The oil boom that is, and the one that could be

Here's an NPR story on the transformation that North Dakota has seen in the wake of its oil boom.  The story is centered on the town of Willison, but the ramifications are worldwide.  Here are the money lines:

Those who can't remember the past are condemned to be Paul Krugman

As part of his scolding of state governors, Paul Krugman once went on about how Herbert Hoover made the Great Depression worse by balancing the Federal budget in the face of a worsening economy.  The topic also came up on the campaign trail when Mitt Romney was asked it he would be repeating the Hoover mistake by cutting the budget deficit if he becomes president.

The problem is that Hoover did not balance the Federal budget.  In fact, by his his final budget he had expanded Federal spending by 40 percent in nominal terms, and by even more than that in real terms.  Hoover was a Keynesian even before Keynes was.

New employment data for St. Louis

I've been frustrated for a long time with the reliability of official estimates of employment in St. Louis.  The Bureau of Labor Statistics (BLS) produces these every month, but they usually face such large revisions that they're pretty useless.  Rather than keep complaining, I decided that I would do something about it.  Specifically, my institute, the ISEE at Lindenwood University, will begin producing its own data series that makes better use of the data that are available.

Don't let Missouri become Michigan

William McGurn had an excellent column in yesterday's Wall Street Journal outlining the perfect storm of failure in Michigan's attempts to woo businesses with massive tax credits.  Missourians should find the story oddly familiar.

More of what's wrong with state capitalism

When your competition is a government-owned company, your free speech is not sacrosanct.

More 'smart diplomacy'

It isn't just the German finance minister who is annoyed about being lectured to by our President Obama and Treasury Secretary Geithner.  Our leaders have united the German left and right in scorning the advice of our own profligate and financially incompetent administration.

From the center:

The president's scolding is a pathetic attempt to distract attention from his own failures. How embarrassing.

From the right:

Dark clouds have gathered over the American president. The gloomy state of the economy is putting a dampener on Obama's future prospects. The optimism of the past is gone, replaced by a cheap search for a scapegoat.

That's not how friends talk to each other. That applies particularly to friends who have themselves failed to get a handle on their own, self-made crisis. ... In the desperate battle for his re-election he'd rather construct myths, such as claiming that the Europeans alone are responsible for the American mess. Not only is this fundamentally wrong, but -- coming as it does from a friend -- it's downright pitiful and sad.

From the left: 

One needs to remember the context within which Obama's scolding of the Europeans took place. It was an event where the president was raising money for the Democrats and where he wanted to explain to voters why the US economy is much worse off than he and his economic experts had believed until recently. Hence his criticism of the EU was simple electioneering.

Tim Geithner continues to wow our allies

U.S. Treasury Secretary Tim Geithner has once again been rebuked by our European allies.  This time it was the German Finance Minister, Wolfgang Schauble, who referred to the rescue plan pushed by Geithner as "stupid."  According to the article,

Mr Schauble told Washington to mind its own businesss after President Barack Obama rebuked EU leaders for failing to recapitalise banks and allowing the debt crisis to escalate to the point where it is "scaring the world".

 "It's always much easier to give advice to others than to decide for yourself. I am well prepared to give advice to the US government," he said.

Perhaps there was a faulty translation, but I get the distinct impression that the finance ministers of the financially responsible European governments don't have a great deal of respect for our current Administration.

Unemployment rates dissected

Dave Nicklaus has a very interesting post that breaks down unemployment in various ways: race, education, duration.  The highlights include

• St. Louis has been following the country,
• the black unemployment rate is double that of whites,
• the unemployment rate for those without a high school diploma is triple that of those with a bachelor's degree, 
• and more than 80 percent of the unemployed have been so for more than six months.

Don't bother trying to sort out the Humpty Dumpty vs. deflated balloon analogy.  It's based on the wrong supposed structural issues, such as labor-market mismatch.  Those things sort themselves out and are symptoms, not causes (it's important to distinguish between endogenous and exogenous variables).  The structural impediments to recovery are mostly government-imposed restrictions that prevent the market from adjusting.

Trolleys as urban vanity projects

Patrick Ishmael has an excellent post today on two proposals to run trolley lines in place of buses in Kansas City and St. Louis.  The proposal for St. Louis, which would run a roughly 2-mile trolley line down the streets between the Missouri History Museum and the University City Lions' Gate, would cost between $45 and $50 million to construct.  In addition, a subsidy would be required to pay operational costs, which its supporters place at $2.2 million per year.

Supporters do not estimate the number of riders, but calculate that up to 1 million riders could use the trolley if it ran at full capacity throughout the time that it is in service.  Obviously, such a number is outrageously unattainable, so let's assume that the number of riders is one-third of capacity, which is still extremely optimistic as far as these things go.  That would make it $6.60 in subsidy per ride, which would cover the operating costs only and none of the millions to construct this white elephant.

I can think of many much better and productive ways to spend these millions.  Can you?

Let's twist again, like we did in 1961!

All right, I know that doesn't rhyme, but I'm only an economist.   At any rate, the Federal Reserve's latest attempt to goose is to twist its portfolio by selling off short-term assets and using the proceeds to buy long-term assets.  The idea is that this will lower long-term rates and have a bigger effect on the economy than the old portfolio.  This has been referred to as another round of quantitative easing, but it's really not because this is not an expansion of the Fed's portfolio, as with QE I and QE II.  At any rate, I was going to write a post on the latest move by the Federal Reserve to goose the economy, but I found a post by someone else that sums it up very well.  I think Dan Mitchell has it right when he concludes that the Fed is "pushing on a string."  They are clearly trying everything in its power, and I don't see this as a bad idea, just an ultimately ineffective one.

Radio Appearance

If you have an hour to kill, I was on the Bernie Hayes Show on WGNU 920 AM this morning, talking about the St. Louis economy.  I start at the 7:20 mark, but you should also listen to the two versions of "Nearer My God to Thee" that filled the gaps.  Here's the whole thing.

Regulations and Unintended Consequences

CEO Tells Congress He Was Fined For Hiring Too Many People. 

Common Ground on the Deficit

Alan Blinder and Glenn Hubbard, members of the Councils of Economic Advisers under Presidents Clinton and Bush, respectively, find a great deal of common ground between left and right regarding deficit reduction.  It's all very reasonable and would go a long way toward solving the problem.

Clearing out the President's budget gimmicks

Keith Hennessey has a good breakdown of what the President is proposing.  He concludes that

• The President is not, as he claims “proposing real, serious cuts in spending.”  His proposals would result in a tiny net reduction in spending:  -$86 B over 10 years.  Almost all of the spending cuts for which he wants to claim credit have already been enacted or accounted for.  Almost all the new spending cuts he proposes would be used to offset higher spending in his Jobs bill proposal and for more Medicare spending on doctors.
• The President is proposing about $1.5 T in higher taxes over ten years, offset by about $250 B of tax relief, for a net tax increase of almost $1.3 T.
• Almost all of the President’s new proposed deficit reduction comes from tax increases.

The President's New Plan

The good news is that he didn't insist on broadcasting a campaign speech in front of Congress, again. The bad news is that the President still doesn't seem to know much economics. Either that or he is becoming increasingly unserious.  His latest deficit reduction plan is touted as balanced between taxes and spending cuts. One problem is that a good chunk of the spending cuts are phony: He's counting the wind down of two wars as new cuts (although the Republicans have apparently agreed to count this as a cut for the deficit supercommittee). The proposed tax increases are just bad ideas.

It's also good news that the plan is not really intended to be acted on. It's just a campaign document that will be met with a resounding silence, even in the Democratically controlled Senate, much like his Stimulus II spend and tax plan.  Here's Greg Mankiw's take.

Picking Winners is a Losing Proposition

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The Ponzi Debate

Charles Krauthammer gets it exactly right when describing Social Security:

Of course it’s a Ponzi scheme. So what? It’s also the most vital, humane, and fixable of all social programs. The question for the candidates is: Forget Ponzi — are you going to fix Social Security?

That's the last paragraph, but read the whole thing.

More of half the story

Here is a round-up of claimed effects from Stimulus II.  They all seem to look at the spending part only, totally ignoring the taxes the President has proposed to pay for it.

Offending our Friends

I see that our Treasury Secretary, Tim "Turbo-Tax" Geithner, decided to share his financial wizardry with the Europeans.  They were not terribly impressed:

"I found it peculiar that even though the Americans have significantly worse fundamental data than the euro zone that they tell us what we should do and when we make a suggestion ... that they say no straight away."

"We can always discuss with our American colleagues. I'd like to hear how the United States will reduce its deficits ... and its debts."

The Long-Term Effects of Unemployment

Dave Nicklaus has a nice column that discusses recent research on the long-term effects of joblessness at the individual level.  For a look at the types of individuals most affected, I recommend a paper I published last year (coauthored with Kristie Engemann).  The numbers are a little dated but the story is, unfortunately, unchanged.

Dishonesty from the Usual Sources

Prominent partisans such as the NY Times editorial writers, are pushing the line that independent economists have determined that the President's Stimulus II package will generate up to 1.9 million jobs.  What the partisans do not reveal is that the analyses being touted look only at the spending part of the proposal and do not account at all for the other half of the proposal, which is to raise tax revenue by a greater amount to pay for the spending.

The Response to the President's Stimulus II

Today's Wall Street Journal has three articles that, together, make the broadest case for doing the opposite of what the Obama Administration has proposed to spur job creation.  The first makes the case that the Administration was wrong to have believed that Stimulus I would be effective, the second argues that Stimulus II will not work, and the third is a brief description of the GOP alternative.

Stephen Moore judges the Administration in terms of the promises they made about how they would govern and the effects that their policies would have.  

Thomas Donohue of the US Chamber of Commerce explains from a businessman's point of view why he think that the President's Stimulus II plan won't work.

House Speaker John Boehner (R, OH) outlines what should probably be considered the GOP plan, and not just his own.

Missouri Shore?

Instead of tax credits for Aerotropolis, maybe Missouri can get a deal like New Jersey's. 

The Administration-Created Energy Crisis.

If you're wondering why gas prices continue to be high, this certainly explains a good chunk of it. The post talks about the direct effect on jobs, but the indirect suppression of jobs because of high energy prices is likely many times the direct effect.

A Stimulus Success Story

Here's a video of now-bankrupt Solyndra, which received about $500,000,000 of taxpayer money, being touted by the White House as a Stimulus I success story.  I agree 100 percent with the video.  It's a perfect illustration of the effectiveness of stimulus spending.

The Fundamental Problems with the President's Approach to Jobs

President Obama's jobs plan, which he revealed last night in a speech before a joint session of Congress, relies in large parts on lowering the payroll tax. So, for Republicans and others who claim to hate taxes, what's not to like?  I can't speak for Republicans, but it might be that they realize that this particular tax cut, which is minor and temporary, is likely to have little impact on employment while adding billions to the deficit.  There are many alternatives that would achieve more while not adding to the country's fiscal burden.  A prominent example is tax reform that lowers tax rates, reduces deductions, and is revenue-neutral, much like the President's own Bowles-Simpson Commission suggested last year.  I don't know why the President has not gone down this road instead of fiddling with ineffectual tax breaks to go along with spending targeted at increasing jobs for favored union constituencies.  Here is the Wall Street Journal's take, which seems on target to me.

The Obama jobs plan

Here is a summary of the President's jobs plan.  Reasonable people can differ on whether or not it will generate jobs or not, but no reasonable person can believe that it is paid for, as the President claimed.  Here is the AP's take.  Basically, the President counts it as paid for because he told the congressional deficit supercommittee to add it to his tab:

The agreement we passed in July will cut government spending by about $1 trillion over the next ten years.  It also charges this Congress to come up with an additional $1.5 trillion in savings by Christmas.  Tonight, I’m asking you to increase that amount so that it covers the full cost of the American Jobs Act. 

Kleptocracy

This is the sort of thing that is inevitable when you hand over business decisions to government officials.  At the very least it has the distinct appearance of impropriety.  It gives the impression that if you are responsible for large donations to the political campaign of the President, you might be handed half a billion dollars of taxpayer money for you to fritter away on the white elephant du jour, green jobs.

Aerotropolis analyzed

Saku Aura has a new study on the economic effects of the proposed Aerotropolis tax credits. It's really the only careful analysis out there, despite the hundreds of millions of dollars involved.  In Aura's words:

The lack of careful studies addressing the economic impact of the proposed legislation exposes one very surprising aspect of the Aerotropolis discussion. While a few very rudimentary calculations on job creation and economic output have been presented, no serious cost-benefit analyses have been reported.

Aura also makes the point that the proponents of Aerotropolis have not couched their arguments in any of the usual market failure terms used to justify nearly any policy intervention.  I guess they really just want the money for themselves, regardless of whether it benefits the region or state as a whole.

Tax Credits are Not Monopoly Money

Bruce Stahl of the Show-Me Institute has a new post on that points out the obvious, but usually overlooked, fact that tax credits for economic development projects are actual taxpayer money that could have been used for something else.  The post includes a map of St. Louis city and the places were tax credits were issued.  Click on the map and you'll go to another post that lists the distribution of Missouri tax credits by county.  St. Louis city alone accounted for about 46 percent of all credits issued since 1999.  This is a startling figure considering that the city accounts for less than 6 percent of Missouri's population.  Put another way, the city of St. Louis received close to $3,400 per resident, whereas the state as a whole issued only about $393 per resident.

I have a Show-Me Institute report coming out soon that surveys the existing evidence on the effective of state tax credits in generating employment.  In short, there is, at best, scant evidence of such an effect.

GOP jobs plans

President Obama will be laying out his jobs plan in a speech on Thursday before a joint session of Congress. I'm pretty sure that it will differ a great deal from the various GOP plans out there.  Here are summaries of the plan from Eric Cantor, House Majority Leader, and the plans from Presidential candidates Jon Huntsman and Mitt Romney.  The details of Cantor's and Huntsman's plans are available at the links, whereas the details of Romney's plan will be released tomorrow on his web site.  I can't find such detailed plans for other candidates.

Job Mismatch and Skills Shortages

Dave Nicklaus has an interesting article in today's Post-Dispatch about how many local firms have job openings but are having difficulty finding people with the right skills.  Nicklaus is certainly right that there should be "long-term thinking about the supply side" of the labor market to make sure that people have the skills demanded by potential employers.  This is true at any time, but the lack of such policies in the past make it more difficult to climb out of our current mess.  Personally, I don't really see the lack of lifetime learning discussed in the article to be that big of a deal relative to the lack of learning during the first 18 years of many persons' lives. 

On many occasions prior to the recession I would come across someone in the retail sector who was so incompetent that I was amazed that he or she was even employed.  I'm pretty sure that those people are currently among the ranks of the unemployed.  But when the economy is booming, even the incompetent seem to be in demand and firms are not as fussy as they are now.  If the economy wasn't in the toilet, imagine how in-demand the millions of unemployed-but-competent people would be. 

In short, with a strong economy skills shortages and mismatches are much less important.  The priority remains getting the economy going, which requires tax reform and a reversal of most of the regulatory burden and anti-business policies that have been put in place the last few years.  And, as always, we should be working to improve basic education.  Without the basics, no amount of targeted job retraining and continuous talent development will be enough to make much of a dent.

Yesterday's jobs numbers

It's really starting to look like the country is not going to recover the millions of jobs lost during the recession any time soon.  Yesterday's report from the BLS that payroll employment rose by exactly zero in August is particularly fitting because the Administration appears to have that many good ideas on how to stimulate job growth.  The early word is that the President will propose more of the same policies that have worsened the mess that he inherited (yes, he inherited it, but he's done just about everything wrong in trying to end it, so now it's his mess): more stimulus of the wrong things (sorry, investments) and punting possible tax reform to the Congressional deficit committee.  The delay of the disastrous EPA rules is a good sign that the President might actually be starting to see how government regulations can be harmful to growth.  On the other hand, his nomination of Alan Krueger (reputed to be the architect of the worse-than-useless cash for clunkers program) as head of the Council of Economic Advisors cancels that out.