Shrum’s amusing little article.


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