Employment Shocker

by the Sandwichman

May nonfarm employment fell by 345,000, much less than even the Sandwichman's revised prediction (between 570,000 and 635,000). Moreover, the April and March employment totals were both revised upward, resulting in reduced job losses for those months of -504,000 (-539,000 preliminary) and -652,000 (-699,000 first revision) respectively. Taking these revisions into account nonfarm employment now stands at 132,200,000, or 214,000 below the preliminary April number.

The BLS birth/death adjustment added in 220,000 jobs in May, compared to 176,000 for May 2008.

Meanwhile, the number of UNemployed persons increased by 787,000 in May, compared to 563,000 in April. And the unemployment rate increased to 9.4% from 8.9%

Stock Market Mirage

How can it be that a company that employs 250,000 filing for bankruptcy is actually good for the stock market and makes the DJIA rally so strongly? The easy answer is the stock market no longer reflects the economic reality on main street. [1]

Or is it that stock markets today are being used to hide the usury on Wall Street: hedge fund manipulation [2] the plunge protection team [3] tax haven secrecy [4] transfer pricing (organised balance sheet losses) [5] global monopoly capitalism, looting [6].

There's a good article by Dr Housing Bubble" on 'Stock Market Dissonance, though his national economy comparison with China is now alarmingly obsolete.


[1] Stock Market Dissonance: Why the Stock Market no Longer Reflects Main Street Economics. The Dow Jones Industrial Average. June 3rd, 2009

[2] Hedge Funds and Stock Market Manipulation. Friday, March 24, 2006

[3] Bush convenes Plunge Protection Team By Ambrose Evans-Pritchard, International Business Editor
Last Updated: 12:05am GMT 08/01/2008

[4] British Tax Haven’s Safety, Secrecy Face Brown, Obama Challenge
By Simon Clark. 16th January 2009

[5] Transfer Pricing Tax System and Its Development in China
State Administration of Taxation (.pdf)
People’s Republic of China

[6]Looting and How It Came to Pass
Naked Capitalism. 4th June 2009

Revised Preliminary Updated Prediction!

by the Sandwichman

Sandwichman previously predicted a job loss of between 775,000 and 835,000 jobs in the May employment report. This morning, however, when parsing the CNN Money happy talk about signs of improvement, I realized a wrinkle I had overlooked. Ken Houghton also called attention to the wrinkle in a comment. Am I comparing a preliminary report for May to a revised one for April? That hadn't been my intention. But I did make a mistake. I was carelessly thinking of the April job report as if it was static and the May one as if it was the "final edition".

From last September to February, as the employment situation has hemorrhaged, the average adjustment from first preliminary to final revision has been 136,800 per month. Comparing this month's preliminary with last month's first revision could thus handicap the reported job loss by an average of 205,250 jobs. So I'm going to make a revised prediction of a NOMINAL job loss of between 570,000 and 635,000 jobs in May. Because the April job losses will likely be revised upward by, say, 60,000 to 70,000 (to 599,000 to 609,000), CNN Money can even report the preliminary May figure as an "improvement."

It may not be obvious that the 570,000 figure represents the SAME estimate of jobs lost as the original 775,000, the difference being that an estimated 205,000 of them are split between one upward revision of the April report and two future revisions of the May report. Phew!

Michael Perelman's Peace Plan For Iraq

I'm not much of a fan of Milton Friedman, but he once offered a very interesting suggestion to rid society of crime.

"The first and most obvious [way to reduce the amount of crime] is to reduce the range of activities that are designated as illegal. Surely, one reason for the growth in crime is that the number of activities that are classified as such, has multiplied in recent decades."

Friedman, Milton. 1997. "Economics of Crime." The Journal of Economic Perspectives , Vol. 11, No. 2 (Spring): p. 194.

Following Friedman's logic the Defense Department found a simple strategy for evacuating the cities.

"On a map of Baghdad, the US Army's Forward Operating Base Falcon is clearly within city limits. Except that Iraqi and American military officials have decided it's not. As the June 30 deadline for US soldiers to be out of Iraqi cities approaches, there are no plans to relocate the roughly 3,000 American troops who help maintain security in south Baghdad along what were the fault lines in the sectarian war. "We and the Iraqis decided it wasn't in the city," says a US military official. The base on the southern outskirts of Baghdad's Rasheed district is an example of the fluidity of the Status of Forces Agreement (SOFA) agreed to late last year, which orders all US combat forces out of Iraqi cities, towns, and villages by June 30."

Arraf, Jane. 2009. "To Meet June Deadline, US and Iraqis Redraw City Borders." Christian Science Monitor (19 May).

http://www.csmonitor.com/2009/0519/p06s05-wome.html

Here is my suggestion: just redefine Iraq to be the Green Zone. Declare victory now that U.S. government has conquered the country. The rest could be disputed territory, such as Israel defines the West Bank. The United Nations, Iraq's neighbors, or even the Iraqi people could sort out what to do with this disputed.

Republicans should be delighted to be able to claim that Bush's policy is vindicated. Democrats could crow about how they achieved peace. And the Defense Department could find a less dangerous land to bomb.

"Signs of Improvement"?

by the Sandwichman

Parse this:

NEW YORK (CNNMoney.com) -- The pace of U.S. job losses -- while still fairly strong -- may be abating, according to a couple of reports released Wednesday.

Automatic Data Processing, a payroll-processing firm, said private-sector employers cut 532,000 jobs in May, a 2.4% improvement from the revised 545,000 drop in April.

Economists surveyed by Briefing.com expected a more modest loss of 525,000 jobs last month. ADP originally reported a loss of 491,000 private-sector jobs in April.

First, a cut of 532,000 jobs is not an "improvement." Second, even the "abating pace" is based on comparing a revised April figure with a preliminary May one. The revised April figure was 11% lower than the preliminary figure, in itself not an improvement. The April revision was more than four times as large as the difference between the (revised) April result and the (preliminary) May result. And, of course, the May loss came out of an already reduced private employment total, so the percentage by which the "pace abated" (a derivative of a derivative of a derivative) was less than 2%, not the reported 2.4%.

Another consideration that the data don't show is that layoffs typically proceed in reverse order of seniority, competence, specialization and/or (more cynically) political favor. So a half a million workers let go in May can be assumed to be, on average, more entrenched and more vital to the operations of a firm than a half-million laid off in April. This is a qualitative difference that could easily swamp the (minuscule and questionably computed) reported quantitative change.

Ezra Klein on the Tyranny of Economists

Confession – I’m a big fan of the writings of young Ezra Klein and he has point here:

Matt Yglesias has an interesting post on "prestige cross-pollination," which he defines as "the habit of distinguished economists using prestige acquired within their field to pass off sloppy work in other fields." ... Peter Orszag is probably the most powerful voice on health-care policy. Larry Summers, by most accounts, has a hand in literally everything. Economists, in other words, are the prime movers on not only the economy, but health care, climate change, housing policy and much else. The argument for this, of course, is that these issues have heavy economic components. Cap and trade, for instance, is based around the construction of a new market for carbon. And it's not as if there aren't issue specialists -- think climate czar Carol Browner -- around the table. But these issues also have heavy political components, and there aren't mega-powerful political scientists in the White House. And these issues have heavy behavioral components, but though the economists often bring behavioral studies to bear, there aren't research psychologists wandering the West Wing. All these disciplines have skill sets that could be applied broadly, but only economists are given these massive portfolios.

But I have to differ with Ezra on this claim:

You don't see sociologists being asked to write op-eds on the Federal Reserve, or biologists being given a forum to talk about health-care policy.

I guess Ezra missed the CNN show where Sanjay Gupta tried to lecture Michael Moore on health-care policy. Or all the times some right-wing nutcase told us laissez-faire works perfectly or how tax cuts cure all evils. No, there are lots of non-economists who write all sorts of silly things about economic policy. By the way, sometimes non-economists say some perfectly reasonable things. Which reminds me – time to catch-up on some reading.

Let's Play Blame the Teacher

California keeps cutting billions of dollars from education. The real problem is the teacher's union, yeah? So the answer is a simple prescription of multiple doses of multiple choice tests. The rationale of these tests takes me back a few decades to the Cold War when proponents of the free market used to ridicule Soviet planning techniques. These same people sometimes referred to a cartoon from the Soviet humor magazine Krokodil showing a nail factory which had fulfilled its output plan by producing one single nail, the size of the plant. Screwing up nails is bad; screwing up kids is inexcusable. Blaming the teacher's union, while refusing to raise sufficient taxes to support the educational system and the educators -- that's easy.

Reality Check

by the Sandwichman

On May 10, Sandwichman predicted the May BLS Non-farm payroll employment would decline between -775,000 to -835,000 jobs lost.

In a Bloomberg News survey of 60 economists, the median estimate of decline in the May payroll report is -521,000, compared with -539,000 in April.

It's getting close to report card time. The ADP survey will come out Wednesday morning giving an early indication of the direction and magnitude of job losses in May. The BLS report comes out on Friday.

Can You Believe it? David Dollar Tapped to Instruct China

By BOB DAVIS

WASHINGTON -- The U.S. Treasury chose World Bank economist David Dollar as economic emissary to China despite sharp criticism of his economic research.

Mr. Dollar co-authored several influential studies that argued for the effectiveness of aid and the importance of tariff cuts in liberalizing economies and reducing poverty.

But in 2006, a detailed review of World Bank research led by Princeton economist Angus Deaton called the aid paper "unconvincing" because of methodological problems. The paper's results "provide only the weakest of evidence for their central contention, that aid is effective when policies are sound," the review said. The reviewers said the work on trade and growth raised "serious questions about whether the review is really supported by the evidence."

The Bank defended Mr. Dollar's work on trade and said that Mr. Dollar's work "stimulated a useful and ongoing debate."

Mr. Dollar is now the World Bank's country director for China. He will remain in Beijing for his Treasury job. Mr. Dollar didn't respond for comment.

Treasury Secretary Timothy Geithner called Mr. Dollar and David Loevinger, who was appointed as the Washington-based senior coordinator for China affairs, "uniquely qualified to serve in these roles because of their deep expertise and extended experience" in U.S.-China economic issues.

"David Dollar has been involved in some of the most important debates in economic policy for developing countries and the debates have been lively and important. And those at the center of this debate and whose views are taken seriously should expect to be criticized," a senior Treasury official said.

Write to Bob Davis at bob.davis@wsj.com

http://online.wsj.com/article/SB124389754251074257.html#mod=testMod

Jazz is Art and Art Was Jazz

A nice piece in the WSJ about my favorite jazz pianist, and one of the greatest musicians of all time, Art Tatum:

http://online.wsj.com/article/SB124286060905541009.html

North Korea's Real Crime

I don't like nuclear weapons, but for all the outrage regarding North Korea's nuclear explosion, nobody seems to have noticed that this week the U.S. celebrated the opening of the $3.5 billion National Ignition Facility. The New York Times described project without mentioning its military purpose, except quoting the project director who "compared the project to feats like going to the Moon, building the atom bomb and inventing the airplane."

http://www.nytimes.com/2009/05/26/science/26fusi.html?_r=1&ref=science

The NIF is supposed to simulate weapons tests without having to do anything as crude as exploding a bomb underground. Presumably North Korea should be condemned for being too poor to produce this cathedral of death near Berkeley, California.

p.s. I know that the authorities also wish NIF to create fusion power, but I doubt that it would have funding without its military "benefits."

My Therapeutic Rant on the Current Economic Madness

During the Vietnam War, a U.S. soldier seems to have anticipated the spirit of the current economic policy, explaining: "we had to destroy the village in order to save it." The difference today is that while the government destroys villages of the working classes, it is devoting enormous to improve the castles of the rich.

Anyone can see the care and feeding of bankers and financiers, while treating much of the rest of the economy with an iron fist.

The problem is compounded because alongside the federal stimulus, funding for state and local government is falling off the cliff, in effect, neutralizing much of the stimulus. This contradiction in economic policy is nothing new. A half century ago, E. Cary Brown showed him austerity in state and local governments undid much of the New Deal.

Brown, E. Cary. 1956. "Fiscal Policy in the 'Thirties: A Reappraisal." The American Economic Review, Vol. 46, no. 5 (December): pp. 863-66.

Nowhere is that policy divergence clearer than in California. A Republican minority blocks all tax increases. The budget deficit seems to increase by a few billions every few weeks. The answer is to eliminate welfare, slash payment to home healthcare workers, and decimate education.

I have been looking at papers by Greg Duncan showing the devastating effect of child poverty on children's productive capacity as they mature. In my forthcoming book, The Invisible Handcuffs, I discuss literature that compares the consequences of child poverty on brain development, an effect that resembles the impact of a stroke.

Conservatives worry about future tax costs, but what if the losses in the capacity to pay costs exceeds the presumed future burdens of public debt.

60% of Chinese exports to the US are from foreign-owned corporations

Foreign owned global corporations account for 60% of Chinese exports to the US.[1]

Did you know this? How many people understand that this means that non-Chinese corporations are responsible for the trade imbalance between the US and China.

Who does know this?

Not Bernanke and Greenspan who are reported to be blaming the "high-savings countries in East Asia" for "the immense pool of [global] liquidity" (particularly in the US). [2]

But who is creating this gigantic pool of liquidity? Economist Enzio von Pfeil has pointed to problems with the official [US] Treasury records that detail the owners of US 'foreign' debt - "there appear to be no data available on how much U.S. Treasury debt is held by U.S. MNCs". What, he says, do U.S. MNCs do with at least a portion of all of that money they are making in their fabulously successful overseas operations? [3]

Not Barry Eichengreen who holds the title of the George C. Pardee and Helen N. Pardee Professor of Economics and Political Science at the University of California, Berkeley, where he has taught since 1987.[2], [4]. He says that "Whether [or not] there is a permanent reduction in global imbalances will depend mainly on decisions taken outside the US, specifically in countries like China." [2] Well, how can that be? If China, itself, is not responsible for the great outflow of goods to the US?

Not economist Mark Thoma at Economist's View. Nor any other people who have posted comments to the Eichengreen article he linked there.[5]

Which is all VERY strange because the folks at the US Federal Reserve, like Greenspan and Bernanke, have worked closely with former Kissinger Associate Timothy Geithner [6] as well Roger Corbett who is a director of Wal-Mart Stores Inc and who is also a board member of the Reserve Bank of Australia. [7] Kissinger Associates and Walmart folks know all about the true nature of US trade with China, after all. Walmart is China's fifth-largest export market, ahead of Germany and Britain. [8] and is responsible for approximately 10 percent of the United States' trade deficit with China.[9] And it was Kissinger's wheeler-dealing, backed up by US military aggression in Vietnam, Indonesia, Korea and elsewhere that led the Chinese Government to surrender its borders to western global corporations in 1971. [10]

As for the economists, how could they not know the pivotal role of western global corporations in world trade? What should the general public expect from this professional body?

Or is this just another exercise in 'preferred nomenclature' suited to U.S. interests? Much akin to the language used by the former Reagan administration.[11]
Terms were employed to create the reality which that aggessive administration wanted. The frightening thing is that all subsequent US administrations, including the present Obama-led one, are following this same atrocious template.

How important is it to get the facts of world trade right? Is trade between subsidiaries of the same transnational corporations trade at all? Think about it. Because the achievement of clarity on this topic may be, in my humble opinion, a key way to avoid a global nuclear conflict! (The current Chinese military build-up is another story).

"The contemplation of things as they are, without substitution or imposture, without error and confusion, is in itself a nobler thing than a whole harvest of invention."

Francis Bacon, 1620.



[1] Undue Influence: Corporations Gain Ground in Battle over China's New Labor Law
2008-11-03 01:33:53
http://blog.ifeng.com/article/1822505.html

[2] By Barry Eichengreen /Beijing
http://www.gulf-times.com/site/topics/article.asp?cu_no=2&item_no=292693&version=1&template_id=46&parent_id=26

[3] Is it true that foreigners finance American debt? - Update 2. Brenda Rosser. Monday, December 1, 2008
http://econospeak.blogspot.com/2008/12/is-it-true-that-foreigners-finance.html

[4] Barry Eichengreen
From Wikipedia, ON 30TH MAY 2009
http://en.wikipedia.org/wiki/Barry_Eichengreen

[5] Mark Thoma
http://economistsview.typepad.com/economistsview/2009/05/global-imbalances-and-future-crises.html

[6] http://www.dollarsandsense.org/blog/2008/11/geithner-and-kissinger-associates-pt-1.html

[7] Sowing the seeds of a northern farm stampede
Matthew Stevens | October 27, 2007
Article from: The Australian
http://www.theaustralian.news.com.au/story/0,25197,22655071-5001641,00.html

[8] The Economic Crisis: A Wal-Mart Economy Dimension. Michael Perelman. Econospeak 18th October 2008

[9] U.S.-China Trade, 1989-2003 - Impact on jobs and industries, nationally and state-by-state
A Research Report Prepared for the U.S.-China Economic and Security Review Commission
By Dr. Robert E. Scott, Director of International Programs, Economic Policy Institute. January 2005
EPI Working Paper #270
http://epi.3cdn.net/c523ff01bec5bc1c25_7nm6i278j.pdf
..\..\..\Economics\China\China-US\China-US-trade-1989-2003.PDF

[10] China's trade policy was not an economic one. Brenda Rosser. May 2009
http://econospeak.blogspot.com/2009/05/chinas-trade-policy-was-not-economic.html

[11] Under Reagan's 'governance' third world nations were to be rolled back (e.g., Nicaragua). Thus they were called 'terrorist' and the insurgents were labeled 'democratic'. The governments in countries to be supported by Reagan and Co, in turn, were called 'democratic' and the insurgents were labeled terrorists. From the book Rollback by Thomas Bodenheimer and Robert Gould

What does it mean to be 'slightly left of centre' today?

Today, I noticed that Angry Bear's website promises "slightly left of center economic commentary on news, politics, and the economy."

What does such a claim mean? Do the writers there aspire to only a slight tweaking of our economic system? Are their words a prayer for business as usual, but with social security payments and a public medical system thrown in?

Tell me how will 'slightly left' folks address a new world of dramatic and abrupt climate change? Will the 'slightly left' sit comfortably with the astounding rise of the planetary enterprise of giant corporate conglomerates? Mao’s dictum was that political power grows out of the barrel of a gun and the fact that corporate power and acquisition has done just that seems to shock no one.

C Wright Mills wrote that to be a member of the Right was to "celebrate society as it is, a going concern." [1] A going concern?? How many more moments will it be possible to pretend that our world can sustain uncontrolled exploitation?

Business people today are thriving in a legal framework that allows them to function without conscience. That means that they kill 600 year old giant rainforest trees on the North West Coast of Tasmania and they don’t care what happens. They change the course of a river, and they don’t care. It means large and small business are free to aerial spray the most dangerous chemicals over millions of people with decades of ongoing social protest still having no real effect.

To be Left, says Mills, is to provide "structural criticism and reportage and theories of society". But in this extraordinary time of history those small number of excessively rich and powerful people running the levers of our society are now presenting an apocalyptic near-future. How free should we be to tone down criticism today. How fair and reasonable is it to be "slightly Left"?

[1] C Wright Mills essay 'The New Left' Page 253 in 'Power Politics and People'.

Sotomayor’s Consumption as an Application of the Life-Cycle Model

I thought Greg Mankiw had a strong grasp of the life-cycle model of consumption:

Some save and intertemporally optimize their consumption plans, while others live paycheck to paycheck, spending their entire income as soon as it's received … Apparently, the new Supreme Court nominee Sonia Sotomayor is an example of the latter. The Washington Post reports that the 54-year-old Sotomayer has a $179,500 yearly salary but “On her financial disclosure report for 2007, she said her only financial holdings were a Citibank checking and savings account, worth $50,000 to $115,000 combined. During the previous four years, the money in the accounts at some points was listed as low as $30,000.” My grandmother would have been shocked and appalled to see someone who makes so much save so little.

That a 54 year woman with high income has only a modest amount in her bank accounts strikes Dr. Mankiw as strong evidence that she has consumed more of her past income than would be implied by the life-cycle model. But I can see at least two explanations for these facts that are entirely consistent with intertemporal optimization of one’s consumption plans. One has to do with the possibility that one’s expected future income can sustain high consumption in one’s later years, which conservative Tom Smith notes:

any day she wants to she could walk out of her current job and into a partnership at a law firm in Manhattan or DC and get paid (guessing again) maybe $2 million a year, with the potential for a lot more. In short, when you take Sotomayor's human capital and circumstances into account, there is nothing wrong with her balance sheet. Sure, she could have another $500,000 tucked away, and that would be nice. But why should she? She has no dependents, except maybe her mother, but her brother is a doctor who, let us assume, is doing well. She has a guaranteed job for life with very generous retirement and health benefits, and any day she decides she wants to be a millionaire, all she has to do is pick up the phone.

The other has to do with the possibility that her compensation includes more than simply this stated salary but also consists of deferred compensation in the form of contributions to a pension plan. Brad DeLong notes that Sotomayor’s wealth in the form of a defined pension plan may be $2.5 million:

Sonia Sotomayor has a large defined benefit pension with a current market value of roughly $2.5 million. Sonia Sotomayor has roughly $1 million in equity in her Greeenwich Village condo. Sonia Sotomayor has no descendents to bequeath wealth too.

How could someone as smart as Dr. Mankiw miss the obvious possibilities? Maybe he posted this very incomplete analysis as a test for his Harvard students to see if they could articulate the possible explanations of the facts presented in his post in a way that was consistent with the life-cycle model.