Wage Recession

"The touchstone for economic policy is:  Does it allow the average American to find good employment and see their incomes rise?" -Barack Obama, April 2009

I don't think any civilization has ever experienced growth through austerity. It's like gaining muscle through fasting. If anyone has been paying attention to Europe, then surely that person would point out that it isn't working for them. So simply cutting everywhere isn't the answer, as promoted by Balance-the-Budget enthusiasts. If anything, reallocating resources should be a big topic during fiscal policy discussions. Someone uttered that we don't need more taxes versus more taxpayers. Well said. 


How bad is it out there? A recent report indicates significant job growth since the Great Recession in an area most people would rather avoid: low-paying jobs ($13.52 and under). This speaks loudly that "good jobs" are at a huge deficit (maybe shipped overseas?).

During the Great Recession, mid-wage jobs have seen the greatest contraction.
The recovery has seen a strong rebound only for lower-wage jobs.

This is very bad, because middle and higher wage jobs mean a more robust economy. Low wages are bad for housing, and bad housing means a host of other problems. Houses do more for the economy than anything else. When one buys a house, then one also buys other goods for upkeep - a new washer/dryer, new roof, landscaping, security, etc. These other purchases spill over into the rest of the economy. But none of that will come to fruition if people cannot afford to buy a home.


Part of the reason why we had a housing and credit bubble burst was that the wage downtrend started when Bush 43 took office. In 2008, mid-wage jobs fell off a cliff. Mid-wage jobs (teachers, telecom repairers, and machinists for example) have been hit the hardest with totals equaling more than high-wage jobs (executives, engineers, and nurses) and low-wage jobs (retails salespeople, clerks, waitresses, cashiers) combined.

During the George W Bush presidency, mid-wage occupations growth was anemic.

The graph at left establishes that Obama had good reason to blame the last president who I believe is still hiding in a corner somewhere. However, Obama - and Congress - own this too and with good reason: they have largely neglected the economy throughout Obama's term. Of course, lawmakers like to point fingers at "special interests", but "special interests" don't make the laws.


Even if lawmakers can right the economy, they still have to face the hourglass trend: mid-wage jobs have given way to low-wage and high wage jobs, ie the middle-class is in decline and we are getting an enhanced separation between haves and have-nots. This is significant for one simple reason: if there is no wage growth, then there is no economic growth. The graphs indicate that economic growth during the Bush 43 years was not real growth. The economy simply corrected in 2008. Considering the bounce that Wall Street has, and Main Street hasn't, the separation is again evident. This gives much fuel to the double-dip recession predictions.

The increasing duration of unemployment hints a predisposition against hiring
people who have been out-of-work for an extended period of time.   

So will there be a double dip?  A "recession" in economic sense means contraction, and the dismal numbers do not indicate a shrinking economy. Yet. They indicate a slowing economy. The difference is that there is still growth. However, that is in the economic sense and these numbers are lagging indicators. They tell you what happened, but past does not always equate to present. If one looks at Main Street (ie: JOBS), then one can sense if a double dip is taking place. As far as a job-hunting American is concerned, that's all that matters. With military coming back from war, the President has proposed tax incentives to companies that hire former military. Given that and the preference for employers to hire people who already have a job , that leaves out a growing group of people.


The Stimulus Package proved to be less a stimulus and more of a Recession Slower.  While many think they have the answer, they ought first study the Stimulus Package before deciding on the particulars of a new Stimulus.  The Stimulus Package was one-third tax cuts (proving that simple tax cuts are not any-time answer - they matter little if you're not making a wage to be taxed), one-third state-city balance sheet replenishment (states and cities hoarded stimulus money from the 2009 stimulus package to bridge the gap created by out-of-work Americans who suddenly found themselves without jobs and/or in new jobs with lower wages), and one-third programs.  


2012 should prove to be a pivotal year economically for the President.  Stimulus money is now gone, so many states are cutting back even more. The President stated in his State Union last year jobs had to be the primary focus.  Now, twenty months later, he is finally turning real attention to it.  A new stimulus plan is needed that focuses on higher wages and job creation, something his first stimulus package lacked. Given that the debt ceiling debate resulted in passage of a bill that did not address any real spending cuts, it is entirely possible to print more money for it. If the economy can generate any momentum, he could get a second term. If we get increased unemployment, Obama will be one-and-done, forever placed in the Ford/Carter category. ...


However, fate may very well be out of Obama's hands. Any new government stimulus program, if it gets passed (a third extension on unemployment benefits did not get passed so that does not bode well), will take a while to take affect. By that time, people may have already made up their minds on who they will vote for. 

The Obama Track Record

For the next election, you must first come to terms with whether or not you want Obama for another four years.  So let's take a look back.

Platform: "Change You Can Believe In"
Obama Policies:  Stimulus Package, Omnibus Bill, Healthcare Mandate, Cash For Clunkers, Home Loan Modification Plan, Bush Tax Cuts Extension, Dodd-Frank, Guantanamo Bay, Israel. I'm sure I'm missing lots from this list, but these are the major policies put forth by his administration.


What about quantitative easing?  The Fed is supposed to act independently of politics (though Ben Bernanke, a carryover from the Bush presidency who worked extensively with Alan Greenspan, was reappointed by Obama), but it does work in concert with Treasury.  Therefore Obama shares responsibility for that.


Do you like the direction the Obama White House has taken?  Did Obama deliver the change you voted for? If so, then reelect him. Obama's platform for 2012 will not be "Change", but rather "Status Quo".

A Few Obama Quotes

• "Greatness is never a given. It must be earned."  (Inauguration)
• "I'm happy to get good ideas from across the political spectrum, from Democrats and Republicans. What I won't do is return to the failed theories of the last eight years that got us into this fix in the first place, because those theories have been tested, and they have failed." (Feb 2009)
• "I don't believe that the American people want us to focus on our job security. They want us to focus on their job security. I don't think they want more gridlock. I don't think they want more partisanship."  (Jan 2010)
• “Never again will the American taxpayer be held hostage by a bank that is too big to fail.”
• "We lose ourselves when we compromise the very ideals that we fight to defend. And we honor those ideals by upholding them not when it's easy, but when it is hard." (Nobel Lecture)
• "What the American people hope – what they deserve – is for all of us, Democrats and Republicans, to work through our differences; to overcome the numbing weight of our politics." (2010 State of the Union)

Stock Market Stuff

Time To Turn On The Printing Press?

 Hewlett Packard (HPQ) is during its earnings release stated that it's going to discontinue tablets and it's spinning off its PC division.  HPQ has the biggest market share in PC sales, but is deciding to shift away from it because of anemic growth (thin profit margins).  With its purchase of Autonomy, it seems HPQ wants to go into cloud computing and servicing - ala IBM.  As it transitions from hardware to software, we might not be able to recognize HPQ in five years.  ...  Terrible numbers from Philadelphia's Federal Reserve on factory orders.  Expectations were for a positive number (+3.2) and instead we got a negative number (-30.7), giving more ammunition to the "double-dip recession" whispers.  ...  Much focus is now on the Fed and on what it will do.  Many think Bernanke needs to crank on the printing press again because of deflation fears. However, Bernanke tends to act only when crises have already arrived.  He doesn't want to turn the money machine.  It would not only look bad, but it would further muddy the economic picture going forward.  However, he might not have a choice.  ...  Gold can't go any higher, right?  Well, it just passed $1800 this week and it's still going parabolic.  Truly amazing.  Silver isn't keeping pace either, so what does that say about the recent run-up in gold?  Fear.  Investment and view as an alternate currency is what establish gold's uptrend, but now the uptrend is skyrocketing.  Silver should be keeping pace, but it isn't.  Fear.  ...  

Bottom Line:  Bounce over.  High risk out there, I wouldn't be too long on anything.  There may be another bounce early week.  If it happens, it's likely to happen Monday or Tuesday.  However I wouldn't start to get aggressive until the S&P closes above 1205.

Current Positions: 20% cash - AAPL, MO.

Stuff The May Only Interest Me

Leon Panetta is worried about his defense budget getting cut.  So much that he's telling Congress to raise taxes and cut Social Security among other things.  The defense budget has actually gone up under Obama's watch.  However, what Panetta seems to misunderstand is the cuts he seeks in Social Security in favor of defense is downright criminal.  Americans pay specifically for Social Security, and Congress continually dips into the Trust fund because it can't say "no".  It's understandable that he wants to hold on to what he has, but if he thinks taking from the Trust fund is acceptable, then he's got his head stuck in a panera.  ...

While Obama has clearly demonstrated a lack of understanding of the problems of the education system - or maybe he does get it and just doesn't want to deal with it - it is also clear that none of the Republican candidates for President have a grasp of it.  The response in last week's debates echoed the same sentiment:  vouchers, choice, and defer decision-making to the states.  That to me translates into, "I have no idea, so let the states handle it."  With NCLB, the states handled the standards and curriculum to help comply with testing and accountability timetables mandated.  The result was a lowering of standards to meet NCLB guidelines as "proficient" has become "basic".  Voucher systems in Wisconsin and Minnesota have, on average, not yielded superior results to public schools, nor have "market forces" lead to improvements in the public schools - despite the ability of charters to cherrypick the most motivated students from the public schools.  As it turns out, starting a school and making it successful is tougher than starting a Starbucks.  What about choice?  Choice actually has not been taken advantage of by parents because few are willing to have their children commute more than an hour to school and back everyday.  The problems in education are multi-faceted, and many factors are external to the education system.  ...

Our politicians keep blaming the S&P downgrade for the market turmoil, but actually the market started tanking during the nationally embarrassing debt-ceiling jihad which occurred before the downgrade.  Why do they do that?  Is it because they're stupid?  Well, yeah, they aren't very smart, but they're downgrade excuse has a purpose:  they want something from us.  Scrutinize what they say and recognize that isn't truth oozing from their lips.  They either have an agenda or are trying to rewrite their own history of poor decisionmaking.  Instead of going Wisconsin and protesting out in the streets, we are eating it all up.  ... Ball Park Franks has declared weiner war on Oscar Mayer, charging Oscar Mayer that its hotdogs are not 100% beef and that it lies about its taste test results.  Sara Lee (owner of Ball Park Franks) has thus sued Kraft (owner of Oscar Mayer) - opening statements in court this week.  Onlookers eating Hebrew National hotdogs are probably watching to see which one will win the title of second-best.  ...  I'd really like to another Democrat run against Obama in this next election - John Huntsman doesn't count.  Obama needs a shot in the arm the way Pat Buchanan provided for George H Bush in 1992.  I don't think Obama really takes the Republican opposition seriously, and he needs to start planting those seeds now.  Recently, he's been sounding more Republican, stepping too far to the right in an effort to appear centrist.  ...

Unemployment - Texas vs. US
(Click to enlarge)

 A community organizer is a person who helps generate community support for an action - whether political, social, religious, or otherwise.  It was what Barack Obama was most known for and what detractors targeted - claiming that Obama had no real experience outside of his activism.  Given what has occurred so far, does anyone find it ironic that he has been unable to generate support in Washington for the majority of his term - especially since Rahm Emmanuel left?  Community organizing is less difficult when there are common goals and ideas.  Washington has proved to be uncommon, and interests became less common after the last election.  ...  Rick Perry's criticism of the Fed's quantitative easing policy is a weak political argument.  Though it definitely aids in the transfer of wealth from middle class to rich, there's very little he could do about it since the Fed Chairman and not the president puts the policy in place.  Now, if he were argue about whether or not the government should have greater control over Fed policies, then you 'd have something more substantive.  However, that would contradict his "small government" mantra.  It should also be noted that Bernanke has held his position since he was first appointed by Bush 43.  He should tread carefully, because the Bush 43 questions will surface.  ...  

Click to enlarge
(Courtesy The Big Picture)

There's been some talk of Rick Perry's "Texas Miracle" - that is, how Texas has managed to avoid the the Great Recession.  I don't know what numbers lead to the classification of "Miracle", but if Texas is a miracle, then North Dakota is downright divine.  The chart at left shows unemployment (U3) of the US, California, Texas, and North Dakota.  On a percentage basis, the number of unemployed workers increased nearly 100% in Texas since January 2008, about the same as the entire US.  Unemployment though is determined by rate to account for population and labor force changes.  From January 2008 to July of this year, Texas saw its unemployment rate increase 4.4% to 8.2% (86% increase) whereas the rest of the US went from 5.0% to 9.1% (82% increase).  Perhaps the "Miracle is elsewhere.  Texas rankings on poverty and crime crime aren't worthy of boasting either (see right).  Neither is education in that student scores on the National Education Assessment Program tests have been rather stationary during his tenure - not bad when compared with the rest of the country, but not worth boasting about when you start talking "Miracle".  ...  Perry supporters have been gawking "yeah, but" when parsing through these numbers, but whatever the case is, I really wouldn't care.  I'm more interested in what direction he plans to take the country.  So far, it's sounding like the same direction he took Texas, and that doesn't excite me.  ...   I can see Newt Gingrich as a chief of staff.  He looks like the type who could pull off a Rahm Emmanuel in the shower.  

Stamp collectors will be on the lookout for Pixar stamps.  WALL-E and Buzz Lightyear are among the characters featured by the US Post Office on its new "Send A Hello" series of stamps (but nothing from upcoming Pixar flicks, not that they need more promotion).  Their reasoning for choosing these characters is that they are "unlikely heroes who explore the bonds of friendship and family . . . the stamps [are meant to] encourage people to connect with their loved ones through the mail."  Kinda makes me want to stop texting.  OMG!  I wonder if kids today know how to write an address on an envelope?  Or where the stamp actually goes.  LOL.  ...   No Child Left Behind (NCLB) required that all students achieve "proficiency" on state tests or face punsihments like a state takeover or firing of all staff.  Many states delayed punishment in various ways - like lowering the "proficiency" level to "below basic" on state tests so that more can pass.  Some districts got around it by refusing NCLB money and subsisting on significantly reduced revenues.  Only two years are left before every school is deemed a failure because there is no way 100% of all students will be "proficient."  Much like his boss who learns very slowly, Secretary of Education Arne Duncan has finally realized this mathematical impossibility, and is now generating a plan that would grant NCLB waivers to school districts which I interpret as "scrapping NCLB and sending it back to Texas".  It will not be declared as such, but granting waivers allows you to circumvent and if the requirements for waiver are "below basic", all states will be filing the paperwork.  However, I haven't seen the plan yet, so it could be just a Chicago waiver.  Again, Duncan is a slow learner, so he may only see a need for some districts with exceptional circumstances.  Hard to tell.  ... 

Abercrombie and Fitch wants a Jersey Shore member NOT to wear their clothes.  Reportedly, it is willing to pay Mike "The Situation" Sorrentino, one of the stars of MTV's hit reality show about promiscuous people who get drunk at clubs and puke the next morning (they make so much money on this - life is not fair), if he doesn't acquiesce.  With Back-To-School season in gear, the company wants a cleaner image among parents.  The fact that it sells thongs with names like "eye candy" and "wink wink" printed on them seems lost on all this.  Considering the A&F once sold "Fitchuation" t-shirts, it is hard to understand why A&F would do a 180.  "The Situation" hasn't become more gentlemanly.  What changed?  ...  Now that S&P has gone on a downgrade bend (it just downgraded Venezuela, though it still hasn't downgraded France's AAA), the SEC is now investigating S&P for its ratings on mortgage-backed securities.  Thus, the backlash begins.  Took the SEC long enough, and it only required a downgrade of the country.  Why stop there?  Fitch and Moody's should be on their menu too.  ...  Kim Kardashian got married.  I give it 18 months.  ...  Now that HP is discontinuing its Tablet (geez, that was quick), Best Buy is having a Tablet fire sale.  The cheapest sells for $99.  Want one?  Good luck, because they are hard to find.  Rumor has it Best Buy employees are gobbling them up.  Your best shot may be online.  ...  As this is my last post (on this blog), I just want to say thank you for entertainment my mild ramblings.  Next week's post might simply be comics - which probably what many of you just skip to anyway.  

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