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Debt and Government

Via Wikipedia

From the Notebook

Cover of Certain Prey

It was a bit of a rough year for me, I can only hope things improve. I can tell you, in the coming year, my goal is to continue to post about once a week. I don’t want the blog to die, but I also want it to take a back seat to everything else I’d like to do with my time. I am working on another novel, I figure I’m about a year away from publishing it. My writing goals no longer revolve around the blog. And I consider that a good thing.

And now on to the notes…

 - The Twins have had a very uninteresting offseason. Every move I’ve seen so far has been sideways. There haven’t been any upgrades, but I can’t point out any major downgrades either. The Twins should be significantly better than last year if only because Mauer and Morneau should be back in the lineup more regularly. And even if they aren’t, everyone else should be healthier. Regression to the mean should provide its own big upgrade for the Twins. But I still don’t see them significantly above the .500 mark this year, or even next year (2013).

- I finished Professor Bart Ehrman‘s New Testament course from The Great Courses (“The History of the Bible; The Making of the New Testament Canon”). This is a short lecture series on the New Testament, from an historical perspective. Ehrman didn’t make any theological claims. Much of the course was spent examining the texts of the New Testament as literature. It was really spectacular, and the conclusions are a challenge to those who see the Bible not as the documents of the early Christian Church, but as the irrefutable Word of God. Even if the original books of the New Testament were the irrefutable Word, those have been lost and major discrepancies exist in the surviving ancient texts.

- Watched through the Khan Academy Banking Playlist. Sal started the lecture series by creating a simple bank and ended the series with a full explanation and commentary on the fractional reserve banking system. Very edifying. With the current banking crisis still causing problems, this is a great primer for those of us who didn’t grow up wishing to be accountants.

- Read Certain Prey by John Sandford. I figured I should read the book after I gave the USA Network movie of the same name a thumbs up. This book was your typical John Sandford, fast-moving, compelling. It’s amazing, no matter how many of his novels I read, I want to read more. The guy is good.

- Read “I, Steve”, a collection of Steve Jobs quotes regarding business, design and management, edited by George Beahm. Interesting stuff. Jobs was very much a genius, and the tidbits of his thinking should help clarify the way other business leaders think. Quick read.

-Read ”Getting it Right” by Bill Buckley Jr. It is a novelization about the early conservative revival, in response to FDR’s New Deal, in the late 50′s and early 60′s. The reader follows a young couple, him a John Birch Society adherent, her an Ayn Rand cultist, through the various trouble spots of the time. As it turns out, the right spot is the mean between the two extremes. Who would’ve guessed? A good novel, and a necessary one to understand how the modern American conservative movement matured.

- Saw the “Sherlock Holmes” sequel starring Robert Downey Jr. I liked it. The pacing seemed a little slow, there were some ridiculous, uh, ‘intuitions’ by Holmes that really took you out of the moment. The plot was dumb and preachy. But I still enjoyed it.

Related articles

• Counterpoints to Ehrman (liturgical.wordpress.com)
• Ehrman/Wallace Debate in Dallas (capthk.wordpress.com)
• Can We Trust the Text of the New Testament? (str.typepad.com)
• A Jewish Perspective On The New Testament (npr.org)
• How Are 400,000 Variants or Errors In the New Testament Explained? (withalliamgod.wordpress.com)
• Writer Laura Lippman on the depiction of dead women in fiction (avidmysteryreader.com)
   

Merry Christmas

“Recovery”

From RCP:

From 1953 through 2007, there were only 10 quarters (out of 220) where per capita GDP was less than it had been three years earlier — clustered in the late 1950s and 1980s. And when GDP fell beneath the overall trend line, there was usually a spurt in growth that brought us back to the trend line.

This near-constant growth has given a regular boost to the pie Congress divvies up. This is why every presidential candidate of both parties over the past 20 years, including Barack Obama, was able to promise some combination of tax cuts, spending increases, and deficit reduction.

This enabled “grand bargains” on deficit reduction in the past. Take the famous balanced budget agreement of 1997. That consisted of a combination of spending cuts, but also spending increases (SCHIP began then, for example). It also contained major tax cuts. Yet because the pie was growing so rapidly, we still had enough left over for substantial deficit reduction.

But those days are over, at least in the short-to-medium term. We’ve now had 11 straight quarters where per capita GDP has been lower than it was not just three, not just four, but five years earlier. Third-quarter per capita GDP in 2011 was lower than every pre-recession quarter since early 2005. At it’s current trend, per capita GDP will not reach its pre-recession peak until 2014.

To channel Groucho Marx, with recoveries like this, who needs recessions?

Light? Tunnel? Jobs?

The November jobs report showed a decrease in the unemployment rate, down to 8.6% while the US added about 120,000 jobs. Good news? As I’ve mentioned before, and will continue to mention ad infinitum, 120,000 jobs added per month is the minimum number needed in order to keep the relative employment level unchanged. The population increases about 240,000 people a month, and we have to add about half that number to stay even. So, if we barely added enough jobs to cover the population increase, how is it the unemployment rate dropped so dramatically?

[Let's not even mention the fact initial unemployment claims spiked above 400,000 the week the December jobs report was released]

There are two answers hidden away in the report. First, over 300,000 people left the workforce, and the second reason was a surprise in the household survey:

The unemployment rate, derived from a separate survey of households, was forecast to hold at 9 percent. The decrease in the jobless rate reflected a 278,000 gain in employment at the same time 315,000 Americans left the labor force.

“You’d like to see the unemployment rate coming down when people are coming into the job market, not disappearing,” James Glassman, senior economist at JP Morgan Chase & Co. in New York, said in a radio interview on “Bloomberg Surveillance” with Tom Keene.

Besides a lot of people giving up on finding jobs, the household survey also found a large number of people reporting themselves as self-employed over the last few months. It appears many of the frustrated and longterm-unemployed workers have finally been stretched to the limit and are setting out on their own.

This situation is open to interpretation, both positive and negative. The positives are obvious, people are finding a way to produce goods and services for each other, and presumably, increasing the wealth of the nation. But, we don’t know about the quality, permanence or nature of these new jobs.

I know guys who, to make ends meet, are making venison sausage and doing basic butchery for lazy hunting friends. I’ve met people who are making leather and fur mittens in their homes for extra cash (we’re talking young people in prime working age, not retirees). What percent of these million newly self-employed are going to find any level of stability?

Remember, we’re seeing this jump after several years’ worth of high unemployment. This means these people waited a long time before attempting to set out on their own. That is not something that signals confidence. If anything, it shows most of these workers waited around as long as they could for something else. Not a good sign. It’s desperation, not cockiness.

And let’s not forget the payroll (or ‘establishment’) survey. The large, stable, successful businesses that survived the recession added just 120,000 jobs. And most of those were retail, many temporary/seasonal. That does not signal growth. Companies aren’t finding new ways to make money. Perhaps they’re expanding slightly above the rate of the population increase. But that’s it. [An aside, increasing population invariably should mean increasing demand, so we should always see some growth in employment from existing firms as they work to absorb a larger customer base (if you don't see that growth, you have a possible signal of weakness in that company).]

My view is that the job market moved sideways again in December. It’s not good news. It’s not bad news. Companies barely hired enough people to cover the increase in population. 315,000 people just up and quit looking for work. Perhaps a couple hundred thousand people over the last month or two have gotten so desperate that they’re attempting to chart their own course. (The household survey and Gallup’s polls show between 200,000 and 300,000 extra people a month reporting as employed without a corresponding increase in the establishment survey. Thus, I believe that number will fluctuate wildly so I don’t want to be too specific. Maybe as many as 500,000 people have taken the self-employment route since October.)

The problem with moving sideways? You don’t get to the light at the end of the tunnel that way. I want some unambiguous number. I want to see growth commensurate with other recoveries.  I want jobs.

Related articles

• The Unemployment Rate Drops, but Economists Aren’t Smiling (businessweek.com)
• Jobs number out and very disappointing – UE went “down,” but job growth was far too slow (americablog.com)
• Ongoing Developments in the Unemployment Conundrum (forbes.com)
• Why Did the Unemployment Rate Drop? (blogs.wsj.com)
• Curb Your Enthusiasm About The Latest Unemployment Report (forbes.com)

The Abolition of Man

Kyle Bass Interview

Kyle Bass makes money. Recently, he has done so betting against stupidity. For this, he has become a villain. But he’s a villain who makes good points in hostile interviews and knows his trade. Enjoy.

From the Notebook

Cover of Certain Prey

It’s been a busy few weeks for me. There’s been a lot of stuff to do inside and outside the house before winter sets in, and I’ve also been devoting a lot of time to NaNoWriMo. This has been the first time in a while that I’ve been able to devote a lot of time to a major writing project since the last major writing project. For this, the blog suffers.

Now the notes:

-Imagine if Ronald Reagan or Sarah Palin made a gaffe similar to Rick Perry’s in a debate. Reagan would have been labeled a dementia patient and it would have been the overwhelming theme of the media coverage of the election cycle, be it 1980 or 1984. Palin would have to suffer through weeks of constant negative coverage and commentary from the left bordering on misogyny. Which would not have been new to her. Perry is lucky he can give the ‘aw shucks, I’m justa country boy’ response and move on, despite the fact he’s been awful in every debate I’ve seen him in.

-Got to hear Jesse Ventura talk about the dismissal of his court case against the intrusive security measures on George Noory‘s Coast to Coast. And he made a lot of sense. His basic argument was constitutional, searches must be reasonable. And, in his specific case, it is unreasonable to subject a former governor and Navy veteran to either an intrusive patdown or naked images every time he flies (he has a titanium hip, so he can’t get through the metal detectors). He got a lot of negative press, but he’s right.

-I finished ‘Understanding Complexity‘ from The Great Courses, a 12 lecture series taught by Prof. Scott Page. It’s a wonderful course that introduces and simplifies the elements and consequences of complexity theory in a useful way.

-Read ‘The Rake’ by William F. Buckley Jr. It’s a political novel about the rise and fall of a charismatic politician whose aspirations exceed his moral character. A lot of fun, very easy read. I saw John Kerry in the antagonist, but I might be wrong.

-I am continuing to work through the Khan Academy video lists as well as their math exercises. Most recently, I finished Sal’s Currency Playlist. The most important lectures in the playlist deal with the international currency manipulation that China is currently practicing. It’s also short enough to go through comfortably in an afternoon.

-Had some movie recommendations piling up. For those interested in a microcosm of the current disaster that is our public schools, see: ‘The Lottery’ (a documentary about the NY Public school charter school lottery). I also liked Bill Murray’s performance in ‘Get Low’ and Mark Harmon in Certain Prey, based on John Sandford’s novel.

80,000

There is a simple and fundamental principle when it comes to job creation, create enough jobs to keep up with population growth. While the US population is getting older, it is still growing. On average, 240,000 or so people are added to the population every month. Assuming fifty percent of the population needs to work to support the other fifty percent (kids, students, retirees, etc), the US needs to create an average of 120,000 jobs every month just to stay even with the growth of the population. Anything less than this is an effective economic contraction, where fewer workers are supporting more people. Yes, it is possible to increase GDP while work participation falls if worker productivity goes up, however this is an unstable situation as smaller disruptions in employment have ever larger ramifications for the well-being of the whole population.

This knowledge in hand, we can now fairly evaluate the October jobs report, given to us here from the AP:

The American job market improved modestly in October, and economists looking deeper into the numbers found reasons for optimism — or at least what counts for optimism in this agonizingly slow economic recovery.

The nation added 80,000 jobs. That was fewer than the 100,000 that economists expected, but it was the 13th consecutive month of job gains. Fears of a new recession that loomed over the economy this summer have receded.

The unemployment rate nudged down, to 9 percent from 9.1 in September.

We can already see a problem here. If the economy created 80,000 jobs, we are short of the necessary number of jobs to keep up with the population. So why did the rate change? It could be anything from discouraged workers leaving the workforce to statistical noise. Remember, the government only tracks people who have had jobs and lost them as unemployed. Young people out of college, never previously employed, who can’t find a job, are not counted.

“Those are pretty good signs,” said Michael Hanson, senior economist at Bank of America Merrill Lynch. “We’re hanging in there.”

By that he means, I guess, that the job market has gotten worse.

No one looking at Friday’s report from the Labor Department saw a quick end to the high unemployment that has plagued the nation for three years. The jobless rate has been 9 percent or higher for all but two months since June 2009.

Again, the rate is not important. What is important is that we are failing to create enough jobs to keep up with the population. And that means the millions of jobs lost during the recession are simply not being replaced.

The government uses a survey of mostly large companies and government agencies to determine how many jobs were added or lost each month. It uses a separate survey of households to determine the unemployment rate.

The household survey picked up a much bigger job gain — 277,000 in October, and an average of 335,000 per month for the last three months. The household survey picks up hiring by companies of all sizes, including small businesses.

Gallup also noted a large decrease in their unemployment rate (which is based on their survey methodology). This is mildly good news. Eventually we’ll get better agreement between the different methodologies. Here’s the problem. If 335,000 jobs are truly being created every month, then we can expect the economy to recreate the millions of jobs lost during the recession (about 8 million) in about three more years. Still, let’s continue down the road of optimism for a while:

The household survey is more volatile and less comprehensive than the other survey, and is not followed as closely by economists. Still, job growth in the household survey has not been this strong for three months since the end of 2006.

People counting themselves self-employed increased by 200,000 in October, accounting for most of the increase, but it is difficult for economists to explain the three-month trend.

So, we have our smoking gun. People aren’t being hired by large businesses more than before. Small businesses aren’t picking up the slack. People are instead setting out on their own. And there’s nothing wrong with that. But we have to ask 1) will these ‘jobs’ last, or are they fleeting? 2) would these people make more money and produce more wealth if they were working for an established business 3) how many more people can follow this route?

Moving along:

“Overall, while this report is not good enough, several key numbers are now moving in the right direction,” Ian Shepherdson, an economist at High Frequency Economics, a data analysis company, told clients. He said the prospects for the next few months “seem to be improving.”

The job gain was the smallest in four months. And because the population is always growing, it takes many more jobs, about 125,000 a month, to keep up with population growth, more to bring down the unemployment rate.

Nice they decided to mention this sometime.

The job market turned consistently negative in February 2008. The nation lost jobs for 25 months in a row — almost 8.8 million in all. Since then, the economy has only recovered 2.3 million jobs. The adult nonmilitary population has grown 7.5 million.

Halfway through is piece, and the mood has changed completely.

The Federal Reserve earlier this week lowered its economic forecast for the rest of this year, and said unemployment is not expected to fall significantly through the end of next year. It should still be at 8 percent even through 2013, the Fed said.

Maybe by then everyone will be self-employed.

President Barack Obama will almost certainly go before voters next November with the highest unemployment of any sitting president seeking re-election since World War II. The highest so far was Gerald Ford, who faced 7.8 percent unemployment in 1976 and lost to Jimmy Carter. Ronald Reagan faced 7.2 percent unemployment in 1984 and beat Walter Mondale in a landslide.

It should be remembered that Reagan was enjoying GDP growth three times higher than what Obama has gotten since the bottom of the recession.

Some more specifics:

Hiring last month was broad. Professional and business services, which includes the accounting, engineering and temporary help industries, added 32,000 jobs. Hotels, restaurants and entertainment companies added 22,000. Health care added 12,000.

The construction industry cut 20,000 jobs for the month, the most since January. That industry is examined closely because a pickup in the housing market could add force to the economic recovery.

Construction is still in decline, good to know.

The number of discouraged workers, those who have given up looking for work and are no longer counted as unemployed, is down 47,000 from last year, at about 2.55 million. And there were fewer people with part-time jobs who were looking for full-time work, another positive sign.

The economy grew at an annual rate of 2.5 percent in July, August and September, its best performance in a year. In the first half of this year, the economy expanded at the slowest pace since the Great Recession ended in June 2009.

The stronger economy over the summer was powered by consumer spending, which grew three times as fast as it had this spring. Americans spent more even in the face of fears of a new recession and wild gyrations in the stock market.

Still, companies appear to be waiting for customer demand to pick up even more before they hire again in great numbers. People have been dipping into savings to finance their spending, and that may not be sustainable.

Incredible no one sees the connection between the increase in consumer spending and the decrease in savings. If people are using what money they have saved up, or putting more costs on their credit cards, that is not a good sign.

We’re so desperate for good news, we’re holding onto anything that can be spun in a positive way, regardless of truth.

Continuing…

Companies learned during and after the recession to live with fewer employees. Worker productivity rose from July through September by the most in a year and a half. More productivity is usually good because companies can pay workers more without raising prices. But workers generally are not getting raises this time.

Companies have learned to squeeze more productivity from fewer workers, and they’re not passing at least some of the extra income to their workers. More good news!

Almost done. What else is there to point out?

More recently, economists have fretted over a debt crisis in Europe. Europe buys 20 percent of American exports, so a slowdown there would take a bite out of the U.S. economy, too.

It’s nice to know, even if we do everything right, someone else can screw it up for us. I feel better already.