Tag: Economics

Understanding unemployment, Part Two

Examining unemployment in more depth.

In an earlier post, I explained how the reported U.S. unemployment rate, which was 9.6% in August of 2009, is unemployedmeasured. This post will explore the reported unemployment rate in more depth, distinguishing between the short-term, temporary sources of unemployment and the long-term, more structural, and troubling aspects of the unemployment rate.

The 9.6% U.S. unemployment rate remains the same next month if no one changes their employment status.  But the rate also remains unchanged if the same number of people hired get fired.  In truth, the U.S. unemployment rate nets out enormous flows of people into and out of the labor force and, for those in the labor force, between being employed and unemployed.

A representative month in the unemployment statistic tells the story.

Read more about unemployment

Understanding unemployment, Part One

The Unemployment Rate: how it’s measured; what it means.

The unemployment rate is often used as a signal of how well an economy uses its resources.

The social costs of involuntary unemployment are evidence of a poorly functioning economy. The unemployment rate

(c) AP Photo
(c) AP Photo

in the U.S. currently stands at about 9.7%, causing deep concern about the overall health and viability of our economy.

Let’s first make sure we know how this reported unemployment statistic is measured.

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Essay One – Inflation – Part Three

Inflation, deflation, economic crisis and so on, getting to the bottom of meanings.

Inflation – Part three

Part One was published on the 23rd.

Part Two was published on the 24th.

Sherry writes:

I think we are getting somewhere!

You’ve zeroed in on the key question, I believe: why is there an inflation risk while the outlook remains so grim?

Inflation is a (sustained) increase in the equilibrium price of goods and services.

The price results from the interaction between two completely independent sides of the market: the demanders and the suppliers. Think of money (or a debit card, whatever form money takes) as an enabler of demand — it makes transactions easier, quicker, and thus more transactions result. The higher the supply of money, the more enhanced the underlying demand for goods and services (by consumers, business, and government).

So more money, higher demand. Higher demand, higher prices. Higher prices, higher inflation.

Read more of Dr Jarrell’s concluding essay

Essay One – Inflation – Part Two

Inflation, deflation, economic crisis and so on, getting to the bottom of meanings.

Inflation – Part two

Part One was published on the 23rd.

Paul responds

Sherry,

My first realisation is that I don’t really understand what “money growth” really means. In fact I am little uncertain about money, as a concept!

moneyAre we talking ‘growth’ as in more and more money being lent to the US Treasury Department from the [ever increasing] sale of US Treasury Bonds?

If the sale of these Bonds is to banks or institutions outside the US then there is a flow of money coming into the US via the Treasury Department that then comes into the economy via various Government programmes. Is that correct?

But this is money lent to the US. That means that in order for the US to pay it back (plus interest) there has to be the expectation of taxation income in the future sufficient to meet these debts. As my Pension advisor said, “More credit also means more debt.”

Read more of Dr Jarrell’s essay

Essay One – Inflation – Part One

Inflation, deflation, economic crisis and so on, getting to the bottom of meanings.

The background.

Not so long ago there was an exchange between me and Dr Sherry Jarrell about the meaning of inflation.  Dr Jarrell is, in every meaning of the words, a qualified economist so when I had the courage/stupidity/ignorance to query her views I could not have been more surprised to receive this:

You won’t reveal a lack of understanding of economics — there are co-existing opposing points of view on the topic – that’s why it made for an interesting discussion! (My italics)

This got me thinking.  If your author, who is reasonably well-read about many things especially protecting what little wealth he has, can miss such a fundamental point, then there must be a huge number of other people who, likewise, miss the point and, even more important, don’t even realise it!

Dr Sherry Jarrell
Dr Sherry Jarrell

Over the last few weeks Dr Jarrell has not only found time to debate with me, she, too, has realised that a more rigorous exploration of what many economic and financial terms mean has real value for readers of this Blog as well her own Blog.

Therefore I am delighted to welcome Sherry Jarrell to the team of authors.

These essays will attempt to distil clarity out of a number of basic economic ideas, starting with inflation. That seems to be a worry widely ‘predicted’ in the general media as well as elsewhere.

The essay is in the form of a debate format, albeit virtually.  We hope it is both informative and educational.  Please let us know by leaving a comment!

Inflation.

Read more of this essay on Inflation

Health care.

Being healthier seems too obvious!

Not being either a US Citizen or even a resident takes away my right to contribute an opinion.  The matter is entirely a domestic one for those living in the USA.

But my life-long Californian buddy, Dan, recently sent me an article published in the Wall Street Journal on the 12th August.  The article was written by John Mackey, the CEO of Whole Foods Market Inc. so this isn’t an impartial perspective.  (And see an important foot-note at the end of this Post)

But the last part of the article is good common sense, as you can read:

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Well that’s clear then!

Conflicting views about the economic outlook

Here are two extracts:

The first from Prof. Nouriel Roubini in his RGE Monitor of today’s date:

A number of economic and financial variables have exhibited signs of improvement recently even if macro indicators are still mixed. The pace of economic deterioration has slowed significantly, and after four quarters of severe contraction in economic activity, RGE Monitor now forecasts that the U.S. will display positive real GDP growth in the second half of 2009. As discussed below, however, that does not mean that the recession in the U.S. is already over, as many analysts have argued. Indeed, all the variables used by the National Bureau of Economic Research (NBER) to date recessionary periods will continue to contract or display sub-par growth. However, RGE Monitor now anticipates that policy measures and other factors will boost real GDP growth, albeit in a temporary manner, in the second half of 2009. Yet the shape of the recovery (will it be V, U or W?) and other challenges will influence the U.S. economic outlook going forward. According to RGE Monitor, growth will remain well below potential in 2010, while the shape of the recovery will be closer to a U.

The second is from David Rosenberg in yesterday’s Breakfast with Dave:

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Economics ought to make sense?

Why economists seems just as confused as me.

We live in a world where finance and money play a hugely more important role in our everyday lives than, say, 25 years ago.  Well that’s how it seems.  Our energy costs don’t seem to be connected to supply and demand but more in the hands of the speculators.  Our house values have been greatly influenced, perhaps misaligned is a better word, by the availability of too easy money, resulting from exotic financial leveraging. Commodities are, like energy, traded for their own sake rather than to provide an efficient process of linking the grower with the consumer.  And more.

So it comes as a bit of a shock to read in a recent copy of The Economist that most of the theories and economic models are being ‘re-examined’ in the light of the current global crisis.  These theories and models are not esoteric ideas kept

The Economist July 18th 2009
The Economist July 18th 2009

within the scholarly walls of universities but used by Governments, investment institutions and banks so they affect you and I in the real world, big time!

They ought to work a great deal better than they do because they have the capability to harm, as millions have found out in the last 2 years.

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Making sense of (financial) markets

Financial news and reporting

If there was an award for the most intriguing corporate name Gluskin Sheff ought to be in with a chance!  What an interesting and unusual name – perhaps someone will explain the origins.

Anyway, in my quest for balance in financial reporting and predictions (a hopeless quest as many of you will be quick to point out) the name of David A. Rosenburg came to light.  He is the Chief Economist and Strategist of aforementioned firm, Gluskin Sheff.  Rosenburg caught my eye because his opinion was that inflation is years away simply because consumer demand is likely to remain depressed for a long time and without growth in consumer demand there can’t be inflationary pressures – something that is in accord with my own thoughts and financial planning strategy  (not that I am even daring to compare my own very inadequate knowledge with D.A.R.’s).

Anyway, a quick trawl around Gluskin Sheff’s website (that is such a lovely name!) found that one may subscribe to a number of free reports.

Seems like a good thing.  Thank you Gluskin Sheff! (Did I mention what a great name that is!!)

By Paul Handover

Taleb’s Black Swan-proof world

Nassim Nicolas Taleb has a deserved reputation.  His book, The Black Swan, has become a classic and, for me, was a wonderful and deeply educational read.

Here is Taleb’s recipe for our present, difficult times, as published in The FT.

By Paul Handover