USA Today reports France paralyzed by strikes over raising retirement to 62:
Tens of thousands of French workers took to the streets Thursday for the second day of nationwide strikes this month to protest President Nicolas Sarkozy's plan to raise the retirement age to 62. Union walkouts crippled planes, trains and schools across the country. . .
Sarkozy has indicated he is willing to make marginal concessions but remains firm on the central pillar: increasing the retirement age from 60 to 62 and pushing back the age from 65 to 67 for those who want full retirement benefits. . .
This blog has in fact argued that one way to look at the U. S. un-/under-employment problem is that perhaps we work too hard and think and play too little. Just think that if the average American worker put in the same number of annual work hours as a typical French worker, and retired at the same age, there would probably be a hue and cry about a shortage of labor here. It's all relative. Neither you nor I, nor the government, nor business leaders have any idea what the "right" level of work effort or production is for the abstraction called "the economy". Only a free people operating in free markets can properly, and should, determine those things.
America's problem is tied into debt piled upon debt, which is to say promise piled upon promise. But we have lost a great deal of faith in promises, promises the past few years.
Part of the solution, as per the motto of this blog, is equity - specifically the lack of such. Equity, both as in ownership (a true ownership society, not a faux version), and as in fairness. Has all the government intervention in society created a fairer, more equal society? No. When government was tiny and on the gold standard, as in the 1880s, America was a much more equal and fast-growing country.
In France, many think it's unfair to have to work all the way to the ages America peacefully settled on for Social Security benefits years ago. And so it may be if one hates one's job and is viciously oppressed by one's boss. I doubt that's a typical situation in France. Maybe they just like to sit around cafes and sip hot and cold beverages, and people-watch. But I digress down memory lane; the first piece of art I ever bought was of a French street scene.
Back to the U. S.: There's plenty of production to sustain every American in decent conditions. The problem stems in large measure from over-financialization, which has divorced much of production from meeting the needs of real people and real markets. A simpler, more honest and more transparent financial system, with government much less involved, would be an important first step in allowing Americans to meet their own needs and serve the needs of foreign countries via exports in a more balanced manner.
In this regard we should become less like the French, no matter how good their food and drink are.
Copyright (C) Long Lake LLC 2010
Showing posts with label Economic freedom. Show all posts
Showing posts with label Economic freedom. Show all posts
Thursday, September 23, 2010
Sunday, July 18, 2010
Why Krugman and Roubini Are Wrong About Slow Growth
Calculated Risk has a post today titled Double Dip Discussion which double quotes two academics of the gloomy persuasion, Drs. Krugman and Roubini. These doctors decry slow growth as follows. First the Krugman quote:
Let’s be clear: a recovery that involves growth so slow that unemployment and excess capacity rise, not fall, isn’t really a recovery. If we have only have 1 1/2 percent growth, that will amount to a double dip in all the senses that matter.
Next, the Roubini quote(s, from his article on Project Syndicate titled Double-Dip Days:
The likely scenario for advanced economies is a mediocre U-shaped recovery, even if we avoid a W-shaped double dip. In the US, annual growth was already below trend in the first half of 2010 (2.7% in the first quarter and estimated at a mediocre 2.2% in April-June). Growth is set to slow further, to 1.5% in the second half of this year and into 2011.
Whatever letter of the alphabet US economic performance ultimately resembles, what is coming will feel like a recession.
(The above Roubini quote is from the linked article found at CR's post, but is not from his excerpts from Roubini, but rather are my own for purposes of this post.)
The action point of the Krugman and Roubini arguments is for more stimulus, which I have always called "stimulus". There is a difference between stimulus and "stimulus". Repaving roads in decent repair is "stimulus". Rebuilding a closed bridge that when open allows useful commerce between nearby regions is stimulus. Maintenance of existing structures and infrastructures is not necessarily either stimulus or "stimulus". It is simply needed maintenance; it is a cost, and proper accounting shows it as a depreciation expense to be matched by capital expenditure, in general. Making ammunition is "stimulus". So is using it. The part of the 2009 ARRA "stimulus" bill that supported Medicaid was humanitarian expenditure and neither "stimulus" nor stimulus. It was, as the Wizard of Oz might have said, good deed-doing.
If population grows 1% per year and national output grows 1 1/2% per year, that's OK IF IF IF the output is useful. What happened in the last decade is that home construction far outstripped household creation; and house construction was larger and fancier than before. As it turned out, the economics behind that surge in homebuilding was faulty, and led to the fall of Fannie and Freddie. Further, the lending surge that supported all the homebuilding also supported other malinvestments.
When Drs. Krugman and Roubini say that slow growth equal to or above population growth will feel like a recession, of course it will in today's world, because no one I know feels that the recession/depression has really ended. In some parts of the country, it has lessened, but nationally everyone living in the real world knows that times remain (relatively) tough. In better times, growth slowdowns such as occurred in 1994 and many other times were correctly not perceived as feeling like recessions, because the economy acted healthy.
If the United States government is really of, by and for the people, then said government should come up with good new ideas for how it should allocate resources. More war in Asia? Okay, then pay for it. Yet more road paving? Okay, justify the need and pay for it; and account for the extra strain on oil prices caused by asphalt production (for example). More healthcare spending out of Washington? Okay, but pay for it, because that is an ongoing expense, not an extraordinary one. The idea of borrowing from China to pay medical expenses for American elderly or poor is bizarre, especially considering that per capita GDP is 10X here than there.
One point of accounting is to allocate costs and benefits, andto allow market forces to help people allocate resources. In a healthy economy where investments and expenditures have good reasons to be done, growth above per capita growth would not feel like a failure. The obvious solution is to limit the distortions and coercions caused by government-- the only legitimate economic actor in this country which acts with the barrel of a gun implied when it wants others to do something-- and allow a free society to work, spend and save as much or as little as it wants, with government respecting those choices within the rules society sets government to enforcing.
Drs. Roubini and Krugman are statists always arguing for more government regulation and control. They may claim to believe in limited government (at least, Roubini may so claim), but it is always in the future. In the meantime, they advocate pushing more debt onto this debt-addicted society and more central control onto a country that grew to be the world's largest creditor during a period when the Federal government had almost no debt and had limited interference in the workings of the economy.
Central planning only works if the planners are humble, hard-working public servants who present governmental finances and plans honestly, and regulate fairly and consistently.
It is the failure of government and its cronies in Big Finance and other "Bigs" to perform on behalf of society at large that have led to the extensive cynicism that abounds in America. The solution is not the Krugman/Roubini solution of more "stimulus" and more "growth" but a return to freedom and an of-by-for the people reordering of the economy. In other words, bottom-up beats top-down right now.
If that (unlikely for now) result occurs, there will be a new rebirth of economic growth.
For now, count me as dubious.
Growth slowdowns are not the important problem. The economy has arteriosclerosis and the Federal finances threaten to turn cancerous given the threat of accelerating money-printing. The Krugman/Roubini wailing over allegedly inadequate growth ignores these much more important problems.
Copyright (C) Long Lake LLC 2010
Let’s be clear: a recovery that involves growth so slow that unemployment and excess capacity rise, not fall, isn’t really a recovery. If we have only have 1 1/2 percent growth, that will amount to a double dip in all the senses that matter.
Next, the Roubini quote(s, from his article on Project Syndicate titled Double-Dip Days:
The likely scenario for advanced economies is a mediocre U-shaped recovery, even if we avoid a W-shaped double dip. In the US, annual growth was already below trend in the first half of 2010 (2.7% in the first quarter and estimated at a mediocre 2.2% in April-June). Growth is set to slow further, to 1.5% in the second half of this year and into 2011.
Whatever letter of the alphabet US economic performance ultimately resembles, what is coming will feel like a recession.
(The above Roubini quote is from the linked article found at CR's post, but is not from his excerpts from Roubini, but rather are my own for purposes of this post.)
The action point of the Krugman and Roubini arguments is for more stimulus, which I have always called "stimulus". There is a difference between stimulus and "stimulus". Repaving roads in decent repair is "stimulus". Rebuilding a closed bridge that when open allows useful commerce between nearby regions is stimulus. Maintenance of existing structures and infrastructures is not necessarily either stimulus or "stimulus". It is simply needed maintenance; it is a cost, and proper accounting shows it as a depreciation expense to be matched by capital expenditure, in general. Making ammunition is "stimulus". So is using it. The part of the 2009 ARRA "stimulus" bill that supported Medicaid was humanitarian expenditure and neither "stimulus" nor stimulus. It was, as the Wizard of Oz might have said, good deed-doing.
If population grows 1% per year and national output grows 1 1/2% per year, that's OK IF IF IF the output is useful. What happened in the last decade is that home construction far outstripped household creation; and house construction was larger and fancier than before. As it turned out, the economics behind that surge in homebuilding was faulty, and led to the fall of Fannie and Freddie. Further, the lending surge that supported all the homebuilding also supported other malinvestments.
When Drs. Krugman and Roubini say that slow growth equal to or above population growth will feel like a recession, of course it will in today's world, because no one I know feels that the recession/depression has really ended. In some parts of the country, it has lessened, but nationally everyone living in the real world knows that times remain (relatively) tough. In better times, growth slowdowns such as occurred in 1994 and many other times were correctly not perceived as feeling like recessions, because the economy acted healthy.
If the United States government is really of, by and for the people, then said government should come up with good new ideas for how it should allocate resources. More war in Asia? Okay, then pay for it. Yet more road paving? Okay, justify the need and pay for it; and account for the extra strain on oil prices caused by asphalt production (for example). More healthcare spending out of Washington? Okay, but pay for it, because that is an ongoing expense, not an extraordinary one. The idea of borrowing from China to pay medical expenses for American elderly or poor is bizarre, especially considering that per capita GDP is 10X here than there.
One point of accounting is to allocate costs and benefits, andto allow market forces to help people allocate resources. In a healthy economy where investments and expenditures have good reasons to be done, growth above per capita growth would not feel like a failure. The obvious solution is to limit the distortions and coercions caused by government-- the only legitimate economic actor in this country which acts with the barrel of a gun implied when it wants others to do something-- and allow a free society to work, spend and save as much or as little as it wants, with government respecting those choices within the rules society sets government to enforcing.
Drs. Roubini and Krugman are statists always arguing for more government regulation and control. They may claim to believe in limited government (at least, Roubini may so claim), but it is always in the future. In the meantime, they advocate pushing more debt onto this debt-addicted society and more central control onto a country that grew to be the world's largest creditor during a period when the Federal government had almost no debt and had limited interference in the workings of the economy.
Central planning only works if the planners are humble, hard-working public servants who present governmental finances and plans honestly, and regulate fairly and consistently.
It is the failure of government and its cronies in Big Finance and other "Bigs" to perform on behalf of society at large that have led to the extensive cynicism that abounds in America. The solution is not the Krugman/Roubini solution of more "stimulus" and more "growth" but a return to freedom and an of-by-for the people reordering of the economy. In other words, bottom-up beats top-down right now.
If that (unlikely for now) result occurs, there will be a new rebirth of economic growth.
For now, count me as dubious.
Growth slowdowns are not the important problem. The economy has arteriosclerosis and the Federal finances threaten to turn cancerous given the threat of accelerating money-printing. The Krugman/Roubini wailing over allegedly inadequate growth ignores these much more important problems.
Copyright (C) Long Lake LLC 2010
Saturday, January 30, 2010
Markets Not Loving the Growth or Declining Economic Freedom
The Economic Cycle Research Institute (ECRI) publishes its Weekly Leading Index on Fridays. The absolute level of the index is around 131. Unlike the Conference Board's better-known but arguably less sophisticated Leading Economic Indicators, which is in record territory, the WLI is about 12 points off its 2007 high of 143.
That index peaked in the May-July time frame in 2007, which was the precise period in which Bear Stearns disclosed problems in two of its managed hedge funds. The annualized growth rate of the WLI turned negative later in the summer and except for one somewhat manic move to new highs in the stock indices in the fall, stocks have trended downward since.
ECRI points to a V-shaped economic recovery in its latest press release, U.S. Business Cycle Recovery To Keep Going:
"With the WLI staying near the previous week's 83-week high, the U.S. business cycle recovery is set to keep going in the months ahead," Achuthan said.
He also pointed to government data released earlier on Friday showing that the U.S. economy grew at a
faster-than-expected pace for the fourth quarter.
"With GDP growth rebounding 12 percentage points in just three quarters, the V-shaped recovery foreseen last summer by the WLI is coming into focus."
Somehow the economic and financial climate continues to feel more like Japan post-bubble than Springtime in America. Indeed, this blog has reported that ECRI is now forecasting more frequent recessions than in the 1983-2007 period. This will be good for its business but probably not so good for the country or for investors.
Remembering that many stocks peaked not in 2007 (financials) or much earlier (homebuilders, spring 2005) but in 2008, and that others have gone on to all-time highs, stocks of companies with ongoing record profits, upward earnings revisions, below-market P/E's, that are self-financing, and preferably have strong charts (whether or not they have had profit-taking at some point in the past few months) can be owned in what may well be an economic cycle that is pointing flat to down from a growth momentum (second derivative) standpoint.
While JPM and GS may well be due for kickback rallies, they have broken down on the charts. It appears to this blogger that the same phenomenon that applied to the techs post-bubble is happening to the financials. Their reflex rally is over, and as a group they are dead money until the next economic/market cycle bottoms.
Treasuries may be OK from an intermediate-term standpoint, given the political dynamics that have forced the administration to talk of increasing taxes (on Big Finance) and decreased rate of spending growth.
If the current economic cycle is like the prior one, Treasury rates will move irregularly upward as Fed tightening (or decreased loosening) competes with slower growth. There is a very real possibility that the next economic downturn will involve a decline in the 10-year Treasury to the 2-3% rate.
Meanwhile, absolute levels of return on low investment grade bonds (Moody's Baa) are "too low" at just over 6%. Call me irresponsible, but I just made a modest investment on Greek 5-year Euro-denominated bonds at a 6.5% yield to maturity. Between the country that helped create the modern world and an anonymous company with uncertain finances and an uncertain fate, I'll take Greece.
The U. S. has now been downgraded by the Heritage Foundation to being "mostly free" economically rather than "free". Its drop of 2.7 points (on a scale ranging to 100) and a rating of 78.0 brought us to eighth place, below seventh-ranked Canada (80.4) and far below Hong Kong and Singapore, numbers one and two respectively, which had scores of 89.7 and 86.1.
Considering that Australia and New Zealand were third and fourth and are physically and economically closer to Asia than anywhere else, it is fair to say that the East may not be red any longer, but it increasingly is economically free.
There are many other measures of economic success and growth prospects than freedom per se, especially as defined by a group with the agenda of the Heritage Foundation; Brazil, India and China were ranked 113, 124 and 140 respectively, and the numerical ratings for all of them declined last year even as their economies grew.
The financial world is changing rapidly. Barack Obama had a real chance to pull an FDR, get a Pecora Commission-type show going and promote the major financial system reforms that would provide a platform for a new, better economic structure. Regardless of how the current cycle plays out and whether or not he wins re-election, he has failed us. We are now doomed not to 23 but 27 years of Greenspan-Bernanke. Yuccch!
Copyright (C) Long Lake LLC 2010
That index peaked in the May-July time frame in 2007, which was the precise period in which Bear Stearns disclosed problems in two of its managed hedge funds. The annualized growth rate of the WLI turned negative later in the summer and except for one somewhat manic move to new highs in the stock indices in the fall, stocks have trended downward since.
ECRI points to a V-shaped economic recovery in its latest press release, U.S. Business Cycle Recovery To Keep Going:
"With the WLI staying near the previous week's 83-week high, the U.S. business cycle recovery is set to keep going in the months ahead," Achuthan said.
He also pointed to government data released earlier on Friday showing that the U.S. economy grew at a
faster-than-expected pace for the fourth quarter.
"With GDP growth rebounding 12 percentage points in just three quarters, the V-shaped recovery foreseen last summer by the WLI is coming into focus."
Somehow the economic and financial climate continues to feel more like Japan post-bubble than Springtime in America. Indeed, this blog has reported that ECRI is now forecasting more frequent recessions than in the 1983-2007 period. This will be good for its business but probably not so good for the country or for investors.
Remembering that many stocks peaked not in 2007 (financials) or much earlier (homebuilders, spring 2005) but in 2008, and that others have gone on to all-time highs, stocks of companies with ongoing record profits, upward earnings revisions, below-market P/E's, that are self-financing, and preferably have strong charts (whether or not they have had profit-taking at some point in the past few months) can be owned in what may well be an economic cycle that is pointing flat to down from a growth momentum (second derivative) standpoint.
While JPM and GS may well be due for kickback rallies, they have broken down on the charts. It appears to this blogger that the same phenomenon that applied to the techs post-bubble is happening to the financials. Their reflex rally is over, and as a group they are dead money until the next economic/market cycle bottoms.
Treasuries may be OK from an intermediate-term standpoint, given the political dynamics that have forced the administration to talk of increasing taxes (on Big Finance) and decreased rate of spending growth.
If the current economic cycle is like the prior one, Treasury rates will move irregularly upward as Fed tightening (or decreased loosening) competes with slower growth. There is a very real possibility that the next economic downturn will involve a decline in the 10-year Treasury to the 2-3% rate.
Meanwhile, absolute levels of return on low investment grade bonds (Moody's Baa) are "too low" at just over 6%. Call me irresponsible, but I just made a modest investment on Greek 5-year Euro-denominated bonds at a 6.5% yield to maturity. Between the country that helped create the modern world and an anonymous company with uncertain finances and an uncertain fate, I'll take Greece.
The U. S. has now been downgraded by the Heritage Foundation to being "mostly free" economically rather than "free". Its drop of 2.7 points (on a scale ranging to 100) and a rating of 78.0 brought us to eighth place, below seventh-ranked Canada (80.4) and far below Hong Kong and Singapore, numbers one and two respectively, which had scores of 89.7 and 86.1.
Considering that Australia and New Zealand were third and fourth and are physically and economically closer to Asia than anywhere else, it is fair to say that the East may not be red any longer, but it increasingly is economically free.
There are many other measures of economic success and growth prospects than freedom per se, especially as defined by a group with the agenda of the Heritage Foundation; Brazil, India and China were ranked 113, 124 and 140 respectively, and the numerical ratings for all of them declined last year even as their economies grew.
The financial world is changing rapidly. Barack Obama had a real chance to pull an FDR, get a Pecora Commission-type show going and promote the major financial system reforms that would provide a platform for a new, better economic structure. Regardless of how the current cycle plays out and whether or not he wins re-election, he has failed us. We are now doomed not to 23 but 27 years of Greenspan-Bernanke. Yuccch!
Copyright (C) Long Lake LLC 2010
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