Written by Steven Hansen
Here we go again. Election season is here and all we hear is how the incumbent or the challenger is off base and leading the U.S. to disaster. The two biggest campaign talking points are unemployment and the U.S. budget deficit.
Unfortunately, there is no candidate out there who has any espoused solutions which will solve the root cause of unemployment or government spending.
[iframe width=”420″ height=”315″ src=”http://www.youtube.com/embed/EW5IdwltaAc” frameborder=”0″ allowfullscreen]
Watch the above video if you believe it is possible to balance the budget. Do you agree with the video maker’s view of the problem?
Whether you agree with the video or not, let me ask you to consider further:
Do you believe that there is a way to balance the budget with any of the following assumptions?
- The U.S. government budget works the same as business or Joe Sixpack;
- There is a method to tax your way to balancing a budget without killing the economy;
- The current entitlements can be altered enough without significant reduction in benefits.
It is my belief that if you sign up for any one of the above premises you are not living in the world of reality.
There is a saying in construction that “when there is no solution possible, then one of the impossible solutions will result“. How the USA got to this point can be blamed on every voter and politician in the last 50 years for not monitoring the economic situation and not making changes to avoid the growing deficit cliff.
A this point, decisions must be made based on where the U.S. is, not where we think the U.S. should have been or where the U.S. should be now.
Many politicians and economists spout about jobs creation – and use infrastructure as the solution. Yes, USA infrastructure needs upgrading – and yes, there are a lot of unemployed. But in this case, killing two birds with one stone is very inefficient.
|Cost per Job
||Infrastructure cost per job
|Yearly income at minimum wage working 40 hours per week with an employment cost multiplier of 45%||$22,000
|Transportation and warehousing||$95,000|
|Finance, insurance, real estate, rental, and leasing||$297,000|
|Professional and business services||$109,000|
|Educational services, health care, and social assistance||$68,000|
|Arts, entertainment, recreation, accommodation, and food services||$40,000|
|Other services, except government||$75,000|
Source: BLS, BEA NIPA table 6.1D (all numbers rounded to nearest thousand)
The bottom line here is that if one wants to create work (but also do the things that need to be done), you get over 2.5 times more bang for your buck by employing health or education assistants. There are very negative social effects from endemic unemployment. Yet, could a government program (stimulus or direct programs) be a solution?
- where is the money?
- would the program remove potential jobs growth from the private sector?
- as there are no significant job growth dynamics in play, how is this not a permanent program?
All I am hearing are economic short term band-aids, laced with false solutions. I will leave the gauntlet on the field. What are the real solutions?
Other Economic News this Week:
The Econintersect economic forecast for August 2012 shows continues to show moderate growth. Overall, trend lines seem to be stable even with the fireworks in Europe, and emotionally cannot help thinking this is the calm before the storm. There are no recession flags showing in any of the indicators Econintersect follows which have been shown to be economically intuitive. There is no whiff of recession in the hard data – even though certain surveys are at recession levels.
ECRI stated in September 2011 a recession was coming, and now says a recession is already underway. The size and depth is unknown. A positive result is this pronouncement has caused much debate in economic cyberspace.
The ECRI WLI growth index value remains in negative territory – but this week is unchanged. The index is indicating the economy six month from today will be slightly worse than it is today. As shown on the graph below, this is not the first time since the end of the Great Recession that the WLI has been in negative territory, however the improvement from the troughs has been growing less good.
Current ECRI WLI Growth Index
Initial unemployment claims declined from 365,000 (reported last week) to 361,000 this week. Historically, claims exceeding 400,000 per week usually occur when employment gains are less than the workforce growth, resulting in an increasing unemployment rate (background here and here). The real gauge – the 4 week moving average – declined from 365,500 (reported last week) to 368,250. Because of the noise (week-to-week movements from abnormal events AND the backward revisions to previous weeks releases), the 4-week average remains the reliable gauge.
Weekly Initial Unemployment Claims – 4 Week Average – Seasonally Adjusted – 2010 (blue line), 2011 (red line), 2012 (green line)
Data released this week which contained economically intuitive components (forward looking) were
- Rail movements (where the economic intuitive components continue to be indicating a moderately expanding economy.
- Trade Balance which shows intuitive imports down – but the decline is entirely due to a dramatic month-over-month and year-over year decline in oil imports. Overall this data looks good.
All other data released this week does not have enough historical correlation to the economy to be considered intuitive, or is simply a coincident indicator to the economy.
Weekly Economic Release Scorecard:
Export and Import Prices Continue to Deflate in July 2012
Mitt Romney vs. Deng Xiaoping
What’s Wrong with Small Caps?
China Exports: Economy Continues to Soften
Drill, Baby, Drill – Government Revenue Gains In Opening Up Drilling
Foreclosure Inventory Remains at 3% of All Active Mortgages
Rail Week Ending 04August2012: Good Week Shows Expansion
Wholesale Sales Data in June 2012 Is a Disaster
04August2012 Unemployment Claims Update: 4 Week Moving Average Marginally Grows
June 2012 Trade Data: The Real Story Is a Major Decline In Oil Imports
China Approaches Deflation
High-Yield Health Care Stocks in Europe
‘Just Enough’ Doesn’t Cut it Any More
Economists Debate: Where is the Recession?
July Heat is a Record!
Looking at the 1%: Trends in The Distribution of Household Income
Fewer CEO Changes in July 2012
Causes of European Banks Inability to Access Dollars
Productivity 2Q2012 (Preliminary): Growth of Unit Labor Costs Remain Moderate
The Tangled Web of Income and Inequality
Summary of Articles Published for the Two Weeks Ending 06 August 2012
The Financial Economy
Consumer Credit Driven by Student Loans in June 2012
Global Warming Is Here, Getting Worse â What Should We Do?
June 2012 CoreLogic Home Price Index Now Up 2.5% Over Last Year
MetLife Penalized $3.2 million by Federal Reserve
June 2012 JOLTS Indicates Continuing Job Growth
Neoliberal versus Keynesian Views of Unemployment
Egregious Indian Protectionism Against Trade in Services
Reconciling Dow 20,000 and the Coming Economic Collapse
Increased Temperatures Damage Developing Economies
Average Gasoline Price Jumps $0.134 Week Ending 06August2012
Demand for Residential Mortages Continues to Increase in July 2012
July 2012 Employment Index Says Slow Jobs Growth In Coming Months
Fed Chairman Bernanke’s Economic Measurement Speech
$14 Trillion Moves Through USA Banks Daily
Best of the Best Dividend Paying Stocks
Is the Dreaded Government Spending Doing its Part?
Palm Trees in Antarctica and a Subtropical North Pole
July 2012 Rail Movements: Economic Winds Changing?
Insider Trading 03 August 2012: Bill Gates Sells Another 10 Million Shares of Microsoft
The Week Ahead: Time to Assess the Evidence?
Super Disconnect for Income
Employment: No Surpises Except for Compensation
Trefis: Highlights Week Ending 03 August 2012
LPS Reports Home Prices Increased 0.9% In May 2012
Is The Consumer Beginning to Hunker Down?
Book Review: Endgame by John Mauldin and Jonathan Tepper
Strong Jobs and Service Data: U.S. Dollar Plummets
July 2012 ISM Services Index Strong Improvement, Sug
Bankruptcies this Week: Genta, Omega Navigation Enterprises, Legends Gaming, K-V Pharmaceutical, Tri-Valley Oil, AcuNetx (dba Intellinetx, Eyedynamics, Visiontex and Orthonetx), Conversion Services, Passionate Pet, Capitol Bancorp and Financial Commerce