My fellow bloggers seem to have the big picture in focus. Here's something a little smaller. In my Principles class, I have students read this clever Slate article on price discrimination, "The mystery of the rude waiter," by Tim Harford.
http://www.slate.com/id/2134489/
He suggests that a restaurant may deliberately employ a rude waiter in the bar, in order to discriminate, charging a high price in the dining room and a lower price in the bar for the same food. The rude waiter keeps the high rollers in the dining room - it's the hurdle that the low willingness-to-pay customers jump to get the lower price.
Here are some numbers that I use to illustrate Harford's point. Suppose there are two potential customers, rich and poor. The rich person will pay up to $24 for a meal with decent service, but only $11 for a meal served badly. The numbers for the poor person are $10 and $9, respectively. The cost of a meal is $5. The differential in each case is the Willingness-to-Pay for good service, which is higher for the rich than for the poor. Without the rude waiter, the seller would charge $24, sell to the rich only, and make profits of $19 (this beats the $10 profit he could make serving both at a price of $10). With the rude waiter, he will set the price in the bar at $9 and the price in the dining room at a little less than $22. The rich person then chooses the dining room, getting consumer surplus of a little bit more than $2 ($24 minus a little bit less than $22), as opposed to the $2 surplus ($11 -$9) he would get eating in the bar. The seller's profits are then $31 - $10 = $21.
Harford then discusses price discrimination through quality degradation generally (where the lower quality version of the good is the high quality version with resources spent to degrade it!). Do these possibilities worry Tim? Not a bit of it. In good "real is rational / what me worry?" fashion he asks "what are the alternatives?": the crux is that without price discrimination, the seller "could have passed up the opportunity to serve low-end customers altogether. That would have been no better."
Yes. Well, I chose numbers where that is true, but it needn't be. In my example, change the rich person's willingness to pay to $14. Now, if unable to discriminate, the seller does best to sell to both at $10 each, earning profits of $10. The discriminatory price scheme would set the bar price at $9 as before, and the dining room price at a bit less than $12, thus giving profits of (a bit less than) $11. Compared to the no-discrimination outcome, net benefits are obviously lower, since total value drops by $1 due to the degradation, while costs are identical. If the degradation costs something (and the seller would be willing to spend up to the $1 increase in profits to degrade if necessary) - say the waiter must get extra compensation to make up for the disutility of being mean-the efficiency loss is even greater. Funny how this second possibility gets overlooked. Dr. Pangloss, call your office!
Tuesday, November 6, 2007
Monday, November 5, 2007
Save Labor Studies at University of Missouri, Kansas City
PETITION TO RESTORE FULL FUNDING FOR THE INSTITUTE FOR LABOR STUDIES (ILS) AT UMKC
TO: Guy Bailey, Chancellor UMKC
Karen Vorst, Dean, College of Arts and Sciences UMKC
SPONSORED BY: UMKC chapter of the American Association of University Professors (AAUP)
BACKGROUND: Although ILS was given a short reprieve, it is still slated for termination. Please sign the petition to insure it has a future.
The current civilian labor force in the United States numbers over 153,000,000 people. Labor studies is the only academic discipline that focuses on the conditions and needs of that workforce and the history of working people.
In the summer of 2007 UMKC announced it was closing the Institute for Labor Studies by defunding it. ILS is the only labor education program between Columbia, MO and Albuquerque, NM. ILS provides crucial services to our community and educates working people about their rights, for example, through credit and non-credit courses, conferences, and the weekly radio show, Heartland Labor Forum, on Community Radio KKFI 90.1 FM.
We the undersigned, recognizing the value of labor education, particularly at a time of outsourcing and continuing attacks on unions and our standard of living, strongly urge UMKC to restore full funding for the Institute of Labor Studies.
-----------------------------------------------------------------
TO SIGN THIS PETITION:
1) Above or below the petition, type in:
a) your name
b) your Academic/Organizational Affiliation (if any)
c) your city and state.
2) Click on "Reply" to this e-mail (send to e4dnetwork@gmail.com)
PLEASE DISTRIBUTE WIDELY TO OTHER PEOPLE AND YOUR NETWORKS.
Many thanks to all those who wrote the Chancellor in response to our earlier appeal. And many thanks in advance for your help with this petition.
Patricia Brodsky
David Brodsky
TO: Guy Bailey, Chancellor UMKC
Karen Vorst, Dean, College of Arts and Sciences UMKC
SPONSORED BY: UMKC chapter of the American Association of University Professors (AAUP)
BACKGROUND: Although ILS was given a short reprieve, it is still slated for termination. Please sign the petition to insure it has a future.
The current civilian labor force in the United States numbers over 153,000,000 people. Labor studies is the only academic discipline that focuses on the conditions and needs of that workforce and the history of working people.
In the summer of 2007 UMKC announced it was closing the Institute for Labor Studies by defunding it. ILS is the only labor education program between Columbia, MO and Albuquerque, NM. ILS provides crucial services to our community and educates working people about their rights, for example, through credit and non-credit courses, conferences, and the weekly radio show, Heartland Labor Forum, on Community Radio KKFI 90.1 FM.
We the undersigned, recognizing the value of labor education, particularly at a time of outsourcing and continuing attacks on unions and our standard of living, strongly urge UMKC to restore full funding for the Institute of Labor Studies.
-----------------------------------------------------------------
TO SIGN THIS PETITION:
1) Above or below the petition, type in:
a) your name
b) your Academic/Organizational Affiliation (if any)
c) your city and state.
2) Click on "Reply" to this e-mail (send to e4dnetwork@gmail.com)
PLEASE DISTRIBUTE WIDELY TO OTHER PEOPLE AND YOUR NETWORKS.
Many thanks to all those who wrote the Chancellor in response to our earlier appeal. And many thanks in advance for your help with this petition.
Patricia Brodsky
David Brodsky
Strike-Bike Stricken
On November 1, Strike-Bike was locked out. The Nordhausen factory had been occupied by its workers since July 10, producing over 1800 bicycles. (You could order them in any color you want as long as it was red.) Now the court has taken over and the future of the operation is in doubt.
It’s always good when workers take an initiative, but the long term prospects were hardly rosy. This is one more instance in which a worker takeover occurred in response to the failure of capitalist owners, “lemon self-management” so to speak. There was self-exploitation as well: workers paid themselves just 10 euros an hour in their last-ditch attempt to keep the business going.
For a real test of self-organized production there has to be a level playing field: profits to be had by both owners and workers. And the goal would not be (only) to stave off insolvency, but to transform products and production methods for a better world.
It’s always good when workers take an initiative, but the long term prospects were hardly rosy. This is one more instance in which a worker takeover occurred in response to the failure of capitalist owners, “lemon self-management” so to speak. There was self-exploitation as well: workers paid themselves just 10 euros an hour in their last-ditch attempt to keep the business going.
For a real test of self-organized production there has to be a level playing field: profits to be had by both owners and workers. And the goal would not be (only) to stave off insolvency, but to transform products and production methods for a better world.
Iran Saber Rattling and Oil Prices
Steve Mufson talks to various market participants about the rise in oil prices. The views of one trader and an economist after the jump.
Menzie Chinn provides some analysis and offers this thought:
Menzie has a point – but let me suggest that this is the price of a really bad foreign policy.
"It would be silly if we waited until things were not available," said a veteran energy trader at a U.S. hedge fund, who spoke on the condition of anonymity to protect his business relationships. He said traders have become convinced that military conflict between the United States and Iran is inevitable. He added, "People react to perceptions of what will happen. That's not idle speculation."
Menzie Chinn provides some analysis and offers this thought:
Of course, if one believes these threats are necessary, then the higher oil price is the price of pursuing our foreign policy. If one believes that Iran's acquisition of nuclear weapons is off by many years, then the pursuit of this diplomacy via threats is a costly diversion. Or it's even counterproductive. Indeed, with each dollar's increase in the price of a barrel of oil, an additional $3.7 billion is transferred (on an annualized basis) to the oil exporting countries (including Iran, Russia, Venezeula, Saudi Arabia, the Gulf States).
Menzie has a point – but let me suggest that this is the price of a really bad foreign policy.
Sunday, November 4, 2007
How Capitalism Works
The David H. Brooks story hits on all the high notes of capitalist excess: taking advantage of investors, selling the Pentagon defective goods, an ostentatious life style, and perhaps even more.
Kessler, Robert E. 2007. "Former LI military Contractor Is Busted for Living Lavishly with Cash from Investors and Company, Feds Say." Newsday (26 October): p. A 7.
“The former head of the Long Island company that provided most of the body armor for U.S. soldiers in Iraq and Afghanistan was arrested at dawn yesterday in a Manhattan apartment by FBI and IRS agents on charges of looting the company and investors of nearly $200 million to pay for a lavish lifestyle. That included supporting a stable of trotting horses; a face-lift for his wife; a diamond, ruby and sapphire-encrusted belt buckle in the shape of a U.S. flag; and an $8-million bat mitzvah for his daughter, which featured music stars including 50 Cent and Kenny G, according to Benton Campbell, the U.S. attorney for the eastern district.”
“Brooks allegedly made the huge stock option gain in 2004 by selling shares in the company shortly after he said he had no intention of selling the stock and shortly before the stock plunged because of reports about the quality of its body armor, the indictment said.”
“Brooks pleaded not guilty at arraignment in U.S. District Court in Central Islip and was held without bail by U.S. District Court Judge Joanna Seybert, pending a hearing Monday. Seybert acted after prosecutor Martin said that in the past year Brooks had purchased a single diamond worth $10 million, unspecified millions in gold and had surreptitiously moved $22 million to banks in Switzerland and Senegal. The United States does not have an extradition treaty with Senegal, Martin said.”
Brooks has a history of controversy: In 1992, Brooks and his brother, Jeffrey, are investigated by the Securities and Exchange Commission for insider trading scandal within Jeffrey Brooks’ small brokerage. The firm agrees to pay a $405,000 fine without admitting wrongdoing. In 2005, the company recalls all vests containing Zylon because of concerns over how quickly the fiber degrades. In 2006, DHB’s subsidiaries settle nationwide class-action suits over those vests.
##
O’Brien, Timothy L. 2006. “All’s Not Quiet on the Military Supply Front.” New York Times (22 January).
“DHB might have remained anonymous if not for a spate of recent events. The quality and adequacy of vests supplied to soldiers in Iraq has come into question over the last year, culminating in a Pentagon study, first reported by The New York Times this month, that said that 80 percent of the Marines who died in Iraq from upper-body wounds might have survived if they had had body armor covering more of their torsos. (It was the military, and not manufacturers, that determined the specifications for the vests DHB supplied the Marines, said DHB).”
“The Marines and the Army recalled about 23,000 Point Blank vests from the field last year after The Marine Corps Times reported that the Marines acquired the vests despite warnings from Army personnel that the vests had what the newspaper described as “critical, life-threatening flaws.” The Marine Corps issued a statement in November saying that there was “no evidence to suggest that soldiers or Marines have been at risk, or that these vests will not protect against the threat they were designed to defeat”.”
Kessler, Robert E. 2007. "Former LI military Contractor Is Busted for Living Lavishly with Cash from Investors and Company, Feds Say." Newsday (26 October): p. A 7.
“The former head of the Long Island company that provided most of the body armor for U.S. soldiers in Iraq and Afghanistan was arrested at dawn yesterday in a Manhattan apartment by FBI and IRS agents on charges of looting the company and investors of nearly $200 million to pay for a lavish lifestyle. That included supporting a stable of trotting horses; a face-lift for his wife; a diamond, ruby and sapphire-encrusted belt buckle in the shape of a U.S. flag; and an $8-million bat mitzvah for his daughter, which featured music stars including 50 Cent and Kenny G, according to Benton Campbell, the U.S. attorney for the eastern district.”
“Brooks allegedly made the huge stock option gain in 2004 by selling shares in the company shortly after he said he had no intention of selling the stock and shortly before the stock plunged because of reports about the quality of its body armor, the indictment said.”
“Brooks pleaded not guilty at arraignment in U.S. District Court in Central Islip and was held without bail by U.S. District Court Judge Joanna Seybert, pending a hearing Monday. Seybert acted after prosecutor Martin said that in the past year Brooks had purchased a single diamond worth $10 million, unspecified millions in gold and had surreptitiously moved $22 million to banks in Switzerland and Senegal. The United States does not have an extradition treaty with Senegal, Martin said.”
Brooks has a history of controversy: In 1992, Brooks and his brother, Jeffrey, are investigated by the Securities and Exchange Commission for insider trading scandal within Jeffrey Brooks’ small brokerage. The firm agrees to pay a $405,000 fine without admitting wrongdoing. In 2005, the company recalls all vests containing Zylon because of concerns over how quickly the fiber degrades. In 2006, DHB’s subsidiaries settle nationwide class-action suits over those vests.
##
O’Brien, Timothy L. 2006. “All’s Not Quiet on the Military Supply Front.” New York Times (22 January).
“DHB might have remained anonymous if not for a spate of recent events. The quality and adequacy of vests supplied to soldiers in Iraq has come into question over the last year, culminating in a Pentagon study, first reported by The New York Times this month, that said that 80 percent of the Marines who died in Iraq from upper-body wounds might have survived if they had had body armor covering more of their torsos. (It was the military, and not manufacturers, that determined the specifications for the vests DHB supplied the Marines, said DHB).”
“The Marines and the Army recalled about 23,000 Point Blank vests from the field last year after The Marine Corps Times reported that the Marines acquired the vests despite warnings from Army personnel that the vests had what the newspaper described as “critical, life-threatening flaws.” The Marine Corps issued a statement in November saying that there was “no evidence to suggest that soldiers or Marines have been at risk, or that these vests will not protect against the threat they were designed to defeat”.”
ONE OH SEVEN
by the Sandwichman
Following up on PGL's two Brads posting, Sandwichman notes the following from de Long:
"As long as imbalances of world trade and capital flows unwind slowly and smoothly, the magnitude of any global economic distress should be relatively small."
My question -- relatively speaking -- would be: "relatively small" compared to what planet?
As the chart above indicates, the US Dollar has already been unwinding slowly and smoothly against the Euro and the Loony for quite some time. For the most part, increases in US stock market indexes have only been nominal, in terms of the steadily depreciating US Dollar.
From Sandwichman's Loony perspective, the USD has been a Potemkin currency for the last five years. The only thing MASKING what otherwise would have manifested as the economic distress of the past five years has been the bubblicious infusion of easy credit. If "nothing happens" -- that is if "imbalances of world trade and capital flows unwind slowly and smoothly" those deferred chickens are comin' home to roost. This would not be a "new" global economic distress but only the realisation of a distress that has been there all along.
There's no such thing as an unassisted smooth landing -- "unwinding" will not do the trick, no matter how lovingly slow and smooth. It will require some form of massive intervention to forestall or mitigate global economic distress. The only questions are: what's left? and will it work?
Following up on PGL's two Brads posting, Sandwichman notes the following from de Long:
"As long as imbalances of world trade and capital flows unwind slowly and smoothly, the magnitude of any global economic distress should be relatively small."
My question -- relatively speaking -- would be: "relatively small" compared to what planet?
As the chart above indicates, the US Dollar has already been unwinding slowly and smoothly against the Euro and the Loony for quite some time. For the most part, increases in US stock market indexes have only been nominal, in terms of the steadily depreciating US Dollar.
From Sandwichman's Loony perspective, the USD has been a Potemkin currency for the last five years. The only thing MASKING what otherwise would have manifested as the economic distress of the past five years has been the bubblicious infusion of easy credit. If "nothing happens" -- that is if "imbalances of world trade and capital flows unwind slowly and smoothly" those deferred chickens are comin' home to roost. This would not be a "new" global economic distress but only the realisation of a distress that has been there all along.
There's no such thing as an unassisted smooth landing -- "unwinding" will not do the trick, no matter how lovingly slow and smooth. It will require some form of massive intervention to forestall or mitigate global economic distress. The only questions are: what's left? and will it work?
The Two Brads on the Overvalued Yuan
A few months ago, Brad Setser noted the lack of real appreciation of the yuan on an overall basis despite rising Chinese inflation. Today, Brad DeLong discusses the implications.
Which means China should let the yuan appreciate and maintain full employment by stimulating domestic demand. But I interrupted Brad:
Which has basically been the Chinese approach to date. Again – it would seem a change in Chinese macroeconomic policy with more domestic demand expansion and less emphasis on net export demand is in order. The two Brads appear to be strongly arguing that the yuan revaluation should accelerate.
Under two scenarios - both concerning China - the unwinding of global imbalances could cause regional if not global depression. In the first scenario, China keeps up its attempt to maintain full employment in Shanghai, Guangzhou, and elsewhere not by stimulating domestic demand but by trying to boost exports further by keeping the yuan stable against the dollar and falling in value against the euro. The effort to maintain the dollar-yuan exchange rate at a level approved by China's State Council has already led to an enormous increase in the Chinese economy's financial liquidity. The consequences of this are now manifested in property and stock market inflation, but not yet in rampant and uncontrolled consumer price inflation - at least for now. But if China does not accelerate the yuan's revaluation, the world might see a large burst of consumer inflation in China in the next two or three years.
Which means China should let the yuan appreciate and maintain full employment by stimulating domestic demand. But I interrupted Brad:
The second scenario is more dangerous for the entire world. In this scenario, once again China continues to attempt to maintain full employment by keeping the yuan undervalued. But this time, the Chinese government manages to restrain domestic inflation, so the US' trade deficit with Asia stops falling and starts rising again.
Which has basically been the Chinese approach to date. Again – it would seem a change in Chinese macroeconomic policy with more domestic demand expansion and less emphasis on net export demand is in order. The two Brads appear to be strongly arguing that the yuan revaluation should accelerate.
Saturday, November 3, 2007
Social Security: Ramesh Ponnuru Makes a Bid For Stupidest Man Alive
Some of us on the left sometimes argue that Ramesh Ponnuru is a reasonable rightie who has the foolishness to write for the National Review. Corner comments from Ponnuru prove us all wrong.
His first post claims Noam Scheiber and Josh Marshall do not wish to save Social Security. Of course, anyone with an IQ above the teens would realize that Josh and Noam are mocking the there is no Trust Fund canard. Ponnuru is not stupid so I suspect he has gone for sheer dishonesty as in his second posts:
Wait a second here. I’ve been paying those higher payroll taxes since I was 28 years old but now I’m only 52 years old. Guess what? I’m not retired. Nor are many of the other folks who benefited from the Reagan tax cuts. Ponnuru also leaves out the fact that we did see our tax rates go up in the 1990’s with the current General Fund mess being created by tax “cuts” (more like deferrals) that we passed just a few years ago. We might also remember that rich old people leave estates for their kids who become rich young people – especially with the Estate Tax on its way out.
His third “contribution” was an attack on Robert Ball:
The 1983 Social Security reforms were predicated on the premise that real wages and life spans would inch up over time. As far as I can tell, we have not had an unexpected increase in life spans. We have had faster productivity growth that was expected but that makes the system more solvent not less.
His first post claims Noam Scheiber and Josh Marshall do not wish to save Social Security. Of course, anyone with an IQ above the teens would realize that Josh and Noam are mocking the there is no Trust Fund canard. Ponnuru is not stupid so I suspect he has gone for sheer dishonesty as in his second posts:
The argument ignores the generational point: We're talking about different people. If you want to take money back from the affluent people who got supposedly unfair income-tax cuts in the 1980s, raising taxes on high earners from 2009 on isn't the way to do it.
Wait a second here. I’ve been paying those higher payroll taxes since I was 28 years old but now I’m only 52 years old. Guess what? I’m not retired. Nor are many of the other folks who benefited from the Reagan tax cuts. Ponnuru also leaves out the fact that we did see our tax rates go up in the 1990’s with the current General Fund mess being created by tax “cuts” (more like deferrals) that we passed just a few years ago. We might also remember that rich old people leave estates for their kids who become rich young people – especially with the Estate Tax on its way out.
His third “contribution” was an attack on Robert Ball:
So even if people get checks that keep up with inflation and wage growth and get them just as long as they used to - because the age of eligibility goes up but so do lifespans - it's still a "cut," unless total Social Security spending goes up to cover inflation, wage growth, and rising longevity.
The 1983 Social Security reforms were predicated on the premise that real wages and life spans would inch up over time. As far as I can tell, we have not had an unexpected increase in life spans. We have had faster productivity growth that was expected but that makes the system more solvent not less.
Friday, November 2, 2007
The CAT* is out of the Bag
*That’s Carbon Adjustment Tariff to you. It’s coming, probably, and here are some ideas for what form it should take.
The basic idea is simple: any country that gets serious about controlling carbon emissions will raise the price of the stuff, directly or indirectly. Because carbon inputs are important in many other goods and services, they will raise those prices too. If some countries take action on climate change and others don’t this will lead to distortions in global markets. Otherwise well-meaning governments might refrain from action, fearing the competitive effects. If the elasticities are particularly unfavorable, it is even possible that stringent regulation in one country could lead to an exodus of industry to places where carbon burns freely, resulting in an overall increase in global emissions.
So put a tariff on goods to offset price differences attributable to different carbon regimes. There isn’t an accepted name for the idea yet, so let’s call it a carbon adjustment tariff. The idea can be found in Warner-Lieberman and has been broached by heads of state in Paris and Berlin. It is difficult to see how individual countries can take the lead without it.
Good ideas can have bad consequences unless they are thought through, however. Here are three principles that ought to govern a CAT you could love.
1. A tariff schedule should be insulated as far as possible from self-interested manipulation. In a better world it would be the product of a representative and accountable global agency. In the shabby one we live in it should at least be the joint product of a subset of countries, rich and developing, that are willing to take some initiative.
2. All the money collected under such a tariff—repeat, all the money—should be returned in some fashion to the countries of origin, to finance green investment. Yes, I know a lot of this cash will be misspent, but it would be misspent in the collecting country too. The CAT must not become another means to suck scarce resources from South to North.
3. Some or all of the revenues should be held in escrow, pending the agreement of the trading partner to enter a “contract and converge” system under which it will approach a common per capita carbon emissions target. This money can sweeten a deal that should be made on its own merits.
It bears repeating: policies to forestall global warming are not only environmental policies. If they take their job seriously, they will have profound effects on national and global economies. They should be designed to be economically progressive and sustainable.
The basic idea is simple: any country that gets serious about controlling carbon emissions will raise the price of the stuff, directly or indirectly. Because carbon inputs are important in many other goods and services, they will raise those prices too. If some countries take action on climate change and others don’t this will lead to distortions in global markets. Otherwise well-meaning governments might refrain from action, fearing the competitive effects. If the elasticities are particularly unfavorable, it is even possible that stringent regulation in one country could lead to an exodus of industry to places where carbon burns freely, resulting in an overall increase in global emissions.
So put a tariff on goods to offset price differences attributable to different carbon regimes. There isn’t an accepted name for the idea yet, so let’s call it a carbon adjustment tariff. The idea can be found in Warner-Lieberman and has been broached by heads of state in Paris and Berlin. It is difficult to see how individual countries can take the lead without it.
Good ideas can have bad consequences unless they are thought through, however. Here are three principles that ought to govern a CAT you could love.
1. A tariff schedule should be insulated as far as possible from self-interested manipulation. In a better world it would be the product of a representative and accountable global agency. In the shabby one we live in it should at least be the joint product of a subset of countries, rich and developing, that are willing to take some initiative.
2. All the money collected under such a tariff—repeat, all the money—should be returned in some fashion to the countries of origin, to finance green investment. Yes, I know a lot of this cash will be misspent, but it would be misspent in the collecting country too. The CAT must not become another means to suck scarce resources from South to North.
3. Some or all of the revenues should be held in escrow, pending the agreement of the trading partner to enter a “contract and converge” system under which it will approach a common per capita carbon emissions target. This money can sweeten a deal that should be made on its own merits.
It bears repeating: policies to forestall global warming are not only environmental policies. If they take their job seriously, they will have profound effects on national and global economies. They should be designed to be economically progressive and sustainable.
The Mixed Labor Market Report
Update: Lawrence Kudlow did comment on the BLS report and guess what? He’s adopted the Secretary Snow standard – the most reliable indicator of employment growth is the survey that gives the larger number for the month just reported. Kudlow can always be counted on if you’re looking for serial dishonesty.
**************
Over at Angrybear this morning, I noted the good news from the payroll survey (job growth = 166,000) was accompanied by bad news if you follow the household survey (job loss = 250,000). I ended with:
So what has Lawrence “the household survey is the best indicator” Kudlow saying these days?
While there wasn’t much today from the Corner Kids, Kudlow had plenty to say yesterday:
Not bad for the last two quarters but if one looks over the past six quarters, cumulative real GDP growth has been only 3.5% or 2.3% per year. Employment is holding its own? Let’s diagram the employment to population ratio from October 2006 to October 2007. It seems Larry’s favorite measure of employment is not keeping up with population growth after all.
**************
Over at Angrybear this morning, I noted the good news from the payroll survey (job growth = 166,000) was accompanied by bad news if you follow the household survey (job loss = 250,000). I ended with:
The employment to population ratio fell from 62.9% in September to 62.7% in October as the household survey recorded an employment decline of 250,000. The labor force participation rate also feel from 66% in September to 65.9% in October. Remember a few years ago when the National Review cheerleaders kept telling us how the household survey was the better measure of the labor market? Betcha they are not saying that today.
So what has Lawrence “the household survey is the best indicator” Kudlow saying these days?
While there wasn’t much today from the Corner Kids, Kudlow had plenty to say yesterday:
Real gross domestic product, the best summary report of the American economy, came in at a breathtaking 3.9 percent annual rate for the third quarter. In fact, following the 3.8 percent growth rate for the second quarter, the U.S. economy has posted its strongest quarterly growth in four years ... Even employment is holding its own. According to Automatic Data Processing’s private employment survey, which showed its strongest gain in four months, October looks like it will produce about 125,000 new jobs.
Not bad for the last two quarters but if one looks over the past six quarters, cumulative real GDP growth has been only 3.5% or 2.3% per year. Employment is holding its own? Let’s diagram the employment to population ratio from October 2006 to October 2007. It seems Larry’s favorite measure of employment is not keeping up with population growth after all.
Winner of the Title Contest
Based on Tom Geraghty's suggestion, the new title will be
The Invisible Handcuffs of Capitalism: How Market Control Stunts Workers and Undermines the Economy
Thank you Tom and Frank Rich. Let me know your address & you can be one of the first to get a copy.
The Invisible Handcuffs of Capitalism: How Market Control Stunts Workers and Undermines the Economy
Thank you Tom and Frank Rich. Let me know your address & you can be one of the first to get a copy.
Thursday, November 1, 2007
Citigroup as a Bellwether
The New York Times reports on the sell-off today: "The sell-off began after Citigroup, the world’s biggest bank, was hit with a downgraded rating from an influential analyst group, which recommended the bank cut its stock dividends to raise funds. Citigroup wrote down $5.9 billion in assets in the third quarter after losses stemming from mortgage-backed securities and bad bets on asset backed commercial paper. The bank is considered a bellwether of the financial sector, which has faced a battery of poor earnings reports and credit troubles."
Citibank rang the bell earlier. Here is an extract from my new unpublished book that I discussed yesterday:
Citibank had been intent on "selling" -- many used the more accurate, term "pushing" (see Darity and Horn 1988) -- as much credit as possible to Latin America, so much so that Citibank had been getting nearly 50 percent of its revenue from its loans to Latin America.
The bank made these loans without much thought about the ability of Latin America to repay them or without putting adequate reserves aside to cover potential defaults. As a result, the company became deeply enmeshed in the Latin American debt crisis. By 1991, some Citicorp debt had been reduced to junk bond status. Public figures, as diverse as Representative John Dingell and Ross Perot, described Citibank as insolvent (Zweig 1995, p. 867 and 872).
Matters became so dire that the president of the New York branch of the Federal Reserve Bank had to fly to Saudi Arabia to arrange for Prince Alwaleed Bin Talal Alsaud to invest another $1.2 billion in the bank in late 1990. The Federal Reserve also had to be sure to keep interest rates down long enough to salvage the bank (Woodward 2000, p. 73).
[This material comes after a section describing Citibank's leader, Walter Wriston, writing a book that Thomas Friedman "borrowed" in his The Lexus and the Olive Tree.]
Citibank rang the bell earlier. Here is an extract from my new unpublished book that I discussed yesterday:
Citibank had been intent on "selling" -- many used the more accurate, term "pushing" (see Darity and Horn 1988) -- as much credit as possible to Latin America, so much so that Citibank had been getting nearly 50 percent of its revenue from its loans to Latin America.
The bank made these loans without much thought about the ability of Latin America to repay them or without putting adequate reserves aside to cover potential defaults. As a result, the company became deeply enmeshed in the Latin American debt crisis. By 1991, some Citicorp debt had been reduced to junk bond status. Public figures, as diverse as Representative John Dingell and Ross Perot, described Citibank as insolvent (Zweig 1995, p. 867 and 872).
Matters became so dire that the president of the New York branch of the Federal Reserve Bank had to fly to Saudi Arabia to arrange for Prince Alwaleed Bin Talal Alsaud to invest another $1.2 billion in the bank in late 1990. The Federal Reserve also had to be sure to keep interest rates down long enough to salvage the bank (Woodward 2000, p. 73).
[This material comes after a section describing Citibank's leader, Walter Wriston, writing a book that Thomas Friedman "borrowed" in his The Lexus and the Olive Tree.]
LATEST MIDDLE EAST POTPOURRI
1) King Abdullah of Saudi Arabia has visited UK and caused a stir by charging that the Brits did not pay attention to warnings prior to the 2005 terrorist attacks. MI5 says their warnings were off base and useless. Lots of commentators are taking the Saudis to task for funding Wahhabist madrassas that are viewed as missionaries of extremist terrorism and religious hatred. See crossroads arabia for more.
2) Abu Aardvark has shown a map that the Hakims, leaders of the largest political party in Iraq and itching for a separate South, have published, showing much of Sunni Anbar province carved off and given to them, a clasping pair of hands across the border with Iran, and the Sunnis getting some Kurdish territory. And the Bush people would like to replace al-Maliki with a Hakim. This is a formula for war and one more reason the Senate vote for Biden's "soft partition" plan was looney.
3) Juan Cole notes the announcement that the State Department is trying to force diplomats to serve in Iraq. They are resisting. Cole says all bloggers should push for shutting down the monstrosity of an embassy we have there. It is a war zone, and that thing is a colonial horror. So, I am agreeing here and supporting his call. Shut it down!
2) Abu Aardvark has shown a map that the Hakims, leaders of the largest political party in Iraq and itching for a separate South, have published, showing much of Sunni Anbar province carved off and given to them, a clasping pair of hands across the border with Iran, and the Sunnis getting some Kurdish territory. And the Bush people would like to replace al-Maliki with a Hakim. This is a formula for war and one more reason the Senate vote for Biden's "soft partition" plan was looney.
3) Juan Cole notes the announcement that the State Department is trying to force diplomats to serve in Iraq. They are resisting. Cole says all bloggers should push for shutting down the monstrosity of an embassy we have there. It is a war zone, and that thing is a colonial horror. So, I am agreeing here and supporting his call. Shut it down!
Is Josh Marshall An Amateur on the Social Security Issue?
Josh writes:
This is the only line in his post that I disagree with. Permit me to quote a few of his best insights.
Well said! Read the rest as he has some real insights on the politics as well.
When it comes to the policy and number-crunching nitty-gritty of Social Security I'm definitely an amateur.
This is the only line in his post that I disagree with. Permit me to quote a few of his best insights.
We need to remember that now and for at least a decade into the future Social Security is actually subsidizing the rest of the federal budget. The program brings in much more than it pays out. As we all remember from the voluble debates two years ago, the surplus is being used to buy US government bonds which go into the Trust Fund. And that socked away money will keep the program solvent through the middle of this century as the baby boomers retire, and revenues in no longer cover promised payments out. We've been doing that for about a quarter of a century. The problem on the political side of the equation is that the enemies of Social Security have spent a couple decades arguing that the Trust Fund doesn't exist or that it is simply a bookkeeping device with no true financial meaning. If that's true, it means that Americans workers have spent the last twenty-five years using their payroll taxes to subsidize general revenues and make it easier to float big tax cuts for upper-income earners without getting anything in return.
Well said! Read the rest as he has some real insights on the politics as well.
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