Good Economic News!

We saw a rebound in jobs in May as most layoffs had already occurred and the economy adjusted to our current situation.

One of the reasons for the surprise is because so much of the prediction is based on trend analysis.  Statistics are wonderful tools, but a statistic measures a real world event.  I haven't seen a decent analysis of what happened but just from what was obvious was there was a tremendous increase in the need for certain jobs, like delivery and warehouse workers, while the non-essential worker layoffs had already happened.

There was another factor I haven't seen discussed so I don't know how significant it was but we gave business paycheck continuation incentives.

Still more people on payrolls is a good thing and the stock market responded.  The stock market has been doing well regardless but this impetus gave it a very good day indeed.

It remains to be seen how fast the newly unemployed get their old jobs back or new ones.  Its likely that many of the better paying jobs will be automated if possible.  We also know many businesses are simply not coming back.

This is still a very rich country and the wealthiest people have not suffered like the average person.  We pumped a tremendous amount of stimulus into the economy that we will have to pay for.  Further many debts that were deferred are going to come due.

I anticipate some difficult day ahead for people in low skill jobs.  Some service jobs are likely to increase as the gig economy jobs have become more popular.  I have grown very fond of grocery delivery and while I do think I might want to do it once and awhile imagine using a service I never really used before the Pandemic.

Unfortunately while simply my impression, it seems similar to what happened when manufacturing left.  Jobs that replaced them were low paying service jobs.  

Still work is generally good and we will adjust.

Opportunity Knocking?

What we need to do to correct our economy is not recreate a past that isn't coming back but jump into the future where we have sustainable energy, new industries, healthcare for all and free merit based education.

While we are still using too many fossil fuels we should only be building solar, wind or hydro ones going forward.  The industries to support that need to be in this country so we can have good paying jobs for Americans.  We also need to provide recharging stations for electric cars.  This is the future and we need to start building it.

We also need to invest in infrastructure for our highways, bridges, rail systems and dams.  It will provide jobs and help the economy become more robust.  

We also need to expand free health care to all residents of this country.  The only actual reason people oppose this is because they think they will get worse care when it is shared equally.  For those of you who enjoy elite care now, we can probably allow you to buy into a private system similar to Great Britain.

Similarly we need to make public colleges free and merit based.  In addition private colleges can continue for those who don't mind the cost.

In order to pay for this and our other expenses we need to consider reforming our tax system.  We need to balance the budget and work on the national debt.  Similar to business some long term project may need to be funded using bonds but we can't continue to massive deficits we see now.

Providing growth and jobs will help but other efficiencies may be need or additional sources of revenue.

We certainly can't take money out of our seniors pensions or health care, they have earned it.  

This country has had its ups and downs and the next great expansion is ready to happen.

We just need to open the door to opportunity.

How Are We Doing?

When you look at the news of the day it gives you a sense of where we stand as a nation on a number of issues.

Clearly the cases and deaths from the virus are not good indicators.  If the pandemic was simply an unfortunate event that happened to originate in China, we were obviously woefully unprepared.

If on the other hand China is somehow to blame for spreading the virus, we were obviously woefully unprepared.

Placing blame doesn't provide an excuse it provides a diversion.

In the second case of course we might need to do something, but it doesn't change our vulnerability.

Similarly building a wall on the Southern Border is unlikely to do anything to halt illegal immigration.  It might divert them elsewhere but I'm not sure that's worth the billions of dollars.

Meanwhile we see a dam fail in Michigan because our national infrastructure is old and fragile.  Many other structures are at risk but we are diverting a lot of effort into a folly on the border.

The main point is actually that even if it worked, what would it accomplish.  This issue has very little actual impact on the vast majority of Americans and the ones impacted actually like the cheap labor.  Billions wasted to no end.

I don't like to harp on the weather because it is variable but over time weather equals climate and it seems we are starting to see the effects of climate change in daily weather.  In the last decade we have had once in a lifetime events or once in a century events fairly frequently.

We see unemployment that would have been unimaginable just a few months ago and an explosion of the national debt in response.  Still the stock market climbs because in all honesty, the current economy doesn't care about how many are working, just how much they can spend.  Of course it has hurt travel and entertainment companies but the fact that JC Penny or J. Crew is bankrupt is hardly relevant.  They just sold stuff made elsewhere.  Amazon can do that.

Online shopping, but for some reason on-line voting is a problem.  Well maybe for the current administration any voting is bad.

Mostly Spin

When people tell you what their opponents are trying to do you should retain a large degree of skepticism.

Sometimes it has a bit of accuracy but generally they have an ax to grind.

The only real question should be how much spin has been applied?

There are facts and then there are interpretation of facts.

In 2008-2009 we saw a contraction in the financial systems due to an overextension of credit to people who shouldn't have gotten it.  This was backed by real estate which was in a bubble.  Once the bubble burst the whole system came close to collapsing.

There were a number of stimulus packages and after hitting a painful bottom we saw a recovery where credit markets, the stock market and the economy started to grow.  It had some flaws because employment and wages in some industries just wasn't coming back.  Still that recovery lasted until the recent virus and while we saw a tax package and reduced regulations these didn't really have much impact, at least from the statistics.

The economy was undergoing a fundamental change from its prior manufacturing past with some service industries to a service model with some manufacturing.  Most manufacturing was done elsewhere.

This expansion has ended because of the virus and that's no one's fault really.

The expansion was also not the result of current administration efforts, it was continuous from 2010 effectively.

The same people were excluded, the conversion to a service, gig economy continued and we had increasing income inequality.

Almost entirely driven by economic forces.

Still it gets a lot of spin.

Safety First

There is some encouraging news out of Oxford about a potential vaccine, but of course it isn't ready or proven yet.

On the other hand we have a dog who caught the virus in North Carolina.  So household pets are at risk but so far we are infecting them and not vice versa, at least as far as we know.

There are lots of issue that have to be dealt with  that have some real urgency.

First is getting people back on the payrolls and giving them a way to make a living.

Second is assuring that all Americans get a chance to vote.

We continue to see a widening gulf in this country between classes.  Many people who work in offices and similar jobs are in fact able to work remotely, at least to some extent.

Manual workers have to be there.  You can't drive buses, lift boxes, make products remotely, at least not yet.

Essential workers had to continue working and while some got infected, most did not.

Until there is an effective vaccine we need to make sure that the workers are protected with the measure that are proven to work.

It won't be risk free, but then again it never was. Voting is not as complex unless you don't want everyone to vote.

We clearly can send all registered voters a ballot with a unique code that they can use to vote and return by mail or in person.  One vote, one person.

Of course this would lead to allegations of voter fraud, although mostly they mean too many people got to vote.

One vote, one person is just right.

Saudi Attack.

Its a sad day when the credibility of the administration is so low that you question pretty much everything they say.

Its even worse because they seem to contradict themselves frequently.

Take the question of who attacked the Saudi Oil Facilities.

This should be something that is easily answered since the Saudis have some of the most sophisticated defense systems in the world.

The idea that they didn't detect the attack is questionable in the first place.

Then we have one high level administration official saying it was Iran, while the Saudis are non committal and the dontard says we need more evidence.

Meanwhile a rebel group in Yemen is taking responsibility but of course they are accused of lying, we accuse everyone of lying nowadays.

It is also interesting to note that the Saudis wanted to cut production at the latest OPEC meeting but that was opposed by us.

This attack conveniently accomplished just that.  It also has led us to impose more sanctions on Iran, which we have no problem doing.

It just seems that in today's day and age with the technology the Saudis and we have that such an attack should have been detected.

Something is rotten in the Kingdom.

Moving Forward!

There are some things that are truths but which some people don't want to admit.

For example, progress, while benefitting most people doesn't benefit all.

For most improvements in history there were winners and losers.

Generally the winners outnumbered the losers, but if you were a loser, that's not much consolation.

I'm not being complex here, we used to have elevators that required operators, now they don't, no more elevator operators.

There is a long list of jobs we no longer need, and in most cases the people who lost those jobs simply had to move on.

Sometimes the changes are more dramatic than others.

As farming was transformed with the introduction of tractors and other equipment that could replace field workers we saw a migration from farm to city. It was disruptive but in a generation is was absorbed.

We have seen a similar disruption in manufacturing as robotics and international trade has eliminated many high paying low skill manufacturing jobs.

The adjustment is ongoing and mitigated somewhat by our demographics.

However it isn't going to revert to what it was.  It has to become something new.

What will that be?  Well predictions of that sort are generally wrong because we don't know what we don't know.

We just need to move forward and be ready to meet the challenges.

New Economy

The common mantra is that the economy is doing well.

Unemployment is low, there is some uptick in wages, and the stock market has hit records.

Of course, the unemployment being low is partly related to less workforce participation, the wage increase might simply indicate that they have established a new baseline and stocks are influenced by corporate profits and future expectations.

In many ways the economy needs to be viewed as a different economy than what we had in the past.

Skilled workers who fit into the new way of doing things are in fact doing well.

Many blue collar workers or pink collar ones aren't.

They have lost jobs that used to provide entry level work to automation, not export.

So many of our activities are now done by robots or automation.

I now effectively do the work that used to be done by multiple people.  I prepare reports on a computer instead of hand writing them and giving them to a typist.  I answer all my own calls and schedule instead of having an administrative assistant. In fact I can now work from almost any location eliminating the need for office space and corresponding support staff.

Similarly in factories if you look at old photos you see many people doing tedious work that is now done by robots.

The new economy is doing well but people who were prosperous in the old economy aren't generally doing great.  They may be working is a low paying service job, and they may have adjusted to it, but it isn't the same.

Statistics and Reality

People like o look at statistics and believe they reflect what is actually happening and they do in a certain way.  However take a simple statistic I saw the other day saying a certain company was having its best year since 1990.  Well it was about the stock price and that company's stock had virtually collapsed in the last year.  It recovered from the lows and had therefore a big percentage increase.  Of course the company was doing much better years ago and the percentage increase did not make up for the fact that the stock was around 20% of its one time high.

The same is true with the statistics about the economy.  Unemployment is low, true, but workforce participation is low.  Wages are increasing, true, but from lower bases.  Wages are for most working people no where near where they once were.

Things not accurately measured in statistics, at least not the economic ones are the other risky changes to most Americans.  Pensions have been eliminated at many companies and while they offer self investment plans, many don't participate because it means a lower paycheck.  Issues with social security add a degree of uncertainty to many people.

Health insurance is also a high risk for many even if they have coverage now.  Its in danger or the contributions required keep increasing.  Sure the stock market is up but working class Americans are generally not big shareholders, except maybe in a company 401K if they participate.

Housing is up, but not at the level is once was and many young people have onerous student debt to contend with.  The reality is see is that most people struggle to make ends meet and dig themselves deeper into debt to afford some nice things.  Some are doing much better than that.

Is the economy as good as the statistics say?  Well the statistics are correct, but the reality is just different.  An increase of a few percent in average wages is not changing anybody's life.  A secure future and secure health care would.

Which Future

We have been dealing with the transition to a world where machines do much of the labor previously done by people.   The benefit of this transition has been the accumulation of wealth by fewer and fewer people.

People who considered the rise of technology envisioned a number of possible outcomes.  One of those scenarios includes the way we seem to be going, where the availability of a new labor source concentrates wealth in the hands of fewer and fewer people.  The other scenario involves a world where the benefits of technology are used to benefit humanity as a whole.

The second is difficult to implement but provides the greatest good to the greatest number of people.

We see certain proposals to redistribute the benefits which will be attacked as socialist or too expensive.  Still if it seems like the accumulation of more and more wealth in the hands of fewer and fewer people is hard to defend.

Unless you are one of them.

Economic Thoughts.

The economy is a very complex system but often a single factor can impact it significantly.

Some of that is simply mathematical but some of it is also based on psychological factors.

Everyone is always trying to predict how something impacts the overall economy, because the most successful strategy is to be ahead of the crowd, but not so far ahead as to go broke waiting for them to catch up to where you are.

So what about this economy?

In many ways it is considered robust, but is it?

Three areas that are still weak are manufacturing, mining and farming.

In 2004 there were over 13 million workers in manufacturing. This dropped to less than 11 million during the financial crisis and has been slowly improving since. However, the latest numbers show us still down over a million workers.  Considering population growth there are less manufacturing jobs available.  Still we have grown from the lowest point and we see that data claimed as a measure of an improved economy.

The big increase in employment has been in service jobs and generally they don't pay as well as manufacturing.

So the average American is having more trouble paying bills and saving for the future, even if fully employed.

This is one of the reason that we see so much income and wealth inequality, since the workers continue to get a smaller share of the pie as they are forced into lower paying jobs.

It wouldn't take much, maybe some increased cost because of tariffs to make the whole thing tumble.

Time will tell.

Transition

What is going on in the country is the continuation of the changes driven by the technology and automation revolution.

If you have the skills to be part of it you most likely have a high paying job and a secure future.

If you were part of the old industrial economy you are probably still hurting.

The so called strong economy if the future economy, not the past one.

Manufacturing takes advantage of technology, robotics and world sources.

Where just supplying unskilled labor was once enough to secure a decent job with benefits, that is not enough anymore.

The adjustment has been painful and will remain so until it is complete.

We can't roll back the clock no matter how much we try.

The future comes anyways.

Progress?

Deficits up, no negotiated deals, more shooting and hate crimes, wages still stagnant, farmers in trouble, Cabinet members found in contempt of congress, and North Korea and Iran increasing nuclear expansion.

Wealthy people and businesses are making money thanks to the directed tax cuts but that may not last much longer if the situation with China deteriorates.

Our friends don't trust us and our enemies don't take us very seriously.

We are doing very little to prevent a climate disaster and in fact encourage behavior that will speed it along.

We have an administration which only cares about the rich and the easily fooled who listen to the rhetoric and believe the lies, which are easily documented.

Much like his spotted business resume, he is all about the show and has trouble making it go.

If you listen to the people on the animal news, they act like there are great accomplishments.

The great economy is a continuation of the recovery with a boost from tax cuts and increased defense spending.  The increased National Debt will come back to haunt us not to mention the climate disaster.

To top it off we have more uninsured Americans this year than last.

Not really any progress at all.

Job Report

We have less unemployed people but we also have less employed people.

Reflecting our new economy, the great majority of increases were in service related industries.

Still having established a new bottom so to speak we are seeing some increases in hourly pay, a little over 3%.

The expansion from the lows of the financial meltdown continues and one could argue if it is because of the actions then or something like the recent business tax cuts.

Everything is usually a combination of all factors and we see service industries continuing to expand as we continue to evolve our economy.

Its good news, not great news, but still good.

Where's Riley?

Most of us dream about being rich and famous when we are young but few of us achieve either.

In fact it is becoming harder and harder for the "working" person to even get a sense of security.

While not rich, most of them were able to get a reasonably good paying job with benefits including health care and a pension.

While it still required you to go to work everyday it provided a decent life, the ability to have a family and a home.

You could of course screw that up, but if you stayed sober enough, followed the rules enough you counted on having a job and making a decent living.

While it really was a post World War 2 scenario, before then we had the Great Depression, it lasted long enough to create a lasting image of America that prevails to this day.

New suburbs sprang up thanks to the wide availability of cars and all those houses required appliances and services.  WE also built the interstates and if you were able bodied and not working it was your own choice.

The cracks started as the cities lost a lot of their middle class to those same suburbs and we started to see urban decay.

Then we started to see some competition from our old WW2 adversaries who recovered and were eager to sell us cars and other things.

Companies started to shift to lower cost labor areas, first inside the country and then overseas as we promoted free trade and allowed the easy transport of goods across borders.

We then saw the robots become more and more prevalent as they grew in sophistication and displaced most if not all of the unskilled laborers.  We also saw technology allow companies to eliminate all sorts of jobs that used to be considered secure.  Clerks from secretaries to bank tellers became less and less needed.

It is going to get better as the jobs now available are generally lower paying with less benefits, if any.

Many workers have simply left the workforce as working as a clerk in a drug store is financially not much better than scraping by on the various Government programs available.

Its not the life of Riley anymore.

He is now addicted to Opioids and driving an Uber.

Economies

There is the "official" economy but there are many other economies as well which are harder to measure.

For most of my life when I read reports of how the economy was doing it had almost no impact on my actual well being.

My personal economy seemed very different than what I saw reported.  I was aware of higher or lower prices and interest rates but my personal economy was generally OK.

If you live like most of us and get laid off or fired you are in a recession.  If you don't you aren't.

For millions of Americans who lost good paying jobs in factories the economy has never recovered.  They may have a job or they may have left the workforce, but they are not earning what they used to.

They has been a significant trend in this country where workforce participation has been declining after a period of significant increase as more women joined it.

Some of this is related to people retiring but a significant part of it is related to people who live in the "get by" economy.

They may work "off the books" a bit, they may get disability or unemployment benefits, possibly food stamps, and may be selling of things that they have acquired over time.  They also might work in the normal economy some of the time in seasonal or other work as it becomes available.

They possibly would like full time employment if it was available but many of them are becoming unemployable as they develop addictions, possibly to opioids or alcohol.

The following chart shows the dramatic reduction in workforce participation after the peak near 2000.

That drop is caused by many things, but the economy of the late 1990s employed many more people than we do today.

Simply a fact.  Not the greatest economy of all time, unless you ignore the vanishing workers.

Economy Thoughts

Time to take another look at the economy.  Most people thing the economy is doing well, and this seems primarily because of the rise in stock prices and the low unemployment rate.

However the problem areas in the rust belt and the farm belt are still, well, trouble areas.

Farmers have been hit hard by this administration's policies, specifically in regard to tariffs, which increases their costs and reduces their competitiveness.

A cynical person might think that the only beneficiaries of driving out smaller farmers would be the larger corporate farmers who can buy up farms cheaper.

While there has been some increase in manufacturing, the number of jobs and skill levels required is still low and then high.  The jobs for low skill union workers in large factories like we had in the 50s are not coming back.  We see some rise in wages, partly as a result of minimum wage increases and partly because we might have hit the bottom on wages.

If average wages decrease as low paying jobs replace higher paying jobs, at some point that will be complete and we will have a new wage base, that will increase.  It might take a while for the average wage to equal what it once did, but it will increase.

We see the same thing in the housing market where many homes are still selling below the peaks of the last decade.

We still have an escalating deficit and another factor is that companies are reducing benefits in the pension and health areas because of cost.

So how are we doing under this economy?  Well same as we always have under Republicans, the rich get richer and the rest of us look for trickles.

Capitalism and Taxes

While people are generally governed to a large extent by self interest, it isn't often that self interest and the good of the country don't go well together.

It was called the invisible hand of economics and the idea is that everybody pursuing what is best for them will result in the overall best result.

There are some problems with that, the different level of power and influence being the main one, but generally it works pretty well and is to a large extent the basis of capitalism.

No other system has in fact produced greater economic well being than capitalism.  We do have to remember that capitalism is in fact an economic system, not a social one.

Since it does in fact generate the most wealth it provides the greatest tax base.

This is where capitalism as an economic system needs to serve the greater needs of society.

It is never generally in anyone's best economic interest to fund social programs, at lest not directly.  Of course it does help stabilize society and make economic pursuits safer.

This leads to the question of what tax levels should we have to fund social programs?

Well economically it should be the largest amount that doesn't impact economic growth.

Since economic growth is the engine that drives the economy we don't want to kill it, but a tax rate is a funny thing as far as motivation goes.

At every tax rate, a capitalist will engage in activities that are profitable.

We hear some proposals talking about Tax rates as high as 70%.  We had those during some of our most prosperous times.  We have now made it possible for those who have been helped the most by this country to pay a much smaller share in the name of tax relief.

Creating an environment for success is essential but tax rates are seldom much of a factor.  Funding the programs that promotes the good of the many over the few is the role of government.

Scorecard

After two years of this administration, the scorecard isn't all that good.  Not everything is bad but enough things are that we see the polls reflect the below average performance.

Of course there are two things to consider.

If you disagree with the goals in a specific area you are unlikely to view results favorably.  There are however certain goals which are generally agreed to by all.

One of these is to have a healthy economy and to some extent it is.  Of course it isn't the best economy ever, its just not bad.  Unemployment is low but the quality of jobs and income growth suffers from what is our new economic reality which is eliminating high paying low skill work. This is significant because many of the people who were unhappy two years ago about their job prospects are in the exact same situation and without some new industrial undertaking it is unlikely to change.  Those with skills are in demand and so we see effectively a continuation of the situation since the last recession.  The danger is that if we have another recession, our fallback safety nets are weaker now because of our deficits.

It should be noted that the last two years saw an increase in the deficit as tax breaks lost revenue which was not made up by increased economic activity.  The administration has adopted supply side theories which try to increase demand by reducing the supply cost (simplistically).  However, while this works academically, it requires that demand have no ceiling.  It also requires that reductions in the cost of production get passed along.  We know that much of the tax break money was simply passed along to stockholders with very little of it being used to improve production.  The reason for this is simple, capital has been very inexpensive since the financial crisis so worthwhile projects were already funded.

Reduced Government has probably been one of the more successful initiatives of the Administration as a fair number of regulations have been removed.  You may not agree with the aim, but it was something they were able to do fairly successfully.  It impacts other areas Americans care about but it was something they achieved to a large extent.

Similarly they have been able to appoint some conservative justices to both the Supreme Court and lower courts.  You may not agree with this aim or the nominees but they did manage to appoint them.
 What impact they will have will play out over the next few decades no matter how the next election goes.

(to be continued)

Hows the Economy

How strong is the economy?

There are some numbers that look good, such as unemployment but there are also some troubling signs.

It certainly isn't the best economy ever, we don't actually see a major expansion in employment, we see increases at the edges.

If you consider the stock market as a predictor, it is likely that 2019 is going to be a problem year as interest rates, tariffs and political uncertainty cause disruptions.

As always the economy will be better in some places and not so good in others.

Very little improvement has taken place in our hard hit rust belt, as the promises of reviving manufacturing and coal were really empty ones in the first place.

Coal is simply no longer the fuel of choice and manufacturing just needs a lot less workers now, even if you re-open a plant.

Automation and cheap foreign sources haven't gone away.

We are not making enough progress, especially in the heartland to develop new industries like solar and renewable.

Both coasts are doing well because of tech and service industries, but where brawn in the norm, not so much.

Automated brawn is just cheaper.

Economy is still mixed but not terrible.  It is likely to get much worse soon.

We need more trade, not less.