Category Archives: Keynesian Economics

Jobs, the Economy, Employment and UnEmployment

Gingrich, Romney, Santorum, & Paul: The Four Horsemen of the Apocalypse

Gingrich, Romney, Santorum & Paul: The Four Horsemen of the Apocalypse

According to the Bureau of Labor Statistics, here,

“Nonfarm payroll employment rose by 227,000 in February, and the unemployment rate was unchanged at 8.3 percent, the U.S. Bureau of Labor Statistics reported today. Employment rose in professional and businesses services, health care and social assistance, leisure and hospitality, manufacturing, and mining.”

If nonfarm payroll rises by 227,000 (an annual rate of 2.7 million) why is the unemployment rate unchanged? Again, according to the BLS,

“Both the labor force and employment rose in February. The civilian labor force participation rate, at 63.9 percent, and the employment-population ratio, at 58.6 percent, edged up over the month. (See table A-1.)”

The reasons are simple:

  1. Obama brought troops 100,000 soldiers home from Iraq – who need jobs.
  2. The economy seems to be improving, prompting people to re-enter the job market.
  3. The “Public Sector” lost 22,000 jobs per month in 2011, for a total of 264,000.

These are summarized here, on Think Progress.org. We also lost 14,000 construction jobs last month because the Republicans refuse to rebuild the infrastructure of America.

What happens next? Again, according to ThinkProgress, here,

Mitt Romney,as president, would fire even more government workers. “We just have too many” public sector employees, Romney said, “and they’re paid too much.” Rick Santorum’s plan to cut $5 trillion in federal spending would undoubtedly lead to significantly higher government job losses.

Gingrich shut down the government once before. Altho he does want to build a lunar colony. Ron Paul wants to abolish every agency that exists, and basically return to the days immediately following the American Revolution, when the USA was 13 confederated states – before the Constitution was ratified. (Today I guess it would be 50 – or maybe 47, plus Alaska and Texas (but not including Hawaii). Governors Christie of NJ, Daniels of Indiana, Perry of Texas, and Walker of Wisconsin are reading from the same playbook as Romney and Paul.

ThinkProgress concludes:

It’s clear that even as the economic recovery continues, it will fall short of its full potential so long as governments continue to shed thousands of jobs. President Obama has proposed to address this problem by creating public sector jobs to repair our nation’s crumbling infrastructure. The Republican presidential candidates have proposed to address this problem by exacerbating it.

It is as if, now that the “Cold War” is over, the Republican Party is waging war against the United States of America.

Senator Kerry: “We need to invest in our infrastructure.”

Senator John Kerry

Senator John Kerry

I met Senator John Kerry at the Harvey Nash Inc. Leadership Breakfast at the Plaza Hotel in NYC on Friday, March 2, 2012. He spoke unequivocally about infrastructure, energy, mass transit, and foreign policy, saying,

We need to invest in our infrastructure. The people who talk the loudest about ‘American Exceptionalism’ are destroying America.

Sending our children to college is competitiveness, not elistism.

“The American Infrastructure Financing Authority,” Kerry said, “would generate revenue by loaning money to people to build infrastructure. It has bi-partisan support. It should be a slam-dunk. But we can’t get it passed because of Republicans intransigence. The American people have to force the Republicans to compromise and force the Democrats to stand tall.

In the ’70’s we were #1 in college graduates; now we’re 16 th. We were #1 of the G 20, now we’re 5th.

The Acela can go 150 mph – and it does for about 18 miles between New York City and Washington, DC. It can’t go 150 mph over the Chesapeake Bay bridge because in doing so it may wind up in the Chesapeake. It can’t go 150 mph in the Baltimore tunnel because the vibrations may damage the tunnel.

Acela

The Acela

Editor’s note: The Acela runs it’s top rated speed for 16 miles on a 220 mile trip – about 7.3%. The trip on regular Amtrak is 4 hours. The trip on Acela is 3 1/2 hours. That’s about 62.9 mph.If the tracks would allow the train to make the run at it’s design speed of 15o miles per hour the trip would take an hour and a half, not 3 1/2 hours. Average 125 mph, it would take about an hour and 45 minutes.

Image of wall of Bridge to the Holland Tunnel

A few years ago we were first in manufacturing solar energy. Now China has taken over that industry.

China spends 9% of GDP on infrastructure. Germany spends 5%. We spend less than 2%.

We are using the infrastructure that our parents and grandparents built. And it’s crumbling!

Wall of the bridge leading to the Holland Tunnel

Wall of the bridge leading to the Holland Tunnel

In order to compete we must rebuild our infrastructure – and send our children to school.  (And sending your children to school is not elitist.)

Kerry spoke like a Keynesian:

Saving GM and Chrysler saved about 1 million jobs. Had they been allowed to fail Ford and all the suppliers, and all the clothing stores, food stores, delis, diners, restaurants – all would have failed. Saving the American auto industry saved the midwest from a Depression. That’s not socialism; that’s what government is for. And Ford, GM, and Chrysler are profitable!

Editor’s note: Ford did not take TARP money. GM, Ford and Chrysler are building cars people want to buy, and people are buying them.  The following chart shows market capitalization, stock price, earnings per share, price earnings ratio and net profit margin for GM and Ford. Chrysler is not included because it is privately held.

Company Valuation Stock Price EPS P/E Ratio Net Profit
(Billions) (3/2/12) Margin
Ford $48.4 $12.72 $5.01 2.54 14.84
General Motors $41.4 $26.45 $4.58 5.77 4.06

According to San Francisco Chronicle / Bloomberg, here,

U.S. auto sales accelerated to the fastest pace in four years …  a 15.1 million seasonally adjusted annual rate, exceeding the 14.2 million pace that was the average of 17 analysts’ estimates… the best since February 2008 when U.S. sales ran at a 15.5 million rate,

GM deliveries rose 1.1 percent to 209,306 cars and light trucks, beating analysts’ estimates for a 4.8 percent decrease. Chrysler sales increased 40 percent to 133,521 and Ford Motor Co.’s climbed 14 percent to 178,644. Toyota Motor Corp. and Honda Motor Co. deliveries each gained 12 percent, while Nissan Motor Co. sales rose 16 percent.

Yet Romney, Santorum, Gingrich and Paul persist in the lunacy that bailing out GM and Chrysler was a mistake.  If they don’t want to govern, why do they want to be President?

Kerry also said:

Successful businesses today have a lot of cash. But the executives are reluctant to invest because the economic climate is too uncertain. That’s why government must step in.

This statement could have been made in 1932 by Franklin Delano Roosevelt or John Maynard Keynes.

Kerry criticized Santorum. “Saying my grandfather was a coal miner, so I could go to college, go to grad school, get an MBA and a JD, then get elected to the Senate, then make millions lobbying, and tell you not to send your kids to college…” If that’s not elitism and demagoguery I don’t know what that is.

The current political climate in Washington is terrible, that’s why Olympia Snowe is leaving the Senate. The Republicans are intransigent, they refuse to compromise; they are focused on destroying Obama’s Presidency – and will sacrifice America to do it. When G W Bush was President it took 30 days to get a judge approved. Today it takes 100 days, maybe 200 days. There were two (2) filibusters in the 19th Century, and another two (2) in the 20th before WW II. Strom Thurmond’s filibuster of civil rights legislation, a few more in the 60’s. Today there are 100 filibusters per session.

And “do the math, folks, we can’t balance the budget on the backs of our poor and our seniors. We must raise revenues. The Bush tax cuts on the wealthiest 1% and 2% must end.”

Kerry spoke about money in politics, and the disaster that was the Citizens United decision.

He also noted that Congress has an approval rating of 8%. I know why. Or at least, why I have disgust and contempt for most of the members of the House and Senate. The Republicans won’t compromise; they are beholden to “King” Grover, aka Norquist the Zeroth, and Democrats are too willing to compromise.

However, he ended on a positive note. He is confident that President Obama will be reelected, and is also confident that America’s best days are yet to come. All we have to is take the money out of politics, force the Congress to change, reelect the good incumbents and throw the bums out.

Unemployment Drops Slightly in January, 2012

In Jobless Rate Fell To 8.3% in January, 2012, as, according to the Bureau of Labor Statistics, approximately 243,000 new jobs were added in the economy, here. This is good. But an unemployment rate of 8.3% means there are 13 million people out of work and looking for jobs. That doesn’t count the millions that are out of work and not even looking. We need 13 million new jobs – 52 months of 243,000 new jobs per month.

On NPR’s Morning Edition, Friday, Feb. 3, 2011, here, Renee Montagne interviewed Yuki Noguchi on the Bureau of Labor Statistics January jobs report, the Employment Situation Summary, here, on jobs in the economy. Early on, at about 1 minute 30 seconds, Ms. Montagne asked, “What about government jobs?”

Ms. Noguchi replied, “Government job loss is minimal.”

This is a critical piece of the puzzle. Toward the end of the segment, at about 3 minutes, 14 seconds, Ms. Noguchi said “let’s say the hiring stays at this level, with nearly 13 million people unemployed, it would take nearly four years for all those people to find jobs. And that number doesn’t count people who are not even looking.”

President Roosevelt and John Maynard Keynes proved that during economic times such as these, while business owners are capable of hiring, they are reluctant to hire because they are reluctant to risk capital. The only entities that are both willing and able are agencies of the government and not-for-profits such as schools, hospitals, etc. This is because they serve their stakeholders, not their stockholders.

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Keynes wrote his seminal General theory on Employment, Money, and Interest During the Depression. He looked at the classical theory which said, essentially, the Depression can’t be happening, and at the empirical data which said “It is happening” and concluded that if the theory is out of sync with the facts, then the theory must be flawed. His theory is described by Paul Krugman, here, and Aaron Schwartz, here.

The False Assumptions of Neo-Conservatives

To paraphrase John Kennedy, “Ich bin ein Keynesian.”

Jude Wanniski coined the term “Supply Side Economics” in 1976 as a reaction to  Keynesian and monetarist thought. In his book, The Way The World Works, Wanniski argues against taxes. “Working together three men can build three houses in three months. Working separately, they can build three houses in six months…. If the tax rate on home building is 49% they will work together … if the tax goes to 51% they will suffer a net loss because of their teamwork and so will work separately in the barter economy and pay no taxes. … the government loses all the revenue and the economy loses the production…”

Here are Wanniski’s assumptions:

  1. Working alone three men can build a total of six houses in one year. Working together they can build 12 houses in the same year.
  2. A 4% change in the tax rate, from 49% to 51%, is significant enough to cause someone to “drop out.”
  3. The government taxes people when they work together but not when they work separately.

These assumptions are flawed. Continue reading →