Tuesday, April 15, 2014

The Bully Mentality

Popular Economics Weekly

Why does the USA have such a problem with bullies? Whether in the schools, in politics, or on Internet social media? The result has been teenage suicides, horrendous school shootings by students who felt bullied or belittled, and now a whole political party that opposes anything that smacks of aiding the poorest, seniors, and less educated.

Paul Ryan’s latest budget proposal, is one such example of Republican bullying tactics. It is a repeat of past years’ proposal that would cut $5 trillion from government spending, 69 percent of the cuts in the Ryan budget come from programs that benefit people with low or moderate incomes, according to the Center on Budget and Policy Priorities. Why pick on the poor?

Economist Paul Krugman can’t understand it either. “…while supposed Obamacare horror stories keep on turning out to be false, it’s already quite easy to find examples of people who died because their states refused to expand Medicaid. According to one recent study, the death toll from Medicaid rejection is likely to run between 7,000 and 17,000 Americans each year.

“But nobody expects to see a lot of prominent Republicans declaring that rejecting Medicaid expansion is wrong, that caring for Americans in need is more important than scoring political points against the Obama administration. As I said, there’s an extraordinary ugliness of spirit abroad in today’s America, which health reform has brought out into the open.”

The “ugliness” is really a bully mentality. Bullies prey on those weaker than them, and so they have tried every trick in the book to oppose any programs that smack of aiding those most in need. Why? Because it would empower the less fortunate so they are not so easily bullied. The Republican-dominated red states are the best example of the bully mentality.

If Republicans can’t keep their constituents poor and less educated, then they would lose their hold over them, and so their power. Conservatives oppose expanding educational opportunities such as Head Start and pre-school aid because it would encourage rational thinking, and an appreciation of science. Their constituents would then begin to understand global warming, and maybe evolution.

Republicans opposition to expanding voters’ rights; even social security and Medicare; is because Repubs fear being outvoted by those very same immigrants, minorities and seniors that depend on those services to improve their circumstances, and would enhance economic growth, by the way. Republicans only answer is to restrict voting hours and pass draconian voter ID laws in the red states. It is restricting citizens’ voting rights, even though sacrosanct and protected by the constitution.

In fact, the bully mentality requires such ignorance of facts about economic growth as well. The slow recovery from the Great Recession has mainly been because private businesses have been reluctant to hire due to slack demand, and governments have been unable to spend more on public services. Yet Republicans have opposed any form of government stimulus spending, even on badly outmoded infrastructure that will only cost more to repair and replace in the future.

Not all Republicans are bullies, and not all Democrats enlightened progressives, of course. But the bully mentality of House Speaker John Boehner’s “no compromise” tactics, or Senator Mitch McConnell’s filibustering of even the most innocuous Obama Administration appointments have been the reason recovery from the Great Recession hasn’t been stronger.

Fostering a culture of fear and ignorance is not the way to run a political party, or a country. Such tactics that attempt to suppress the rights of those that disagree, as well as the willful denial of scientific and economic facts are a danger to our democracy, not to speak of the US position as a leader of democratic nations. That is the ugliness that has crept into American politics. It is a complete denial of greater opportunity for all but Republicans’ most conservative constituents, and disregard for the most basic human rights.

Harlan Green © 2014

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Thursday, April 10, 2014

Yellen’s Federal Reserve To Keep Rates Low

The Mortgage Corner

The Fed’s FOMC minutes of their last meeting were just released, and they show the Fed intends to keep interest rates low for as long as possible, until the unemployment rate drops substantially. And the Fed’s maintenance of low interest rates will do the most to boost housing sales this year.

In fact, they are dropping the 6.5 percent unemployment rate bar that former Fed Chair Bernanke had said was the point at which they would consider beginning to raise interest rates. That’s because the 6.5 percent rate has almost been reached without any improvement in the long term unemployed. It’s at 6.7 percent in March and the Labor Department’s JOLTS report says that with 4.2 million job openings (blue line in graph), the 6.5 percent rate could happen anytime.

jolts 

Calculated Risk

Jobs openings increased in February to 4.173 million from 3.874 million in January. The number of job openings (yellow) is up 4 percent year-over-year compared to February 2013, while the number of hires (blue line) hasn’t been rising as fast. So it seems reasonable that the hire numbers will pick up as more jobs become available. Meanwhile, the number of Quits and Layoffs (blue and red bars in graph) has been declining, another sign of improving job opportunities.

The Fed minutes also mentioned that there were other obstacles to higher employment—excess savings by both consumers and business that weren’t being productively invested—that could slow also down job formation.

In fact, the minutes for the first time stated that ‘lowflation’ was a problem holding back demand, and so hiring. Why? Because too low inflation—just above 1 percent at present—was a sign there wasn’t enough demand for goods and services to yet warrant additional hiring.

“Participants observed that a number of factors were likely to have contributed to a persistent decline in the level of interest rates consistent with attaining and maintaining the Committee's objectives”, said the FOMC minutes. “In particular, participants cited higher precautionary savings by U.S. households following the financial crisis, higher global levels of savings, demographic changes, slower growth in potential output, and continued restraint on the availability of credit.”

This is basic macroeconomic theory that Fed Chair Yellen has researched, and the reason she is now the Fed Chairperson. She understands economics, and why job opportunities have been growing so slowly. Both consumers and businesses are holding on to their savings. So the Fed would have to see improvement in these factors, as well, leading to slightly higher inflation, before beginning to raise interest rates.
Real estate will also benefit from the Fed’s decision. One sign of better sales is that inventories continue to improve. Housing Tracker reports that 2014 existing-home inventories (red line) are slightly above last year and improving, due to fewer foreclosures and short sales.

housetrack

Graph: Calculated Risk

“As of April 07 2014 there were about 745,168 single family and condo homes listed for sale in the 54 metro areas we track, said Housing Tracker. “The median asking price of these homes was estimated to be $269,029. Since this time last year, the inventory of homes for sale has increased by 7.7 percent and the median price has increased by 11.1 percent.”

This in itself will improve sales, but the continued prospect of lower interest rates will do the most to boost home sales this year.

Harlan Green © 2014

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Saturday, April 5, 2014

Jobs Recession Finally Over?

Financial FAQs

Is the jobs recession finally over? It’s taken this long to bring employment back to pre-Great Recession levels. Overall employment is still slightly below the pre-recession peak (437 thousand fewer total jobs).  But private employment is now above the pre-recession peak by 110 thousand and at a new all-time high.

Marchjobs

Calculated Risk

Total nonfarm payroll jobs rose 192,000 in March after a 197,000 boost in February and a 144,000 increase in January. The net revision for the prior two months was up 37,000. Expectations for March were for 206,000. Private payrolls gained 192,000, following an increase of 188,000 in February. Analysts projected 215,000 for March.

We can now see where many of the missing jobs remain—in governments. Although state governments added 8,000 net jobs in March, the federal government shed another 9,000 jobs, according to the just released Bureau of Labor Statistics report. Over the past year, employment in the federal government has fallen by 85,000, so we know the major reason we are barely back to the 2007 level of employment. In fact, some 700,000 state and federal jobs were lost during the Great Recession.

Unfortunately, political gridlock has caused so many essential government, or government-sponsored jobs to be lost.  There shouldn’t be a debate over what federal, state and local government expenditures are necessary to maintain decent economic growth. Can one imagine what it would do to economic growth if the $2.2 trillion in deferred infrastructure building—in roads, bridges, electrical and energy distribution networks had been done, not to speak of the additional jobs created?

Or, instead of losing 300,000 teachers and the lost education opportunities to students, education spending had been expanded? A good comparison is with the GW Bush administration, when Republicans were in power. Then they were for much more government spending.

The public sector grew during GW Bush's term (up 1,748,000 jobs), but the public sector has declined since Obama took office (down 718,000 jobs). These job losses have mostly been at the state and local level, but they are still a significant drag on overall employment.

The private sector is the main jobs provider, of course.  The single area that could provide the most bang for the buck is the construction industry. Since construction employment bottomed in January 2011, construction payrolls have increased by 532 thousand - but there are still 1.76 million fewer construction jobs now than at the peak in 2006, per an excellent analysis by Calculated Risk.

That also means the building-construction industry and all its ancillary services—such as mortgages, insurance, home furnishings—has much more room to grow. Private residential construction is returning to normal levels at last, but not public (which has fallen since ‘shovel-ready’ ARRA stimulus money ran out in 2010, which created or saved some 3 million jobs) and non-residential spending.

constructspend

Calculated Risk

The bottom line is that all construction sectors have to improve to bring enough jobs back. These are mainly blue collar workers that lost badly during the Great Recession, due to the housing bubble. The good news is that professional and business services jobs grew double any of the other job categories in the March payroll survey.

Professional and business services added 57,000 jobs in March, in line with its average monthly gain of 56,000 over the prior 12 months. Within the industry, employment increased in March in temporary help services (+29,000), in computer systems design and related services (+6,000), and in architectural and engineering services (+5,000).

This should give a large boost to construction jobs this year and next.

Harlan Green © 2014

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Thursday, April 3, 2014

The Ryan Budget Myth and Obamacare

Popular Economics Weekly

Representative Paul Ryan has come up with his latest Republican budget proposal, and it changes nothing. It neither promotes economic growth, nor reduces the budget deficit, as with past Republican budget proposals. That’s because its real target is to win some Senate seats by targeting Obamacare, for starters. And it can’t do that without telling some whoppers, including the claim that it can balance the federal budget by 2024.

Why do Ryan Repubs keep insisting on repealing Obamacare, even though they are conceding that with 7.1 million now enrolled as of March 31, it won’t be repealed? Because with fall midterm elections coming up and the prospect of winning some Democratic Senate seats looming, Ryan, et. al., want to keep up the myth that government supported programs can’t work, including health insurance, even though the Affordable Care Act, aka Obamacare will be a success.

We know this because Massachusetts’ Romneycare plan has been working for both young and old, as well as employers. Employers haven’t cut and run, but instead opted to insure more of their employees, not less. For instance, the percentage of small businesses with more than 3 employees have increased their coverage from 70 to 76 percent.

Ryan has to cling to the Republican myth that cutting government spending—either by weakening the social safety net of pensions and health care, or weakening environmental protection and educational programs—will cause the wealthiest among us to invest in more jobs and growth, because that’s what the wealthy will do with the lower taxes and increased income that results from smaller government expenditures.

But we know that’s not what the 1 percent, and those who are paid by and support the 1 percent do. They have instead used those excess profits to speculate—in the financial markets, mainly. And that in turn has provoked the huge overinvestments in dot-com infrastructure and housing that brought on the last two recessions, which in turn has slowed job creation and overall economic growth.

This is no secret to most Americans. The wealthiest spend a smaller percentage of their income on necessities, and in doing so reduce the demand for the most essential goods and services. But Republican-dominated states would have their constituents believe the wealthiest are their benefactors, when in fact those Red states are most dependent on government aid because they are also the poorest states.

Ryan proposes to trim $5 trillion from government spending. He said it would bring federal spending and taxes into balance by 2024, through steep cuts to Medicaid and food stamps, and the total repeal of the Affordable Care Act just as millions are reaping the benefits of the law, according to the New York Times.

But with current programs the deficit would increase just 1 percent to 4 percent of GDP over the next 10 years, according to the Congressional Budget Office. So why cut the social welfare programs that benefit so many, including our seniors and retirees, when it isn’t necessary?

Raising doubts about the effectiveness of Obamacare is the real target of Ryan’s plan, as we said. That’s the real reason Republicans continue to make these unpassable proposals. They want to keep their majorities in the Red states, without which they couldn’t continue the transfer of wealth from those most in need to those least in need, and which perpetuates the growing inequality of the socioeconomic classes.

In fact, we already know the result of such policies. Under GW Bush, when the Republican agenda of lower taxes and increased defense spending was in full flower, fewer jobs were created and the budget deficit ballooned. And that led to the Great Recession.

Harlan Green © 2014

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Tuesday, April 1, 2014

Fed Chair Yellen Is the Workers’ Best Friend

Financial FAQs

We have just heard from new Federal Reserve Chairperson Janet Yellen in her first official speech entitled, What the Federal Reserve is Doing to Promote a Stronger Job Market. Her speech not only boosted the financial markets, but confirms the Fed will do all in its power to boost employee incomes by keeping interest rates low for as long as possible.

Why? Because she is one of the ordinary worker’s best friendsi.e., those 80 percent of the workforce that are wage and salary earners. It is really the wage and salary earners that determine the strength or weakness of any economy, because they power most consumer spending. And more jobs mean more tax revenues, hence less budget deficits and all the ills that go with deficit spending.  It should have been first and foremost on President Obama's agenda from Day One of his administration--but it wasn't.

“By keeping interest rates low, we are trying to make homes more affordable and revive the housing market. We are trying to make it cheaper for businesses to build, expand, and hire. We are trying to lower the costs of buying a car that can carry a worker to a new job and kids to school, and our policies are also spurring the revival of the auto industry. We are trying to help families afford things they need so that greater spending can drive job creation and even more spending, thereby strengthening the recovery…There is little doubt that without these actions, the recession and slow recovery would have been far worse.”

She is in fact the first modern Federal Reserve Chairman that is unequivocally committed to promote real job growth. How can I say that? Firstly, because she is a top macro economist, who along with husband and Nobelist George Akerlof, have done much of the major research on the labor market.

So she understands what policies create more jobs, which until now has not been the top priority of either Congress or the Obama administration, sad to say. It should be obvious that job creation has to be the first and foremost priority of all policy makers to bring the US economy back from the worst downturn since the Great Depression.

The Federal Reserve during the 1930s understood this under then Fed Chairman Marriner Eccles, which is why we had FDR’s New Deal. But until now, even ex-Chairman Bernanke seemed to be more focused on reducing debt, the result of the Great Recession, than putting enough people back to work, in order to pay down that debt.

And Paul Krugman has been writing about the need for more job-friendly policies, including in his latest New York Times Op-ed:

He said, “Instead of focusing on the way disastrously wrongheaded fiscal policy and inadequate action by the Federal Reserve have crippled the economy and demanding action, important people piously wring their hands about the failings of American workers.

“Moreover, by blaming workers for their own plight, the skills myth shifts attention away from the spectacle of soaring profits and bonuses even as employment and wages stagnate. Of course, that may be another reason corporate executives like the myth so much.”

Dr. Yellen obviously understands this, so let us hope the Board of Governors will continue to support her effort to bring back jobs and so the middle class.

Harlan Green © 2014

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Monday, March 31, 2014

No Relief Yet With Pending Sales

The Mortgage Corner

We can’t yet count on Pending Home Sales, a predictor of closings in 60 to 90 days, to predict a boost to this year’s sales. They have been falling since last July, and the last spike in mortgage rates.

The Pending Home Sales Index (PHSI), a forward-looking indicator based on contract signings, dipped 0.8 percent to 93.9 from a downwardly revised 94.7 in January, and is 10.5 percent below February 2013 when it was 104.9. The February reading was the lowest since October 2011, when it was 92.2.

pending

Graph: Econoday

It could be the weather as NAR chief economist Lawrence Yun says, but there are still fewer homes on the market, and fewer being bought by all cash investors. Yun believes the recent slowdown in home sales may be behind us, while home prices continue to rise. “Contract signings for the past three months have been little changed, implying the market appears to be stabilizing,” he said. “Moreover, buyer traffic information from our monthly Realtor® survey shows a modest turnaround, and some weather delayed transactions should close in the spring.”

hsginvent

Graph: Calculated Risk

Inventories are rising in the western states, however, which will help boost sales. It will show down the price increases, for one. Inventory is up 88 percent in Sacramento, up 57 percent in Phoenix, up 40 percent in Riverside, and up 33 percent in Orange County. However inventory is only up 3 percent in San Francisco and 9 percent in San Diego, according to Housing Tracker. Pending sales increased most in the Midwest and Western regions.

We can only say that rising interest rates do make a difference, but we may have a reprieve on interest rates this year with the new Fed Chairperson Janet Yellen. She has been telling everyone who will listen that the Fed plans to hold down rates for a considerable period even after the end of the QE3 securities’ purchase program. Why? Because the economy feels like it is still in recession for many people.

Dr. Yellen in her first major speech since becoming Fed Chair said, “By keeping interest rates low, we are trying to make homes more affordable and revive the housing market. We are trying to make it cheaper for businesses to build, expand, and hire. We are trying to lower the costs of buying a car that can carry a worker to a new job and kids to school, and our policies are also spurring the revival of the auto industry. We are trying to help families afford things they need so that greater spending can drive job creation and even more spending, thereby strengthening the recovery…There is little doubt that without these actions, the recession and slow recovery would have been far worse.”

This should hearten home buyers as well as sellers that property sales in particular will remain strong this year.

Harlan Green © 2014

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Friday, March 28, 2014

Greenspan’s Greed and The Federal Deficit

Popular Economics Weekly
The deficit this year is expected to be $514 billion— just 3 percent the size of the economy and significantly less than the $1.4 trillion deficit Congress ran up when it pumped stimulus into the economy in 2009.
“Although the deficit in the Congressional Budget Office’s baseline projections continues to decline as a percentage of GDP in 2015, to 2.6 percent, it then starts to increase again in 2016, reaching 4.0 percent of GDP in 2024,” said the CBO. “That figure for the end of the 10-year projection period is roughly 1 percentage point above the average deficit over the past 40 years relative to the size of the economy.”
Why do we have such a large federal budget deficit today, in spite of the current reductions of CBO projections? It now totals $17 trillion counting the US Treasury’s own debt to itself—when we had 4 consecutive annual surpluses in the Clinton years of 1997 to 2001, and an overall budget deficit reduced to $3.2 trillion in privately-held debt.
The answer in a nutshell is unrestrained human greed, something that even Alan Greenspan recognized, though he wouldn’t admit it was the result of his own laissez faire market ideology of lower taxes and less market regulation.
''It is not that humans have become any more greedy than in generations past,” he famously lamented in 2002 testimony before the Senate Banking Committee. “It is that the avenues to express greed had grown so enormously.”
That quote was not only fatuous—humans have always become more or less greedy depending on those so-called opportunities for greed—but it was his decision to back GW Bush’s deficit spending that erased the Clinton budget surpluses.
feddeficit
There were of course 2 recessions—in 1991 and 1997, plus the wars on terror, plus TARP and the Bush era tax cuts. But it was then Fed Chairman Alan Greenspan’s testimony that enabled the Bush/Cheney record deficits of those and subsequent years such as on January 26, 2001 Senate testimony:
"Continuing to run surpluses beyond the point at which we reach zero or near-zero federal debt brings to center stage the critical longer term fiscal policy issue of whether the federal government should accumulate large quantities of private -- more technically, nonfederal – assets,” he said at the time. “At zero debt, the continuing unified budget surpluses currently projected imply a major accumulation of private assets by the federal government. ... This development should factor materially into the policies you and the administration choose to pursue."
In fact, it was the unregulated greed of Wall Streeters that Greenspan had in fact encouraged in opposing regulation of derivatives—used by regulated banks, as well as unregulated hedge funds—that led to the Great Recession that bankrupted millions.
The Clinton surpluses had almost balanced long-term federal debt, and first Bush Treasury Secretary John O’Neill lost the debate on what to do with that surplus. He had wanted the surplus to strengthen social security, Medicare, and other government spending programs. O’Neill was fired for his opposition to the Bush tax cuts.
In other words, Greenspan gave Bush the cover he needed after 9/11 to use that surplus to finance tax cuts on capital in particular—including abolishing the inheritance tax, lowering capital gains and dividend taxes almost 50 percent—that mainly benefited Wall Street and its investors, rather than Main Street.
“Why did corporate governance checks and balances that served us reasonably well in the past break down?” he asked. “At root was the rapid enlargement of stock market capitalizations in the latter part of the 1990s that arguably engendered an outsized increase in opportunities for avarice. An infectious greed seemed to grip much of our business community.”
We have you to thank, Dr. Greenspan, for those "opportunities for avarice" that resulted from of your unbridled enthusiasm for such policies at that time. It also brought on the Great Recession and record deficit we have today.
Harlan Green © 2014

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen