Wednesday, August 31, 2011

New St. Louis Job Numbers

According to the BLS, the St. Louis metro area added 3,700 jobs in July.  I suspect these numbers are close to meaningless, however, and that the entire year's worth of data will be revised downward in March.  The BLS's estimates suggest that St. Louis added almost 16,000 jobs since July of last year, a rate that rivals the boom years of 2004-2006.  This just doesn't pass the smell test.

Social Security as a Ponzi Scheme

Texas governor Rick Perry made waves recently when he described the Social Security System as a Ponzi scheme.  The Social Security Administration has provided a useful comparison to illustrate the differences between the two things.  They take the comparison far too literally: A Ponzi scheme needs the number of investors to keep growing, whereas Social Security needs the number of investors to never fall.  So yes, they are not exactly the same thing.  The bottom line, however, is that they are both unsustainable financial scams in their very design.

More on Lindenwood

The Business School where I work is getting some well-deserved press for its recent successes.

Green Jobs

Business headlines are not typically that inventive, but this one deserves a link for its cleverness alone (Green Jobs' Arteries Clogged by Davis-Bacon).  In addition, it points out the irony that one of President Obama's pet projects (green jobs) is being thwarted by another one (excessive regulation).

Monday, August 22, 2011

Opposition to Aerotropolis from the left

In the Post-Dispatch.

What do economists think we should do?

A recent survey of economists at the annual NABE meeting found relatively sound views regarding deficit reduction and fiscal policy. The survey found that 56 percent of the NABE members felt "that the federal deficit should be reduced only or primarily through spending cuts."  Another "37 percent said they favor equal parts spending cuts and tax increases. The remaining 7 percent believe it should be done only or mostly through tax increases."  
As for how to reduce the deficit, nearly 40 percent said the best way would be to contain Medicare and Medicaid costs. Nearly a quarter recommended overhauling the tax system and simplifying tax rates and exemptions. About 15 percent said the government should enact tough spending caps and cut discretionary spending.
According to the survey of 250 economists who are members of NABE, nearly 49 percent of those responding said the country's fiscal policy should be more restrictive, while nearly 37 percent said they believe the government should do more to stimulate the economy. 

Friday, August 19, 2011

A post that is not self-serving

Unlike the previous two posts, this one is not about me.  Here is an interesting article responding to the President's claim that it's been bad luck that has kept the economy from growing faster. The problem with job generation is not bad luck,  but the imposition of new and onerous regulations on business in the middle of the deepest recession in decades.

Fascinating article in the Post-Dispatch

Someone in town is on a quest to sort out the St. Louis economy.

Thursday, August 18, 2011

Economics Research in Missouri

Here is the latest ranking of economists and economics-research departments in Missouri (according to RePEc).  I don't put much stock in them myself because RePEc's methodology is full of questionable judgement calls and iffy data.  On the other hand, I'll put these misgivings aside as long as my institute does well.

Economics-Research Departments
1. Department of Economics, Washington U. in St. Louis
2. Research Division, St. Louis Fed
3. Olin School of Business, Washington U. in St. Louis
4. Research Division, Kansas City Fed
5. Economics Department, U. of Missouri
6. ISEE, Lindenwood University

Research Economists
1. David K. Levine, Washington U. in St. Louis
2. Robert A. Pollak, Washington U. in St. Louis
3. Anjan V. Thakor, Washington U. in St. Louis
4. Costas Azariadis, Washington U. in St. Louis
5. Philip H. Dybvig, Washington U. in St. Louis
6. Bruce C. Petersen, Washington U. in St. Louis
7. Douglass C. North, Washington U. in St. Louis
8. Steve Williamson, Washington U. in St. Louis
9. James Bullard, St. Louis Fed
10. Michele Boldrin, Washington U. in St. Louis
11. Ping Wang, Washington U. in St. Louis
12. Daniel L. Thornton, St. Louis Fed
13. Rodolfo Manuelli, Washington U. in St. Louis
14. Steven M. Fazzari, Washington U. in St. Louis
15. Robert H. Rasche, St. Louis Fed
16. Christopher J. Neely, St. Louis Fed
17. Jeroen Swinkels, Washington U. in St. Louis
18. Werner Ploberger, Washington U. in St. Louis
19. David Andolfatto, St. Louis Fed
20. David C. Wheelock, St. Louis Fed
21. Marcus Berliant, Washington U. in St. Louis
22. Glenn MacDonald, Washington U. in St. Louis
23. Michael McCracken, St. Louis Fed
24. Christian Zimmerman, St. Louis Fed
25. Christopher Otrok, U. of Missouri
26. Craig S. Hakkio, Kansas City Fed
27. Sebastian Galiani, Washington U. in St. Louis
28. Howard J. Wall, ISEE, Lindenwood U.
29. Christopher Waller, St. Louis Fed
30. Jordan Rappaport, Kansas City Fed

Tuesday, August 16, 2011

Poverty is good for the economy! Who knew?

If you're wondering why the economy is in such a mess, look no further than this video of Ag Secretary Tom Vlasic claiming that food stamps are a jobs program.  If only everyone was poor enough to receive food stamps, then the economy would really be booming!  With this kind of economic idiocy in the highest places, don't look for the Federal government to change its growth-killing ways any time soon.

Friday, August 12, 2011

The Fed's peculiar decision

Dave Nicklaus has a piece in today's Post-Dispatch talking about the reasoning behind the Fed's decision to declare that it will pursue its near-zero-interest-rate course until at least mid-2013. The article includes a couple of quotes from yours truly.  I think there's very real confusion about what the Fed has in store for us.  Are they laying the groundwork for QE3 (given the apparent uselessness of QE2, I hope not)?  Are they signalling that they aren't going to do any more than they've already done?  Are they committed to the policy even if inflation picks up?  Will any inflation response be hampered by this declaration?  Do they really have a clear idea of what to do?

Tuesday, August 9, 2011

Aerotropolis shenanigans

Monday, August 8, 2011

Local ramifications of Federal downgrade

Brian Hook at Missouri Watchdog has an article on the possible ramifications of the Federal downgrade on local governments. St. Louis county, even with its AAA rating, is worried.

Views on the S&P downgrade

An article by Dale Singer in the St. Louis Beacon gives the views of several market watchers, including me, on the S&P downgrade and what it means.  I reiterated my fear about a second recession, my support for tax reform, my fear of Congress getting involved in job creation, and that we should free up oil exploration, all of which I have blogged about.  I'm not sure if the line about "prescriptions that follow the GOP playbook" is supposed to imply that I am some GOP partisan.  If the GOP is smart enough to have the same views that I do, then good for them. 

Dear Congress: Please don't address jobs.

Whenever I see a headline like this "Congress may now turn attention back to jobs" I get shivers running up and down my spine.  There isn't much that worries me more than the thought of Congress wading in with more foolish and counterproductive "jobs" programs (green jobs, build and repair roads and bridges to put construction workers back to work, construct a high-speed rail system, cash for clunkers, etc.)  Congress doesn't have the faintest idea how to create jobs, but most businesses do.  What Congress should do is to stop getting in the way.  As Iain Murray puts it:
So what can the government do to promote real job growth? Quite simply, get out of the way. We don’t need to teach the grass to grow; we just need to move the rocks off of it. The rocks weighing down on the economy are government rules and regulations — in other words, bureaucracy and overregulation.

A sound approach to the debt/deficit problems

Charles Krauthammer outlines a sound approach to dealing with the debt and deficit.  The first step is revenue-neutral tax reform, which would broaden the base and dramatically lower marginal income tax rates for people and corporations.  Once we have a non-insane tax structure, we can than begin the discussion of cutting spending vs. raising tax revenue.  My personal opposition to raising any additional tax revenue is largely because the tax system is so onerous that a dollar in additional taxes is probably not worth it in terms the costs that it imposes on the economy.  I also think that the government is far too involved in the economy, but that is a different question.  Make our tax system less onerous through tax reform (which seems to have bipartisan support), and then we can have the grand debate about the proper role of government.

Friday, August 5, 2011

A golden opportunity for tax reform?

As I mentioned in an earlier post, I liked the deficit reduction proposals of the Gang of Six because it held out the hope of meaningful reform of income taxes.  In short, given the deficit and debt mess we're in, the only hope for a policy-induced jump start for the economy is through a complete overhaul of our ridiculously inefficient means of raising federal government revenue.  Stephen Moore, in today's Wall Street Journal, argues along these lines and recalls how one of the greatest legislative achievements of recent memory, the 1986 tax reform, was passed.  I hope he's right that tax reform has something for both parties to like and, therefore, might actually have a chance.

Todays employment and unemployment numbers

The good news is that U.S. payroll employment is estimated to have grown by 117 thousand in July while the unemployment rate fell slightly from 9.2 percent to 9.1 percent.  The bad news is that this good news is not really good at all.  To be simply treading water, the rate of job growth must keep up with the rate of growth of the working-age population.  Job growth of 117 thousand per month comes close to doing this, but we also need sustained job growth in the several hundreds of thousands per month to get back the net job losses since the start of the recession. 

As for the unemployment rate, it can simply be a poor indicator of how well the labor market is recovering because it can fall when things are worsening and rise when they are getting better:  The unemployment rate falls when people giving up looking for work and rises when people are drawn into the labor force looking for work.  In fact, on a seasonally adjusted basis, the number of people who were employed in July fell by about 38 thousand while the number of people in the labor force (either working or looking for work) fell by 193,000.*  In other words, the net decline of 156 thousand in the number of people unemployed was due entirely to people leaving the labor force.

A better measure of the state of the recovery, which accounts for population growth and the movements in and out of the labor force, is the employment/population ratio.  This measure simply takes the number of people employed and divides by the working-age population.  As you can see from the chart below, this ratio has been languishing, and even falling, since the recovery began, indicating that job growth has not been keeping up with population growth.  In other words, we have not even been treading water during this alleged recovery.  Furthermore, even if we regain all of the jobs lost during the recession, the employment/population ratio would still not be back to the pre-recession level.  This is because, as mentioned above, the working-age population has continued to grow.  Therefore, full recovery means a higher level of payroll employment than we had prior to the recession.

* Note that this measure of employment differs from payroll employment because they are from different surveys and measure slightly different things.

Thursday, August 4, 2011

St. Louis unemployment

Amid all the bad economic news comes some good news for the St. Louis area.  The seasonally adjusted unemployment rate for June was 8.9 percent, the first time that it has been below 9 percent since January 2009.  As shown by the chart, the local unemployment rate has been creeping downward since it peaked at 10.6 percent in October 2009. The U.S. unemployment rate stood at 9.2 percent in June.  Steve Giegerich at the Post-Dispatch points out that even though the unemployment rate is the same as in January 2009, this doesn't mean that local labor markets are in the same condition as then.  Specifically, "there are 23,000 fewer people in the local workforce today."  (Note that he reports an unemployment rate of 8.8 percent, which differs from mine because of a slightly different seasonal adjustment method.)

Wednesday, August 3, 2011

Our dependence on foreign oil

Much has been made over the years about the vital importance of reducing our dependence on foreign oil.  In fact, President Obama vowed recently to reduce oil imports by a third by 2025.  Given the lengths that his administration has been going to to prevent increases in domestic oil production, meeting this goal would be enormously costly to the U.S. economy.  But what about the goal itself?  Just how dependent are we on foreign oil?

Well, it turns out that we are less dependent than we used to be, although that has more to do with our weak economy than anything else.  More importantly, however, the whole notion of oil dependence is more than a bit strained.  This is because two of the most important sources of foreign oil really aren't all that foreign. That is, Canada and Mexico, our friendly neighbors and NAFTA trading partners, provided more than a third of our net crude oil and petroleum product imports in 2010.  In fact, Canada alone accounted twice as much as did Saudi Arabia.

If we are concerned with national security and the geopolitical risks associated with oil dependency, then certainly imports from these countries should not count toward a measure of the risks we face.  Specifically, in 2010, nearly 70 percent of our crude oil and petroleum products came from within NAFTA.  Although some believe that Mexico's oil output is set to go into decline, Canada's is bound to increase as new technologies become available to exploit its tar sands, and hemispheric neighbors such as Brazil are becoming major oil producers.  Plus, the ongoing natural gas revolution and discoveries of new sources of domestic oil will mean less reliance on foreign energy sources than was thought possible even a couple of years ago.

The state of the recovery

Calculate Risk has an assessment of where the recent recession and current recovery stand relative to previous ones. The picture is pretty grim.  After 2 years of recovery, which really means since GDP growth started being positive, we have yet to regain the pre-recession levels of any of four key measures--real GDP, industrial production, personal income, and payroll employment.  Keep in mind that the story is actually worse than depicted because population has continued to rise throughout the period.  This means that per capita GDP and the employment-to-population ratio, for example, are much further from recovery than are GDP and payroll employment.