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Friday, April 29, 2011

An End To Keynesian Economics

Keynesian economics had not ever been tested in the US. The theory was formulated during the Great Depression. While Keynesian economics works during recessions, the real test of the theory was always:
What would happen if Keynesianism was tried at the outset of a depression?
Depressions used to be called "panics", because depressions always incorporated a factor of drastic credit term changes. They would be preceded by sharp growths in lending, and then the end to a business cycle (aka recession) would produce a small change in loan quality. The small change in loan quality would act on the massive body of outstanding loans to change an ordinary correction into a panic, which in modern-day terms would be a credit contraction. So a depression usually was caused by a small real-world change which occurred at the end of a cycle of massive credit growth. The reinforcing cycles of growth reduction from business activity/withdrawal of credit/growth reduction from no working money produced relatively similar cycles of a bad year followed by a tumultuous crash.

The two distinctive, and interlocking, features of the modern era that were supposed to prevent this from happening were banking regulation and Keynesian government programs. Banking regulation seemed to work before it was effectively abandoned in the mid-to-late 1990s. Keynesian economics just had never been tested, but was looking good because it clearly did act to shorten the length and severity of business downturns.

Banking regulation was supposed to prevent excessive loan growth (riskier and riskier lending) which would then have to be suddenly retracted if conditions worsened only a bit. Banking regulation also included bank deposit insurance, which kept people from yanking money out of banks and thus forcing a credit contraction. Of course such insurance would benefit institutions that took on more risk without supervision and external intervention to shut down such institutions. You cannot have a banking insurance program without strong banking regulation; you also cannot have banking insurance without a means of inflicting massive and highly painful losses on the primary decision makers at banks (or any institution which lends a lot and is government insurance in any way). We backed off both the regulation and the loss-inflicting aspect in the 1990s but kept and expanded the government insurance (implicit and explicit). What we got in the 2000s was the inevitable result.

Keynesian government programs are income supporting programs such as unemployment insurance, food stamps, etc. These programs work by supporting income levels within the population, which clips off some second and third order parts of an economic contraction. These are produced when businesses must slow activity, and then reduced incomes (and fears of reduced incomes) of workers cause a deeper reduction in worker spending, which then forces a new round of slowing in business activity. Economics is the classic ouroboros.

Anyway, as a result of throwing away all bank regulation (done, let me remind you all, on a completely bipartisan basis) in the 1990s, we got a chance to test Keynesian economics.

The results (from table 2.1 line 4):

Click on this and open it up in another tab or window. The graph shows percentage changes in private wages and salaries over series of intervals (1-6 quarters).

The green line is the six quarter result. This graph shows nominal seasonally adjusted payments to workers in the private sector. It does not include payments to government workers and it does not include benefits, such as medical insurance.

You can see that the six quarter rolling change spent quarters below -5%. If Keynesian economics really worked, this shouldn't have happened.

And yes, the shape and effect was preceded by the 2001 recession, which was much more serious than it appeared. The 2001 recession was precipitated by a bubble in the 1990s. I intend to write much more about this graph.

However, the Keynes-fans will claim that yes, we avoided a second panic, or depression, or whatever you want to call it. The duration was cut by years. This is a Truth, but clearly not the Whole Truth, because what we had to do to accomplish this was to end Keynesian economics itself:

This graph, courtesy Fed Fred, is of federal government debt held by the public against real personal incomes excluding current transfer receipts (benefits paid to the public)

Worse yet, this graph ends in 2010. At the end of the year debt held by the public was 9.39 trillion; as of 4/27/2011 it is 9.65 trillion. That is much worse than it sounds, because usually in April Debt Held By The Public drops substantially as income tax payments come in.

This year, Debt Held By The Public was 9.651 as of 3/31, and we will either be very close to that or over that as of 5/1. Personal income also includes all receipts from rents, dividends, businesses, and interest.

In order to cut the duration and severity of the downturn, we increased our federal debt from 5.1 trillion at the end of 2007 to 9.65 trillion as of 4/27/2011, and we haven't stopped the massive escalation yet. It cost us about 3.8 trillion extra (compared to the path we were on pre-recession). It has to be obvious that we are almost at our borrowing limits.

You note that REAL personal incomes ex government transfers haven't rebounded to the pre-recession levels. If we were trying to be Keynesian about it, we now need to increase taxes to build up the ability to insert money into the economy at the next cyclical downturn.

We must pay for all our government spending, including payments to individuals and interest on debt, from personal incomes.

I look at these graphs, and I think that our entire social consensus since the GD is gone - no longer possible - and that since we can't afford to be Keynesians any more, we had better at least try to reinstitute bank regulation. And then I look at Ron Paul and scream in terror.

Thursday, April 28, 2011

Boeing Again

It's difficult to describe my shock at the National Labor Relations Board action with regard to Boeing. Every time I contemplate this story I feel sick. I feel like I am watching one of those lemmings running over a cliff cartoons.

Fortunately, I need not barf my way through a long post about it, because Carl at No Oil For Pacifists did. I recommend reading the post and clicking on at least ten of the many links involved if you don't think this is a big deal. It's disaster.

And more disaster. One of these (Shell no-drill) I wrote about, one of these (Lizards from hell) I did not. Read about the cherished lizards at Chicago Boyz.

But of course, all those green energy jobs are working out so well. For China.

David Foster wrote:
The United States Government is currently not being run by adults.
No - it's being run by Paul Ehrlich ideologists. Ehrlich notably failed to come up with the environmental disaster he so frequently predicted. Fortunately for Paul, the government is going to produce the economic effects that the environmental disaster would have caused. Happy, happy Paul Ehrlich.

Bunch of Economic Reports Today...

Running list (really for myself):

A) Not an economic release, but WalMart is perturbed:
Wal-Mart's core shoppers are running out of money much faster than a year ago due to rising gasoline prices, and the retail giant is worried, CEO Mike Duke said Wednesday.
"Purchases are really dropping off by the end of the month even more than last year," Duke said. "This end-of-month [purchases] cycle is growing to be a concern.
Walmart is raising food prices and dropping electronics prices. This is an N_S_S comment, but the number of Walmart shoppers is so big in comparison to total shoppers that it is highly significant.

B) March ATA tonnage was reported as being up 1.7% after having dropped 2.7% in February. That's good, and it aligns well with diesel. For the quarter, tonnage was up 6.1% YoY.

C) Not an economic release, but Mark's "Real Core Retail Sales" graph shows what is happening, and it is happening mostly to Walmart shoppers. I don't think there is much Walmart can do to stem the trend. Its shoppers have less disposable income. And I know they have to raise food prices, but believe me, it is not going to help other sales segments.

D) Initial claims - defying predictions of a drop, SA initial claims rose to 429,000 this week, compared to last week's upwardly adjusted 404,000. Non seasonally-adjusted claims were static. Because the Easter/Passover was late, and because that affects school calendars, I suspect that the seasonal adjustment is a bit off. Also I did expect rising claims in April from the temporary impact of supply line disruptions flowing throw to auto assembly lines. Nonetheless, this will come as a shock to the market. The advance 4-week moving average for 4/23 is 408,500, which has a psychological significance for some.

E) GDP Q1 advance. Link to pdf. Headline 1.8%. I need to go through this thing very carefully before writing too much. I expected about 2.2 - 2.3%. I am expecting a range of bad news to impact investor sentiment over the next couple of weeks; the combination of claims and GDP is getting that off to a good start. (First note: the private economy was decent; a big drop in defense spending dropped government expenditures. However net the economy grew at a real level of 58.1 billion; 30 billion of that was in a private inventory build.) Private inventory builds generally subtract from future quarters. I think the economy is strong enough to carry this along through the second and into the third, but we'll see.

Hilarious note: In this summary article on jobless claims, the end refers to McDonald's hiring binge. As far as I can see, that was a publicity stunt:
Some companies are turning more optimistic about hiring. Oak Brook, Illinois-based McDonald’s Corp. (MCD), the world’s largest restaurant chain by revenue, sought as many as 50,000 workers in the U.S. during its National Hiring Day event on April 19.
I blinked and twitched! If that was meant to be a positive point, it wasn't!

Regarding first quarter, which WILL be revised: See Calculated Risk's post and his graph of the major components of gross private domestic investment. That drives the economy. The two-quarter (as currently known) contribution of GPDI is negative either way you look at it - nominal or real. We need industry to export. It's not negative enough to auger an immediate problem, though. Just slow growth this year.

F) Pending home sales. YoY down 11.5%. Remaining closest to last year's levels are the south and the west. An FHA premium increase took effect in April. It boosted apps before, and probably sales. The month over month calculated was up 5.1% on this report. I am not placing huge weight on it - I think only about half was structural. Still, it is sales season for most of the country.

Regarding inflation/price increases:
The price index for gross domestic purchases, which measures prices paid by U.S. residents, increased 3.8 percent in the first quarter, compared with an increase of 2.1 percent in the fourth. Excluding food and energy prices, the price index for gross domestic purchases increased 2.2 percent in the first quarter, compared with an increase of 1.1 percent in the fourth.
Wait, maybe that should be posted in red. The Fed wanted 4%, the Fed got nearly there. They'll wait until they get to about 3.6% on ex food and energy and then start running in circles screaming and holding their balls for comfort, because we're going to six or seven ex food and energy.

See, we start with WalMart and we end with WalMart.

Wednesday, April 27, 2011

When The Narrative Has Nothing To Do With The Action

First, the Mass House just voted to remove the power to collectively bargain over medical deductibles and copays from local public unions in that state. It's not clear that the measure will get through the Mass Senate. However it passed with a big margin in a House dominated by Democrats elected in a traditionally liberal state. The press talks about Republican initiatives; I see that the state actions do not differ between liberal and more conservative states.

Second, the Vermont legislature has just passed a law that purports to create a single-payer system and the Vermont governor will sign it. But it is unclear how, and there is no specification of funding. What the law does most immediately is to create a panel to figure out a bunch of things, and then in about 2013 they are supposed to figure out how to pay for it. In 2014 they are going to set up an insurance exchange. How that differs from the current situation under federal law I have not figured out yet, except that the fundamental idea is that they want to move towards a state-operated insurance company.

Third, I was fascinated to see this Gallup poll, which reports (article) that support for Paul Ryan's proposals over Obama's is inversely related to age. In other words, the older folks favor it, and the young folks don't.
This is quite surprising, because press coverage has been very unfair to Ryan's plan. Ryan's plan beats Obama's plan by about 6% for all age groups over 30. For age groups under 30, Obama's plan beats Ryan's plan by 23%. That group also has the highest percentage of undecideds (16%), whereas the 65 and up crew has only 10% undecideds.

This is rather consistent with Jimmy J's recent comments. Whatever else is true, it does not seem as if there is actually a younger people vs older people dynamic going on. That's what pundits keep predicting, but I don't see it and this poll really does not confirm it.

This doesn't mean that the older folks in the country actually LIKE Ryan's plan. It may be that they just really don't like Obama's plan. I can't see how Obama's plan really delivers the goods, so if I had had to answer the poll I would have picked Ryan's. But I don't think that Ryan's plan is necessarily workable as it stands, although in all honesty I haven't ever seen him disclose enough to figure out exactly how it is supposed to work. It is not nearly as harmful to poorer retirees as it is said to be, because it sets up a funded MSA for them. It's possible that it is better for poorer retirees than the current arrangement.

It seems probable that lower income seniors could receive much better health care under Ryan's plan than under Obama's, so I am reserving judgment. I don't want to see lower income seniors brutalized. That's my bottom line. As far as I am concerned, a person who worked in a grocery store for his or her entire working life did at least as much for me and society as most "higher status" occupations did; I would like to see the end of the lives of such person be as gracious as possible and their treatment accord with their real worth to society. Earning power does not align well with real human worth.

Jimmy J's (he is in his mid 70s) opinion on certain fiscal matters, as recently expressed on this blog:
I'm in the position where I pay taxes on 85% of my SS. I expect that to go to 100%.

I also expect that increased Medicare co-pays and a basic premium for TriCare will be institued. (If not, they should be.) It won't put me out on the street. It will curb my travel habits. We try to take one big trip a year. Those trips will either cease or be scaled down.

Our needs are less every year, except for medical and dental. So as we scale back on things we used to do (eating out, parties/gifts for friends and family, fishing trips, etc.) we can pick up the slack. So, I am not against those who can afford to pay, paying some of the freight.

That said, I hate to see tax rates raised unless there is some mechanism to keep the sticky fingers of Congress out of the till. When revenues increase they always jack up the spending beyond the increase. Some conservative Rs seem to want to keep a rein on spending, but the overriding bent in Washington is to spend, spend, spend! Fiscally conservative men and women go there and somehow they are changed into spenders. The government has gotten too big and too intrusive. Go to a city council meeting. Half the agenda will be about conforming to Federal rules and regs or getting Federal money. That is just flat wrong and, we the people, are finally waking up to what it is doing to the country.

The best way to increase revenue is to get the economy up and running again. How do we do that? Drill, drill, drill, start fishing and lumbering again, lower the corporate tax, ease EPA regs, and open this country for business again. I don't really care for the Donald, but he is hitting on these issues and its giving him some traction in the polls. A booming economy and a ten year secular bull market would cure a lot of our problems. It's coming if we can elect fiscally conservative people in 2012.
If you read Jimmy's comment and then look through the poll, the rhetoric about selfish seniors doesn't mesh well with reality, does it? Worried seniors I grant you; seniors who are prepared to see every one else die in a ditch (as long as they get theirs) seem to be hard to find on the ground.

I don't know what will happen, but Obama cannot win reelection without the support of seniors in 2012. They were the group that swung very strongly to his side in 2008 and gave him such a strong victory.

Tuesday, April 26, 2011

Ideologies And Jobs

More jobs are one of the ways the suffering of the average dude and dudette in the US could be assuaged. And not only don't jobs cost the government, they generate revenue for the government.

But does our current administration really subscribe to the "best place to do business" mantra? One of the notable aspects about our current recovery cycle is that recovery is coming from the large companies, not the small. We desperately need the manufacturing boost to exports, also. And we need energy.

I find it odd that we are not exploiting CO's Green River shale oil deposit. Bizarre as it seems, an Estonian company has locked up almost all the privately owned oil shale reserves in the US. Whether it will ever be allowed to do anything with them is questionable; eventually it will probably let the sites to private companies when an outraged US public demands gas at something less than $5 a gallon, and after the second recession in about three years. Shell has been doing research at the site but hasn't gotten the go-ahead. The bright line for oil shale is $60-65 a barrel to make the upfront costs bearable. Eventually the oil can be sold at $45 - $50 a barrel. It does produce a LOT of jobs. There are pollution concerns, and these projects need to be monitored and regulated. But I doubt that the pollution will be as bad as that from some of the fracking projects, which also need to be more tightly controlled.

If we were to take a bit of the boot off, we also could be starting up a bunch of Alaskan oil projects. But I don't think the boot is going to come off very soon.

Ah, well, now that we have GHG regulations, our electricity supply is going to suffer and electricity will be more expensive by far. This makes the prospect of sinking 40K into an electric car far more problematic, IMO. Congress has taken up the question; Democrats in the Senate have voted no. In 2012, a bunch of those senators are up for reelection. The first thing we need for lasting economic recovery is to get the EPA out of CO2 regulation. Either the Democratic senators will have to believe that they will lose an election for failure to act, or they will have to lose the election for failure to act. The Senate needs 60 votes, and can currently only get 50.

It seems likely that only a lot more production activity will boost the figures found in this AGC roundup.

And then there is the knotty question of ideology and unions. Boeing built a plant in SC for its 787 Dreamliner. An NRLB complaint is trying to force Boeing to shut it down, on the grounds that the plant is being built to retaliate for the relatively constant strike pattern in Washington State. NY Times article. Salon article, which willfully ignores the reality that people are being hired for both plants. Boeing needs to scale up production, so no workers are being laid off in Seattle - in fact more workers are being hired.

It is far cheaper to build and operate a plant in SC. Of course, over time it is probable that the ability of the union in Seattle to hold Boeing hostage will diminish. I think that Boeing will eventually win on this one, but it is going to be costly.

If Boeing doesn't win, it will obviously build plants outside the country to do the same thing. Needless to say, SC is quite perturbed about the NRLB complaint. SC put in quite a bit of money to get the plant and to get these jobs. I am perturbed because if this goes through, it would be a reckless and foolish management that ever built a manufacturing plant in this country in any state that isn't right-to-work, and if the management of the company already has a plant which has struck, they would have problems building new plants to expand production.

Note that the NRLB was kind of packed in 2010 with two recess appointments of labor lawyers. HuffyPost's Dean covers the brilliance of the move. Mother Jones quoting NY Times:
The 15 appointees to boards and agencies include the contentious choice of union lawyer Craig Becker to the National Labor Relations Board. Republicans had blocked his nomination on grounds he would bring a radical pro-union agenda to the job, and they called on Obama not to appoint Becker over the recess.

Obama went ahead anyway, while also choosing a second member for the labor board so that four of its five slots will be filled. The board, which referees labor-management disputes, has had a majority of its seats vacant for more than two years, slowing its work and raising questions about the legality of its rulings.

"Radical" is something of an understatement. Becker was the SEIU general counsel. In theory the NRLB is supposed to supervise union misdeeds as well as management misdeeds; in practice Becker doesn't even favor fair voting for unions. CBS News.

The bottom line is that our trade imbalance is driving our economic woes:

This is trade imbalance (blue long line), Jolts Hires (low green line) and total employment in nonfarm private goods-producing ADP.

Graph from St. Louis Fed Fred.

Now Krugman's partly crazy. He's transposing cause and effect. There is no need for the rest of us to drink whatever he is drinking.

If we want to improve our standards of living, we have got to attack the trade deficit. The one benefit of the Fed's recent actions is that it makes us more competitive in manufacturing. If we do not redress some of the structural causes of an unwillingness or inability to invest in manufacturing in the US, we will get the worst of both worlds - declining standards of living AND poor employment/lower wages. I cannot vote for this paradise.

If we could get some old-fashioned Democrats into national politics, I would probably prefer to vote Democratic for a while. But as it is, what I have seen coming from the Democratic party in recent years is a prescription for national economic suicide. A welfare state funded by financial bubblizing rapidly turns into a declining welfare state, which is what we have. I don't want it.

The axe is about to fall:

It won't fall as hard or quite as fast as it did in 2008, because of the time effects and the fact that in 2008, the energy recession combined with a credit recession. Chirpy Fed talk about transitory inflation has one unnoted side effect, and that is a recession. You cannot cut real wages for so many without it traveling through an economy that is still hugely biased toward consumer spending. The only time when you don't get a recession from declining real wages is when people can draw on credit to supplement wages, or when people are getting big income subsidies from the government. Most people cannot afford to run up their private credit again, and as a nation, every time we borrow another dollar now, we are really taking $1.20 away from a future retiree.

Gasoline is due to go up further, because oil prices have risen very quickly. If the Fed doesn't launch QE3 in July, oil prices may slack a little, but not that much:

For the first six months of the current fiscal year, the US ran a bleeping deficit of .829 trillion dollars. April's tax receipts will slow the apparent rate of growth, but not by that bleeping much. The deficit so far in 2011 is MORE than the deficit to date in 2010:
     OCTOBER                                                                                  176,363
NOVEMBER 120,287
JANUARY 42,634
FEBRUARY 220,909
MARCH (Total deficit 716,990 or .717 trillion) 65,387
     OCTOBER                                                                                   140,432
NOVEMBER 150,394
JANUARY 49,796
FEBRUARY 222,500
MARCH (Total deficit 829,410 or .829 trillion) 188,153
Revenues to date in 2010 were 953,892. Revenues to date in 2011 are 1,019,896. So yes, spending is the reason.

We are following an inflationary policy in every way, and worse, it is an inflationary policy that shifts revenue to higher income earners while taking it away from lower income earners. That is insane.

Both the Republicans and the Democrats are deeply complicit. It would be wonderful to vote 80% of them out. To do that we need a new party. Right now our national policies are a compendium of the most destructive tendencies of each party. The Republicans want huge tax breaks for people who are doing very well, and the Democrats want to constantly increase spending and prevent any sort of capital/production investment. And, in a bipartisan deal brokered by a president who is supposed to be progressive, in December they agreed to give us this, this, this... disgusting recipe for self-immolation.

To understand why these deficits are such a big deal, the Social Security Trust Fund has about 2.7 trillion in it. But we're spending that in advance, so the reason why we are talking about cutting Social Security checks in the future is because of present irresponsibility.

To quote Mark:
I was once teased at my last company for saving so much.

Coworker: "Why save so much? You'll be too old to enjoy it anyway."

Me: "If I am too old to enjoy money when I am older, then I will definitely be too old to enjoy working.


Monday, April 25, 2011

I Have Vanished

Into the bowels of StatPlanet.

Just to prove that I do know an outside world exists, here's a new CA poll on public employee pensions. Article. Methinks the drum people will have to move west for the summer.

Given the sharp difference in 2008 presidential voting between whites/latinos, it is remarkable how little difference between the two groups shows on most of the opinion questions.

Friday, April 22, 2011

Since We're All In A Reflective Mood

Teri writes that since we are going to have to raise taxes the Republicans should get behind the idea and try to structure it in the best way possible.

We ARE going to have to raise taxes, regardless of what anyone says. You can get population pyramids for multiple countries here. US:
As of 2011, we are still 15 years out from the largest tier of retirees. In other words, in 15 years those who are now 50-54 are going to be in the 65-69 range. So we can confidently expect that the total number of retirees will continue to grow for about 30 years.

Providing basic social services to this number of elderly will require raising taxes. In many cases, it will require raising taxes on the wealthier retirees.

There is little point in bitching about this. Compared to many other countries we are quite fortunate. Germany:

It's hard to imagine what's going to happen there in about 25 years.

The three malefactor countries in WWII - Germany, Italy and Japan - all have bad demographics.

What was that bit about the sins of the father being felt until the third and the fourth generations?

So we should all feel relatively optimistic, and buckle down to dealing with what is not exactly a tragic fate. Unless we decide to temper tantrum ourselves into decline, we have what we need to have a decent future life. I strongly suspect that the group wandering around WI banging on drums is the last remnant of the temper tantrum crew, and frankly, they are not impressive.

Anyway, most people in the US are still in denial about Social Security. Two more graphs:

It is easy to see why we were fat, dumb and happy then.

The worker/retiree ratio actually increased in the late 1990s to 3.4 for four years. That's one of the reasons for the better budget performance. It has already dropped to 3 and it will decline until about 2.1-2,2.

Projected 2035:

Thin, better-be-smart and grumpy, it looks like.

We cannot borrow the money as planned, because we just borrowed it, and we keep borrowing on the order of a trillion more each year. Our "intergovernmental" debt (trust funds) plus our current public debt are already almost 100% of GDP right now. So since over the next few years we keep borrowing, in 2025 there is not a hope in hell of borrowing much, and whatever credit we have will then be involved in Medicare.

So the only feasible approach to save Social Security (mind you, everyone born in the 1960s and after already has to wait to 67 for full retirement) is to raise taxes. If we were to try to raise FICA enough to cover, you'd be coughing up about 18%. This is not feasible. We can raise the cap somewhat, and we could raise income taxes and divert some to Social Security.

Once we do that, spending on Medicare and Medicaid will be sharply constrained.

We're going to be poorer in the future. We don't have to be dirt poor.

The whole Tea Party thing is really about funding Social Security and some sort of medical coverage. To do so, we must kill off our current structural deficit.

If we don't, by about 2025 we will either be able to have Social Security and almost no medical coverage, or we will basically be forced to convert Social Security into an income supplement welfare program, with about 30% of the elderly getting very little out of it. This doesn't seem fair or right to me.

We only have a few years. I do not see this as a Democratic or Republican issue. It's an adding/subtracting/facing bad numbers issue.

Thursday, April 21, 2011

Yeah, There's a Leg Up, But

Last week's initial claims were revised up to 416K; this week's at 403K. We are in spring break zone which introduces some odd seasonal effects, so we can't really tell trend until the end of April.

The four-week moving average is still below 400K at 399K. The lowest initially-reported 4 week MA for initial claims was 389.5K. This could be mostly seasonal adjustment, although some should be the impact of Japanese supply chain changes.

However we finally made it "There" in April. "There" was finally an increase in covered employment to 125,572,661 compared to the previous quarter's 125,560,066. Covered employment in this cycle peaked at 133,902,587 in 2008. Our low this cycle was below the low of the previous recession (April 2004) of 126,084,041.

To understand why this has been weighing on my mind so much, you have to know that covered employment in the third quarter of 2000 was 126,084,568. In the last decade the population rose by over 8 million. This explains a lot about joblessness. It is not laziness but lack of jobs. I am now expecting some problems due to gas prices. Some people are no longer able to afford to get to work, especially for short hours/lower paying jobs. This should slowly show up over the next 8 months.

I made you a chart because this is so inconceivable:

A decade, no increase in state unemployment accounts as compiled by Dept of Labor. More than a decade.

PS: Philadelphia Fed survey showed drops in future indicators but is still quite strong. Prices, of course, are steadily increasing. Diesel 4 week supply popped up in the EIA crude inventories report, so we know the end is not nigh. Gas supplied continued to drop at 1.8% YoY.

Home prices continue their relentless slide. FHFA index has it down 5.7% YoY. There is going to be a whole new round of losses when those HAMP mortgages are set to adjust. They got a five year deal on rates which mostly will expire from late 2013 to 2015. Many will still be underwater.

I feel Japanese, but I am hoping that we can skip the massive earthquake part of the deal.

Did you all know that under current law, it looks like the US will have to cut disability payments in 2018? The DI fund will be totally exhausted somewhere around then, and at that point payments to beneficiaries would be cut at least 12%. Every six months the projections are getting worse. In January, CBO figured 2017, and a benefits cut of 18%.

As Sarah would say, it's here, it's clear, get used to it. A lot of politicians are still pretending that they have the option to do nothing. 2017 is six years away. I don't think Congress will let this happen, but it will have to pass some legislation to prevent it from happening.

Mark Chart:

This chart should have more red on it to fit the subject matter! The figures are solid (but in no sense good). They tell me it's not a depression, but although dumping money did push incomes up, it did not change the economic nuts and bolts. Our fiscal problems are so severe because of these nuts and bolts.

What it means in practice.

Monday, April 18, 2011

Hah, In a Nutshell

Niall Ferguson writes an America-congratulatory piece that posits that Americans are prepared to do the right fiscal thing:
Churchill had it right. The United States will always do the right thing once all the other possibilities have been exhausted. For a long time many people clung to the delusion that the United States could simply borrow $1 trillion a year for the rest of time. Now only two possibilities remain.

The first possibility is the one devised by Rep. Paul Ryan, which would eliminate the deficit largely through deep spending cuts and Medicare reform. Possibility two is President Obama’s bid to close the budget gap with more modest cuts and tax hikes on “millionaires and billionaires.”
Except that Ferguson gets the choice wrong. We don't have the binary choice Ferguson posits, as Robert Samuelson explains:
We won't make much progress until (a) Democrats concede that spending control requires genuine cuts in Social Security and Medicare, which now total $1.3 trillion annually and represent 35 percent of federal outlays; and (b) Republicans acknowledge that, even after significant spending cuts, tax increases will be needed to balance the budget. Last week, there was little sign of either. President Obama rebuffed Social Security and Medicare cuts. Most Republicans held fast on taxes.
The trouble is that Obama's budget already assumes higher rates (39.6 percent) on incomes exceeding $200,000 (individuals) and $250,000 (couples). Suppose we get tougher on the very rich. One proposal would raise rates to 45 percent on incomes from $1 million to $10 million, with rates increasing to 49 percent on incomes of $1 billion. Over a decade, tax revenues would grow about $900 billion, says the advocacy group Citizens for Tax Justice. Assuming the money materialized, it's a lot -- but only a tenth of the decade's deficits.
We are facing deep cuts to current social spending as well as tax increases. Also, we can't afford to just exempt people over 55. Whatever we're doing, we need to start it quickly so we can see the effects and negotiate the best outcomes over a few years.

Ferguson is right that perceptions that we have a real problem are growing among the public. But the lies the public have been told will take some time to expire from the public consciousness.

Sunday, April 17, 2011

Hope And Change, But Not Quite As Expected

The previous post is content-rich and is new.

This one's for thinking material. This is a post at DU this morning. I intend to watch the comments closely:
Corporate taxes, sales taxes, property taxes, and fees should be eliminated from all government.

1. Corporate Taxes: The issue here is not that the government should lose tax revenue, but it's that the government is placing tax burden in a haphazard way. The shareholders of a corporation maybe be billionaires or they could be mom and pop. When you tax a corporation, it is not with any regard to the people who may take money from it in the form of a dividend or an increase the price of their stock due a perceived increase in the company's value.

That is my problem with it.

Another is that a corporation that's larger has enough resources at its disposal that it can weasel its way out of paying taxes, something that benefits poorer shareholders, but also the richer ones. Again, the benefit is haphazard and can go to those who do not need it (the richer shareholders.)

When money comes out of the company in income for its workers and dividends, it should be taxed then, in a progressive manner. And any other gains are not linked to actual real income, and should be taxed again under a unified tax code.

2. Sales taxes have to be one of the dumbest ideas humanity ever came up with. Everyone has to pay a sales tax on taxable items, it is not means tested in most cases. So, in other words, someone who is rich pays the same tax as someone who is poor. What bullshit is that?

And we have the morons with the flat tax who want to just tax freaking sales, but the poorer ones don't see how badly they would get fucked under such a system.

3. Property taxes are not fair, and that's it. You can see how you'd like to dick over someone with a lot of land, but the problem is that these taxes often result in tax auctions, because even when a middle class home is paid for, you must still pay property taxes on it. You do not truly own it. In any other area of life, if I told you I was going to levy a tax just for owning it, you'd freak the fuck out. If I went further and said I could simply take it and sell it away to pay off the bill, for no higher price than the bill, you'd hang my ass.

But this is precisely what goes on with property taxes ALL THE TIME.

Elderly individuals in our society who worked their asses off in most case for a house are forced to sell it earlier. This is a method by which wealth is stolen away from people, not just the wealthy (the one's with the resources to pay for the tax bills), but mainly the poor/middle class. It makes a poor family even poorer.

One should eliminate taxes on property, and replace the tax with one on income equal to the amount of money needed to sustain the function formerly dependent upon the property taxes.

4. Fees are taxes. You can call it what you want, but you are taxing someone. In a lot of cases, not all, but a lot, there is no method in place to progressively increase a fee depending upon the income of the person. This again is wrong.

5. The last area is fines. Fines are not really taxes or "fees" in the traditional sense of the word, but they are unfair as currently structured. Why should someone pay the same amount of money for the exact same crime, if it will punish them less severely based upon their wealth and income? A $100 fine really hurts someone living paycheck to paycheck, but not at all for someone who is a millionaire.

They should be adjusted based upon the income and wealth of the individual in question, so that it will have the same negative consequences for all participants.
What is being advanced here correlates well with the basic economic strategy adopted by the northern European "socialist" states so beloved of progressives. They have mostly chosen to sharply cut corporate tax rates in favor of creating new jobs.

Here is one response to the OP:
7. What tax method is a fair tax method?

Is it possible that good ideas are often discarded because of their source ?

I was once against the fair tax plan... but actually took the time to sit down learn more about it. (Well, was 'forced' to sit down.) I realized I did not fully understand it.

Surprisingly, I walked away with a much different viewpoint.

If you truly are concerned about the middle class and the lower income segments of this society (and that would include 'me')... this has to be an option. Before you condemn it, research it yourself. 90% of the negative rhetoric I had heard was in fact false.

If you can imagine this, a tax that you pay on the 'extra' items you voluntarily purchase with your discretionary income. That is what it amounts to.

Perhaps someone can tell me why this particular plan is not a good one. If the democratic party could/would embrace the Fair Tax... perhaps modify some areas, they would be the true champions of the people.
The reality is that local and state tax burdens (sales, property, income, fees) are hurting lower income people very strongly.

It's interesting that the first response on the thread argues that corporate taxes are good because they give the government the ability to control the corporation. This is theorized to be a public good, but if you actually look at what has happened, the housing bubble was clearly helped along by such schemes. The intent was good; the results were pure disaster.

Ah, The Plans, The Plans!!!

TEPCO has given a press conference detailing its new plan to deal with the Fukushima nuclear accident. Kyodo News. Atomic Power Review. NHK World. It is going to take a lot of effort. Assuming they can make the three month goals, radioactive emissions from the reactors should drop off considerably within 2-3 months. There appears to be a lot of contamination in the ground, and cleaning that will take substantially longer, so I don't know about sea contamination. If they make the six-nine month goals, containment of the reactors should be substantially restored.

I don't know how practical all this is. Right now the major problem is all the contaminated water. TEPCO has blocked most the outflow into the sea, with the result that the contaminated water is building up in the site and leaking into the low infrastructure. The volume of the water is extreme; all nuclear sites reprocess contaminated water, but this water is getting more contaminated and to build and operate safely a system to both contain and reprocess this volume of water this highly contaminated appears to be a challenge.

One of their three month goals is to patch the No 2 reactor with cement to seal the breach. This would imply that they think they know where the breach is.

I have my own thoughts as to what they can feasibly do. I've spent a lot of time looking at the better photographs now released of all the buildings. I'll keep those thoughts to myself because I am so ill-qualified to have these thoughts and there is so much hysteria out there. But I suspect this plan as stated will not work; I think they are missing an intermediate step.

Nonetheless, the Japanese have won the battle for Tokyo and are now fighting the battle of Fukushima and the mid east coast fisheries. It is quite an achievement given the constant quakes.

TEPCO has come under a lot of criticism, but they are in fact addressing their crisis with some success. Bankers and fiscal decision-makers around the world look a heck of a lot worse than TEPCO IMO.

In China, they just raised their bank reserve ratio again. 20.5%. To which I can only reply "Really?" I have some questions in my mind about this! There are practical limitations here; there is plenty of money outside the banking sector that can be rediverted into loans, not to mention outside funding. The Chinese are experiencing very strong and accelerating inflation. Q1 Chinese stat summary:
5. Consumer Prices Continued to Rise while Producer Prices for Industrial Products Increased Rapidly. In the first quarter of this year, the consumer prices went up by 5.0 percent year-on-year. The price rose by 4.9 percent in cities and 5.5 percent in rural areas. Grouped by commodity categories, the prices for food rose by 11.0 percent; prices for tobacco, liquor and articles grew up by 2.0 percent; clothing up by 0.3 percent; household facilities, articles and maintenance services up by 1.6 percent; health care and personal articles up by 3.1 percent; transportation and communication down by 0.1 percent; recreation, education, culture articles and services up by 0.6 percent; and housing went up by 6.5 percent. In March, the consumer prices went up by 5.4 percent year-on-year, or down by 0.2 percent month-on-month. In the first quarter of this year, the producer prices for industrial products went up by 7.1 percent year-on-year. In March, it rose by 7.3 percent year-on-year, or 0.6 percent month-on-month. In the first quarter, the purchasers’ prices for industrial products went up by 10.2 percent year-on-year. In March, it grew by 10.5 percent year-on-year, or 1.0 percent month-on-month.
17.5 trillion yuan dumped into an economy will do that. They are not near to the end of the wage-price spiral:
7. Urban and Rural Residents’ Income Increased Steadily with Higher Growth for Rural Residents than that for Urban Residents. In the first quarter of this year, the per capita total income of urban household was 6,472 yuan. Of this total, the per capita disposable income of urban population was 5,963 yuan, a year-on-year growth of 12.3 percent, or a real growth of 7.1 percent after deducting price factors. Of the per capita total income of urban household, the year-on-year growth of wage income was 10.2 percent; transferred income 8.5 percent; net income from operation 32.6 percent; and 23.6 percent from property income. The per capita cash income of rural population was 2,187 yuan, up by 20.6 percent year-on-year, or 14.3 percent growth in real term. Of this total, the growth of wage income was 18.9 percent; household operating income 21.4 percent; property income 13.3 percent; and 27.9 percent from transferred income.
The plan to shift growth from urban areas to rural areas really worked, and the leading edge of property investment shifted out of the urban areas. This was helped by raising wages; the additional economic activity also has raised wages. China reports that final sales of petroleum products grew by 37.6% in the first quarter.

If you take these stats straight up, the total picture is that of a population with increasing incomes trying to offset inflation by buying harder assets in preference to non-necessary consumables. It's hard to see moderation.

In Europe, we have the Kabuki dance of debt getting more and more entertaining. Because Greece is so small, its debt does not really matter. Everyone is free to posture over it. Germany is willing to threaten restructuring and other countries are stoutly insisting that the Greek debt will be repaid. Pricing shows that no one actually believes this, because it is incredible. Greece says it is going to sell public assets to raise money to repay the debt. Because Greece has run its public enterprises as welfare organizations, those companies do not have impressive balance sheets. I would not want a piece of that action; if you cut salaries and benefits of workers, you are going to have violent riots on your hands. It's sort of like trying to actually go in and run a Russian company; foreign executives placed into those companies who tried to actually run things tended to show up dead.

In the meantime, Ireland's credit rating was cut again, Portugal's credit rating was cut in the first week of April, and everyone agrees never, never to say the word "Italy". Moody's also cut Spain's credit rating in early March, although Spain remains at the A level. As was the case with Ireland, Spain does not have a public debt problem, but a banking crisis. As was the case with Ireland, if a large bailout of banks is required, this could well become a public debt or cash flow problem. Moody's does not think the Spanish bank problem is contained; Spanish banking authorities claim it is. Spain did a stress test on their banks; the result was that aside from the casas, the foreign banks were the primary ones determined to be capital short.

The spreading of all this containment is not good for Europe as a whole, and once the containment diffuses out a little more, many European banks could potentially be drawn in.

Italy is still struggling along trying to bring down its deficit. Italy does have a public debt problem, but its banks are for now pretty healthy. However 2011 growth forecasts are being revised down, so the deficit this year should be at least 4%, and the real growth rate should be around 1%. Italy needs inflation.

Germany is hysterical about inflation. Germany is seeing inflation. Earlier in the year, Bundesbank was counting on a slowing of the inflation rate in the last half. It is unlikely to happen as hoped. Germany's economy is doing very well indeed, but consumer price inflation (2.3% as of February) is mostly confined to food and fuel prices. Internal German calculations of inflation were still at 2.1%.

Nothing in Germany favors an internal wage-price spiral. Destatis has wonderful German data (see their business cycle monitor). Here's a snapshot of their German population pyramid:

The angst is a little worse than shown here; the "guest worker" population of Germany has a higher birth rate than the native population. This would not be so much of a problem except that this segment tends to be less educated and less prosperous. Don't expect German housing values to rocket up!

It can be confidently expected that the German population will continue to view inflation as the plague. If you do not understand why, Mark can explain it to you. Even in the early 80s, which were not a good time in the US, many restaurant chains depended on their older regulars for a good percentage of profits. They were bread and butter customers.

If you now look at the business cycle monitor linked above, it will be obvious why the retail numbers are so below production trend.

Friday, April 15, 2011

Friday Funny Cubed - But Is It?

This is even safe for work. We have an Aristotle among us.

First, a learned professor decides that Sarah Palin didn't give birth to Trig. "Business" Insider article.
Scharlott's article walks through all the evidence supporting the theory, including the photos of Palin in what is said to have been a late-stage pregnancy, the leisurely 20-hour trip home that Palin took after she supposedly went into labor in Texas, the refusal of the hospital where Trig was supposedly born to even confirm that he was born there (let alone who was the mother), strange statements from Palin's doctor and the McCain campaign, and so on.
Here's the article of the prof at ScribD. I skimmed it, because a professor who claims that a hospital not speaking to the press is evidence of a hoax is bent on lying due to the HIPAA federal restrictions (hospitals and doctors can't give out any info without your express permission). However he mentions HIPAA in the article even while implying several times that the refusals of the hospital and doctors to speak to journalists should rouse suspicion.

Also, there is the problem that the assumed mother, Bristol, gave birth in December of the same year which raises the space alien question. The wise prof kind of skirts that issue that by deciding that Bristol probably gave birth to Trig in January. Does he have any evidence? Nah. This, btw, does not exactly solve the space alien problem. There's a considerable difference between a newborn and a four month old, and I'll be danged if Trig was six months old in those early pics.

The prof does have strong evidence that something is fishy, the strongest of which seems to be that Palin's doc wrote a letter released by the McCain campaign which says that Palin was pregnant and gave birth to Trig at 35 weeks. This proves that there is a cover up, but because I am not a professor I cannot understand why. Professors get so little respect these days; many DU denizens are deeply skeptical of this scholarly effort.

The prof's article did inspire me to dig into the matter more. Exactly what, I wondered, was Scharlott a professor of? I suspected this was a joke and that the professor's name was derived from the word "charlatan".

But apparently it is not. He's in journalism at Northern Kentucky University. He also teaches "mass communications". It is a very progressive institution. It's got a College of Informatics, and they've got a professorship open. More about Informatics. You can git yuh degree in Business Informatics, in Computer Science, in Media Informatics - the sky's the limit!

It took my middle-aged brain some time to retrieve the "informatics" association (mah informatics must be gittin' weak), but it is C.S. Lewis' "That Hideous Strength". In a decent world, all of C. S. Lewis' works would be posted online, but we do not live in a decent world yet.

I might look it up and type out some of the relevant sections. N.I.C.E. has its own informatics-machine set up and it is very, very serious about mass communications. It's interesting that C.S. Lewis identified the fundamental operative perversion of modern society as being information distortion, and not just distortion of information, but distortion of information in a way that tends to corrupt the individual's ability to learn the truth about absolutely anything. It is not just information which is distorted, but the ability of the human mind to learn and test which must be destroyed.

To me, this whole internet encounter with truthiness epistemology just kept getting funnier as I went along, right up until I realized that NKU has its computer science and library studies in a college with the public relations and propaganda. That was when I stopped, gulped and started to wonder. Because Prof Brad Charlatan clearly is not worried about what this sort of thing will do to his standing in the department, is he?

He wrote the article to prove a point. But what point? Still suspecting that this might have been a gag, I did find the interview. Is it a deeply cynical attempt to demonstrate the corruption of the press by trying to get journalists to take as evidence things that are clearly not evidence? Or is it what it seems to be? Either way, I cannot imagine how he could have a theory of what journalism should be that includes conveying the truth.

In the interview, Scharlott says this:
My hope for the paper has always been twofold. One objective is to do what academics like me typically do: present the paper at an academic conference and then publish in an academic journal. (I’ve submitted it to a conference – I’ll hear in next month if it has been accepted).

But the other objective has always been the overriding one: to use my paper to force the mainstream media to confront their negligence concerning the fantastic birth story and report on it. Since the fall of 2008 I have been dismayed by the cravenness of American journalists. I’m a former journalist myself, and now I am a journalism professor. My aim, in part, is to help reveal the truth. But even more than that, my aim is to help American journalism regain its integrity, in some small measure.

Thursday, April 14, 2011

Red Headline Day?

Whenever Drudge Report has a red headline about economic news it says something about the mood of the consumer.

I think the reaction is a bit overblown. I had expected to see initial claims rise by anywhere to 25-40K in April due to the Japanese supply disruptions. So 27K+ seasonally adjusted for April 9th isn't that intimidating, and it's very possible that it could go higher in the next couple of weeks. Overall the Japanese supply disruptions should not result in too much extended unemployment in manufacturing, but it probably will cause an extended shift in the trend for services employment.

It's quite difficult to separate out the spring break related claims from the carrying wave, so we'll all have to wait till the end of April for more definitive numbers. Still, NSA claims rose almost 90K. Over the last four weeks, there has been a shift in gasoline consumption that doesn't bode well. There is one caveat; we may not see rises in initial claims as we normally would, because it is quite possible that many do not qualify for benefits and will not file a claim. In that case, May's monthly employment report could be a substantially negative surprise. I don't think it will be, but the best way to tell until then is to watch gasoline consumption.

PPI showed about what I expected, which was more transfer through to finished and intermediate goods. Nothing can be done about this; producers need the money. In fact, you can clearly see the compression in margins by tracking how much of the rise in crude goods has traveled through to finished goods. The various wholesale and business reports have showed a bit of a lag in non-durables; people are pushed enough to slow purchases a bit.

Services have seen considerable financial effect from the consumer squeeze already. You might want to look at NFIB's March survey and NACM's March survey. NACM showed the services index taking a terrific whack from the current unfavorables relating to collections. It's a cash flow problem. NFIB confirmed that reading:
Index was driven by weaker expectations for real sales gains and business conditions and a marked deterioration in profit trends. The decline in the percent of owners expecting higher real sales and better business conditions in six months alone account for 76 percent of the decline in the Index.
My impression is that in March the US economy shifted to a tightening pattern. A tightening is not a contraction; it is a shift in trend. It generally takes a minimum six months for employment to show the result of such a pattern (if sustained) in the broader economy. This is not true of manufacturing, which shows immediate hours impacts of inventory builds or drops in final sales, but most employment in the US economy is not manufacturing-based.

I had originally thought that the upswing effects of emerging from a recession (services still basically short-staffed; small businesses extremely lean) would carry us through past the end of the year before we got into the negative cycle.

Now I cannot be sure. Even assuming the Fed bites the bullet, there is so much inflation in the system that the cost increases can't be absorbed by the median household. They will start cutting spending and have already done so. A huge amount depends on how deeply the Japanese production backlogs impair manufacturing hours in North America. The result of the Japanese quake will be some additional inflation, and China is banging along with very high inflation. We have a lot left to run in this cycle, and US consumers are going to be flogged by it.

The quickest way to assess this is going to be utility outputs in Industrial Production and the weekly Crude Inventories reports. Rail is still expanding, but the February/March YoY carload results showed a drop in expansion trend for carloads that I would consider significant:

What really matters here is the average distance between the 2010 and the 2011 carloads, and that distance is decreasing.

I don't expect March's rail figures to have shown the impact of the Japanese quake yet. I do expect them to start showing a bit in April.

February's weather was bad enough that I discounted carloads, but March did not deliver.

Canadians are having more of a problem than the US:

The Canadian economy isn't doing well, but unlike the US their intermodal and carloads are pretty much aligned.

As for crude inventories, here's a snapshot of the 4-week product supplied YoY for 2011:
Jan 20th:
Gasoline +2.0%
Diesel +1.8%
Jet fuel +4.6%

Feb 16th:
Gasoline even
Diesel +2.7%
Jet Fuel +1.4%
(there was a substantial weather effect dragging down consumption & deliveries - so basically average this one and the next one to get a Feb/March figure)

March 16th:
Gasoline +1.4%
Diesel +3.8%
Jet Fuel +4.5%

April 8th:
Gasoline -1,6%
Diesel +1.4%
Jet Fuel -1.6%
Now, nothing in all this tells me that we can't have a slight shift to the better in second half (the way I calculate the numbers, which is not pure GDP). But the picture is considerably less certain than it was just a few months ago.

If CF is right, and unfortunately he generally is, the Fed will keep pushing. I don't know what will happen.

This could hit a wall with frightening speed because there's no strong transmission yet into small business, and larger services businesses are all scrabbling desperately for sales and profits. They may make it through okay, or they may not. They are trying very hard to open up new revenue avenues. All of a sudden Amazon is besieging me with grocery offers. I can't regard this as a positive sign. Insurance companies are trying to open up virtual malls and so are the darned communications companies. Cleaner sales in supermarkets are popping up like daffodils.
My brain hurts. I feel a dislocation in the force. It's not a good feeling; it's akin to being a mile out from shore ice-fishing on the lake and hearing the ice start cracking and popping under your feet.

If I am wrong and I missed on the optimistic side, then we might have a very interesting October. Paradoxically, that may mean that Congress and the President decide to drop all this responsibility nonsense and send everyone 2K checks. 2012 is an election year. Anything could happen.

However if they succumb to their baser political instincts, we might miss a short contraction (maybe as short as four months) and slam into a rate wall. In that case, what the Fed and a remarkably inept national government would have created would be to reproduce the 70/80 cycle, and by 2018 it would be 1982 all over again, squared. I would truly hate for that to happen.

Wednesday, April 13, 2011

There Will Be A Brief Horrified Blogging Pause

Succeeded, I suspect, by another four years of wandering in the desert. Boy, that good mood did not last for very long! Whatever would I do without my dear friends and commenters?

I had stared solemnly at Yellen's recent public ravings and concluded that the speech was so self-contradictory that it was intended to be so; that the only market message was that the Fed is determined to keep the stock market rally going, and will do whatever it needs to do to keep it going, and that intellectual coherence was sacrificed to insist that the Fed also intended to control inflation as a means of controlling one portion of inflation only - the sexpectation part.

But CF says no; he says that Yellen meant it, which raises specters and zombies to walk the earth and eat the living. If Yellen doesn't understand how future prices are set, then it's logical to assume that the rest of the Fed doesn't either. The funniest part of Yellen's speech is the discussion of US wages and the belief that US wages will constrain inflation. It is, of course, external wages that are controlling inflation, and since external wages are not controlled....

In any case, we have poetry courtesy David and CF:


[Major MARINDIN, in his Report to the Board of Trade on
the railway collision at Eastleigh, attributes it to the
engine-driver and stoker having "failed to keep a proper
look-out." His opinion is, that both men were "asleep, or
nearly so," owing to having been on duty for sixteen hours
and a-half. "He expresses himself in very strong terms on
the great danger to the public of working engine-drivers and
firemen for too great a number of hours."--_Daily Chronicle_.]

_Who_ is in charge of the clattering train?
The axles creak, and the couplings strain.
Ten minutes behind at the Junction. Yes!
And we're twenty now to the bad--no less!
We must make it up on our flight to town.
Clatter and crash! That's the last train down,
Flashing by with a steamy trail.
Pile on the fuel! We must not fail.
At every mile we a minute must gain!
_Who_ is in charge of the clattering train?

Why, flesh and blood, as a matter of course!
You may talk of iron, and prate of force;
But, after all, and do what you can,
The best--and cheapest--machine is Man!
Wealth knows it well, and the hucksters feel
'Tis safer to trust them to sinew than steel.
With a bit of brain, and a conscience, behind,
Muscle works better than steam or wind.
Better, and longer, and harder all round;
And cheap, so cheap! Men superabound
Men stalwart, vigilant, patient, bold;
The stokehole's heat and the crow's-nest's cold,
The choking dusk of the noisome mine,
The northern blast o'er the beating brine,
With dogged valour they coolly brave;
So on rattling rail, or on wind-scourged wave,
At engine lever, at furnace front,
Or steersman's wheel, _they_ must bear the brunt
Of lonely vigil or lengthened strain.
_Man_ is in charge of the thundering train!

Man, in the shape of a modest chap
In fustian trousers and greasy cap;
A trifle stolid, and something gruff,
Yet, though unpolished, of sturdy stuff.
With grave grey eyes, and a knitted brow,
The glare of sun and the gleam of snow
Those eyes have stared on this many a year.
The crow's-feet gather in mazes queer
About their corners most apt to choke
With grime of fuel and fume of smoke.
Little to tickle the artist taste--
An oil-can, a fist-full of "cotton waste,"
The lever's click and the furnace gleam,
And the mingled odour of oil and steam;
These are the matters that fill the brain
Of the Man in charge of the clattering train.

Only a Man, but away at his back,
In a dozen ears, on the steely track,
A hundred passengers place their trust
In this fellow of fustian, grease, and dust.
They cheerily chat, or they calmly sleep,
Sure that the driver _his_ watch will keep
On the night-dark track, that he will not fail.
So the thud, thud, thud of wheel upon rail
The hiss of steam-spurts athwart the dark.
Lull them to confident drowsiness. Hark!

What is that sound? 'Tis the stertorous breath
Of a slumbering man,--and it smacks of death!
Full sixteen hours of continuous toil
Midst the fume of sulphur, the reek of oil,
Have told their tale on the man's tired brain,
And Death is in charge of the clattering train!

Sleep--Death's brother, as poets deem,
Stealeth soft to his side; a dream
Of home and rest on his spirit creeps,
That wearied man, as the engine leaps,
Throbbing, swaying along the line;
Those poppy-fingers his head incline
Lower, lower, in slumber's trance;
The shadows fleet, and the gas-gleams dance
Faster, faster in mazy flight,
As the engine flashes across the night.
Mortal muscle and human nerve
Cheap to purchase, and stout to serve.
Strained _too_ fiercely will faint and swerve.
Over-weighted, and underpaid,
This human tool of exploiting Trade,
Though tougher than leather, tenser than steel.
Fails at last, for his senses reel,
His nerves collapse, and, with sleep-sealed eyes,
Prone and helpless a log he lies!
A hundred hearts beat placidly on,
Unwitting they that their warder's gone;
A hundred lips are babbling blithe,
Some seconds hence they in pain may writhe.
For the pace is hot, and the points are near,
And Sleep hath deadened the driver's ear;
And signals flash through the night in vain.
Death is in charge of the clattering train!
The above poem is in an issue of Punch from 1890. All too apposite. The Panic of 1890. The Panic of 1893.

Should you be in an inquiring, if unhappy turn of mind, it turns out that the accident reports have been duly archived but the Eastleigh report is missing.

Tuesday, April 12, 2011

Almost The First Time I've Grinned Ear to Ear Since 2006

This is just sweet.
Treasury Receipts (HI = Medicare Tax, charged on all wages and salaries)
HI March 2011:
Wages: 14,455
Self: 232
Total: 14,687

HI March 2010:
Wages: 13,601
Self: 349
Total: 13,950
Very consistent with February, btw, and it very clearly the result of renewed raises. In comparison with recent sad history:
HI March 2009:
Wages: 14,308
Self: 394
Total: 14,702
HI March 2008:
Wages: 15,013
Self: 454
Total: 15,467
HI March 2007
Wages: 14,425
Self: 476
Total: 14,890
So we made it almost back to 2007 levels, but we've also almost crossed the two-year increase finish line. Employment and wages tend to peak after a recession has already begun. They do tend to pop a bit when we have higher inflation rates.

The low self-employment number is a bit confusing.

In fall of 2006 I went to a bank to do an audit/walkthrough. It wasn't related to loan quality, but in the course of it I did locate this bank's loan files, and when I saw the ratio of commercial to consumer I knew. The bank was dead. (It has since met its official demise.) We had already been discussing a 2007 recession on various trends, and we were already sure that loan quality(collapse) was going to be a very bad reinforcing factor, but it wasn't until I walked around that bank that the likely extent of it truly hit me.

I could hardly even speak going home. It was almost like getting one of those phone "your dearly-loved is dead" phone calls. I was in a state of what I can only call shock for over a week, and when I emerged from that shock I was in a state of mourning, and this day marks the end of that grief.

It doesn't, btw, mean that we will not subside back into a contraction. Depending on policy decisions and the degree of reality recognition out there, we probably will, and it will start either at the end of this year or in 2012. But what these numbers mean to me is that we may be limping, but we are now strong enough to walk and over time the economy should get stronger.

I've been on tenterhooks for a month; some indicators have turned and started south already, and the Japanese tragedy is going to impact both the US and Chinese economies. So the future picture really depended on where we were now.

It looks to me like we are strong enough to get stronger without artificial life support, and it is the first time in almost five years that I've been able to say that.

Looking at commodities, the leaders have turned and backed off, so we will we just have to wait and see what happens. We have crossed the recession line of over 60% of households with declining real incomes, but it takes time for that to produce an actual contraction. So we have time to mitigate the next leg. Maybe we will and maybe we won't.

Because the US could face a future like Ireland's or Greece's if we don't stop playing with the funny money, we'd be well advised to adapt toward reality on the fiscal issues now, and stop trying to artificially boost GDP. A four to seven months of contraction is nothing compared to what we could be facing if we let this run a few more years.

The thing is that there are two parts to the price increases we are seeing. One is fundamental and inescapable. There was a long-term deflationary impact from shifting production into emerging countries which supported real incomes for over a decade in more developed countries. Now that pendulum is swinging back the other way. We shouldn't try to mitigate the effect (other than supporting people so they don't starve in the street), because doing so will only make the structural impact worse.

The other part is purely monetary/sexpectation. It's speculative; the trends in diesel seem to show that the first edge of that wave has already hit and is suppressing demand pretty strongly. In the US, the belief has been that the Fed will continue to put money out there after QE2 is officially over to support asset prices. I hope not. If the Fed does, probably the spec element won't be knocked out until late summer.

A whole cohort of younger people got economically knocked out in this epic downturn. They would normally have graduated, gotten jobs and started consuming. Their lives have changed forever, but as things improve they will recoup, and by mid 2014 they'll start to come strongly into play.

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