A Web Interview

From Linda: Well, you can’t say Dr. James F. Smith is not technologically current. Here’s a link to a 48-minute interview he did sitting in his own office, using his iMac.

http://www.youtube.com/watch?v=W1brvyliws0&feature=youtu.be&hd=1

In the New York Times

From Linda: Jim hasn’t had a quote in The New York Times for a while but he got one today.

See “Bottom May Be Near for Slide in Housing” by David Streitfield in the June 1 edition.

A Great Example of “Gloom and Doom” from the Media

This is corrected. The paragraph about “business spending” has been changed since the initial post. [An oops by Linda.]

In the May 16, 2011, special “Royal Wedding” issue of Time magazine, reporter Stephen Gandel took the somewhat disappointing first (“Advance”) estimate of US real GDP growth in the first quarter of 2011 and spun it into the following misguided and extremely negative piece.

Is the Recovery Over? The latest economic growth figures are grim (Time, 5/16/2011, page 17)
The US government’s gross-domestic-product report for the first quarter of 2011, released April 28, showed that nearly every sector of the economy slowed compared with the last three months of 2010. The numbers were weaker than expected. Consumer spending down. Business spending down. Housing sector down. Exports down. Federal spending way, way down. (It decreased 7.9%, the largest drop in more than a decade.) The housing sector is also decreasing. There was, of course, one thing that was up: inflation. So is this a brief pause on the way to a healthy recovery, or is it the first sign, now that the stimulus package has ended and Ben Bernanke says he’ll stop juicing the bond market come June, that this recovery was never really sustainable? Right now, most signs point to the latter. [end of article]

So, let’s try looking at the facts. First of all, the answer to the headline (Is the recovery over?) is obviously a resounding, “YES!” It ended in the fourth quarter of 2010 when real GDP finally exceeded the old record set in the fourth quarter of 2007. That’s the technical definition of the “recovery” phase of an expansion–when GDP exceeds the previous high.

Consumer spending was not down as stated in the article. It rose at a seasonally adjusted annual average of 2.7 percent to a new record level of $9.5 trillion or 70.6 percent of real GDP. It IS true that the rate of growth was less than the 4.0 percent at a seasonally adjusted annual rate of the fourth quarter of 2010, which is probably what he meant to say, but it was higher than that of any other quarter since the expansion began in June 2009. So, not exactly down.

Gross private domestic investment, which is presumably what he refers to as “business spending” grew at a seasonally adjusted annual rate of 8.5 percent in the first quarter of 2011 after falling at a seasonally adjusted annual rate of 18.7 percent in the fourth quarter of 2010. How he could call that result “down” is beyond me. Almost all of the first quarter growth was from inventory building, which is almost always a sign of business confidence that sales will grow in the future. Almost all of the decline in the fourth quarter was also due to inventories, which subtracted 3.42 percentage points from the growth rate then. The positive contribution from inventories was 0.93 percentage points in the first quarter of 2011.

Exports rose at a 4.9 percent seasonally adjusted annual rate in the first quarter. So, not down.

He is correct that federal government spending on consumption and investment fell, but that was all in defense and no one expects that to continue. [Note from Linda: Besides, isn't any kind of decline in federal government spending a good thing? Aren't we all horrified by the deficit?]

Residential investment has declined in all but three of the last 16 quarters, so that’s hardly news. It is probably at or very close to the bottom by now.

With personal incomes at record levels and growing; strong growth in employment so far in 2011; rising industrial production, retail sales and tax revenues to all levels of government, it’s about impossible to square Mr. Gandel’s views with reality. The expansion is gaining momentum and is likely to last for many years to come.

You should ignore articles from pessimists like this. The good news on the US economy is far outweighing the bad these days.

WSJ Forecast Survey Results

I didn’t win this time but I DID get a nice quote. See the article on WSJ.com.

Oil Prices Might Become a Problem, but Not Yet

The infamous “nattering nabobs of negativism” are out in full force with what can only be characterized as wild speculation at this point. Some analysts are making confident predictions that gasoline prices at pumps in the US will be in the $4.00-5.00 range by Memorial Day and at least one investment bank is talking about oil at $220 a barrel soon.

While those are possible scenarios, they are extremely unlikely. The US expansion is powerful and very broadly based and is likely to gain strength throughout 2011, 2012 and beyond. Click here to read the full post and comment (Insights subscribers) »

Public Sector Unions Rob Taxpayers

Dr. Dunkelberg continues…

OK, I think I have it straight. A legislature passes a law that says union members must pay dues. Then it tries to implement legislation and regulations that make it easy for unions to “compel” firms to accept a union and force its workers to join and pay dues (Card Check, National Labor Relations Board rules, etc.). Then the union takes the dues and “supports” (pays off) the legislators for creating this virtuous cycle (for unions, anyway).

So, what sense does it make to have the unions “negotiate” with the government that passes the laws that make it possible for them to exist, allowing them to collect dues like a tax and finance the election of the politicians they negotiate with? Public unions aren’t negotiating with a “hostile” entity! They are collaborating with the politicians to hijack taxpayers. Click here to read the full post and comment (Insights subscribers) »

Reduce that Federal Deficit

This is a link to a recent post by Keith Hennessey, who sets out the looming fiscal debacle of the USA as clearly as any author I’ve seen. The graph is particularly clear. If you’re not already convinced of the critical need to reduce federal government spending, this post should convince you.

Keith Hennessey is a former Assistant to the President for Economic Policy and former Director of the National Economic Council (2007-2009).

The Long Term Budget Problem Begins Now at keithhennessey.com

Unions Cost YOU Money

Note: Sometimes Dr. Dunkelberg gets cranky….

Whatever the circumstances, it is not acceptable for a group of people to “gang up” on an individual with the intent of doing harm. Probably everyone would agree as applied to “physical” harm. But what about “financial” harm? We have laws that prevent firms from exercising monopoly power and charging prices that are well above the real costs or value of production. But what if a group of workers conspires (usually with the help of government) to overcharge for their services at the expense of the larger public?

The UAW successfully used market power to raise their compensation above levels that the “market” was paying. In simple terms, they “taxed” individual purchasers of cars, extracting as much as $1,500 per car just for healthcare in addition to their higher wages, making it possible for union members to live better, but, dollar for dollar, buyers of cars to have less. This pretty much destroyed the domestic auto industry, and the steel industry suffered much the same fate. Only involuntary taxpayer bailouts saved GM–stock value gone, bondholders whacked, $40 billion of earnings of the new company now tax free, taxpayers paying $750 for each Volt GM sells, a $60 billion bailout for GM and GMAC in bankruptcy–and even with all that its future survival as a competitor is still in doubt.

Only about 7% of the private workforce is unionized today, but their ability to “tax” union members through union dues and make political contributions gives them top priority in the White House today. Public-sector unions represent about a third of public-sector workers. Here, we are held hostage by threats to not pick up our garbage or teach our children. Politicians, not facing a bottom line performance measure like GM or the steel companies but worried about re-election, give in to demands to keep voters from being unhappy. But, over time, this has produced a generally over-paid and over-benefited public sector workforce (compared to market wages). Their generous compensation can only be supported by reducing the welfare of citizens through higher and higher levels of taxation. The “employers” (taxpayers through their elected officials) have slowly lost their ability to determine the terms of employment offers. The unions now determine working hours, hiring criteria, the quantity of “output” to be produced per day, the number of sick and vacation and holiday days, how their performance will be evaluated, etc. No longer can the employer make an “offer” for a job with requirements that fit the needs of the public institution. The workers themselves now determine these things through the exercise of union power.

Bottom line, union members get higher compensation than the market would pay, but dollar for dollar, that higher compensation comes out of the pockets of taxpayers and customers, leaving them worse off. These are not “high paying jobs” that reflect the value produced by the workers but instead reflect the power of the organized group to impose “pain and suffering” on unorganized individuals in society. The prices companies can charge are disciplined by competition as is the wage I can earn offering my services in the marketplace. Unions seem to be exempt from this, having been given the power to tax individuals to support the lifestyle to which they feel they are entitled.

AFTERTHOUGHT: Mr. Trumka, AFL-CIO president told Wisconsin striking teachers that they have the right to form a union and bargain for a better life (at the expense of their fellow citizens of course!). On Feb 22 on FOX, Mr Trumka claimed to visit the White House several times a week for conversations, while NBC news reported that there were 6 Cabinet members that had not talked to President Obama one time in the first two years of his administration. “Card Check”, supported by the President, is designed to impose this on more of the private sector.

Darn Good News on Retail Sales

On January 14 the Census Bureau gave us great news in their monthly retail sales report. Total retail and food services sales in December 2010 were a seasonally adjusted $380.9 billion.

That’s a new record, finally eclipsing the old high of $380.0 billion set in November 2007. The November-December total of $769.5 billion is also a new record for any holiday shopping season. That old record was also set in 2007. Click here to read the full post and comment (Insights subscribers) »

Thanks for Nothing, FOMC Members

After many speakers, most of them favorable to the idea of QE2, the FOMC voted 10-1 on November 3 to authorize up to $600 billion in spending through June 2011. The only dissent came from Dr. Hoenig, president of the Kansas City Fed. Click here to read the full post and comment (Insights subscribers) »