Category Archives: Economics

Miscellaneous economy stuff

A Thought on Our Economy These Last Few Years

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Both the Pew Research Center and the Congressional Budget Office have published reports in the last week that talk about the condition of our economy and the fiscal cliff that awaits us in a few short months.  Others have commented extensively on the reports themselves; I want to talk about some of the information that lies between the reports’ lines.

The Pew report focuses on the plight of the middle class, referring to “The Lost Decade of the Middle Class ” in its own headline.  The report points out, among other things, that middle class annual income has shrunk from $73k in 2001 (and 2008) to $69.5k in 2010, their most recent data.  Pew notes, also, that median middle class household net worth has fallen from $153k in 2008 to $93k in 2010.

The CBO report, on the other hand, has the following to say: if the Obama tax increases and the sequester spending cuts are allowed to go through at the start of 2013, the deficit will be cut roughly in half as a per cent of GDP, but at a cost of economic contraction of 0.5% on the year.  On the other hand, if the tax increases and spending cuts are put off for another year, the deficit will remain a damaging 6.5% of GDP, unemployment still will be at 8%, and the economy will grow an anemic 1.7%.  This is the fiscal conundrum the present administration’s Keynesian policies have created.

Plainly, the administration’s policies have been an utter failure; they have not produced economic recovery.  Indeed, the middle class, whom Progressives pretend to favor so much, have been devastated by those policies.  Still, Democratic Presidential Candidate Barack Obama wants four more years in which to do more of the same—or more so, since he’d have “more flexibility” after re-election, when he’d be beholden to no one.

After all, Obama says

The private sector is doing fine.

Hmm….

The Romney-Ryan Medicare Plan

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What is it, exactly, and how does it work?  The plan is a means of restoring responsibility for health insurance spending to the individuals seeking the coverage—which also removes that (usurped) responsibility from the Federal government.  The Wall Street Journal provided a summary earlier this week of how this gets accomplished.

  • Private insurers, and Traditional Medicare, would bid for the business of each individual senior citizen (oh, the ignominy: Big Government having to mingle with—to compete with—the hoi polloi) in a region for the year.
  • Each senior citizen would receive from the government a payment equal to the second-lowest bid in that region.
  • Each senior citizen then would spend that payment on the health coverage of that person’s choice.
    • If the senior citizen chose the cheapest policy, he would pocket the difference.
    • If the senior citizen chose the second cheapest, he would break even.
    • If the senior citizen chose a more expensive policy, he would pay the increment out of his own resources.

Hmm….  Choice—what’s up with that?  Can we trust our senior citizens to behave responsibly?  Even push actual competition among the vendors?  Some plainly say, “No!  We do not trust these people.”  It’s why they oppose the plan.

As the WSJ also points out, there’s real world, empirical evidence that base competition works: it has…in Medicare Advantage.  This program already requires vendors to bid against Traditional Medicare.  As recently as 2009, the year for which data are readily available, the lowest and second lowest bids—for the same coverage—were, respectively, 87% and 91% of the government’s Medicare charge.

Where, then, are the extra $6,400 that our seniors are supposed to be socked with paying under the Romney-Ryan plan about which Democratic Presidential Candidate Barack Obama is on about so much?  He and his are using an obsolete CBO report about an obsolete Ryan proposal that doesn’t exist today and that has nothing to do with the Romney-Ryan plan.  Moreover, CBO conceded at the time that its analysis was suspect because it did not consider the effects of competition: their results

depend on the evolution of the health care and health insurance systems over time, which is hard to predict.

More damning—to the CBO analysis here and to its analyses generally—CBO has admitted its inability to score the Romney-Ryan Medicare plan because it

does not have the capability at this time to estimate such effects[.]

There goes Obama, again—stuck in a past that never existed.  And trying to change the subject again.

Retirement Security—For Whom?

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The Obama Campaign now seems to be coming out in favor of the status quo regarding the financial security of our American senior citizens.  They continue to state their adamant opposition to reforming Social Security (and Medicare, which is part of the Social Security system) at all.  Democratic Vice Presidential Candidate Joe Biden made that refusal explicit a few days ago during a Virginia campaign stop:

I guarantee you, flat guarantee you, there will be no changes in Social Security.  I flat guarantee you.

The opposition summarized by Biden has been so long-lasting and, of late, so shrill, that it seems the Progressives are afraid of freeing up the programs, of freeing up us American citizens to take care of ourselves away from the watchful eye and controlling hand of government.

Congresswoman Debbie Wasserman Schultz (D, FL) expresses Progressive fear this way:

The very last thing we ought to be doing is putting at risk the retirement security of millions of America’s seniors.

And yet, she chooses not to address the plain and simple fact that, with our retirement security in the hands of government, with government making funding and disbursement decisions for millions of us, we have no retirement security: Social Security will be bankrupt in just a few short years (it’s already paying out far more than it’s taking in, and the Social Security trustees say the funds will be exhausted by 2033), and Medicare is in worse shape.

Wasserman’s plaint is especially cynical in light of the fact that, for the last three-plus years, Democratic Presidential Candidate Barack Obama—and his fellow Progressives in Congress—have chosen to offer no solution to this at all, save taking $700 billion dollars from America’s seniors’ Medicare in order to give it to his precious Obamacare, and otherwise, as Biden has assured us all, to refuse any change.

Wasserman, et al., also are objecting to a reform that would put more freedom and responsibility in the hands of us citizens: the specific proposal to which Wasserman was objecting (and which, sadly, has been absent from the last two (Republican) House-passed Federal budgets) would have allowed us to take a significant portion of our Social Security taxes and invest those funds in our own retirement accounts, managed by us without government interference.

Why are the Progressives so afraid of letting American citizens make our own choices, be responsible for our own lives?  Do they think we’re just too stupid to manage our own futures, that we’re dumber than government?  Or are they simply afraid of losing the power that comes from the dependency of others on them, and so their own retirement security?

A Few More Thoughts on Employment

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The Beveridge Curve is a means of depicting the relationship between the unemployment rate and the number of jobs available in an economy.  An example of this curve is given by a Federal Reserve Bank of Cleveland article, which asks “Has the Beveridge Curve Shifted?” and is presented below.

Moves along the curve indicate increasing job openings in a growing economy associated with decreasing unemployed workers, or decreasing openings with increasing unemployment in a shrinking economy.  The curve itself can move, also, as structural mismatches between employers’ needs and employees’ capabilities change.  Such mismatches can be driven by technology that creates a gap between skills needed and skills possessed, or job location vs employee location—or by long-term unemployment, which destroys existing job skills that otherwise would be a good match for existing skill needs.

But in such cases, we’d expect the curve to shift back as such mismatches clear (and shift again, as new mismatches develop).  It’s normal for economies to expand and contract on a shorter time frame, though, than that on which structural shifts occur—it can take months or years to retrain, for instance, whereas an economy can contract in a matter of months (typically, in the US, the current dislocation, or those of the 1970s or 1930s notwithstanding).  In fact, the Fed’s article points out that such movements of the curve itself are normal behaviors for our economy in the post-war period.

That’s a long-winded entry into the purpose of this post.  There are two graphs that indicate the failure of the present administration’s economic policies, especially as those policies impact employment capabilities in our economy; both of these are from  Sober Look.  The first graph is this one:

This shows just the sort of structural shift described above, and the shift didn’t occur until after the recession was over—and recall that the recession ended in Spring 2009, before any economic policies of Democratic Presidential Candidate Barack Obama could have taken effect.  Even his $800 billion Stimulus Act spending had not had time to have any effect at the time of the recession’s official end.

Notice that the pre-recession unemployment vs job openings part of the curve is entirely consistent with what we’d expect in a healthy economy—lots (relatively) of openings and full employment, with fewer openings associated with moderately higher unemployment.  During the recession, the decreasing availability of jobs and increasing unemployment followed that curve all the way out to the peak unemployment near 10%.

After the recession, though, and since—a period in which Obama’s economic policies have been able to have their full effect—we see the curve’s shift: even though jobs are becoming more available, unemployment is remaining high, and the drop-off in unemployment, such as it is, is following a higher level of jobs availability—there is a higher mismatch between jobs and job seekers.

This next graph illustrates a major reason why.

This graph shows the number of Americans who’ve been out of work for 27 weeks (6+ months) or more as a per cent of total unemployed.

Notice that sharp, and so far sustained, rise in this long-term unemployment during Obama’s term.  This long-term unemployment produces one of those mismatches described above—the skills mismatch, this time driven by skills destruction through non-use from that long-term unemployment.  Obama’s policies are actively suppressing re-employment.  Even as the preceding graph implies that there are more jobs available now than at the start of his term, job seekers can only find jobs from an increased amount of availability than was the case before the present policies were in place.  The increase in jobs available just isn’t enough to absorb our high unemployment.

A Modest Proposal for Financial Law

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Standard Chartered PLC agreed to pay a $340 million “fine” for improper financial transactions amounting to $250 billion, a fine of just a tad over 1% of that total.  Judge Jed Rakoff, of the United States Federal District, refused to sanction a proposed settlement between the SEC and Citigroup Global Markets of a $160 million “fine” for an improperly handled billion dollar CDO fund, arguing in part that there was no basis for a punitive settlement when there was no allegation or admission of a wrongdoing.

It is, in fact, routine for supposedly misbehaving financial entities and their Federal regulators to negotiate such chump change fines, whether or not actual wrongdoing is conceded or alleged.  This disconnect between the sanction and the (phantom) misbehavior generally is not the result of cronyism; all the players are, say I, fundamentally honest.  No, such settlements are driven by the complexity of our financial laws, of which Dodd-Frank is only the latest addition.  The defendant financial institution usually finds it cheaper to pay the government’s vig than to defend itself, even when innocent, and the government usually finds it cheaper to charge only a taste and make no demand for admission of wrongdoing than to prosecute a case.

As a result of this unnecessary complexity, the government simply continues to hector the financial institutions and the financials simply continue to misbehave (my remark about honesty not withstanding) with the settlements just part of the cost of doing business.

Accordingly, a modest proposal.  Get rid of the financial laws and the regulations.  Replace them with a few simple laws (which, in their simplicity will need no implementing regulations) to the effect of honoring freely signed contracts, the products sold having to be openly and clearly described, all parties to the contracts, and their roles, having to be clearly and openly described.  There might be one or two others, but you get the idea.

Then get serious about cases.  If these laws are violated, hale the miscreants into court and go for serious penalties.  No more “negotiating” pocket money payments.  That’s like negotiating with Willie Sutton over his “community service.”  $250 billion in illegal trades ought to get that much as the floor of a fine.  If that puts the misbehaving company out of business, I suggest that a criminal organization won’t be missed.