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.

Minimum Wage

Last week the House of Representatives passed an increase to the minimum wage.  I think the odds of it becoming law are probably slim, although it might create some issues for Republican lawmakers.

I imagine that they will ignore the very argument they used when they passed the tax break for the wealthy, that it will pay for itself in additional revenue.

The workers who would be impacted by this are not investing in the stock market or buying Government bonds.  The money would be spent as soon as it was available.

There is a multiplying impact of money flow in the economy.  The second person who gets it then spends it on something they need and that person spends it and so on until taxes or other factors dissipate its value.

It would also likely cause additional salaries to increase since people making slightly more than the minimum would want to keep that differential.

Would it lead to fewer jobs?  It might, it really depends on how employers react.

These are low paying jobs and replacing them with automation may or may not be affordable.  I'm going to assume that the number of workers is roughly equivalent to the lowest number of workers needed for operations.  Places that employ minimum wage employees are generally not hiring extra workers.

We will hear all these arguments that are always rolled out but paying our lowest paid workers a living wage is simply fair.

Isn't this economy supposed to be so great?

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.

Economic Thoughts

We keep hearing about how good the economy is and by many measures it is doing well, unemployment rate, new jobs, etc.

However it is also true that these measures don't capture the reality many people face daily.

First Student debt is crippling for many who effectively mortgaged much of their future for a degree.

If you have the right degree and skills it may very well pay off, but many of our graduates end up working in jobs that give them little hope of paying off that debt, let alone accumulate enough to say buy a house or raise a family.

Farmers are suffering because of competition and our trade disputes with China who was a major buyer.  They can find other suppliers to satisfy their needs as more and more areas are cultivated at the cost of rain forests.

There has been effectively no progress in bringing back high paying mining and manufacturing jobs.  Yes some have been kept and a few have been created but most of the jobs being created are in highly technical areas or low paying service jobs.

The tax law provided significant savings and profits to many companies who used that money to pay dividends buy back stocks or increase executive compensation.  The wealth gap keeps increasing as the few derive the most benefits while the many tread water.

It did increase the deficit and therefore the national debt which is being managed because of the low interest rates but is eventually going to be a problem.  Its not a question of it, just when.

So is the economy strong?  Well it reminds me most of the early days of this century when many lived off homeowner equity by refinancing again and again.  It worked until one day it didn't.

Jobs

Job creation had a poor May and wage growth was tepid.

One data point doesn't make a trend but it really isn't inconsistent with what we've been seeing.  We have headwinds in exports and imports thanks to the ongoing trade wars and prospective tariffs on Mexico.

Tariffs have no cost the average tax payer more than the modest tax break they received from the tax bill.  Not that it was that big a tax break.

Will there be a recession?

There's a fairly good chance of one since much of the economy is really built on sand.  The jobs of the future are in renewable resources, improved health care facilities and measure to combat climate change.

Those jobs would pay well no and be an investment in the future.

This administration wants to drill, dig and pollute.

Not a recipe for success.

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.

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.

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.

Economic vs Social Issues

What is maybe the most interesting thing about politics in America is how people who are often the most in need of Government assistance have in many cases become loyal to a party that is determined to take that assistance away.

To a large extent this has been accomplished by making politics about social issues more than economic ones.

It has coincided with the erosion of Unions in this country and the erosion of the middle class.

Things like Abortion, Gun Rights, immigration, and anti-Political Correctness have prompted many people to vote against what is clearly in their best economic interests.

Of course they are told that by helping business and giving tax breaks to big business while reducing regulations they will benefit down the road with more jobs and better economics, but that hasn't worked yet and isn't going to.

Even an issue that the Republicans have pushed for ages, free trade (which made the same promises) has somehow been turned upside down and blamed on the Democrats.

In fact, while much of the nation is finding their economics in trouble as low paying service jobs have replaced the high paying manufacturing jobs they once had, these same people have been persuaded to support the people largely responsible.

On the other hand, many of the people who have benefited the most have gone the other way.

The hard working farmer in Mississippi who sees the Democrats as the devils representatives on earth because they want to abort his kids, take away his guns and turn his children gay is supporting a party that is putting tariffs on his exports, making it harder to hire inexpensive help and making health care unaffordable.

The current economy is in a sense a false positive as workforce participation and low paying service jobs have created statistics that look good.  Clearly a job is better generally than no job, but its far from the best economy ever, at least for the working man.  For much of our history we had a labor shortage but now with automation and overseas production, we have a labor surplus.

We are going to need more Government services and probably a better way to pay for them.

Its something that needs to be talked about.

Economic Musing

We had a good job report for December and while that is encouraging, not everything is wonderful.

Looking at the report, available here Employment Report, it still seems like a continuation of the recovery started under the previous administration, which is fine, but not a booming economy.

Anyone can draw their own conclusions but it seems like the new economic reality for this country continues to clarify.

The days of doing well by just showing up are in the past.  The millions of jobs that used to filled by people acting like automatons are now filled by automatons.

You need to develop skills to do well and if you do the rewards can be significant.

If you don't the jobs and pay available are going to be barely enough to get by in this country.

Income inequality has continued to increase.  You need to hone skills that are needed or become an entrepreneur to succeed.

This is part of the problem that has permeated our society as we have a large group of people who feel under represented.

Many working Americans feel that Government helps the very poor and of course the wealthy people are doing OK, but they struggle to survive with little help or much of a future.

They can get jobs, but the jobs they get don't provide the lifestyle they see as the average American one, so they work multiple jobs.

They don't feel that the taxes they pay are doing anything for them (although they probably are) and they can't save for retirement, can't afford to send their children to college and live paycheck to paycheck.

They are told by certain media outlets that they are the forgotten Americans who are left out in the cold while the poor and immigrants get assistance.

The real solution to their issues is better income distribution.  The best way to achieve that is via a progressive agenda, but for many reasons, they generally oppose that.

So the economy continues on much like it has,, the rich get richer and the others don't.

Future Jobs

We see a lot of outrage over the recent announcement by GM that it was closing a number of auto plants in the US and laying off a significant number of employees.

This was of course an economic decision in line with decisions made by many other plants and factories in recent years.

It is designed to increase profitability and shareholder value.

Our favorite dontard is outraged and it clearly demonstrates that his promises to reverse this trend and keep and increase jobs in these industries is simply meaningless.

Its a promise he had no way of keeping and the economy is way too complex for him to understand.

Now, there may even be a face saving press release that will act like the plans were revised, but whatever it says it will not interrupt the economic forces that led to the decision.

During the campaign we saw photo ops at a number of plants the dontard claimed to have saved, but most of them went ahead with their plans anyway.

They were based on economics, not rhetoric.

In fact the uncertainty of the tariffs from the dontard will almost definitely encourage more off-shore production.

The US market is a very profitable one, but it is also a mature one.  Population and wage growth are low and that limits growth for most existing products.  Yes, if someone develops something new, like say the I-Phone, you might see explosive growth, but we already have plenty of cars.

You need to compete in emerging markets and you need to incorporate low cost imported parts.

Our trade policy becomes a problem.

Our future prosperity needs to be tied to future products, renewable energy, solar panels, technology, services, etc.  A policy that tries to bring back the past is simply short sighted and doomed.

Blndering Policies

There are no magic wands.  Some issues are simply complicated and difficult.

For example, if you want to create new jobs going forward, the logical approach would be to identify the industries that will be creating those jobs and supporting them.  Of course that requires some idea of what those industries might be.

The long term answer isn't to wistfully look at the past and try to recreate the jobs that used to exist, as we are apparently trying to do.

Coal is old renewable is new.

If someone could actually find a way to economically use coal in a non environmentally damaging way, it would be wonderful since we have so much of it, but the odds of that are slim. It also wouldn't create a lot of new jobs since most coal mining is now much more dependent on machines than people although of course people are still somewhat involved.

Building up renewable energy sources like wind and solar would require significant development and new technology, both of which translate into jobs.

Speaking of development, we need to develop or repair our infrastructure to move forward.  This would create a lot of jobs, but after we gave the tax cuts to the industries that would benefit from infrastructure improvements we don't have the money to do it.  Using it to build a wall instead of internal infrastructure would be insane. the wall has not long term economic benefit.

Something that does have long term economic benefits is trade.  The more trade the better and yes the trade should be conducted on a level playing field.  However trade is also a complex issue.  Actions taken often have multiple consequences, many of them unintended.  Increase the cost of some components used by an industry that exports goods, it may make their cost too high, leading to loss of market share and reduced exports.  Retaliatory actions also are problematic.

Trade generally requires less government involvement, and the involvement needs to be surgically precise.  Is China stealing trade secrets?  Address that issue with specific actions, don't start a trade war that hurts many Americans (and Chinese too).

We seem ill equipped to approach most issues as we conduct policy based on late night thoughts, that are almost always a poor substitute for good analysis.  Almost always.

Reality Show?

Social media is still in its early stages and it is going through a period where it has provided many outliers to get access they wouldn't have before it existed.

The issues it is exposing aren't new ones, they are just getting exposure where before they were relegated to certain extremist venues.

So the racism, misogyny, hate etc are out in the open for all to see and for maybe more than I would have thought to agree with.

Of course the fact that it appeals to some many is really the question, it wouldn't matter if everyone rejected it.

It exposes a problem in the heartland of America and some other countries where progress was much more confined to the big cities than we might have thought.

The pictures presented to us showed increasing diversity and acceptance, at least on our major media but the reality didn't match in many places.

Watching certain shows and seeing this inclusiveness was not in tune with the reality they lived, lost jobs, less opportunity and a belief that "other" people were getting all the help.

It was worse when they were told they had "white privilege", it didn't seem that way to them.

Of course the changes were because of economics and robotics more than any liberal plot to diversify the country

We are transitioning to a new economic system, not built on the labor intensive factories or workplaces of the past.  It requires different skill sets and flexibility that doesn't fit well into these traditional towns and homes.

The have to work twice as hard to do half as well while, in their minds, "others" have everything handed to them on a silver platter.

Its not reality, but its how they see it and when they see people on social media who share this worldview they feel confirmed.

Not everyone is sharing in the gains and that may be the biggest problem, the increasing income inequality as people are replace with machines and income is centralized.

Its not the immigrants.

Simply Getting By

By many measure the economy is doing very well with profits up, unemployment low and interest rates and inflation manageable.

Of course some indicators such as the deficit and wage increase aren't as healthy as they should be in a booming economy.

Many Americans have almost no savings and are certainly unprepared for retirement.  If fact for many, a comfortable retirement is an impossibility.

This is because economic inequality has grown as high paying low skill jobs have been replaced by technology and automation but skilled employees are in great demand.

The obvious answer it to provide the needed skills to those displaced and some program were created along those lines, but they are not nearly enough.

The reason is varied but the result is that people have taken lower paying service jobs, sometime more than one, to support their families and themselves or alternately have started abusing opiates.

It was this group that influence the last election in certain states because they have a built up anger about the changes impacting them.

America is a hard country to do poorly in, you tend to be surrounded by images of the prosperous world that many live in.

If you consider places like Flint Michigan or any of the old industrial powerhouses, they have never really recovered from the closing of those factories with their high paying jobs and benefits.

Minimum wage and Medicaid, if you qualify, are no real substitute.

These are the victims of our technology revolution and we haven't found a good way to help them transition.

They are simply getting by.

Parade Lost in the Swamp

Well as Washington keeps getting swampier, the swamp has swallowed up the military parade the dontard wanted.

It was a bad idea in the first place, why pay to bring all those troops and equipment to destroy the streets in Washington when you can get plenty of pictures just visiting military bases.

The swamp in Washington just gets bigger as we see unqualified people doing stupid things.

Of course we have the most unqualified person in charge of it all.

Some still think he is responsible for the improving economy, if it can be said to actually be improving.

The issue with the economy both before the financial crisis and since hasn't always been the number of jobs as much as the quality for certain people.

Technology and the global economy has eliminated the need for many jobs that used to require few skills except the ability to turn up.

Because of previous labor shortages and the efforts of unions over the years many of these jobs paid more than the market could actually justify.

They were easily replaced by technology and the global economy.

The jobs that replaced them pay market rates, which is a lot less than what they used to get.

Its one of the reasons that income per capita has been pretty stagnant as high paying jobs turn into lower paying ones.  Of course people with the right skills are in demand and doing quite well.

There isn't going to be a miracle resurgence of low skilled highly paid union jobs in any foreseeable future.

They are also lost in the swamp.

Just a Trickle So Far

Economics is generally a fairly slow process but if you are a small business it speeds up a lot.

Much like how some households live paycheck to paycheck many small businesses live on a similar shoestring, with the significant deadlines being when invoices and payrolls become due.

They count on a certain number of sales and certainly if they can secure longer term contracts they have a bit more comfort.

This of course often mean they have promised to deliver product at a set cost for an extended period, counting on stable pricing and other factors.

As the cost of their raw materials increase due to the tariffs, what was once a profitable arrangement can easily turn into an unprofitable one.

So we see reports of businesses closing plants, laying off employees or deciding to move production offshore to reduce costs.

These reports concern the most vulnerable concerns and as they stumble slightly bigger firms soldier on.

The impact of the trade war is insidious since it both makes your cost higher, it makes your ability to sell to certain countries very difficult.

We are in a global economy and there is a lot of competition.

The tariffs are a disadvantage to our domestic producers even for product they sell domestically, since the prices will go up and demand will go down accordingly.

It isn't very much so far and the dontard lives in a fantasy where steel factories have sprung up in every corner of the country employing millions.

That's not true and any jobs created are once again, just a trickle.

Local Politcs

The vast majority of Americans don't really think about politics much.

They think about getting through the day, the week, the year.

How to save for a new car, college, a new home.

What's going on with the price of gasoline, food, the movies.

Is my job secure, are my kids going to have jobs, will I be able to retire.

If I get sick can I afford it?  What about the rest of my family?

Are my parents OK, can they continue to live alone?  Can they afford a nursing home?

Is Social Security gonna survive?

Are my children going to have to go to war?

Are my taxes going up?

And many other concerns.

Politics matters only in so much as it impacts these concerns.

If you look at America from the 50000 foot level, it is looking pretty good.  We still have the strongest economy in the world.  We are developing new industries and forging global ties.

However, on the ground real people are fighting for survival every day.

This has always been true, but over the last 20 or 30 years it has gotten worse.

We saw many "secure" jobs go away either because of technology or outsourcing.

Then we saw the financial world crumble and many people in "good" neighborhoods, lost their homes and their lifestyles.

We have seen the cost of medical care and college skyrocket.

These are the issues that we care about.  Want to help refugees? Make sure we are OK first.

This was why a rich bully with a checkered sexual past and a penchant for lying was able to squeak by, he promised to worry about America first.

Of course, he was lying, but many fell for it.  It was better than talking about idealistic things that sound good but are for other people.  Help refugees?  Sure after we are OK.  Ensure equal pay?  Sure, but give everyone more pay.

All politics are local, they simply are.

Safety Net?

We've been seeing a sell off in the market the last couple of weeks as it becomes apparent that the dontard is actually pursuing trade policies that will hurt the economy.

Of course his immigration policies also are bad for the economy because right or wrong, undocumented immigrants make us more competitive in many areas.

I believe his team of so-called economic advisers argue that we need to replace the people coming here and working for very low wages with people getting public assistance.  Economically it seems to make sense since you turn someone using taxes to someone paying taxes.

The issues with this are pretty clear, since that strategy attempts to make people who either can't work or won't work into workers.

The other problem is the people aren't where the jobs might be.

If you accept the premise, you have to transport a lot of single mothers to the migrant camps where our undocumented work all day harvesting crops.

Not likely, or even probably possible.

Creating useful opportunities for these folks with training could work to a certain extent, but the current positions of the dontard are shaped by radical proponents of the sink or swim scenario.

Cut off their aid and food stamps unless they can prove they are working and drug free.

The fact that there are no jobs to be had in many cases, at least ones they qualify for, or that the real victims in many cases will be the children, is simply "one of the breaks".

Instead of providing education and opportunities for our vulnerable poor, we can turn them into a permanent underclass with all the problems they already have, plus some more.

The saddest thing is that the abusers of the system will figure our how to keep abusing it while the neediest will suffer.

Those are "the breaks"/

Land of Opportunity

One of the lures that America has always had to immigrants is that you can do better here then you can where you are.

America was the land of opportunity.

Its of course accepted that this was true and clearly for many millions of immigrants it did offer a better situation then starving because of a potato blight or being persecuted for religious beliefs.

Of course this varied by country and while we did have in many ways more opportunity here than a country with rigid social castes it wasn't like immigrants had won the golden ticket, they still faced tough conditions, bias and in some cases terrible living conditions and years of poverty.

However, we were a growing country and work was fairly plentiful so they were generally able to establish themselves and in fact build a better future for themselves and their families.

They contributed greatly to their new country and most would agree they added greatly to the fabric of this country.

Current immigrants are no different than their predecessors and to portray them as crime ridden hoards intent on destroying our way of life is just repeating things that were said about Irish, Italians, Poles, Russians and Cubans.

They are people looking for a better, safer life and they are needed here as we don't have enough willing workers to do many of the jobs they will fill.

There are issues with American workers who see less opportunity then there once was in our manufacturing sector, but the immigrants aren't displacing them, they were displaced by economic forces and automation.

To hear the dontard talk about immigrants is to hear the same old song and dance that has been said about previous immigrants, and it is just as wrong now as it was then.

Tariffs are just Taxes with a Different Name

When you impose a tariff on an imported article, its only paid if the item is, well, imported.

Its only going to get imported if it can be sold and assuming the seller doesn't intend to lose money, the sales price is going to include any tariff he has to pay.

This increase in price is therefore paid by whoever actually buys the item, and clearly that person in this scenario is an American resident, since the tariff only applies to items imported here.

You might say you can avoid the tariff by buying a domestic item, and that is true if a domestic item is available and assuming the price is competitive.

Of course the tariff does make it easier for the domestic supplier to compete, at least here, but it doesn't help them in other markets.

So you would still be paying more, but it would be an inefficiency charge, not a tariff.

Still its effectively a commerce tax taking money our of your pocket and putting it into an inefficient manufacturer.

I'm generally opposed to tariffs since they prevent the markets from being efficient but I do understand that they might have a place in domestic policy to encourage a particular sector or give it a chance to mature, temporarily.

Of course the tariffs being imposed now, in the name of national security, are simply designed to pander to certain business owners who can't compete on their own.

This is going to create a few jobs, but as the other nations retaliate and we lose sales and market share in markets such as China, we will lose far more jobs than we gain.

So will everyone else.

A real lose-lose strategy.