Thoughts Before The Alarm Sounds

     The recent recession, coupled with the persistently high rate of unemployment, tends to justify my theory of personal economic success for young people: If your living depends upon having a job, you are in trouble; if it depends upon the stock market, you are home free. I am basing that on the observation that those individuals who control the jobs market tend to be the same ones with a substantial investment in the stock market.      Now I do not mean to suggest that one should buy into every stock investment that comes down the pike. The usual investing rules apply: diversify, balance income versus growth, keep your eye on the long-term, etc. And of course, have at least a three month emergency fund available.      But to return to my original theory, as long as the government gives great tax breaks for investing in new equipment, research and development expenses, and other “productivity” investments, the ability to p...

     The ideas presented here are excerpted from the book, “The Price Of Civilization” by Jeffrey D. Sachs. I highly recommend reading the entire book.       Not surprisingly, President Obama's recent State of the Union Address was his opening shot across the bow of the presidential campaign, but if examined from a high enough level of abstraction, it spelled out the requirements of a healthy economic system. I hate to think the whole thing was just campaign rhetoric, but based on his past performance I am inclined to take a “wait and see” attitude concerning progress in that direction.      Generally speaking, there are three major attributes of such a system: efficiency, fairness and sustainability.      Efficiency:      Ronald Reagan was partly right – too much government control of the economy causes problems, but he was also partly wrong – uncontrolled free markets also l...

     It was no surprise that all the articles on the National News page of Monday's newspaper were concerned with the “officially” ended recession and various reactions to it. The major story discussed whether the ongoing “Occupy Wall Street” (OWS) movement is here to stay or will just fade away as so many social movements have done in the past. I will get to the other articles shortly.      The OWS movement is based on the premise that the one percent of households who control the “vast majority” of the nation's wealth do so while the remaining 99% are suffering as they struggle to make ends meet. Just as the Missouri mule skinner had to get his student's attention by hitting him with a baseball bat, I believe the term “vast majority” was picked out of the blue in order to get the attention of potential sympathizers; I do not believe that using fictitious figures will help the movement.      Don't misunderstand me – the true...

     Of all the wise politicians (another oxymoron) in Washington, who do you think made the following remark: “Government has to start living within its means, just like families do. We have to cut the spending we can’t afford so we can put the economy on sounder footing, and give our businesses the confidence they need to grow and create jobs.”? Rep. John Boehner R-OH), Sen. Rand Paul (R-Ky.), Rep. Michele Bachmann (R-Minn.) or Sen. Jim DeMint (R-S.C.).      Although it could have been any of these, the quote is actually from President Obama's last weekend address to the nation. Apparently he was either joking, taken leave of his senses, or joined the Republican party. This is the same old gibberish the GOP has been mouthing since the days of Herbert Hoover. Let's look at these suggestions one at a time.      “Government has to start living within its means, just like families do.” The government is not a family – one excel...

     It should come as no surprise to readers of this blog to learn that the transfer of resources to the super-rich from everyone else is well underway. For details see the series “The Recession Is Over For Some People...” posted between 16 February and 18 March, 2011. A May, 2011, study by the Center for Labor Market Studies of Northeastern University , Boston, confirms it. For my purpose, two findings from the study are relevant:      (1) Using the lowest point, 30 June 2009, of the recent recession as the base figure, as of 30 April 2011, real corporate profits increased 39.6%, the Dow Jones Industrial Average increased 45.8%, and Average Real Weekly Earnings of the Private Sector decreased 1.0%.      (2) During the same period, Annualized National Income grew by $505B. While corporations' share of the growth was 92%, the share going to wages and salaries was 0%.      A recent article in Forbes provide...

     ...or starve the government beast – take your pick.      As with all such plans, Rep. Paul Ryan's (R-Wis) “Roadmap For America's Future” contains numerous changes to our national priorities. Today I wish to write about the changes Ryan and the Republican Party would make to our income tax structure. I will discuss other facets of the Roadmap in upcoming days.      The Roadmap would not repeal our current personal income tax structure, but would set up a simplified system parallel to it. Taxpayers would be allowed to choose which system they wish to use.      Under the simplified system there would be only two tax brackets, 10% on the first $100K of taxable income for joint filers, and 25% on taxable income in excess of $100K. It would allow a generous standard deduction and personal allowance ($39K for a family of four). The only credit allowed would be a healthcare credit, which I will discuss at a ...

      ...but it is going to last a long time for the rest of us. There is one more activity which is going to further increase the flow of assets from the not-so-rich to the very rich. It is called high-frequency trading (HFT) or “black box trading.” In comparison to the outflow of jobs, government incentives and pension liabilities, it has received relatively little publicity, but it is a one-way conduit for the average small investor's assets.      HFT uses high-speed computers to analyze incoming data and to process a huge volume of transactions at very high speeds. In 2009 only 2% of the 20,000 equity trading firms used HFT, but they accounted for 73% of the volume of transactions.      HFT users are usually hedge funds, and compete primarily with each other. Generally they hold short-term positions in equities, options, futures and other items that pass through the markets in huge lots; thus they do not compete dire...

     ...But it is going to last a long time for the rest of us. My last two postings listed several reasons why I believe the recession is going to be permanent for the non-rich. (See February 16 and February 21). Today I want to highlight another problem which will hinder the US from returning to the employment position which prevailed prior to the Bush years: Government pension committments.      According to researchers at the Kellogg School of Management at Northwestern University, state and city governments are committed to paying pensions in the amount of $3.574T for which no funds have been provided. In addition, estimates of unfunded Federal pensions are $600B, for a total of $4.174T. (The number doesn't look so big untill it is written out: $4,174,000,000,000). The New York Post estimates that current payments for all governmental pensions amount to $81,500 per year per household. That money comes out of our taxes and it does not includ...

     ...But it is going to last a long time for the rest of us. At last the rich have managed not merely to stack the deck in their favor, but to cut the not-so-rich completely out of the game. Not only that, they have managed to get rewarded in the process. It is as if, after having been mugged, we told our attacker to come along home – we have more money there.      For those who measure prosperity by stock market indexes, the recession is over; people for whom the job market is the basis of measurement strongly disagree. I am going to let you in on a little secret: In today's post-industrial society the two are polar opposites! Unless something drastic is done, the unemployment rate is going to rise and fall in tandem with the equity market indexes.      During the industrial era, manufacturers had to rely on workers to produce products, and they still do to some extent. But in the information era, production is not neces...

NEWS FLASH – In its first disappointing action for 2011, the Obama Administration has reversed its decision to include references to annual end-of-life counseling in the ground rules for Medicare's new annual checkup. (See End-of-life Planning Is Back – December 28, 2010). According to an administration official, “This should not affect beneficiaries’ ability to have these voluntary conversations with their doctors.” The administration said the reversal was based on procedural reasons. Not political? Ri...ght. In similar news Lindsay Lohan has permanently quit drinking.       At the beginning of a new year it is customary for writers to prepare one or more of three lists: (1) Resolutions for the New Year, (2) Noteworthy Events of the Previous Year, (3) Predictions for the Upcoming Year.      In spite of my good intentions, my New Year's Resolutions usually wind up as a list of things to do (or more likely not do) for the first couple of we...

     Although people have rung in from all points of the political spectrum with complaints about President Obama, there is one big argument in his favor: he has kept his campaign promises. He promised a tax cut, and his stimulus package delivered a cut (conveniently forgotten by the opposition) of $282 billion over two years. He promised to get troops out of Iraq – only 50,000 remain. He promised to agressively advance the war in Afghanistan – he has done so. He promised to create a universal healthcare plan – there is no doubt that he has done that. And he promised to bring the parties together for peace talks in the Middle East – the talks began last week and are continuing tomorrow.      But with all that, why has his approval rating sunk so low? As Bill Clinton said, “It's the economy, stupid.” Obama wasted a huge portion of his political capital on a stimulus that was way, way too small. I have written several times about the inadaquacy of ...

      A Commerce Department report Friday showed that the economy grew at an annual rate of 2.4% after reporting 5.0% at the end of 2009, and 3.7% in the first quarter of the year. Meanwhile the Bureau of Labor Statistics is reporting that there are five applicants for every job opening. Obviously the economy is slowing down.       But if that is true, manufacturers apparently are not aware of it. For the quarter, industrial spending for buildings, equipment and software increased at an annual rate of 17.0% compared with a 7.8% increase in the first quarter. If businesses are investing at an increasing rate, why are no more jobs available? There are several reasons why this is happening.      (1) Efficiency. If machines or computers can do the job that a human being was doing, that is one less worker for the same amount of production. The machine does not require a salary, payroll taxes (in many cases the manufactu...