Economic Ramblings

What Needs To Be Done To Cut The Deficit

2010-10-16T18:16:00.003-04:00

I was about to write a brief post that sums up the difficulty of eliminating the federal budget deficit when I ran across a rather lengthy but a very clearly written article by Chris Farrell of the Market Money fame program on Public Radio. I think that you will benefit from reading his unabridged post. As this article makes clear and as we have hinted at in class the most significant obstacle to overcome; not that the others are easy; is the level of expenditures related to Medicare.

The size of the federal deficit is repeated so often by politicians and the news media that it's easy to become numb to the sheer magnitude of the number â€” an estimated $1.29 trillion for the fiscal year which ended on September 30, according to the new figures released today by the Obama Administration.

While that's a drop from the record $1.4 trillion deficit recorded for fiscal 2009, it's still the second largest deficit in history. No one is happy about the tidal wave of red ink:

* The issue helped Tea Party activists angry about out the deficit to seize the political spotlight.
* The Republican's "Pledge to America" promises to "stop out-of-control spending and reduce the size of government" if the party wins big in the November mid-term elections.
* President Obama on a recent stop in Richmond, Va., talked about the need to "get control of our budget.

Here's the rub: The deficit-hating oratory is heated but the deficit-reducing specifics are glaringly absent.

"The turn hasn't gone from highlighting the deficit to actually doing something about it," says Maya MacGuineas, president of the Committee for a Responsible Federal Budget in Washington, D.C. Adds Veronique de Rugy, senior research fellow at the Marcatus Center at George Mason University: "We are still in the realm of rhetoric."

The reason for the reluctance? Simple political calculation. As the late Nobel laureate Milton Friedman was fond of saying, "there is no free lunch." Or, as Mick Jagger of the Rolling Stones, a graduate of the London School of Economics, put it, "you can't always get what you want."

Eventually, however, the size and rapid growth of the deficit mean that it will have to be dealt with and that painful trade-offs will have to be made. The only real question is whether those decisions get made before the U.S. tumbles into a fiscal crisis.

"Those who say this won't be good for me because I'll pay higher taxes or I'll get a smaller benefit ignore the fact that we can't keep doing what we're doing," says James Horney Center on Budget and Policy Priorities.

So what are the realistic options? You won't get many details from the majority of the politicians up for election on Nov. 2, but here are some of the ideas making the rounds in Washington:

Let the Bush Tax Cuts Expire

It's easy to fall into deep despair about the deficit, but Obama's former budget director, Peter Orszag, recently grabbed the fiscal spotlight with a remarkably easy solution: Let the 2001 and 2003 tax cuts expire for everyone.

By allowing taxes to return to the pre-Bush era levels for taxpayers, the federal budget would be close to balance by 2015.

"If we actually ended the Bush-era tax cuts, that would pretty much do it," Orszag said in an interview with CNN's Fareed Zakaria. "If you do a bit on the spending side and then end the tax cuts, you pretty much get there."

The virtue of this approach is that it doesn't require any special legislation or deal-cutting among special interest groups. Congress could then devote its legislative energy to addressing major reforms needed in entitlement programs like Medicare, Medicaid and Social Security, which everyone agrees is necessary.

That said, the idea is DOA. One reason is the risk that higher taxes could send a fragile economy spiraling lower. But the politics may be even more important. Since the earliest days of his campaign, President Obama has committed to not raise taxes on any family earning less than $250,000. Going back on that pledge could be electoral suicide —especially as Republicans are vehemently against all tax hikes. Still, it's an intriguing litmus test to see how serious a politician is about addressing the problem.

What About Other Tax Changes?

Few dispute that America's income tax code is Byzantine, a complicated stew chock full of credits, deductions, phase-ins and phase-outs. Reigning in these so-called "tax expenditures" that clutter up the federal tax code could go a long way toward attacking the deficit "Tax expenditures are bad tax policy," says MacGuineas. She and others point out that a tax credit that reduces Uncle Sam's revenues causes the deficit to rise just as surely as does a spending increase — it's just more politically palatable.

For example, Martin Feldstein, economist at Harvard University and former chairman of the White House Council of Economic Advisors under President Reagan, estimates that simply reducing the size of tax expenditures from the current 6 percent to 4 percent of GDP would bring the projected 2020 debt down from 90 percent to 72 percent.

Sounds good, right? Who doesn't want a cleaner, less complicated tax code (especially come April)? Problem is, these loopholes support many activities people like. For instance, the education credit helps parents save for the high cost of college. The mortgage interest deduction is almost sacred to homeowners. The child care tax credit can be a much needed boon to new parents.

What's more, many Republicans look at moves toward reducing tax expenditures as the equivalent of a tax hike.

Entitlement Reform

America is aging, with the leading edge of the baby boom generation reaching its retirement years. It's well-known that to eventually bring the long-term deficit under control, the government will have to address the three main entitlement programs -- Social Security, Medicare and Medicaid.

Now, despite rhetoric to the contrary, there really is no Social Security crisis. There's financial trouble down the road but it's manageable. Still, the general outline of a compromise for shoring up Social Security's finances has emerged in recent years. It essentially relies on hiking the retirement age, lifting the cap on annual wages subject to the payroll tax, and making the cost of living index less generous. (The Congressional Budget Office offers a list of options in its July 2010 report, Social Security Policy Options at http://www.cbo.gov/ftpdocs/115xx/doc11580/07-01-SSOptions_forWeb.pdf.). Yet many people don't buy into the compromise because it means retiring later or paying more in taxes. Ultimately, however, one — or both — will likely have to happen.

The real long-term budget pressure comes from higher health care spending. To give a sense of the scale of the problem, the benchmark 75-year projection by the Social Security Trustees guesstimates the cost of Medicare alone will swell to 11.4 percent of gross domestic product in 2083 — 94 percent larger than Social Security's cost. "We need to slow the rate of growth in healthcare," says Horney.

He's right, but the kinds of changes in healthcare required to do so will make the controversy over Obamacare a stroll through the park. Salaried doctors? Universal healthcare? Healthcare vouchers for everyone? The debate has only begun.

Cut Back on Defense Spending

Defense accounts for 20 percent of the budget. Last April Defense Secretary Robert Gates targeted more than 20 programs for termination or cutbacks, and the Defense Department is looking for more cuts. A reduction the nation's nuclear arsenal and missile defense systems could end up on the table, while military compensation is another possible target. The reason: military personnel earn average cash compensation that beats 75 percent of their civilian peers of comparable age and education . Benefits are also better than for most civilian jobs. One solution would be to cap the growth future in military compensation at the rate prevailing in the rest of the economy.

"The U.S. spends the biggest share in the world on defense," says the Marcatus Center's de Rugy. "We can cut it a lot."

Yet slashing into defense spending is always difficult, especially with troops at war in Afghanistan and still engaged in a mission in Iraq. Cuts in defense programs also quickly translate into job losses elsewhere in the economy as military contractors cutback — something few politicians willingly allow without a fight.

A Baseline Scenario

Here's one way to start thinking through the trade-offs. A centrist approach was released on Sept. 30 by William Galston of the Brookings Institution and MacGuineas. Their goal is to get debt back down to 60 percent of GDP by the end of the current decade. Their blueprint relies half on spending cuts and half on raising taxes.(http://www.brookings.edu/papers/2010/0930_public_debt_galston.aspx ) They would do everything from slashing deep into defense spending to embracing carbon taxes.

Others would take a very different tack, however. De Rugy, for one, is against raising taxes to tackle the deficit. Instead, she advocates pushing a lot of federal responsibilities back to the states, such as education and transportation, as well as pushing entitlements more toward a private voucher system.

Where do you stand? Would you cut spending? If so which programs would get trimmed? Would you raise taxes? Which ones? Change entitlements? How?

And then there are these questions: When -- if ever -- will politicians stake their fortunes on backing concrete solutions? And if they do, will voters reward them for taking action?

Nobel Prize in Economics 2010

2010-10-11T08:47:00.003-04:00

2010 did not look very promising for US citizens as far as the 2010 Nobel prizes go. At times most of the Nobel laureates turn out to be US citizens but none of the awards this year was given to an American until today. The last prize is the one given in Economics and two of the recepients are American while the third is a British Cypriot.

The Economics award went this year to Peter Diamond, Dale Mortensen and Christopher Pissarides for their work on unemployment. The three professors will share the $1.5 million prize that was established in 1968 by the Royal Sweedish Academy of Sciences.

The Academy praised in its statement the work that the three award recepients had done in explaining how job vacancies and wages react to economic policy and government regulation.

"According to a classical view of the market, buyers and sellers find one another immediately, without cost, and have perfect information about the prices of all goods and services... But this is not what happens in the real world," the prize committee said in a statement.

It said the trio's work enhanced understanding of "search markets" where frictions exist as demands of some buyers are not met and some sellers cannot sell as much as they want.

This could involve simple cases of a buyer and a seller of a product as well as more complex relations between employers and job seekers, or between firms and suppliers.

On the labor market, the laureates' models help understand how unemployment, job vacancies and wages are affected by regulation and economic policy, including the size of jobless benefits, the committee said.

Their theories can also be applied to housing markets, as both vacancies and the time to sell a home vary over time.

Who Is Rich?

2010-10-01T23:57:00.004-04:00

Wealth is often confused with income although they are different concepts. Wealth is a stock, it measures what has been accumulated as of a particular point in time. Income on the other hand is a flow, it measure the rate at which ones income flows in a certain period of time, say a year.

As is to be expected wealth is much more concentrated than income in the US. The results of the 2010 census confirmed what many have feared for a while. The top 20% of wage earners get 49.5% of all wages in the US while the lowest 20% of the labour force has to settle for a miserly 3%. If these figures are not jarring enough then please note that the top 1 % of Americans receive 24% of income when in 1915 the top 1% took away 18% of income.What is most disturbing about this disparity is the fact that a large proportion of children are caught in this unforgiving circle of poverty. It is estimated that 37% of the children in the nation are covered by Medicaid.

If you guessed that wealth is even more inequitably distributed then you would be right. The latest studies suggest that the top 20% of Americans own 85% of the wealth in the land while the top 1% claim 35% of the wealth of the nation. As the above figures suggest the bottom 80% of the Americans have to split the remaining 15% of wealth, and yes that means that the bottom half have no net worth .

The recent discussions regarding whether the Bush tax cuts should be renewed and if so for whom is very much related to the income and wealth distribution in the US. Some politicians favour making the tax cuts permanent while others believe that the tax cuts should be renewed only for those households making up to $250,000 a year. The popular rationale for this income level is that people who earn this much are not wealthy. But a quick examination of income distribution reveals that households whose annual income is $250,000 belong to the topd 2.5% of all Americans. Are we suggesting the there is no difference between those that make $50,000 per year and those that make five times as much? I am afraid that we are suggesting just that.
So what do you think? What income level qualifies an individual to be privileged?

Downhill With The GOP

2010-09-25T00:13:00.002-04:00

The following Paul Krugman column appeared in the Sept 23, 2010 issue of the NYT. Paul Krugman, as you all know is a Nobel laureate in Economics and one of the most widely read NYT OpEd page regulars. Read this article for a quick analysis about the Republican "Pledge to Amaerica".

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Once upon a time, a Latin American political party promised to help motorists save money on gasoline. How? By building highways that ran only downhill.

I’ve always liked that story, but the truth is that the party received hardly any votes. And that means that the joke is really on us. For these days one of America’s two great political parties routinely makes equally nonsensical promises. Never mind the war on terror, the party’s main concern seems to be the war on arithmetic. And this party has a better than even chance of retaking at least one house of Congress this November.

Banana republic, here we come.

On Thursday, House Republicans released their “Pledge to America,” supposedly outlining their policy agenda. In essence, what they say is, “Deficits are a terrible thing. Let’s make them much bigger.” The document repeatedly condemns federal debt — 16 times, by my count. But the main substantive policy proposal is to make the Bush tax cuts permanent, which independent estimates say would add about $3.7 trillion to the debt over the next decade — about $700 billion more than the Obama administration’s tax proposals.

True, the document talks about the need to cut spending. But as far as I can see, there’s only one specific cut proposed — canceling the rest of the Troubled Asset Relief Program, which Republicans claim (implausibly) would save $16 billion. That’s less than half of 1 percent of the budget cost of those tax cuts. As for the rest, everything must be cut, in ways not specified — “except for common-sense exceptions for seniors, veterans, and our troops.” In other words, Social Security, Medicare and the defense budget are off-limits.

So what’s left? Howard Gleckman of the nonpartisan Tax Policy Center has done the math. As he points out, the only way to balance the budget by 2020, while simultaneously (a) making the Bush tax cuts permanent and (b) protecting all the programs Republicans say they won’t cut, is to completely abolish the rest of the federal government: “No more national parks, no more Small Business Administration loans, no more export subsidies, no more N.I.H. No more Medicaid (one-third of its budget pays for long-term care for our parents and others with disabilities). No more child health or child nutrition programs. No more highway construction. No more homeland security. Oh, and no more Congress.”

The “pledge,” then, is nonsense. But isn’t that true of all political platforms? The answer is, not to anything like the same extent. Many independent analysts believe that the Obama administration’s long-run budget projections are somewhat too optimistic — but, if so, it’s a matter of technical details. Neither President Obama nor any other leading Democrat, as far as I can recall, has ever claimed that up is down, that you can sharply reduce revenue, protect all the programs voters like, and still balance the budget.

And the G.O.P. itself used to make more sense than it does now. Ronald Reagan’s claim that cutting taxes would actually increase revenue was wishful thinking, but at least he had some kind of theory behind his proposals. When former President George W. Bush campaigned for big tax cuts in 2000, he claimed that these cuts were affordable given (unrealistic) projections of future budget surpluses. Now, however, Republicans aren’t even pretending that their numbers add up.

So how did we get to the point where one of our two major political parties isn’t even trying to make sense?

The answer isn’t a secret. The late Irving Kristol, one of the intellectual godfathers of modern conservatism, once wrote frankly about why he threw his support behind tax cuts that would worsen the budget deficit: his task, as he saw it, was to create a Republican majority, “so political effectiveness was the priority, not the accounting deficiencies of government.” In short, say whatever it takes to gain power. That’s a philosophy that now, more than ever, holds sway in the movement Kristol helped shape.

And what happens once the movement achieves the power it seeks? The answer, presumably, is that it turns to its real, not-so-secret agenda, which mainly involves privatizing and dismantling Medicare and Social Security.

Realistically, though, Republicans aren’t going to have the power to enact their true agenda any time soon — if ever. Remember, the Bush administration’s attack on Social Security was a fiasco, despite its large majority in Congress — and it actually increased Medicare spending.

So the clear and present danger isn’t that the G.O.P. will be able to achieve its long-run goals. It is, rather, that Republicans will gain just enough power to make the country ungovernable, unable to address its fiscal problems or anything else in a serious way. As I said, banana republic, here we come.

How Important Is the Stock Market for the Average Retiree?

2009-10-25T18:31:00.003-04:00

Contrary to most of what you hear on the radio and you read in newspapers and magazines the typical American retiree is not as dependent on the performance of the stock market as many people think. The following is a table of the sources of income among the second quartile of older Americans, that is, from the 50th to the 75th percentile:

Social Security benefits....... 54.60%
Pensions....................... 22.00%
Earnings....................... 11.70%
Assets......................... 09.00%
Other Income................... 02.60%
Public Assistance.............. 00.30%

As the above table illustrates very clearly this group — which is above median, although not at the top — is highly dependent on Social Security benefits for more than half of their income.Asset income is, on the other hand , is rather small. Obviously as one moves down to the third quartile and then the fifth quartile then the share of income derived from the stock market disappears.

Of course the portion of income derived from pensions is affected by the stock market but for most Americans the day to day fluctuations in stock prices are not as seminal as those on Wall Street would like us to believe that they are. What do you think?

HDI 2009 CPI components

2009-10-19T17:59:00.003-04:00

Although the GDP was not developed to measure the level; of welfare of a society it has been often used to imply that a larger GDP/Capita means a better quality of life. There have been many efforts over the years to adjust the GDP and/or modify it is such a way as to make it responsive to some of the criticisms leveled at it.

One of the most successful efforts at creating an alternative measure of welfare is the Human Development Index (HDI) that was introduced 20 years ago. The HDI is a relatively simple index that combines the money measure of the GDP/Capita, life expectancy at birth and degree of literacy to rank countries relative to the combined score that they attain. Obviously the highest possible score is 1. This kind of ranking raises the importance of heath care services in addition to education but it deemphasizes the role of money income as the most important factor in determining the quality of life. The final rankings demonstrate clearly that it is possible to have a relatively low GDP/capita and yet enjoy a high quality of life if the access to health care results in longer and healthier life combined with a high degree of literacy.

Those among you who are interested in the latest such report by the UNDP should visit the following web site for the full report and all its data:

http://hdr.undp.org/en/statistics/

Components of Consumer Price Index

The Bureau of Labor Statistics provides the following description of the major eight categories and 200 categories that are currently used in computing the CPI.
"
Major groups and examples of categories in each are as follows:

* FOOD AND BEVERAGES (breakfast cereal, milk, coffee, chicken, wine, full service meals, snacks)

* HOUSING (rent of primary residence, owners' equivalent rent, fuel oil, bedroom furniture)

* APPAREL (men's shirts and sweaters, women's dresses, jewelry)

* TRANSPORTATION (new vehicles, airline fares, gasoline, motor vehicle insurance)

* MEDICAL CARE (prescription drugs and medical supplies, physicians' services, eyeglasses and eye care, hospital services)

* RECREATION (televisions, toys, pets and pet products, sports equipment, admissions);

* EDUCATION AND COMMUNICATION (college tuition, postage, telephone services, computer software and accessories);

* OTHER GOODS AND SERVICES (tobacco and smoking products, haircuts and other personal services, funeral expenses)."

Eight out of Ten Ain't Bad.

2009-10-11T12:24:00.004-04:00

No one can doubt that the economic meltdown that started in the United States a couple of years ago and then spread all over the globe has been a wrenching experience. Tens of millions have lost their jobs, retirement plans had to be adjusted, poverty has increased, malnutrition has become more widely spread and governments have had to bailout banks, automobile manufacturing giants, subsidize agriculture and mortgages. Besides all the painful current adjustments that individuals and households have had to make, the future does not look to be very clear either, considering all the additional borrowing that governments had to undertake. As of this writting the US national debt is 12 Trillion dollars ( $12,000,000,000,000)and is slated to keep on increasing. What would be the effect of such a high level of indebtedness on both the domestic and ultimately the world economy is still not clear.

As a result of the severity of the global economic contraction many are questioning the viability of capitalism as it is currently structured. One inevitable result of these discussions is the emergence of the view that the US dominance is ending and that the unipolar moment has already come and gone. All of the above might prove to be true but as Mark Twain once said" The report of my death has been exaggerated".

American military power has been challenged in Iraq and Afghanistan, its political power is being challenged in Iran, the Arab world, parts of Latin America and in Eastern Europe. All of that while the value of the dollar sets new lows on the foreign exchange markets on a daily basis and its moral leadership is often questioned in the halls of the United Nations and in the Climate Change negotiations.

Yet inspite of all the above "negativism" eight of the top ten Global Brands according to the rankings by Business Week are common American household names. The results of these rankings come close to an unprecedented sweep and a recognition of American ingenuity and ability to innovate but it is also a clear demonstration of interdependence and a growing integration of the world economy.

The following is the list of the Top Ten:

1. Coca Cola (KO)
2. IBM (IBM)
3. Microsoft (MSFT)
4. GE (GE)
5. Nokia (NOK)
6. McDonald’s (MCD)
7. Google (GOOG)
8. Toyota (TM)
9. Intel (INTC)
10. Disney (DIS)

Do we need another stimulus?

2009-10-04T18:33:00.003-04:00

The following is the full transcript of A Conscience of a Liberal of Oct. 3, 2009. Please read very carefully. Paul Krugman, the Nobel laureate, is not pleased with the latest unemployment report. What does the future hold?
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Obama’s Anzio

I’m late on this, due to festschrifting. But another bad employment report yesterday. I’m feeling pretty bleak about this.

And the worst of it is that it was more or less predictable. I went back to my first blog post — January 6, 2009 — worrying that the Obama economic plan was too cautious. I wrote:

This really does look like a plan that falls well short of what advocates of strong stimulus were hoping for — and it seems as if that was done in order to win Republican votes. Yet even if the plan gets the hoped-for 80 votes in the Senate, which seems doubtful, responsibility for the plan’s perceived failure, if it’s spun that way, will be placed on Democrats.

I see the following scenario: a weak stimulus plan, perhaps even weaker than what we’re talking about now, is crafted to win those extra GOP votes. The plan limits the rise in unemployment, but things are still pretty bad, with the rate peaking at something like 9 percent and coming down only slowly. And then Mitch McConnell says “See, government spending doesn’t work.”

Let’s hope I’ve got this wrong.

Alas, I didn’t have it wrong — except that unemployment will, if we’re lucky, peak around 10 percent, not 9.

There was a lot of talk about health care being Obama’s Waterloo. It won’t, I think and hope. But stimulus is starting to look like Obama’s Anzio — the battle in which the American commander got himself into terrible trouble by being too cautious.

And right now Obama is pinned down in his too-small beachhead, taking heavy casualties.

Green Shoots

2009-09-26T14:34:00.004-04:00

As has been expected this prolonged period of economic decline has been the most severe and the longest downturn in the last 80 years. Unemployment is approaching 10 %, the Federal deficit is setting new records and so is the projected national debt. But many economists, including Mr. Bernanke of the Federal Reserves have been talking increasingly about “green shoots”.
The fact of the matter is that there have been many “green shoots” sightings but most have proven to be almost as elusive as the UFO variety. Although home sales of both existing and new homes have been on the increase for a few months they seem to have stalled during August and durable good orders were below expectations. Add to the above the fear generated from what are the long run implications of the massive amounts of money that has been printed (read inflation and weak dollar) and the high prospects for a jobless slow rebound and the greenness of these shoots start to pale. They are not dead yet but the short term expectations should be tempered until the quality of the “sighting” improve.

I would be interested in your opinion of the movie "Capitalism: A Love Story" if you have seen it.

Would You Buy American Iron?

2009-09-20T00:05:00.004-04:00

As difficult as it might be to believe,at one time, American made cars used to account for over 90% of the cars on the road in the US of A. Actually at times, GM's share alone was close to 60%. Fast forward to last year when GM and Chrysler filed for bankruptcy under chapter 11 and were able to avoid liquidation only with massive help from the federal government. Ford fared better but could not avoid receiving some major body blows that left it gasping for air.

Most analysts seem to think that Ford has learned its expensive lesson and is on the road to recovery but the jury is still out regarding the prospects for GM and Chrysler. Many think that GM will survive and possibly prosper but as a much smaller company than it used to be. GM had to shed Saab, Hummer, Pontiac, Saturn and they had to sell their stake in Suzuki and most of Opel. Chrysler on the other hand is eliminating marginal models such as the Pacifica and the Viper. The real question is whether GM and Chrysler will survive or whether all the tens of billions of dollars spent by the feds were for naught.
The next two years will be instrumental to the industry. Ford is planning to become profitable late next year or by early 2011 by the latest as a result of its new line of cars. GM hopes to break even when the market for new cars climbs back to 11.5 million units a year. They are hoping to ride the buz from from the plug in Volt next year while Chrysler is counting on the Fiat cars that could start appearing in the show rooms in a year from now.

A quick review of some of car magazines and car reviewers for the new model year seems to show that the American car companies have a fighting chance. Four of the most important new cars are :

Buick Lacrosse

Ford Taurus especially the SHO

Ford Fusion Hybrid

Chevrolet Equinox

Have you looked at any of these models and if so would you buy any of them? It is going to be your purchasing habit that will decide the fate of Detroit over the next 3-5 years. What do you think, would any or all of the 3 American car manufacturers survive and prosper?

It Is Time To End GDP Fetishism

2009-09-15T00:59:00.002-04:00

Most common discussions, by all kinds of media outlets all over the world, of the concept of social welfare of a particular society never fail to mention the state of the Gross Domestic Product, the GDP. This all popular macroeconomic variable has grown, despite its enormous shortcomings, to become a metric of what it was not designed to be in the first place. Very simply stated, the GDP is a money measure of the value of final goods and services that are produced by a particular society. Note that the concept does not pretend to say anything about the level of welfare but is only the summation of all what is produced without even deducting the damage that ensue from such levels of production and consumption . A simple common example might help illustrate this absurdity. If during a particular year, the number of expensive medical procedures undertaken in a state increases then the overall size of its GDP increases also. So if the GDP is such a good indicator of the social level of welfare then why not promote cigarette smoking in order to increase the incidence of lung cancer which will keep the surgeons busy and lead to a large rate of growth in the GDP? Of course such a policy would be rejected by all. But isn’t this exactly what we do when we allow firms to dump their toxic wastes into rivers and when we encourage workers to commute long distances from where they reside to their place of work. The concept is rife with problems that are too many to list and that economists and environmentalists have been pointing out for decades chief among them is the inability of GDP per capita to say anything about the all important income distribution. Wouldn’t it be more important to learn who had access to the increased output rather than to just say that output went up? It has often been the case that the all the growth in the GDP accrues to a small group of privileged economic class when ¾ of the population has in reality lost ground.
Environmentalists in general and environmental economists in particular have been in the forefront of an unremitting attack on the method of assembling national income statistics and in particular the GDP. These efforts have been helped over two decades ago by the work of Amartya Sen, the Noble laureate in Economics, through his pioneering work on how to measure poverty and social well being. His work has led, among other things, to the increasingly popular Human Development Index by the United Nations. The HDI ranks countries by creating an index that takes into consideration the level of GDP per capita but combines that with measures of literacy and life expectancy. As a result it becomes possible to rank a country with high literacy rate and a high life expectancy above one that enjoys a higher GDP per capita but lags in the other two indicators.
Two days ago Joseph Stiglitz, another Noble laureate in Economics, a Professor of Economics at Columbia University and an ex Chief Economist of the world Bank has joined ranks with the above group of advocates for a change in National Income Accounting. He called, in his capacity as a member of a group advising president Sarkozy of France, upon world economic leaders to “avoid GDP fetishism and… to stay away from that.” What a welcome message during these perilous economic times in a world that is clearly not sustainable. Bravo Dr. Stiglitz.
So what are the implications of such a change? You tell me. Is a growing GDP, accompanied by a growing poverty rate, inequitable distribution of income , larger public debt, higher unemployment, less electric power, a construction boom for the super wealthy, privatized public beaches, low minimum wage, environmental degradation in all fields and rampant corruption a sign of social justice and better social welfare?

Latest Income Statistics

2009-09-13T23:10:00.003-04:00

The following are some of the highlights from the most recent study released by the US Census:

Real median household income fell between 2007 and 2008,and the decline was widespread.
Median income fell for family and nonfamily households, native- and foreign-born households, households in 3 of the 4 regions, and households of each race category and those of Hispanic origin. These declines in income coincide with the recession that started in December 2007.

The poverty rate increased between 2007 and 2008.

The percentage of uninsured in 2008 was not statistically different from 2007, while the number of uninsured increased between 2007 and 2008.

These results, though widespread, were not uniform across groups. For example, between 2007 and 2008, real median income was statistically unchanged for households maintained
by a person 65 years old and over but declined for households maintained
by people of all other age group categories. Additionally, the poverty rate increased for children under 18 and for people 18 to 64 but remained statistically
unchanged for people 65 and over.

Income Distribution

The lowest quintile of households had incomes of $20,712 or less; those in the second quintile had incomes of $20,713 to $39,000; those in the third quintile had incomes of $39,001 to $62,725; those in the fourth quintile had incomes of $62,726 to $100,240;
and those in the highest quintile had incomes of $100,241or more.

It is safe to assume that the data for 2009 would show the same trend i.e. a drop in median income and an increase in the poverty rate. Some even fear that the jobless recovery might even be with us at least for a portion of 2010.

2009-07-05T18:48:00.000-04:00

wtsrpvbx86

And The Beat Goes On

2009-03-16T11:00:00.002-04:00

It is at times like these that we need to be reminded of what Alexander Pope once wrote:"Hope springs eternal in the human breast". As difficult as it might be we need to know that adversity carries within it the seeds of an equal or greater benefit. It all depends on how we react to the challenges that are facing us.

Unfortunately most observers think that the current economic crisis has not hit bottom yet. Whether it is the stock market or whether it is the real economy the daily deluge of news point to some more rough times ahead.

What does the future hold?
It is difficult to see any uplifting indicators besides the "leak" that both Citi and Bank of America have had two profitable months so far in2009 , on an operating basis. Besides that our only hope is that the stimulus will kick in within the next few months and that its effects will be sustainable. But realism demands that we take a look at the real financial and macro economic indicators. Once we do that then what do we find:

(1) The over 600,000 monthly job loses will not come to a sudden halt. They would continue for some time to come. Unemployment rate is already at 8.1%

(2) The factory capacity utilization for the month of February was at a historical low of 67.4%. This simply means that we have 1/3 of our factories mothballed.

(3)Home prices have fallen a lot so far but they have not hit bottom yet. That carries negative connotations for both consumers and the balance sheets of the large banks.

(4) Many on Wall Street are raising the argument that the current Price to Earnings ratio has not fallen as much as it usually does in major crisis , such as the 1981 recession or obviously the great Depression. Is there a 500 Dow Jones Industrial average in our future?

(5) And last but not least China is already voicing its serious concerns about the value of the dollar. A loss of confidence in the greenback will be disastrous.

The meltdown picks up speed

2009-02-27T12:01:00.004-05:00

Fourth Quarter GDP, was revised down to -6.2%, the worst quarter since Q2 1980 when economic "growth" was -7.8%. The revision is a significant move from the -3.8% that was originally reported.

Here is a breakdown of where the economy is shrinking, and growing, most.
Gross Domestic Product: -6.2%
Personal Consumption: -4.3%
Durable Goods: -22.1%
Nondurable Goods: -9.2%
Services: +1.4% (Driven by a 13% increase in Electric & Gas use)
Private Investment: -20.8%
Net Exports:
Exports: -23.6%
Imports: -16.0%
Government Consumption: +1.6%
Federal: +6.7%
State 7 Local: -1.4%
(The above data is from CNBC)

This will have to come to an end , eventually. Unfortunately I do not see yet a potential catalyst to turn this ship around besides the stimulus package.

25 most responsible for the financial meltdown

2009-02-13T13:27:00.004-05:00

If you are interested in viewing a list of the 25 individuals who are thought to have played a major role in the current financial debacle then copy and paste the following URL into your browser. The list is interesting , informative and well done.

www.time.com/time/specials/packages/article/0,28804,1877351_1878509_1878508,00.html

How Low Can It Go?

2009-02-06T09:43:00.004-05:00

The official unemployment figures for the month of January were released earlier today and they do not look good. Actually, the 598.000 jobs lost last month ranks as the highest single month job loss in over 35 years. And if that is not enough bad news the recent job losses have increased the official rate of unemployment in the US to 7.6%, which is the highest that we have experienced since 1992. On the relatively bright side, there were two private sectors that did not experience any job losses; Education added 32600 jobs and Health Care saw an increase of 20700 jobs.

This recession is already 14 months old/young and it shows no signs of slowing down yet. Although the total jobs lost over this period has already amounted to 3.6 million some predict that we might have another 2-3 million to go. Unfortunately these prognosticators might turn out to be right. If one is to examine the historical record of the last 6-7 recessions then what becomes very evident is that unemployment peaks towards the end of recessions; that is why it is called a lagging indicator. If that is so then fasten your seat belts for a rough ride.

The Shrinking Economy

2009-02-01T23:53:00.002-05:00

Are we living in interesting times or what? So many of the economic news, released over the last 1-2 years, are either the worst that we have seen in 3 decades or the absolute worst ever recorded. Can our frayed nerves withstand much more excitement?
Although the government figures, issued late last week , show that during the year 2008 the level of economic activity managed to eek a 1.3% rate of growth the estimates for the fourth quarter were abominable. The decrease in the GDP of 3.8% was the largest decline in over a quarter of a century and the weakness appears to be spreading. No one is expecting a quick reversal of this downward spiral. Actually, the economic consensus seems to expect the contraction in the US economy to accelerate over the foreseeable future. It is against such grim expectations that the new proposed stimulus package will be voted upon by the Congress. Passage of this package by February 17, 2009 is not in doubt, what is in doubt is the margin of victory. Does the opposition to an “imperfect” measure provide sufficient grounds for doing nothing when conditions are so dire?

Whats' In The new Stimulus Package?

2009-01-28T19:54:00.005-05:00

Did this new team in the White House hit the ground running or what? In only eight days they have closed gittmo, reversed the stand on the international family planning gag order, asked the EPA to look into state fuel efficiency standards, strengthened the Clean Air Act and passed a new stimulus package through the House by a vote of 244 vs 188. This has been an exhilarating week. What a breathtaking performance it has been.
That plurality was along party lines but I expect that when the final bill is ready to be sent to the President for his signature in two weeks that more than a few Republican House members would be lending their support.
This massive stimulus package that has something for everyone was cheered today by the financial markets because it is the only hope that more focused government spending and a healthy household sector could start to pull this economy out of this severe recession.
The currently proposed new stimulus amounts to $819 billion divided into an additional $544 billion in Federal spending and another $275 in tax cuts. The new government spending covers the gamut of additional health care expenditures, more unemployment benefits, help to the individual state governments in addition to renewable energy projects and highway spending.The tax cuts are also broadly base. Almost a third; $90 billion; goes to Business expensing while payroll tax holiday amounts to $99 billion while renewable energy tax credits accounts for $20 billion while Tuition tax credit gets $10 billion.
Is this prescription sufficient to restore the patients health? Only if unemployment is not to go above 8-8.5 %. If that threshhold is crossed then an additional stimulus will be called for.

Who Should be Laid Off ?

2009-01-24T12:23:00.005-05:00

It is easy to be in support of welcoming labor from other countries when the rate of unemployment is low and when the economy is creating new jobs at an acceptable rate. The real test of our attitude towards “foreign” labor, however, is to be judged by our acts during difficult economic times. And this is such a time. Would we maintain, in the face of double digit unemployment, our advocacy of “openness “ or would we change course by adopting policies that are geared to protect the national labor force . Do we have a moral responsibility to take care of the near and dear that can supersede our responsibility to non nationals?
Unfortunately such questions are no longer confined to the field of the hypothetical. As the economy slows down even such juggernauts as Microsoft have announced plans to lay off 5000 workers. But Microsoft is one of the primary beneficiaries and major supporter of the special H1 visas that allows companies to hire non-American workers. As expected, many, in and out of Government are calling on Microsoft to give priority to US citizens during these difficult times. Senator Grassley has already sent Microsoft a letter in which he stated unequivocally that “Microsoft has a moral obligation to protect these American workers by putting them first “.during these difficult economic times."
What do you think?

Put Your Money Where Your Mouth Is

2009-01-16T22:09:00.001-05:00

Official unemployment in the US has surpassed the 10 million mark and according to some estimates it is on its way to 12 million. As any student of economics knows, or should know, the official publicized figures of unemployment understate the real number by a wide margin. If one is to add the number of the discouraged workers and those that are forced to work part time then what we get is an unemployment rate that is easily in the low double digits. And that is scary.

What makes the current situation even worse is the fact that no one can yet point to any encouraging signs of a potential turn around. Most prognosticators do not expect a meaningful pick up in economic activity until the third quarter of 2009 at the earliest. Unfortunately these tough economic circumstances of economic contraction, decreasing employment, plummeting prices in the housing sector, frozen credit markets and low consumer confidence have spread to most countries. This is an especially ominous development because there are no players that can pick up the slack ,if you will.

It goes without saying that the above mentioned harsh economic conditions are being felt by all members of society. This high level of anxiety and unease are reflected in practically all fields. New all-time lows are being recorded almost on a daily basis in the housing industry, financial transactions on Wall Street, the volume of steel production, the sales volume in electronics or that of new cars, to name just a few major areas.

The current administration has already taken a number of major initiatives to steady the financial hemorrhaging and the incoming Obama-led team has already prepared a massive stimulus package whose aim is to revive the economy and create new jobs. The question that I would like to raise at this juncture is simply this: Does each of us as an individual consumer bear a special responsibility towards other members of the community that are less fortunate than we are? I am not talking about donations of food , old clothing and battered furniture. In a market economy our values and mores are being constantly revealed through our allocation of income i.e. through our consumption decisions. Now let me ask you this: How sincere is your concern for your fellow automotive worker when you decide to purchase a vehicle; that is of comparable size and quality as that made in the US; but that was built by say French labor? Are your concerns for the rubber workers genuine when you proceed to buy tires made in Germany? Do you really have the right to complain about low wages when you persist in giving most of your business to those retailers and manufacturers that abuse their labor? Should you have the right to make an issue of government deficits when you willingly under report your income or fail to report a barter transaction? Does any one have the right to raise a raucous about global warming if one happens to live in a 4000SF home; drive 15,000 miles a year;go skiing across the Atlantic ; own large flat screen TV sets in addition to a large variety of electronic gear. Is it fair to rely on government and the sacrifice of others in order to resolve a problem that each of us has helped create?

Economic Consequences of the George W Bush Presidency

2007-11-25T20:39:00.000-05:00

The following is an excerpt from an article by the Nobel laureate in Economics Joseph Stiglitz. You are encouraged to read the full article in Vanity Fair of December 2007.

When we look back someday at the catastrophe that was
the Bush administration, we will think of many things:
the tragedy of the Iraq war, the shame of Guantanamo
and Abu Ghraib, the erosion of civil liberties. The
damage done to the American economy does not make
front-page headlines every day, but the repercussions
will be felt beyond the lifetime of anyone reading this
page.

I can hear an irritated counterthrust already. The
president has not driven the United States into a
recession during his almost seven years in office.
Unemployment stands at a respectable 4.6 percent. Well,
fine. But the other side of the ledger groans with
distress: a tax code that has become hideously biased
in favor of the rich; a national debt that will
probably have grown 70 percent by the time this
president leaves Washington; a swelling cascade of
mortgage defaults; a record near-$850 billion trade
deficit; oil prices that are higher than they have ever
been; and a dollar so weak that for an American to buy
a cup of coffee in London or Paris-or even the
Yukon-becomes a venture in high finance.

And it gets worse. After almost seven years of this
president, the United States is less prepared than ever
to face the future. We have not been educating enough
engineers and scientists, people with the skills we
will need to compete with China and India. We have not
been investing in the kinds of basic research that made
us the technological powerhouse of the late 20th
century. And although the president now understands-or
so he says-that we must begin to wean ourselves from
oil and coal, we have on his watch become more deeply
dependent on both.

Up to now, the conventional wisdom has been that
Herbert Hoover, whose policies aggravated the Great
Depression, is the odds-on claimant for the mantle
'worst president' when it comes to stewardship of the
American economy. Once Franklin Roosevelt assumed
office and reversed Hoover's policies, the country
began to recover. The economic effects of Bush's
presidency are more insidious than those of Hoover,
harder to reverse, and likely to be longer-lasting.
There is no threat of America's being displaced from
its position as the world's richest economy. But our
grandchildren will still be living with, and struggling
with, the economic consequences of Mr. Bush.

Unshackle the Cell Phone

2007-10-21T22:43:00.000-04:00

Telecommunications
Free My Phone

Cellphone carriers tell us what phones we can use, and what software and services can be offered on those phones. Consumers deserve better.

By WALTER S. MOSSBERG
October 22, 2007

Suppose you own a Dell computer, and you decide to replace it with a Sony. You don't have to get the permission of your Internet service provider to do so, or even tell the provider about it. You can just pack up the old machine and set up the new one.

OPINION

Now, suppose your new computer came with a particular Web browser or online music service, but you'd prefer a different one. You can just download and install the new software, and uninstall the old one. You can sign up for a new music service and cancel the old one. And, once again, you don't need to even notify your Internet provider, let alone seek its permission.

Oh, and the developers of such computers, software and services can offer you their products directly, without going through the Internet provider, without getting the provider's approval, and without giving the provider a penny. The Internet provider gets paid simply for its contribution to the mix: providing your Internet connection. But, for all practical purposes, it doesn't control what is connected to the network, or carried over the network.

WSJ's Walt Mossberg discusses the problems caused by the restrictions wireless companies place on customers' phones.

This is the way digital capitalism should work, and, in the case of the mass-market personal-computer industry, and the modern Internet, it has created one of the greatest technological revolutions in human history, as well as one of the greatest spurts of wealth creation and of consumer empowerment.

So, it's intolerable that the same country that produced all this has trapped its citizens in a backward, stifling system when it comes to the next great technology platform, the cellphone.

A shortsighted and often just plain stupid federal government has allowed itself to be bullied and fooled by a handful of big wireless phone operators for decades now. And the result has been a mobile phone system that is the direct opposite of the PC model. It severely limits consumer choice, stifles innovation, crushes entrepreneurship, and has made the U.S. the laughingstock of the mobile-technology world, just as the cellphone is morphing into a powerful hand-held computer.

Whether you are a consumer, a hardware maker, a software developer or a provider of cool new services, it's hard to make a move in the American cellphone world without the permission of the companies that own the pipes. While power in other technology sectors flows to consumers and nimble entrepreneurs, in the cellphone arena it remains squarely in the hands of the giant carriers.

The Soviet Ministry Model

That's why I refer to the big cellphone carriers as the "Soviet ministries." Like the old bureaucracies of communism, they sit athwart the market, breaking the link between the producers of goods and services and the people who use them.

To some extent, they try to replace the market system, and, like the real Soviet ministries, they are a lousy substitute. They decide what phones can be used on their networks and what software and services can be offered on those phones. They require the hardware and software makers to tailor their products to meet the carriers' specifications, not just so they work properly on the network, but so they promote the carriers' brands and their various add-on services.

QUESTION OF THE DAY

How would you rate your cellphone carrier? Cast your vote and join the discussion.

Let me be clear: Any company that spends billions to build and maintain a wireless network deserves to be paid for its use, and deserves to make a profit and a return for its shareholders. Not only that, but companies like Verizon Wireless or AT&T Inc. should be free to build or sell phones or software or services.

What Is Needed

But, in my view, they shouldn't be allowed to pick and choose what phones run on their networks, and what software and services run on those phones. We need a wireless mobile device ecosystem that mirrors the PC/Internet ecosystem, one where the consumers' purchase of network capacity is separate from their purchase of the hardware and software they use on that network. It will take government action, or some disruptive technology or business innovation, to get us there.

CUSTOMIZING YOUR PHONE

PODCAST: The mobile phone has become much more than just a portable communication device. WSJ's Jessica Vascellaro explains some of the ways we personalize our phones both functionally and aesthetically.

• Listen Now | iTunes Archive | RSS Feed | More Info

To my knowledge, only one phone maker, Apple Inc., has been permitted to introduce a cellphone with the cooperation of a U.S. carrier without that carrier having any say in the hardware and software design of the product. And that one example, the iPhone, was a special case, because Apple is currently the hottest digital brand on earth, with its own multibillion-dollar online and physical retail network.

Even so, Apple had to make a deal with the devil to gain the freedom to offer an unimpaired product directly to users. It gave AT&T exclusive rights to be the iPhone's U.S. network for an undisclosed period of years. It has locked and relocked the phone to make sure consumers can't override that restriction. This arrangement reportedly brings Apple regular fees from AT&T, but penalizes people who live in areas with poor AT&T coverage.

Apple has also, so far, barred users from installing third-party programs on the iPhone, though the company announced last week it will open the phone to such programs early next year. (Web-based iPhone programs -- those that run inside the Web browser -- have been available from day one.)

These restrictions have rubbed some of the luster off the best-designed hand-held computer ever made.

A few other "smart phones" sold primarily to businesses have been freer of carrier restrictions on third-party software and services than typical cellphones. But even these handsets, such as Palm Treos, Windows Mobile devices, and BlackBerrys, have been partly crippled by carriers in some cases.

As a technology reviewer, I have met with multiple small companies that had trouble getting their programs onto consumers' phones without the permission of the carriers; getting that permission often requires paying the carriers. Sure, there are some clumsy workarounds that can evade the carrier barrier, but it's nothing like the ability small software companies have had for decades to offer their products for installation on Windows or Macintosh computers.

THE JOURNAL REPORT

Take a look at various blogs that focus on triathlons and board games. Plus, as online advertising matures, so does the job of measuring results.

See the complete Technology report.

We also need much greater portability of phone hardware. Because the federal government failed to set a standard for wireless phone technology years ago, we have two major, incompatible cellphone technologies in the U.S. Verizon Communications Inc. and Sprint Nextel Corp. use something called CDMA. AT&T and Deutsche Telekom AG's T-Mobile use something called GSM. Except for a couple of oddball models, phones built for one of these technologies can't work on the other. So that limits consumer choice and consumer power. If you want to switch from AT&T to Verizon, you have to swallow the cost of a new phone.

But the problem is even worse. The government didn't require the CDMA companies to include a removable account-information chip, called a SIM card, in their phones. So, unlike people with GSM phones, Sprint and Verizon customers can't keep their phones if they switch between the two carriers, even though they use the same basic technology. And, the government allows the GSM carriers to "lock" their phones, so a SIM card from a rival carrier won't work in them, at least for a period of time. Techies can sometimes figure out how to get around this, but average folks can't.

The carriers defend these restrictions partly by pointing out that they subsidize the cost of the phones in order to get you to use their networks. That's also, they say, why they require contracts and charge early-termination fees. Without the subsidies, they say, that $99 phone might be $299, so it's only fair to keep you from fleeing their networks, at least too quickly.

But this whole cellphone subsidy game is an archaic remnant of the days when mobile phones were costly novelties. Today, subsidies are a trap for consumers. If subsidies were removed, along with the restrictions that flow from them, the market would quickly produce cheap phones, just as it has produced cheap, unsubsidized versions of every other digital product, from $399 computers to $79 iPods.

The Federal Communications Commission is selling some new wireless spectrum that will supposedly lead to fewer restrictions for technology companies and consumers, but it's far from certain that the carriers, with their legions of lobbyists and lawyers, will allow such a new day to dawn. Google Inc. is making noises about trying to bust open the cellphone prison, with new software and services, but that's no sure bet either.

Remember Landlines?

We've been through this before in the U.S., though many younger readers may not recall it.

Up until the 1970s, when the federal government intervened, you weren't allowed to buy your own landline phone, and companies weren't able to innovate, on price or features, in making and selling phones to the public. All Americans were forced to rent clumsy phones made by a subsidiary of the monopoly phone company, AT&T, which claimed that, unless it controlled what was connected to its network, the network might suffer.

Well, the government pried that market open, and the wired phone network not only didn't collapse, it became more useful and versatile, allowing, among other things, cheap connections to online data services.

I suspect that if the government, or some disruptive innovation, breaks the crippling power that the wireless carriers exert today, the free market will deliver a similar happy ending.

Subprime and the Role of Government

2007-10-08T11:39:00.000-04:00

"The government that governs best is the government that governs least" appears to have become the singular dictum of the current administration. Even the war in Iraq has become the most privatized war in history. Many have even argued that the Federal Government's response or lack of response to hurricane Katrina was in essence a reflection of this ideological shift that questions the role that the Federal government is supposed to play in promoting the welfare of the nation.
So here we are again facing a new Katrina disaster, the subprime debacle where millions of families have to graple with foreclosures on their homes. The new Katrina is promising to be much more overwhelming than the old one. Actually the current debacle carries within it the seeds of a national recession not to mention the real human sufferings and stress that will ensue. Yet the government has failed to come up with a comprehensive plan to help avert the impending torrent of foreclosures on the grounds that government assisstance should not replace personal responsibility. It was more than acceptable. however, for the government to bail out the hedge funds and Wall Street from their misguided investment decisions. And I always thought that government is supposed to protect the weak and the poor.

How American is the Mustang Car Revisited?

2007-09-30T16:06:00.000-04:00

Now that GM and the UAW have reached an agreement that will be copied by both Ford and Chrysler which relieved the US manufacturers from the burden of uncertainty in delivering health care you would expect the US car manufacturing to recapture market share wouldn't you? Not so fast.
Back in 1987 the proportion of cars sold in the US that were not manufactured in North America surpassed 27%. But as Honda, Toyota, Nissan and others flocked into the US that proportion dropped to almost 10% by the late 1990's. That is no longer the case. Last year 23 % of automobiles sold in the US were manufactured outside the US, Mexico and Canada. I am afraid that the trend will continue . What that means is that at best the new UAW deal might reduce the rate of increase in the hemorhaging experienced by the big three but that it will not reverse the trend. If anything I would expect GM, Ford and Chrysler to import more cars to the US. Is car manufacturing the next textile industry? Is the US destined to become a services economy and is that something to worry about?

2007-09-30T16:04:00.000-04:00

How American is the Mustang car ?

If you are in need of a new set of wheels and you happen to believe strongly that it is preferable to spend your hard earned money (cars are the second most expensive purchase that a typical American makes during a life time) on an automobile manufactured by an established US company then most likely you will avoid the Toyota Siena in favour of that traditional American legend the Ford Mustang. That would be a wrong decision.

The most common way to classify automotive vehicles by country of origin is to find out the country with the most value added attributed to it. Once such a simple exercise is performed on the above two vehicles of choice the results will blow you out of the water. They are actually border on being shocking. The Toyota Siena is assembled in the USA and the final value added for this mini van that is attributed to the US is a staggering 95%. The Ford Mustang on the other hand, is also assembled in the USA but the final tally shows that only 65% of the value added is done by US manufacturers.

What is truly paradoxical and difficult to explain is the fact that Toyota appears to be selling vehicles that are totally made in the US at a profit while Ford, Gm and Chrysler are downsizing their US operations, expanding overseas and yet are not even in the same league as Toyota. Global integration, product design and manufacturing philosophies have changed the rules of the game. Toyota manufactures in the US at a profit and gains market share while Ford out sources to less expensive countries, loses market share and operates at a loss. I would still buy the Mustang. It’s sportier:-)

2007-09-22T16:06:00.000-04:00

Decline in Unionization: Who Is Responsible?

A pivotal institution in the economic, social and political life of the United States is in real danger of extinction. Preventing organized labour from going the way of the do-do bird will not be an easy matter especially when the efforts to weaken labour unions by management and international economic relations are aided by the misguided policies of the labour unions themselves to deliver the proverbial one two punch.

The United States has never welcomed labour unions with open arms. At the height of unionization only 37% of the private sector work force was unionized; but that has dropped to an abysmal 8% of the private sector work force during 2004. Compare that to the current rates of 95% in Sweden , 60 % in Norway and 40% in Germany.

What is even more alarming is that the labour union disappearing act goes on. General Motors has announced the planned layoff of another 30,000 hourly workers in addition to the 20,000 planned layoff by Ford Motor and the potential total shut down of Delphi, the auto parts manufacturer. GM and the UAW have been trying to hammer out a new agreement for the last three weeks of constant negotiations. A deal might be announced in the next 24-48 hours but if I am to speculate I would say that the UAW is not in a position of strength. It will probably be asked to give back and give back some more. That should not be surprising when you learn that the UAW currently represents 180,000 auto workers when only seven years ago they represented more than twice as much.

It is common to explain the labour woes by references to Ronald Reagan who fired all PATCO employees and sent a strong message to take strong stands against demands by labour unions as it is also customary to blame globalization and the “race to the bottom” that it has engendered. But are the Labour Unions themselves to be viewed as victims and held blameless?

Whose idea was it to raise the effective cost of a typical UAW employee to $74 per hour? Was it company management that suggested setting up job banks in order to pay employees for not working? Who was it that insisted on total implementation of rigid work rules that in effect decreased competitiveness? The sad fact of the matter is that labour has played an active role in its own demise.

Is a recession on the way?

2007-09-20T14:32:00.000-04:00

What if Allan Greenspan is right and housing prices in the US tumble by around 15%? One possible scenario of such an eventuality has been sketched out by the Centre for Economic Policy and Research.

The main points of the study may be summed up as follows:

* The 15% drop in the price of the housing stock in the US would total $4 trillion in real terms
over 3 years. ($4,000,000,000,000.00) Yes that is a four followed by 12 zeros!!!!

* The above loss would translate into a decrease in wealth to the tune of $50,000.00 for each
homeowner. The above calculation assumes that we have 80,000,000 homeowners.

* Some parts of the country will face a 30% drop in prices while some others might not drop at
all.

* Prices will not recover for a very long time, that is why it is called a bubble. The pre bubble
prices will not be retested for at least a decade and then only in nominal dollars.

* Job losses in the construction industry and related sectors could amount to over 1 million
jobs.

* Financial crisis could deepen and spread.

* The negative "wealth effect" is estimated to bearound 5 percent of the change in the value of
the housing stock. The resulting contraction of $200 billion in aggregate consumer spending
combined with the associated job losses would result in setting the stage for a deep
recession

Is it fair to excoriate Mr. Greenspan for the above mentioned failure? You bet that it is. If he had expected the above dire scenario then why didn't he take any measures to stop it or is this potential outcome composed only to attract attention and sell books? Would the real Greenspan step forward please? Don't hold your breath.

Money Illusion

2007-09-13T09:32:00.000-04:00

City light, and sounds, act like powerful magnets. Many of the youth want to move to NYC as soon as they graduate from college and find a job. And why not? The city is dynamic, full of life, never sleeps and yet offers better wages. It is because everything is so much more expensive in the city, thats why not.

Housing costs in the city and its environs are much more likely to take a much bigger bite of ones income as to make the differential in pay favouring the city disappear. The following shows the actual latest census data on this subject.

Proportion of Renters spending at least half their
income on rent, by County.

Bronx 32.9%

Kings County 30.0

Queens 28.0

Suffolk 33.9

Westchester 23.5

Once you are ready to make your move don't forget that spending 50-60% of your income on rent does not leave you with much for anything else. But hey, we all have different priorities.

TANSTAAFL

2007-09-13T09:31:00.000-04:00

"There Ain't No Such Thing As A Free Lunch" is one of the most fundamental and most enduring ideas in Economics. Interestingly enough the above expression expresses the same principle that ecologists consider to be paramount; everything is connected to everything else.

When would the "shallow" environmentalist, the world over, start applying the lessons of their discipline ?Don't we have the right to expect a policy designed to be environmentally friendly to live up to its billings or have we gotten soused to sloppy thinking that we have become enamored of faddish behaviour, superficial thinking and yes, even the willingness to deceive.

To understand that ethanol is not a solution to the energy crisis and that it should not be encouraged is a no-brainer. Studies have demonstrated clearly that the production of ethanol from corn in the US uses more energy than the energy that is produced as an output in the process. Add to that the evidence that a strong mixture of ethanol in the fuel appears to be corrosive and the obvious fact that there is no infrastructure to transport ethanol and distribute it across the land and it becomes rather clear that this so called solution is actually one way to aggravate the problem. But if we are to gloss over all of the above glaring shortcomings of ethanol production there is no excuse for not having seen that the rush to grow more subsidized corn by the farmers can only create a shortage of other crops whose production is replaced by corn. And sadly this is exactly what has happened. The projected wheat crop in the US is going to be smaller than expected and that, combined with an Australian draught , has resulted in a major increase in the price of wheat. The future contract hit today an all time high of over $9 per bushel. The price has more than doubled since April.
Ironically the poor nations will suffer the most as a result of our misguided "environmental" policies. The poor will have to deal with a greater incidence of malnutrition, we will have higher food prices, rich ethanol producers , corroded internal combustion engines and no relief from the energy shortage. Oh what tangled webs we weave when first we practice to deceive.

How American is the Mustang car ?

2006-05-03T19:11:00.000-04:00

When US ports are owned by Dubai

2006-04-23T18:37:00.000-04:00

Tipping Point??

2006-04-22T21:57:00.000-04:00

Every rubber band can withstand only so much force before it breaks. What about the social fabric of a society? Does the principle apply or do we have the right to assume that no force can ever break the tevlar like strength of social cohesion?

Let us take a look at the facts and nothing but the facts, and then you decide. Income distribution in the US has continued, over the past quarter of a century, to reward the few at the expense of the many. The chasm that separates the top quintile (20%) of US households from their counterparts at the bottom of the distribution has become a gulf that does not bode well for the future of the class relations. The top 20% of households has increased to an astounding 52.2% of income. This simply means that the top 20% make more than the other 80% of the population put together.

To make things worse, the distribution of income within that top 20% is also very uneven. Actually the figures for 2003 show that the top 1 % of income earners account for over 14% of income. The top 10% account for 37.2% of income. Yet inspite of all this inequality the US government does not see it fit to issue or publicize the Gini coefficient (an accepted measure of inequitable income distribution that could be generated at the push of a button. But then why inform the masses about their standing when you can make the TV rounds and proclaim, as Secretary Snow has just finished explaining last week. He said that we should be proud of the way that our system works because it distributes the spoils according to an “aspirational” compensation system set by the market. Thank you Secretary Snow for explaining to us so cogently why is it that so many Americans choose to live in fear of how to pay for an unforeseen illness, who is to fund their pensions, how to finance their children’s’ schooling and put food on the table.

According to a recent study by the Institute for Policy Studies the average compensation of a CEO was 42 times that of an average worker during 1980. That gap has risen to a multiple of 431 in 2003 which translates to $11.8 million compensation for the CEO versus the $27460.00 for the worker. How much more can the social fabric withstand?

Vive La Difference !!!

2006-04-04T10:43:00.000-04:00

Is there really anyone who believes that there is no major difference between the United States and France? Just in case that rare specie exists a recent survey done among the French should dispel that illusion. The survey in question found out that three quarters of the young French (yes, three out of four!!!!) would like to become civil service employees. Is this the kind of ambition and creativity that built Silicon Valley or even such prosperous enterprises as Starbucks, Dell Computers and the iPod juggernaut? I am afraid not, the ambition of these young Frenchmen and Frenchwomen is what is needed to create a stagnant economy hampered by bureaucracy and stifled by innovation. And don’t let anyone tell you that statistics show that the French are more productive than the American workers on a per hour basis. The figures are accurate but only because so few of the French people are working!!!

Immigration: Full Amnesty is the Right Way.

2006-04-03T22:22:00.000-04:00

The House and the Senate, not for the first time, are working on legislation reform bills that are in sharp disagreement with each other. The House has already passed legislation that would make it a felony to be in the US without proper immigration papers while the Senate is preparing legislation that would offer the estimated 12 million undocumented workers the chance to obtain citizenship. If there ever was an issue that has valid points on both sides of the divide then this is it.

Economists have often admonished us that” there ain’t no such thing as a free lunch; TANSTAAFL. According to this principle no matter which side you take there is a price to pay. So what would the rational economist (Is there any other kind? :-)) do in such a situation? Naturally homoeconomicus will favour the less costly side.

Although there are valid points on both sides of the divide it can be argued very clearly that the concerns of the House side: the right to control borders, downward pressure on the minimum wage in addition to increasing official unemployment rates among teens and low skilled workers are easily trumped by the moral concerns that are guiding the debate in the Senate.

Why am I obligated to help? To me the answer is simple and straight forward. The rights of the poor, the oppressed and the underprivileged rest on two fundamental principles.
(1) The utilitarian idea that if I am in a position to lessen pain, in any form, then I should.
(2) The chasm that separates the poor from the rich has expanded at an alarming rate over the past half a century. Since this increased inequality is the direct outcome of a “world system” and since we are not ready to jettison this unjust system then it must be the moral obligation of those that have profited the most to help those that are most in need.

In the final analysis integrating the 12 million undocumented workers in the US is the right policy but must not be viewed as anything more than a stop gap measure until the next wave of immigrants storm through the borders. That can only be stopped by treating the underlying problem at its roots. Eliminate poverty, improve standards of living and support social justice through fair trade and targeted economic aid.

Decline in Unionization: Who Is Responsible?

2006-04-02T12:16:00.000-04:00

A pivotal institution in the economic, social and political life of the United States is in real danger of extinction. Preventing organized labour from going the way of the do-do bird will not be an easy matter especially when the efforts to weaken labour unions by management and international economic relations are aided by the misguided policies of the labour unions themselves to deliver the proverbial one two punch.

The United States has never welcomed labour unions with open arms. At the height of unionization only 37% of the private sector work force was unionized; but that has dropped to an abysmal 8% of the private sector work force during 2004. Compare that to the current rates of 95% in Sweden , 60 % in Norway and 40% in Germany.

What is even more alarming is that the labour union disappearing act goes on. General Motors has announced the planned layoff of another 30,000 hourly workers in addition to the 20,000 planned layoff by Ford Motor and the potential total shut down of Delphi, the auto parts manufacturer.

It is common to explain the labour woes by references to Ronald Reagan who fired all PATCO employees and sent a strong message to take strong stands against demands by labour unions as it is also customary to blame globalization and the “race to the bottom” that it has engendered. But are the Labour Unions themselves to be viewed as victims and held blameless?

Whose idea was it to raise the effective cost of a typical UAW employee to $74 per hour? Was it company management that suggested setting up job banks in order to pay employees for not working? Who was it that insisted on total implementation of rigid work rules that in effect decreased competitiveness? The sad fact of the matter is that labour has played an active role in its own demise.

Is a 16th Rate Hike in the Cards?

2006-03-30T23:27:00.000-05:00

On Tuesday afternoon the Federal Reserve Open Market Committee announced the fifteenth consecutive interest rate increase , just as expected by practically everyone on wall street. The latest increase of twenty five basis points(0.25%) raises the short term interest rate in the United States to 4.75%, a level not seen during this century. The Federal Reserve is not done yet raising rates. The future markets in Chicago are pricing in an 80% chance of a further rate hike during the next Fed meeting in May. A few economists are even predicting further rate hikes in the summer.

Those who support the current policy initiatives by the Federal Reserve are , as a general rule, worried about inflationary pressures. They tend to point to the low current unemployment rate of 4.8% in addition to the increase in manufacturing capacity utilization of over 81% and conclude that the economy is perilously close to its full employment potential. They argue that unless we start tapping on the brakes in order to slow down the economy then we run the risk of setting in motion a "demand pull inflation".

A small but vocal group of economists dismisses these fears as unfounded. They present the counter argument that such increases in the interest rate are unwarranted since the labour market has at least seven million officially unemployed persons, not to mention the millions of discouraged workers and those that are working involuntarily on a part time basis. Furthermore, this group believes that consistent improvements in productivity will ameliorate any upward pressure on wages.

Who is right and who is wrong? Probably the truth is somewhere in between.The fed should at a minimum stop after the next interest rate increase in May in order to observe and study objectively the new economic data.

The Conservative Right Strikes Again

2006-03-23T15:14:00.000-05:00

We have all seen the dire projections that demonstrate clearly that if we are to proceed with Business as Usual we have nothing to look forward to besides massive amounts of red ink as far as the eye can see. The expected shortfall is not limited to Social Security but the real big problem is the future cost of the Medicare/Medicaid complex. Add on top of that the cost of welfare and then you start to get an idea about the extent of the deficits that our current entitlements will subject us to in the not so distant future.

Charles Murray a resident scholar at the American Enterprise Institute (AEI) and the co author of the very controversial The Bell Curve has done it again. His new book “In Our Hands: A Plan to Replace the Welfare State” argues, obviously from a conservative perspective that we can eliminate poverty and reduce the size of governmental bureaucracy and enhance economic efficiency if we would eliminate all cash program payments at all levels of government; Federal, State and local.

Under this proposal there will no longer be any social security system or mecicare/medicaid or even welfare payments. The plan suggests replacing all of the above in addition to a few other subsidies with a single annual payment of $10,000.00 to each and every US citizen as of the time they turn 21 years old. His projections show that in the early years of this plan the deficit will expand but then will start to shrink and in short order generate a surplus. If this plan sounds too good to be true that is only because it is

Was it Really National Security?

2006-03-20T19:25:00.000-05:00

What does buying groceries at Stop and Shop or A&P, filling the car tank at Amoco, going for a jog in Addidas running shoes, turning on your RCA television to watch your favorite soap or quenching your thirst with a 7UP have in common? If you guessed that all of the above mentioned companies are owned by non US firms then you have my admiration. But does that change anything? Of course not. But if so many of the most common corporate names are not American owned then what was all that hullabaloo about when Dubai Port World was to consummate a transaction of becoming the owner of the UK company O&P that is in charge of running six US ports? The short answer is racism, protectionism, partisan politics and short sightedness.

As we have discussed in an earlier post the United States runs on its current account an annual deficit of over $800 billion. This simply means that the US can go on running this deficit as long as we can generate a capital inflow of $2.5-3 billion each and every day. Our most two popular tools to accomplish this recycling of dollars are the sales of our treasury securities that carry a relatively low interest rate and the sale/export of equity in US based corporations. If that capital inflow is interrupted then we have no choice but to curtail our appetite for imported goods or else the excess dollars on the world market could trigger a major financial crisis. There you have it, was the move by the Congress to stop DPW from running six ports in the national interest or was it a move that is best characterized as killing the goose that lays the golden egg? You decide.

National Debt vs GDP

2006-03-16T22:45:00.000-05:00

The US Senate approved this afternoon by a vote of 51-49 a blueprint budget for 2007 that totals $2.8 trillion. This budget was not radically different from the one proposed by the White House last month. The Senators surprised the White House though, by adding a total of $18 billion in expenditures allocated along a number of programs that the administration had intended to either cut or at least freeze at last years level of expenditures.

The budget is predicated on the assumption that the federal deficit will amount to $350 billion in each of the current as well as the coming fiscal years. As a result the national debt ceiling was raised from the current $8.2 trillion to $9 trillion. This debt ceiling has gone up by $# trillion under George W Bush and the ceiling will have to be increased again next year and maybe even the year after. When the current administration was ushered into the White House in January 2001 the federal government was projecting budgetary surpluses as far as the eye can see.

As soon as the House passes its own version of the budget, sometime soon, the real horse trading begins. How many more years before the national debt surpasses the GDP?

Who is Working and Who is Not?

2006-03-10T21:00:00.000-05:00

Official unemployment figures for the month of January 2006 reveal that the number of employed in the United States has increased by over 243,000. This figure is substantially larger than the 125,000-150,000 that is required each month to keep the rate of unemployment steady at 4.8% of the civilian labour force.

Those who voiced concern about the strength of the economy and the above expected growth in the labour market are in effect implying that the economy is perilously close to its natural rate of unemployment, NRU. Any growth from this point runs the risk of setting loose the inflationary genie. On the other hand there is a group of economists who believe that this will not happen as long as productivity continues to increase

Even though the total number of the unemployed is 7,700,000 ( 7,300,000 officially counted as unemployed plus 400,000 that are ready to work but have not looked for a job in the last four weeks) only less than half of this number represents a drag on the economy. In a vibrant, dynamic economy up to 3% of its civilian labour force could be classified as in between jobs. Since the civilian labour force in the US is estimated to number 150,000,000 workers then this means that 4,500,000 of our unemployed are voluntarily so. This however leaves over 3,200,000 people that are involuntarily without jobs in addition to those that have been discouraged, those that can be enticed to enter the labour market and those that are currently working part time.

As you can see from the above the argument that we should sacrifice employment for the sake of a lower rate of inflation rests on shaky grounds, at least in the short run.

Another Month Another Record Deficit

2006-03-09T22:41:00.000-05:00

The US trade deficit for the month of January 2006 did not disappoint. It was another record deficit of over $68 billion, that is over $2 billion a day. If this rate is to persist for the rest of the year, and it is expected to, then 2006 will record a trade deficit of around $800 billion. As a result many in the Congress have escalated their attacks on the Bush administration for its liberal trade policies and are threatening to introduce measures that will insulate the American economy. It should be clear that these protectionist measures will not address the major cause for the deficit but will merely politicize the issue without delivering any relief, if relief is needed.

Trade deficit, in a free market economy is not set by the government but is a direct outcome of consumer behaviour. Just under 70 % of the trade deficit for the month of January is accounted for by only two items. Imported oil bill totaled $24.6 billion during the month of January 2006 while the total value of the imported automotive goods added another staggering $22.7 billion. I am sure you will agree that Washington did not actively promote the sales of either Lexus or Honda neither did it encourage the purchases of Mercedes or BMW for that matter. I am equally confident that very few would approve of any efforts by the government to dictate the brand of vehicles that is to be purchased.

The goal of eliminating the trade deficit in the foreseeable future is as unrealistic as the goal of "Energy Independence" and just as misguided. If a country, any country, cannot afford its level of imports then the value of its currency will plummet, foreigners will cease to provide it with credit and its domestic producers will become more competitive. These adjustments will continue until a working balance is restored to the supply and demand of its currency on the foreign exchange market.

So, in light of the above, what does the evidence show? Surprisingly enough, the US dollar has not moved much against the euro one way or the other. When the Euro was launched on January 1, 2002 its exchange rate was $1.17= 1Euro, currently the rate is $1.22=1Euro. The same is practically true of the Japanese Yen which was trading around $=120 Yens in early 2002 and is currently exchanging hands at about $1=118 Yens. So what gives? Most of the excess US dollars supplied on the world markets as a result of the American consumers current fascination with things imported have been recycled back to the US through the equity markets. Foreign investors have shown a voracious appetite for US corporate securities and have thus been more than satisfied to supply us with the variety of wines, cloths,cars and energy in exchange for an equity position in various US corporate enterprises.

In the final analysis international trade is nothing else but a process of exchange. And when that process is not inhibited by governmental rules and regulations then the parties to the exchange will agree to it only if they deem it to be mutually beneficial. In the case at hand, the US pays for its net imports through exporting equity positions to the rest of the world. If we decide that it is not in our interest to sell major US based operations to nonresident enterprises then we must reduce our level of imports from the rest of the world. It is as simple as that.

Copyrights never die!!!

2006-03-04T17:01:00.000-05:00

Copyrighted material has been biven a twenty year extension in a recent bill that memorializes Congressman Sonny Bono of the Sonny ans Cher fame. As a result of the new bill his popular hit "I got you Babe" will be under copyright protection untill the year 2061!!!
I doubt whether such a lengthy period of intellectual property rights is needed to enhance the output of creative people. Mickey Mouse is already more than sixty years old but yet he enjoys world wide protection!!!

The Savings Conundrum

2006-03-03T09:07:00.000-05:00

We are all familiar , if not with the figures, at least with the notion that indebtedness forms a major challenge to prosperity in the United States. We are often reminded that the consumers have been using their homes as ATM machines and charging everything in sight. Total consumer indebtedness is estimated to be slightly over $2.2 trillion. That is right $2,200,000,000,000.00!!! This figure pails in comparison to the total Federal debt of an astounding $8.2 trillion and growing at the rate of almost half a trillion every year.

If the above figures are a cause for concern, and they should be, then some of the largest and most trusted names in corporate America should be commended for eschewing the above mentioned trend. Such household names as Microsoft, Intel, Cisco and Genentech do not carry any debt on their balance sheet and when they do the cash hoards that they have amassed is much larger than the miniscule amount of debt . Such corporations have what is known as a negative debt. Many think that since debt is not so good to consumers and government then it should be bad also for corporate America. Not so fast.

Corporate capital structure has two components; (1) equity and (2) debt. Many business executives, financial analysts and economists have spent a good portion of their time researching the optimal corporate capital mix of debt and equity. Recent research on the subject matter has shown that equity is at least fifty percent more expensive than capital. This suggests that the capital structure of some of the largest corporate giants in the US is not competitive when compared to the much more highly leveraged international competitors.

As you can see from the above conventional wisdom is wrong in this case. Corporate America can increase its borrowings and yet improve its profitability. Who says that there ain't no such thing as a free lunch?

GDP per capita: Is It A Useful Idea?

2006-02-28T00:59:00.000-05:00

Often, the twin concepts of the GDP and GDP per capita are impressed upon us as if they represent accurate and objective measures of well being. One common mistake has us refer to GDP per capita as a meaningful measure of income.Is it? The obvious answer is no, if for no other reason but its utter inability to say anything meaningful about income distribution.A cursory investigation of the data reveals that the average income for the bottom 20% of families in the US is around $10,000.00 while that for the top 20% stands at over $142,000.00 per annum.

Income distribution is a reflectionon of who we are and what we value. We cannot claim to be opposed to it and yet not take any action against it. Acquiesence does not provide an escape mechanism from being held accountable for injustice and unfairness, it is in reality an indictment.

GDP per capita has become a useless measure of income because it allows us to pretend that all is well when in reality distribution of resopurces has become more polarised. It is currently estimated that the top 1% of families in the US own around 45% of the wealth , they own just as much as the bottom 95% of the populace.

(For more on the above please read the Op-Ed by Paul Krugman in the NYT of February 27, 2006.)

Corporate Responsibility?

2006-02-27T01:21:00.000-05:00

I have been wondering recently whether the term "Corporate Responsibility" is an oxymoron similar to some other common terms such as "sustainable growth" and "military intelligence".

If we are to judge the car manufacturing giants by their recent advertising campaigns then we must conclude that they have all become converted to the virtues of small cars, efficient engines and alternative fuels. Ford uses the Muppets to show their environmentally sensible offerings, GM touts it 20-30 gas sipping engines, Toyota is very proud of its hybrids and Daimler-Chrysler of its commitment to innovation.

Sadly, though, none of the above manufacturers practices what they preach. The new Ford pick up is almost as large as a bus, GM's Trailblazzer has a vette engine, Chryslers new Grand Cherokee goes from zero to 60 mph in 5.0 seconds and is not meant for the offroad and Toyotas new pick-up trucks are designed to be as large and powerful as their dreaded American counterparts. Maybe it is about time that we teach these corporate giants a lesson. What if they throw a party and no one shows up? Do you think that we have it in us to boycott these products? Fat chance.

Corporations that Do Good

2006-02-25T18:11:00.000-05:00

Corporations vie with each other , just like the Hollywood denizens on Oscar night, to find out how they are judged by their peers on a large number of different issues.
Although we all know that such rankings are purely subjective, yet it is interesting to find out how many of the largest corporate giants rank against each other. Arguably, the most interesting rankings are not the general cumulative ones but the ordering of large corporations according to their "socially responsible" behaviour as good, productive, efficient and yet responsive citizens in their respective communities. The following is the list of the top ten most admired socially reponsible corporations as tabulated by Fortune Magazine:

1 United Parcel Service

2 International Paper

3 Exelon

4 Chevron

5 Publix Super Markets

6 Weyerhaeuser

7 Starbucks

8 Walt Disney

9 Herman Miller

10 Altria Group

Note: Do you find it paradoxical that almost half of these firms are engaged
in activities such as tobacco, paper and non-renewable energy?

Why Is The Income Gap Widening?

2006-02-25T11:24:00.000-05:00

Income distribution has been on a downward spiral in the US for quite sometime. The gap between the rich and the poor has progressively widened, the gully has become an abyss!!! Up until the 1960's the top 20% of US households earned ten times as much as the bottom 20% of households. This relatively high ratio has become larger still. The increasingly inequitable distribution of income has produced the current gulf where the top quintile (20%) of US households earn 14 times more than their counterparts at the bottom.

And yet the present administration in the White House is committed to making the tax cuts permanent or at least extending them until 2015. So what is wrong with a tax cut you ask? It is estimated that if the law is extended until 2015 then the average tax payer in the bottom 20% can expect an annual benefit of $23.00, yes that is not a misprint the benefit will amount to 6.3 cents a day for those that belong to the bottom 20% of the income earners. On the otherhand the top one tenth of one percent will each save $196,000.00 each year. A quick back-of -the-envelope calculation shows that the 20 million tax payers will share $460 million while the richest 100,000 tax payers will get a downpour of $19.6 billions. Now that is a trickle down effect in action!

Where is the Beef?

2006-02-24T10:44:00.000-05:00

The latest figures released by the Federal Reserve demonstrate again that a major problem facing the US economy center around distributive justice , fairness and equity.

Average family income in the US; $70,700; has declined by 2.3percent between 2001 and 2004. The only solace in this figure is the fact that it is not as bad as what had occured during 1989-1992; a drop of 11.3%. ( For those that are too young to remember that was the era of Bush Sr!!!! Like father like son).

In all fairness though it must be noted that median family income; 43,200 saw a slight increase of 1.6% during the 2001-2004 time period. Interestingly median family networth witnessed also a small increase of 1.5% in the same period ; $93,100.

But what is most important and discouraging is the data about wealth gap. Those who are lucky enough to belong to the top 10% of households saw an increase in their net worth to an average of $3,110,000.00 when the bottom 25% experienced a decline in their networth to the level whereby they are in debt , on the average, to the tune of $1400.00.

"Clearly , the gains in wealth are going to the top end" said David Wise, the chief economist at Standard and Poor's.

Economic Ramblings

What Needs To Be Done To Cut The Deficit

Nobel Prize in Economics 2010

Who Is Rich?

Downhill With The GOP

How Important Is the Stock Market for the Average Retiree?

HDI 2009 CPI components

Eight out of Ten Ain't Bad.

Do we need another stimulus?

Green Shoots

Would You Buy American Iron?

It Is Time To End GDP Fetishism

Latest Income Statistics

And The Beat Goes On

The meltdown picks up speed

25 most responsible for the financial meltdown

How Low Can It Go?

The Shrinking Economy

Whats' In The new Stimulus Package?

Who Should be Laid Off ?

Put Your Money Where Your Mouth Is

Economic Consequences of the George W Bush Presidency

Unshackle the Cell Phone

TelecommunicationsFree My Phone

Subprime and the Role of Government

How American is the Mustang Car Revisited?

How American is the Mustang car ?

Decline in Unionization: Who Is Responsible?

Is a recession on the way?

Money Illusion

TANSTAAFL

How American is the Mustang car ?

When US ports are owned by Dubai

Tipping Point??

Vive La Difference !!!

Immigration: Full Amnesty is the Right Way.

Decline in Unionization: Who Is Responsible?

Is a 16th Rate Hike in the Cards?

The Conservative Right Strikes Again

Was it Really National Security?

National Debt vs GDP

Who is Working and Who is Not?

Another Month Another Record Deficit

Copyrights never die!!!

The Savings Conundrum

GDP per capita: Is It A Useful Idea?

Corporate Responsibility?

Corporations that Do Good

Why Is The Income Gap Widening?

Where is the Beef?

Telecommunications
Free My Phone