While the unemployment rate itself has remained steady, job growth continues. Check out the story, which is short but covers all of the basic points.
UPDATE: Via Robert Tagorda, we also have this:
A growing number of chief executives plan to hire new workers in the US, according to a survey of corporate leaders which suggests the recent pick-up in jobs growth is likely to be sustained.Thirty-eight per cent of company heads said they planned to add to payrolls over the next six months - up from 33 per cent in March, according to the new survey by the Business Roundtable, the leading association of chief executives. The survey added to optimism over the labour market before tomorrow's eagerly awaited employment figures. Economists expect the figures to show that around 225,000 jobs were created in May, building on strong gains in March and April when 625,000 workers were hired.
The upbeat message from chief executives came a day after a survey by the Institute of Supply Management suggested that more manufacturing companies were gearing up to add to payrolls than at any time since 1973.
"These surveys might not be a reliable guide of month to month moves in employment but they do point to a good degree of optimism over the medium term outlook," said Alan Ruskin, director of research at 4Cast, an economic consultancy.
In response to my post here, Amanda Butler writes on the issue of farm subsidies. Her views are opposed to mine, and there is little likelihood that we will change each other's general views, but she makes the case for subsidies as well as they could be made, and in doing so, makes a positive contribution to the debate.
Like an increasing number of manufacturers, Jim Larson's machine shop is hiring again."Right now, our biggest problem is finding qualified people," said Larson, plant manager at Milwaukee N/C Machining in Fredonia.
On Tuesday, the Institute for Supply Management reported that its manufacturing employment index advanced in May for the seventh consecutive month with a 61.9 reading, the highest mark in 31 years.
Economists say the report from the Arizona-based group shows that the economy is rebounding - especially for the battered manufacturing sector, which in Wisconsin has lost nearly 80,000 jobs, almost 14% of its work force, since the end of 2000. Wisconsin is second only to Indiana in its dependence on manufacturing employment, which accounts for almost one in every five non-farm jobs statewide.
The overall manufacturing index, according to the Institute for Supply Management, rose to 62.8 in May, the highest since January and the 12th month in a row above 50, which suggests expansion.
"It's certainly encouraging," said Paul Kasriel, director of economic research for Northern Trust Co. in Chicago. "We have a potent economic and manufacturing recovery under way. Inventories are very low - and inventories of people are very low."
I'm always glad to find good economic news. The fact that I get to find it on my birthday is especially pleasing.
(Link via InstaPundit.)
It appears that OPEC has finally decided that oil is priced high enough:
OPEC should pump oil at will in the next few months, Qatar's energy minister said as the group's president called for efforts to cause a ``significant'' drop in record oil prices.The Qatari, Abdullah bin Hamad al-Attiyah, said OPEC is near a consensus to boost its output quota by 2.5 million barrels a day, or 11 percent, a plan also backed by Kuwait. Saudi Arabia, the world's biggest oil exporter, will ensure markets have enough supply, said the nation's oil minister, Ali al-Naimi.
``Everybody should produce what they want over the next few months,'' al-Attiyah said in an interview in Beirut, where OPEC meets tomorrow. ``We do not want to see any shortage of supply at all, and we want to avoid shocks.''
Members of Organization of Petroleum Exporting Countries outside of Saudi Arabia are producing as much oil as they can in a bid to prevent higher energy costs from damaging a recovery in the world economy. Canadian Prime Minister Paul Martin said the Group of Eight nations should lobby OPEC for more oil.
Concern of potential attacks on Middle East oil installations and of U.S. refining bottlenecks have inflated prices by $10 a barrel, the Qatari minister said. Crude oil was at $41.85 a barrel in New York, down 48 cents, after reaching a record of $42.45 earlier in electronic trading. Brent crude slid 57 cents to $38.51 a barrel as of 1:32 p.m. in London.
Hopefully, this new push will have an effect on oil production and the prices we have to pay at the pump. In the meantime, what is killing us in the short term is the inability/unwillingness of the United States to increase its refining capacity--not to mention using a tiny sliver of land (approximately the surface area of Dulles International Airport) in the Arctic National Wildlife Reserve to pump some more oil and gain at least a modicum of energy independence.
(And if it is necessary to actually say so, I am more than happy to find alternative sources of energy. However, such alternative sources won't be developed and ready for use in the short term.)
UPDATE: Indeed, oil production is being increased. It is a modest step, and it remains to be seen whether further increases will occur, or whether this is it for the year.
America’s largest and most wasteful corporate welfare program is farm subsidies. The 2002 farm bill will cost taxpayers $180 billion over 10 years. It remains a shining example of the interest-group excess that has pushed annual federal spending above $20,000 per household while also diverting funds from vital national priorities.American farm policy is an exercise in economic incoherence. It attempts to remedy low crop prices by paying farmers to plant more crops, which only lowers prices further. After paying these farmers to plant more crops, lawmakers turn around and pay other farmers to plant fewer crops. Worst of all, America’s farm subsidies undercut Third World farmers and keep millions of people in poverty.
Lawmakers, summoning outdated stereotypes, assert that farm subsidies are needed to prevent the bankruptcy of millions of family farmers, who perform backbreaking labor for poverty incomes. Yet farming in 2004 is a stable, profitable industry dominated by large agribusinesses using 21st-century technology. The typical farm household reports an income 17 percent above the national median and a net worth of more than $500,000 -- despite living in rural areas with lower costs of living.
True, many farmers still struggle. But they aren’t the ones subsidized. If farm subsidies were really about poverty relief, Congress could guarantee every full-time farmer an income of $35,000 per year for $4 billion.
Instead, farm subsidies cost $12 billion to $30 billion annually. Lawmakers distribute two-thirds of this bounty to the top 10 percent of subsidy recipients. The vast majority of these households, who work on large farms, report an average income of more than $135,000. Are these the “poor family farmers” lawmakers are talking about?
It gets worse: 78 farms received more than $1 million each in subsidies in 2002. The $110 million received by Riceland Foods that year was more than Washington gave to every farmer in 12 states combined. Their subsidy alone could have funded seven Blackhawk helicopters, 1,200 airport luggage scanners or an additional 1,700 border patrol agents.
Not to be outdone, a dozen Fortune 500 companies, including John Hancock Mutual Life Insurance, Westvaco, Chevron and Caterpillar, have pocketed farm subsidies as much as 510 times larger than what the median farmer receives.
Even Congress gets into the act. Members of both parties and both houses of Congress have received farm subsidies as much as 119 times larger than those given the median recipient. Some of these lawmakers even sit on the agriculture committees that oversee these programs.
All of this, of course, makes the Bush Administration's decision a couple of years ago to support and expand the current farm subsidies program that much more incomprehensible.
We have yet another bout of good news on the economy:
A pickup in U.S. job growth or wages may have begun late last year, months earlier than first thought and when President Bush was still under fire for the jobless recovery, data showed on Thursday.Revisions to economic growth figures show wages and salaries grew much more in the final quarter of 2003 than originally thought, suggesting employers either hired more workers or boosted pay beyond that shown in early data.
The Commerce Department said wages and salaries grew $57.8 billion in the fourth quarter -- a 46.3 percent upgrade to the original measure of $39.5 billion growth.
The revision is based on unemployment insurance data filed by employers rather than only a sample of employers used for the first estimate, making it much more accurate.
Economists said the large upgrade suggests corporate payrolls may have been growing late in 2003 -- when the Labor Department was reporting mostly stagnant employment.
Republicans and some economists have said for months the Bureau of Labor Statistics (BLS) was under-reporting job growth because its survey of employers did not include new businesses formed in the early days of the recovery.
"If all this were to show up in payrolls, we would be talking about 400,000-plus extra jobs in the fourth quarter and almost 200,000 extra jobs in the first quarter," said RBS Greenwich Capital Markets chief economist Stephen Stanley.
"However, I would expect that the bulk of the revision will ultimately show up in (higher) hourly wages, as was the case in third quarter," Stanley said.
And for all of you who think that the household survey would not be an improvement over the current payroll survey, it is reports like these that throw a wrench in your arguments. Even though the revision will eventually show up in the figures, it won't show up until relatively late in the game, which means that when it comes to gauging the economy, we are behind the curve, and information deprived thanks to our continued reliance on the antiquated payroll survey.
Consumers -- whose behavior plays a crucial role in shaping economic activity -- increased their spending in April by a solid 0.3 percent, a good signal that the recovery remained firmly rooted as it entered the current quarter.The increase reported by the Commerce Department on Friday came after a brisk 0.5 percent advance in March and suggested that consumers continued to do their part to support the economy.
Americans' incomes, meanwhile, rose by a strong 0.6 percent in April, marking the largest gain since January 2001. The growth in income last month, which followed a 0.4 percent rise in March, was especially encouraging because that is the fuel for spending in the future. The income and spending figures are not adjusted for price changes.
Economists said an improved job climate is lifting wages and aiding income growth. ``We are making our money the old-fashioned way, we are earning it,'' said Joel Naroff, president of Naroff Economic Advisors. ``People have money to spend and they are doing just that,'' he added.
Consumer spending accounts for roughly two-thirds of all economic activity in the United States.
On Wall Street, the Dow Jones industrials were down 19 points in morning trading as investors played it cool in advance of the Memorial Day holiday.
The latest snapshot of consumer activity was slightly better than economists were expecting. They were forecasting spending to go up by 0.2 percent and incomes to grow by 0.5 percent in April.
The economy grew at a healthy 4.4 percent annual rate in the January-to-March quarter of this year, helped out by consumers, who spent at a decent pace.
The answer may be more complicated than some people give it credit for. Tyler Cowen explains.
But there are some acts of treason that I can definitely get behind.
These posts by Virginia Postrel give renewed glee to those looking for a strong economic performance. They are both worth your time and attention.
Not only is there a pickup in the job market here in the U.S., there is one as well in Great Britain:
Unemployment has reached a new low and more people are in work than at any time since 1984, new figures showed today.A total 1.41 million people were jobless in the three months to March, a fall of 48,000 over the quarter and the lowest figure for 20 years.
The number of people claiming unemployment benefit fell by 6,000 in April to 876,300, the best figure since August 1975.
Hopefully, this is a sign of a worldwide job recovery.
Having noticed this Paul Krugman column regarding energy consumption, Steve Verdon promptly and properly calls B.S.:
. . . Yes, the price of oil is high, and yes it has risen, but what was the price of oil 13 years ago? The high everyone is looking at is $41.50. But how much would $41.50 be worth today? How does $59.50 grab you? In other words, while oil prices are high, in the only meaningful measure (i.e., in real terms) they have yet to come close to peak ($20 isn't close).Now the increase in oil prices is not good, but is it due solely to the Iraq war like Krugman is implying? Not necessarily. This article points to a number of factors.
Shooting at a Saudi Arabian Chemical plant,
Attempts to bomb an oil export facility in Basra,
China's increased demand for oil.
So out of three events that could have an upward pressure on oil we see that only one has to due with Iraq.
And naturally, given the fact that Krugman is less an economist and more a McAuliffean shill nowadays, that one event gets the attention in his column, while the other two explanations for higher oil prices not only get short shrift, they get no shrift.
Don Boudreaux explains why economic growth renders income inequality relatively meaningless as a statistic:
- Inexpensive consumer electronics enable almost all Americans, even the poorest, to listen at their leisure to the world’s finest orchestras perform great music; contrast now with, say, 1880, when only the relatively rich could afford to hear great music – and only the superrich (by hiring their own chamber orchestras) could enjoy listening to such music whenever they wished.- Today’s inexpensive Chevrolets and Kias are more reliable and better equipped than were top of the line Cadillacs of 40 years ago.
- Fifty years ago European vacations were a luxury enjoyed mostly by the rich and upper middle classes; today – chiefly because of inexpensive air travel – such vacations are within the means of a much greater proportion of the population.
- The clothing worn by wealthy Americans is virtually indistinguishable from the clothing of ordinary Americans; Bill Gates, Tom Hanks, and Laura Bush are not distinguished from the vast majority of Americans by their clothing. In both quality and quantity, clothing is nearly super-abundant in modern western society.
He then gives us this apt comment:
The further back you go in history, the greater were the material differences that separated rich from poor. Many of these distinctions were evident to the untrained eye (for example, the rich rode in carriages; the poor walked). Fewer of the distinctions today between rich Americans and middle-class Americans – even poor Americans – are as palpable, as salient, as stark, as were the distinctions of generations past.
Quite so.
This is a very interesting finding. I would like to see more of an effort to discount alternative explanations for the apparent correlation, but assuming that can be done, I hope that the relationship between increased regulation and increased crime becomes a greater part of our public discourse.
What is the difference between the American approach to economic innovation and the approach taken by other countries? Tyler Cowen has a very interesting post on the subject.
Apparently, no one complains about outsourcing when it brings about more responsive customer service. Imagine that.
So much for the "jobless recovery":
Employers added 288,000 jobs to their payrolls in April as the nation's unemployment rate slipped to 5.6 percent, reinforcing hopes for a sustained turnaround in the jobs market that had lagged for so long.Payrolls have risen now for eight straight months, with 867,000 new jobs created so far this year, the Labor Department reported Friday.
"I'm officially declaring the jobless recovery dead," said Ken Mayland, president of ClearView Economics. "I think we are now on a path of what will be substantial job gains."
Now, this certainly seems like a nice way to start the weekend.
It appears that we have finally turned the corner on jobs:
America's employment outlook brightened on Thursday after the government said jobless claims dropped last week to their lowest since 2000, bolstering expectations for strong numbers in the April jobs report.U.S. Treasury bond yields hit a two-year high on the unexpectedly rosy number and the dollar climbed 1 percent against the yen as markets bet heavily the Federal Reserve will hike interest rates this summer as the economy warms.
The picture of a better jobs climate was also backed by an unexpected increase in unit labor costs in the first quarter, alongside respectable productivity growth of 3.5 percent.
First-time claims for state unemployment benefits shrank 25,000 to 315,000 in the week ended May 1, the Labor Department said. It was the third straight week of declines.
Wall Street analysts had forecast a slight fall in claims to 335,000 from a revised 340,000 the previous week.
Grant Wilson, vice president of foreign exchange at Mellon Bank in Pittsburgh, said the jobless numbers were a good omen on the eve of the April employment report.
"We weren't expecting anything as (good) as this. It bodes well for the unemployment number tomorrow," Wilson said.
This news, along with increases in productivity, leads Brad DeLong to say that "the long-run news about the American economy continues to be excellent." I'm pleased to see that there may be bipartisan consensus about this issue.
UPDATE: See also Greg Hlatky.
Regardless of who is President from 2005-2008, it is reasonable to expect that the economy will add about 200,000 jobs a month, or rougly 10 million jobs overall. Kerry's boast that his economic program will create 10 million jobs is comparable to a rooster's boast that its crowing will make the sun come up.
Check out the rest of his post to find out why.
That's the charge bused to attack just about any tax cut proposed by a politician with an (R) after his/her name. And Tyler Cowen reveals that when it comes to the Bush tax cuts, the charge is a canard.
Maybe the best thing to do regarding the formulation of the U.S. budget is to put a bunch of democratically unaccountable teenagers in charge. Indeed, a child shall lead us.
In all seriousness, however, when kids figure out the need for entitlement refom, what exactly is holding grownups back?
More good news on the economic front:
The number of Americans filing initial claims for jobless aid plunged last week to the lowest in more than three years, the government said on Thursday in one of several reports underlining a quickening economic pace.First-time claims for state unemployment insurance fell an unexpectedly steep 14,000 in the week ended April 3 to 328,000 -- their lowest level since just before President George W. Bush took office -- from 342,000 the prior week, the Labor Department said.
The size of the fall surprised analysts and led many to predict that a trend toward more hiring was in place, especially after last month's pickup in job creation.
"Clearly good news," said economist Pierre Ellis of Decision Economics Inc. in New York. "What appears to be the resumption of new hiring should combine with this reduction in layoffs to promote strong employment growth."
Financial markets were buoyed by the report, with the dollar rallying against other currencies while stocks rose.
U.S. bond prices fell as investors bet interest rates may face upward pressure should the labor market improvement persist and shifted money into stocks.
By mid-morning, the Dow Jones industrial average was up more than 30 points while the Nasdaq composite index was ahead about 14 points.
A separate report from the Commerce Department showing U.S. wholesale companies saw improved sales and added heavily to inventories in February also implied underlying strength by suggesting companies were gearing up to feed growing demand.
Wholesale inventories grew by a larger-than-expected 1.2 percent in February, way above Wall Street forecasts for a 0.3 percent increase and the biggest jump since November 1999.
Even more promising, sales by wholesalers outpaced inventory growth, rising 1.3 percent in February. The stock-to-sales ratio, which gauges how long it would take to deplete inventories at the current sales pace, remained at a record low 1.17 months for a third straight month.
A third piece of information -- a survey by the Manufacturers Alliance/MAPI of business conditions including shipments, inventories and profits -- pointed to an upsurge in the key sector.
Tim Kane--a member in good standing of the Vast Right Wing Conspiracy--makes the case anew for using the household survey to get an accurate gauge of the employment situation. His column is worth reading.
Longtime readers of this blog know that I am a fan of the household survey. I wonder, however, why others are not, and why the household survey has not yet replaced the payroll survey as the best way to measure employment. In addition to all of the arguments Kane makes in favor of the household survey, a new counting method is needed because the labor market has so drastically changed. Kane alludes to this issue, but it should be drawn out more.
When the payroll survey was established in 1939, it was designed to measure an employment market completely unlike the one we have today. The payroll survey is utterly unsuited to counting self-employed people, or those who are involved in start-up companies, and are not counted in the survey, as Bill Fusz pointed out sometime ago. The rise of consultants, the self-employed in general and start-ups was never predicted by the designers of the payroll survey, rendering the survey useless in taking the temperature of the new workforce.
So why on earth wouldn't we switch to a new survey? As best as I can tell, this should be a completely non-ideological issue. And in the event that anyone is preparing to retort with "The Democrats don't want to switch to the household survey because the switch would help Bush," my response would probably be to agree, but at the same time, I would wonder at the soundness of such a partisan stance. Here's why:
1. There will someday be a Democratic President.
2. There will someday be another round of increased unemployment.
3. The round of increased unemployment will someday coincide with the term of a Democratic President.
Now, if all of that happens, wouldn't a Democratic President want to have the household survey as the official tool for job measurement? If the payroll survey continues to be used, and it continues to undercount the employed and the creation of new jobs, wouldn't that hurt a Democratic President just as much as a Republican one?
I think it would. Indeed, I can't imagine an argument that says that the use of the household survey will only help Republican Presidents.
So, in summary, what we appear to have is an antediluvian method of measuring employment, along with behavior that might be classified as pure partisanship, but is so incredibly obviously self-defeating in the long run that one cannot help but wonder why it is even being evinced--and it appears that it is.
I'm searching for any rationality in all of this, and just cannot find it. If you can, comment away.
More signs that the economy is fully on the mend--a great deal of confidence in the business sector:
Confidence among US business leaders is stronger than it has been for 20 years, according to a long-running measure of boardroom attitudes, as rising profits finally encourage companies to start hiring.
The quarterly survey by the Conference Board confirms last week's official employment data suggesting concerns about a jobless recovery may be waning.In recent quarters, companies have been wary of hiring staff, preferring to make greater use of existing capacity, but continued growth and record profitability appears to be convincing managers that productivity improvements alone may not be enough to meet rising demand.
Half the chief executives who responded to the Conference Board's lastest poll said they expected employment in their industry to rise, compared with just 12 per cent who predicted a fall - the most optimistic response on jobs since the research group began its analysis in 1976.
Overall confidence levels about the economy are the highest since 1983, with more than three quarters of CEOs expecting continued growth over the next six months.
Lynn Franco, director of the conference board's consumer research centre, said: "We were expecting a strong confidence reading given the last two quarters of back-to-back growth but the optimism about hiring is particularly interesting and suggests we may have turned the corner.
"They now forsee enough growth that despite productivity gains they will need to hire more bodies."
The bullish results, based on responses from more than 100 members of Conference Board, follow signs of a turnaround in official US employment data, which last week showed the biggest monthly increase for four years.
Expectations that a healthier job market will allow a rise in US interest rates also helped push the dollar to a four-month high against the euro yesterday
In contrast, confidence polls reflect only a partial snapshot of the mood among some business leaders, but the Conference Board's results are neverthless in line with other recent surveys showing a rising trend.
Hopefully, this means that we will continue to see the type of strong job growth we saw for the past month. It certainly appears that we should expect as much from the cited survey.
This isn't exactly smokin' data, but it appears that we received some better-than-expected economic numbers today:
U.S. wholesale prices barely budged in February while claims for jobless benefits dipped a bit last week, according to government reports on Thursday that could sooth budding inflation fears and fuel hopes the moribund job market will soon revive.A sharp slowdown in energy price gains and a plunge in the cost of light trucks helped keep wholesale prices under wraps in February, the Labor Department said.
The Producer Price Index, which measures prices paid to farms, factories and refineries, rose just 0.1 percent in February. The increase marked a sharp slowdown from January's 0.6 percent rise and came in well below the 0.4 percent advance expected on Wall Street.
Excluding volatile food and energy costs, producer prices also rose a tame 0.1 percent, a slowdown from January's 0.3 percent gain.
Separately, the department said first-time claims for state unemployment insurance slid 3,000 to 342,000 in the week ended March 27 from a revised 345,000 the prior week, suggesting mild improvement in the labor market.
Economists had forecast claims to rise 1,000 from the 339,000 initially reported for the March 20 week. The upward revision to the March 20 figures reflected the impact of annual changes in how the data is adjusted for seasonal variations.
Prices for stock futures and the value of the dollar were little changed in the immediate aftermath of the reports, while prices for U.S. bonds slipped slightly.
Economists said the mild rise in producer prices would support the willingness of the Federal Reserve to bide its time as it considers when to bump up overnight interest rates from their current 1958 low of 1 percent.
Of course, the big numbers on job creation come tomorrow. Stay tuned, and don't even think about asking me for a prediction.
Dan Drezner has the latest on how outsourcing actually helps the American economy. I urge as many bloggers as possible to link to Dan's post. Then maybe Hillary Clinton will take the time to read it.
Outsourcing really does benefit the U.S. economy:
Global Insight, Inc. announced today the release of a new study, "The Impact of Offshore IT Software and Services Outsourcing on the U.S. Economy and the IT Industry," commissioned by The Information Technology Association of America (ITAA), the leading trade association for the IT industry. The Global Insight research team was led by chief economist Dr. Nariman Behravesh, who is recognized as one of the world's most accurate economic forecasters. Nobel Prize winning economist Dr. Lawrence R. Klein, the founder of WEFA and a Global Insight associate, made significant contributions to the Study.The in-depth Study found that global sourcing of computer software and
services, while displacing some IT workers, actually benefits the U.S. economy
and increases the number of U.S. jobs. According to Study findings, the U.S.
economy has much to gain from global sourcing and an environment of free
trade, open markets and robust competition. Benefits include job creation,
higher real wages, higher real GDP growth, contained inflation and expanded
exports resulting in increased economic activity.According to the Study, U.S. spending for offshore outsourcing of computer
software and services is expected to grow at a compound annual rate of almost
26%, increasing from approximately $10 billion in 2003 to $31 billion in 2008.
During the same period, total savings from the use of offshore resources will
grow from $6.7 billion to $20.9 billion. Using offshore resources lowers
costs and boosts productivity. As a result, inflation is lower, interest
rates are lower, and economic activity is higher. The increased economic
activity creates a wide range of new jobs, both in IT and other industries.
While there are some dislocations that affect both industries and regions, the
overall economy adjusts so that offshore IT outsourcing actually creates new
jobs. Over 90,000 net new jobs were created in the U.S. through 2003. The
number of net new jobs is projected to grow by 317,000 in 2008. The impact on
U.S. jobs does vary by industry sector, with the major beneficiaries for the
next five years being construction, transportation and utilities, education
and health services, wholesale trade, and financial services.
We'll see if any new thinking takes hold as a result of this information. I doubt though that any such new thinking will result soon. Mark Twain's line about a lie being able to travel halfway around the world before the truth even has a chance to put on its shoes comes to mind. And since this is an election year, Twain's observation is of course probably magnified a hundredfold.
A good myth-busting column by Walter Wriston on how little outsourcing actually hurts the employment market, and on the net benefits of the outsourcing/insourcing arrangement for the United States.
It would seem that we have a trend on our hands:
America's economic recovery ended 2003 on a good note, growing at a solid 4.1 percent annual rate, and is expected to do even better in the opening quarter of this year.The latest reading on gross domestic product for the October-to-December quarter was the same as a previous estimate made a month ago, the Commerce Department reported Thursday. That was consistent with economists' forecasts.
GDP measures that value of all goods and services produced within the United States and is considered the most important barometer of the economy's health.
Economic growth in the current January-to-March quarter is expected to clock in at a rate of 4.5 percent, according to some analysts' forecasts. Growth in the April-to-June quarter also should be around that pace, they said.
Tax refunds and other tax incentives should motivate consumers and businesses to spend and invest more - energizing the economy in the first half of this year, economists said.
Quoth Daniel Drezner:
When a presidential election year coincides with an uncertain economy, campaigning politicians invariably invoke an international economic issue as a dire threat to the well-being of Americans. Speechwriters denounce the chosen scapegoat, the media provides blanket coverage of the alleged threat, and legislators scurry to introduce supposed remedies.The cause of this year's commotion is offshore outsourcing -- the alleged migration of American jobs overseas. The depth of alarm was strikingly illustrated by the firestorm of reaction to recent testimony by N. Gregory Mankiw, the head of President George W. Bush's Council of Economic Advisers. No economist really disputed Mankiw's observation that "outsourcing is just a new way of doing international trade," which makes it "a good thing." But in the political arena, Mankiw's comments sparked a furor on both sides of the aisle. Democratic presidential candidate John Kerry accused the Bush administration of wanting "to export more of our jobs overseas," and Senate Minority Leader Tom Daschle quipped, "If this is the administration's position, I think they owe an apology to every worker in America." Speaker of the House Dennis Hastert, meanwhile, warned that "outsourcing can be a problem for American workers and the American economy."
Critics charge that the information revolution (especially the Internet) has accelerated the decimation of U.S. manufacturing and facilitated the outsourcing of service-sector jobs once considered safe, from backroom call centers to high-level software programming. (This concern feeds into the suspicion that U.S. corporations are exploiting globalization to fatten profits at the expense of workers.) They are right that offshore outsourcing deserves attention and that some measures to assist affected workers are called for. But if their exaggerated alarmism succeeds in provoking protectionist responses from lawmakers, it will do far more harm than good, to the U.S. economy and to American workers.
Should Americans be concerned about the economic effects of outsourcing? Not particularly. Most of the numbers thrown around are vague, overhyped estimates. What hard data exist suggest that gross job losses due to offshore outsourcing have been minimal when compared to the size of the entire U.S. economy. The outsourcing phenomenon has shown that globalization can affect white-collar professions, heretofore immune to foreign competition, in the same way that it has affected manufacturing jobs for years. But Mankiw's statements on outsourcing are absolutely correct; the law of comparative advantage does not stop working just because 401(k) plans are involved. The creation of new jobs overseas will eventually lead to more jobs and higher incomes in the United States. Because the economy -- and especially job growth -- is sluggish at the moment, commentators are attempting to draw a connection between offshore outsourcing and high unemployment. But believing that offshore outsourcing causes unemployment is the economic equivalent of believing that the sun revolves around the earth: intuitively compelling but clearly wrong.
Should Americans be concerned about the political backlash to outsourcing? Absolutely. Anecdotes of workers affected by outsourcing are politically powerful, and demands for government protection always increase during economic slowdowns. The short-term political appeal of protectionism is undeniable. Scapegoating foreigners for domestic business cycles is smart politics, and protecting domestic markets gives leaders the appearance of taking direct, decisive action on the economy.
Protectionism would not solve the U.S. economy's employment problems, although it would succeed in providing massive subsidies to well-organized interest groups. In open markets, greater competition spurs the reallocation of labor and capital to more profitable sectors of the economy. The benefits of such free trade -- to both consumers and producers -- are significant. Cushioning this process for displaced workers makes sense. Resorting to protectionism to halt the process, however, is a recipe for decline. An open economy leads to concentrated costs (and diffuse benefits) in the short term and significant benefits in the long term. Protectionism generates pain in both the short term and the long term.
Kudos to Dan for getting his article accepted by Foreign Affairs, and for doing God's work in general in clearing up the myths and demagoguery regarding outsourcing.
I know, I know, one could write a multivolume opus on the topic. Anyway, Alex Tabarrok catches Krugman engaging in misrepresentation regarding the projections made by the Council of Economic Advisors regarding job growth.
Jane Galt does the honors. And she has help from this article, which also serves to undercut Krugman's "the sky is falling" claims:
Waiting for the job recovery might be a good time to take a broader measure of the material well-being of Americans. Their condition is widely held to be perilous. The economy, it is said, is being “hollowed out” by international competition and the connivance of business and political elites, creating “two Americas”, one rich, one poor. Median income of American households, commentators often say, has been stagnant, though census figures give a rise of one-fifth since 1980. Lou Dobbs, on CNN's “Lou Dobbs Tonight”, is just one media fabulist who makes his living by claiming that, as America is being “exported”, so the well-being of middle Americans is in a parlous state.It is a good story, but false on many levels. For a start, this slow growth in median income overlaps with a scale of immigration into America outpacing all immigration in the rest of the world put together. Many immigrants have come precisely to take up the lowest-paid jobs. As a result, in the 20 years to 1999 some 5m immigrant households were added to those defined as below the poverty level. Yet among native-born Americans, poverty rates have declined steadily since the 1960s. In the case of black families, median incomes have recently been rising at twice the pace for the country as a whole.
Strip out immigrants, and the picture of stagnant median incomes vanishes. Indeed, for the nine-tenths of the population that is native-born, middle-income trends continue their improvement of the 1950s and 1960s. For these people, inequality is not rising, but falling. Gregg Easterbrook cheekily points out in his excellent recent book, “The Progress Paradox” (Random House), that if left-leaning Americans seriously want better statistics about middle-income gains, then they should simply close their borders.
Mr Easterbrook points to something else about the figures for median household income. A quarter-century ago a typical household had three members. Today, it has just 2.6 members. Simply by this effect, median households have seen their real incomes rise by a half.
Another measure of improved well-being is increased access to jobs. Between 1980 and 2002 Americans in work rose by over 40%, a far brisker pace than the 26% growth in the population. Some three-quarters of the adult population are now in work, close to a record and some ten percentage points higher than in Europe.
Or at least all Drezner for this post. Dan Drezner's commentary on both the jobs situation and the issue of trade are both very much worth reading. For those courageous enough to go beyond the mere conventional wisdom on these issues, the posts will in fact make for bracing reading.
I look forward to John Kerry's condemnation of the corporation mentioned in the second paragraph of this story.
The title of this post comes from a rather famous witticism from Mark Twain. Arnold Kling shows why the joke still has quite a lot of bite to it.
Via Tyler Cowen, I found this survey discussing the level of economic freedom in North America. Delaware is first--which is of no surprise whatsoever to those familiar with corporate law--the significance of which is helpfully explained in this post and in the attendant links.
I love the smell of good economics news in the . . . er . . . late afternoon:
A gauge of U.S. manufacturing in February held close to a two-decade high and more factories said they were hiring to meet demand, an industry report showed. Personal spending increased for a third month in January.The Institute for Supply Management's factory index slipped to 61.4 last month from 63.6 in January. It was the fourth straight month the index exceeded 60 and the 10th greater than 50, which signals growth. January's personal spending rose 0.4 percent and construction spending declined, the Commerce Department said in separate reports in Washington.
The purchasing group's measure of factory employment rose to the highest since December 1987, suggesting more manufacturers are hiring to churn out computers, chips and other equipment. The Labor Department on Friday is forecast to report more jobs were created in February than in any month since late 2000, according to the median estimate in a Bloomberg News survey.
Survey participants "are particularly encouraged by the increased breadth of the recovery in manufacturing,'' Norbert Ore, director of the report and group director of strategic sourcing and procurement at Georgia-Pacific Corp., said in a press release. ``All 20 manufacturing industries reported growth.''
And believe me, rich is better. Which is why this is good news:
America's economy, bolstered by brisk business spending, grew at a healthy 4.1 percent annual rate in the final quarter of 2003. That was even faster than first thought and offered new evidence that the nation's economic recovery was firmly rooted going into the new year.The latest reading on the gross domestic product - the broadest measure of the economy's health - was slightly better than the 4 percent pace estimated a month ago for the October-to-December quarter, the Commerce Department reported Friday. GDP measures the value of all goods and services produced within the United States.
"The capital spending rebound is in high gear," said economist Ken Mayland, president of ClearView Economics.
Even though the fourth quarter's growth rate marked a slowdown from the red-hot 8.2 percent pace of the third quarter - the best in nearly two decades - it nonetheless represented a solid performance.
The 4.1 percent pace was better than economists were predicting. They were forecasting growth rate of around 3.8 percent.
On Wall Street, the report helped to lift stocks. The Dow Jones industrials gained 34 points and the Nasdaq was up 4 points in morning trading.
Looking ahead, the economic picture seems promising, analysts say. Economic growth in the current January-to-March quarter is expected to clock in at a rate of around 4.5 percent or higher, according to some analysts' projections.
Of course, once an employment revival fully takes place, people will really feel that the economy has turned the corner. The increase in investment in software and equipment, as well as the increased stockpiles may be a good omen on that score, however.
I was tremendously disappointed--as I've often said--that the Bush Administration decided to impose steel and lumber tariffs in 2002. Thankfully, however, the steel tariffs have been removed, and the implementation of CAFTA was a giant step in furthering the cause of free trade.
If one considers the rhetoric of John Kerry, however, one has cause to fear for the future of free trade:
Kerry voted for NAFTA in 1993 but has since said he would order a 120-day review of all trade pacts. He laid out specific guidelines for companies wanting to send jobs overseas, including at least three months' advance notice for affected employees as well as notification of the Labor Department, state agencies and local government officials.In addition, he would require the federal government to compile statistics on off-shored jobs and report to Congress annually on how many positions were going where and why. He also would ensure that federal contracts did not go to foreigners.
This is demagoguery at its worst, and in a globalized economy, it is insanity. The amount of regulations that would be needed to implement all of these wild promises would be astounding. The last Democratic President stated--if disingenuously--that "the era of big government is over." With John Kerry, however, the statement could not even be made in disingenuous fashion--that's how regulatory and destructive Kerry would be on the issue of free trade.
Don't believe me? Then consider the word of our allies abroad:
Patricia Hewitt delivered a blistering attack last night on the two Democratic candidates for the US presidential nomination, accusing them of vying with one another in their "protectionist rhetoric".In a speech laced with digs at America over its attitude towards free trade, the Secretary of State for Trade and Industry took John Kerry and John Edwards to task for pandering to the protectionist lobby.
"My message is don't play politics with people's jobs and people's prosperity. We know - the United States knows - that protectionism is the road to recession," she told a dinner at the Mansion House.
Although Ms Hewitt singled out the two Democratic hopefuls for the White House for criticism, she also took the Republicans to task for imposing two years of unlawful steel tariffs, despite its supposed commitment to free trade.
Now the battleground had become "offshoring' - the movement of jobs to countries where labour costs were cheaper. Britain, she said, had rejected protectionism as the answer at every level - from government through to employers and unions. "But it's not the same in the United States. There, every night, television newsreaders vilify business leaders who are investing abroad. The presidential economic adviser who dares to speak the truth on globalisation is threatened with redundancy by Republican members of Congress."
The news stations are taking their cue from the politicians. Senator Kerry has attacked what he calls the "Benedict Arnold companies taking jobs and shipping them overseas" - a reference to the US patriot who turned traitor by swapping sides to the British during the American war of independence.
The critique of the Bush Administration, again, is well-merited. But again, at least the Bush Administration reversed course. As for the Democrats on free trade, well, they're proving my fears entirely well-founded.
Although, to be sure, even on this issue, there is hypocrisy from Kerry. As the first story notes, he has flip-flopped on the issue of free trade. Indeed, if Kerry's stance on this issue has to be summarized in a sentence, that sentence would read "Globalization For Me, But Not For Thee":
Sen. John F. Kerry (Mass.), the front-runner for the Democratic presidential nomination, frequently calls companies and chief executives "Benedict Arnolds" if they move jobs and operations overseas to avoid paying U.S. taxes.But Kerry has accepted money and fundraising assistance from top executives at companies that fit the candidate's description of a notorious traitor of the American Revolution.
Executives and employees at such companies have contributed more than $140,000 to Kerry's presidential campaign, a review of his donor records shows. Additionally, two of Kerry's biggest fundraisers, who together have raised more than $400,000 for the candidate, are top executives at investment firms that helped set up companies in the world's best-known offshore tax havens, federal records show. Kerry has raised nearly $30 million overall for his White House run.
Kerry has taken aim at "Benedict Arnold" companies as part of a much broader political and policy debate over stemming the flow of well-paying U.S. jobs overseas, a chief cause of unemployment, especially in the hardest-hit manufacturing sector. Kerry's solution, detailed in a speech yesterday in Toledo, is to enforce trade agreements, track and slow the outsourcing of U.S. jobs, and stop government contracts and tax incentives from going to companies that move operations or jobs offshore.
Kerry has come under attack from President Bush, as well as some Democrats, for criticizing laws he voted for and lambasting special interests after accepting more money from paid lobbyists than any other senator over the past 15 years. Some Democrats worry that Kerry is leaving himself open to similar attacks on the latest issue.
Well, if I were a Democrat and saw this from my party's presumptive nominee, I'd be "worried" too.
Federal Reserve Chairman Alan Greenspan urged Congress on Wednesday to deal with the country's escalating budget deficit by cutting benefits for future Social Security retirees. Without action, he warned, long-term interest rates would rise, seriously harming the economy.In testimony before the House Budget Committee, Greenspan said the current deficit situation, with a projected record red ink of $521 billion this year, will worsen dramatically once the baby boom generation starts becoming eligible for Social Security benefits in just four years.
He said the prospect of the retirement of 77 million baby boomers will radically change the mix of people working and paying into the Social Security retirement fund and those drawing benefits from the fund.
"This dramatic demographic change is certain to place enormous demands on our nation's resources - demands we will almost surely be unable to meet unless action is taken," Greenspan said. "For a variety of reasons, that action is better taken as soon as possible."
Of course, there is no chance--as the story itself points out--that any action will be taken in this election year. But action is definitely needed. There should be means testing (don't you love how one side calls for increased taxes on "the rich," but opposes means testing for rich retirees as cruel and unfair--even though rich retirees would still receive net benefits?), the retirement age should be increased, as life expectancy has itself increased dramatically since Social Security was implemented, and eventually, we should move to a privatized system. At the very least, in the near term, we should move towards partial privatization so that people have the option to receive a higher rate of return from private investments (as they invariably would in the long term).
So kudos to Greenspan for his honesty. Now, let's see that honesty translated into policy. Preferably before I retire.
Congratulations to Indiana! It takes a special brand of genius to bungle things as badly as the Hoosier State did. Of course, being unreasonably afraid of outsourcing will allow for the ham-handed engineering of budgetary catastrophes such as this one, and one would think that people would learn not to allow outsourcing myths force them into lousy budget decisions, but given the generally poor state of the debate on outsourcing, I expect that we will hear of more such stories in the future.
The Economist does an excellent job demolishing some myths about outsourcing, and the employment picture in the U.S.. I found the following passage particularly interesting:
. . . Despite strong productivity growth and an accelerating recovery from the recession of 2001 (the economy grew by an annual 4% in the fourth quarter of last year), jobs are being created at a feeble rate of 100,000 or so a month. The jeremiahs point out that a net total of 2.3m jobs have been lost since Mr Bush came to office.Although this date is often used as the starting-point from which to make a comparison, it is a silly one. In early 2001 the hangover effects from the investment boom of the late 1990s were only starting to be felt. Unemployment, at 4.2%, was unsustainably below the “natural” unemployment rate, consistent with stable inflation, that most economists put at around 5%. In other words, perhaps two-thirds of those 2.3m jobs were unsustainable “bubble” ones. Given the scale of job losses—along with the shocks of a stockmarket bust, corporate-governance scandals and terrorist attacks—it is a wonder that the recession was so mild. By the same token, a mild recession is now being followed by a commensurately mild recovery.
This week, the White House retreated from a claim that 2.6m new jobs would be created this year. But there are reasons to think that job growth will be more robust. In particular, the remarkably strong productivity growth, running at twice its long-run average of 2.1%, must slow down eventually. In the face of rising order books, businesses will have to hire more workers.
This may already be happening in some parts of the country. William Testa, director of regional research at the Federal Reserve Bank of Chicago, points out that the downturn began in the mid-west (because of its relative emphasis on manufacturing, notably business equipment, the mid-west was hit first by the slump in business investment) and then spread to the coasts. Now a recovery is spreading in the reverse direction—starting on the coasts and ending up, alas for Mr Bush, in the key electoral states of the industrial heartland.
Something to remember, perhaps, in the upcoming presidential election.
UPDATE: Dan Drezner has posted on this article as well, and notes that contra the article, the Federal Reserve Bank of New York published this paper arguing that structural changes are responsible for slower job growth. However, the paper argues that since the current recovery is somewhat analogous to the previous one in that there are a large number of industries undergoing structural changes, there is a great deal of optimism that like the previous recovery, we will see substantial job growth in this recovery.
In short, the Economist and the New York branch of the Fed agree on the prospects of job growth, but for diametrically different reasons.
Got that? Because there will be a quiz on this stuff later.
It seems that the jobs market is picking up further:
The number of Americans filing initial unemployment claims fell last week and an index of leading economic indicators rose for a 10th month in January, suggesting stronger growth may help hiring. A Federal Reserve report showed a record percentage of Philadelphia-area factories were lengthening their work weeks.Initial applications fell to 344,000 in the week ended Saturday from 368,000 a week earlier, the Labor Department said. The New York-based Conference Board's index of leading economic indicators rose 0.5 percent last month after a 0.2 percent rise.
The work-week measure was included with the Fed Bank of Philadelphia's factory index, which was the second-highest in a decade even after falling more than economists forecast. The overall index fell to 31.4 in February from 38.8 in January as orders and shipments slowed. The work-week index rose to 23.6, the highest since record keeping began in 1968.
"The message is that employers remain somewhat reluctant to expand payrolls, but are only avoiding new hires by pressing the limits of the work week,'' said James O'Sullivan, senior economist at UBS Securities in New York. "Because the work week theoretically cannot be expanded without limit, this trend should give way eventually to more job creation.''
The economy may grow as fast as 4.5 percent this year, the most since 1999, a survey of 70 corporate officers by the Business Council showed yesterday. More than 40 percent of the executives said they expect to increase payrolls in 2004, following three straight years in which productivity gains outpaced economic growth and limited the need for hiring.
Some good news on the economic front:
U.S. industrial output rose in January, the Federal Reserve said Friday, slightly edging Wall Street forecasts.Industrial production rose 0.8 percent after being flat in December, according to the Fed, which also said factories, mines and utilities ran at 76.2 percent of capacity in the month, compared with 75.6 percent in December.
Economists, on average, expected production to rise 0.7 percent and capacity use of 76.2 percent, according to Briefing.com.
Separately, the New York Fed said its Empire State index of New York manufacturing activity rose to a record high in early February, defying Wall Street expectations for a slight decline.
The reports helped lift U.S. stock market futures, which pointed to a positive opening on Wall Street. Treasury bond prices also rose.
Much of the gain in the Fed's industrial production report was due to a 5.2-percent jump in the output of utilities, due mainly to unusually cold weather in January. Industrial output fell 1.3 percent in December.
The much-maligned derivative--excoriated as an instrument of Satan in the wake of recent financial scandals--gets a well-deserved defense here:
Derivative products are not just a sophisticated way for investors to gamble. They also give producers a crucial tool for hedging against risk and uncertainty. And they have played a central role in the flowering of innovation that the financial markets have enjoyed during the last two decades. There are derivatives betting on the likelihood of a natural catastrophe; consumer credit card debt has been converted into bonds; futures markets have been established for such things as barge rates; and options allow investors to speculate on the temperature, wind chill, and amount of rainfall in many cities.The common denominator in all these products is that they allow companies and private investors to trade away risk with which they are ill equipped to deal and focus instead on taking risks in areas in which they specialize. Many international corporations, for example, use currency derivatives to swap out their exposure to exchange rate fluctuations. This allows them to focus on their core business while allowing professional currency traders to worry about international valuations.
Read on for information on how rock stars (yes, rock stars!) helped make derivatives fashionable, and on the origin of derivatives in ancient Greece. Fascinating stuff.
It's reassuring to see that an Administration that once promoted steel tariffs is now promoting this instead:
The United States and Australia said on Sunday they have reached a comprehensive free trade agreement that will leave politically sensitive U.S. protections for sugar in place.Negotiators struck the agreement after a final three weeks of intense negotiations, including a conversation between President Bush and Australian Prime Minister John Howard on Saturday that helped seal the deal.
With Bush facing a potentially tough re-election race this year, and sugar producers firmly opposed to any cuts in their import protection, U.S. negotiators rebuffed Australia's demand for more market access for one of its main farm exports.
U.S. sugar producers fear opening the U.S. market to more Australian sugar would send U.S. prices tumbling and set a bad precedent for other expected free trade agreements with sugar-exporting countries.
Nonetheless, Australian Trade Minister Mark Vaile said the agreement was a "historic achievement'' that would benefit Australia by linking it to the world's largest economy.
"We had to take a balanced judgment in terms of the overall benefit,'' Vaile said.
Well, it's an improvement--I don't imagine that we will have any free trade agreements that will not contain some protectionist principles in them, and I hope that the sugar protections are eventually eliminated. But it is nice to see free trade pacts such as this one being created. Let's hope that more such agreements follow--ones that advance the cause of free trade still further.
Of course, when it comes to economic growth, the U.S. appears to be at the forefront:
The US economy strengthened considerably in December, leading the global economic recovery and leaving Europe and Japan behind, the Organisation of Economic The upbeat assessment of the US economy from the OECD came just hours ahead of a meeting of finance ministers from the G7 group of leading industrialised countries, with the weakness of the dollar the prime subject of concern."Moderate to strong recovery lies ahead in the OECD area," the organisation said in a statement. "December data signal continued strong improvement in the United States but weaker development for Italy."
For the 30-nation membership of the OECD, the December leading indicator - a pointer of future economic activity - rose to 123.6 from 122.8 in November. The reading for the US was 133.3 (up from 131.7), the 12-nation euro currency zone struggled up to 123.8 (from 123.5), and Japan managed a weak increase of 0.2 to 102.3. Of the G7 economies, only Italy showed weaker development, its index slipping to 106.3 in December from 107.8 in November.
The OECD's data will give John Snow, the US treasury secretary, something to crow about amid unease - especially in the eurozone - at the fall of the dollar, which threatens to hurt European exports and, by extension, the fledgling recovery in continental Europe.
Some mixed news on the job front:
The nation's unemployment rate dropped to 5.6 percent in January to the lowest level in more than two years as companies added just 112,000 new jobs - fewer than expected but enough to keep alive hope for a turnaround in the struggling job market.The jobless rate fell 0.1 percentage point last month to the lowest level since October 2001, when it was 5.4 percent, the Labor Department said Friday. January's rate matched the 5.6 percent posted in January 2002.
Employers added new jobs last month at a pace not seen in three years. The last time payrolls expanded more than 112,000 was in December 2000, when companies added 124,000 positions.
But economists were disappointed, saying they had expected a larger increase of 150,000 new jobs or more.
"It is not disastrous news, but it is definitely disappointing," said Bill Cheney, chief economist at John Hancock Financial Services.
Added Ken Mayland, president of ClearView Economics: "This economy under normal circumstances should be generating 200,000 to 300,000 a month" in new jobs.
Analysts are looking for monthly payroll gains of 300,000 or more for sustained job growth, and the economy remains far from that mark.
White House press secretary Scott McClellan said the lower jobless rate means the president's job and growth plan is working.
"Since August of last year, there have been 366,000 new jobs created," McClellan said. "The unemployment rate of 5.6 percent is well below the average of the 70s, 80s and 90s. ... Today's report is another sign that the economy is continuing to grow strong and that jobs are being created."
The report sent stock prices slightly higher on Wall Street in morning trading.
[. . .]
Friday's report showed that workers are indeed putting in longer hours, with the average work week climbing by 0.2 hour to 33.7 hours. The manufacturing work week increased by 0.3 hour to 40.9 hours.
"Employers are working their workers longer hours instead of hiring more bodies. For the economy, that counts," Mayland said, noting that it produces more income for consumers to spend, keeping the economy afloat. "This is telling you the economy really is growing very fast."
Well, let's hope so, although I naturally would have liked to see the number of jobs added higher than what was reported. For that matter, I'd also like to see my suggestion advocated here, finally implemented.
Via Virginia Postrel. Let's hope it pans out. Somewhat relatedly, I really wish that the Labor Department would take the number of self-employed into account when compiling its statistics. Not doing so simply leads to an inaccurate picture of the current labor market, and the economy at large.
Most analysts expected growth for the previous quarter to be between 4-5%, which means that today's numbers fell within the low end of that range, although they could be revised upwards (recall that the figures for economic growth in the fourth quarter of last year were initially 7.2%, and then were revised upwards a full percentage point). In any event, this report appears to set the stage for healthy GDP growth this year, which is something to be fondly wished for, of course.
We'll see what the revisions tell us about the state of the economy, but one thing I don't expect--since the growth seems at this time to be on the low end of the estimates--is that the Federal Reserve will hike interest rates. The Fed has backed off statements promising low rates for the long term, which has led many people to think that a rate hike is in our future, but I don't think that one is forthcoming now.
I griped about President Bush's promise last night to restrain growth in federal spending to "only" 4%. I suppose, however, that I should consider myself blessed if spending only goes up that much in the near term. This study tells us that those on the other side of the partisan divide would be significantly worse at restraining spending (link via Jane Galt):
If the policy agenda of any one of the eight candidates were enacted in full, annual federal spending would rise by at least $169.6 billion (Lieberman) and as much as $1.33 trillion (Sharpton). This would translate to a yearly budget hike of between 7.6% and 59.5%.All candidates offer platforms that call for more spending than would be offset by repealing the Bush tax cuts (using even generous estimates of the tax cuts' impact).
The eight candidates have proposed over 200 ideas to increase federal spending, and only two that would cut federal spending. Those two proposals have been offered by Dennis Kucinich (thus, the seven other candidates haven't made a single proposal to cut any spending).
Although they may attempt to stress their policy differences, Howard Dean and Wesley Clark would both increase annual federal outlays by roughly the same amount ($222.9 billion vs. $220.7 billion, respectively).
Among those candidates considered to be "competitive," Dick Gephardt posts the largest annual spending increase ($368.8 billion), far ahead of John Kerry ($265.11 billion).
However, none of this should take the Bush Administration off the hook for its own spending increase. It should not be too much to ask that a conservative Republican President behave like a conservative Republican President and actually cut discretionary spending. Budget proposals invariably end up being Christmas trees. Ornaments get attached, and the price tag goes up. At the very least, a spending cut should have been offered as a negotiating position to restrain the spending increases that amendments almost inevitably bring.
Have I mentioned recently that I am sick of standing athwart history, yelling "Stop!"? Because I am.
Arnold Kling likes it, and calls it "the ultimate 'lockbox' for Social Security." Interestingly, he debunks both the Left's complaints about "transition costs," and the Right's argument that "shifting funds into the stock market produces high enough returns to wipe out large portions of the Social Security obligation."
The stock market argument, as Kling phrases it, might indeed be "dubious" in that it may not "wipe out large portions of the Social Security obligation." But it still likely will bring higher rates of return than will Social Security payouts, and thus will at least reduce the obligation--if not eliminate it altogether. Additionally, retirees should have the option to invest their own retirement money in the market. Over the long term, they will likely be glad that they did.
The association almost doesn't exist:
How far left have the Democrats moved on the issue of free trade? One indication is that some of the candidates have actually started using the words as a term of derision. It used to be that no matter how protectionist candidates were, they still paid lip service to the phrase free trade--I am for free trade, but we have to do something about these labor and environmental standards!--lest they be tagged as intellectual Neanderthals by the elite media. But in Iowa Dick Gephardt and Howard Dean have dropped this pretense. Last week, I watched Gephardt give his stump speech before a hall full of burly union supporters in Baxter, Iowa. He took some pride in pointing out that he was against trade agreements before it was cool. Talking about NAFTA, he belittled the arguments of "the free traders." Last weekend, Dean's Iowa campaign sent out an e-mail darkly noting in a headline that according to recent polls, "More of Kerry's Supporters are Free Traders." The e-mail warned that Kerry's people were a bunch of radicals: "More Kerry supporters said that free trade agreements with Mexico and Canada would benefit the US economy than hurt the economy."
Of course, it is worth pointing out again that the Bush Administration has betrayed a lot of its free-trade supporters with the imposition of steel and lumber tariffs. But the steel tariffs have been removed, and the Administration has helped bring about the CAFTA agreement. More importantly, George W. Bush isn't campaigning on an anti-free trade platform the way his Democratic foes are.
Check out Update II. A proposal that is both economically insensate and makes the Bush Administration steel and lumber tariffs seem positively Hayekian. You just don't see that kind of thing everyday.
I dub thee, Stephen Bainbridge, as Official Pejmanesque Bringer of Good News. First, the good professor gives us this post, which indicates that there will be huge job growth this year. Then he gives us this post, in which he predicts increased mergers and acquisitions activity, which is yet another sign of a growing economy. Let's hope that both predictions are correct.
Daniel Drezner has the details. I don't imagine that this will stop all the talk about the decline in manufacturing and the outsourcing of jobs--especially as we head into a presidential election year--but at least at this point, 2004 is shaping up to be an excellent one for the economy in general.
Some good news from the labor market:
New applications for state jobless benefits hit the lowest level in nearly three years last week, the government said on Wednesday, boosting hopes that employment is finally beginning to show sustained growth.The Labor Department said 339,000 idled workers filed for unemployment insurance at state offices throughout the country in the week ended Dec. 27, down from a revised 354,000 a week earlier.
The level of new claims was the lowest since President Bush's inauguration on Jan. 20, 2001.
First-time jobless claims were much lower than Wall Street economists' forecast for 355,000 claims. The department originally reported new claims for the week ended Dec. 20 at 353,000.
The fall in initial claims takes the four-week moving average to its lowest since Feb. 10, 2001.
The widely watched four-week moving average, regarded by economists as a truer reflection of the labor market than the more volatile weekly figure, fell to 355,750 from 362,250.
Happily, this news would appear to lend credence to the subject of this post.
The Nasdaq composite index yesterday closed above the 2000 mark for the first time since Jan. 15, 2002, as year-end trading sent all the major stock indexes up.The Nasdaq had been flirting with 2000 for several weeks. It cleared that barrier yesterday in light holiday-week trading by rising 33.34 points, or 1.7 percent, to close at 2006.48.
The Dow Jones industrial average, which reached its own major milestone earlier this month when it surpassed 10,000, also rose yesterday, gaining 125.33 points, or 1.2 percent, to finish at 10,450.00. That marked the Dow's highest close since March 21, 2002. The broader Standard & Poor's 500-stock index also rose.
"It's a holiday rally," said Andrew M. Brooks, vice president and head of equity trading at T. Rowe Price in Baltimore. "People are in good spirits."
Though the 2000 level is arbitrary, crossing that threshold was a symbolic achievement for the tech-heavy Nasdaq. It capped a strong year in which the index climbed about 50 percent.
"It's primarily a psychological level," said Scott Wren, senior equity strategist at A.G. Edwards & Sons in St. Louis. "But it's just another sign that we've got sound economic fundamentals in place, and the optimism that we've had for months is now going to lead us into a new year."
Between this, the Dow surpassing 10,000, and the report of 8.2% GDP growth in the last economic quarter, I'm inclined to agree with Wren's analysis. I'm especially interested in seeing how the economy did in the quarter about to end. I'll refrain from making any specific predictions, but I wouldn't be surprised to see the GDP numbers quite healthy again--in large part thanks to the holiday season, of course.
We appear to be a happy lot when it comes to the economy:
An improving U.S. economy packed a pre-Holiday punch and pushed an index of consumer confidence to a 17-month high, a report said on Tuesday. The ABC News/Money Magazine Consumer Comfort index climbed to -9 in the week ended Dec. 21 from the previous reading of -11. Favorable opinions on the national economy rose to match a 2003 high of 38 percent from 35 percent and largely powered the gauge's rise.
My only concern is that this degree of confidence is not undermined by the finding of BSE in Washington. If people overreact to that news, the economy is clearly in danger of suffering.
Johan Norberg is a veritable prophet for the cause of globalization--believng correctly that globalization is the best way to combat worldwide poverty. Be sure to check out this long, but illuminating interview in which Norberg makes his case. The interview also discusses how globalization and capitalism can help the environment--a fact that is almost always absent from the rhetoric and belief systems of environmental movements.
This study is one of the more comprehensive I have seen on the issue of income mobility in the United States. And the following struck me as the most important part of the study:
The comparison of average incomes and taxes paid by groups would be meaningful only if America were a caste society in which the people comprising one group remained constant over time. Most Americans, however, understand that family incomes change frequently, and the research on income mobility reveals that most family incomes increase significantly over time.This is one reason why Americans with modest incomes tend to resist "soak the rich" class-warfare arguments: They hope to be rich themselves one day. Policymakers should ignore this class-warfare rhetoric and redesign America's tax code so that its barriers to upward mobility are reduced.
It strikes me as somehow just that a fundamentally pessimistic campaign practice (class warfare) is defeated by a fundamental optimism among the very people who are supposed to respond to that practice. Of course, this doesn't stop class warfare from being practiced--for loads of class warfare, just check out the Democratic primaries--but the general mood of the country appears to be that the adherents of class warfare are pretty much full of it.
Perhaps the Bush Administration is making up for its past departures from the free trade principles that undergird genuine conservatism/libertarianism. In any event, this is excellent news.
Josh Chafetz writes the kind of posts that I like to read--posts that indicate fat wallets in our near future.
This post points to this story (note that my version of the URL comes from the RSS feed), which states the following:
The blue-chip Dow and the broader Standard & Poor's 500 ended at their highest levels in about 19 months for a third straight day on Thursday after data showing strength in manufacturing and a surprise drop in weekly jobless claims reassured Wall Street about the economy.The Philadelphia Federal Reserve Bank said its monthly gauge of manufacturing in the mid-Atlantic region jumped to a decade-high 32.1 in December from 25.9 in November, defying forecasts for a decline.
The Labor Department said first-time claims for state unemployment benefits, a rough guide to the pace of layoffs, fell more than expected to 353,000 last week, matching a nearly 3-year low hit in early November.
"The market was up this morning after the jobless claims came out, which made everyone happy. The Philly Fed was also a pretty strong number. Nobody can really dispute that things are going pretty well,'' said Adam Tracy, director of listed trading at Thomas Weisel Partners in San Francisco.
The Dow Jones industrial average (.DJI) climbed 102.82 points, or 1.01 percent, to 10,248.08, its highest finish since May 17, 2002.
The S&P;'s 500 Index (.SPX) rose 12.70 points, or 1.18 percent, to 1,089.18, its highest close since May 23, 2002. The technology-laced Nasdaq Composite Index (.IXIC) gained 34.85 points, or 1.81 percent, to 1,956.18.
In the Philadelphia Fed report, new orders, a sign of future growth, also hit a 23-year high, giving one of the clearest signs yet that a recovery in the long-suffering manufacturing sector is picking up steam.
Much coolness. And in the event that you want second helpings of good economic news, there is this post, which links to this story:
A key economic forecasting gauge rose a solid 0.3 percent in November, and the government reported a drop in claims for jobless benefits Thursday, presaging what economists believe could be strong growth in 2004.In New York, the business-funded Conference Board said its Composite Index of Leading Economic Indicators advanced 0.3 percent in November to 114.2, suggesting that the economic recovery will gain momentum next year.
Last month's performance -- which was in line with analysts' expectations -- followed a revised increase of 0.5 percent in October to 113.9. The index had shown no change in September.
The Conference Board's economist, Ken Goldstein, said the figures ``are pointing to post-holiday strength.''
In Washington, the Labor Department said new claims for unemployment benefits fell sharply last week. It said that for the work week ending Dec. 13, new applications for benefits declined by a seasonally adjusted 22,000 to 353,000, the lowest level since Nov. 1. The drop was much larger than economists were expecting.
And this report (couldn't find the RSS version) which recapitulates the information (although Lord knows this is the kind of information I like hearing about multiple times).
So unless you are surnamed Dean, Clark, Lieberman, Gephardt, Edwards, Kucinich, Sharpton, Moseley-Braun or Kerry, be sure to express your thanks to Josh for brightening our day. Maybe the man makes trips down chimneys once a year too . . .
Nobel Prize winner and University of Chicago Economics professor Gary Becker has this illuminating column on the issue. He demonstrates quite clearly one of the chief benefits of globalization--the capacity to help the world's poor in a manner previously thought unimaginable:
The war on terrorism—and the rupture in the Western alliance produced by the Iraqi war—might sharply slow down the international movement of capital and people for an extended period. This will please the more extreme critics of globalization and immigration, but it will greatly reduce the opportunities for poor nations to grow out of poverty.The expansion in trade and the movements of people among nations were unusually rapid during the past half-century. World trade in goods and services grew by more than 5 percent a year, the international flow of capital also accelerated, and the number of students from poor nations studying in the United States, Europe, and Japan grew remarkably.
As a result of this movement toward an integrated world economy, global income grew at its fastest rate in recorded history. World population more than doubled from 1950 to the end of the twentieth century. Yet real per capita income grew, on average, by about 2 percent a year around the world.
Not all poor nations had much growth during this 50-year period; many of the African nations, the ex-Communist bloc, and some Asian nations lagged far behind. But on the whole, the per capita gross domestic product of poorer nations grew about as fast as that of richer nations, whereas populations in the less developed world grew much more rapidly.
Economist Xavier Sala-i-Martin of Columbia University has shown that inequality in world incomes has declined sharply since the mid-1970s. The decline in income inequality among individuals was much faster than among countries, in part because China and, to a lesser extent, India—two nations with about a third of the world’s population—grew very rapidly. But there was also a narrowing of world inequality beyond the impressive performances of these huge nations.
Without carefully examining the statistics, some critics of the effects of globalization on the world’s poor claim that the number of families living on less than $1 or $2 a day basically remained the same during the past 50 years. Yet it is hard to measure the well-being of the world’s poorest since most of them live on farms and get much of their incomes from the food they grow, the clothing they make, and the houses they build themselves. Still, using official data from the World Bank and the United Nations, Sala-i-Martin’s study shows that the fraction of the world’s population living on less than $2 a day fell by about 20 percentage points during the past three decades.
Interestingly, of course, one of the chief arguments made against globalization are by so-called "champions" of the poor, who maintain that they spend countless sleepless nights worrying about income inequality. I'm sure that the world's poor thank them for their concern--as well as their unceasing efforts to derail and destroy one of the most effective international mechanisms ever placed in existence to reduce the level of inequality.
I mentioned here that we may need to revise the way we keep track of the (positive or negative) growth in non-farm payroll jobs. Now, Tyler Cowen does me one better, and makes an excellent case for revising the measurement of the growth of productivity itself.
We have positive movement, with the non-farm payroll growth reaching 57,000, and with the unemployment rate falling to 5.9%. Of course, many people were expecting larger non-farm payroll growth, so this is seen as something of a disappointment. But as Bill Fusz--from whom I stole the above link--points out:
. . . the Labor Department's household survey "showed a gain of 589,000 people calling themselves 'employed,' an indication that many people may be self-employed or working for start-ups not counted in the department's separate survey of employers' payrolls."
So it may be that we are seeing robust employment growth, but that such growth is simply not accounted for in the current metrics. Which means those metrics may need to be revised--after all, general employment and economic confidence hinges in large part on the nature of reports such as the one issued today about the state of the labor market. And we want those reports to consider the whole picture, and be updated to reflect the current state and trends of the labor market, don't we?
The moral of this post is that if you have blogged something, and are proven wrong, then just admit that you were wrong. Don't try to rationalize it. Don't try to make excuses. Don't try to distract attention. Just admit that you were wrong.
Otherwise, Jon Henke is going to make you look and feel stupid. And you really don't want that.
Continued good economic news? Or the angst that--and other--economic news is causing?
And how much more has that angst likely increased in the wake of today's news?
Courtesy of Josh Chafetz, who has helpfully summarized all of the reasons why I should be happy.
In fact, better to have avoided this problem altogether, but at long last, it appears that the Bush Administration is preparing to drop the steel tariffs it so unwisely imposed nearly two years ago:
The officials would not say when President Bush will announce the decision but said it is likely to be this week. The officials said they had to allow for the possibility that he would make some change in the plan, but a source close to the White House said it was "all but set in stone."European countries had vowed to respond to the tariffs, which were ruled illegal by the World Trade Organization, by imposing sanctions on up to $2.2 billion in exports from the United States, beginning as soon as Dec. 15. Japan issued a similar threat Wednesday. The sources said Bush's aides concluded they could not run the risk that the European Union would carry out its threat to impose sanctions on orange juice and other citrus products from Florida, motorcycles, farm machinery, textiles, shoes, and other products.
Bush advisers said they were aware the reversal could produce a backlash against him in several steel-producing states of the Rust Belt -- including Pennsylvania, West Virginia and Ohio. That arc of states has been hit severely by losses in manufacturing jobs and will be among the most closely contested in his reelection race.
The sources said that Bush's aides agonized over the options to present to the president and that they considered it one of the diciest political calculations of this term. A source involved in the negotiations said White House aides looked for some step short of a full repeal that would satisfy the European Union but concluded that it was "technically possible but practically impossible."
Bush decided in March 2002 to impose tariffs of 8 to 30 percent on most steel imports from Europe, Asia and South America for three years. Officials acknowledged at the time that the decision was heavily influenced by the desire to help the Rust Belt states, but the departure from Bush's free-trade principles drew fierce criticism from his conservative supporters. After a blast of international opposition, the administration began approving exemptions.
The WTO's ruling against the tariffs was finalized three weeks ago, clearing the way for the retaliatory levies, and Bush's economic team concluded unanimously that the tariffs should be scrapped. The source involved in the negotiations said the consensus in the White House was that "keeping the tariffs in place would cause more economic disruption and pain for the broader economy than repealing them would for the steel industry."
A White House spokesman would not comment beyond saying that it is "still a matter under review by the president, and we'll make announcements when we have announcements to make."
Now, if only the White House would do something about those lumber tariffs it imposed . . .
Let's just roll 'em back, already:
Speculation mounted on Friday that Washington will scrap or roll back controversial steel tariffs after it sought and obtained an effective delay in retaliatory sanctions by countries opposed to them.The World Trade Organization (WTO), which had been due to rubber-stamp the verdict of its highest court that the duties are illegal, has put off the key session for nine days at the request of the United States .
The European Union, one of a number of trade partners to take action at the WTO over the levies, had warned it was ready to hit Washington with sanctions on up to $2.2 billion of goods within five days of the WTO approving the court ruling.
With the delay, the countdown to EU retaliation, which would be the largest ever unleashed in a trade fight, was also put on hold.
"If the delay allows the United States time to withdraw the protectionist measures, that is better for everybody," said Fabian Delcros, a spokesman for the EU in Geneva.
U.S. SOUGHT DELAY
Officially, Washington wanted the delay because it had not been expecting the meeting to take place before December 10, the legal deadline for WTO states to ratify the court decision.
But it comes amid increasing signs that President Bush's administration is considering ditching the duties, initially for up to 30 percent, which it imposed in 2002 to help defend the country's struggling steel industry against cheap imports.
Ending the tariffs 16 months ahead of schedule could spark a political backlash against Bush in next year's presidential election in the pivotal steel-producing states of Ohio, Pennsylvania and West Virginia .
But key Bush advisers have concluded the tariffs are causing more harm than good and that lifting them would boost Bush's standing with steel consuming industry, another important constituency, political sources say.
The absolutely horrible idea to impose these, and other tariffs cannot be reversed soon enough. (How's that for pithy?)
After a long economic slowdown, it is great to read news like this:
New orders for long-lasting manufactured goods posted their biggest gain in 16 months in October, boosted by brisk demand for new aircraft and communications equipment, the government said Wednesday.The report showed that business spending, which is crucial for the economic recovery, was gaining speed.
Orders for durable goods climbed 3.3 percent to a seasonally adjusted $184.53 billion, far ahead of Wall Street economists' forecasts for a 0.8 percent gain, while September's increase was revised up sharply to a 2.1 percent pickup, the Commerce Department said. Previously, the department said orders were up 1.1 percent in September.
The jump in October orders was the largest in more than a year, since an 8.1 percent surge in July 2002, and fit with other signs that businesses were picking up the pace on investment amid evidence the broader economy is strengthening.
So it looks as if the economy will be a strong point for the Bush campaign after all. Assuming that all is manageable on the foreign policy front--where Bush still enjoys widespread trust--and assuming that the Bush campaign doesn't actively work to throw the election, it would appear that 2004 is Bush's to lose. And once again, Democrats may be poised to be bereft of an issue to guide them throughout the campaign. No one on the Republican side should count their chickens just yet, but I have a feeling that Karl Rove wouldn't want to trade places with, say, Joe Trippi.
Well, I'm afraid it was all a lie:
The U.S. economy grew at an 8.2 percent annual rate in the third quarter, faster than the government initially estimated as companies boosted inventories in September to meet the surge in demand.The nation's gross domestic product, the value of all goods and services produced, grew from July through September at the fastest pace since the first three months of 1984, when Ronald Reagan was president. The Commerce Department previously reported a 7.2 percent third-quarter growth rate, following a 3.3 percent pace in the second quarter.
"Growth is now super-super strong compared to super strong,'' said Joseph LaVorgna, senior U.S. economist at Deutsche Bank Securities, whose forecast of 8.3 percent was the highest in a Bloomberg News survey.
Consumer spending increased at a 6.4 percent annual rate last quarter, the fastest pace in six years, and retailers such as Williams-Sonoma Inc. restocked shelves to help satisfy anticipated sales. A measure of profit widened to a record $739.7 billion, giving companies confidence to increase spending.
"Inventories declined less than people thought, and there was more production,'' said Kevin Logan, senior economist at Dresdner Kleinwort Wasserstein, who forecast 8.1 percent. "The rebound in corporate profits will impress people with the idea that business spending will continue to support the economy for the next quarter or two.''
Needless to say, of course, I'm not complaining about the lie. Especially not in the wake of this update.
Tyler Cowen excoriates the former Vermont governor:
OK, some of these are complex issues, where you might argue that laissez-faire is impossible, and that more regulation could be better than current hybrid structures. But we are not choosing policy today. For the time being, forget the detailed debates, and ponder what this suggests about Dean's instincts, what kind of campaign he will run, and what kind of voters he will appeal to. Ugh, and the libertarians should have never wondered whether Dean might be a small government guy in disguise.
Also, check out Megan McArdle shilling inveighing against Dean here.*
UPDATE: Stuart Buck points out that some Dean's comments on regulation are especially bizarre:
Most of the criticism, however, seems to focus on the mere fact that Dean appeared to favor "re-regulation." One can have a reasonable debate over how much regulation is needed, what its terms should be, whether complete regulation is better than deregulating half-way, and so forth.But Dean's comment about telecommunications isn't even comprehensible. Telecommunications is overwhelmingly regulated right now, as much as or more than any other American industry. I can't even imagine how anyone could think that there is an undersupply of regulation in that particular field. (The Telecommunications Act of 1996 has sometimes been described as "deregulation," but nothing could be further from reality.)
Put it this way: If Dean suggested that he disagreed with a proposal to privatize Social Security, various people might disagree with him, but it would at least be a debate over a meaningful subject. If, on the other hand, Dean announced that he wanted to repeal Social Security privatization and start using federal funding again, well, one wouldn't even know how to make sense of such a remark.
*I'm being facetious about the "shilling" remark, of course--though I'm certain that someone with a snarky remark will fail to notice that.
As I've tentatively decided to embrace my role as corporate shill, and perhaps prompt certain monomaniacs at Crooked Timber into yet more incoherent paroxysms of "useful idiot!" utterances, behold this open letter to Congress decrying drug price controls and reimportation.
Expect outraged missives from Bertram, Farrell and Healy shortly.
Having fulfilled the commands of Big Pharma, I'm now going to bed.
It's times like this that Alan Greenspan proves that while he may be old, he isn't antiquated:
Federal Reserve Chairman Alan Greenspan and top IMF policy-maker Anne Krueger, fearing that decades of trade liberalization are being reversed, issued stern warnings on Thursday against signs of creeping protectionism.Their biggest concern is that governments are succumbing to short-term domestic political pressures over job losses and overlooking the biggest benefit of trade -- long-term economic growth.
"We cannot afford -- especially at this juncture -- any risk of a return to protectionism. Trade can sometimes be a controversial domestic policy issue," Anne Krueger, the IMF's first deputy managing director and top trade economist, told an emerging market conference in New York.
"But governments need to resist the pressure to give in to the lobbying of narrow interest groups who cannot benefit at the expense of the wider public," she said.
U.S. steel tariffs, ruled illegal by the World Trade Organization last week, European curbs on farm imports, and this week's U.S. import caps on some Chinese textiles, are some of the protectionist tendencies emerging everywhere, say economists.
Key world trade talks broke down in Cancun, Mexico in September over farm subsidies, a divisive issue between rich and poor countries.
Gary Hufbauer, a trade economist at the Institute for International Economics, cited signs of slowing momentum in trade liberalization.
"Textiles is troublesome and just the harbinger of more to come," said Hufbauer, expressing doubt that a U.S. plan to end all textile and apparel import quotas in 2005 would survive political pressure.
Is anyone at the White House listening to this? Because it would be a profound shame if a Democratic presidential candidate was to be able to run to the right of President Bush on this issue. And unfortunately, the President is opening the door to precisely that.
This is most heartening:
Filings for initial U.S. jobless claims fell more steeply than expected last week, a government reported showed on Thursday, while a more closely watched barometer of job conditions hit its healthiest level since before the 2001 recession began.First-time applications for unemployment aid fell 15,000 to 355,000 in the week ended Nov. 15, the Labor Department said, well below the 365,000 expected by Wall Street economists.
In the previous week, state claims rose to 370,000, revised upward from the originally reported 366,000, continuing a pattern of upward revisions seen in the last 18 months.
The closely watched four-week average of jobless claims, regarded by economists as a truer reflection of the job market than the more volatile weekly figure, fell to its lowest level in nearly three years to 367,250, down from 376,250 in the previous week.
The decline brought the four-week average to its lowest since 365,500 in the week ended Feb. 24, 2001 - a month before the economy tumbled into recession.
While the size of improvement in claims during the past two months is not huge, gradual declines in the number bode well for the U.S. labor market, which has lagged the overall economic recovery.
What can I say, other than to ask for more such reports in the future? It's especially nice to hear this around the holiday season.
UPDATE: Still more good news via Dan Drezner.
Virginia Postrel is perfectly right to characterize Howard Dean as "the thinking man's Cruz Bustamante." Here's why:
Regulation tends to be relatively invisible to the general public, in part because it's mind-numbingly technical. That makes it much more difficult to reverse, much easier for interest groups to manipulate, and much more dangerous to the general health of the economy than the taxing and spending that attract attention from pundits.It will be interesting to see how--or if--self-described "libertarians for Dean" respond to his re-regulation campaign. Are they simply looking for an antiwar candidate, and accepting Dean as the best alternative on their top issue? Are they genuinely upset with Bush's less-than-stellar record on issues like free trade, in which case Dean would be worse and should be no more appealing? Or are they just trying to hang with the cool kids?
Perry de Havilland gives us the marvelous news that George Monbiot is kinda sorta growing up.
I highly encourage the continuance of Monbiot's efforts to get a clue. Perhaps by the time I die at a ripe old age, he will justly be considered by history to be a moderate.
In response to the news that the economy grew 7.2% last quarter, observers pointed out that this growth would likely stabilize to anywhere between 3-5% growth--in large part because refund checks that were sent out as a result of the Bush tax cuts were spent, and further consumer spending from the tax cuts would not be seen.
I agree that we won't see economic growth as high as 7.2%, but apparently, we're not done with stimulus from the tax cut:
Taxpayers' refund checks will increase nearly 27% to an average $2,500 per family early next year, according to new forecasts from tax experts and economists, who say the windfalls will aid consumers, the economy and President Bush's re-election campaign.As a result of the 2003 tax cut, about 8 million families who did not receive refunds this year will likely get them in 2004, says tax software publisher Petz Enterprises. It estimates refunds for the tax season will go to 108 million households vs. 100 million this year and will total $227 billion. That's up 38% from 2003. Merrill Lynch estimates total refunds from February through May will be up 34% from this year.
The Treasury Department estimates it will collect $100 billion less in taxes in the first half of 2004 than it would have without the tax cut. That reflects not only the higher refunds but also reduced tax payments by those who don't get refunds.
The refunds will fatten bank accounts and, if spent, boost the economy because consumer spending accounts for 70% of U.S. economic activity. That will help ensure that the economic gains underway do not fizzle out, and it will ultimately benefit the 9 million Americans who are out of work.
Confounding President Bush's pledges to rein in government growth, federal discretionary spending expanded by 12.5 percent in the fiscal year that ended Sept. 30, capping a two-year bulge that saw the government grow by more than 27 percent, according to preliminary spending figures from congressional budget panels.The sudden rise in spending subject to Congress's annual discretion stands in marked contrast to the 1990s, when such discretionary spending rose an average of 2.4 percent a year. Not since 1980 and 1981 has federal spending risen at a similar clip. Before those two years, spending increases of this magnitude occurred at the height of the Vietnam War, 1966 to 1968.
Much of the spending, of course, has to do with defense and homeland security. But a lot of it represents increases in domestic programs as well. I suppose that if they tried to rein in such spending, Republicans would be castigated as "heartless" by the Left, but that castigation will occur anyway, regardless of the facts, and in the meantime, spending will continue to balloon out of control--the worst of both worlds.
Maybe we should have tried to coordinate better between agencies and departments that would have been responsible for domestic security in the pre-Department of Homeland Security era, before setting up a new Cabinet department. And maybe the President needs to issue a veto for the first time in his term, and apply it to an appropriations bill that defies common sense. He'll have plenty of targets.
Potential good news on American trade policy:
Under pressure from many of his top advisers to lift tariffs on steel imports, President Bush may be moving in that direction to avert a trade war with Europe, Republican sources and analysts said Tuesday.The White House said no decisions have been made and officials have not publicly ruled out the possibility that the administration could flout the World Trade Organization by keeping the tariffs in place.
Oh please, let's not flout the WTO any longer. On this particular issue, to flout the WTO is to flout common sense itself.
(Link via Hit & Run.)
This is one of the best online quizzes I have run across. It classifies people based on whether their economic ideologies fall into the Austrian camp, the Chicago school, neoclassical Keynesianism, or flat-out socialism.
Eleven of my answers corresponded with the viewpoints of the Austrian school, and fourteen with the viewpoints of the Chicago school, giving me a score of 72/100 (with 100 being the perfect Austrian, 50 being the perfect Chicagoan, 25 the prototypical Keynesian, and 0 the hopeless socialist). I suppose this makes me the near-perfect synthesis of the best of the Austrian and the Chicago schools.
Some of the Chicago school answers came in when national defense became an issue--I just don't buy the idea that private security arrangements can or should replace a national standing army, and security and defense issues must come before economic production--you simply cannot have the latter without the former. But I also agree with the Chicago school answer on how best to conduct research, the policy on savings, the source of economic value, and the causes of the business cycle--among other things. I sympathize with a lot of the Austrian answers, but think that a number of them are unrealistic.
But that's me. Take a look at the test and see where you come out.
Once again, the World Trade Organization has ruled against the steel tariffs imposed last year by the Bush Administration. At some point, it would be nice to see the Administration drop this disastrous and foolish policy. It is only hurting itself in the eyes of free-traders, the tariffs will do nothing to attract labor support in 2004, and not insignificantly, the imposition of tariffs only serves to hamper economic growth.
John Edwards, kindly take note. When a Democrat who previously served as Labor Secretary, was never identified with the Democratic Leadership Council, and serves as the Chairman of the Board of Directors of the hyperpartisan American Prospect starts calling you on your fast and loose use of the facts, you know you're in trouble.
Michael Cox and Richard Alm provide more good news in their New York Times op-ed on the employment situation, and explain the deeper meaning behind job statistics.
This is very good news, and hopefully a harbinger of things to come:
The nation's unemployment rate dropped to 6% in October as companies added thousands of new jobs for the third straight month, the government said Friday in a surprisingly rosy report showing the labor market at last catching up with the broader recovery. The Labor Department reported payrolls grew by 126,000 last month, significantly more than the 50,000 new jobs that economists had predicted. That followed a revised 125,000 new jobs in September, which initially was reported at 57,000.Companies also added new jobs in August, marking three months of hiring gains following a sixth-month slump. October hiring occurred across a broad swath of the business landscape, including technical services, temporary employment firms, health care, social work, education and retail.
Over at Larry Lessig's blog, he is hosting guest-blogger and presidential candidate John Edwards. Edwards's blog posts are the typical pablum that one gets nowadays from candidates--is there any candidate willing not to blog in soundbite form nowadays? But he got my dander up when in this post, Edwards said the following:
Everyone knows how the tech boom of the late nineties created wealth for Americans. But today, we’re seeing a very different trend: high-tech jobs moving overseas to countries like India. In every state where I campaign, I meet people who feel like they did everything they were supposed to do--like staying in school and getting high-level skills--and yet they are still losing work as their jobs leave America.
I have no doubt that outsourcing is going to serve as an effective issue on which to get applause lines, but that doesn't mean it is an intellectually honest tack for argument. Dan Drezner has already debunked many of the myths surrounding outsourcing. Even worse myths surround the issue of outsourcing in the manufacturing sector, as this post pointed out.
I wish that people would take candidates to task when they raise outsourcing as an all-purpose bogeyman used to frighten people. Alas, that would require an intelligent press corps capable of discerning between fact and propaganda, and having a shred of familiarity with the complexities of actual policy arguments, wouldn't it?
The number of Americans filing first-time claims for jobless benefits took an unexpectedly sharp plunge last week, reaching a level not seen since before the economy tumbled into recession in 2001, a government report showed on Thursday.A separate report showed U.S. business productivity soared in the third quarter, suggesting little risk inflation will flare despite signs the economic recovery is on firmer ground.
Initial claims for state unemployment aid fell 43,000 to 348,000 in the week to Nov. 1 from a revised 391,000 the prior week, the Labor Department said. It was the lowest level since late January 2001, two months before the recession began.
Stocks were poised to open higher on the data, which suggested an improvement in corporate profits and offered hope a jobs recovery may finally be at hand. Prices for U.S. Treasury securities fell sharply, while the dollar rose.
Economists had expected claims to slip to 380,000 from 386,000 -- a figure boosted by a grocery store strike in California -- initially reported for the week to Oct. 25.
"The large drop in claims ... confirms that firms have begun to hire and employment has turned up," said Jade Zelnik, chief economist at RBS Greenwich Capital Markets.
More good economic news for us all to feast on:
Stocks jumped on Monday, driving the Dow and the S&P; 500 to fresh 17-month highs after a surprisingly strong reading on the manufacturing sector lifted investors' hopes for a U.S. economic rebound.U.S. manufacturers slowed the pace of layoffs and boosted output in October to its best level in more than 3-1/2 years, according to a report released early in the session. Separate data showed U.S. construction spending surged unexpectedly in September to a record high.
"This is consistent with the idea that the economy is moving along quite nicely," said Steve Ricchiuto, chief economist at ABN AMRO.
Major market gauges extended gains after the reports and hovered at session highs by midday.
The technology-loaded Nasdaq composite index <.IXIC> rallied 30 points, or 1.57 percent, to 1,963, near its 2003 high of 1,966.87.
The blue-chip Dow Jones industrials <.DJI> rose 84 points, or 0.85 percent, to 9,885, on track for its sixth straight day of gains. The broader Standard & Poor's 500 Index <.SPX> added 9 points, or 0.86 percent, to 1,060. Both indexes hit their best levels since early June 2002.
Jumpin' Jehosophat, yeehaw!
There's been delightful news on the economy released today:
The economy grew at a blistering 7.2 percent annual rate in the third quarter in the strongest pace in nearly two decades. Consumers spent with abandon and businesses ramped up investment, compelling new evidence of an economic resurgence.The increase in gross domestic product, the broadest measure of the economy's performance, in the July-September quarter was more than double the 3.3 percent rate registered in the second quarter, the Commerce Department reported Thursday.
The 7.2 percent pace marked the best showing since the first quarter of 1984. It exceeded analysts' forecasts for a 6 percent growth rate for third-quarter GDP, which measures the value of all goods and services produced within the United States.
"This is a gangbuster number. Everything came together for the economy in the third quarter," said Mark Zandi, chief economist at Economy.com. "The key challenge now is jobs," he said.
How good was the news? So good that the glee appears to have crossed partisan divides (and we should all be glad when that happens). Quoth Kevin Drum:
Wow. The economy grew 7.2% last quarter, a blistering pace. And possibly even better news is how it grew:The major contributors to the increase in real GDP in the third quarter were personal consumption expenditures (PCE), equipment and software, residential fixed investment, and exports. The contributions of these components were partly offset by a negative contribution from private inventory investment.
Consumer demand (including cars), capital equipment, and higher exports are all great fundamentals, unlike last quarter when a big fraction of GDP growth was due to war expenses. The residential investment boom is unsustainable, I think, but even if you discount that the growth number is still terrific.
The reports I heard on NPR this morning indicate that while it isn't expected that GDP will grow as much as 7.2% in the next quarter, it will still grow a healthy 4-5%, which remains quite strong.
As for why this quarter's performance was so impressive:
"There should be no doubt that the president's jobs and growth package was largely responsible for the torrid third quarter growth rate," said economist Rich Yamarone of Argus Research in New York. "Meanwhile the Federal Reserve's [low interest rate] monetary policy helped spending on the most interest rates sensitive sectors of the economy, autos and housing."
The more this argument gets out, of course, the greater the chances that Bush will win a second term. I imagine that the White House is full of happy faces today.
A thought-provoking article by the always thought-provoking Arnold Kling.
Tyler Cowen points out that contrary to popular belief, the United States is the most generous country in the world.
UPDATE: Dan Drezner believes that remittances are important to measure, but adds the following caveat:
Remittance flows are clearly important, but counting them as examples of American generosity strikes me as a bit off-kilter. Americans aren't remitting this money -- foreign nationals are. The U.S. deserves a measure of credit for permitting foreign workers into the country and sending money back -- indeed, I agree with Tyler Cowen that remittances are, "the most effective welfare programs ever devised." However, this policy is of a different kind than either public or private aid.
Dan's right, but I think that the key point that should be emphasized is that the remittances are possible in the first place because of the American policy towards foreign nationals. So while remittances may not be an example of "American generosity," they could very well be an example of the American facilitation of generosity.
But assuming that other factors are controlled and accounted for, the study commented on here is one of the most devastating indictments of high marginal tax rates that I have seen in a long time.
This post is very encouraging, and the news it reports is long-awaited. Imagine just how powerful India's economy could be if it continues in its efforts to shake off its "statist shackles." And just imagine how powerful the Indian economy would already be, if the country's leadership had committed to a course of economic liberalization years earlier.
Just the thing to serve as a balm on my sports wounds:
The U.S. jobs market is showing signs of improvement and inflation remains low in the economy outside the energy sector, government reports on Thursday said.The number of Americans filing an initial claim for jobless benefits fell last week to the lowest level since early February, the Labor Department said, a hopeful sign for job seekers.
Underlying inflation, stripping out volatile food and energy costs rose 0.1 percent in September, in line with expectations. Over the last 12 months, the core CPI has risen just 1.2 percent, the smallest increase since February 1966, the department said.
"By and large these numbers so far today show a strong economy," said Pierre Ellis, senior international economist at Decision Economics.
First-time filings for state unemployment aid fell 4,000 last week to 384,000 from the previous week. The number was broadly in line with analysts' expectations that claims would be 388,000.
"The jobless numbers were certainly encouraging. We got a decline and it suggests that the labor market is recovering," said Parul Jain, Nomura Securities International.
Excellent. More of this, please.
Dan Drezner expounds on a neglected facet of bringing about a free trade economy--removing capital controls and ensuring liberalization when it comes to areas such as equity markets and general financial development. It's an excellent article, which I strongly encourage you to read.
By the way--and forgive me for shilling for my alma mater yet again--can I get a "Thank God" from the congregation for the Chicago School of Economics? Their vibrant theories, eloquence, and articulate defenses of the free market are invaluable in doing battle against the statist theories and arguments of a Krugman, or a Stiglitz. We would be intellectually and financially impoverished without the Chicago School, whose contributions to the debate over economic policy are ongoing and without measure.
New claims for unemployment insurance fell last week to their lowest level in eight months, a hopeful sign that companies may be having a bit more faith in the staying power of the economic recovery and thus are easing the pace of layoffs.The Labor Department reported Thursday that for the work week ending Oct. 4 new applications for jobless benefits dropped by a seasonally adjusted 23,000 to 382,000, the best showing since Feb. 8. That marked a better performance than analysts were forecasting. They were predicting claims would dip to 395,000 last week.
New claims hit a high this year of 459,000 in the middle of April. With claims last week dipping below 400,000, a level associated with a sluggish labor market. Economists are encouraged that the pace of firings may now be stabilizing.
The more stable, four-week moving average of new claims, which smoothes out weekly fluctuations, declined by 11,500 last week to 393,500, also the lowest level since Feb. 8.
The number of unemployed people collecting jobless benefits for more than a week also went down by 7,000 - to 3.6 million for the week ending Sept. 27, the most recent period for which that information is available.
Hopeful signs on the labor market front come as the economy, which grew at a annual rate of 3.3 percent in the April-to-June quarter of this year, is believed to have picked up more speed and grown at a rate of around 5 percent in the July-to-September quarter, economists said.
For the first time in eight months, the economy actually added jobs in September - 57,000 of them - helping to keep the nation's unemployment rate at 6.1 percent, the government reported last week.
At the risk of upsetting plans to revel in partisan displays of schadenfreude, behold the winners of the 2003 Nobel Prize in Economics.
None of them are named "Krugman," though to be perfectly honest, I wish that one of them was named "Bhagwati."
I really wish that more people would recall this when discussing manufacturing layoffs:
Some fallacies just keep coming back no matter how many times they have been exploded. Jobs in the manufacturing sector are disappearing and have been doing so for 30 years. The reason this has occured, however, is not because we have "sent the good jobs overseas" and it is not because our manufacturing sector is "rusting." Jobs have disappeared because the manufacturing sector has been spectaculary succesful. When measured in terms of what ultimately matters, output, the U.S. manufacturing sector has more than doubled in size over the past 30 years. We are now producing more "stuff" than virtually ever before and because of productivity improvements we are doing it with less labor.
I read somewhere--can't recall where--that job losses due to outsourcing have amounted to a mere 0.1% of total job losses in the past few years. If anyone has the source for this, or a source that claims something else, I'd appreciate it if they dropped it in the comments section. In any event, not enough people seem to understand that the layoffs in the manufacturing sector are due to fabulous efficiency. Perhaps this aspect of the employment economy should be discussed a wee bit more.
I've been in favor of replacing our current "progressive" income tax structure with a consumption tax for a rather long time. In my tax scheme, there would be a small tax placed on necessaries, while luxury items would be taxed at a higher rate (I haven't worked out tax rates or definitions for "necessaries" and "luxury items" just yet). The benefit of this general scheme is severalfold:
1. You don't have any of your income withheld, which means that you have more purchasing power with which to prime the economic pump;
2. The ability to generate revenue in a consumption tax system depends explicitly on the growth of the economy (if people are buying less, less revenue flows into government coffers). As such, policymakers have a greater incentive to enact programs designed to stimulate economic growth (such as a repeal of unnecessary, wasteful and stifling regulations, and further tax cuts).
3. The argument that a growing economy helps bring in more revenue than higher income taxes ever could will be tested and proven.
4. No more worrying about loopholes, exemptions, and other devices that make the tax code so incredibly complicated. No more reams of paperwork, or a need for people to have to spend hundreds--if not thousands--of dollars consulting accountants and other tax experts to help them fill out their taxes. A significant cut in the government bureaucracy will likely follow the enactment of a consumption tax system. In the long run, this absence of bureaucracy, and simplification of the tax code will probably save billions of dollars.
Anyway, I write all of this inspired by Stuart Buck's recent post--which further explains the advantages of a consumption tax-based system. Be sure to take a look at it. I personally think that in addition to being good policy, a lot of political hay can be made out of advocating the implementation of a consumption tax system in place of the current tax structure. Perhaps the Bush Administration might do well to adopt this issue in the upcoming presidential campaign. I don't imagine that many Americans will object to a simplified tax structure--especially one which could bring in more revenue, with less administrative costs, while at the same time serving to encourage economic growth more than a "progressive" income tax structure ever could.
Dan Drezner has a great post discussing how privatization, and the introduction of foreign ownership in Iraq will ultimately help the Iraqi people.
This editorial takes a well-deserved shot at the Bush Administration's decision to impose steel tariffs, and tallies up the cost of the tariffs to the American economy. This stupid policy cannot be reversed fast enough, and it would have done the writer(s) well to mention the equally ridiculous lumber tariffs that are also weighing down the economy.
It's really hard to believe that people still believe in protectionism as a panacea. It's not. It's bad policy, and it should be considered bad politics as well.
Dan Drezner has an excellent post demonstrating why Paul Krugman's arguments on income inequality are so wrongheaded. I especially like Dan's statement about Krugman's argument that we are a more polarized society today than we were 30-odd years ago, thanks to income inequality:
Krugman's reference to 1970 is interesting, since income inequality was much lower in 1970, the peak of the Great Society programs.Despite the reduced level of inequality, society was more polarized back then. Anyone who believes that the country currently has a more socially polarizing climate now than in 1970 is, well, either lying or lost their grip on reality. Does Krugman really think that the debates about Iraq or affirmative action today even approximate the division and discord that Vietnam, Kent State or school busing generated thirty years ago?
A basic grasp of American history would show that Krugman's comments on this issue don't even come close to passing the giggle test, and that Dan has Krugman dead to rights. Of course, Krugman sacrificed accuracy in his arguments long ago in order to make partisan points.
IMMEDIATE UPDATE: Jane Galt's comments on Krugman--and his assertion that life was better in the 1950s and 1960s--are characteristically withering:
Mr Krugman's obsession with inequality has an odd quality of unthinking nostalgia for a supposedly hard-headed economist. He has located the golden age of society in a time when the poverty rate was 22%, an entire class of people were stratified into the bottom of the income distribution because of the color of their skin, and the middle class family he claims had the ticket to the material good life had drastically fewer possessions: one car, homes half the size of now, perhaps a third as many clothes, no dishwasher, very possibly no dryer. One hates to play the gender card, but I note that many of the missing material goods were made up by coolie labor on Mom's part; those days might not seem so close to perfection if Mr Krugman thought of spending his days darning socks and poaching eggs. This is relevant because another convincing explanation for increasing income inequality is working women: men higher up the income distribution are likely to be married to women who are also high-earners, which tends to make income variation more extreme.But ultimately I imagine that those days seem perfect to Mr Krugman because back then he was a child, unworried about mortgages or grocery bills. I feel very similarly about the carefree days of the 1980's. But I don't think that Mr Krugman's fond memories of his childhood years are a very good basis for our tax policy.
About the only thing Jane fails to mention is that whenever a conservative displays nostalgia for the past, he/she is condemned as an unthinking troglodyte--something I find deeply ironic as I read about Krugman yearning for the past. Other than that, her comments are right on the money (no pun intended).
Via InstaPundit comes this devastating Fisking of Paul Krugman based on Krugman's recent interview with Kevin Drum. Be sure to read it.
UPDATE: Tacitus gives us hilarious commentary on the interview (and I mean that in a good way):
Paul Krugman is hopelessly naive and never paid attention to conservatives before the year 2000. That's the only conclusion I can draw from his interview with Kevin Drum, in which he plumbs the depths of the right's hidden agenda to find that we're opposed in principle to most if not all social programs! Back to the hive, comrades, we are exposed. The corollary rhetoric about the abolition of the First Amendment and the cancellation of meaningful elections is just risible paranoia. There is a worthwhile nugget of insight in his observation that the strategem of "starving" social spending via underfunding and deficits simply won't work absent national catastrophe; certainly an important point in itself. But on the whole, if Drum's exposition was supposed to move us beyond Krugman's image of a frenetic, blinkered partisan, it only succeeded in solidifying that perception. Next: Krugman finds that libertarians want to eradicate government altogether. Someone must warn the American people.
Chuckle.
John Hawkins has snagged an interview with the great Milton Friedman. Don't even linger around here--go read!
Dan Drezner has a post indicating that we are soon to see a strong performance by the U.S. economy, and economies around the world. This is excellent news, and if it is accompanied by strong job growth (the post indicates that a large number of jobs will be created in the fourth quarter of this year), it will render quite the assist to the Bush campaign next year.
Ronald Bailey puts it best:
Ambitious trade negotiations at the World Trade Organization's fifth ministerial conference fell apart over irreconcilable differences between the demands of rich countries and poor countries. In a case of cutting your nose off to spite your face, the trade negotiators from the poor countries are tonight celebrating what they will all too soon realize is a Pyrrhic victory over the rich WTO countries. The fact that the lobbyists for American cotton farmers, European sugar beet growers, and American textile manufacturers are also celebrating the collapse should really frighten the poor countries who forced the talks into collapse. New, liberalized trade rules could have increased world income by $230 billion annually and, according to a recent study by the Center for Global Development, could have lifted 200 million of the poor in developing countries out of poverty. Instead, the poor countries left Cancun with nothing.
Read the rest. It never fails to amaze me how many people choose to forego the benefits of free trade.
Via Alan Reynolds:
When government officials asked people if they had a job last month, 137.6 million said "yes." But when employers were asked, they said they had only 129.8 million on nonfarm payrolls.There are several reasons why the number of people on business payrolls is bound to undercount the number of workers. If more people are working at home as self-employed consultants, or working through temp agencies, they would not show up as payroll employees. And "nonfarm payrolls" ignores the fact that agriculture added 155,000 workers in August. What is nonetheless quite remarkable is that these two measures of employment are now much further apart than they were back in early 2001.
Experts decided the recession started in March 2001, two months after President Bush was sworn in, although stocks had by then been falling for a year and industrial production for seven months. According to the survey of households at that time, there were 137.7 million employed — virtually the same as now. Yet the payroll survey then counted 132.5 million jobs — 2.7 million more than now.
Depending entirely on which measure you choose, we have either recovered all the jobs lost during the recession or lost 2.7 million. Reporters who relish bad news and bad politics invariably tout the latter figure. The Washington Post's reporter Jonathan Weisman wrote hysterically of "the longest hiring downturn since the Great Depression" — a patently absurd comparison. California Gov. Gray Davis claimed "no president since Herbert Hoover has seen job losses like this." In reality, today's 6.1 percent unemployment rate is the same as it was in 1994 or 1987 or 1978 — years in which nobody pretended to see any similarities with the Great Depression.
I think that the economy can do better than it is doing--though it appears that the economy is raring to go again in the fourth quarter, based on most of the estimates that I have seen. It is interesting, however, how every Republican President is compared to Herbert Hoover by partisans on the other side, while those same partisans deride any negative commentary on the previous administration as "Clinton-hating."
The conventional wisdom is that outsourcing is terrible for the employment situation in the U.S.. Dan Drezner shows why that belief may be wrong in the long run. Be sure to take a look at his post.
Lynne Kiesling shows why in a brilliant post all of you are encouraged to read.
(Link via Virginia Postrel, who really needs to put me on her blogroll one of these days. I'm not kidding, either. Anyone want to start a movement?)
The answer might surprise those who reflexively oppose tax cuts:
A RECENT New York Times poll of Gotham residents on the state of the city and on Mayor Bloomberg's popularity contained striking information that didn't make it into the paper. New York's minorities, the poll numbers show, don't support the mayor's recent tax increases - in fact, blacks and Hispanics oppose them at higher rates than do the city's whites. The results belie the perception that minorities are friendlier than other voters to tax increases and tend to oppose government cost-cutting - a perception that rests on the tax-friendly, free-spending voting patterns of the city's minority pols rather than on the actual views of minority voters.New Yorkers are most riled up over the property-tax hike. In all, 74 percent of New Yorkers opposed it. But the numbers are even higher among minorities: 84 percent of blacks and 80 percent of Hispanics don't support the increase.
The stratospheric minority opposition is especially noteworthy, because only about 28 percent of black New Yorkers and 14 percent of Hispanics in the city own their homes. But minority home-ownership rates are increasing rapidly in Gotham, so the poll numbers may reflect the aspirations of those hoping to achieve the American dream - and their very real fear that tax increases will make it harder to do so.
The Times' poll also found that only 34 percent of New Yorkers considered the city's recent boost in the sales tax reasonable. But this tax hike, too, was most unpopular among black New Yorkers, with just a minuscule 19 percent endorsing it, while only 30 percent of Hispanics favored it. By contrast, 44 percent of white New Yorkers supported it.
I wouldn't be surprised if these numbers are replicated across the country. Just something to keep in mind the next time we enter a tax policy debate, and we are told that the only people in favor of tax cuts are the wealthy and the white.
Virginia Postrel reminds anyone who needs reminding that Cruz Bustamante would be absolutely terrible for the California economy. I discussed Bustamante's economic neanderthalism here, and referenced it at the bottom of this post as well.
Arnold Kling has a very interesting article about the future of the American manufacturing sector, and the somewhat misguided attempts to deal the changes in the sector.
Dan Drezner properly excoriates President Bush for a rather ridiculous bout of pandering regarding the issue of jobs and the global economy. I certainly hope--as Dan suggests--that the protectionist sentiment he notes is purely rhetoric. But I wish that such rhetoric would be as shameful and embarrassing to express as the policies of protectionism are to enforce.
More good news regarding the economy:
The American economy grew at a revised annual rate of 3.1 percent in the second quarter, the government reported today, and the unexpected strength is leading economists to raise their forecasts for the rest of the year.Among the positive signs are the continued strength of consumer spending, the bounce-back in business capital investment, the leanness of business inventories and a jump in corporate profits.
A surge in military spending connected with the war in Iraq was also a big contributor to second quarter growth.
Inflation as measured by the gross domestic product is still low, rising at an annual rate of 0.7 percent in the second quarter, a fact that analysts said would reinforce Wall Street's belief that the Federal Reserve would keep short-term interest rates low for a long time.
"So far, the data have been pretty encouraging," said Richard Berner, chief United States economist at Morgan Stanley, who said third-quarter growth could be as high as 5 percent, a full percentage point above his current forecast.
"We see a pretty nice story building up behind the scenes," said James E. Glassman, senior United States economist at J. P. Morgan. "What is impressive about this number is the strength of final demand," which grew at a 4 percent rate in the second quarter. He said his current forecast of 4.5 percent growth in the third quarter "should be higher."
"When you see strong demand and falling inventories, that tells you the business community has been surprised by demand," Mr. Glassman added. That means restocking of inventories should provide a good boost to growth this quarter.
If we do achieve 4-5% economic growth by next year, that should make Bush all but unbeatable, assuming, of course, that we see a commensurate drop in unemployment. Since employment figures are a lagging indicator, that can be a little iffy.
The Cato Institute says that the best way to honor Labor Day is to allow workers to keep more of their own money. To that end, they have constructed this site on pension reform, which has a lot of very interesting links on it. Be sure to check it out.
Speaking personally, I cannot even hope to imagine the mindset of someone who believes that there shouldn't be more individual investment choice built into the American pension system--along with options to invest in the private sector. If someone wants to do that with their money, who are anti-choice opponents to tell them otherwise? The only people who are affected are those who make the investments, and their families--who likely will have a say in the investment.
It always fascinates me that there are so many national debates that we just don't need to have, and wouldn't have if we recognized the virtue of leaving people alone from time to time. This issue qualifies.
Well, at least in part. Read this very interesting article which indicates that the more experienced a person is in trading, the more he/she is likely to behave as a rational economic actor--which neoclassical economic theory predicts.
Stephen Green has some good news about a reversal of steel tariffs imposed by the Bush Administration. It's long since past time that the Administration dropped the tariffs, but better late than never. Now, perhaps the Administration could also get around to dropping those ridiculous lumber tariffs as well.
The tax-cutting rounds in Washington are not--and should not even remotely be considered--at an end. R. Glenn Hubbard explains why in this article, where he rightfully denounces the level of corporate taxation presently in America:
At 35 percent, the U.S. corporate tax rate is surpassed only by that of Japan's among leading industrialised nations. For U.S. multinationals, the story is particularly bleak. Double taxation of U.S. companies' overseas operations raises the cost of capital, damping investment in economic activity at home and reducing the competitiveness of U.S. companies' exports.This is where the new tax cut bills come in. Discussion centres on international tax policy because the U.S. needs to replace U.S. export subsidies judged illegal by the World Trade Organisation. But this necessary change offers an opportunity to tackle wider problems in corporate taxation.
Hubbard then goes on to identify and summarize the proposed solutions to the problem, as well as giving his own endorsement to one of the plans. He then returns to giving us a pithy explanation of the problem itself once again:
The starting-point for multinationals' investment in foreign countries is the same as for investment at home: profitability. Indeed, each dollar of foreign direct investment by U.S. companies, in present value, generates 70 percent more interest and dividend receipts and U.S. tax revenues than the equivalent dollar of domestic investment.But the U.S. approach to international taxation dates from the 1960s, when U.S. companies provided half of all foreign direct investment, produced about 40 percent of the world's output and made the U.S. the largest capital exporter in the world. The U.S. is now the largest importer of capital and no longer dominates foreign markets.
If U.S. businesses are to succeed in the global economy, the U.S. tax system must not hamper their ability to compete against foreign-based companies--especially in foreign markets.
At the moment, however, the tax system contains a bias against U.S.-based multinationals because it differs in several important respects from the system operated by most of America's trading partners. While about half the leading industrial countries do not tax the active income earned by a foreign subsidiary, the U.S. taxes all income earned through a foreign company. The U.S. also places greater restrictions on the use of foreign tax credits, leading to double taxation of international income.
Be sure to read the entire article--as it points out an oftentimes overlooked problem with the national tax structure.
I get rather tired of partisans on the other side of the ideological divide claiming that the previous Administration was responsible for a roaring economy. Daniel Griswold put the lie to that claim a long time ago--over three years ago, to be precise:
The first problem is a matter of chronology. Vice President Gore recently declared, "It is not recession time in America, like it was back in 1992." But the National Bureau of Economic Research, the official keeper of the business cycle, dates the end of the last recession to March 1991, a full year and a half before Bill Clinton and Al Gore took the oath of office. Indeed, every time Clinton and Gore refer to the record length of the current expansion, they implicitly acknowledge its pre-Clintonian origin.Contrary to Gore's claim, this administration inherited an economy that was already growing at more than 3 percent a year, including a 5.4 percent annualized burst of real GDP in the fourth quarter of 1992. Unemployment, inflation and interest rates were all heading south before Clinton and Gore arrived on the scene.
The idea of a Clinton-Gore expansion is further discredited by the fact that the president's economic agenda was largely frustrated from the beginning. His own Democratic Congress denied him the "stimulus package" and the sweeping nationalization of health care he sought during his first two years in office. He did manage to coax passage of a huge tax increase in 1993 (minus the broad energy tax he and Gore wanted), but this was not a unique feature of Clintonomics. His predecessor George H.W. Bush had also signed a tax increase of similar magnitude in 1990.
The election of a Republican Congress in November 1994 all but wiped out what was left of the Clinton economic agenda. By the beginning of 1995, tax increases and Hillarycare were out, spending restraint and deficit reduction were in (with Clinton resisting the former and reluctantly agreeing to the latter).
With the president's economic agenda in check, the economic expansion only gained steam. Growth picked up to more than 4 percent, inflation stayed subdued, and unemployment continued to fall. Congress even managed to pass a modest cut in the capital gains tax in 1997, an item conspicuously absent from the president's agenda. The expansion has endured not because the administration's economic agenda was enacted but because so much of it wasn't.
A stock market that had languished during the first two years of the administration moved sharply upward when it became clear that the new Republican Congress had brought an end to Clintonomics as we knew it. Since the beginning of 1995, the broad New York Stock Exchange Index has appreciated at an annual rate of 18.7 percent, compared to an anemic 2.2 percent rate during the two years when Democrats controlled both Congress and the White House.
This is not to say the Clinton administration deserves no credit for the expansion. Clinton reappointed Alan Greenspan as chairman of the Federal Reserve Board and has backed the Fed's successful monetary policy. His Treasury Department has prudently managed exchange rate policy, mostly through benign neglect. And the administration has shepherded two major trade liberalization bills through Congress, the North American Free Trade Agreement with Mexico and the Uruguay Round Agreements that established the World Trade Organization, further opening the U.S. economy to the invigorating discipline of global competition. Admission of China to the WTO would be the capstone of a successful Clinton pro-trade policy.
But even these contributions essentially continued the policies of previous administrations. After all, the Uruguay Round, NAFTA and engagement with China all began in the Reagan-Bush years, as did Greenspan's tenure at the Fed. Clinton's achievements on the trade front owe more to support from Republican members of Congress than from those in his own party.
I'm perfectly willing to give the previous Administration the benefit of the doubt on trade (where they were a pleasant surprise) and monetary policy (which as Griswold points out, was mostly due to the Administration's benign neglect). But the full-throated claims of credit from the previous Administration, and from Democratic partisans--claims that defy the facts and the historical record--are really too much to be stomached. Google is right there for all of us to use, and to fact-check Democratic claims with. And when we do, those claims really can't stand the light of day.
The housing market continues to perform strongly:
U.S. sales of previously owned homes rose to a record in July and prices had their biggest 12-month gain in almost 23 years, an industry report showed.Existing home sales totaled 6.12 million at an annual pace during the month, up 5 percent from June's 5.83 million and the third increase in the last four months, the National Association of Realtors said. The increase was fueled by interest rates that had fallen to an all-time low in June.
A 1 percentage point rise in average 30-year mortgage rates since then may restrain home sales later this year and limit their contribution to growth. Home sales have helped support the economy's expansion.
"It's likely that we have hit the peak,'' said Van Davis, president and chief executive officer of Century 21 Real Estate Corp., in an interview. "The good news is that I don't see a significant slowdown. The economy is picking up, real wages are rising, and interest rates are still low, and in that environment,'' housing won't slump, he said.
I think that it is becoming more and more likely that by the time the election rolls around next year, the economy will cease being that much of an issue for the Democrats--if it is an issue at all. Which means that a candidate like Howard Dean would be left out in the cold if he is the nominee. All of this only serves to confirm my belief that Joe Lieberman, and his ability to appeal to the middle, would constitute the greatest threat to President Bush's re-election campaign.
Tyler Cowen notes a poll indicating that the poor like globalization and multinational corporations, especially if they are in sub-Saharan Africa. That's great, of course, but I just want to mention that I noted this exact story nearly two months ago.
It's wonderful to be two months ahead of the Volokh Conspiracy on at least something. And now, it is indeed time for the Nelson Mundt laugh:
So here it is: "Ha ha!"
But it's worth a try: Stephen Green explains basic economics to Howard Dean:
Take ten percent off my taxes, and I get a couple hundred bucks. Maybe I'll buy a new stereo receiver or, more likely, buy a few extra steaks each month at Sam's Club. Or maybe I'll get myself one of those cool Lego MindStorm sets for Christmas. Net result to economy? Negligible. The only way demand-side tax rebates are more economically-stimulating than government borrowing is, at least I get to choose what becomes of the extra money.Take the same percentage off the amount owed by Bill Gates, and we're talking millions of dollars. What's he do with them? Why, he buries them in the back yard, of course. Hardly. You know the drill: he invests it, because he wants even more money. Smart investments mean future productivity gains. Net result to economy? Pretty damn big.
Let Uncle Sugar keep the money? Forget "infrastructure," forget "the needs of the average American," forget anything sane at all. We'll get more of the same Washington spending, most of which would be more profitably used as kindling. Fire keeps us warm, at least, but I'll be damned if I can figure out what we get out of sugar subsidies or Congressional junkets to Bermuda.
Here is the story, and hopefully, it signals that we have turned the corner completely in the recovery.
Now this is excellent news. Let's hope we are deluged with such reports in the immediate future.
I guess it was inevitable that people would make stupid arguments about the economics of the blackouts. Good thing we have Jane Galt to set those people straight.
The Fed has made a lot of people very happy today:
It took a while to sink in, but Wall Street finally stood up and applauded today after the Federal Reserve promised that low interest rates "can be maintained for a considerable period."Announcing its totally expected decision to leave short term interest rates at their lowest level in 45 years -- just 1 percent -- the Fed sought to calm the concerns about inflation that have driven up long term rates and held back stock prices since the Fed's last meeting.
The risk of inflation -- which would force The Fed to raise rates -- is not as great as the risk of deflation -- the dreaded decline in prices that might occur if the economy gets into serious trouble, Federal Reserve officials said in their precisely worded by still confusing assessment of the economy.
"The upside and downside risks to the attainment of sustainable growth for the next few quarters are roughly equal. In contrast, the probability, though minor, of an unwelcome fall in inflation exceeds that of a rise in inflation from its already low level."
At the same time, Fed Chairman Alan Greenspan and his economic policy making peers said there is evidence that low rates are "providing important ongoing support to economic activity."
After considerable head-scratching, Wall Street finally translated that into stock and bond prices.
The Dow Jones industrial average dipped slightly after the Fed statement was issued, then climbed in fits and starts, finally picking up momentum as buyers rushed to beat the closing bell.
The Dow closed up 93 points at 9,310.06, a 1 percent gain.
Here's to more such good news in the future.
I promise to make Milton Friedman my chief economic advisor.
Failure would be impossible with Milton on my side.
This report is highly welcome:
America's business productivity soared in the second quarter of 2003 and new claims for unemployment benefits dropped to a six-month low last week, a double dose of good news as the economy tries to get back to full throttle.Productivity - the amount that an employee produces per hour of work - grew at an annual rate of 5.7 percent in the April to June quarter, the best showing since the third quarter of 2002, the Labor Department reported Thursday. That marked an improvement from the 2.1 percent growth rate in productivity posted in the first three months of this year.
In a second report from the department, new applications for jobless benefits fell by a seasonally adjusted 3,000 to a six-month low of 390,000 for the work week ending Aug. 2. It marked the third week in a row that claims were below 400,000, a level associated with a weak job market. This suggest the pace of layoffs is stabilizing. Claims hit a high this year of 459,000 during the work week that ended April 19.
Both the productivity and jobless claims figures were better than economists were expecting. They were forecasting productivity to grow at a 4 percent pace in the second quarter and for jobless claims to rise.
For the economy's long-term health and rising living standards, solid productivity gains are crucial. They allow the economy to grow faster without triggering inflation. Companies can pay workers more without raising prices, which would eat up those wage gains. And, productivity gains also can bolster a company's profitability.
Of course, imagine just how much better the economy could be if there was some responsible leadership in California, which gives the rest of the country a cold when it sneezes. If the Californian economic engine could get humming again after years of incompetent leadership, it would benefit the nation as a whole. And of course, there is a certain potential gubernatorial candidate-draftee who could do all of this . . .
More good news on the economic front:
US economic growth shot to an annual pace of 2.4 percent in the second quarter, shattering sluggish expectations.Defying forecasts for growth closer to 1.5 percent, the US economy gave the clearest sign yet it is shaking off Iraq war-inspired shock and gathering speed, with business investment finally back.
The return in business investment, a 52-year record surge in defense spending, robust consumer spending, and a red-hot housing market powered growth, early Commerce Department estimates showed.
"This is a very positive confirmation that the economy is turning the corner," said BMO Financial Group economist Sal Guatieri.
Gross domestic product, which had grown at a sickly 1.4-percent pace in the first quarter, appeared to be responding to a double dose of tax cuts and 45-year record low interest rates.
Businesses, long cowed by the Iraq war uncertainties, lifted non-residential fixed investment by 6.9 percent, with spending on structures such as factories up by a 43-year high of 4.8 percent and equipment/software expenditure up 7.5 percent.
Slowly but surely, things appear to be falling into shape for strong economic performance. Hopefully, the employment numbers will follow soon. As I write this, the Dow is skyrocketing, so it appears that I'm not the only one pleased by this bit of news.
It's good to see reports like this one--which is generally favorable--finally coming to light. I'm growing more and more optimistic about the economy, and hopefully, we will see some strong gains in GDP soon.
UPDATE: More good news here.
Some guy named Epstein, who is a law professor at some nondescript university, has written a very interesting article denouncing the parallel importation of drugs from a free trade/libertarian perspective. It's worth a read.
Be sure to keep your eyes on this Epstein fellow. He seems like an up-and-comer to me.
Jobless claims have fallen to their lowest level since February of this year--a great piece of news for the economy. Considering the fact that unemployment is a lagging indicator, perhaps this means that finally, the employment numbers are beginning to catch up to the economy as a whole.
Now, we'll have to see if employers not only slow down or stop the level of layoffs, but begin hiring as well. Some of the economists quoted in the report are pessimistic about that, but at the same time, they also expected the jobless claims to rise higher. Let's hope they are wrong again.
But I am very happy that we lost this:
The World Trade Organization ruled against heavy duties on steel imports imposed by the Bush administration, saying Friday that they violate global trade rules.The European Union and seven other countries that had opposed the tariffs demanded Washington immediately lift the duties, which were supposed to protect the U.S. steel industry from cheap imports.
The EU said it was ready to impose $2.2 billion in retaliatory duties on U.S. imports, ranging from footwear to fruit and vegetables.
"This is not just a partial victory, this is a full victory. We have been given satisfaction on all accounts," said EU spokeswoman Arancha Gonzalez.
Unfortunately, the Bush Administration has decided to appeal the ruling--instead of letting the matter drop and trying in some way to salvage a decent trade policy out of the last two years in its current term. This should, by all rights, be terrible politics. We know for sure that it is terrible policy.
UPDATE: More on this issue from Jane Galt.
Anyone else think that the subject of this post might be of interest to the potentially erstwhile Governor of California as he struggles and fights to hang on to his job?
Here's something you probably already knew about:
The Cato Institute, in conjunction with the Fraser Institute of Canada and more than 50 think tanks around the world, announces the release of the Economic Freedom of the World: 2003 Annual Report. This report uses the most recent data available to provide a ranking of 123 nations according to the degree of their economic freedom. This year, Hong Kong retains the highest rating for economic freedom, closely followed by Singapore at #2 and the United States at #3.Using 38 separate variables for each country, the Report's authors, James Gwartney of Florida State University and Robert Lawson of Capital University, argue that the key ingredients of economic freedom are personal choice, voluntary exchange, freedom to compete and the protection of persons and property. Ian Vásquez, director of Cato's Project on Global Economic Liberty, said that "economic freedom is demonstrably good for the poor, who are far better off in economically free countries than in less free countries."
Of course, it's a pity that the U.S. is only 3rd on the list. Considering the latent power of the Americaneconomy, just think of how well things would be going economically if we were number one.
Some good news out of the stock market today:
U.S. stocks held on to heady gains Monday afternoon as technology stocks surged, catapulting the Nasdaq above the 1,700 mark for the first time since May 2002.The market advanced in the face of profit warnings from the likes of BMC Software and Schering-Plough as investors bet that second-quarter financial results would come in ahead of expectations. The pace of negative pre-announcements for the latest quarter has been slower than usual, perhaps signaling a pickup in economic activity.
"Deflation fears are beginning to fade and we'll likely get a good second-quarter reporting season," remarked Peter Cardillo, chief investment strategist with Global Partner Securities.
Now what we need is for employment numbers to begin looking up again--although since those numbers are a lagging indicator, we probably won't hear any new developments about the job front for a little longer, especially since the employment numbers for June came in only recently.
It's a Reagan redux: Tax cuts for the rich! Trickle-down economics! An explosion in national greed happening all over again.
Those damned free-market conservatives! What outrage will they perpetrate next?
Those who inveigh against globalization on behalf of the world's poor will have to spin very hard to explain this:
The Pew Center for the People and the Press surveyed 38,000 people in 44 nations, with excellent coverage of the developing world in all regions. In general, there is a positive view of growing economic integration worldwide. But what was striking in the survey is that views of globalization are distinctly more positive in low-income countries than in rich ones.While most people worldwide viewed growing global trade and business ties as good for their country, only 28% of people in the U.S. and Western Europe thought that such integration was "very good." In Vietnam and Uganda, in contrast, the figures for "very good" stood at 56% and 64%, respectively. Although these countries were particularly pro-globalization, developing Asia (37%) and Sub-Saharan Africa (56%) were far more likely to find integration "very good," than industrialized countries. Conversely, a significant minority (27% of households) in rich countries thought that "globalization has a bad effect on my country," compared to negligible numbers of households with that view in developing Asia (9%) or Sub-Saharan Africa (10%).
Developing nations also had a more positive view of the institutions of globalization. In Sub-Saharan Africa 75% of households thought that multinational corporations had a positive influence on their country, compared to only 54% in rich countries. Views of the effects of the WTO, World Bank, and IMF on their country were nearly as positive in Africa (72%). On the other hand, only 28% of respondents in Africa thought that anti-globalization protestors had a positive effect on their country. Protesters were viewed more positively in the U.S. and West Europe (35%).
And interestingly, most people who have anxieties about the current economic situation blame their own governments for those anxieties, and not the process of globalization. Additionally, they focus on improving the investment climate as the best way to allay any fears and worries about the current state of the world economy.
It is good to see that retrograde economic theories are not catching on despite the best efforts of the anti-globalization crowd. Hopefully, this and other studies can be used to counter the arguments and reveal the inefficacy of that crowd.
This is exceedingly good news, if true:
For the past three years, the U.S. economy has taken hits from the bursting stock market bubble, a recession and terrorist attacks. Conditions now, finally, offer the prospect of better growth over the last six months of the year.Of course, forecasters acknowledge, they made similar predictions in 2002 and 2001, and were proved wrong.
They now insist that new tax cuts, a weakened dollar, falling interest rates and other positive forces seem to give their latest optimistic forecast a better chance of becoming a reality.
"We have been waiting and waiting for the economy to rebound, and then something happens and things fall apart. But this time we have a lot more stars coming into alignment," said Diane Swonk, chief economist at Bank One in Chicago.
I suppose that today's performance by the stock market helps confirm the optimism:
U.S. stocks ended sharply higher on Monday, pushing the blue-chip Dow to its highest level in almost a year, after a report on New York state's manufacturing sector proved surprisingly strong and sparked hopes that the U.S. economy will recover later this year. Stocks have rallied for more than three months, as investors have disregarded lackluster economic data and bet on a rebound in the year's second half. Since hitting its low for the year on March 11, the broad Standard & Poor's 500 index has climbed 26 percent.Expectations of an interest-rate cut by the Federal Reserve's policy board, which meets on June 24-25, also fueled investors' optimism. Low rates cut borrowing costs for companies, helping their bottom lines.
Here's hoping that all of this is true. Let's get in the money, shall we?
I can't believe that this kind of lesson even needs to be given, but I guess it is necessary given the "if the federal government pays for it, then it is free" mindset of some people.
UPDATE: More here, naturally.
I'm crossing my fingers in the hope that the Dow cracking 9,000 is an omen of good things to come. Alan Greenspan certainly appears to be more optimistic these days:
Alan Greenspan, the chairman of the Federal Reserve, said today that the economy had stopped deteriorating last month and that he saw "the makings of a turnaround."He also said that inflation was "not something of significance for the Federal Reserve to be concerned about" now, causing investors to believe that the Fed is willing to bolster the economy by cutting short-term interest rates even further when it meets later this month.
Mr. Greenspan's remarks, made by satellite to a bankers' conference in Berlin, was the clearest version yet of a carefully scripted message he has been delivering over the last month. His comments have contributed to the unusual combination of increases in both stock and bond prices, making an economic rebound more probable.
The Standard & Poor's 500-stock index rose 4.56 points, or 0.5 percent, to 971.56 today and is 4.5 percent higher than it was one month ago. The price of 10-year Treasury notes also rose, causing the interest rate on them to decline, to 3.33 percent. When investors become hopeful about the economy, they typically sell bonds, which are a more conservative investment than stocks.
I'll try not to jinx any of this good news too much by being overly confident. But this is much better economic news than we have been getting in recent times. And of course, if the economy begins to do well in advance of the 2004 elections, President Bush may be well nigh invincible electorally.
The major indices skyrocketed today on very positive news:
A report showed business expanded in Midwestern states in May for the first time since February. The National Association of Purchasing Management-Chicago index suggested improvement in the manufacturing sector as well as for the broader economy.
Excellent. More of this please.
Arnold Kling disputes Krugman's argument that the United States is in a liquidity trap.
I hope that we can, and that we will see more news reports like this one very soon. In the meantime, it would appear that the economy is doing better than many people think. Perhaps more optimistic reporting is in order, as it would seem to be justified if the trends noted in the linked report continue.
The good and estimable Dr. Weevil believes that Max Sawicky may "freak out at any moment," given some of the more paranoid statements that Sawicky appears to have made recently. I personally thought that Sawicky lost it a while back, so I'm not going to get into the sanity debate just now. Instead, I want to write a little something about Max's supposed area of expertise: economics.
Pointing to this story, Sawicky attacks President Bush's contention that " . . . this nation has got a deficit because we have been through a war." Sawicky tells us the following in response:
Thus far the cost of the war is estimated at $20 billion. The deficit for Fiscal Year 2003 is projected at $246 billion. Moreover, as a matter of deliberate policy, the President proposes to further increase the deficit this year by close to $40 billion. Over ten years, the Congressional Budget Office estimates that the Bush Budget would reduce surpluses and increase deficits by $2,710 billion.
Well, now, wait a minute. Is Sawicky really telling us that the cost for the war against terrorism has merely reached a paltry $20 billion? What about the campaign in Afghanistan, and the rebuilding costs there? What about the fact that the Bush Administration requested--and got--a $75 billion supplemental for the campaign in Iraq? Aren't those also "war" costs? Why doesn't Sawicky mention them?
For that matter, what about the dramatic increases in defense spending that became necessary given the fact that (a) we need to prosecute a war against terrorism and (b) we needed to augment defense spending even before September 11th because of the consistent and consequential cuts in defense spending that occurred for much of the life of the Clinton Administration? What about the fact that revenue flowing into the government has lessened considerably because of the recession that began in March of 2001 according to the National Bureau of Economic Research--at which time Bush was in office for only a little over a month, and was in no position whatsoever to have had any impact on the economy since his economic package and tax cuts had not yet been enacted by Congress at that point in time? What about the actual revenue effects of September 11th itself? Why does Sawicky ignore all of these potential fiscal influences, and merely focus on the $20 billion figure?
Could it be that taking all these other factors into account will distract from Sawicky's monomaniacal desire to play partisan hack? I report, you decide.
All I know is that I got a kick out of Sawicky's decision to quote the lyrics of "If I Only Had A Brain," which he does to imply that Bush is stupid. I believe that pychologists refer to this kind of behavior as "projection."
People are beginning to feel good about the economy again:
U.S. consumer confidence soared in April after four months of decline as Americans took an upbeat view of the economy after war in Iraq ended within weeks and casualties were limited, a survey said on Tuesday.The Consumer Confidence Index rose to 81.0 in April from a downwardly revised 61.4 in March, the Conference Board, a private business research group, said in a release. The survey began April 1 before the major hostilities in Iraq were over and finished on April 22, nearly two weeks after Baghdad fell to U.S. forces.
Economists on average had expected the index to rise to 69.8. Consumer confidence is closely watched by economists and businesses for clues about consumer spending, which makes up two-thirds of the U.S. economy.
Hopefully this news, along with favorable earnings reports, will give the economy a strong boost. The job market indicators are the last to catch up, so I don't view them as a valuable insight on the way things are right now with the job market, but of course, once jobless claims fall below 400,000, we will see yet more indications that the economy is on the mend.
It should be pointed out that the economy is growing right now. The problem is that with the war hanging over everyone's heads for a good long while, and with the onset of the SARS epidemic, the growth was not strong enough. Maybe that will change soon.
But the actions of France, Germany and Russia should not cause the rest of us to take out our anger on free trade as a principle--as Arnold Kling helpfully points out.
I recognize that getting a tax cut package through Congress is going to take some work. But what on earth are high approval ratings worth--and for that matter, what is campaigning for the existence of a Republican Congress worth--if all the Bush Administration may settle for in the area of tax policy is this?
If there is a weakness in the Administration, it is that there is too much of a tendency to compromise excessively on important domestic items. We saw that in the education bill in 2001 where school choice was completely excised from the package. We saw it in the Administration's shameful capitulation to advocates demanding steel and lumber tariffs. I really hope we are not about to see a capitulation regarding tax policy. If we do, I would be profoundly disappointed, to say the least.
This post may very well give you intellectual whiplash. Consider yourselves forewarned.
Or at least, one hopes. Anyway, the optimistic predictions contained in this article are to be devoutly wished for.
That more people would think about the issues this article raises:
The U.S. and Old Europe haven't exactly been seeing oeil-to-eye of late. But American politicians looking for payback ought to be careful lest they aim at the French and hit Americans instead.Consider the Senate amendment tucked into last week's war funding bill that would tighten U.S.-ownership rules for air-cargo carriers and disrupt Deutsche Post's bid to acquire a portion of Seattle-based Airborne. The sneaky provision is courtesy of delivery rivals UPS and FedEx, which are only too happy to block more formidable competition.
We like a French joke as much as the next guy. And it's amusing to see French's mustard (invented by New Yorker Robert T. French in 1904) hurry out a release saying that the "only thing French about French's mustard is the name!" French hotel conglomerate Accor even rushed to remove its French flags in front of its U.S.-based Sofitels.
But in today's global economy a boycott against a "French" or "German" company can easily be a blow against American workers. Our politicians are figuring this out, albeit slowly. A number of House Members recently sent a letter to the Pentagon demanding that the U.S. Marines end a contract with the French-owned catering firm Sodexho Alliance. But then Representative Chris Van Hollen pointed out that Sodexho's U.S. unit was based in his home state of Maryland, has 110,000 American employees (in all 50 states) and pays $646 million in U.S. taxes.
Yes, I know that all of you are angry at the Germans and the French. Believe me, so am I. But if we engage in a trade war with them, we will hurt Americans in the process. Cutting off our national nose to spite our collective face is neither good economics, nor even a clever method of gaining revenge.