Tag Archives: economics

Too Big to Fail

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As a matter of law, Dodd-Frank ended the notion that any firm is “too big to fail.”  Banking will always involve some-degree of risk-taking….  But now, if a financial firm fails, taxpayers will not have to bear the cost of that failure.

Treasury Secretary Jacob Lew said that with a straight face at a New York financial conference earlier in the week.  Never mind that, under Dodd-Frank, not only is “too big”—systemic risk—defined by Government and not by our economy, “failure” is defined by Government and not by our economy, and the outcome of “failure”—what creditors will be allowed to recover, and by how much—will be defined by Government and not by our existing bankruptcy system.  That last, especially, means that, of course we taxpayers will be on the hook, especially to fill any gap between what Government-determined creditors will be allowed to recover and what the failed institution’s assets will support.

Lew also made a very Pelosi-esque demand in those same prepared remarks, when he got to the matter of Congressional dissatisfaction with Dodd-Frank.  While addressing the fact that three years after the law’s enactment, many (most?) implementing regulations, including highly critical ones (from the perspective of the law), have yet to be written, Lew admonished Congress not to meddle with the law.

[T]here will be time to see what is working and what is not [once regulators are finished with outstanding rules].

Treasury has to write the regulations so that we can see what is in the law…away from the fog of the controversy.

Hmm….

Wages of Welfare

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…or, in this case, Obamacare, or maybe just generalized government meddling in people’s lives through our free market.

Ken Adams has been turning to more part-time workers at his 10 Subway sandwich shops in Michigan….

He added approximately 25 part-time workers in May and June as he reduced some employees’ hours and replaced other workers who left.  The move showed how efforts by some restaurant owners and other businesses to remake their workforces because of the Affordable Care Act may be turning the country’s labor market into a more part-time workforce.

And

For the entire U.S. workforce, employers have added far more part-time employees in 2013—averaging 93,000 a month, seasonally adjusted—than full-time workers, which have averaged 22,000.  Last year the reverse was true, with employers adding 31,000 part-time workers monthly, compared with 171,000 full-time ones.

Because delays in enforcing Obamacare notwithstanding, businesses need both to get their full-time numbers down in order to reduce their Obamacare cost baselines, and absent repeal, those delays will come to an end in just 12 short months.  Indeed, the practical effect of the delays is simply to prolong and enhance the hiring of part-timers rather than full-timers.

Here’s a more direct example:

Rod Carstensen, owner of 11 Del Taco restaurants around Denver, began in April converting his mostly full-time workforce into one comprising mostly part-time help to minimize his health-care costs.  He estimates the costs could have climbed by as much as $400,000 a year without the change.

Jobs?

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We ain’t got no jobs.  We don’t have to give you any stinkin’ jobs.  Never mind that a feckless, if not outright dishonest, administration keeps claiming that there’s a strong, robust recovery in place.  For four years, now.

I wrote here about our new (and hopefully relatively temporary) national work force structure.  Mortimor Zuckerman, Chairman and Editor-in-Chief of US News & World Report, has some more information.

  • since the start of the year, the number of people with jobs increased by 753,000
    • 557,000 of these positions were only part-time
    • in June full-time jobs declined by 240,000
    • part-time jobs soared by 360,000
  • [there are] three million more part-time positions than when the recession began
  • [part-time workers are at] an all-time high of 28,059,000
  • the civilian workforce-participation rate is currently 63.5%—a drop of 2.2% since the recession ended.  [emphasis added]
  • the number of people leaving the workforce during this economic recovery has actually outpaced the number of people finding a new job by a factor of nearly three

Keep this in mind during the 2014 and 2016 elections.

An Outcome of Free Trade

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Since NAFTA was ratified, here are some of the results, as outlined by George Schultz, former Secretary of Labor, Treasury, and State; former OMB Director; currently Distinguished Fellow at Stanford University’s Hoover Institution—a guy who might know little about his subject matter.  As of 2010,

  • the three countries [the US, Canada, and Mexico] constitute around one-fourth of global GDP
  • they have become each other’s largest trading partners.

Moreover, the trade is tightly integrated:

  • 24.7% of imports from Canada were US value-added
  • 39.8% of US imports from Mexico were US value-added

The (legal) movement of people among the three of us has burgeoned, also, together with the economic benefits of such mobility.  Tourism:

  • Canadians made 21.3 million trips to the US in 2011 and spent $23.9 billion
  • US visitors made 11.6 million trips to Canada and spent $7.7 billion
  • Mexican visitors made 13.5 million trips to the US and spent $9.2 billion
  • US visitors made 20.1 million trips to Mexico and spent $9.3 billion.

Border-crossing truck shipping:

  • 10.7 million [border crossings] between the US and Canada
  • 9.5 million between the US and Mexico.

And so on.  There’s more concerning energy and energy independence both for NAFTA and for the three of us individually.

Of course some object to the loss of jobs.  But outside the results of the Panic of 2008*, the job losses were temporary for those truly interested in working.  They simply rotated into new jobs generated by the new opportunities flowing from the burgeoning (free) trade.  The increased trade, over all, led to a net increase in employment in each of the three of us.

 

*The results of the Panic, including the loss of job mobility, have naught to do with free trade or specific free trade agreements.  These outcomes stem directly from subsequent Federal policies aimed explicitly at the Panic and not at anything systemic in our economy.

One Aspect of the New Employment Numbers

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It’s temporary work, whether under contract or not.  It’s also part-time, whether under contract or not (OK, that’s two aspects.  Sue me.)

The nation’s unemployment rate still stands at 7.6%, but there is one area showing significant improvement: temporary and contracting work.

An estimated 17 million people are employed in these areas of the labor force, making up 12% of all employed people in the US.

Here’s a clue of why that is:

Full-time workers come with benefits packages that tend to include health care and retirement plans, which come with a hefty price tag for companies still unsure of the economic recovery.

Health care and pensions—for those employers still using these instead of 401(k)-like retirement plans—are horribly expensive.  And no, this isn’t another anti-Obama screed.  Even before Obamacare and public service union pension-caused city bankruptcies, health and pension benefits were horribly expensive.  The Panic of 2008 just brought those to light, and Obamacare only made a terrible health side worse.

And there’s that uncertainty about this failed recovery and when it will start in earnest.  Here’s James Sherk, senior policy analyst in Labor Economics at The Heritage Foundation:

In many cases, employers are not confident to bring in regular, full-time employees because it may hurt the entire firm.  This is the most disturbing trend, due to the weak economy.  It’s an economy and situation where employers aren’t seeing their shelves pick up, so they won’t commit to hiring a full-time employee.

“Hurt the entire firm.”  This is an area where Obamacare exacerbates an already bad situation.  A full-time employee costs the employer a minimum $2,000 in health benefits—that’s the fine the employer pays for not providing benefits that suit the Federal government’s definition of adequacy.  If the business isn’t there to cover that added cost, the employer would be stupid to hire that employee, at least full-time.

Another downside is that part-time workers or contract workers who know their contract expires in a few months (another version of part-time work) have their own uncertainty about the future—their future.  This makes them less willing to spend the money they do earn until they have to.  That reduced demand lowers the ability of employers to sell their product.  Those reduced sales lower the employers’ interest and ability to hire.  That reduced hiring incentive….