News What is wrong with the US economy?

[Astronuc]

Even conservative institutions like Forbes are questioning excessive CEO compensation.

http://www.forbes.com/2005/04/20/05ceoland.html

http://www.forbes.com/2006/04/17/06ceo_ceo-compensation_land.html



A friend of mine mentioned Jeff Immelt's compensation package has bonuses tied to long-term performance. I think GE is one of the better managed companies in the world.

 

[Skyhunter]

Even conservative institutions like Forbes are questioning excessive CEO compensation.

http://www.forbes.com/2005/04/20/05ceoland.html

http://www.forbes.com/2006/04/17/06ceo_ceo-compensation_land.html



A friend of mine mentioned Jeff Immelt's compensation package has bonuses tied to long-term performance. I think GE is one of the better managed companies in the world.

My Uncle is VP of operations for a multi million dollar company. He told me yesterday that he reduced overall costs by 5.8% this year, and yet the company still raised the price for the goods they produce by 3%.

Why?

Because they can.

 

[loseyourname]

Since corporate and personal earning data are calculated differently, what would you suggest as a less confusing comparison?

The best thing to do would probably be to look at where the profits are actually going. I doubt any corporation is just putting money in a shoe box for a rainy day; either someone's income is increasing or the profits are being reinvested or both. Reinvestment doesn't necessarily mean the building of new manufacturing plants, but perhaps the acquiring of existing ones, or of entire companies, or simply the placement of money into stocks, bonds, banks, whatever, in which case it is again reinvested or made into income somewhere else.

The problem is, it's not really possible to do this, that is, track every dollar that a corporation brings in in excess of its overhead costs for that year in order to see where each dollar is going. The picture, no doubt, becomes incredibly complex fairly quickly. The most obvious beneficiaries of a profitable year are 1) anybody in a position within the company that is paid a bonus in proportion to quarterly or yearly profit, and 2) the governments of the state and municipality in which the corporate headquarters resides.

If all you want to compare are corporate earnings with working class incomes, I'd say your best bet is to use absolute numbers. Instead of a percentage increase, look at the number of dollars by which US corporate earnings increased last year, and compare it to the number of dollars by which the income of whatever subpopulation you're looking at increased (10% X the number of persons in the subpopulation X the average yearly income of a person in that subpopulation). The numbers for each year likely won't show much of a trend, as people are going to tend to get raises the next year at the very earliest, but if you look at a long enough span of time, you'll no doubt start to see some historical patterns on how the dollar amounts correlate with each other. Then you can compare the typical five-year pattern with the pattern observed in the past five years to see if, indeed, income has risen with profit in accordance with historical trends or if corporations have indeed become stingier today with the lower rungs of workers than they were in the past.

 

[Astronuc]

Economy
After Two Strong Quarters, GDP Swoons
http://www.npr.org/templates/story/story.php?storyId=6394189
by Jim Zarroli

All Things Considered, October 27, 2006 · The national economy slowed sharply in the third quarter, falling to 1.6 percent, according to new government numbers. The droop comes after the nation's Gross Domestic Product had expanded at a 5.6 percent annual rate earlier in the year. Analysts blamed the poor showing on a slump in the housing sector.

As rough patches go, this one has arrived with unusual suddenness. Earlier this year, the economy was growing at better than 5.5 percent, and Federal Reserve officials worried about inflation pressures.

Since then, interest rates have gone up, and job creation has been weak. Now, overall growth is what economists call "below-trend" -- meaning it is weaker than necessary to sustain a healthy economy.

Joel Naroff, president of Naroff Economic Advisers, says that, "Clearly, there's an economic slowdown going on. And 1.6 is the slowest we've seen since the quarter where we had the Iraq war in 2003."

But Naroff noted something that a lot of economists pointed out after hearing the new figures. Almost all of the slowdown in growth was due to the unusually weak housing market. Wednesday, the Commerce Department said the median price of a single family home fell in September at its fastest level since 1970.

Bush administration officials downplayed the significance of today's numbers and predicted they would rebound when the housing market stabilized.

In an interview on Bloomberg Television, Treasury Secretary Henry Paulson noted Friday that if it weren't for the home construction sector, overall growth would have been a more respectable 2.6 or 2.78 percent -- about where growth was during the second quarter.

Falling real estate prices may put pressure on those with overextended credit who have financed their lifestyle with home equity loans. If consumers stop spending, the economy could really slow down.


GAO chief warns economic disaster looms
http://news.yahoo.com/s/ap/20061028/ap_on_go_ot/america_the_bankrupt

AUSTIN, Texas - David M. Walker sure talks like he's running for office. "This is about the future of our country, our kids and grandkids," the comptroller general of the United States warns a packed hall at Austin's historic Driskill Hotel. "We the people have to rise up to make sure things get changed."

But Walker doesn't want, or need, your vote this November. He already has a job as head of the Government Accountability Office, an investigative arm of Congress that audits and evaluates the performance of the federal government.

Basically, that makes Walker the nation's accountant-in-chief. And the accountant-in-chief's professional opinion is that the American public needs to tell Washington it's time to steer the nation off the path to financial ruin.
. . . .

What they don't talk about is a dirty little secret everyone in Washington knows, or at least should. The vast majority of economists and budget analysts agree: The ship of state is on a disastrous course, and will founder on the reefs of economic disaster if nothing is done to correct it.

There's a good reason politicians don't like to talk about the nation's long-term fiscal prospects. The subject is short on political theatrics and long on complicated economics, scary graphs and very big numbers. It reveals serious problems and offers no easy solutions. Anybody who wanted to deal with it seriously would have to talk about raising taxes and cutting benefits, nasty nostrums that might doom any candidate who prescribed them.
. . . .

 

[McGyver]

There is a Jobs Reality in Sen Kerry Comment of U.S. Troops

Senatory Kerry made his most recent comments that a vast number of U.S. troops who end up serving in Iraq (which has ignited a firestorm of Republican response) are there in part due to lesser education and work opportunities here in the U.S.. Kerry was in California trying to give a boost to the Democrat candidate for governor. Perhaps it was a bit of a Fruedian slip, or he intended to say what he said - but either way, his statement bears some truth on the limited career prospects today for many young people in America - especially w/o a solid education.

http://www.cbsnews.com/stories/2006/10/31/politics/main2139768.shtml

Though the Republicans have made Kerry remarks to be the Democrat position towards the Iraq war, this discussion really belongs more in the jobs debate.

I mean, how many of those young men and women in Iraq are there because they WANT TO SERVE THEIR COUNTRY, and how many are merely doing it FOR THE PAYCHECK, and they didn't have any other better offers?

 

[Astronuc]

Grid Limitations Increase Prices for Electricity
http://www.nytimes.com/2006/12/13/business/13power.html

CHAMBERSBURG, Pa. — It is a tiny, flickering signal of an expensive problem looming for tens of millions of Americans: The cost of electricity for households in this southern Pennsylvania town soared this year by 31 percent, or an average of $24 a month.

Like the nation’s highways and bridges, the network of transmission lines has not been maintained and expanded enough to meet growing demand, the United States Department of Energy says. In areas where there are not enough lines to transmit electricity from the most efficient generating stations, utilities must find other sources. Sometimes they have to buy from costlier power plants nearby, like drivers forced by highway bottlenecks onto slower side roads.

The problem already affects about 40 million people from metropolitan New York to Virginia as well as 18 million in Southern California. Similar but smaller price increases will hit New England, the San Francisco Bay Area and the Seattle-Portland and Phoenix-Tucson corridors until new transmission lines are built.

These higher costs, known as congestion charges, added $5.7 million to the cost of electricity in Chambersburg this year, which the borough has paid from a reserve fund rather than apply them directly to utility bills.

Over all, the Energy Department estimates, congestion charges in 2008 will add $8 billion or so — about $40 a person — to electricity costs on the Eastern grid, which serves almost 200 million people east of the Rockies except for Texas. The department did not make an estimate for the Western grids.

These congestion charges would raise electricity prices by about a nickel on the dollar if they were spread evenly, but in fact some customers pay far more and others pay nothing.

Something to consider when one relocates in the country - in addition to good schools. Maybe it's time to think about alternative energy supplies - particularly a personal supply.

 

[russ_watters]

Since personal energy supplies are much more expensive than grid power, what we should be thinking about is upgrading the grid.

 

[Astronuc]

Goldman Sachs paid Lloyd C. Blankfein, its chairman and chief executive, a bonus of $53.4 million in 2006, the highest ever for a Wall Street chief executive. The bonus comes a week after Goldman reported a record profit of $9.5 billion in 2006, and as its stock price is up almost 60 percent for the year.

from NYTimes Direct.

Certainly there is nothing wrong here. Not sure what one does for this kind of compensation. I think it's more a trickle up approach to economics.

 

[russ_watters]

from NYTimes Direct.

Certainly there is nothing wrong here. Not sure what one does for this kind of compensation. I think it's more a trickle up approach to economics.

By the nature of that business, profits are rediculously out of sync with actual job performance, so bonuses based on job performance are rediculously big. It's nice work if you can get it, but I don't understand why supply and demand hasn't pushed that down. Perhaps the fact that the cycle is a cycle has something to do with it, but if someone in a relatively low-end job is getting 50-100% bonuses 8 of 10 years, the two years that they don't get bonuses doesn't drop their average salary that much.

That bonus, btw, works out to exactly 1$ per share of their stock outstanding, or about 4% of the share price, or 18% of that profit.

 

[kmarinas86]

http://reclaimdemocracy.org/articles_2004/costco_employee_benefits_walmart.html

But Costco's kind-hearted philosophy toward its 100,000 cashiers, shelf-stockers and other workers is drawing criticism from Wall Street. Some analysts and investors contend that the Issaquah, Wash., warehouse-club operator actually is too good to employees, with Costco shareholders suffering as a result.

...

Some critics still aren't convinced that lower turnover is worth what it costs Costco in higher wages and benefits. "Their benefits are amazing, but shareholders get frustrated from a stock perspective," says Emme Kozloff, a retail analyst at Sanford C. Bernstein LLC.

Costco kicks ass!

http://seattlepi.nwsource.com/business/166680_costco29.html

The Issaquah-based company pays among the highest salaries in the retail industry. A new employee working at one of Costco's warehouses starts with an hourly wage of at least $10. After four years with the company, a cashier can earn around $44,000, including bonuses.

Duh! But only intelligent people will get this =p.

 

[Astronuc]

It’s the season for charitable giving. And far too many Americans, particularly children, need that charity.

Scenes of a devastated New Orleans reminded us that many of our fellow citizens remain poor, four decades after L.B.J. declared war on poverty. But I’m not sure whether people understand how little progress we’ve made. In 1969, fewer than one in every seven American children lived below the poverty line. Last year, although the country was far wealthier, more than one in every six American children were poor.

Paul Krugman, Helping the Poor, the British Way, December 25, 2006

And there's more children in 2006 than in 1969.

 

[loseyourname]

Does the above strike anyone else as awfully strange language? Why contrast less than one in seven with more than one in six? Those could conceivably be exactly the same numbers. I suppose it's possible that's the entire point, but if that is so, why not word it "last year, that percentage remained virtually unchanged?" And why talk about children living "below the poverty line" in 1969, but simply being "poor" today? Is he talking about different things, or is this the same parameter?

 

[Astronuc]

Does the above strike anyone else as awfully strange language? Why contrast less than one in seven with more than one in six? Those could conceivably be exactly the same numbers. I suppose it's possible that's the entire point, but if that is so, why not word it "last year, that percentage remained virtually unchanged?" And why talk about children living "below the poverty line" in 1969, but simply being "poor" today? Is he talking about different things, or is this the same parameter?

All good questions. Why not use percentages - 1 in 6 ~ 16% or 1 in 7 ~14%, and those numbers are close - 15% give or take. Then Krugman could say that in 37 years, the numbers are essentially/virtually unchanged.

As for poverty and poor, poverty is a subset of poor. There are many people living above the poverty line, but are still considered poor (economically speaking), as in working poor.

 

[russ_watters]

Does the above strike anyone else as awfully strange language? Why contrast less than one in seven with more than one in six?

No they couldn't be. Less than 1 in 7 could be 1:7.1, 1:7.4, 1:7.3, etc. Fewer than 1 in 6 could be 1:5.8, 1:5.9, 1:5.7, etc.

My problem with poverty stats, as always, is that they are manufactured on a sliding scale that makes direct comparisons like that utterly meaningless. That poor kid today lives a lot better than that poor kid did 1969. We've looked at this kind of stat before, and I'll try to find some again, but here's a few consumer goods numbers for the UK: http://www.statistics.gov.uk/cci/nugget.asp?id=823

I doubt anyone today would say that a refrigerator is not a necessity of living, yet in the early '70s, it would seem that even some people above the poverty line didn't have them. Today, 95% of households do.

 

[russ_watters]

As for poverty and poor, poverty is a subset of poor. There are many people living above the poverty line, but are still considered poor (economically speaking), as in working poor.

Excuse me? No, "poverty" is not a subset of "poor", they are different forms of the same word.

That's another way these 'advocates' (not you, the guy who wrote the article) intentionally decieve people into believing their points. It is a lie to label a group "below the povety line", then discuss a different group, calling them "poor", and implying they are the same group.

 

[Astronuc]

Excuse me? No, "poverty" is not a subset of "poor", they are different forms of the same word.

That's another way these 'advocates' (not you, the guy who wrote the article) intentionally decieve people into believing their points. It is a lie to label a group "below the povety line", then discuss a different group, calling them "poor", and implying they are the same group.

It's not a lie - it's a matter of definition/interpretation which is subject to subjective/objective assessment.

The nature and extent of the working poor in the United States is a contested subject; while both sides of the political spectrum acknowledge that there are non-negligible numbers of working people living near or below the poverty line, there is disagreement as to whether or not this reflects a genuine flaw with current economic policy, and what the response should be.

http://en.wikipedia.org/wiki/Poverty_in_the_United_States
http://en.wikipedia.org/wiki/Working_poor

The 'poverty line' is certainly an arbitrary boundary, but there are those whose incomes are above the poverty line, but they are still considered to be poor. So my use is correct in a sense of "a square is a rectangle, but a rectangle is not [necessarily] a square."

http://chronicle.uchicago.edu/950511/poverty.shtml
http://www.econlib.org/library/ENC/PovertyintheUnitedStates.html
http://www.leftbusinessobserver.com/Poverty-in-the-US.html

But then the economy is doing so well, or even great by some measures. Certainly some bonuses on Wall Street are at record levels.

 

[ShawnD]

As much as I hate quoting the first page...

What's wrong - for one, the US economy is highly leveraged. The aggregate debt is increasing. What happens when even the interest can't be paid?

I wouldn't worry too much about it. Canada will go bankrupt well before the US does, and when that happens your government will probably realize debt is not a good thing

https://www.cia.gov/cia/publications/factbook/geos/ca.html - Debt is 69.6% of GDP

https://www.cia.gov/cia/publications/factbook/geos/us.html - Debt 64.7% of GDP

 

[Gokul43201]

I wouldn't worry too much about it. Canada will go bankrupt well before the US does, and when that happens your government will probably realize debt is not a good thing

https://www.cia.gov/cia/publications/factbook/geos/ca.html - Debt is 69.6% of GDP

To quote completely:

69.6% of GDP (2005 est.)

I'd like to see what the actual number is. I'm thinking right now that the above estimate turned out to be quite wrong. Canada's enjoyed surpluses for at least the last 5 years, and I imagine their debt has been dropping since the 70% high it reached a decade ago. I can't find recent data easily. The US, however, has been in a 5 year streak of heavy, to industrial-grade deficit spending.

Edit: Just found this - http://www.fin.gc.ca/ec2005/ec/ecc3e.html

Federal debt as a percentage of the economy was 38.7 per cent in 2004–05, a reduction of 29.7 percentage points from its peak of 68.4 per cent in 1995–96.

The estimate in the CIA Factbook is pretty outdated!

 

[Astronuc]

https://www.cia.gov/cia/publications/factbook/geos/us.html - Debt 64.7% of GDP

I've heard higher number like 75-80%.

But then I can never find the actual data going into this. Rather I find processed information and summaries.

People maybe aware that the $200+ billion appropriated for the Iraq War so far has been authorized as 'supplemental spending' so it is not counted toward the Federal Debt.

It is my understanding that obligations for future payments like Social Security are NOT counted as debt.


In the near term, I heard a forecast that 20% of sub-prime mortgages will likely go into default during the next few years, but I don't know what fraction of total mortgages that is.

In the 3rd Qtr of 2006, the US economy as measured by GDP grew at an annual rate of 2% - which is below the rate of inflation.

GROSS DOMESTIC PRODUCT: THIRD QUARTER 2006 (FINAL)
CORPORATE PROFITS: THIRD QUARTER 2006 (FINAL)

Real gross domestic product -- the output of goods and services produced by labor and property
located in the United States -- increased at an annual rate of 2.0 percent in the third quarter of 2006,
according to final estimates released by the Bureau of Economic Analysis. In the second quarter, real
GDP increased 2.6 percent.

The GDP estimates released today are based on more complete source data than were available for
the preliminary estimates issued last month. In the preliminary estimates, the increase in real GDP was
2.2 percent (see "Revisions" on page 3).

The increase in real GDP in the third quarter primarily reflected positive contributions from
personal consumption expenditures (PCE), exports, equipment and software, nonresidential structures,
and state and local government spending that were partly offset by a negative contribution from
residential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased.

http://bea.gov/bea/newsrelarchive/2006/gdp306p.htm

 

[McGyver]

Flawed Resource Argument in Brokaw/NBC Illegal Immigration Special

Once again the mainstream media clouded a clear economic and political issue: this time illegal immigration. The flaw in Brokaw's story and interviews is that if a company cannot find enough labor (human resources and capital), you don't go and siphon it off from an "unapproved source."

If a company cannot meet its resource needs, it has many options. It can seek help through organizations that help supply these resources, lobby state and federal legislatures, barter labor, swap resources, raise prices and wages, or scale back your business. I owned a specialty medical company for 10 years thru the 1980's, and eventually was forced to change my services as I couldn't find the skilled labor. The economy is contantly changing from undersupply to oversupply, to price hickes and drops. Businesses must learn to operate within their own market limitations, so sustain it with our long tested controls, rather than cut corners and break laws. Once business and society chooses this path - you compromise the free market forces - and can experience a free for all - an economy w/o boundaries doomed for collapse.

 

[russ_watters]

It's not a lie - it's a matter of definition/interpretation which is subject to subjective/objective assessment.

Clearly they are subject to subjective/objective assessment*, but they are the same word (root), so one person cannot use two different definitions (of the same word) simultaneously. That's an intentional contradiction.

*Caveat: word definitions are not subject to interpretation. The assesment of where the line should be drawn is what is subject to interpretation. You cannot arbitrarily choose to use a word in a different way than everyone else does because it suits a useful purpose for you. Again, that's an intentional deception because in doing so, you know that people will think you mean one thing when you actually mean something else.

The 'poverty line' is certainly an arbitrary boundary, but there are those whose incomes are above the poverty line, but they are still considered to be poor.

So my use is correct in a sense of "a square is a rectangle, but a rectangle is not [necessarily] a square."

Who? (besides you, then) None of the links you provided suggest that there is more than one condition that can be labeled poor. All of the commentaries are simply arguing that the line the government draws is in the wrong place.

A square is indeed a special subset of a rectangle. Poverty is not a subset of poor, "poverty is the state of being poor". If you are poor, you are living in poverty, if you are living in poverty you are poor.

http://dictionary.reference.com/browse/poverty

 

[loseyourname]

No they couldn't be. Less than 1 in 7 could be 1:7.1, 1:7.4, 1:7.3, etc. Fewer than 1 in 6 could be 1:5.8, 1:5.9, 1:5.7, etc.

Oops.

I suppose this is where I should plea for Krugman to simply use straight percentages in order to avoid confusing me in the first place.

 

[Gokul43201]

Oops.

I suppose this is where I should plea for Krugman to simply use straight percentages in order to avoid confusing me in the first place.

Lots of statistics (look at news reports of polling results) are described using simple whole number ratios rather than actual percentages, because apparently, the common person is better able to identify (perhaps, by picturing visually) and make sense of these simple ratios. I'd prefer the straight percentages too!

 

[turbo]

Lot's of statistics (look at news reports of polling results) are described using simple whole number ratios rather than actual percentages, because apparently, the common person is better able to identify (perhaps, by picturing visually) and make sense of these simple ratios. I'd prefer the straight percentages too!

It's puzzling why some people choose to use whole-number ratios. After all, we have a currency system in which coins are valued as a percentage of the dollar, and even little kids understand that a quarter ($0.25) is more valuable than a dime ($0.10). Maybe it's just me, but it sounds more immediate and real to say "12% of US residents live in poverty" instead of "one in eight US residents lives in poverty".

 

[kmarinas86]

The US debt is already consists of a significant portion of the money supply in the US.

http://en.wikipedia.org/wiki/Money_supply
M1 was about $1.4 trillion
M2 about $6.5 trillion
M3 about $9.7 trillion

US debt is $8.6 Trillion or 49% of the Money Supply

A simple solution would be to cut prices of everything by half while demanding people turn half of their money to pay for national debt. Who exactly would get that $8.6 Trillion, and what would it be used for?

The real problem is when the year's interest paid on debt is equal to the year's money supply, it is only then can the money supply attain a zero value. We are far from that.

 

[ShawnD]

A simple solution would be to cut prices of everything by half while demanding people turn half of their money to pay for national debt. Who exactly would get that $8.6 Trillion, and what would it be used for?

The problem is that lowering the money supply in such an extreme manner would cause insane deflation. $10 today is worth $20 tomorrow. Having your dollar suddenly worth twice as much increases your buying power, but it murders your selling power. Just as an example, places like China have a lot of selling power because their money is worth basically nothing to us. If US money doubled in value, US companies wouldn't be able to sell anything outside of the country, which would in turn cause layoffs, trade deficit, high unemployment, and possibly higher crime (because you ain't got no job).

My understanding is that most debt is actually owed to citizens. For example, back in WW2 there were things called "war bonds". When you buy $1000 of war bonds, you're basically giving the government $1000 and in return getting a slip of paper that says "we owe you $1000 plus interest". When this happens, you benefit from giving this $1000 to the government because they will pay interest on that $1000 loan you've given them, it's not really any different from when you borrow money from the bank.
The other kind of debt is when the country borrows money from other countries. This kind of debt is always bad and should be avoided at all cost.

 

[russ_watters]

I suppose this is where I should plea for Krugman to simply use straight percentages in order to avoid confusing me in the first place.

Preaching to the choir there - by now you must know I see most such articles as intentional obfuscations. Using percentages would certainly clarify things and that is precisely what they want to avoid.

 

[russ_watters]

My understanding is that most debt is actually owed to citizens.

The other kind of debt is when the country borrows money from other countries. This kind of debt is always bad and should be avoided at all cost.

These days, the ratio of foreign to domestic is getting pretty high. According to Wik it was 44% in 2004: http://en.wikipedia.org/wiki/United_States_public_debt

Those two kinds of debt work exactly the same way as far as the government is concerned, its just that if foreigners own the t-bills or bonds, they get the profit from them instead of Americans. It isn't harmful, it just isn't as helpful.

 

[Jimmy Snyder]

I think the American economy works all too well. I would define a perfect economy as one in which all resources were being used to their fullest potential. Resources would include factories as well as workers. If there is one piece of idle equipment, or a person who isn't employed, the economy is not what it could be. I'm not too worried about finances as embodied in the question "Who is going to pay for all this?" I counter with the question "Who will pay if we don't do all this?"

When you look at the economy we have now, regardless of whether you find the glass half empty or half full, you find something not quite right. It seems that we produce enormous waste really efficiently. Lacking any real need for a larger economy, and yet constantly increasing efficiency, we are forced to produce more and more junk. I am reminded of Vance Packard's idea that factories should be built on pivots next to cliffs. When the economy is down, you can send the product of the assembly line directly to the city dump. It beats laying people off.

My solution is to encourage kids to stay in school longer and encourage early retirement. This would result in a shorter work life, less stuff, and a smaller, but better economy.

 

[Murray Gauthier]

Re: What is wrong with the US economy?
How about 13 trillion dollars of debt??!(gas is still cheap; instead of buying a 50 thousand dollar car, buy a 20 thousand dollar car and use 30 thousand for fuel and maintenance).

 

[ray b]

FREE TRADE
is not free nore fair
and is hurting the USA
it sounds like a good plan
but has not WORKED
RESULTS are bad
our workers are get less
and the international CORPs more
by sending our jobs to china
but the rich love the result
as they do not care about fair
just the bottom line

 

[Astronuc]

How about this for 'what's wrong with the economy'?

Would you believe the adding 167,000 new jobs in December. But isn't that great news? Apparently not because it means wages would increase with fewer unemployed! But doesn't that mean more workers spending more dollars? This seems rather schizophrenic.

It appears that economists look at wage earners as a 'cost' rather than a source of spending 'revenue' - and this in an economy that it is largerly driven by consumer spending.

National Economy Shows Muscle in Job Growth
http://www.npr.org/templates/story/story.php?storyId=6730804

All Things Considered, January 5, 2007 · The labor market finished strong for 2006, posting an increase of 167,000 jobs for December, the Department of Labor reported Friday.

The unemployment rate held steady at 4.5 percent. For all of 2006, employers added 1.8 million jobs to payrolls. That's a relief. Throughout last year, many economists worried that the cooling real-estate market could hurt job growth and tip the country into recession.

After years of spiraling prices and even bidding wars, the housing boom was over by 2006. In markets around the country, housing prices fell for the first time in more than three decades.

Nigel Gault, U.S. economist for Global Insight, recalls why people were concerned: "Given that performance of the housing market, people would naturally worry [about] what's going to happen to the construction market, and what are the spillover effects going to be on the rest of the economy, consumer spending, etc."

The answer so far: not that much.

Slowdown in Housing

Overall, the job market has proved remarkably resilient. Of course, the slump in housing did take a toll. Residential construction jobs fell sharply, but growth in commercial and heavy construction off-set those losses.

Or this is just an example of a dichotomy - the glass is half full or half empty as jimmysnyder mentioned.

Economic Indicators Point to Solid Job Market
http://www.npr.org/templates/story/story.php?storyId=6727734

 

[russ_watters]

Of course good news for some can be bad news for other. There's even something else implied there that is even a more direct dichotomy - good things can be problems and problems can be good things. Hiring more workers costs money and rising expenses are a bad thing but if you are hiring more workers it is probably because sales are up and rising sales is a good thing. My dad calls that a "good problem". (kinda like twin blonde bikini models are a good problem...)

My solution is to encourage kids to stay in school longer and encourage early retirement. This would result in a shorter work life, less stuff, and a smaller, but better economy.

But I like "stuff"!

That sounds tounge-in-cheek, but what "stuff" are we going to get rid of? My telescope? I don't need it, but I really really like it. Trips to Disney World? ZZ would be really upset about that.

"Fight Club" was both exactly right and exactly wrong. No, that coffee table can't define you as a person and if you are letting it, there really is something wrong with you. But that doesn't mean you shouldn't still buy it if you like resting your feet on it at the end of a hard day's work.

Stuff makes us happy and stuff (consumerism) is what drives the economy. We want it and we need it and as long as we don't get carried away by it, booth sides of that coin are a good thing.

 

[gabee]

A note about stuff--unfortunately it's this "stuff" that often sends us in the wrong direction. I hate how this greed for "stuff" (money) is what makes companies ignore the fact that they're irreversibly damaging the environment, and it's why they employ cheap labor wherever it's available. Only when corporations are given tax breaks for adhering to environmental regulations or when they'll get good PR out of it do they appear to change their mind.

It seems inherent in the system that development is the enemy of nature. :/ Just a thought.

 

[ray b]

How about this for 'what's wrong with the economy'?

Would you believe the adding 167,000 new jobs in December. But isn't that great news? Apparently not because it means wages would increase with fewer unemployed! B]

wonder what the avg pay for the "new jobs" are
we lost a lot of higher paying jobs too ""Factories, however, cut 12,000 positions and construction companies eliminated 3,000 jobs - casualties of the souring housing market and the struggling auto industry.""
and ''Leisure and hospitality expanded employment by 31,000 and financial firms added 9,000 new jobs.''
now leisure and hospitality pay is low much lower then a factory job
union auto worker get near 30 an hour and leisure and hospitality pay near minimum rates
so 12,000 x 30= 360,000 per hour vs 31,000 at say 6 = 186,000
and that a GAIN??
looks to me like more 19,000 people working for about 1/2 the pay of the lost jobs

sorry but in the real world of neo-conned control the many earn less
as the better jobs leave for china and fast food workers get the new jobs
and few at the very top earn more as a result of so called ''free trade''

 

[Astronuc]

Right or wrong?

The company underperformed, its stock tanked, but Home Depot's board still gave outgoing chief Robert Nardelli a $210 million severance package.

KAI RYSSDAL: Now here's an interesting item from the day's news. A guy runs a company that underperforms. Underperforms a lot. The stock tanks. Rivals are nipping at the heels. What happens? Well, when Home Depot announced today its CEO was resigning, with the company's blessing, the board gave him $210 million. From New York, Marketplace's Dan Grech reports.

http://marketplace.publicradio.org/shows/2007/01/03/PM200701033.html

I think corporate governance could stand an improvement.


Nardelli's Severance Package Was Pure Highway Robbery - of Investors

Home Depot (NYSE: HD - News) announced the immediate departure of Mr. Robert L. Nardelli, 58 Chairman, Chief Exec. Officer, President and Chairman of Exec. Committee. Shareholders are looking at approximately $210 million to wave good-bye. Apparently Mr. Nardelli will not be sitting on the board as a triumphant retired CEO offering sage advice to those that come after him. The remaining officers and more importantly, members of the board, appear to remain intact. Some of the grey bearded directors have even been asked to stand for re-election. So what has changed or is transpiring? Has the problem really been solved? By the way, the new boss does not have a retailing background. So that problem definitely has not been resolved.

The negotiated settlement, which is almost certainly based, patterned, rooted or influenced on a pre-existing employment agreement, is huge by any standards. $210 million is approximately 20% of last quarter's reported cash flow. $210 million is approximately 2% of last quarter's inventory position. $210 million is approximately $592 per associate (Home Depot's website reports 355,000 associates). $210 million is an incredible amount of money! Most of us would eagerly take the settlement. More than one would have darkly worked to the settlement rather than doing the actual job.

Apparently - some investors are just as outraged by Nardelli's $245 million in total pay over the last five years.

 

[Astronuc]

A sinkhole caused by a broken water main in Brooklyn last year swallowed an S.U.V. Nationally, such incidents have become more frequent.

Gaping Reminders of Aging and Crumbling Pipes

PORTLAND, Ore. — After a sinkhole swallowed a sewer-repair truck here on the day after Christmas, the truck’s crew crawled to safety, muddy and mystified.

Last summer in Irving, Tex., a 2-year-old boy disappeared near a sinkhole. One theory was that he was kidnapped. Another was that he was lost in the sewer system that had broken open and caused the collapse.

In December, firefighters in Brooklyn rescued a grandmother carrying groceries who fell into a hole that opened beneath her on a sidewalk. And in Hershey, Pa., a damaged storm drain caused a six-foot-deep sinkhole in Chocolate Town Park, nearly sinking the town’s New Year’s Eve celebration.

Local and state officials across the country say thousands of miles of century-old underground water and sewer lines are springing leaks, eroding and — in extreme cases — causing the ground above them to collapse. Though there is no master tally of sinkholes, there is consensus among civil engineers and water experts that things are getting worse.

The Environmental Protection Agency has projected that unless cities invest more to repair and replace their water and sewer systems, nearly half of the water system pipes in the United States will be in poor, very poor or “life elapsed” status by 2020.

“I’m not exaggerating,” said Stephen P. Allbee, a project director in the agency’s water division who helped make the projections. “It’s a really, really big public issue, and it’s going to be with us for a long time.”

Local geology or underground hazards are blamed for many sinkholes: weak limestone in Florida, old mineshafts in Pennsylvania. But increasingly, the authorities say, as America’s cities grow older and basic repairs are put off, when the ground gives way the problem is bad pipes.

The American Society of Civil Engineers has been giving low grades on the US infrastructure for years. Lower taxes mean little or no maintenance in some cases.

 

[edward]

Chrysler is in trouble

DETROIT - DaimlerChrysler Chief Executive Dieter Zetsche, under enormous pressure in Germany to spin off the money-losing Chrysler Group, says all options for the U.S. auto making arm are now on the table.

The surprise statement overshadowed details of Chrysler's three-year, $4.5 billion recovery plan announced Wednesday that includes 13,000 job cuts.

http://www.forbes.com/home/business/2007/02/14/chrysler-for-sale-biz-cz_jm_0214chrysler.html

In recent years there have been numerous companies that have announced recovery plans that include massive job cuts. Is there any evidence that this really works?

In most cases profits go up temporarily and the CEO's get a big pat on the back, but I can not see how job cuts are a permanent solution.
The only industry that can increase profits with a reduced production are the oil companies.

Referring to massive job cuts as recovery plans is all hype. They should be called CEO survival plans.

 

[turbo]

In recent years there have been numerous companies that have announced recovery plans that include massive job cuts. Is there any evidence that this really works?

There is a pervasive attitude in the boardroom and in some political circles that the workforce is a burden - a drag on the profitability of a company. To the contrary, the workforce is absolutely necessary, and a well-trained, skilled labor pool is an asset to be cherished and nurtured. The problems that the big 3 automakers are having are not attributable to the workforce, but to the decision-makers high up in the companies who have let the Japanese and now the Koreans take huge parts of the market with affordable, dependable vehicles that Americans want to buy.

To illustrate this, look at the Marysville plant that Ford closed years ago because it was "not profitable". Honda bought the plant, refurbished it, brought in all new equipment, hired back much of the workforce that Ford had laid off, and started production of the Honda Accord, which soon became the biggest-selling car in the US market. ( Note: Ford managed to take back the sales record with the Taurus, but only by "buying" huge numbers of the Taurus themselves and leasing them dirt-cheap to rental companies. Without those bogus sales, the Accord was still by far the most popular car in the US and in fact had the highest percentage of US-made parts of all US-made cars as well.) When Ford closed the plant at Marysville, they were showing their stock-holders that they were willing to sacrifice innovation, design, reinvestment, and smart marketing in order to boost stock prices in the short term. As long as the CEOs of big companies are compensated with stock options and are compelled to cater to the short-term interests of stock-holders, they will continue to make short-sighted decisions that will guarantee the decline of our economy. The Big 3 are not being hurt by their labor forces - they are being hurt by ignorance, greed in the boardroom and by decision-making processes that have horizons of 1-2 years instead of decades.

 

[Futobingoro]

The efficiency of almost all economic processes grows logistically; i.e. businesses grow more efficient as they increase in size, but the trend reverses past a certain point. There is also the powerful force which drives businesses out of industries they do not a have a comparative advantage in.

The American automobile cuts may be a combination of those and/or other factors.

Gone are the days when Boeing manufactured most of the parts for their aircraft. Contracting parts out (though fraught with some difficulties) has reduced the cost of the aircraft.

The Chinese military has actually shrunk considerably since the late 1970s, and is now a "leaner, meaner" force. Ostensibly, this was done to increase the efficiency of what had been described as a cumbersome military.

I consider both of those changes valid.

 

[edward]

The efficiency of almost all economic processes grows logistically; i.e. businesses grow more efficient as they increase in size, but the trend reverses past a certain point. There is also the powerful force which drives businesses out of industries they do not a have a comparative advantage in.

But this does not explain why Daimler is doing fine and Chrysler is not. It has more to do with the rapidly fluctuating price of gasoline and the inability of companies to adjust to that change. The fact that the price of gasoline has always been high in Europe may be in Daimler's favor.

Last year when gas was $3.00 per gallon in the USA hybrid vehicles were selling at a premium, ie above msrp. This year even Toyota has an unsold surplus of hybrids.

Gone are the days when Boeing manufactured most of the parts for their aircraft. Contracting parts out (though fraught with some difficulties) has reduced the cost of the aircraft.

The auto industry is outsourcing.

“We are willing to import with the focus on being competitive,” said Tom LaSorda, Chrysler head during the Beijing International Automotive Exhibition. LaSorda also stated that within 6-12 months, Chrysler would point out cost reductions averaging $1,000 per vehicle, a portion of which comes from outsourcing.

And we can't blame it all on the cost of labor. Both Chrysler and Ford have sprawling factories in Mexico. Chrysler's HEMI engine is even made in Mexico.

 

[Astronuc]

The Hershey Company, maker of Hershey's chocolates, has announced that the company will cut its workforce by 1500 (11.5% of that work force), and open a plant in Mexico, possibly Monterrey.

HARRISBURG, Pa. - The Hershey Co., whose name has been synonymous with U.S. candymaking for more than a century, is moving a bigger chunk of its production to Mexico. A day after Valentine sweethearts across the country enjoyed bags of Hershey Kisses, the company on Thursday announced a restructuring plan that will scale back its work force by 1,500 jobs and force some plants to close.

http://news.yahoo.com/s/ap/20070215/ap_on_bi_ge/hershey_restructuring_8

Meanwhile -

- Industrial output falls 0.5 pct. in Jan.

- Housing sales drop in 40 states

 

[ShawnD]

But this does not explain why Daimler is doing fine and Chrysler is not.

Daimler is doing ok because it's generally accepted that Mercedes vehicles are posh and somewhat trustworthy despite the recent quality problems. Chrysler is notorious for making crappy vehicles that cannot be fixed no matter how many times you take them in. Just do a google search for "<company> quality" and see what the first result is, not including pages owned by that company.
Chrysler - "The Truth Behind Chrysler"
Mercedes - "Mercedes, Quality Dropping, Loses Market Share to BMW, Lexus"
Dell Computers - "Dell Quality Control Sucks"
Nissan - "Nissan quality improving, according to J.D. Power"

Interesting.

 

[edward]

Quality is very important and it is the responsiblility of mangement. A CEO can cut corners on quality until sales are down. Then he can fire thousands of workers upping temporary profit and use the opportunity to cash in on his stock options.

 

[russ_watters]

And we can't blame it all on the cost of labor. Both Chrysler and Ford have sprawling factories in Mexico. Chrysler's HEMI engine is even made in Mexico.

That's missing the point. The killer labor cost isn't the current employees, it's the past employees getting pensions and healthcare from underfunded pension funds. That is what makes American cars more expensive than competing foreign cars.

 

[Plastic Photon]

The Gawhar oil field is losing its flow rate up the well-bores, more oil is being burnt to get the oil, raise price, everyone pays.

 

[Astronuc]

The good news - Unemployment Rate Declined in Feb.
http://www.nytimes.com/2007/03/10/business/10econ.web.html?hp - NYTimes, March 10, 2007

Businesses added jobs at a steady pace last month, the government reported today, in the latest sign that the job market is holding up despite other signs of economic weakness.

The Labor Department reported that total nonfarm employment rose in February by 97,000 — slightly more than analysts were expecting. It also revised up previous estimates for employment in January in December to reflect an additional 55,000 jobs.

At the same time, the national unemployment rate fell back to 4.5 percent from 4.6 percent.

Workers’ average hourly earnings continued to rise at a strong pace. The average employee in a nonmanagerial job earned 4.1 percent more in February than year earlier. Hourly pay jumped to $17.16 from $16.49 in February 2006.

The not so good news -

Violent Crime in Cities Shows Sharp Surge - NYTimes, March 9, 2007
http://www.nytimes.com/2007/03/09/us/09crime.html?hp

Violent crime rose by double-digit percentages in cities across the country over the last two years, reversing the declines of the mid-to-late 1990s, according to a new report by a prominent national law enforcement association.

While overall crime has been declining nationwide, police officials have been warning of a rise in murder, robbery and gun assaults since late 2005, particularly in midsize cities and the Midwest. Now, they say, two years of data indicates that the spike is more than an aberration.

“There are pockets of crime in this country that are astounding,” said Chuck Wexler, the executive director of the Police Executive Research Forum, which is releasing the report on Friday. “It’s gone under the radar screen, but it’s not if you’re living on the north side of Minneapolis or the south side of Los Angeles or in Dorchester, Mass.”

Local police departments blame several factors: the spread of methamphetamine use in some Midwestern and Western cities, gangs, high poverty and a record number of people being released from prison. But the biggest theme, they say, is easy access to guns and a willingness, even an eagerness, to settle disputes with them, particularly among young people.

We need guns . . . to protect us from other people with guns?

People being released from prison have a difficult time getting jobs or maintaining employment, so ostensibly, they must go back to doing whatever is necessary to get by, and that often means illicit activity, which is what got them into prison in the first place.

The benefits of the so-called 'strong' economy are unevenly distributed, and that necessarily means some a doing very well while many more are doing poorly.

 

[Astronuc]

Crisis Looms in Market for Mortgages
http://www.nytimes.com/2007/03/11/business/11mortgage.html

On March 1, a Wall Street analyst at Bear Stearns wrote an upbeat report on a company that specializes in making mortgages to cash-poor homebuyers. The company, New Century Financial, had already disclosed that a growing number of borrowers were defaulting, and its stock, at around $15, had lost half its value in three weeks.

This is a significant problem in the financial sector of the US economy. People are issuing sloppy or in some cases false research. They aren't scrutinizing the data, and therefore some/much research lacks integrity.

For the most part - this matter mainly pertains to sub-prime mortgages, but it will affect those with ARMs and home-equity loans.

What happened next seems all too familiar to investors who bought technology stocks in 2000 at the breathless urging of Wall Street analysts. Last week, New Century said it would stop making loans and needed emergency financing to survive. The stock collapsed to $3.21.

The analyst’s untimely call, coupled with a failure among other Wall Street institutions to identify problems in the home mortgage market, isn’t the only familiar ring to investors who watched the technology stock bubble burst precisely seven years ago.

Now, as then, Wall Street firms and entrepreneurs made fortunes issuing questionable securities, in this case pools of home loans taken out by risky borrowers. Now, as then, bullish stock and credit analysts for some of those same Wall Street firms, which profited in the underwriting and rating of those investments, lulled investors with upbeat pronouncements even as loan defaults ballooned. Now, as then, regulators stood by as the mania churned, fed by lax standards and anything-goes lending.

Investment manias are nothing new, of course. But the demise of this one has been broadly viewed as troubling, as it involves the nation’s $6.5 trillion mortgage securities market, which is larger even than the United States treasury market.

Hanging in the balance is the nation’s housing market, which has been a big driver of the economy. Fewer lenders means many potential homebuyers will find it more difficult to get credit, while hundreds of thousands of homes will go up for sale as borrowers default, further swamping a stalled market.

. . . continued

Well, depending on how bad the situation is, it could precipitate a mini-crash. Not that a crash will occur, but don't be surprised if it does.

BTW -

One by one, American industries are finding more fertile ground overseas. In industries from textiles, steel, and automobiles to high-tech electronics and software design, America no longer reigns supreme. And now some worry that America's crown jewel, Wall Street, is on its way out, too.

from Is Wall Street Losing Its Luster?
Markets abroad are making inroads
http://www.usnews.com/usnews/biztech/articles/070304/12wall.htm

Of course, a favorite mantra of business is - "we are overregulated". But then recent scandals involving Enron, Worldcom, Global Crossing, Adelphia, . . . . show that corporations are not over-regulated, but perhaps poorly regulated, and certainly deficient with respect to self-regulation.

 

[Astronuc]

DOW INDUSTRIALS FALL MORE THAN 240 POINTS; DOW, NASDAQ, S&P EACH LOSE 2%

U.S. stocks fall sharply as subprime bites again
www.marketwatch.com

NEW YORK (MarketWatch) -- U.S. stocks sank on Tuesday, sending the Dow Jones Industrial Average down by 200 points, as the rising tide of problems in the subprime mortgage market spurred fear of contagion across the whole financial sector, while weaker-than-expected retail sales confirmed a slowing economic outlook.

The market is gripped by "subprime contagion," said Peter Boockvar, equity strategist at Miller Tabak. "These are the same problems that have been weighing on the market for the last couple of weeks," he said, referring to the downtrend seen ever since the Dow fell 415 points exactly two weeks ago.

. . . .

Tuesday's Personal Finance stories
By MarketWatch
Last Update: 2:30 PM ET Mar 13, 2007

The housing market has been sinking for months, and despite some analysts' contention that things have bottomed out there is much fallout yet to rain down. The latest mortgage-foreclosure and delinquency numbers from the Mortgage Bankers Association show just how radioactive that fallout may be.

Many more homeowners are paying their mortgages late, and the percentage of mortgage loans that entered the foreclosure process hit a record high in the fourth quarter. Although the bulk of the trouble is coming from subprime and government-insured borrowers, the increase in late payments was across the board.

The scary thing is that these increase came when the state of the economy overall was fairly healthy. Job creation and income generation were good in the fourth quarter and interest rates remained low. If homeowners can't cope under those conditions, what is going to happen if the economy, as some predict, sinks into a real recession?

The economy is NOT overall healthy - it is overleveraged. Like internal bleeding and an insidious form of asymptomatic cancer - the patient is ill - and it seems many who should know better - don't.

MarketWatch - REAL ESTATE

New foreclosures at record high

Many more U.S. homeowners were unable to keep up with their mortgage payments in the fourth quarter, the Mortgage Bankers Association said Tuesday, with the rate of homes entering the foreclosure process hitting a record 0.54% and the delinquency rate on U.S. home loans leaping to 4.95% from 4.67% three months earlier. . . . . . more at MarketWatch

Tighter lending standards expected to hit sales, exacerbate inventory glut

Although it's difficult to gauge home builders' direct exposure to the imploding market for subprime loans, none is likely to be immune to the ripple effects resulting from tighter mortgage-lending standards whether they sell to first-time buyers or in the high-end luxury market. . . . . . more at MarketWatch

At a mortgage lender, rapid rise, faster fall

Ruthie Hillery was struggling to make the $952 monthly mortgage payment for her three-bedroom home in Pittsburg, Calif., last summer when a mortgage broker persuaded the 70-year-old to refinance into a "senior citizen's" loan from New Century Financial Corp. that she thought would eliminate the need to make any payments for several years, according to her lawyer. Instead, the $336,000 adjustable-rate loan started out with payments of $2,200 a month, more than double her income. In December, Hillery received notice that New Century intended to foreclose on the property. Then, earlier this month, after a formal demand by the lawyer, New Century agreed to refund all its fees and cancel the loan once Hillery gets refinancing elsewhere. The lawyer, Alan Ramos, says the loan never should have been made. "You have a loan application where the income section is blank," Ramos says. "How does it even get past the first person who looks at it?"

. . . . . more at MarketWatch

These are indications that the economy is fundamentally unsound!

 

[Astronuc]

Houses cheaper than cars in Detroit!
http://news.yahoo.com/s/nm/20070319/ts_nm/usa_subprime_detroit_dc

DETROIT (Reuters) - With bidding stalled on some of the least desirable residences in Detroit's collapsing housing market, even the fast-talking auctioneer was feeling the stress.

"Folks, the ground underneath the house goes with it. You do know that, right?" he offered.

After selling house after house in the Motor City for less than the $29,000 it costs to buy the average new car, the auctioneer tried a new line: "The lumber in the house is worth more than that!"

As Detroit reels from job losses in the U.S. auto industry, the depressed city has emerged as a boomtown in one area: foreclosed property.

It also stands as a case study in the economic pain from a housing bust as analysts consider whether a developing crisis in mortgages to high-risk borrowers will trigger a slowdown in the broader U.S. economy.

. . . .

Steve Izairi, 32, who re-financed his own house in suburban Dearborn and sold his restaurant to begin buying rental properties in Detroit two years, was concerned that houses he thought were bargains at $70,000 two years ago were now selling for just $35,000.

At least 16 Detroit houses up for sale on Sunday sold for $30,000 or less.

. . . .

The economy is certainly uneven.

As for the GDP, if that amount includes financial transactions and transactions based on credit, then it greatly overstates the health of the economy.