Marginally Beneficial

Current Events: Greece's Austerity, Obama's Budget, Fairtax, Bank Pact,

2012-02-09T22:30:00.001-06:00

Market Indicators:

Dow: Up 6.51 points to 12,890
S&P: Up 1.99 points to 1,352
10-Yr Note: Price down to yield 2.019%
Oil: Down $.40 to $99.44
Gold: Down $7.90 to $1,733
$/Euro: Up to $1.3267

Economic Indicators:
Greece Sets Austerity Plan: "After all-night talks, Greek Prime Minister Lucas Papademos announced a deal early Thursday among the main political parties to cut spending, slash the minimum wage by 22% and cut pension benefits. The plan would pave the way for a bond swap between the government and its private-sector creditors that needs to be put in motion soon. A €14.5 billion bond repayment looms March 20; without the bailout in hand, Greece will default on its debt, with potentially catastrophic effects on euro-zone government-bond markets." Greece Unemployment increases to 20.9%.

President Obama's Budget Puts 2012 Deficit at $1.33 Trillion

Obama's Budget Ducks Big Benefit Cuts: In 2011, the U.S. government spent $1.56 trillion on Medicare, Medicaid and Social Security benefits—more than $4 billion a day—accounting for 43% of all federal spending. In 2022, if no changes are made, the government will spend just under $3 trillion on these programs, or 54% of the expected federal budget, according to the Congressional Budget Office.

The math is inescapable as the nation's 77 million baby boomers grow older and health-care costs rise. Last year, 2.8 million Americans born in 1946—the leading edge of the boom—turned 65 and qualified for Medicare, joining roughly 47 million beneficiaries already in the program, according to census data. This year, as members of that group turn 66, they will qualify for full Social Security retirement benefits. Close to 10,000 Americans turn 65 every day, according to different estimates. Americans' average life expectancy at birth has climbed steadily from 68.2 years in 1950 to 77.9 years in 2007, according to the Centers for Disease Control and Prevention."

-Possible Solutions: The FairTax Solution for U.S. Unfunded Liabilities: "In order to pay for a debt of this size, the authors propose one option to balance this future debt: “raise income taxes by 17 percent, raise payroll taxes by 24 percent, cut federal purchases by 26 percent, and cut Social Security and Medicare benefits by 11 percent.” In the current political and social environment, these changes seem highly unlikely. What appears more likely are the following: increase the retirement age to 70 or higher, expand health saving accounts, allow individuals the choice of putting part of their income into a private savings account instead of the general fund for Social Security, and scrap the progressive marginal income tax system and switch to a flat consumption tax, such as the Fairtax that only taxes new goods and services by 23 percent and is revenue neutral. "

U.S. Banks Agree on $25 Billion Pact: "The agreement covers five banks: Ally Financial Inc., Bank of AmericaCorp.,Citigroup Inc., J.P. Morgan Chase & Co., and Wells Fargo & Co. Together, the five handle payments on 55% of all outstanding home loans, or about 27 million mortgages, according to Inside Mortgage Finance. The planned pact would involve around $5 billion in cash penalties, payable to borrowers, states and the federal government. That includes $1.5 billion in cash payments to borrowers who went through foreclosure between September 2008 and December 2011. Borrowers could receive $1,500 to $2,000 each, with the actual amount paid depending on the number of borrowers filing a claim.
-The agreement is expected to call on the banks to provide $20 billion in other aid—by cutting loan balances for tens of thousands of homeowners and by refinancing thousands of borrowers who are current on their loans but owe more than their homes are worth. On its own, the deal won't be a cure-all for the housing market or to the majority of borrowers at risk of foreclosure. Home prices have fallen by nearly one-third over more than five years, slashing real-estate values by $7 trillion and leaving 11 million homeowners with mortgages that are exceed their property values by $750 billion. High unemployment has frustrated round after round of federal efforts to stem foreclosures."

$25 Billion Bank Job: "However this helps the politicians, it won't revive the housing market. CoreLogic's latest data show some 10.7 million residential properties have underwater mortgages, representing 22.1% of all housing loans, or $699 billion. Even $25 billion in income redistribution can't clear the market any faster of excess homes, or produce more buyers who can afford to buy them. "

Jobs Report Power Market Rebound - Me: Me: Reversion to mean is consistent with economic variables. The labor market has been weak for years now and will turn around unless impeded upon by the government. I would not say these data signal better or worse policy but rather the private sector feeling more confident and from a slowdown in government interference with a split Congress. Although a President or Congress cannot create economic growth and jobs, they can certainly stifle both of these by increasing uncertainty and distorting market activity. If this recent hands off approach continues by our government, we may have an even lower UR by the end of the year. With it being an election year, I wouldn't bet on it!

Oil and Gas Boom, Payroll Tax, China, & Laffer vs. Bernstein Debate Video

2012-02-09T01:47:00.000-06:00

This is an excellent article that I hope you will read: Oil and Gas Boom Lifts Economy

While the oil and gas industry created over 160,000 jobs the last five years, millions/billions of tax dollars have been wasted on "green" energy sources? Let's stop picking winners and losers and let the markets decide. The lesson from this: the private sector continues to be the most efficient means of providing job and economic growth, and no amount of government spending can be thrown at a sector and expect to thrive without a sufficient market for the product (renewable energy sources). We need an all of the above approach to energy production for a well-functioning energy economy; the more we distort the markets, the further from achieving this goal we will be.

While on the topic of energy independence and efficient allocation of resources, here is an article I wrote for PolicMic early last year. It is still applicable today.

Nymex Crude's Gains Trim the Brent Premium: Wonder why gasoline prices have continued to rise? This can help explain it...Brent has increased significantly since the issues in Iran have heated up. In addition, there are oil and gasoline market fundamentals of supply and demand at work on the global market and here in the U.S. - "The buying frenzy pushed ICE Brent crude-oil futures up for seven straight days, to a six-month high at Tuesday's settlement. As Brent rose, many investors bought Brent for March delivery and sold March contracts for light, sweet crude oil on the New York Mercantile Exchange. Much of U.S. crude oil can't be easily exported and therefore can't ease supply worries of overseas buyers. The inventory of West Texas Intermediate crude oil, the U.S. benchmark, has begun building up at the landlocked Cushing, Okla., delivery point, adding to price pressure."

Talks on Payroll-Tax Cut Bog Down: "Congress's deadline is tighter than it appears because lawmakers begin a weeklong recess Feb. 20. After that, they will have only a few days until the expiration of the popular tax cut, which reduces the tax to 4.2% of a worker's salary from 6.2%."

Will China's Yuan Rival the Dollar?: Not anytime soon..."Paradoxically, for want of other safe assets, the high and rising level of U.S. government debt is cementing the role of the dollar as the dominant reserve currency. This safety could well be a chimera if the U.S. debt position becomes unsustainable. So the rush to U.S. Treasurys at times of global financial turmoil may reflect a flight to liquidity rather than safety. The U.S. trump card is that its financial markets remain unmatched in their breadth, the range of financial instruments available to foreign investors, the amounts of each such instrument, and the volumes of trading in those instruments."
Video: Laffer vs. Bernstein debate - Check out this excellent debate which I had the pleasure of being at several weeks ago. The debate starts about 14 minutes in...

Current Events: Fed Policies, Jobs Report, Texas Drought

2012-02-05T22:43:00.000-06:00

Market Indicators (Friday's Close):

Dow: Up 157 points to 12,862
S&P: Up 19.36 points to 1,345 (Up 6.9% so far this year)
10-Yr Note: 0/32nds to yield 1.928% (1.95% at the beginning of the year)
Oil: Down $0.47 to $97.39 per barrel (Down 5% so far this year)
Gold: Down $4.10 to $1,736 per ounce (Up 8% so far this year)
$/Euro: Down to $1.3091 (Up marginally)

Economic Indicators:

Even After Rain, Texas Drought Persists

Mark Zuckerberg's $2 Billion Tax Bill

Canada's Jobless Rate Rises Unexpectedly from 7.5% to 7.6%

Spanish Unemployment Soars

Bernanke Questioned on Fed Policies

Foreclosure Deal Gets Closer

Still Club Fed: "Federal workers on balance still receive much better benefits and pay packages than comparable private sector workers, the Congressional Budget Office reports. The report says that on average the compensation paid to federal workers is nearly 50% higher than in the private sector, though even that figure understates the premium paid to federal bureaucrats."

The Fed Votes No Confidence: "There is a saying in finance: "Don't fight the Fed." It's now time for the Fed to step out of the fight. It did its job. Let's allow the free-market system to do its job. Doing so will restore business confidence and spur much needed new investment."

Jobs Power Market Rebound - Me: Reversion to mean is consistent with economic variables. The labor market has been weak for years now and will turn around unless impeded upon by the government. I would not say these data signal better or worse policy but rather the private sector feeling more confident and from a slowdown in government interference with a split Congress. Although a President or Congress cannot create economic growth and jobs, they can certainly stifle both of these by increasing uncertainty and distorting market activity. If this recent hands off approach continues by our government, we may have an even lower UR by the end of the year. With it being an election year, I wouldn't bet on it!

Jobless Figures Cut Two Ways for Obama - Me: Just think what the UR would be if President Obama had proposed policies to release the burdens of government on taxpayers instead of redistributing dollars through stimulus spending. A new President taking office in January would hopefully put policy proposals in a direction of individual and economic freedom that does not single out income groups and provides an economic environment of prosperity for everyone. President Obama has slowed the economy and reduced incentives for entrepreneurs to create jobs, which have contributed to the protests around the nation. While some economic data looks better, be aware that it is in spite of government and not from it. Correlation does not mean causation. President Reagan was right when he referred to the fact that "government is not the answer, but the problem".

Current Events: Jobs Report, Home Prices Fall, National Debt, Europe

2012-02-03T08:47:00.000-06:00

Market Indicators (Thursday's Close):

Dow: Down 11.05 points to 12,705
S&P: Up 1.45 points to 1,326
10-Yr Treasury Note: Down to yield 1.828%
Oil: Up $0.10 to $96.46
Gold: Up $0.40 to $1,760
$/Euro: Down to $1.3124/Euro

Economic Indicators:

Video: The Truth About the Economy

Video: The Real "Truth About the Economy" - Have Wages Stagnated

Jobs Report for January 2012:

1. # of Net Jobs Created: 243,000

Total Number of Unemployed: 12.7 million (decline by .4 million) (lowest since 2/09)

2. UR: 8.3% (decline by .2%) (lowest since 2/09)

U6 (includes discouraged and underemployed workers): 15.1% (decline by .1%)

Emp-to-pop ratio: 58.5% (no change) (still off from 63% peak in 2007)

3. Average hourly earnings: Up 1.9% for the year to $23.29

Real average hourly earnings (earnings % increase-CPI inflation)=(1.9 - 3%)= -1.1%

Good Summary Graphs from Calculated Risk Blog

Home Prices Tumble: "The 10-city and 20-city composites posted annual returns of negative 3.6% and negative 3.7%, respectively, compared with November 2010."

Biggest Holders of US Government Debt: My thoughts - The Federal Reserve holds about $1.65 trillion and other federal gov't trust funds hold about $4.678 trillion of the $15 trillion of the gov'ts national debt (the total assets of the Fed is $2.9 trillion so they could not own $6 trillion of debt as my previous post stated). Although there is much rhetoric about China's holdings of government debt, it is only $1.132 trillion (7.5% of total). This is a perfect example of how the Fed can manipulate interest rates to remain very low in a period that lacks monetary policy rules and hinders a correction and subsequent boom we could have. (these values in graph are in trillions of $)

An American History Lesson for Europe: From article - "If the federal government had chosen to bail out the states a second time, it probably would have taken greater control over state taxes and revenues in order to prevent yet another bailout situation. Refusal to bail out the states was thus a pivot point in sustaining a federal system in the United States. It led the states to discipline themselves by rearranging their constitutions in ways designed to allow them to retain freedom and responsibility for taxing and spending within their borders. Europeans today might be tempted to say "yes" to bailouts. Or they might also recall a time when Americans preserved their own federal system by saying 'no.'"

Current Events: Different Views for the Path Forward

2012-01-31T20:23:00.003-06:00

Market Indicators (Tuesday's Close):

Dow: Down 20.81 points to 12,633
S&P: Down 0.6 points to 1,312
10-Yr Treasury Note: Up to yield 1.813%
Oil: Up $.32 to $98.79
Gold: Up $1.80 to $1,742
$/Euro: Down to $1.3075/Euro

Economic Indicators:

What are the different paths moving forward?

$5 Trillion and Change: Largest deficits as a percentage of GDP (since WWII) and in levels (ever) under President Obama. - "Nonpartisan Congressional Budget Office (CBO) reports that annual spending over the Obama era has climbed to a projected $3.6 trillion this fiscal year from $2.98 trillion in fiscal 2008, or more than 20%. The government spending burden has averaged 24% of GDP, up from an average of about 20%. All of this has increased the federal debt by about $5 trillion in a mere four years. Thanks to higher revenues, the federal deficit will decline to $1.08 trillion in 2012, or 7% of GDP."

"Buffett Tax" and Truth In Numbers: "In September, the Congressional Budget Office estimated the 10-year deficit at $8.5 trillion. The nonpartisan Tax Foundation estimates that a Buffett Tax might now raise $40 billion annually. Citizens for Tax Justice, a liberal group, estimates $50 billion. With economic growth, the 10-year total might optimistically be $600 billion to $700 billion. It would be a tiny help; that’s all. “The purpose of the Buffett Rule is not to close the deficit gap,” Buffett has said. Hard choices remain, in part because existing deficit estimates already assume steep defense cuts."

How to Save the Global Economy: More inflation to reduce the real value of debt-Menzie Chinn and Jeffrey Frieden - "We're not proposing a lot of inflation -- just enough to reduce the debt burden to more manageable levels, which probably means in the 4 to 6 percent range for several years. The Fed could accomplish this by adopting a flexible inflation target, one pegged to the rate of unemployment. Chicago Fed President Charles Evans has proposed something very similar, a policy that would keep the Fed funds rate near zero and supplemented with other quantitative measures as long as unemployment remained above 7 percent or inflation stayed below 3 percent. Making the unemployment target explicit would also serve to constrain inflationary expectations: As the unemployment rate fell, the inflation target would fall with it."

Why Gingrich's Plan Beats Romney's: Increased economic growth by shrinking the size of government-Art Laffer - "Jobs and wealth are created by those who are taxed, not by those who do the taxing. Government, by its very nature, doesn't create resources but redistributes resources. To minimize the damages taxes cause the economy, the best way for government to raise revenue is a broad-based, low-rate flat tax that provides people and businesses with the fewest incentives to avoid or otherwise not report taxable income, and the least number of places where they can escape taxation."

Why We Need Tax Reform: Tax reform and shrinking government spending are needed to provide economic growth - Me. "We have been going down the same road of tinkering around the edges of taxes and spending that have not been successful. These actions have made us more dependent on the government. This is apparent across our economy, and until the citizens of our great country can take back the reigns from government and allow markets to work without manipulation, we will stifle the entrepreneurial spirit that has made America an economic superpower."

Current Events: Myths of Capitalism, New Home Sales, Deflation

2012-01-29T23:28:00.001-06:00

Key Market Indicators (Last Week's Change): Dow Snaps 3-Week Win Streak

Dow: Down 60.02 (0.47%) points to 12,660
S&P: Down 2 (0.2%) points to 1,316
10-Yr Treasury Note: Up 1 6/32nds to yield 1.896%
Oil: Up $1.23 to $99.56
Gold: Up $68.10 to $1732
$/Euro exchange rate: Up to $1.3219/Euro

Economic Indicators:
Video: The Broken Window Fallacy
Video: Top 3 Common Myths of Capitalism
Personal Income: PI: Up .5%
-Taxes: Up .2%
=Disposable PI: Up .3%
-Consumption: 0.0%
=Savings: Up .3% => Up to 4% of DPI from 3.5%

Dismal New Home Sales: "It’s possible that 2011′s record low of 302,000 represents the bottom for new home sales, but don’t count on it. The record has been broken three years in a row."

Deflation is Real Possibility: "It may be that companies have enough cash on hand that they simply don't need to borrow, or that they are raising funds in the bond market instead. Even if that holds for the biggest firms, though, smaller ones still rely on bank loans. Their weaker demand is a cautionary sign for economic growth after a disappointing 1.7% increase last year."

Dr. Arthur Laffer on Income Inequality

2012-01-28T01:30:00.000-06:00

Recently I attended the Laffer Center Gathering on Economic Growth in Austin, TX. There were a number of intellectual debates and conversations throughout the conference. What struck me the most was the following excellent explanation Dr. Laffer gave on income inequality and class warfare:

"If I were father of this country, I'd want all of my kids to be equally successful...you do want that! And if you look at this world, I don't see any reason that the rich should have any more than anyone else...I'd like all my kids to be equally successful...

What I'd do is tax all that make above the average income 100% of the excess, and subsidize everyone that makes below the average income up to the average income. I don't understand why anyone makes more than anyone else...I really don't.

And by doing that, I will stipulate that everyone will be equally successful at zero income. There is no way to change the distribution of income without changing the volume of income. Period. It is math. No way from here to Sunday to do it...when you do redistribute income you have to look at the consequences...you cannot redistribute income without lowering the volume of income... I'd love to redistribute income from those that have a lot to those that have a little, if there weren't any consequences. But there are!

If I ran my class the way the government runs our country, I'd flunk all the A students out, and give all the F students scholarships. Now before you giggle on this, my A students happen to be a little brighter and a little harder working than the F students. So once you change the rules, my A students would still get all the scholarships because my A students know enough to never accidentally guess the correct answer. I haven't changed the grade distribution one iota. But what I have done is destroy the entire quality of the educational process.

Every revolution on planet earth has been fought over income distribution and not one of those revolutions has ever changed the distribution of income, but all have destroyed huge amounts of volume of income. You can't change the distribution with taxes and government spending, but boy can you change the volume.

You can't make every poor person rich without making every rich person poor...you can't have a profit and loss system without losses. You can't.You can't have a warm heart without a clear vision. Dreaming of doing X when you are really doing Y...Liberals are creating the poverty. No wonder we have the worst problems with black unemployment, etc...they are creating the very problems they use as the ruse to implement their policies that make them worse. You've got to see the actual consequences of your actions. They are wrong on what the consequences of their policies are.

Our dreams are no different than the liberals, but our economics is right and their economics is wrong."

I think this eloquently and concisely states the issue in a way that Americans across the country can understand. The more government interferes and tries to fix income inequality, the worse off we will be.

CE: GDP Growth, Fed Funds Rate, Oil, IMF, Durables, and Jobless Claimes

2012-01-26T23:16:00.000-06:00

Market Indicators (Thursday's Close):

Dow: Down 22.33 points to 12,735
S&P: Down 7.62 points to 1,318
10 Yr Note: Down 3/32nds to yield 1.947%
Oil: Up $.05 to $99.75
Gold: Down $8.90 to $1,721
$/Euro: Down to $1.31

Economic Indicators:
GDP Rises 2.8% in 4th Q: "That is up from 1.8% growth in the third quarter and 1.3% in the second quarter. It was the fastest pace since the second quarter of 2010. Economists surveyed by Dow Jones Newswires expected 3.0% growth. The faster growth capped an otherwise sluggish year in which the economy grew by 1.7%, slower than the 3.0% growth in 2010."

Economic Recovery is Slow: "On Friday, the government releases its preliminary snapshot of economic growth in the final three months of 2011 and most economists expect it to show gross domestic product grew at an annual rate of about 3%." We need economic growth by at least 3% for job growth to keep up with the growth of the labor force.

Oil Seesaws on Iran Threat: "Iran said Thursday that it was considering an immediate halt to oil exports to the European Union, in response to an EU embargo on its oil sales set to be fully in place by July 1. EU nations, which import about 600,000 barrels a day of Iranian oil, approved the embargo Monday to ratchet up pressure on Tehran to halt its nuclear program."

IMF Chief Warns Europe Must Fuel Growth

Economics for the Long Run: "As this election year begins, a lot of people are wondering what we can do to restore America's prosperity and create more jobs. Republican presidential candidates are offering their ideas, and at his State of the Union message on Tuesday President Obama presented his. I believe the fundamental answer is simple: Government policies must adhere more closely to the principles of economic freedom upon which the country was founded."

No Need to Panic About Global Warming: "A candidate for public office in any contemporary democracy may have to consider what, if anything, to do about "global warming." Candidates should understand that the oft-repeated claim that nearly all scientists demand that something dramatic be done to stop global warming is not true. In fact, a large and growing number of distinguished scientists and engineers do not agree that drastic actions on global warming are needed."
(Here are my thoughts on Global Warming and Economic Growth)

Federal Reserve Expects Low Rates Through 2014: "Officials hope that by signaling their intentions on short-term interest rates, long-term rates will fall, spurring investment, spending and growth. Since August, the Fed had been saying rates would stay near zero at least until mid-2013." The current federal funds rate is in a range of 0-.25%.

Businesses Ramp Up Spending On Goods: "New orders for U.S. durable goods—those lasting longer than three years, such as automobiles and kitchen appliances—rose 3% in December from November. That followed a big drop in claims the previous week. The four-week moving average, which smooths out weekly volatility in the numbers, fell by 2,500 to 377,500."

Current Events: IMF, SOTU, Texas UR, Health Ins.

2012-01-24T21:45:00.001-06:00

Six Major Market Indicators (Tuesday's Close):

DOW: Down 33.07 points to 12,676 - The Dow posted a second consecutive decline for the first time in nearly three weeks but remains up 3.8% to start the year.
S&P 500: Down 1.35 points to 1,315
10 Yr. Note: Down 1/32nds to yield 2.065%
Oil: Up $.19 to $99.14
Gold: Up $.50 to $1,665
$/Euro: Down to $1.3017

Economic Indicators:

International Monetary Fund (IMF) Cuts Global Forecasts: The global economy will expand 3.3%, this year, down from 3.8% last year, said the IMF, which in September had forecast 4% growth in 2012.
State of the Union Speech: President Barack Obama offered Americans a sharply populist economic vision in his State of the Union address Tuesday, seeking to draw a contrast with his eventual Republican rival and demonstrating the widening policy gulf between the two political parties.
Unemployment Rates Fall in Most States: Texas UR falls to 7.8%; Texas notched the biggest increase in nonfarm payrolls with 20,200 added jobs

Should Everyone Be Required to Have Health Insurance?: Yes, It's Key for Reform. No, Premiums Will Rise.

Current Events

2012-01-21T22:01:00.004-06:00

Six Market Indicators (Friday's Close):

DOW: up 96.50 points to 12,720
S&P500: up .88 points to 1,315
10 YR Note: 0/32 to yield 2.03%
Oil: down $2.15 to $98.39
Gold: up $12.50 to $1,667
$/Euro: down to $1.2924

Economic Indicators:
Economists to See Ways to Aid Housing Market

First, local investors could play a greater role in spurring a recovery in their own communities.
Second, policy makers could restore clarity to lending by finalizing a clutch of pending regulations.
Third, a growing number of economists are warning that the overhang of debt in some of the most distressed housing markets will linger for years, particularly if more borrowers default. They say mortgage investors and banks should consider reducing debt for more troubled homeowners.
Indeed, no single idea will fix all of housing's problems. Many involve taking on more risk or rewarding bad behavior.

Sales Stir Hope for Housing Market: Existing-home sales increased 5% in December from a month earlier. The median price in December was $164,500, down 2.5% from a year earlier.

Greek Talks Fail to Clinch Debt Deal: "Reaching a deal with private creditors is a key precondition for Greece to receive a fresh, €130 billion ($169 billion) bailout from its European partners and the International Monetary Fund."

A Better Tax System by Greg Mankiw

Broaden the Base and Lower Rates
Tax Consumption Rather Than Income
Tax Bads Rather Than Goods
Keep It Simple, Stupid

"Filling out tax returns will never be a delight. But if reform included simplification, the task might become a bit less onerous. And if a few accountants and tax lawyers were induced to become engineers and doctors instead, society will have moved a big step in the right direction."

Why We Need Tax Reform by Me
President Obama Promises "Economic Blueprint" in State of the Union on Tuesday

Current Events

2012-01-19T22:27:00.004-06:00

Six major market indicators:
Stocks:
Dow Jones Industrial Average (DOW): Up 45 point to 12,624 (6-month high)

Standard & Poors 500 (S&P 500): Up 6.46 points to 1,315
Bonds:
10-year Treasury Note (10 YR Note): Up 4/32 to yield 1.97%.
Commodities:
One month ahead price of oil futures (Oil): Up $.11 to $100.50

Price of an ounce of gold (Gold): Up $2.50 to $1,657
Exchange Rate:
Dollar/Euro exchange rate ($/Euro): $1.2963 (Dollar down-depreciated) (Euro rises to two week high)

Economic Indicators:
Producer Price Index (PPI): Headline PPI: Up 4.8% over the last year. Core PPI (excludes food and energy): Up 3% over the last year.
Consumers Notch Gains as Some Prices Decline: Headline Consumer Price Index (CPI): Up 3% over the last year through December. Core CPI (excludes food and energy): Up 2.2% over the last year. (The central bank of the U.S. - Federal Reserve - would like this to be in a range of 1.5-2%)
The 4-week moving average was 379,000, a decrease of 3,500 from the previous week's revised average of 382,500. Benchmark is 350,000 to signal a strong labor market.
House Rejects Debt Limit Increase: "The House voted Wednesday to reject President Barack Obama's request to raise the federal debt limit by $1.2 trillion. Mr. Obama has requested a $1.2 trillion increase in the debt ceiling, which would bring the government's borrowing limit to $16.394 trillion. That is expected to cover borrowing until after the November election."

Assorted Articles

2012-01-15T21:16:00.001-06:00

Little Alarm Shown at Fed at Dawn of Housing Bust
Consumers Step Up Their Borrowing
Economists Set Rules on Ethics
Labor Market Gains Traction
China's Trade Surplus Shrinks in 2011
Euro Zone Sentiment Darkens as Recession Fear Looms
Downgrades Fan Fresh Euro Fears
White House Seeks to Merge Agencies
President Obama, GOP Trade Political Challenges
PPI Prices Decline

Laffer Center Policy Orientation Thoughts

2012-01-15T00:54:00.002-06:00

After an inspiring few days at the Texas Public Policy Foundation Policy Orientation with the Laffer Center in Austin, I am back to full days of dissertation work before I start teaching again at Sam Houston on Wednesday.

While in Austin, I had the honor of meeting Dr. Arthur Laffer, (one of the father's of Supply Side economics, one of the top living economists, and one of my role models-see pic below) and drive him from the airport to the Austin Hilton Hotel. I was inspired while I was at the Policy Orientation to keep striving to find solutions to our economic woes. Hearing the numerous other proposals by leaders in business, government, and academia was very helpful.

The foundation for providing economic prosperity was discussed and includes a stable dollar, reforming the Fed, tax reform (with either a flat income or consumption tax), cutting government spending (which stifles economic growth because of the redistribution of resources), income inequality will never be solved through the tax code, regulations should be reduced (repeal Obamacare, Dodd-Frank, and Sarbanes-Oxley), and economic growth is the key to our debt problems. By providing incentives to supply more goods and services by entrepreneurs across our nation through sound economics there will be a boom in our economy. Although there are more government-oriented policies that have been discussed, they lack good economics.

Dr. Laffer was kind-spirited and discussed how we should continue to debate with each other no matter what side of the aisle we may be on and do it in such a way that is constructive for future prosperity. He believes that this is another time in American history where we will have Republicans in the White House, Congress (both chambers), State Governors, and many State Congressmen and women after the 2012 election.

This should help bring about another period of economic prosperity that resemble the 1920s, 1960s, and 1980s from Supply Side reforms that were promoted during those times. He was optimistic about Mitt Romney winning the Republican nomination (I think there is no doubt he will) because of his time with President Reagan early on and how Reagan was not the Supply-Sider we know today. It took a number of discussions and the art of persuasion before President Reagan agreed to the largest tax cuts in American history and restored America's economic growth after a terrible 1970s. The deficits during President Reagan's tenure were outrageous and he was not able to reduce the size of government as much as I would have liked, but the reforms put in place certainly changed the way we think about the size and scope of government.

We can hope that more reforms to shrink the size of government will occur again, but we also should be cognizant of what happened when Republicans had power from 2001-2007 and there was a continual expansion of government. Reducing the size and scope of government should be the goal from the failures of government stimuli from the use of parts of Keynesian economics. Time will tell...

Here is a recent article by Dr. Laffer on class warfare. Here is a rebuttal to Supply Side economic rhetoric by Jared Bernstein, who was Vice President Biden's chief economist for a while and was the one who debated Dr. Laffer at the event in Austin I was at. Here is an article from the NYT about income inequality.

Jobs Report and Assorted Articles

2012-01-09T14:32:00.000-06:00

After a trip to Chicago for the AEA Conference and interviews, here is a summary of recent economic data.

Job Numbers for December Mask Complex Picture: Great Summary of Data

Net jobs created: 200,000; 212,000 private sector jobs; 13.1 million unemployed
UR: 8.5%; U6: 15.2%; Employment-to-Population: 58.5%
Average hourly earnings: Up 2.1% over the last year, which is less than headline inflation of 3.4%

Labor Market Gains Traction

Unemployment Scars May Last Years

Texas Economic Indicators: "Texas gained 17,900 jobs in November after adding 400 jobs in October. Current Texas employment stands at 10.63 million. The Texas unemployment rate declined to 8.1 percent in November, down from 8.4 percent in October. The Texas rate is still lower than the U.S. rate, which was 8.6 percent in November."

Small and Large Footprints: Reserves and the Fed - (There is a lot of jargon in this interesting post, simply put: commercial banks find the marginal benefit of parking their excess reserves at the Fed to gain .25% is greater than or equal to the marginal cost of lending it out. The supply and demand for loanable funds exist but uncertainty about the state of the economy, bad mortgages on banks'assets, and numerous regulatory burdens are constraining the use of these reserves. Their lack of use is integral to the Fed's plan to increase liquidity without causing inflation in the short run, but the costs of which may far outpace their benefit.)

FOMCs November Minutes Euro Crisis Concerns: (Here is an article by my friend Ryan Schuette about the measures the Fed and other central banks have taken to stimulate/bailout economies from a slowing global economy.)

India's Slowdown - (Although India's economy may grow by 6% this year compared to 10% recently, there are several factors that make it likely they will continue their brisk growth rate. Even so, their GDP per person is poor compared to many developed countries.)

China's Emerging Housing Dilemma - (If you thought the government engineered housing boom and bust was rough, you may have not seen the worst yet: China.)

Washington is Spending Too Much - (Taylor sums up nicely the argument I agree with: excessive spending by government is the primary problem with bloated deficits.)

Individual Mandate Not Severable from Obamacare

4th Year of MB: 2011 in Review & Hopes for 2012

2012-01-03T11:38:00.000-06:00

I hope that you had a Merry Christmas and a Happy New Year! I certainly did. This is the 4th year of the Marginally Beneficial blog. First off, thank you for reading! My blog posts help me to remain sane while working on my dissertation (expect to graduate in August 2012) and over the years this blog has helped to keep me updated with current events, divulge what my thoughts are on issues, and spread the news to others. I have had over 20,000 hits on this site over the last two years, there are 79 followers on Networked Blogs through Facebook (feel free to add me as a friend on Facebook for updates as well), and 29 members through Blogger.

If you are a frequent reader and would like to be updated when I make new posts, please become a follower on one of these sites. In addition, if you know someone who could benefit from my blog, please email them the link. My goal is to reach 200 followers/members this year, so your help would be greatly appreciated! I also hope that there will be an increase in the number of comments from you this year. I have my students read the articles and posts I put on my blog and your comments would help them to think critically about many issues.

I would also like feedback from you. Please comment here to let me know what you would like to see more or less of in this blog. I write this blog to first understand more about the fascinating world we live and next to please the customer, YOU! As I noted before, my goal is to increase the demand for my product (blog) and this will only happen if my product is marginally beneficial. Please also check out my previous blog posts, links to specific issues, and other blogs that I follow. Thank you again and now for the news!

Here are a few videos and articles I thought you would enjoy (My thoughts or quotes from link are in parentheses):

Videos:
Markets Need Rules: (What if there were thousands of new regulations imposed on a baseball game like there has been on the private market? Would you want to play ball? In other words, should we expect anything different than an economy that is barely moving?)
Europe At the Brink: (In this documentary, Wall Street Journal editors and reporters examine the origins of Europe's debt crisis and why it spread with such ferocity to engulf much of the continent and threaten the entire world.)

Articles:
The Rise of Consumption Equality: ("Those who invent and produce for the mass market get rich. And the more these innovators better the rest of our lives, the richer they get but the less they can differentiate themselves from the masses whose wants they serve." If we equalize outcomes, will entrepreneurs have more incentive to create more of the goods that make our lives better? Maybe they should be the ones who are protesting.)
Oil and Gas Bubble All Over: ("Crude-oil imports are falling, balance-of-trade payments are improving and thousands of oil-field jobs are being created from Texas to Ohio, from West Virginia to Wyoming. Moreover, the U.S. is beginning to export a significant amount of diesel and gasoline refined from crude and could begin exporting chilled natural gas next year." It 'could' if regulations do not stifle production.)
The Spenders Won in 2011: ("GOP Congressional leaders will be tempted to play it safe and wait for their Presidential nominee. And inevitably the Presidential race will dominate public debate as 2012 unfolds. But before it does, Republicans need to do far more to show their own supporters and independent voters that they are the party of reform and change in Washington. If voters want spending as usual, they'll elect Democrats." More resolve is needed by all of those in Congress for fiscal restraint or we will bear the costs in the short and long run. In the long run we may all be dead, but we may wish we were dead in the short run from an overpowering government.)
Why the Dow Clobbered the S&P in 2011
Recap of Markets in 2011 & Good Start for 2012
Oil Prices Up
World's Woes Leave Lasting Scars
Dollar Defied Reality in 2011
Treasury Rally Lives On, Bubble?

Debate: Should Congress Pass Another Temporary Payroll Tax Cut?

2011-12-21T20:58:00.000-06:00

Debates have been fierce (Shortened session shows fight over tax cut) about extending the temporary payroll tax (Social Security) cuts from 6.2% to 4.2% for another two months (passed by the Democratic Senate) (President Obama to Boehner: Two-month cut is only option) or a year (passed by the Republican House) (House GOP rejects payroll tax plan).

Should this payroll tax cut be extended? (Middle class needs the tax cut) Has it been effective in increasing consumption, investment, and economic growth this year (it was originally cut in a bill last December)?

Although it may not bankrupt Social Security (Extending the payroll tax cut will not impact Social Security from the White House blog), it is impacting our massive budget deficits because the government is using general tax revenues to reimburse the SS fund for whatever amount is not received from the payroll tax cut (Payroll Tax Cut? No, just another raid on Social Security). Is this good policy? (The GOPs payroll tax fiasco) Should we allow the SS fund to diminish its funds instead to show the real costs of these measures? (Will they bankrupts Social Security?)

If uncertainty (Want Growth? Try stable tax policy by John Taylor) is an issue in our economy, is a two month or one year extension a way to increase certainty for future decisions? These are all questions that I hope are happening in D.C.

A (The?) Source of Income Inequality

2011-12-19T02:08:00.001-06:00

‎"Government has no money of its own. All it does is take from some and give to others. That may create some jobs, but only by leaving less money in the private sector for job creation. Actually, it’s worse than that. Since government commandeers scarce resources by force and doesn’t have to peddle its so-called services on the market to consenting buyers, there’s no feedback mechanism to indicate whether those services are worth more to people than they were forced to go without. The only people who create real, sustainable jobs are in private businesses—if they’re unsubsidized." ~ John Stossel, libertarian columnist for Reason.com.

Although there are reasons to doubt some arguments made about income inequality, it is important to start with household income data. The Census Bureau reported that the top 5% of income earners are those incomes above $180,000 and the top 1% include not only millionaires but household incomes above $360,000. A 2011 report by the Tax Foundation noted in 2009 the top 5% had 32% of aggregate income and the top 1% had 16%; the top 1% paid 37 of taxes, the top 5% paid 60%, and the bottom 50% paid 2.3%; there were slightly fewer than 1.4 million households in the top 1% and this group paid the highest average tax rate of 24%. Additional evidence shows that the top 1% own around 40% of the nation's wealth and 80% of the top 1% earned their income instead of the common misconception that it was inherited.

Those arguments claiming that income inequality is the foundation of the Great Recession and sluggish economic growth today are false because of their neglect to include income mobility, economic growth, tax changes, and government programs that keep the poor, poor. These myths have led many to look down upon the top 1% when we should be promoting more of them. Households in this group should not be made the villains of slow economic growth and record budget deficits, which is primarily from excessive government spending.

With regard to budget deficits, raising taxes on the top 1% or any other group will not solve the problem. History shows that tax revenues as a percentage of GDP have averaged around 18% whether tax rates are high or low. Although this may be true, the opportunity costs of higher taxes throughout the economy lead to many other inefficiencies not accounted for by analyzing only tax revenues. The cures for deficits will come from economic growth and spending cuts by our bloated government.

What is it about the top 1% or any upper income share that many believe are wrong? Why is it anyone else's concern if these individuals can afford to buy a yacht or a private jet? Would it not be in the country's best interest for them to make these purchases and stimulate job creation rather than redistribute their income through fiscal policy? It is time for the government to provide an economic environment conducive for all income groups, including the top 1% and bottom 1%, by not picking winners and losers. The rhetoric about income inequality by President Obama and members of Congress has been nothing more than class warfare.

If income inequality is even something to worry about, which there are bigger fish to fry, the government is the biggest contributor to income inequality. The protests by the Occupy Wall Street crowd seem founded on income inequality. It might be different if the top 1% protested the bottom 99% by laying off workers and taking their investments out of stocks, houses, and government bonds (check out this video of Peter Schiff talking to the OWS protesters). The problem with these OWC protests is that they should be protesting in D.C. and not Wall Street.

Blaming Capitalism for the ills of income inequality is also incorrect. In a Capitalist system, markets provide information to allow prices and wages to send signals for an efficient allocation of scarce resources. With diversified levels of educational attainment, different years of training, and other factors, one's marginal product of labor may demand a much higher wage than someone else. It is probable that there would be high levels of income inequality in a Capitalist system. Despite this, the vast differences in incomes between households would be based on market forces and not on mandates and distortions to incentives in the labor market put in place by the government.

Government then is a virus that continues to plague the epidemic of income inequality. Unfortunately, there are those who believe they are the cure. What types of government programs contribute to keeping the rich, rich and the poor, poor? Here are a few: Subsidies in general (i.e. large farm companies); tax breaks for renewable and nonrenewable energy production; welfare programs that reduce incentives for those in lower income groups to increase their productivity (despite this 60% of the bottom 20% still move up into higher income groups because of income mobility. Interestingly, 40% move down from the top 20%); a failing public school system; progressive tax system that affects workers' productivity; the minimum wage; safety nets and the list could go on. The effects of these policies tend to either be a wage floor for those incomes at the top or a wage ceiling for those with lower incomes.

The recent Op-ed article in the WSJ by Moore and Williams correctly argued that deductions and loopholes should be taken away from those making over one million dollars. One could argue that deductions and loopholes should be removed for all taxpayers and lower the marginal tax rates, with the goal of having a flat consumption tax or flat income tax. Removing subsidies and tax breaks to corporations and individuals would provide more efficient outcomes. This will not only benefit the economy as a whole, but it will benefit individuals as well.

Is our current public policy maximizing the welfare of our citizens? Should we change anything? Maybe we need more government involvement to improve outcomes in society. Socialism has punctured a wound in the side of America for far too long. Why not take a break from our Socialist policies by both political parties and move toward Capitalism. Some may argue that a country with an economic system based on Capitalism does not have a heart and that there will be many people who will suffer because they cannot fend for themselves.

This is an unfounded argument based on a perception that the government is the primary source of benefits for those who have needs and are unable or unwilling to provide for themselves. Is it correct to assume that redistributing income by a government that is not benevolent is ideal? Not only is income redistribution inefficient, but it is destructive for economic growth and prosperity because it reduces scarce resources from those who value it more and are more productive. In addition, government welfare programs lack accountability, transparency, and efficiency. Therefore, these costs contribute to an institutional failure that may be more problematic than market failure.

Religious organizations, charities, family members, and NGOs could replace welfare programs. These types of resources would have to be accountable, transparent, and efficient or risk closing; they would also have to provide valuable services because they will be competing for donations. Competition does not exist or is driven out by government programs. This is probably the biggest problem of all with government programs is that they have the power of the purse and remain in business even when they fail.

The government is not the answer and creates more problems than it solves from the redistribution of income and waste. More choices given to individuals with their money and the spontaneous order of society will bring about the most efficient outcomes. Therefore, those in society may not be getting paid what they are "worth" because of government manipulation and lack of Capitalism, where risk equals reward or failure. Voter ignorance creates an environment in politics that repeats the same mistakes (see Learn Liberty short video). To reform our society that benefits everyone, we must educate ourselves and expand our knowledge of our world. As noted by Socrates, "The unquestioned mind is not worth living." In today's divided political sphere, more constructive debates are needed more than ever. Let us keep up the fight for liberty, America!

Big Oil Expands, Fed Clarity, Payroll Tax Cuts, and Euro

2011-12-04T22:36:00.001-06:00

Big Oil Heads Back Home: "For decades, its main stomping grounds were in the developing world—exotic locales like the Persian Gulf and the desert sands of North Africa, the Niger Delta and the Caspian Sea. But in recent years, that geographical focus has undergone a radical change. Western energy giants are increasingly hunting for supplies in rich, developed countries—a shift that could have profound implications for the industry, global politics and consumers."

Federal Reserve Prepares to Make Itself Perfectly Clear: "They are likely to spend much of their Dec. 13 meeting ironing out unresolved pieces of the new communications strategy and seem on pace to unveil it early next year. They have two major objectives: Be more explicit about the Fed's goals for inflation and employment, and articulate more clearly the interest-rate strategy to meet those goals."

Some Bands are Playing the ForeEx Market: "The rock group Metallica has made a living for the past 30 years growling about death in apocalyptic anthems like "The Four Horsemen" and "Enter Sandman." Now, the heavy-metal pioneers are sleeping with one eye open for a different reason: Europe's financial crisis."

Senate Democrats Plan New Payroll Tax Cut: "Democrats plan to file a modified proposal intended to win over Republican lawmakers, according to Democratic Senate aides. Unless Congress acts, the employee payroll tax, which funds Social Security, will increase by two percentage points next year, to 6.2%."

Euro Focus Turns to Policy: "U.S. economic data has been stronger than expected, which normally would give heart to investors, but the market remains focused on Europe. Coordinated action by the world's central banks to make dollars available to banks at a lower cost helped lower bond yields in Europe this week, allaying fear that national governments won't be able to fund themselves. The euro rose above $1.34 as a result, but on Friday, debt fears resurfaced, sending it lower again."

Capitalism with a capital C

2011-12-03T23:39:00.001-06:00

I recently read an article which ended with the following: "Rather than continuing to advocate policies that have demonstrably failed on a grand scale, GDP targeters would be better served by studying the forgotten basics of a system that does work: Capitalism with a capital C." After reading this article, I had a discussion with a friend about the costs and benefits of Capitalism. This discussion led to the creation of this post.

While there are a number of different avenues that one could debate Capitalism vs. Socialism, risk and reward should be near the top. As Sir Richard Branson said on the Colbert Report, "Capitalism is the only system that works. In fact it has spread more wealth to more people than any other economic system in the HISTORY of mankind." This is a perfect example of the clarity with which we should view Capitalism and the unmatched economic growth in America over the last 200 plus years. Unfortunately, this has been lost to many of us and we must be reminded.

Socialism may be appealing in theory, but once you add in human nature, greed, and envy, it becomes corrupt and fails everyone. Capitalism capitalizes on our human nature to have more stuff than our neighbor thus driving us to succeed. You want more material possessions in your life? Then work harder and outperform your neighbor! Although we may covet from time to time, human nature and innovation in a dynamic economy leads to this. Thus, the beauty of Capitalism!

Some do not have a college degree and may not be proud of this. But since we live in a relatively more capitalistic country than many others, they can improve on their outcomes in life by learning skills that provide them with the opportunity to flourish. Equal opportunity to succeed exists in a Capitalist system and risk can equal great reward/failure, but equal outcomes are the goal in a Socialist system and this creates a situation where there is not any incentive to take on risk, which breeds mediocrity. Mediocrity is not optimal and does not promote personal or professional growth. Instead it kills it in its tracks. Capitalism provides those who fail to try again and change their future course no matter where they came from. If you choose to work hard and learn from your mistakes, then you will succeed!

I know this from personal experience. Being from a lower income, single parent household for most of my childhood and a first generation college student led me to have a rather rocky teenage and early adult life. There were numerous events and actions that I made that I would do differently if I could go back. With these numerous failures and learning opportunities, I continually brought myself back up and pushed myself to do more. My life was drastically changed after I was in a severe car accident, where I flipped 6 times and was life-flighted to Herman Hospital in Houston. This did give me time to evaluate where my life was heading and I decided that I wanted to help others through Economics. For those of you who know me well, I am very passionate about the subject, which is why I decided to get a PhD in it (or because I am crazy!), and think, talk, and dream about it. I want to be the best economist I can be and help others learn about it and bring about better solutions to the problems that we face through research. In many other systems this would not have been possible. Socialism would have almost certainly kept me in the lower income group of my parents and stifled my drive to fulfill the goals that I now have been blessed with.

Unfortunately, some take where America is today for granted and fall into the fallacies of social justice and income equality. Class warfare, hating the rich, and redistribution of wealth are used for the government to offer solutions to solve these ridiculous types of rhetoric. The problem is that this has led us further away from Capitalism and closer to Socialism.

We would be much better off if we had a leader who would make a drastic turn back to Capitalism. Some would protest and yell that it is not fair and that people are only looking out for their own interest. Life is not fair and everyone has a different definition of what is fair, therefore it is a normative issue and cannot be measured. Everyone looks out for their best interest and if they are not then they are being dishonest or not prospering. In addition, when everyone works in their own best interest then society will be better off as well (i.e. Adam Smith).

There are a number of issues that are protested today, such as bank bailouts and lack of jobs, that are a direct result of government intervention (i.e. Socialism) and not the result of the free market directing resources in the most efficient way possible. Getting rid of all subsidies, tax credits, minimum wages, unemployment benefits, welfare programs, and numerous other government programs that divert our economy from Capitalism would be a huge boost for economic growth, which would create numerous jobs and allow for prices across our economy to send signals to producers and consumers that determine the values of goods and services.

I disagree with the bank bailouts, but the protesters are protesting at the wrong place, they should in be in Washington. We will not learn until a crisis really occurs that the government is not the answer; but for the sake of America and her greatness, we must learn soon before it is too late (i.e. Europe).

Mixed Employment Report and Euro Debt Crisis

2011-12-03T20:29:00.001-06:00

Economics Data Summary for Week (Calculated Risk Blog): "The household survey showed an increase of 278,000 jobs in November. This increase in the household survey - along with a 315,000 decline in the labor force - pushed the unemployment rate down sharply to 8.6%. The participation rate fell to 64.0%, and the employment population ratio increased to 58.5%. This is the fourth straight monthly increase in the employment population ratio from the low in July at 58.1%." 13.3 million people are unemployed and the U6 rate dropped to 15.6%.

Jobless Rate Nears Three Year Low: "Establishment Report noted that employers added 120,000 jobs in November, the Labor Department said Friday, with modest private-sector hiring offsetting continued job cuts among government workers. The biggest gains came in the retail and hospitality sectors, while manufacturing, a source of strength early in the recovery, changed little. The department also revised upward its estimates for job gains in September and October, suggesting the job market has been stronger throughout the fall than initially believed. The unemployment rate dropped 0.4 percentage point to 8.6%, the first time it has fallen below 9% since March and its lowest level since early 2009. But about half the improvement in the jobless rate came from people dropping out of the labor force, meaning they no longer count as unemployed. The number of long-term unemployed barely budged at nearly 5.7 million."

Below 9%: "There was a huge 594,000 decline in the number of Americans who are officially unemployed. But the main reason for the big drop in that number and the fall in the jobless rate wasn't more people working, but fewer people looking for work. The labor force declined by 315,000 workers and the labor force participation rate fell to 64% from 64.2% in October. The labor force participation rate has fallen by some two percentage points since early 2009, which means that more than two million Americans have withdrawn from the work force. Normally during a recovery as hiring picks up, Americans get back into the jobs market."

Video: November Jobs Report

An EU Breakup Would be Unlike Any Other: "History suggests two types of monetary unions survive the longest, says Gabriel Stein, a director of Lombard Street Research, a London-based economic-analysis firm. The first are those where "a whale is tied to a minnow"—like the U.K. and Ireland from the 1920s to the 1970s and Belgium and Luxembourg from the 1920s to the 1990s. The second is where roughly equal-size entities form a fiscal union—like the U.S. The euro zone doesn't fit into either category."

A Euro Crisis Deal Emerges - Europe Crisis Recap Interactive Chart

What Percent of Aggregate Income Are You?

After Turkey Day Economics

2011-11-27T16:15:00.001-06:00

GDP Grows at (Revised) 2% Pace in 3rd Quarter: "Gross domestic product, the total value of all goods and services produced in the U.S., grew at an annual rate of 2% in the July to September period, instead of an initially reported 2.5%, the Commerce Department said Tuesday. The revision was due largely to businesses shrinking their inventories more than initially estimated...Tuesday's report also said corporate profits rose 2.1% from the previous quarter and 7.9% year over year, as companies registered solid sales while keeping the lid on labor costs. The pace was slower than the previous quarter's 3.3% rise, in part because of the drop in inventories. But the data show companies weathered market volatility due to the European financial crisis and the U.S. debt downgrade and they continue to build up a cash cushion against a possible slowdown."

Signs Consumers Are Changing Their Consumption Behavior:

Stronger Lure for Prospective Homebuyers: Interactive Graph

A Terrifying U.S. Debt Chart:

Implications of the Recent Rise in Oil Prices

It's Still Possible to Cut Spending: "After two months of talks, the super committee announced failure on Monday to agree on reducing federal deficits by $1.2 trillion over the next decade. But as the late economist Herb Stein once remarked: If something cannot go on forever, it won't. That applies to the mounting budget shortfalls. But how?"

The Non-Jobs Green Boom: "The Bureau of Labor Statistics reported recently that the U.S. jobless rate remains a dreadful 9%. But look more closely at the data and you can see which industries are bucking the jobless trend. One is oil and gas production, which now employs some 440,000 workers, an 80% increase, or 200,000 more jobs, since 2003. Oil and gas jobs account for more than one in five of all net new private jobs in that period."

College Tuition Should Not Be "Free"

2011-11-19T16:18:00.001-06:00

A recent WSJ article peaked my interest about the costs and benefits of going to college. My view is that college is beneficial on a number of different levels and should never be no charge. There is no such thing as a free lunch and individuals who go to college should bear the cost of improving their future.

Although some want it to be "free", someone else will be paying for it. While the government tries to make tuition cheaper, higher tuition has been the result. Just look at the increase in tuition since government grants increased and subsidized student loans. I believe we can expect even higher tuition and other problems (i.e. increased bankruptcies, bailout of student loan debts, etc.) since the government recently took over student loans and reduced interest rates on loans.

Will we ever learn that we do not live in a static world? The market for an education is certainly dynamic. Specifically, tuition rates impact the quantity demanded to go to college. Lower tuition increases the quantity demanded and other measures by the government increase the quantity demanded at every tuition which shifts demand to the right; therefore, higher tuition rates will exist in the market and defeat the purposes of government intervention!

Although college may not be for everyone, we are incentivizing many students at the margin to attend college with cheaper tuition and lower requirements for students. Both of these issues lower the quality of our higher education and turn it in to a failed system similar to the K-12th grade public school system. Some people should go to trade school or choose other paths that is best for them.

I believe that anyone can get a college education as long as they remain motivated and determined, but this is not everyone and there are other beneficial opportunities for them. Allow tuition to be unmasked by government intervention and we will see an increase in the quality of education and a more productive workforce with lower prices over time.

I am not advocating that all grants and subsidized loans be removed, as there are benefits to have having an educated workforce; but a situation where tuition is free to better reflect market fundamentals will provide students with more information to make choices. The cost of tuition is pricing many out of the market who the government is trying to help attend by manipulating the decision to get a college degree.

Since it is unlikely that the supply of colleges and universities will dramatically increase that would shift supply left and lower tuition, the demand side of the market is what we should focus on. Competition of colleges, tuition rates, alternatives, and better informed consumers (you) will allow for price stability in higher education. Unfortunately, the Obama Administration is heading down the wrong road.

Why We Need Tax Reform

2011-11-18T21:06:00.001-06:00

Check out my recent article on PolicyMic titled "Why We Need Tax Reform." I look forward to your comments. Here is an excerpt: "We have been going down the same road of tinkering around the edges of taxes and spending that have not been successful. These actions have made us more dependent on the government. This is apparent across our economy, and until the citizens of our great country can take back the reigns from government and allow markets to work without manipulation, we will stifle the entrepreneurial spirit that has made America an economic superpower."

Inflation, Deficits, and EU Recession...Oh My!

2011-11-16T08:10:00.001-06:00

Consumer- Inflation Pressures Ease: "Compared to a year earlier, consumer prices as calculated by the main index rose by 3.5% in October, still well above the Fed's comfort zone of close to 2.0%. Underlying consumer prices, however, were up by just 2.1% compared to last year."

Producer- Inflation Remains Elevated: "Over the past year, wholesale costs have risen 5.9%, with the core increasing a lesser 2.8%. That run-up has been fueled by higher prices of key commodities such as oil, but costs have subsided lately"

Rising Retail Sales Brighten Future: "Retail sales rose 0.5% to $397.7 billion in October from the previous month, the fifth consecutive monthly increase, the Commerce Department said Tuesday. The report prompted several economists to raise forecasts for fourth-quarter growth."

Deficit Deal Might Delay Tax Reform: "The supercommittee's goal : Find at least $1.2 trillion in deficit reduction over the next decade. While the two sides have inched closer together in their latest offers, they remain far apart for now. In their latest proposals, Democrats are asking for at least $1 trillion in tax increases, while Republicans have offered only about $250 billion. Democrats have offered about $1 trillion in spending cuts, and the GOP has offered about $700 billion. Both plans trim much of that from safety-net programs. November 23rd deadline."

Recession Fears Haunt Europe: "Gross domestic product in the 17-nation euro zone grew 0.6% at an annualized rate during the third quarter, according to figures released by European Union statistics agency Eurostat, the weakest expansion since the region exited from recession more than two years ago and well below growth rates registered in the U.S. and Japan."

To Increase Jobs, Increase Economic Freedom: "While we are certainly going through difficult times our decline is not inevitable—it can and must be reversed. The U.S. is still an extraordinary country by almost any measure. If we once again embrace the principles of individual and economic freedom that made us both prosperous and exceptional, we can help lead the world towards a better future for all."

Rick Perry's Energy Plan is Good for Growth that I wrote for PolicyMic: "I agree with these proposals. In particular, getting rid of all energy subsidies and tax incentives across the board will allow the market to direct the allocation of resources to energy sources that are profitable without government intervention. Perry’s case for energy expansionism, however, is weakened by his past energy actions as governor and by the interventionism of other Republicans."

Best College Majors, Dow Plummets, and More

2011-11-09T16:07:00.002-06:00

Best College Majors: "Choosing the right college major can make a big difference in students' career prospects, in terms of employment and pay. Here’s a look at how various college majors fare in the job market, based on 2010 Census data. Some popular majors, such as nursing and finance, do particularly well, with unemployment under 5% and high salaries during the course of their careers."

With the Ohio Vote, Analyzing the Rights and Economics of Unions by Me on PolicyMic (Here is a link to my other articles on this site)

Dow Plunges 389 Points: "Italian bond yields soared to euro-era highs after clearinghouse LCH.Clearnet Group raised the margin required to trade Italy's government bonds. The yield on the benchmark 10-year bond rose above 7%l, peaking at 7.494% before coming back to 7.205%, according to Tradeweb. In addition, a report in Germany suggesting that German Chancellor Angela Merkel's party is trying to allow countries to leave the euro while remaining in the European Union added to uncertainties. "Italy started us off, but everything subsequent to that is whether the euro zone is going to hold together," said Rick Bensignor, chief market strategist at Merlin Securities."

Italian Premier Pays Final Debt: "On Tuesday, Mr. Berlusconi agreed to resign after his government passes its 2012 budget in Parliament. In his wake, Italy must confront a power vacuum. For now, the country is under the control of President Giorgio Napolitano, who must decide whether to form a national unity government to guide the country through the crisis or call early elections. Either way, the felled leader will have to contend with a political landscape crowded with fractious political parties and divergent views of how to save the country."

Young Men Suffer Worst as Economy Stagnates: "The unemployment rate for males between 25 and 34 years old with high-school diplomas is 14.4%—up from 6.1% before the downturn four years ago and far above today's 9% national rate. The picture is even more bleak for slightly younger men: 22.4% for high-school graduates 20 to 24 years old. That's up from 10.4% four years ago."

Public School Teachers Aren't Underpaid: "Education is widely regarded by researchers and college students alike as one of the easiest fields of study, and one that features substantially higher average grades than most other college majors. On objective tests of cognitive ability such as the SAT, ACT, GRE (Graduate Record Examination) and Armed Forces Qualification Test, teachers score only around the 40th percentile of college graduates. If we compare teachers and non-teachers with similar AFQT scores, the teacher salary penalty disappears."

ObamaCare-Flawed Law, Flawed Policy: "The Supreme Court is expected to meet Thursday to discuss whether to hear challenges to last year's Patient Protection and Affordable Care Act—particularly concerning the constitutionality of the law's "individual mandate," which requires all Americans to have health insurance. With a split in appeals court rulings, including Tuesday's D.C. Circuit Court of Appeals decision upholding the mandate, it now seems clear the Supreme Court must weigh in."

The Real 1 percent: "Roughly 80 percent of millionaires in America are the first generation of their family to be rich. They didn't inherit their wealth; they earned it."

Great video...Are the Poor Getting Poorer?

Texas Indicators, the Fed, and Other Issues

2011-11-02T22:43:00.000-05:00

Texas Economic Indicators: Only 800 jobs created in Texas in September, compared to 4,400 in August. Relative to the nation, job creation in the state was weak in September, primarily from a steep drop in government jobs of 23,200. Strength in the state is still apparent relative to many other states as 18% of the 137,000 private sector jobs created in the nation were in Texas. Employment growth is still not growing fast enough to push down the 8.5% unemployment rate, but it still remains lower than nation's 9.1%. Another indication that the state's economy slowed over the summer is the Texas Leading Indicators, which declined by 2.7% over this period.

Bernanke and Banks Tested: "Banks also are more liquid. Cash holdings have more than quadrupled to $1.8 trillion since 2008, according to the Federal Reserve, thanks in part to vast sums the central bank has pumped into the system. Even so, corners of the financial system are under stress. Borrowing costs for commercial real-estate loans, for instance, have jumped since June. European banks are paying more to borrow U.S. dollars."

Europe Gives Greece an Ultimatum: "Europe's leaders, making it plain that they've reached the end of their patience with Greece, demanded that the beleaguered nation declare whether it wants to stay in the euro currency union—or risk going it alone in a dramatic secession."

Obama Joins the Pipeline Fight: "TransCanada Corp. is seeking to build the pipeline from Alberta to Texas. It would help oil companies transport heavy crude oil from Alberta's oil sands to world markets. In August, the State Department concluded its environmental review and said the pipeline wouldn't pose a significant threat. Many viewed that as a signal the State Department was on track to approve the project."

The Perry Paradox: "This much is obvious: Texas, not California, better be the American future. Somewhere inside of him, Rick Perry of Texas understands this distinction. He should stick to explaining what he knows. Let voters figure out if he can explain it to Washington."

More on Economic Freedom and Monetary Policy: "My Wall Street Journal article today is quite critical of recent interventionist fiscal and monetary policies in the United States. In my view, they have not only been unhelpful to the American economy, they have also been unhelpful to the world economy. The monetary and fiscal policies I am criticizing go back to before the start of the Obama administration, as I showed in this article on fiscal policy recently published in the Journal of Economic Literature and in this piece on monetary policy published in November 2008 by the Bank of Canada. So I view this criticism as being non-partisan, as has been my historical review of the swings between rules and discretion."

Assorted Articles for Assignment

2011-10-31T23:08:00.002-05:00

Required for Macro (2301): Underemployment Poses Long-Term Financial Risk to More Workers
Required for Micro (2302): Is Government Action Worse Than Global Warming? by Reason Magazine

Choose 4 out of the following to finish the assignment.
Job Rise Shows Slow Recovery: October Jobs Report
Fed Lowers Its Jobs Forecast
Recession Fears Recede as Economy Grows 2.5% from WSJ
Cap and Trade Issues in 2009 from WSJ
A Solution to Avoid Asset Bubbles by Vance Ginn
Bank of America Drops Debt Fee from WSJ
President Obama Unveils Plan to Help Those With Student Debt
Perry Joins Flat Tax Camp
The Wrong Inequality from NYT
Greek Vote Threatens Bailout
Euro Zone Edges Nearer to Recession
Slow Recovery Feels Like Recession in U.S.
A Slow Growth America Can't Lead the World by John Taylor
Families Don't Depend on the Minimum Wage
A Month to Remember for Markets
Texas Breaking Out of Recession from Dallas Fed

Economy in Pictures

2011-10-30T20:17:00.000-05:00

Slow-Paced Recovery Feels Like a Recession

Cutting Back on Driving

The Spending-Income Shortfall

Fed Balance Sheet Steady, But Excessive!

Thoughts on Post-Tenure Review Reform and Student Loan Debt Plan

2011-10-29T23:28:00.000-05:00

Do College Ratings of Professors Make the Grade?

My thoughts: It looks like reforms may finally be made for post-tenure reviews. While I am for making changes that will benefit educating our youth, I am still skeptical of the reforms that may be made.
Improving the quality of educating those in a market where the price is going up dramatically for its consumers is the best signal to provide a better service to meet expectations. This appears not be a divisive issue, even though it will be. Professors and students should demand better measures for evaluating a market that is highly subsidized with taxpayer dollars. Finding an equilibrium will no doubt upset some professors and some students, but equating marginal costs to marginal benefits is the key to a rational choice.
Any market where teachers, government employees, private sector workers, and others are given an increase in their pay without an increase in their productivity is not efficient. The problem is that this occurs most often in the public sector, including teachers, where raising salaries is proposed to fix problems in the market even as performance measurements remain non-existent.
The private sector is more immune to this problem since these measures are put in place to maximize profit. If someone is not performing up to par with what is asked of them, they will be fired in the private sector, which is why there is more turnover in the market. While some believe this is also a failure in the private sector, it is the beauty of a market that allows individuals to find what job they are best at and firms to find employees that are best suited for their vision. Reducing this and increasing pay without a rise in output from workers, creates a monopolistic market because of the power of the purse within the public sector.
I enjoy teaching at the college level and I look forward to becoming a professor one of these days; therefore, it would be nice to know that I would have a job where I could not perform to the best of my ability over time and continue to receive pay increases and a job, but this is not what I want and what I think anyone should expect.
Thus, changes will have to be made if the current system is failing to provide the education that students are going into massive debt over. Fortunately, many of the professors that I know are performing above expectations!

Speaking of student loan debt...Little Student Loan Relief, and Never for Taxpayers

My thoughts: This is a scam being offered by the government to reduce the cost of an education. We live in a dynamic world with incentives being the key to decisions made by those who want to get an education.
If you lower the costs, what happens to demand? What happens to the price of tuition? If you guessed increase, then you are correct. Therefore, even if the President is able to reduce the interest rate on student loans, the principle balances of paying for college will go up by a larger amount and make students/loan holders worse off.
In addition, those "rich" who do not have to get student loans will be significantly worse off as their tuition will skyrocket without any benefit of lower student loan rates. Too bad many will not think about the marginal costs and will take the plan at face value.

Video: Economic Freedom and Other Articles

2011-10-28T21:43:00.000-05:00

Check out this video that relates economic freedom and the size of the government. We are currently heading in the wrong direction.

Repealing the New Health Law Will Not Be Easy
The Divider vs. The Thinker
The Other Jobs Crisis
An Austrian Perspective on the Financial Crisis
Fighting for Energy Freedom

3rd Q GDP: Better but Insufficient

2011-10-27T22:55:00.000-05:00

The Resilient Economy
Recession Fears Recede as Economy Grows 2.5%:

Excellent analysis of the 3rd Q GDP data by the Calculated Risk Blog.: "According to the Bureau of Economic Analysis (BEA), realGDP is finally just above the pre-recession peak. The estimate for real GDP in Q3 (2005 dollars) was $13,352.8 billion, 0.2% above the $13,326.0 billion in Q4 2007. Nominal GDP was reported as $15,198.6 billion in Q3 2011.At the worst point, real GDP was off 5.1% from the 2007 peak. Since the most common definition of a depression is a 10%+ decline in real GDP, the 2007 recession was not a depression."

Cheers and Skepticism Greet Europe Debt Deal: "The Dow Jones Industrial Average rose 339.51 points Thursday, or 2.9%, to 12208.55. With the Dow up 11.9% so far in October, it's on track for its biggest monthly percentage gain in nearly 25 years.European leaders, meeting through the night in Brussels into early Thursday, brokered a broad package of measures to retool their bailout fund, recapitalize the Continent's banks and reduce Greece's debt load. The deal marks the boldest attempt by Europe's leaders to bring a crisis that began in Greece in the fall of 2009 under control."

Everyone Bails Out Everyone

Four Reasons Why Keynesians Kept Getting it Wrong by Allan Meltzer

Food and Tuition Prices Rise but Housing Still Remains Weak: Assorted Articles

2011-10-25T23:58:00.000-05:00

College Tuition Continues to Climb:

Tuition and Fees

Average published tuition and fees for undergraduates.

Sector	2011-12 costs	2010-11 costs	$ Change	% Change
Public Two-Year In-State	$2,963	$2,727	$236	8.7%
Public Four-Year In-State	$8,244	$7,613	$631	8.3%
Public Four-Year Out-of-State	$20,770	$19,648	$1,122	5.7%
Private Nonprofit Four-Year	$28,500	$27,265	$1,235	4.5%
For-Profit	$14,487	$14,040	$447	3.2%

Source: The College Board

President Obama to Set Out Student Debt Plan: "President Barack Obama will announce a plan Wednesday that would allow Americans to consolidate and reduce interest rates by .5% on their student loans, the latest in a string of narrowly tailored moves designed to jolt the economy."

Home Prices Signal Weakness: "U.S. home prices inched 0.2% higher in August but declined 3.8% on an annual basis, according to a closely watched index released Tuesday. Ten of the 20 cities in the S&P/Case-Shiller composite index also posted gains in August, signaling some improvement in the battered real-estate sector."

Prices Rising: "The midpoint of the new USDA outlook signals the sharpest acceleration in the food inflation rate from one year to the next since 1978, and makes the increase itself the biggest since 2008, when prices rose 5.5%. The agency issues a monthly forecast for retail food inflation, which has been building for several months, and had been predicting an increase of 3% to 4% since February."

Perry Joins Flat Tax Camp: "Mr. Perry proposes to reduce government spending to 18% of the economy each year, down from 24% in 2010—a difference worth about $875 billion last year. But he provided few details on how he would cut federal programs to achieve that goal.

Mr. Perry's plan would offer taxpayers a choice. They could file under the existing system, with its individual tax rates as high as 35% and numerous deductions and credits. Or, they could pay his new 20% rate, which he described as a flat tax."

Consumer Confidence Tumbles: Consumer confidence, as measured by the private research group the Conference Board, dropped to 39.8 in October, the lowest level since March 2009. That is well above the low point hit during the latest recession—25.3 in February 2009—but confirms that the mood among Americans has darkened. Most readings before the recession, when the economy was growing healthily, were above 90 and often in the triple digits.

What Happened to the WTI oil price and gas price relationship?:

What Tax System Supports Economic Growth?

2011-10-25T23:37:00.002-05:00

A simple, less obstructive tax system, such as Perry's flat income tax, would be much more efficient than the progressive marginal tax system that we have today (See figure below). What are the implications of increasing tax rates on higher incomes and therefore tax revenues? We can understand a great deal about this from the Laffer Curve (See second figure), where a recent op-ed by Martin Feldstein notes that the tax reforms by President Reagan in 1986 lowered tax rates and increased tax revenue.

This occurs because high tax rates disincentive individuals to work, reduce the amount of dollars that are put into private investments, and create many other opportunity costs that constrain economic growth. In addition, taxing incomes appears to me to be a violation of the constitution, where our private property (hard earned dollars) is taken from us by coercive action (penalties or jail if you do not pay) by the Federal government (who wrongly believe it is their money to begin with). Therefore, the 16th amendment should be overturned or changed to a more efficient and less distorting means of gaining tax revenue for essential services.

Since this may not occur for quite some time (possibly until I am elected ;-) ), what should replace our current tax code? There are a number of alternatives out today that would be significantly better than what we currently have. Many are arguing (Economist blog) that these alternatives (i.e. Perry's plan (WSJ op-ed), Cain's 9-9-9 plan (WSJ op-ed), and the Fairtax (my preferred tax as explained in this blog post)) will not bring in sufficient revenue to pay for current government outlays. There are certainly roles for the government, as I am not an anarchist or anarcho-capitalist, but more of a classical liberal, and identifying what these are should be the foundation for deciding on the level of spending.

The problem with the argument about alternative tax systems not bringing in enough revenue is that it assumes that current government spending is at the "right" amount. There has been an insurmountable increase in government spending for quite some time, and many of these programs that are not effective should be removed and stimulus funding should not be made permanent, where I would argue it should not have been made at all (See figure below). This is how the government does a simple "magic trick" by proposing to increase spending for a short period to boost economic growth but it ends up being plugged in to future spending bills.

What is the lesson to learn from this? Let us take the power back from the government and reduce its size and scope. We can do this by moving to a tax system that focuses on reviving economic growth by increasing economic choices by individuals and firms through market oriented policies, which will coincide in many cases with supply-siders. Changing the tax system to one that can incentivize individuals to work and save and for firms to reduce their costs of production should be the goal.

We have been going down the same road with very small changes in policy actions that have not been successful but have reduced our freedoms and made us more dependent on the government. This is apparent across our economy, and until the citizens of our great country can take back the reigns from government and allow markets to work without manipulation, then we will stifle the entrepreneurial potential and make future generations worse off.

I always refer back to my two favorite economists: Milton Friedman who said something similar to "an increase in government reduces individual choices and freedoms" and Hayek may have referred to it more precisely by noting that expansion of government makes men slaves. Do we want a government that provides an economic environment that fosters economic growth or do we want a government that provides services that we believe the private sector fails to supply? This is the dilemma that we continue to face and it is time that we think outside the box. I look forward to your comments!

Part II of Perry's Energy Policy Speech, PPI, Bernanke, and Laffer on the 9-9-9

2011-10-18T20:04:00.001-05:00

Here is Part II of my post on the Master Resource blog about Governor Perry's energy policy speech last Friday. This one looks at the overreaching regulatory actions by the EPA based on the precautionary principle. Check it out and please leave your comments.

Here is an excerpt from it:
Conclusion

Policies made on faulty science and the lack of looking at the true costs of regulation are widely viewed as preventing the economic recovery that 99% of Americans want. A better solution could certainly be private regulation, as noted by this CATO Policy Analysis, but it appears that this may not happen for quite some time.

In the meantime, Governor Perry’s approach of releasing the federal shackles on our energy sector stands as a marker for a new approach to both energy and economic recovery.

In other news...
PPI Increases Inflation Scares: "Wholesale prices rose by 6.9% compared to September 2010. Underlying prices, meanwhile, increased by an annual 2.5%, the biggest gain since June 2009."

Bernanke Talks About Fed's Plans: "The Fed has been considering whether to provide more explicit guidance on its plans for interest rates. One idea would be to more explicitly tie changes in its interest-rate policy to forecasts for employment and inflation measures."

Cain's "9-9-9" Tax Reform: "By contrast, the three tax bases for Mr. Cain's 9-9-9 plan add up to about $33 trillion. But the plan exempts from any tax people below the poverty line. Using poverty tables, this exemption reduces each tax base by roughly $2.5 trillion. Thus, Mr. Cain's 9-9-9 tax base for his business tax is $9.5 trillion, for his income tax $7.7 trillion, and for his sales tax $8.3 trillion. And there you have it! Three federal taxes at 9% that would raise roughly $2.3 trillion and replace the current income tax, corporate tax, payroll tax (employer and employee), capital gains tax and estate tax. The whole purpose of a flat tax, à la 9-9-9, is to lower marginal tax rates and simplify the tax code. With lower marginal tax rates (and boy will marginal tax rates be lower with the 9-9-9 plan), both the demand for and the supply of labor and capital will increase. Output will soar, as will jobs. Tax revenues will also increase enormously—not because tax rates have increased, but because marginal tax rates have decreased."

Herbert Hoover-Father of the New Deal: "Hoover's big-spending, interventionist policies prolonged the Great Depression, and similar policies today could do similar damage. Dismantling the mythical presentation of Hoover as a "do-nothing" president is crucial if we wish to have a proper understanding of what did and did not work in the Great Depression so that we do not repeat Hoover's mistakes today."

5 Reasons Why Inequality is a Myth: "Really? Just think for a second: If inequality had really exploded during the past 30 to 40 years, why did American politics simultaneously move rightward toward a greater embrace of free-market capitalism? Shouldn’t just the opposite have happened as beleaguered workers united and demanded a vastly expanded social safety net and sharply higher taxes on the rich? What happened to presidents Mondale, Dukakis, Gore, and Kerry? Even Barack Obama ran for president as a market friendly, third-way technocrat."

The Immigration Solution for Job Growth: "Our visa system makes it extremely difficult for anyone with a great business idea to come here and stay. Our universities are teaching many more brilliant young foreigners, yet our immigration system often prevents them from remaining here after graduating. We should be creating incentives and opportunities for foreign students to remain in the United States—especially those in critical fields like science, engineering and technology."

Governor Perry's Energy Speech Part I and Pictures from DC

2011-10-17T23:44:00.000-05:00

Here is my recent post that I wrote for the Master Resource blog concerning Governor Perry's energy policy speech on Friday. Part II of this post will come out tomorrow. Please check it out and like the Master Resource blog if you have not already.

A New Spending Record:

Electric Cars Taking Over Gas Cars Anytime Soon is a Myth

The following are pictures that I took from the time that Emily and I had in D.C. last week, where the first is when I was giving my presentation at the U.S. Association for Energy Economics Conference. Enjoy!

Where are the Jobs? Education Reform Could be Key

2011-10-14T23:53:00.002-05:00

Keynesian economists indicate that if we can just increase government spending enough and not worry about deficits then the dollars will multiply through the economy and job creation will be plentiful and bring in more revenue to the government over time. Unfortunately the data do not support these claims. The following graph shows this clearly of how off that the data have been even as trillions of dollars have been put in the economy. shows what the unemployment rate has done compared to Obama Administration's calculations before the stimulus bill in 2009 was passed. Only if we could find a way to spend another trillion or more dollars, we could certainly have a higher unemployment rate...oh wait they meant it should go down! Some will never learn.

The Steve Jobs Model for Education Reform: "Steve Jobs knew all about competitive markets. He once likened our school system to the old phone monopoly. "I remember," he said in a 1995 interview, "seeing a bumper sticker with the Bell Logo on it and it said 'We don't care. We don't have to.' And that's what a monopoly is. That's what IBM was in their day. And that's certainly what the public school system is. They don't have to care." We have to care. In this new century, good is not good enough. Put simply, we must approach education the way Steve Jobs approached every industry he touched. To be willing to blow up what doesn't work or gets in the way. And to make our bet that if we can engage a child's imagination, there's no limit to what he or she can learn."

Retail Sales Up: "Retail sales rose 1.1% to $395.5 billion in September—the biggest jump since February and a number that, while not huge, is normal for a recovery. The government also revised upward sales numbers for July and August."

Texas Economic Indicators and Assorted Articles

2011-10-12T19:12:00.000-05:00

Texas Economic Indicators: "The Texas economy grew at a modest pace, with employment expanding at a 1.6 percent annual rate in August. Texas home sales rose in August along with single-family permits and housing starts. Texas exports inched up in July, and manufacturing activity increased in August, according to the Texas Manufacturing Outlook Survey’s production index."

The unemployment rate ticked up to 8.5% and there were 13,700 jobs added in August, which compares with 9.1% and 57,000 in the US. Therefore, Texas created a quarter of all the net jobs across the nation for the month of August and July (29,300 in Texas vs. 127,000 in US). It is interesting to see that the rate has continued to rise over the last three months, possibly from those that are entering back into the labor force after becoming discouraged from not finding a job over an extended period of time. If this is the case, then it could signal continued strength in the state's economy and not weakness, but time will tell. From the look at the first figure showing the month over month percentage change in the business cycle index (BCI) in Texas, it appears that the economy continues to expand, but not as fast as during recent expansions. The second figure shows the annual percentage change in the business cycle index.

Phillips (2005)

Trade Pacts Advance in Congress: "Congress on Tuesday continued a march toward midweek passage of free-trade agreements with South Korea, Colombia and Panama, trade deals that were first negotiated more than four years ago.

Obama's Jobs Plan Hits Wall in Senate: "Rejection of the bill opens a new phase in the political battle over job creation, with the White House and Congress now planning to break up the legislation and try to pass parts of it in an effort to show they accomplished something to battle joblessness."

EU Pushes Bank Plan: "The governments say they believe the ESM, which has paid-in capital of €80 billion ($109 billion) and overall lending capacity of €500 billion, disburses aid more efficiently than its temporary predecessor, the European Financial Stability Facility. That may be necessary as euro-zone governments consider whether to impose bigger losses on banks holding Greek bonds as part of a new round of bailout lending to the government. The ESM is also able to impose losses on sovereign creditors when it makes loans."
Greece Budget Deficit Widens 15%

Two Economists Win Nobel Price for Focus on Real World: "Thomas J. Sargent of New York University and Christopher A. Sims of Princeton University were honored Monday "for their empirical research on cause and effect in the macroeconomy," said the Royal Swedish Academy of Sciences, which awards the prize."

Government vs. EPA: "The Environmental Protection Agency's political agenda hasn't gotten any less reckless, but the news is that the rest of the government is beginning to notice—including a majority of the states and even other regulators. And now they are pushing back. This turn comes in the nick of time, since one of the EPA's more destructive rules is due to be finalized next month."

Families Don't Depend on the Minimum Wage: "We do have serious poverty in our economy, even more so in this lingering recession. And everyone favors the rising real wages and living standards that come with productivity advance and economic growth. But advocates of a higher minimum wage put the cart before the horse. A growing economy generates good jobs; higher wages don't grow the economy. And the overwhelming evidence is that higher minimum wages reduce the availability of jobs at the lowest end of the job market."

China Seeks to Lower Yuan: "In a defiant response to U.S. Senate approval of a bill that would pressure China to let its currency rise faster, the nation's central bank set the guideposts for the yuan substantially lower on Wednesday and warned that the bill could imperil further currency reform."
The Senate's New Protectionists

Inside the Fed Fight Over Bond Buys: "The committee agreed on a plan to shift the Fed's $2.65 trillion portfolio of securities toward longer-term securities and more mortgage debt than previously planned in an effort to bring down long-term interest rates. The hope is that lower rates will spur more spending and investment."

Cain's 9-9-9 Plan Gets a Closer Look: "In its basic outlines, Mr. Cain's plan sounds simple enough. It would scrap the current system—with its income-tax rates as high as 35% for high-income individuals and for corporations—and replace it with a 9% personal flat tax, a 9% corporate flat tax and a 9% national sales tax."

There's Something Happening Here: "Two master narratives — one threat-based, one opportunity-based, but both involving seismic changes. Gilding is actually an optimist at heart. He believes that while the Great Disruption is inevitable, humanity is best in a crisis, and, once it all hits, we will rise to the occasion and produce transformational economic and social change (using tools of the Big Shift). Hagel is also an optimist. He knows the Great Disruption may be barreling down on us, but he believes that the Big Shift has also created a world where more people than ever have the tools, talents and potential to head it off."

The Shameful Bias Against Mormons: "For those needing a primer on why it’s un-American and counterproductive, not to mention medieval, to also require a religious test, Romney provided an eloquent lesson four years ago. In his “Faith in America” speech, he reminded Americans of why and the ways we honor freedom of religion in this country. Romney recognized the role of religious life in the public square and acknowledged the divine source of liberty."

Jobs Report Signals Continued Weakness

2011-10-07T19:38:00.000-05:00

The Jobs Report was better than expected, but there are many weaknesses that remain. Check out these blog (here and here) posts by Calculated Risk for more.

1. Net number of Jobs Created in September was 103,000

137,000 private sector jobs
45,000 jobs were from those Verizon workers that went on strike going back to work
14 million still unemployed
Previous two months were revised up to 127,000 in July and 57,000 in August
1 million discouraged workers

2. Unemployment rate remained the same at 9.1%

16.5% is the U6 rate-includes discouraged workers and underemployed
58.3% is the employment-to-population ratio (up .1%)
64.2% is the labor force participation rate

3. Average hourly earnings

$23.12 is the average and was up .2% over the last month
1.9% increase over the last year

-.1% is the average hourly real earnings increase corrected for the 2% core CPI over the last year
-1.9% " " for the 3.8% overall CPI

Serious problems still remain in the labor market...

Bank Failures and Millionaire Tax

2011-10-07T19:14:00.002-05:00

Several key points about the economic data out over the last couple of days. First off, the total number of bank failures this year rises to 76 (25 in 2008, 140 in 2009, and 157 in 2010. The next issue that I write about the rest of this post is the CBO estimate that the federal government's budget deficit for 2011 is $1.3 trillion (8.6% of GDP), where the official number will come out in a couple of weeks.

This is the third highest deficit in our history and continues to add to our $14 trillion plus national debt. The record was set in 2009 of $1.4 trillion (9.8%) and pretty much the same as last year's $1.3 trillion (8.9%). Together these add up to $4 trillion in only 3 years by the Obama Administration, which is close to the overall amount that was added during 8 years under the Bush Administration. (Check out this previous blog post for a more in-depth comparison of the records of deficits by previous presidents) Some will argue, somewhat correctly, that part of the 2009 deficit was from spending from the Bush Administration, but no matter who you want to put the blame on, these are not sustainable and government spending must be slashed!

Raising taxes on millionaires will not solve the problem. In fact, the new proposal by Senate Democrats to raise the tax on those making more than $1 million a year will only bring in $450 billion over 10 years, a measly $45 billion per year, to supposedly pay for the President's Jobs Plan that is estimated to cost $450 billion. One problem with these data is that it does not take into account the dynamic economy that we live in and the disincentives that higher taxes put on working and innovation. Higher taxes incentivize those that bear the tax to reduce their hours of work, find tax shelters, loopholes, and other means to avoid the higher taxes (see Laffer Curve below) and therefore reduce government revenue, which is why estimates show that we waste $500-$600 billion each year to comply with the ridiculous tax code that we have. These are dollars that could be spent more efficiently in our economy and the opportunity costs of time and effort put these totals much higher! This says nothing about how we control the record deficits that we have but rather only pays for another stimulus proposal.

It also shows the lack of credibility from those who say that we should just tax the "rich" more to pay down the deficit. Considering that the Tax Foundation estimates that there are around 332,000 millionaires in America, there is no possible want to tax them enough to close the gaping hole in our government's budget (see figure below). Even taxing them all 100% would not balance the budget. This is another political game to block the public from the true cost of excessive government spending and push it towards class warfare. Picking the rich to pay more, where the top 1% already pay close to 40% of all the tax revenue to the federal government and the top 50% pay 98%, continues to pick winners and losers by those in DC and does nothing to provide an economic environment of growth and prosperity.

I don't know about you, but I hope to be bringing home more than a million dollars per year one day and this sort of tax proposal decreases my desire to make more when each additional hour of work over $1 million would bring home less of a dollar than before. Should we not be incentivizing everyone to educate themselves and design innovations that could make them the next millionaire? We will certainly have fewer millionaires and fewer people with the opportunity to be millionaires as the burden is passed on to lower and middle income earners. What are income earners across the income thresholds elasticities for supplying labor? The higher that taxes are, the more deadweight loss there is in the labor market. Increasing idle resources (i.e. unemployment) reduces productivity and is a drag on standards of living in our great country. Something must be done about our deficits, but is this the best path?

Maybe it might be best for the government to start sending money to every household and allow them to all stay home and play video games, smoke pot, watch tv, and increase their desires to be lazy and unproductive because those in DC know better than all of us anyway (right?). We don't need to do anything, just give them all of your money and everything will be perfect. It may be that this is the best way to stimulate the economy. So instead of only a $450 billion Jobs Plan by the President, why not increase it to $10 trillion and just print more money to inflate it away or just write off all the debt to those that own it?

This sounds pretty ridiculous, because it is! There are consequences and there is no free lunch~Milton Friedman. Those that argue for these outlandish proposals in DC know this but are too arrogant to believe that you will make the best decisions with your money, so let them do it for you is what they would like. If the power of a few can control everything, what power do the many have? Wake up America!

Fisher Speaks, Cain's Tax Plan, Obama's Jobs Plan, Oil Prices, Climate Change, and Banking

2011-10-06T21:49:00.001-05:00

A day before the day we wait for every month, the Jobs Report, here are a few of the top articles that you should check out. Have a great evening and I will post the estimates for the labor market tomorrow.

Excellent Speech by Dallas Federal Reserve President Richard Fisher: "One other factor gave me pause and that was, and remains, the moral hazard of being too accommodative. For years, I have been arguing that monetary policy cannot solve the problem of substandard economic performance unless it is complemented by fiscal policy and regulatory reform that encourages the private sector to put to work the affordable and abundant liquidity we are able to create as the nation’s monetary authority...I might conclude by sharing my concerns about the prospect of temporarily allowing more inflation as a means of unlocking expansion in final demand. I understand the theoretical basis for entertaining that thesis: If businesses and consumers believe prices will rise, they will rush out to invest and consume now. But the practical aspects of this approach appear to counter the theoretical. Paul Volcker, who has the scars on his back from his Herculean effort to rein in inflation in the 1980s, wrote of this in the New York Times on Sept. 18.[7] He reminded us that once unleashed, inflation combines with stagnation to make stagflation, the most painful of all combinations for the poor, for workers, for job seekers, for bond and stock holders and for businesses trying to navigate the economy."

Cain's Tax Mutiny: "The plan is nothing if not bold, throwing out the current tax code and replacing it with three new taxes: a 9% flat rate personal income tax with no deductions except for donations to charity; a 9% flat rate tax on net business profits; and a new 9% national sales tax." My thoughts: This plan would be substantially better than our current complex, progressive, distorting, and riddled with deadweight loss income tax system.

Obama Pushes for Jobs Bill: "President Barack Obama, fearing his $447 billion jobs bill will falter in Congress, signaled Thursday that he would push for separate votes on each part of the legislation as a way to ratchet up pressure on Republican lawmakers."I promise you, we're going to keep on going, and we will put forward maybe piece-by-piece each component of the bill," Mr. Obama said during a White House news conference. If Republicans vote against individual elements, the president said, "each time, they're going to have to explain why it is that they'd be opposed." Mr. Reid this week moved to scrap the tax measures Mr. Obama had proposed, an effort to attract more votes in his caucus. Instead, Mr. Reid proposed a 5.6% surtax on people earning more than $1 million a year. Mr. Obama said Thursday he was "comfortable" with the idea, which would raise $450 billion over 10 years.

Central Banks Step Up Battle to Contain Crisis: "The U.K. move to engage in more quantitative easing, or government-bond purchases, was particularly noteworthy, because economists hadn't expected such a decision for at least another month—a reflection of how much ripples from the widening crisis over Greece's debt are worrying policy makers outside the euro zone. This week Greece is expected to finish talks with the "Troika" of creditors—the IMF, the ECB and the European Commission—as the concerns that began two years ago with Athens now threaten Europe's largest economies. The ECB didn't take a bolder step of lowering rates, though some of its governing council members pressed for that move and were outvoted. The ECB doesn't release vote tallies, but Mr. Trichet said the decision was taken by "consensus"—ECB code for several dissenting votes. The ECB kept its main interest rate at 1.5% for a third straight month, after raising it in increments in April and July."

Democrats' Populist Puzzle: "The Democratic Party is grappling with the promise and peril of the anticorporate populism of the Occupy Wall Street movement, seeking to tap its energy without opening the party to charges of class warfare."

Secretary Geithner Recasts Obama Stance on Bank Profits: "The president does not believe that we get to determine how profitable individual financial institutions are across the country," Mr. Geithner said at a Senate Banking Committee hearing. "What we do believe is, you want to have a system of oversight and protection where consumers understand what they are being charged." President Barack Obama recently stepped into the debate over such fees, saying in an ABC News interview that banks "don't have some inherent right just to, you know, get a certain amount of profit."

With Crude Oil Price Below $100, OPEC May Act: "This week, the basket of average crude prices sold by members of the Organization of Petroleum Producing Countries and the Brent oil contract widely used by its clients both closed under $100 a barrel for the first time since February. Some OPEC producers have begun to sound alarm bells on the weaker outlook and suggested the need for an emergency OPEC meeting if oil prices slip to $85 a barrel, or even $90 a barrel. But other members, including Saudi Arabia, have largely downplayed the recent price retreat and don't see the need for OPEC to respond. The OPEC daily price basket stood at $99.90 a barrel Wednesday, OPEC said Thursday morning.

Five Truths About Climate Change: "But over the past decade, carbon-dioxide emissions in the U.S. fell by 1.7%. And according to the International Energy Agency, the U.S. is now cutting carbon emissions faster than Europe, even though the European Union has instituted an elaborate carbon-trading/pricing scheme. Why? The U.S. is producing vast quantities of cheap natural gas from shale, which is displacing higher-carbon coal. It's time to move the debate past the dogmatic view that carbon dioxide is evil and toward a world view that accepts the need for energy that is cheap, abundant and reliable."

Assorted Articles

2011-10-04T19:50:00.004-05:00

The 'Jobless Recovery' is Really an 'Investment-Less Recovery'

Gas Prices Stay High as Oil Drops: "The U.S. benchmark oil price, which is determined by trading on the New York Mercantile Exchange, or Nymex, has tumbled by almost a third since April. That raised expectations for gasoline prices to drop just as quickly at the pump. They haven't. The retail price of unleaded gasoline has fallen by just 13% over the same time period. On Friday, a gallon cost an average of $3.445, according to the AAA's Daily Fuel Gauge report, compared with $3.98 on May 5, a three-year high at the time."

Frontier of Frugality: "Heading into the holidays, retailers are in a bind. Many of them placed their orders back in early spring when the stock market was rising and the economy appeared to still be rebounding. But lackluster back-to-school sales signal that the holidays aren't likely to be free-spending for many shoppers. Now retailers are worried they will have too much merchandise."

Obama to House GOP: No Surrender on Jobs Bill: "If liberals wanted to see Obama barnstorming the country in support of his jobs bill and calling out Republicans by name for blocking progress, well, that’s exactly what he’s doing. The message Obama is hoping to send today is: No surrender."

Stimulus Has Been a Washington Job Killer: "Temporary, targeted tax reductions and increases in government spending are not good economics. They have repeatedly failed to increase economic growth on a sustainable basis. What may come as a surprise is that such policies are not good politics either. Their inability to deliver promised economic benefits has invariably led disappointed voters to turn against those politicians, Democratic and Republican, who have supported them."

Stock Market Nears Bear Territory: "The Dow Jones Industrial Average tumbled 2.4% Monday, leaving the index down 16.8% from its April high, 3.2 percentage points away from the 20% decline that many analysts believe signals that a bear market is under way. The broader Standard & Poor's 500-stock index also fell sharply and is even closer to bear-market territory, down 19.4% since April. The indexes are at their lowest closing levels in more than a year."

State Substitutes: "IT HAS long been true that California on its own would rank as one of the biggest economies of the world. These days, it would rank eighth, falling between Italy and Brazil on a nominal exchange-rate basis. But how do other American states compare with other countries? Taking the nearest equivalent country from 2009 data reveals some surprises. Who would have thought that, despite years of auto-industry hardship, the economy of Michigan is still the same size as Taiwan's?"

Reliable Engine of Recovery Loses Stea m: "The Institute for Supply Management's manufacturing index rose to 51.6 in September from 50.6 in August; readings above 50 on the 100-point scale indicate growth."

Bernanke Urges Action on the Economy: "Speaking Tuesday before Congress's Joint Economic Committee, Mr. Bernanke's called on Congress and the White House for better policies to shrink the federal budget deficit in the long run without cutting too aggressively right away."

Assorted Articles

2011-09-30T00:45:00.000-05:00

Flat is the New Fair: "Mr. Forbes sees an opening here too and says: "The flat tax is the perfect issue for these times. It fixes the economy and doesn't cost a dime." He's right. It's the teed-up GOP response to a jobless recovery and the near-universal sentiment among voters that the tax code is corrupt beyond repair. Today the top 1% pay 38% of the income tax. But in Washington, perception drives policy. The virtue of a flat tax with no deductions is that it provides an ironclad guarantee that the rich pay no lower a tax rate than janitors and secretaries. The near 100-year history of the tax code teaches this inviolable law of politics: The higher the tax rate, the more tax carve-outs there will be for yacht owners. That is why the rich paid a smaller share of the income tax in the early 1960s when the top tax rate was 91%, and in the 1970s with a 70% rate, than they do today with a 35% rate."

The Lessons of the Shale Gas Revolution: My thoughts...Diversification in the market should only be driven by the market. With the amount of energy that oil and natural gas provide in our economy at relatively lower costs than other energy sources, we should be advocating increased production of these resources in an environmentally sound and efficient process. The government should stop all subsidies and tax breaks for all energy companies! This would be an excellent job creating initiative in a depressed labor market that desperately needs jobs.

Some do not agree that regulation and taxes are stifling economic growth...Paul Krugman's article Phony Fear Factor: "But good politics can be very bad policy. The truth is that we’re in this mess because we had too little regulation, not too much. And now one of our two major parties is determined to double down on the mistakes that caused the disaster."
House Passes Spending Bill, Overts Shutdown:
"The reprieve until mid-November will now give leaders of both chambers time to try to reach an agreement on a single large spending package to set new funding levels for the rest of fiscal 2012. Some congressional aides have already said that it could be difficult to finalize an agreement even in that time, which would mean there would have to be yet another measure continuing current funding levels.

Hint of Good News in Jobless Claims: "Unemployment filings often show big swings from week to week, and economists caution against reading too much into any one week's data. Moreover, analysts at the Labor Department said Thursday's unexpectedly big drop may have been due in part to government adjustments for seasonal trends. Nonetheless, economists said the big drop in new unemployment claims was a good sign for the sluggish labor market after several weeks of high numbers."

Fed's Twist May Prompt Bigger Turn: "Here is how the program works: The Fed will buy $400 billion of longer-term Treasurys—those maturing in six to 30 years—and in turn will sell $400 billion of Treasurys that mature in three months to three years. Essentially, the Fed is sucking up bonds that have the most risk tied to interest-rate fluctuations. By doing that, the Fed shrinks the supply of those investments available to private investors, which raises the price."

Taming the Fed: "Frank says he has “long been troubled” from a “theoretical democratic standpoint” by the “anomaly” of important decisions affecting national economic policy being made by persons “selected with absolutely no public scrutiny or confirmation.” It was not, however, until August that this affront to Frank’s democratic sensibilities became so intolerable that he proposed a legislative remedy."

Bernanke: Fed Prepared to Act: "Mr. Bernanke stressed the Fed is watching price trends very closely. "If inflation itself falls too low or inflation expectations fall too low, that would be something we'd have to respond to because we don't want deflation," Mr. Bernanke said in a question-and-answer session after a speech in Cleveland. The Fed chief didn't say he sees deflation -- or a debilitating decline in prices -- as a risk right now. Prices have actually been rising above the Fed's 2.0% comfort zone in recent months. Mr. Bernanke said inflation expectations currently indicate that price increases will average around 2% over the coming years, which is where the central bank wants to see them."

German Vote Bolsters Rescue of European Countries: "Germany's parliament approved legislation to increase the euro-zone bailout fund's lending capacity to €440 billion ($596 billion) from around €250 billion, and to make the fund more flexible. German Chancellor Angela Merkel managed to scrape together enough votes from her fractious coalition to pass the legislation on the strength of her own parliamentary majority, narrowly escaping the embarrassment of relying on opposition lawmakers, who had already thrown their support behind it."

Fed's Plosser: Recent Stimulus by Fed Undermines Its Credibility: "“I am skeptical that this will do much to spur businesses to hire or consumers to spend, given the ongoing structural adjustments occurring in the economy and the uncertainties posed by the fiscal challenges both here and abroad,” Plosser said. Meanwhile, “we should be cautious and vigilant that our previous accommodative policies do not translate into a steady rise in inflation over the medium term even while the unemployment rate remains elevated.”

Mortgage Rates Hit Record Lows: "The 30-year fixed-rate mortgage averaged 4.01% for the week ended Thursday, down from 4.09% the previous week and 4.32% last year. Rates on 15-year fixed-rate mortgages averaged 3.28%, down from 3.29% last week and 3.75% a year earlier."

Crude Oil Prices Gain as Uncertainty Reigns

U.S. Oil Demand Fell in July: "U.S. oil demand in July fell by 4% from a year earlier to 18.555 million barrels a day and was the lowest level for the month since 1996, revised government data released Thursday show. The drop came as gasoline demand fell 3.7% to 8.96 million barrels a day, the lowest level since 2000. July is often the peak month of the summer driving season, data from the federal Energy Information Administration show."

Assorted Articles

2011-09-27T00:25:00.000-05:00

Stopgap Fix Ends Budget Impasse: "The Senate, on a 79-12 vote, approved a bill late Monday to fund the government through Nov. 18. The vote came after the main sticking point in negotiations between the two parties was resolved."

A Short History of the Income Tax: "Just as in the late 19th century, the tax code is now hopelessly arbitrary and unfair. It requires a complete overhaul."

Texas's Immigration Choices: "Coming from a Governor who signed the precursor to ObamaCare, Mr. Romney's criticism of Texas for modest tuition subsidies is especially rich. Mr. Perry's immigration positions reflect a Texas political consensus that makes far more sense than his opponents' demagoguery."

Tallying the Toll of US-China Trade: "New research suggests the damage to the U.S. has been deeper than these economists have supposed. The study, conducted by a team of three economists, doesn't challenge the traditional view that trade is ultimately good for the economy. Workers who lose jobs do eventually find new work or retire, while the benefits from trade, such as lower prices, remain. The problem is the speed at which China has surged as an exporter, overwhelming the normal process of adaptation."

Health Law Plan to High Court Clears: "The Justice Department on Monday declined to ask a U.S. appeals court in Atlanta to reconsider its August ruling that declared part of last year's federal health-care overhaul unconstitutional, a move that sets the stage for the Supreme Court to weigh in."

The Census, Obamacare, and the Uninsured: "Let's take a closer look at the 49.9 million uninsured. The Census reports that 9.5 million of them, about 19%, have household incomes over $75,000. They can afford to purchase a plan but have chosen not to. Another 8.8 million uninsured make between $50,000 and $75,000. Another 9.7 million of the uninsured are noncitizens, both legal and illegal immigrants. Now, 16 million uninsured is nothing to sneeze at. But they represent only 5% of the American population. Many of these 16 million people are already eligible for public insurance, chiefly Medicaid and the State Children's Health Insurance Program. They just haven't signed up."

The Lost Decade?: "Simplify the tax code. End corporate taxes and create a consumption tax. Reshape the European Union to make it either more unified or less, but not halfway as it is now. Reduce the barriers to business formation. Reform Medicare so it is fiscally sustainable. Break up the banks and increase capital requirements. Lighten debt burdens even if it means hitting the institutional creditors. There are six or seven big institutions that are fundamentally diseased, from government to banking to housing to entitlements and the tax code."

Hayek's Ideals Needed More As Failures of Stimuli Are Abundant

2011-09-25T23:39:00.000-05:00

From Phoenicia to Hayek to the Cloud: "The political implications are obvious: that human collaboration is necessary for society to work; that the individual is not—and has not been for 120,000 years—able to support his lifestyle; that trade enables us to work for each other not just for ourselves; that there is nothing so antisocial (or impoverishing) as the pursuit of self-sufficiency; and that authoritarian, top-down rule is not the source of order or progress. Hayek understood all this. And it's time most archaeologists and anthropologists, as well as some politicians and political scientists, did as well."

Stimulus and the Untold Story: "a simpler tax code that improves the incentives to hire and invest, broadens the tax base, lowers the corporate income tax, and also eliminates loopholes to equalize tax treatment of capital income. Sensibly addressing our long-run challenges will do more for the economy than continuing the stop-gap measures that have dominated policy-making for the last three years."

Congress Forced to Stay as Shutdown Looms: "Despite promises to work together following a public backlash against the bickering that consumed much of the summer, Republicans and Democrats face the reality that disaster aid could run out Tuesday and the government could partially shut down beginning this weekend unless they strike a deal quickly."

Investors Lose Faith in Stocks: "Last week the Dow Jones Industrial Average suffered its worst one-week decline since October 2008. It is down 16% from its late-April peak. Investors are also showing less optimism toward emerging-market countries."

Economic Signals Heighten Worries of a Double-Dip Recession: "In the U.S., the White House and Congress remain far apart over how to jump-start the recovery: Democrats advocate more government spending and tax cuts. Republicans want more spending cuts and deficit reduction. "We have a political system that looks manifestly broken and makes people nervous about the future," Treasury Secretary Tim Geithner said Thursday.The numerous ills led the Federal Reserve to cite "significant downside risks to the economic outlook, including strains in global financial markets" in a statement Wednesday, explaining why it was easing policy further. The U.S. economy has flashed warning signs since the U.S. debt-rating downgrade in early August. The labor market added no jobs last month and unemployment remained stuck at 9.1%. Consumer and business confidence has dropped to the lowest levels since the recession, raising the risk of a broader pullback in demand.And the housing market remains gummed up by a supply glut, rising foreclosures and depressed prices."

Perry is Right: There is a Texas Model to Reform Social Security

Operation Twist Revisited by the Fed

2011-09-21T22:17:00.000-05:00

The central bank of the United States, the Federal Reserve (Fed), met yesterday and today and released their statement today on how they will conduct monetary policy. The decision was voted down by 3, but the reports indicate that the Fed will purchase $400 billion in long term Treasury securities when mortgage backed securities and agency debt are liquidated. The hope is that this will lower long term interest rates, a policy known in monetary theory as "Operation Twist", and help to stimulate the economy by bringing down interest rates for loans for consumers to purchase more goods and houses and for firms to borrow to invest more in a slow growth economy. Unfortunately, the previous two versions of quantitative easing programs have had little, if any, impact on stimulating the economy and this one will certainly have diminished marginal returns for the assets that are purchased. The stock market and bond market certainly agreed today.

Here is a related article titled Fed Buy-Up Will Do Little for Housing by Ryan Schuette, writer for MReport.com., that includes a few comments by me about the lack of stimulus this action will bring about in the economy from the Fed due to the expectations hypothesis and continuing decline in housing prices that disincentivizes those who would want to purchase a home in the current economic environment. The first time home buyers tax credits in 2009 and 2010 were a complete failure that only pushed the problem further down the road by increasing purchases in the near term during the tax credit period and then causing demand to decline in future periods, as prices continued to drop and fewer wanted to purchase a home. Allowing for prices to fall to a point that will bring about a new equilibrium and bring about a clearing of excess homes will be the catalyst to stabilizing the housing market. No government intervention or stimulus program will solve the problem, if anything it will make it worse and cause more harm than good for struggling Americans.

Fed Launches New Stimulus
Tossing a Lifeline to Housing Market
Fed is Doing What it Can
Fed Statement Following Fed Meeting

Lower Forecasts of Global Growth by the IMF Gives an Urge for Sound Public Policy

2011-09-20T17:17:00.000-05:00

Today the International Monetary Fund lowered global growth estimates by .5% to 4% for 2011, where the U.S. is expected to only grow by 1.5% and the EU by 1.6%. Both of these estimates are far below the amount of growth needed to bring down high unemployment rates and stabilize weak economies.

One of my good friends, Ryan Schuette, wrote a great article today that summarizes the economic outlook and quoted me a couple of times on my thoughts about a few reasons why firms are not hiring. This problem will continue as long as we only focus on stimulating aggregate demand instead of looking at the true causes of economic uncertainty and instability, which includes over-regulation, uncertain health care costs, fluctuations in energy prices, unclear banking regulations, declining housing market, deleveraging by individuals and firms, and lack of incentive for firms to spend money as the federal funds rate remains in a range of 0-.25% and has been promised to stay that low through 2013 by Federal Reserve Chairman Ben Bernanke.

All of these factors contribute to slow economic growth and pull the rug out of any job creation. Allowing for government to get out of the way and allow for what Joseph Schumpeter termed "creative destruction" in our economy is what will help us find a bottom to the housing market, budget deficits, high unemployment, and consumer confidence that will be the foundations for another period of economic expansion. Therefore, as I have noted in a previous blog post, there are many possibilities of how we can get this economy started again by freeing up capital for firms to put to work, increasing choices made by individuals, raising the federal funds rate, and a host of other pro-growth policies for everyone instead of picking winners and losers as the Obama Administration continues to do (Solyndra, green energy, construction, education, etc.).

Will we allow time in the market of suppliers and consumers to work these problems out? We have not over the last 4 years and it is unlikely that we will now. But until we do, we may continue to have a muddle through economy for some time to come. I believe we can and must do better in the United States of America! Although I do not always agree with Warren Buffett on fiscal policy, I do agree with him when he said "never bet against America."

Some Good (Gold) But More Bad (Recession Talk)

2011-09-15T23:15:00.000-05:00

Economists Say U.S. Recession Looks More Likely: "Economists see a one in three chance the U.S. will slip into recession over the next twelve months and doubt any steps the Federal Reserve might take at its meeting next week can change that."

Gold is a Bright Spot in a Tough Economy: "On Wednesday, gold settled at $1,823.50 per troy ounce. Prices are up 28% so far this year, at a time when other coveted commodities such as crude oil and copper have fallen in 2011 and the Dow Jones Industrial Average has dropped 2.8%."

Indicators Signal Recovery's Fragility: "prices are now up 3.8% from a year ago, and core inflation, which excludes volatile food and fuel prices, is up 2% for the first time since November 2008."

Education Reform Through Competition

2011-09-15T23:07:00.000-05:00

Homeschooling Versus the Market: Considering that I went to homeschool from the 7th through the12th grade, I am a huge advocate of school choice! One of my favorite economists Milton Friedman always explained it best:

"Government, preferably local governmental units, would give each child, through his parents, a specified sum to be used solely in paying for his general education; the parents would be free to spend this sum at a school of their own choice, provided it met certain minimum standards laid down by the appropriate governmental unit. Such schools would be conducted under a variety of auspices: by private enterprises operated for profit, nonprofit institutions established by private endowment, religious bodies, and some even by governmental units."

Parents should have the choice to send their kids to whichever school that they would like with their hard earned tax dollars. Additionally, it is only the upper or middle income households that can even afford alternatives to public school, so many do not get the option of choosing another school. I grew up in a relatively low income household and it was very costly for my family to pay for my schooling and pay property taxes to a public school that I did not even go to, certainly a huge opportunity cost!

Lack of competition for our public schools is from government funding that creates a situation that leaves our schools with less quality teachers and lower results in education for the youth of America, inept teachers unions, and a top down approach from the Department of Education in D.C.

We should demand that reform start with vouchers being part of our K-12th school system, and allow competition to increase performance standards for principals, teachers, and our education system as it has to increase its quality of education to compete with private schools, charter schools, and homeschools. Each of these latter schools have a proven track record of outperforming public schools in most places across the nation.

Therefore, limiting funding to public schools to those that perform well and reform those that are not by getting rid of bad teachers or closing down the schools, reducing the stronghold that teachers unions have on our education system, and diminishing (or closing down) the Department of Education's top down approach on what should be a state function will go a long way to improving our youth's education, increase human capital to allow for more innovations, expand economic growth, and put the controls in the hands of individuals to change the vast inequality we find in America. Not only will this allow for better teachers to teach our kids, but those teachers will also make a higher salary to incentivize more people to teach.

Taxes on the rich, welfare payments for the poor, and a host of other possible solutions to decrease inequality are not solutions to combat inequality, but are part of the problem! We must incentivize individuals to take it upon themselves to take risks and move up the economic ladder.

Education is the key, and I believe that must start with education reform (i.e. vouchers).

Income Slides, Poverty Rises, Wholesale Prices Up, and the Tax Cliff

2011-09-14T10:47:00.000-05:00

Income Slides to 1996 Levels: "The income of a household considered to be at the statistical middle fell 2.3% to an inflation-adjusted $49,445 in 2010, which is 7.1% below its 1999 peak, the Census Bureau said. The fraction of Americans living in poverty clicked up to 15.1% of the population, and 22% of children are now living below the poverty line, the biggest percentage since 1993. And there are those who argue the Census report offers a flawed gauge of living standards. For example, the Census Bureau adjusts for inflation using government measures that attempt to reflect the improving quality as well as price of goods. But these inflation adjustments are imperfect and don't reflect advances in medicine, the wonders of the Internet or the improvements in air quality.

Accurate Poverty Measures Remains Elusive: "Some economists say it is misleading not to factor in those kinds of extra payments. And indeed, the Census Bureau does a separate calculation—not updated yet for 2010—that shows what the poverty rate would be if those other payments were included. For 2009, when the official rate was 14.3%, the poverty rate falls to just over 10% when these various noncash programs are included. Mr. Meyer notes that the measures also tend to overstate inflation and overcount the elderly. Other economists argue the poverty rate underestimates the number facing severe economic stress because it doesn't consider expenses such as child care and out-of-pocket medical costs. The rate also makes no distinction for where people live. Yet low-income families who struggle to pay for housing in a high-cost region such as California would have no trouble paying for it in a lower-cost area."
Retail Sales Unchanged and PPI: "U.S. retail sales were flat in August, a potentially worrying sign that Americans are increasingly wary as unemployment remains high and the recovery weak. Year over year, overall producer prices (PPI) in August were up 6.5%, moderating slightly from the 7.2% rise registered in July. Underlying prices (core prices that exclude food and energy) increased by 2.5%, the largest increase since June 2009.

The 2013 Tax Cliff: "President Obama unveiled part two of his American Jobs Act on Monday, and it turns out to be another permanent increase in taxes to pay for more spending and another temporary tax cut. No surprise there. What might surprise Americans, however, is how the President is setting up the U.S. economy for one of the biggest tax increases in history in 2013."

Different Ideas of How to Save the Economy

2011-09-12T10:48:00.002-05:00

How to Really Save the Economy by Robert Barro
How to Make Businesses Invest Again by Greg Mankiw
Woes at French Banks Signal a Broader Crisis
Bush Initiative Targets Cervical Cancer
New Challenges to Gas Drilling
White House Regulation Shift is a Political Bet
Perry, Romney and Social Security
Canada Oil Sands are a Job Gusher
How to Bring Back Employment by Art Laffer

Specifically, to get the economy back on track, my top option would be a combination of the ideas put forth by Laffer, Barro, and Mankiw which would comprise of the following:

Reducing uncertainty by freezing/lowering regulations
Reforming the tax code by scrapping the income tax system and putting in a consumption tax would be optimal, but for political realism, lowering and flattening the tax rates and getting rid of loopholes and deductions would be the next best option.

Do away with corporate, dividends, and capital gains taxes, which would be paid for by lowering the tax rates and increasing the tax base by doing away with loopholes and deductions

Scrapping Obamacare and implement specific parts that are beneficial
Repealing the Dodd-Frank financial regulatory bill passed last year and allow banks to stand on their own profits and losses by stating that no more bailouts will be made, this will weed out bad banks and make them responsible for their own actions without any increase in regulations
Privatize Social Security for those who would like to opt in to it and raise the age that everyone who wants to keep in will start getting funds to close to 73
Give out block grants states for Medicare and Medicaid issues, with market reforms in the health care sector that is too burdened by government already,
The list could go on.

I am skeptical that tax increases should be any part of the solution because government spending is the problem. If you look at any long run trend of tax revenue as a percentage of GDP no matter if you have higher or lower taxes, incentives and disincentives play such a role that the percentage remains around 18%. The problem is that we have averaged close to 20% of government spending to GDP, which is now closer to 25% from the actions taken by President Obama and Congress. In addition, giving more tax revenue to the government will incentivize them to spend more, not less, and therefore negate the higher revenue to the government in the short run. Freeing up the private sector to provide an environment of economic growth and prosperity is the solution, not more government and a reduction of choices.

President Obama's Jobs Bill Speech

2011-09-09T01:30:00.002-05:00

Obama's Bid to Spur Growth
Highlights of the President's Economic Plan
-Payroll tax cut from 6.2% to 3.1% for workers in 2012, up from a 2% reduction this year.
Cost: $175 billion.
-Payroll tax cut from 6.2% to 3.1% for employers and eliminated for qualifying new hires in 2012, plus 100% expensing for new investments.
Cost: $70 billion.
-Infrastructure investments, including modernizing schools and rehabbing vacant homes, and funding for states to rehire teachers and first responders.
Cost: $140 billion.
-Extending unemployment insurance and new programs for jobless.
Cost: $62 billion.
TOTAL: $447 BILLION

The Latest Jobs Plan: "We'd like to support a plan to spur the economy, which is certainly struggling. Had Mr. Obama proposed a permanent cut in tax rates, or a major tax reform, or a moratorium on all new regulations for three years, he'd have our support. But you have to really, really believe in hope and change to think that another $300-$400 billion in new deficit spending and temporary tax cuts will do any better than the $4 trillion in debt that the Obama years have already piled up."
What's in the President's Job Plan?
Pay it Now, Pay for it Later
The Jobs Speech
Reaction by Economists of Proposals
–[The Obama plan] calls for about $200 billion in new spending — much of it on things we need in any case, like school repair, transportation networks, and avoiding teacher layoffs — and $240 billion in tax cuts. That may sound like a lot, but it actually isn’t. The lingering effects of the housing bust and the overhang of household debt from the bubble years are creating a roughly $1 trillion per year hole in the U.S. economy, and this plan — which wouldn’t deliver all its benefits in the first year — would fill only part of that hole. And it’s unclear, in particular, how effective the tax cuts would be at boosting spending. Still, the plan would be a lot better than nothing, and some of its measures, which are specifically aimed at providing incentives for hiring, might produce relatively a large employment bang for the buck. –Paul Krugman, Princeton University (see his article in the NYTSetting Their Hair on Fire)
–The devil is in the details, and this bill’s devils are likely to be larger than usual, in order to get through a Congress that has so recently faced a massive budgetary and fiscal challenge to meet obligations already on the books. At the same time, the President is proposing to cut payroll taxes and Entitlement funding. Entitlements remain the biggest long-term threat to U.S. fiscal solvency, and further reducing Entitlement funding could result in further negative ratings agency actions regarding the U.S. credit rating. Despite Mr. Obama’s frequent use of the phrase/plea/command “pass this,” the American Jobs Act will be a very tough bill to pass. –Jason Schenker, Prestige Economics

The Ugly Gash of 9/11

Apply for Internships and Fellowships, Such as the IHS Fellowship!

2011-09-07T23:32:00.000-05:00

Interested in learning more about free markets, individual liberty, and limited government? Then being a Humane Studies Fellow is the perfect opportunity for you! Check out this link to apply. December 31, 2011 is the deadline to apply for this year long position.

I was a Koch Summer Fellow through the Institute for Humane Studies this past summer and interned with the Texas Public Policy Foundation. It was a valuable experience and would highly recommend that you apply for a fellowship or seminar with IHS if you find their core values appealing to you. These are typically paid positions and all travel is covered as well. Please talk to me if you have any questions.

Everyone earning a bachelor's degree is on the same level. Internships, Fellowships, and/or Seminars will be what can give you the competitive advantage in applying for graduate schools and/or finding a job. The core beliefs of this Institute may not appeal to you, but there are many other institutions that are out there that will and you should find out more about them. I would be glad to help you find these institutions if you would like. All the best!

Assorted Articles

2011-09-07T23:21:00.000-05:00

Here a number of articles that wrap-up today's events. Enjoy!

Perry, Romney Clash at Republican Debate
Fed Prepares to Act (great summary of the debates going on at the Federal Reserve)
Payroll Tax Cut Won't Be Easy Sell (President Obama to give a televised speech on Thursday)
BP Touts Potential of Gulf Oil Discovery
German Court Clears Bailout Plans

Texas Economic Indicators: "Texas gained 25,900 jobs in July after adding 33,000 in June. Current Texas employment stands at 10.58 million. The Texas unemployment rate was 8.4 percent in July, up from 8.2 percent in June. The Texas rate remains below the U.S. rate, which edged down to 9.1 percent in July."

The Obama Presidency by the Numbers

Stocks Down But There Is Increased Talk By Politicians and the Fed for Economic Growth

2011-09-06T21:35:00.000-05:00

Another down day in stocks, as the S&P is down 4.4% over the last three trading days. Other "safe" assets were flooded into by investors as Gold and 10 year Treasury notes had an increase in price.

From the WSJ: "With the faltering of some investors' faith in major currencies and the banking systems of the major Western economies, those seeking shelter have poured their assets into gold, U.S. Treasurys and perceived safe-haven currencies. Gold prices rose to a record intraday high of $1,911.60 a troy ounce before finishing the day down $3.80 a troy ounce, or 0.2%, at $1,869.90. The yield on 10-year Treasury bills fell to 1.979%, a new record closing low. Its price rose 6/32 to 101 10/32, as prices move inversely to yields."

Not only is there fear in the U.S. of stagnant economic growth and high unemployment, but Europe appears to be just as bad or worse off. This can be seen from the following graph that shows the significant drop off in their stock market and high interest rates in countries with high debt. The issue is made more uncertain from the skeptical view that Germany has about many of these countries restructuring their debt and getting their fiscal house in order, and rightfully so! The WSJ notes that "the issue, analysts say, has never been one of Europe's financial ability to bail out Greece and others; the bloc's budget deficit this year will only be around 4.5% of gross domestic product, a fraction of the deficit levels in the U.S., U.K. and Japan. Rather, the issue is the ability of political leaders to persuade taxpayers in Germany and other prosperous countries it is in their interests to lend money to Greece."

With the expectation of stagnant economic growth, the Republican candidates (Mitt Romney's 59 Economic Flavors and Rick Perry in Texas and Health Care and Jon Huntsman: Reigniting Entrepreneurial Spirit in America) for their nomination will debate on Wednesday evening and then on Thursday President Obama will propose a jobs bill to be debated in Congress. In addition, the Federal Reserve Chairman Ben Bernanke will try to form a consensus by those on the Federal Reserve Board for monetary policy action to try and stimulate the economy. These continued efforts are approaches to stabilize our economy and get the engine started again to create jobs. The problem is that we have seen these approaches taken numerous times in the recent past under the Bush and Obama Administration with limited to no success. A recent article on PolicyMic by one of my good friends was on this issue and sums up quite nicely the situation that our government finds itself in.

White House Revises UR Down for 2012 After Zero Net Jobs Were Created in August

2011-09-02T09:03:00.000-05:00

Today is the day we look "forward" to each month, the Jobs Report. The Bureau of Labor Statistics releases this report based on their survey of firms across the country that have been in existence for longer than two years. In anticipation of President Obama's speech next week on how the government is going to try to stimulate job creation, the White House reports that the unemployment rate may remain around 9% in 2012.

Considering that amount of stimulus from fiscal and monetary policy over the last few years, this is troubling news, particularly to those who advocate in Keynesian deficit spending to stimulate economic growth. Professor Gary Becker from the University of Chicago writes today that the Great Recession "might well have been a deep one even with good government policies, but "government failure" added greatly to its length and severity, including its continuation to the present. In the U.S., these government actions include an almost $1 trillion in federal spending that was supposed to stimulate the economy. Leading government economists, backed up by essentially no evidence, argued that this spending would stimulate the economy by enough to reduce unemployment rates to under 8%. Such predictions have been so far off the mark as to be embarrassing."

The Jobs Report for August was quite dismal. Here are the main components:

1. Net Jobs Created: 0 in August, 85,000 in July, and 20,000 in June
2. Unemployment Rate: 9.1%, unchanged from previous month; 42.9% are long term unemployed; 16.2% for the U6 unemployment rate which includes discouraged workers and underemployed
3. Average Hourly Earnings: up 1.9% over the last year to $23.03 per hour

Here is my favorite source for information on each Jobs Report by the Calculated Risk Blog

Productivity and Jobless Claims Signal Tough Labor Market

2011-09-01T16:03:00.004-05:00

Jobless Claims Fall, But Still Remain Elevated:

"The four-week moving average of new claims, a more reliable indicator of the labor market's recent performance because it smooths out volatile weekly data, rose by 1,750 to 410,250."

Productivity from 2007-Present

-Productivity revised lower for 2nd Quarter: "Nonfarm business productivity dropped at a 0.7% annual rate in April through June, revised down from a previously estimated decrease of 0.3%."

Since productivity is the average output (GDP=y) per worker (L), or y/L, then a quick calculation will show that the

%change in y/L = %change in y - %change in L.

-.7% = 1% - 1.7%

Therefore, productivity growth has now declined for two consecutive quarters because economic growth in both quarters were low (.4% in 1st and 1% in 2nd) and the growth rate in employment outpaced their output. Productivity is one indicator of standard of living in a society because it determines wage growth for workers over time. If output increases at a slower rate than the increase in job creation, then there is less incentive for firms to hire new workers or increase wages. This data is certainly negative for the first two quarters of the year, particularly for workers in an already weak labor market, which is revealed by an increase in the 4-week moving average for first time claims for unemployment benefits.

Tomorrow's Jobs Report is predicted to report less than 80,000 jobs created in August. Another indication of slow economic growth and a jobless recovery.

Government Decides Cell Phone Industry and August Hurt Stocks

2011-08-31T22:09:00.000-05:00

The purchase of T-Mobile by AT&T was recently denied by the Department of Justice. "Justice claims the deal, which would combine the country's second- and fourth-largest cellphone companies, would reduce competition, raise prices and retard innovation. In the government's view, the U.S. needs at least four major wireless carriers to have a competitive market, and it has its ancient, theoretical, antitrust market-share models like the Herfindahl-Hirschman Index to prove it." (WSJ)

Monopolies create deadweight loss in society, which reduces the satisfaction of consumers from higher prices and reduced quality. Theoretically this may make sense, but there is competition in the cell phone industry and in a capitalistic economy allowing mergers and acquisitions is a necessary part of maximizing the economic well-being of society.

If these actions by firms do create a situation that reaps a result that is equivalent to a theoretical outcome for a monopoly, then individuals have their free will to not purchase their goods or services and push the firm out of the market. This is the efficient allocation of resources in a free market and should not be hindered by government interference for what the view of a few determine the outcome of the many. Let us have more faith in people.

Other
Facebook Adding Music Services
August Proves Cruel For Stocks: "For the Dow Jones Industrial Average, which dropped 4.4%, August was its weakest month since May 2010 and its fourth consecutive month of declines. Gold enjoyed its best month in nearly two years, jumping more than $200 a troy ounce, or 12%. Treasurys continued to draw investors, in spite of a historic credit downgrade of the U.S. government, pushing the 10-year yield briefly below 2% on Aug. 18, the first time it has hit that level since at least the 1960s. "

Crisis Economics and Current Events

2011-08-30T22:47:00.001-05:00

Read the following article for an expanded explanation for the recession of 07-09:
Crisis Economics by Greg Mankiw (author of the textbook used in class)

Current Events
ADP finds that there were 91,000 private sector jobs created in August...the official job report comes out on Friday.
Confidence Plunges to 44.5 in August from 59.2 in July. 100 signals a high amount of confidence by consumers.
Home Prices Down 4.5% year over year in June for the Case-Shiller 20-city home price index
Another Deficit Showdown Next Year, Maybe Not
Fed Weighted QE3 at Last Meeting
What Do the Jobless Do All Day?
Beyond the Gold and Bond Bubbles
The Texas Model

Assorted Articles

2011-08-29T23:14:00.000-05:00

Here are several articles that you should take a look at:

Consumers Ramp Up Spending: Consumption rose 0.8% during the month, following a slight contraction in June, the Commerce Department said Monday. Adjusted for inflation, spending rose a healthy 0.5%—the strongest gain since December 2009—after two flat months.
2008 Financial Crisis video
Fed Faces Old Foe as Hazard Returns
Economic Hit from Irene Will Be Less Than Feared

Welcome Sam Houston State University Students (Fall 2011)

2011-08-26T00:31:00.003-05:00

After eight years at Texas Tech and teaching there the last four years, it has been a pleasure lecturing for the first time at Sam Houston State University this week. I am teaching two courses of Principles of Macroeconomics and two courses of Principles of Microeconomics. I will continue to expand on different issues here on my blog and post articles that I will discuss in class and other articles that you may want to check out. I hope that you will find posts useful to expand on in-class material.

You should also check out past posts and issues to understand more about where I stand on particular issues. While I will try to be as non-partisan as possible in the classroom, this blog allows me the opportunity to express my opinions in an environment that is not in the classroom You may also check out other articles that I have written on the PolicyMic website.. Any questions or comments that you may have about any of this is free game for discussions or emails. Enjoy!

Economics

Obamanomics vs. Reaganomics

Job Market Still Looks Weak: "The four-week moving average of new claims, which smooths out often-volatile weekly data, increased 4,000 to 407,500, the Labor Department said. Economists generally say the labor market is improving significantly when claims drop below 400,000, a level breached only once since April."

Keynesian Economics vs. Regular Economics

Energy

A West Texas Lizard vs. Oil and Gas Production by Vance Ginn

Fiscal Policy

Tracking Missteps in U.S.

What Austerity?

CBO Predicts $1.3 trillion deficit in 2011

Monetary Policy

Federal Reserve Chairman Ben Bernanke Not Seen to Pledge Further Stimulus

More Liquidity Only Douses Growth Sparks

Texas

The Texas Jobs Panic

On the Economy, Texas Leads the Way by Vance Ginn

Texas Ranks Dead Last in Job Creation: Not that I ever read this blog, but here are a few reasons why the interpretation of these results are just plain wrong. This report lacks economic credibility. I mean are they seriously making the argument that people leaving the labor force of a state is a good thing for long term growth? If so, everyone should flock to Michigan. Also, the recession in Texas started later and was not as deep or as long as the nation's, so using the data from Oct. 2009 is arbitrary. Finally, the increase in the UR they include in Texas is relatively minuscule compared to many other states even when you consider the huge increase in the labor force. There are clear signs that the Texas economy did quite well and it is not Perry that did it, but he certainly helped create an environment for economic growth by getting the government out of the way! The far Left will do anything to twist the data in their favor, and of course the Right does the same thing, so let us be honest about the data.

Texas in Top Ten for Corporate Relocations: I argue that this provides Another excellent signal for the state
of Texas! While many complain about specific details about what jobs were created in Texas, let them keep
complaining and let the jobs keep coming!! A person with a job, whether it is low paying or not, is better than
a person without a job. An individual's productivity is what should signal what they should be paid, and if they
do not like the pay, then they can relocate to a different location. Apparently from this study and many others, individuals and corporations have chosen to move to Texas because of the positive signals that are here.

Mind-Blowing Argument Made by Buffett

2011-08-16T16:41:00.000-05:00

A recent article by Jeff Miron titled "Why Warren Buffett is Wrong" is an excellent article that hits at the core of the flawed arguments that are made by those that want to increase taxes, in this case it is those that make more than $1 million as noted in a recent NYT article by Buffett.

Miron states that ‎"In 2009, the income earned by the 236,833 taxpayers with more than $1 million in adjusted gross income was about $727 billion. Imposing a 10% surcharge on this income would generate at most $73 billion in new revenue — only about 2% of federal spending. And $73 billion is optimistic; the super-rich will avoid or evade much of the surcharge, significantly lowering its yield."

This is mind-blowing to think that this is a solution to our problems. I am all for getting rid of tax breaks and loopholes and lowering income tax rates for everyone, but singling out one group is not a well-thought out policy recommendation.

The revenue brought in is only a drop in the bucket of the more than one trillion dollar budget deficits we have had since 2009. More importantly, this incorrectly assumes that the government can spend the extra revenue more efficiently than those that have earned the income. There is a reason that many of these individuals have millions of gross income and it is wrong to think that taking it from those that are most productive and invest wisely in our economy and people is going to be an answer to the problems caused by government.

We must free our citizens to make economic decisions with their own dollars and not enslave them to the directions of inept leaders. Moreover, this leaves out the true issue that must be dealt with...government spending!

Jobs Report, U.S. Debt Downgrade, Another Dismal Day in the Markets, Governor Perry to Run

2011-08-08T17:24:00.005-05:00

Jobs Report:
Employment Summary: Calculated Risk Blog
More Employment

Debt Downgrade:
What Does the Downgrade Mean to You?
Markets Brace for Downgrade's Toll
S&P Strips U.S. OF Top Credit Rating
S&P Move Isn't a Shock But Adds to Gloom
More on the S&P Downgrade by John Taylor
America's Debt Downgraded: "The better answer—the only road back to fiscal sanity and AAA status—is to reverse the economic policies of the late Bush and Obama years. The financial crisis followed by the Keynesian and statist revival of the last four years have brought the U.S. to this downgrade and will lead to inevitable decline. The only solution is to return to the classical, pro-growth economic ideas that have revived America at other moments of crisis."

How to Get the AAA Rating Back by Robert Barro: "The way for the U.S. government to earn back a AAA rating is to enact a meaningful medium- and long-term plan for addressing the nation's fiscal problems. I have sketched a five-point plan that builds on ideas from the excellent 2010 report of the president's deficit commission."

Markets Decline
Oil Prices Slide to $81 per barrel
Dow Slides 5.6% and Trades Under 11,000
QE2 Inspired Stock Rally May Soon Disappear
Don't Panic About the Stocks Market by Burton Malkiel

Now a bit of political news that some of you will disagree with me on, which is perfectly fine with me. I will still continue to watch the debates and determine who I will support for President in next year's election. Although there are several issues that I disagree with him on, Texas Governor Rick Perry has a firm political backing, a firm record in a state that he has governed for 10 years by providing an environment that promotes economic growth and prosperity, and speaks eloquently about federalism. With an uphill road ahead of him with many still upset about the Bush Administration and President Bush was from Texas, Perry will announce that he will this Saturday Run for President after The Response in Houston this past weekend, where 30,000 people showed up and was not considered to be a political move but an event to pray for our country. It will be interesting to see how this unfolds. I wish the Governor the best.

Drunk On Stimuli...Stocks Fall 5%!

2011-08-04T15:41:00.001-05:00

Another doozy of a day for stocks! The largest one day decline since December 2008. Stocks are now down enough since May to be in a technical correction since, which is defined as being 10% or more lower. Bond prices up and yields are down, where the 10-year Treasury note rate is down to 2.42%. What does all of this mean...flight to quality? Possibly, but it appears that the false high from government intervention is wearing off.

Some do think that this is just a move from risky assets, stocks, to more risk free assets, Treasury securities. But I would question the quality of Treasury securities, particularly from the less than serious plan to cut government spending with the debt ceiling increase earlier this week, but there is definitely a flight from risk. The latest GDP numbers for the U.S., where the 1st Q grew at a measly .4% and the 2nd Q grew at 1.3%, signal that the economy is slowing considerably and could be in a position to enter another recession. In addition, there continues to be substantial problems in economic growth and government debt in Europe that are making the markets fret about global growth.

Here is an excellent quote from the WSJ article above:

"The concern is that you're seeing visible worry by government officials, by central bankers. The [worry] is, 'Are there any bullets left in the government arsenal to help'?" said Russ Koesterich, iShares Global Chief Investment Strategist at BlackRock. "Investors are realizing that the economy is very fragile, [but] it's not clear that governments are able to do much help."

Hopefully, this will not be a move to increased government intervention, where most of the problems have come from over the last few years in the first place. Some would say that this is just not so, but you must look at the terrible amount of uncertainty that has continued to linger from the Dodd-Frank bill, which is an overreach in the financial sector, the EPA avalanche of new regulations in the energy sector, the Affordable Care and Patient Protection Act ("Obamacare"), which pushes off the burden of the regulations to agencies that have not made many of their decisions public and has increased uncertainty of the costs and burdens that will be on private companies, and a focus by President Obama on higher taxes, which is a political ploy and will in no way help the problem of the deficit except to give the government more money to spend without decreasing the size and scope of government for future budget stability.

The way I see the economy right is now is that it is like a bottle of bubbles that you probably blew through a tool when you were a kid and bubbles would come out. Congress and the Fed have put a great deal of liquidity and spending in the economy (liquid in bottle) and now there are many bubbles that are in the economy from their "tools," where bubbles can be defined as prices not based on fundamentals. This must be corrected before we are on a firm footing for the future of economic growth and job creation.

Specifically, the stock market rose far too high and too fast to be explained up to this point, a correction was inevitable. Keep your eye on the Job Report tomorrow.

I certainly want jobs to be created and for poverty to be reduced in our great country, but I do not believe that comes from government intervention that distorts the signals that provide prosperity in a Capitalist economy relative to any other in the history of man. What are these signals? Prices! Look for them to continue to correct if we can finally put government intrusion into our lives and businesses to the side and focus on stabilizing our country once again after being drunk on stimuli!

Assorted Articles

2011-08-04T01:56:00.000-05:00

I am getting married tomorrow to the love of my life and best friend, Emily. We will be having our wedding reception on Saturday in Lubbock and then head off on Tuesday for our honeymoon to Seattle, where we ship out and head out on an Alaskan cruise. It will be a great time and it will be welcome cool temperatures for a week. There are many great things going on in our lives right now and I am looking forward to the future.

Here are a few articles that you might find interesting:

Texas Drought is Not as Bad as in the 1950s

ERCOT Rolling Out First Steps of Emergency Procedures

Ex-Fed Officials Back More Stimulus

White House Wooed Banks During Debt Ceiling Debate

Dow Snaps 8 Day Skid

Gold Sets New Record

Japan Moves to Push Yen Lower

BOJ Expands Asset-Buying Program

ADP Shows 114,000 private sector jobs created in July (Jobs Report Due Out on Friday)

The Debt Ceiling Debate and 2012: "At the start of last December, Mr. Obama's job approval rating in the weekly Gallup poll was 47% approve and 45% disapprove. Last week, it was 40% approve and 52% disapprove. If the election were held today, Mr. Obama and his party would be swamped."...."On the matter of substance, the legislation's $2.1 trillion in spending cuts only reduces Washington's spending by 4.8% over the next 10 years. The House Budget Committee currently projects that after the debt-ceiling deal, federal outlays over the next decade will still run $43.3 trillion with revenues at $35.5 trillion. So deficits will grow $7.8 trillion more by 2021, leaving the public debt then at roughly $18.2 trillion, or 76% of GDP. It is already 70% of GDP, up from 40% when Mr. Obama was inaugurated."

Make the Dollar for Dollar Rule Permanent (Great article): " If we pledge to hold all future debt-limit increases to the same "dollar-for-dollar" standard, we can balance the budget within a decade."

Where's Your Budget Mr. President by Paul Ryan

GOPs Debt Limit Hypocrisy

Debt Deal Passes House, Economic Optimism, and Assorted Articles

2011-08-02T09:22:00.000-05:00

Enjoy the following articles:
Happy Belated Birthday to the late Milton Friedman-one of my favorite economists!

Economy
Data Reinforce Economic Malaise
Obama's Top Four Power Grabs
OECD Inflation Rate Eases
The Soaring Public Health Tab
Excessive Economic Optimism and Economic Biases

Energy
Nat Gas Creates Jobs, but How Many?
IEA Can't Take Spring Out of Oil's Step
Energy Reality Meets Budget Reality
Solving the Debt Crisis Through Energy Freedom

Fiscal Policy
Uneasy House Passes Debt Deal- Senate to vote today
Tea Party Sees No Triumph in Deal
Tea Party's War on America
Deal Seen as Mild Drag on Economy
Washington's Budget Deal
Boehner Repeals Murphy's Law

Assorted Articles

2011-07-28T15:52:00.000-05:00

Here are recent articles that I thought you might find interesting...

Economy
Food Stamps: The Struggle to Eat
What's Wrong With America's Job Engine
Jobless Claims Fall Below Key Level
Dollar Trap

Energy
Federal 'Clean Energy' Loan Guarantees: Crazy Dollars for Bubble Jobs (my article on Master Resource)
A Short History of Ozone
Shell's Profit Soars
Businesses Oppose New Ozone Rules
2011 U.S. Temperature Update: Global Warming Alarmism

Fiscal Policy
Treasury Crafts a Plan to Decide Who Gets Paid and Who Doesn't

Crop Prices Erode Farm Subsidies Program

Texas
Austin Job Growth Flat Since May
Reagan's Vision Lives in Texas
The Lone Star Candidate
Public Sector Led to Job Boom

News Flash! Debt Ceiling Weakens U.S. and Assorted Articles

2011-07-27T23:18:00.001-05:00

Stocks have fallen significantly over the last three trading days. If you have not heard, the big issues are the debt ceiling debate and which "plan" will pass. I have compiled the following articles that will give a quick summary of the issues that we will face if the deadline passes on August 2nd or if it does not. From my humble view, the costs of not raising the debt ceiling are overstated and significant reform to make the government leaner, more efficient is missed by all plans.

A serious cost of or threat of default as the "deadline" gets closer will be higher interest rates, which is from bondholders demanding a higher rate of return for the increase in risk in holding Treasuries. The insistence by the Federal Reserve to purchase long term Treasuries (QE) may have not been effective in stimulating the economy or significantly lowering these interest rates, their purchases certainly distorted Treasury prices that would have existed if they had not intervened.

This crowding out of private funding led to lower interest rates than would have existed, which is only at the cost of funding from the private sector and opportunity costs of where those funds could have been used, but not lower than where they were before, and makes the true cost of excessive government spending and higher deficits masked. Higher interest rates would reveal the true costs of rising deficits from out of control government spending and help the public and policymakers to find it in the country's best interest to lower spending.

Not raising the debt ceiling could be optimal, in my opinion, and force Congress to spend within their limits from concurrent revenue. This is not a likely option from Republicans or Democrats because both are too scared to cut government spending and reduce the waste, corruption, and oversized programs that are numerous.

Start laying off government workers, close down programs, reduce welfare programs, and eventually there will not be a need to increase the debt ceiling because Congress can spend within their means! Imagine that!

Citizens across this great country must learn how to do this when times are tough but those that want big government believe that this is not fair for the government to do. If an American's debt level is too high for them to pay, they are not allowed higher credit limits on their cards and new cards; instead their card limits are reduced and they certainly are not offered new credit cards, or not at an interest rate that will be reasonable.

These are reasonable measures for our government to take as well. Let our government start to live within its means, as we all have to do. The Keynesian experiments have been shown to be a failure numerous times in the U.S. and across the world. What we have found ourselves in is a situation where the euphoria of politicians to gain power in a system by making people believe that they are smarter and have more knowledge than the American people to make the correct choices has failed, as it always will.

The "Knowledge Problem" discussed by Hayek is more problematic from the government's point of view and is further evidence that the private sector is the only place where voluntary exchanges can be made. Although market failures will occur from time to time, the costs of getting out of the mess from the failure will be much lower than when the government is involved. Bureaucracy and redistribution are solutions made by the public sector that never work because they are not Pareto improvements. But the main reason is that there is a price system in the private sector/capitalism that is non-existent in the public sector/socialism.

Let the market decide the future of our country and more efficient allocations of resources and prosperity are what we will find, even if there are tough times in the short run because the corrections are made from the problems caused by the government, who thought they could create jobs. We should be paying for their comedy show! Enjoy the articles.

Robin Hood Can't Lead Us Out of the Debt Hole by Robert Barr (Highly Recommend)
Debt Vote Down to Wire
Treasury Crafts a Plan
The Road to a Downgrade
America's Credibility is at Risk
Out of the Debt Ceiling Shambles
Why the Tea Party Says 'No'
Why the Reid Plan is Better
Warren Buffett is Wrong on Taxes by Stephen Moore
Debt-Crisis Vote Goes Down to Wire in House
3 Reasons Why the Debt Ceiling is Full of Malarkey- YouTube video
What Happened to the Economic Recovery
Time to Renew the Principles of 1776 by John Taylor
Why I Support the Boehner Bill by Keith Hennessey
Pain from Debt Impasses Spreads Into Markets
Companies Brace for US Default
Boehner Plan Faces Rebellion

Debt Limit Talks and Bernanke Speaks

2011-07-13T16:35:00.000-05:00

Here are a few good articles:

Fiscal Policy

As Debt Talks Stall, New Debt Plan Emerges
Debt Limit Harakiri

Monetary Policy
Fed Ready to Act if Needed

Bernanke Shifts Tone on Further Easing
Fed Official Argues for Aggressive Easing

June Employment Report is Bleak

2011-07-08T11:27:00.000-05:00

Here are two blog posts by Calculated Risk that do a great job summarizing the key points of the BLS report.

June Employment Report: 18,000 Jobs Created, 9.2% Unemployment Rate

Employment Summary

Federally Guaranteed Loans for Clean Energy Projects Are Nonsense

2011-07-05T20:37:00.000-05:00

Check out a recent post here for the following article with reference links:

At a time when a heat wave expands across the United States and the federal government is debating whether to raise the debt ceiling, the U.S. Department of Energy’s Loan Programs Office (LPO) is offering to guarantee financing for three solar panel projects in California for $4.5 billion to First Solar Inc. After taking a closer look, these LPO projects do little to fund efficient energy production or create permanent jobs.

The LPO specifically targets projects that promote clean energy and includes “job creation; reducing dependency on foreign oil; improving our environmental legacy; and enhancing American competitiveness in the global economy of the 21st century.” Moreover, support by the LPO is for borrowers in case they default on their financial obligations while the project is constructed. Therefore, it is clear that these loans are to expand energy production that the government chooses and not by market forces.

The EIA notes that in 2010 only 1% of energy consumption was from solar power. Although this is the case, 15 out of the 23 generation projects by the LPO have been for solar power plants. The cost of these 15 projects has been $16 billion and is 40% of the total cost of all projects that they have guaranteed financing. On the other hand, nuclear power makes up 9% of all energy consumption and has only received $10.33 billion of support.

The benefits of these guarantees are exaggerated. Job creation from these three solar panel projects is estimated to be 1,400 new jobs, which is $3.2 million per job! An additional issue is that many of these jobs are temporary.

A previous guarantee for a solar panel project was for Bright Source Energy in the amount of $1.6 billion that produced 1,000 temporary construction jobs and only 86 permanent jobs. The cost of these permanent jobs was $18.6 million per job created.

This is a huge cost for an energy source that is already subsidized and supported heavily by the federal government, where the average amount provided by the federal government per megawatt hour in 2007 was $24.34 for solar. In contrast, nuclear was only supported by $1.59 per megawatt hour.

The lack of benefits and the substantial costs of these solar panel projects not only distort the energy market, but are a waste of tax dollars. The sources of energy we consume most (i.e. petroleum, natural gas, coal, and nuclear) are not on the government’s to-do-list, but they are on the list to phase out and create a less efficient economy in the process. When it comes to increasing energy efficiency and creating jobs, these LPO guaranteed loans are not the answer.

Will the President Reduce Government Waste?

2011-06-29T10:02:00.000-05:00

Here is a great article on PolicyMic by a friend about President Obama's recent executive order to find ways to reduce waste in government. With the deficit this year expected to be $1.65 trillion and the national debt increasing by $4 trillion over the last 3 years, I believe it is obvious that the size and scope of government is at a tipping point and true reform should be on the table. The inaccurate view that the Bush tax cuts, which has been estimated to be only account for 14% of the total debt increase over the last 10 years, or the wars in Afghanistan and Iraq led to the majority of our national debt over the last ten years have lead some to incorrectly believe that higher taxes and ending the wars will solve all of our federal debt problems.

The recession had an impact on the reduction in tax revenues, but the problem has been excessive government spending from stimulus spending and expansion and creation of many government programs over the years. Reducing the deficits over time will only come from shutting down programs, as the President is looking to do, reforming our tax code to make it more efficient and reduce loopholes, and restructuring Medicare and Social Security, which is where the majority of future deficits will come from (see Cato report). The President has given speeches about reducing some programs in the past, but let's see if this time he will put this into action. I highly doubt it!

Assorted Articles

2011-06-27T22:15:00.001-05:00

Have a great rest of the week! Here are a few articles that caught my eye:
Economy
Debt Hamstrings Recovery
Bummer of a Recovery
Crisis Draws Eyes to Pension Debate
Energy
A Sober Look at Crude Plan
The Strategic Petroleum Reserve Drawdown by Economist James Hamilton
Proposals Seek More Fuel Efficiency in Cars
Obama's Hypocrisy on Oil Production is Horrible
The Facts About Fracking

Fiscal Policy
Programs' Costs Spurs a Search for Inefficiencies
Spending His Way to Austerity
Rules. And More Rules

Monetary Policy
Capital Rules Tighten for Banks
Fed's Hoenig says big banks create risks to capitalism
The Continuing Puzzle of the Hyperinflation That has Not Occurred

Updated: The Dunes Sagebrush Lizard and Your Wallet

2011-06-24T11:33:00.001-05:00

You may never have heard of the dunes sagebrush lizard, but it may soon hit you where it hurts: your wallet. The U.S. Fish and Wildlife Service wants to classify the lizard as an endangered species. This could stop production of 1,000 oil wells and reduce annual oil production by at least 7 million barrels. The resulting burdens and lost opportunities for America's working families would be outrageous on their own, but they are especially outrageous in this case given how paltry the evidence is underlying the federal government's proposed action.

The agency considers five factors in designating a species as endangered. These include whether the habitat is threatened, overutilization of the species, disease, inadequacy of existing regulation mechanisms, and natural or manmade factors that hinder the existence of the species. Out of these five factors, the agency primarily focuses on how the habitat of the lizard is threatened and manmade causes, particularly from oil and gas production.

This lizard‘s habitat is in the shinnery oak dune system, which consists of short shrubs and sandy dunes. The system is found in southeastern New Mexico and west Texas, where there is at least 140,000 acres of habitable private land that covers four counties in Texas.

Their proposal is based on a publication by the agency in 1982 that classified the lizard as a Category 2 species and suggested a review of its classification in the future. The agency defines a Category 2 species as “those taxa for which information in the Service’s possession indicated that a proposed rule was possibly appropriate, but for which sufficient data on biological vulnerability and threats were not available to support a proposed rule.”

Site surveys were taken between 2006 and 2007 to complete the review. 27 sites in west Texas were chosen, where 19 of them were historical localities and the other 8 were considered to be hospitable locations. Since the lizard was found in only 3 sites, the agency used this as evidence to make the case it is rare. In addition, it took 68 to 115 minutes to find the lizard and the agency considers anything longer than 60 minutes to be a rare species.

The evidence the agency uses to list a species as endangered adheres to the “best available science” that is required by the Endangered Species Act. In this case, the best available science is arbitrary and not extensive. Moreover, the areas chosen in west Texas were based on surveys of federally owned land that was part of the shinnery oak dune system in New Mexico, and not necessarily on evidence that the lizard lived in those locations.

Since some of the areas surveyed were locations where oil and gas were being produced, the agency states that “the lizard faces immediate and significant threats due to oil and gas activities, and herbicide treatments.” They then conclude that “we have determined that designation of the critical habitat for the dunes sagebrush lizard is prudent but not determinable at this time.”

According to the Texas Land Commissioner Jerry Patterson, the government’s evidence that the lizard is threatened is faulty. Many more natural factors should be considered and possibly a broader area should be included in future surveys. Other factors should also be considered, such as the economic costs of listing the lizard as an endangered species.

In order to conserve the habitat for any endangered species, the agency provides a list of actions that may jeopardize the species’ habitat. Several of these directly relate to oil production. If the lizard is put on the endangered species list, oil production could be restricted.

Considering that Texas produces 20% of the nation’s oil supply, restrictions would reduce supply and put upward pressure on fuel prices. While this may please some in the Obama Administration – President Obama explicitly favors renewable energy sources at the expense of fossil fuels – it would hurt the Texas’ economy and make cash strapped Americans worse off from higher gasoline and food prices.

We are all in favor of preventing a species from going extinct, but the U.S. Fish and Wildlife Service should base their claims on more than mere speculation when they take actions that could cost thousands of jobs and disrupt the livelihood of millions.

What Was the Motivation Behind the IEA's Actions?

2011-06-24T11:06:00.000-05:00

Is the recent action by the International Energy Agency to release 60 million barrels of oil from the 28 members’ strategic petroleum reserves a reasonable decision or is it politically motivated? It is a combination of both. While oil prices will fall in the short run, this does not do anything to put energy prices on a sustainable path in the future.

Oil and gasoline prices were rapidly rising earlier in the year and have been falling over the last month, where oil prices are down roughly $20 and gasoline prices are down $0.30. The rapid rise earlier in the year was primarily based on uncertainty and political conflicts in some oil producing countries, particularly in Libya.

The fall in oil prices yesterday by almost $5 from the EIA’s decision to release 2 million barrels of oil per day starting next week indicates that this was the premium put on oil prices from global oil market uncertainty. The reserves by these IEA members are designed to be used when political disruptions and/or catastrophic disasters happen to stabilize the oil market. This is the reason why the Governing Body of the IEA decided to act.

Coordinated actions have occurred during the Gulf War in 1991 and after Hurricane Katrina in 2005. Some would say that yesterday’s decision was appropriate. The agency typically takes 30 days to review any proposed release of reserves. Thus, oil production in Libya was uncertain at the time. Their roughly 1.5 million barrels of oil were not going into the world oil market and drove a wedge between Brent crude oil prices and NYMEX crude oil prices. This divergence has continued. Since this is a political event and the oil market has been impacted, there is reason to suspect that this is the reason that the IEA acted.

Others would say that this is a political maneuver to lower prices in the short run for political gain. The situation in Libya certainly had an impact on the prices of crude oil, but the prices were nowhere near where they were in 2008 at $145 per barrel. With fiscal policy and monetary policy out of weapons to combat the sluggish economic growth, where 1st quarter GDP was revised up to a meager 1.9% growth rate, this could certainly be a move by the Obama Administration to prop up consumer confidence by pushing down oil and gasoline prices.

The fact is that the decline in oil prices will only be in the short run. Oil is priced in dollars and traded in the world oil market. Due to this, the perspective of OPEC is also important. Thus far, OPEC does not agree with the IEA's actions and this could create further supply issues in the future. If OPEC decides to reduce their production to keep prices in their desired range, the increase in the supply of oil could be diluted by the decrease in supply from OPEC.

The ability of governments to affect oil markets is clearly a distortion. It may be optimal to not have governments own any reserves and allow for this supply to be in the world’s oil market. The U.S. alone has 727 million barrels of oil, which could last for 34 days based on U.S. oil consumption rates per day. These reserves are held to counter any oil supply being cut off from the U.S. from other countries, such as Iran. Considering that holding these reserves artificially creates higher prices for oil, releasing these in the market would push down prices but leave us vulnerable to future political actions by foreign countries, where we import around 60% of our oil. Hence, the optimal case of the government not having these oil reserves is not practical or likely in the current environment, especially since it is all ready there and there does not appear to be a push to release these reserves by our elected officials.

In conclusion, this is a short term fix to a situation in our economy that needs a long term solution. Many of the Obama Administration’s actions have contributed to the rise in oil prices from the lack of oil production in the U.S. Further expansion of oil production in the U.S. and a diversification of our energy usage from market processes would be a more sensible approach to stabilizing energy prices in the short and long term. This action by the IEA may win political points now, but we will have the same problems of uncertain energy prices moving forward.

Of Wealth and Incomes
White House Oil Epiphany
OPEC Members Warn IEA Oil Release Could Backfire
How the Strategic Petroleum Reserve Works
Oil Prices Tumble
History of EIA
IEA Press Release about releasing 60 million barrels of oil
Only the third time this has been done

Fed Actions and Reactions

2011-06-22T23:20:00.000-05:00

Below are several articles about the Federal Reserve's FOMC statement and Ben Bernanke's press conference. The federal funds rate target remained in a range of 0-.25%, where it will (incorrectly) be for the foreseeable future, and there was discussion of ending QE2 and no indication of QE3. The following are a few of my thoughts on the government's actions and lack of results.

The evidence of QE2 appears to be similar to earlier research on QE1 that I did with Dr. Ronald Gilbert, where we found that QE1 was ineffective in achieving the goal of bringing down long term interest rates. Yes, both added liquidity to particular markets that were chosen by the Fed (commercial paper markets and mortgage backed securities), but these markets are likely worse off after being propped up.

Even after the Fed's assets have increased by $2 trillion since Sept. 2008, there continues to be a 9.1% unemployment rate and core inflation of 1.5%. Some would say that these data indicate that the Fed should continue to pump more money into the economy, but much of the increase in assets by the Fed has not been converted into cash. Instead, these assets that are given to banks increase the banks' excess reserves and they hold them at the Fed to gain .25%. Therefore, the increase in the Fed's assets has not been as great as the increase in the money supply.

The lack of proper pricing signals throughout our economy, which are being distorted by a government action, will not allow the spontaneous order to arrive from the disorder that is now apparent in the marketplace. Although it appears to be politically appealing to want to do something when times are tough, corrections must occur to create new innovations for those entrepreneurs that profit and drive out those that do not. We must stop pumping money in the economy that is not based on its market rate of interest. If this does not happen, there will continue to be bubbles that will have to bust at some point.

Trying to stabilize the economy through government intervention is like treading water in the ocean, you end up going nowhere. Sure, treading water might move you in the direction of where you are headed, but you will get tired quickly and face an even dire situation of drowning because you never learned how to swim. Swimming comes from practice and hard work.

Our government would like to take the "easy" way out of economic downturn and spend $787 billion for the ARRA, $862 billion in December 2010, and have a $2 trillion increase in the Fed's assets. These are all myths that things appear to move in the right direction, but in the process we are not allowing an efficient allocation of resources, which includes talents and profits, to bring about a society that learns how to swim and thrive on its own. No one wants people to starve or go without shelter, but this situation arises more frequently with government intervention than without. Allowing the private sector and the beauty of human action to provide the means to achieve these ends is the key.

Fed Sticks to Its Plan in Face of Weak Recovery
Parsing the Fed: How the Statement Changed
QE2 Proves No Silver Bullet
Profiles in Fed Cowardice
Bernanke Should Face Harsher Questions
As Economy Slowly Recovers, the Fed Says it has Done Enough
Stocks Weaken After Fed Statements

Your Daily Dose

2011-06-21T20:45:00.000-05:00

Another hot day down in Austin...Stock market was up 100 and oil futures are below $95 a barrel, but what are the major sectors of the economy indicating about future growth...lackluster!

Economy
Greek Vote Sets Stage for More Cuts
Home Resales Slide 3.8%
Why Technology Doesn't Destroy Jobs
Why the Economic Recovery is Lagging
Krugman and Keynes

Fiscal Policy
House GOP Digs in on Debt Ceiling
Policy Makers and Irrational Exuberance
Why Avoiding Bailouts is Good Policy
Monetary Policy
QE2 Proves to be No Silver Bullet
A Look Inside the Fed's Balance Sheet
GOP Candidates Set Sights on Fed
Monetary Policy Since 2000

Texas
For Economic Development, Texas Should Stick to What Works
Which GOP Candidate had the Best Job Growth Record?

Assorted Articles

2011-06-20T19:34:00.000-05:00

The following are a number of articles that summarize the key issues that are in the news. I have had a busy couple of weeks and I hope to post more soon. Take care.

Economy
EU Links Greece Aid to Budget Cuts
IMF Debt Crisis May Overwhelm Euro Zone
No Appreciation for Yuan's Anniversary
Consumer Prices Rise .2%: Core prices are up 1.5% over the last year
Housing Troubles Have Deep Foundations

Energy
West Texas Lizard VS. Your Wallet
Oil Takes Pause from Greece Worries
Eagle Ford Oil: ‘Resources are Not, Resources Become’ (and new jobs galore without government subsidy, President Obama)
Wide-Spread Confusion
Ethanol Suffers Rare Loss in Senate
Gas Prices Drive a Shift

Fiscal Policy
The Fiscal Pledte We Need: Cut, Cap, Balance
The Fairtax Solution for U.S. Unfunded Liabilities
New Financial Rules Delayed

Monetary Policy
QE-Who?
Inflation-What's the Worry?

Texas
Is Rick Perry Ready for Prime Time

Texas Continues to Lead the Way in Job Growth

2011-06-09T23:41:00.001-05:00

This article is from the WSJ and it discusses how Texas has comprised 37% of net job creation across the country since the previous recession ended, which was dated in June 2009.

Valid points for why limited government is a necessary condition for economic prosperity that lifts all boats. It is not the distribution of the pie that is what increases standards of living for all, as is advocated by those who want income redistribution, but rather an increase in the size of the pie.

Increases in individual choices and protection of life and contracts, arguably little else, by the government is the best means to fulfill the ends that many want. Prices are signals that lead to allocative efficiency that does not exist without distortions in a heavy handed government environment.

Texas still has problems, particularly from distortions by government, but it appears it is the less worse than many other economic situations found across the country. Let liberty ring and surges in beneficial outcomes will be the result.

Not a Pretty Picture in the Labor Market (June Jobs Report)

2011-06-03T09:11:00.001-05:00

Not a pretty picture. Here is the June Jobs Report from the BLS.

Key data points:

Net jobs created: +54,000 (13.9 million unemployed)(long term unemployed increased by 361,000 (45.1% of total)) There was a revision down of 39,000 the previous two months.

Unemployment rate: up to 9.1% from 9%. The U-6 rate, which includes underemployed and discouraged workers, went down by .1% to 15.8%. In my opinion, a better job market data point is the employment to population ratio: unchanged at 58.4%

Average hourly earnings: up .3% to $22.98 or up only 1.8% over the last 12 months.