Erin Burnett, appearing on the Today Show this morning, discussed the booming US economy. For once, someone in the mainstream media got it right on. I'm forced to wonder, though, how her upbeat report went over with the execs at the network. Her final two points need to be pounded into the heads of anyone you hear inveigh against Bush's "tax cuts for the rich." The more you earn, the more you pay in taxes; that's how our income tax system works. I raise a glass to Ms. Burnett.
"You know, it's an amazing thing here. We're looking at the Dow Jones Industrial Average, up 30% over the past six months, 30 days this year alone we have had record closes for that index. So it's really another day, another record on Wall Street. It's also worth noting that while politicians talk about two Americas, virtually all Americans are seeing wages rise and unemployment is at a historic low. The issue of taxes is important here. The top 1% of Americans pay 30% of taxes in this country. The bottom 20% of American wage earners pay only 5%."
Since you are sympathetic to the Austrian school, perhaps you should read what they and those who make use of their ideas have to say about credit bubbles, just one aspect of a shaky American economy. Scroll to the bottom of that page for more links.
ReplyDeleteThere is also an interesting article on China in the Atlantic that is worth reading for those interested in that country's economy. They are the USA made blob that will soon eat not only New York City, but the entire nation I fear.
ReplyDeleteComments by Doug Noland on the goings-on--scroll to the bottom, though he is trying to make a point with the figures.
ReplyDeletePB,
ReplyDeleteYou are sharing some VERY interesting links.
James, I am looking forward to your reaction to this stuff as you are the economics guru. Below are the China stats which I am particularly interested in, eventhough they are more connected to my previous comment than to James' post:
China Watch:
July 11 – Bloomberg (Nipa Piboontanasawat): “China’s economy expanded more than the government initially estimated in 2006, taking the pace of growth to the fastest in 12 years. Gross domestic product rose 11.1% from a year earlier to 21.09 trillion yuan ($2.79 trillion)…”
July 10 – Financial Times (Richard McGregor and George Parker): “China’s swelling monthly trade surplus hit a new high in June of $26.9bn, an 85.5% increase on the same month last year… The surplus for the first half of the year has now reached $113bn, more than for the whole of 2005… ‘This level of trade surplus is unprecedented for China or any other major economy in the world,’ said Hong Liang, of Goldman Sachs. Exports of some products jumped dramatically in the first half, such as steel, which was up by 97%, and containers, up by 55%.”
July 11 – Bloomberg (Nipa Piboontanasawat and Lee Spears): “China’s money supply growth topped the central bank’s target for a fifth straight month… M2…rose 17.1% in June from a year earlier to 37.8 trillion yuan ($5 trillion)…”
July 11 – Bloomberg (Li Yanping): “China’s 2007 retail sales may rise 15.8% to 8.8 trillion yuan ($1.16 trillion), the fastest annual growth pace in a decade, according to…the country’s top planning agency.”
July 11 – Bloomberg (Nipa Piboontanasawat): “China’s tax revenue rose 29% in the first six months of 2007 from a year earlier, the official Xinhua News Agency reported.”
July 10 – Bloomberg (Tian Ying): “China’s first-half vehicles sales rose 23% as economic growth spurred demand for passenger cars and commercial vehicles.”
July 10 – Bloomberg (Maria Levitov): “China’s government must pursue tougher monetary policies to ensure the world’s fast-growing major economy doesn’t overheat, Finance Minister Jin Renqing said.”
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ReplyDeleteI take it that you say "guru" tongue in cheek. Economics is a fascinating field but I have a long way to go before I can boast any serious authority on the subject. But thank you, nevertheless, for the compliment.
ReplyDeleteAs far as the statistics offered by PB go, it seems like they delve into the nature and impact of dollar and credit inflation. The Fed’s inflation of currency is a serious issue that will come home to roost one day in the future and I would endorse any Austrian reading on the subject. It’s worth pointing out that the Fed’s capacity to increase the money supply is nothing short of government-sanctioned counterfeiting. By extension, we can conclude that increasing the money supply, legally or not, is a form of stealing, as it decreases the value of everyone’s dollar. Since the creation of the Fed, the value of the dollar has plummeted 90%. The stats were interesting to review, and perhaps I overlooked something, but I’m not sure how they relate, at least directly, to the derivative effects of tax cuts and the shrinking unemployment rate, as discussed in the original post.
China is an interesting, even singular case that presents a combination of conflicting signs, pointing to future greatness and stagnation.
There is no doubt that the nation is on its way to superpower status. The statistics you offered confirm this. I was reviewing a book written by Margaret Thatcher, Statecraft, and she devotes an entire section to the Chinese economy. For purposes of our discussion, I'll highlight and summarize her chief points:
- "The lack of an indigenous Chinese middle class, whose beginnings were crushed by Mao, means that great reliance is placed on foreign capital and expertise." (We all know how important a thriving middle class is for the stability and growth of any nation's economy.)
- Thatcher urges caution when studying China's economic statistics: "It is necessary to keep a sense of proportion. One can read the (notoriously unreliable) statistics about China's economy in more than one way. Measured by purchasing power parity, China is reckoned as having the second largest economy in the world-ahead of Japan's. Viewed in terms of current exchange rates, however, it is the world's seventh largest. And when it comes to GPD per head it falls to 150th in global ranking, below Indonesia."
- "China's share of world trade (visible and invisible exports) is less than that of the Netherlands or Belgium or Luxembourg."
- "The interior of China is a different country, with poor communications, underdevelopment and, particularly in rural areas, poverty. As usual, China is other than it appears."
She comments further that, while China has been remarkable in terms of its growth, it lacks the infrastructure to maintain it. Here is where I think politics may play a role. There exist among the ruling class concomitant loyalties that are ultimately incompatible: a Communist political body with a free market soul. The ruling party has recognized the appeal of capitalism but clings to the totalitarian political framework that stymies growth.
Former Chinese leader Deng Xiao Ping remarked famously: "I don’t care if it's a white cat (capitalism) or a black cat (communism/collectivism) so long as it catches mice." There's clearly the acceptance, or at least recognition of basic free market tenets in China, but as Thatcher correctly points out, part of the equation is still missing. "China faces much the same kind of problems that we had to tackle in Britain after 1979. The common cause is, in a word, Socialism; and the whole paraphernalia of Socialism-its structures, institutions and attitudes- has to be demolished if progress is to be made. Without that, China will remain a Third World country with the unfulfilled potential of an economic superpower."
As an aside, I would also be interested in exploring the long-term impact of China’s one-child policy on the economy.
The stats were interesting to review, and perhaps I overlooked something, but I’m not sure how they relate, at least directly, to the derivative effects of tax cuts and the shrinking unemployment rate, as discussed in the original post.
ReplyDeleteNumbers can be deceiving, and the stock market is an unreliable measure of the soundness of the economy. As for the shrinking unemployment rate, the questions that should be asked are where are jobs being created, and how (i.e. what is financing their creation)?
I.e., it's this phrase, "booming US economy" that is being questioned.
ReplyDelete"As an aside, I would also be interested in exploring the long-term impact of China’s one-child policy on the economy."
ReplyDeletePRI has had a segment on the one-child policy in China and their cultural desire to have males this week. They report that in China,
1. There are about 132 boys born for every hundred girls
2. There are about 40 million more males than females in the one-child generation that's coming of age.
Check out the whole PRI series Here
It is certainly true that the health of the economy should be ascertained by factors that go beyond the Dow Jones stats offered at the end of the day. By the same token, it would not be accurate to assume that they have no correlation to the state of the economy. It is manifestly true that, in the very least, the stock market effects certain psychological dispositions of investors; encouraging (or discouraging) activity in other fields.
ReplyDeleteThe question was posed (without providing any answer): “As for the shrinking unemployment rate, the questions that should be asked are where are jobs being created, and how (i.e. what is financing their creation)?”
A report from the BBC offers some insights:
Most of the new positions were created in the service sector (230,000) followed by construction (71,000) and retail (47,000)...Chris Lowe of FTN Financial said strong jobs growth in the economically dominant services sector was an encouraging sign.
"That's the sector that's really been lagging since the 2001 recession," he told the BBC 's World Business Report.
The article continues:
Elizabeth Denison, economist with Dresdner Kleinwort Wasserstein, said she wanted to see job creation continue at such levels.
"We want to see if for a few months to be sure that it is being sustained, but it seems like a positive development," she said.
"They (the US) have been hiring across the board in the private sector."
The US professional and business services sector added 42,000 jobs, education and health 39,000, leisure and hospitality 28,000, and government 31,000.
End of article
Private sector expansion is the key ingredient to economic growth. It creates and finances these jobs. I am not suggesting by any means, that we have attained a state of perfection in the US market. Any shred of imperfection can be traced back to those areas where government intervention is excessive, and in America, there is a superabundance of this meddling.
Another factors worth consideration:
The economy has now experienced over five years of uninterrupted growth, averaging 2.9 percent a year since 2001.
Congressional Press Release
Between June 2003 and June 2004, 71.4 percent of the net increase in employment was in three relatively well-paid occupational categories: management, professional and related occupations (23.1 percent); construction and extraction occupations (36.1 percent); and installation, maintenance and repair occupations (12.2) percent. The earnings in these occupational categories are higher than the median and much higher than the earnings of the typical hamburger flipper. Most of the workers in well-paid occupations have earnings in the middle range or higher.
“These employment figures indicate that most of the new jobs are not at low wage levels, but at higher levels of earnings,” Saxton said. “We have been hearing assertions about hamburger flipper jobs dominating employment for about 20 years now, and it just hasn't happened. We are not about to become a nation of hamburger flippers. The data show that most of the recent employment gains have been in relatively well-paid occupations,” Saxton concluded.
In the three months ending July 2006, the healthcare sector accounted for 32% of new private jobs, by far the biggest single contributor. That's way up from early this year.
The majority of new jobs were created by businesses in education, health, and leisure and hospitality.
Wages have risen 3.9 percent over the past 12 months, while inflation has risen by only 2.6 percent. Raises and promotions are moving many workers up the career ladder.
The unemployment rate among discouraged workers is down to 5.4 percent from 5.6 in June 2006. Discouraged workers are individuals in the labor force who have given up looking for work because they do not believe they can find a job.
These stats are not difficult to find. They are readily available on the internet, it just takes a little effort.
No answer was given because what the numbers are and mean has been obvious for a while. There are no new trends here. Now it is time to apply some critical thinking to those figures that you were able to find so easily.
ReplyDeleteMost of the new positions were created in the service sector (230,000) followed by construction (71,000) and retail (47,000)...Chris Lowe of FTN Financial said strong jobs growth in the economically dominant services sector was an encouraging sign.
Surprise surprise, service, construction and retail. Not manufacturing. Not the creation of real wealth. All signs of an economy that is going into the toilet, and tied to a real decrease in wages.
By the way the increase in construction jobs is also a bad sign in so far it is tied to the housing bubble.
Most of the new positions were created in the service sector (230,000) followed by construction (71,000) and retail (47,000)...Chris Lowe of FTN Financial said strong jobs growth in the economically dominant services sector was an encouraging sign.
That's a bunch of bull.
The US professional and business services sector added 42,000 jobs, education and health 39,000, leisure and hospitality 28,000, and government 31,000.
Office jobs (gee, added bureaucracy for what I wonder), and government! Surprise surprise. Education is usually tied to the government, if we are talking about public education at the primary and secondary levels. (My guess is that jobs at colleges and universities would be a rather small percentage of that number, since the job market is still over saturated.) As for health, how many of those jobs are for foreigners brought in to keep costs down? And health care might as well be considered a part of the service industry, if we are talking about real wealth.
The majority of new jobs were created by businesses in education, health, and leisure and hospitality.
It's time to stop repeating the tired propaganda of the Fed and the White House.
PRICES BENEFIT FROM SPOOKED SHORTS
ReplyDeleteby The Mogambo Guru
MG writes:
Why are the stock markets and bond markets rising? For the only reason that there is: Because there are more buyers than sellers! Hahahaha!
Okay, I am sorry about laughing, but if I may be so bold as to make a suggestion, perhaps your question would have been better phrased as, "Where are the buyers getting the money to buy all of this stock and bond madness and act like a bunch of morons?"
If that had been your question, I could have saved us both a lot of time by merely sending you to Online.wsj.com, which reports that, "'Margin Debt' Hits Record $353 Billion on NYSE", which means that, "Investors are borrowing record sums of money to finance trades on the New York Stock Exchange."
How much money? The Journal continues, "So-called margin debt, a broad measure of leverage, jumped 11% to $353 billion at the NYSE in May, up from nearly $318 billion in April."
The news that margin debt increased 11% in one month, to a new record, so surprised and alarmed me that I accidentally swallowed my tongue in horror! But, thankfully, it turned out to be okay, since it was soon forced back up by my reflexively puking up blood at the sheer horror of so much speculative debt.
Always receptive to the thoughts of experts, I ran certain assertions made by both parties in this debate by an economics professor and he passed on the following comments:
ReplyDelete___
Your data says that the jobs are good ones, and the financing comes from purchased of goods and services, duh! People do not go into debt to
hire somebody. A person's marginal revenue product (output) has to equal his wage or the business looses $ in hiring him. Econ 101.
P. S. In a previous one you mentioned a credit bubble. This is very complicated. Credit is OK if there is reason to believe that your income
stream will grow. That is the case in the current world market. Sometimes there are crises that are unforeseen, like 9/11. Sometimes, like the "roaring '20's, and the Great Depression, they are caused by government tampering with the money supply. Sometimes a combo. See the link
below for the complex south Seas Bubble. Not the role of government in both phases.
They printed paper money to start the business, and then John Law manipulated the French paper currency and did the same. There was no
real trade in the South Seas, just stock speculation.
http://www.investopedia.com/features/crashes/crashes3.asp
I hope this helps. It seems that your friend is just ignorant.
1. Regarding jobs: it doesn't take an econ degree to see a shift from a manufacturing economy to a service economy. The question is whether this is good for the nation as a whole, or of its parts, regardless of whether those jobs are "good" (i.e. pay people) or not.
ReplyDelete2. Credit is OK if there is reason to believe that your income
stream will grow. That is the case in the current world market.
This is part of what is disputed.
Political Economy: This Might Hurt a Bit
U.S. Treasury Secretary Henry Paulson: Coming Financial Crash Shows Need for Immediate Monetary Reform
by Richard C. Cook
U.S. Treasury Secretary Henry M. Paulson, Jr., has joined the chorus of those in high places who are warning of a major worldwide economic downturn.
Paulson was quoted at length in a July 23, 2007, article in Fortune by Rik Kirkland entitled, “The Greatest Economic Boom Ever: Enjoy It While It Lasts.” Paulson’s remarks came in the context of assessing the ability of the highly-leveraged equity, hedge, and derivative markets to withstand the shocks to come. He told Fortune in an interview:
“We haven’t had a global financial shock since 1998. I believe that these large and dramatic increases in private pools of capital and in the credit derivatives markets since then have helped manage and disperse risk and make the economy more efficient. When we do have one—and it’s when, not if; that’s not me being negative, it’s just that we’re not going to defy economic gravity—we’ll be seeing for the first time how some of these instruments perform under stress.”
The Fortune article notes that the fate of the global economy depends in large measure on the ability of the U.S. consumer to continue to buy what the rest of the world produces. But, as Fortune indicates, the economic fundamentals continue to move in the wrong direction.
The U.S. current account deficit, they point out, continues to plunge, heading toward the $900 billion mark, almost nine percent of GDP. U.S. household debt as a percentage of personal income has shot up almost thirty-five percent since 2000. While real income stagnates for the U.S. middle class, asset and commodity prices are surging, with gasoline prices leading the way and the Goldman Sachs Commodity Index doubling since 2001. Financing in the business world is increasingly shaky, with loans to companies with “junk” credit ratings soaring from under $50 billion a year in 2001 to over $200 billion in 2006.
I hope the econ professor gets to keep his job. Actually, maybe it would be good for him to get out in the real world, and see what it's like for normal people.
Michael Shedlock's blog
ReplyDeleteMish on whether stock prices are an economic indicator
ReplyDeleteInvestors: welcome to the real world.
ReplyDeleteDow plunges 400 pts on credit concerns