The official unemployment rate of the U.S. economy remains at 9.7%, and the underemployment rate increased to 16.9%. These numbers represent a real tragedy for many Americans.
While the White House tries to celebrate the creation of 162,000 new jobs last month, at least 48,000 of these new jobs are government jobs, specifically temporary census workers, who are doing unproductive work and are being paid with taxes collected from the rest of the private economy.
Employment also increased in temporary help services and healthcare, but continued to decline in financial activities and in information, which is interesting given the recent comments by President Obama that the government takeover of the student loan program tucked into the health care bill “took $68 billion from banks and financial institutions.”(Obama’s April 1 remarks) That’s a lot of jobs, Mr. President.
Seems like there is more concrete evidence that, rather than creating jobs, the President’s policies are costing the economy jobs.
Germany is baulking at a Greek bailout ….. 84% of the people are opposed according to polls, and Frau Merkel is decidedly lukewarm. This is no surprise; the Germans are pretty commonsensical after all. They are going through a “spot of fiscal turbulence” themselves and hardly in a mood to bail out a feckless, tax-avoiding, economic basket case on the flaky south of the Brusselian Empire ….
Instead, they have come up with a cunning plan; the Greeks should sell some of their islands. I can see the attraction; at knock-down prices, no doubt a good many Germans themselves – short of coast in the homeland – would be only too keen to snap up a firesale bargain.
But if I were Greek I would beware of Germans with cunning ideas. After all, it could be the islands today and the Acropolis tomorrow. Selling capital assets to clear debts built up on a binge of tax-avoided short-term consumption is hardly the long-term solution, and it is remarkable how we humans do tend to go for short-term, quick-fix solutions (see my post on the Fat Pill) . Of course, in Europe at least the Sun (can I capitalize it? It is after all the source of my existence …) plays a large part here, for the further south you go the hotter it is, the more corruptly-shambolic the taxation system, the flakier the economy and the higher the debt. Of course, Britain is an exception to the rule, since it must be put in the Mediterranean basket of cases even though it is far up in the north. Still, Britain was ever exceptional ….
No, I would advise the Greeks to hang on to their islands for a rainy day and do the right thing, which is take the medicine, invest long-term rather than on frivolous consumption and in general live within your means. Selling the islands is desperation stakes, even if the ultimate solution would be to sell the whole country to the Germans and let them sort out the mess, and – more to the point – pay for it all as they did with East Germany.
But though this is hardly a laughing matter – especially for innocent Greeks (I assume there are some!!) – I did have a chuckle yesterday when I saw the headline.
“Greece calls for EU to play its part.” – in other words, bung in billions to bail them out. I am I confess mystified to understand exactly why the thrifty Danes should play their part in bailing out the hapless Greeks, though I suppose we do still owe them for democracy and stuff. When does the statute of limitations run out on this?
Well, good luck Greece, but don’t count on my pfennig, and don’t sell the islands either!
A friend on another site just posed this question.
Why is it that a recession is described as two or more successive quarters of “negative growth”, but being out of recession is just one quarter of (estimated) growth?
I felt emboldened to pen an answer as follows ….
In Britain, the definition of recession-emergence is from the same school of economics as growth predictions for next year (any year), which are always about 5 zillion% more than actually turns out to be the case.
The cunning idea is that future growth will be vast enough to cover the even vaster existing debts and commitments. And, of course, by the time we KNOW what the growth actually turned out to be, most people will have forgotten the predictions on growth from the financial and economic wizards running the country. That’s also one of the great things about a new mess or crisis; it always takes the mind off previous crises, which are likely to be ongoing but less in the media and therefore not to be bothered about too much.
This is, of course, in addition to the fact that growth in itself is incompatible with reducing global warming, but here we are getting a bit too technical.
Well, that’s how we do it in Britain anyway. How do you manage it over there?
by Chris Snuggs
A reply from a U.S. economist.
Hello there Chris!
Recession in the U.S. is also defined as two successive quarters of negative GDP growth. At least, that’s how its officially defined. And to add my answer to your friend’s question — either the economy is either in a recession — i.e., two or more consecutive quarters of negative GDP growth — or it isn’t, which means that the string of negative GDP growth rates is broken. And that only takes one quarter of positive growth.
Most of the economists I know personally tend to look at a bigger picture than the stated GDP figures, however. I focus on capital and labor utilization rates as I believe that they are more important measures of a well-functioning economy. The final GDP figures in both of our countries are national income accounting figures, and have all the weaknesses of any income statement variable. They are flow variables, which ignore the stock of economic wealth. For example, if you invest $100 this year in the stock market, and it grows in value by $20, only the $100 is counted. The increase in wealth is never captured in measures of GDP.
Another problem with current measures of GDP and GDP growth is that government spending is considered on par with private spending, which brings into question the sustainability of growth measures based on GDP, although President Obama and perhaps Prime Minister Brown are both fine with growth rates being fueled by large increases in government spending. Finally, a significant fraction of economic activity, like the value of work in the home — is not measured.
So, yes, the official measurement of GDP is all wrapped up in technicalities. But most economists I know pay little attention to it. They are more concerned with how well the economy is functioning, whether the growth is sustainable, and whether people who want to work can find work. If you are unemployed, the economy is in a recession, regardless of what the GDP figures say!
Looking more closely at the implications of changes in the Fed rate
Does the Fed Funds Rate, the rate charged by the Federal Reserve to make short-term loans to banks, directly influence the interest rate consumers and businesses pay on credit cards, mortgages, and consumer and business loans? If you took the word of the average business news commentator, you would think not. But the answer, of course, is yes.
One way to view the market rate of interest, although certainly not the only correct or useful way, is to think of it as a base rate that represents the risk-free rate, a rate that compensates the population for its impatience to consume the goods it would have consumed had it not lent the funds out in the first place. This risk-free rate is also influenced by the efficiency and functioning of the capital markets that bring borrowers and lenders together.
A risk premium is then added to this base rate of risk-free interest, one that varies depending on the degree of uncertainty of the lender getting repaid. The risk of default, the risk of prepayment, the risk of political uprising, exchange rate risk, and many other sources of uncertainty — including the risk of inflation — raise the level of the risk premium commanded by lenders in the market. As an example, over the last 100 years or so, the average annual risk-free rate in the U.S. has been about 4%, and the average annual risk premium for equity securities has been about 8%, bringing the average annual observed interest rate or rate of return to about 12% on these securities.
So what happens to the interest rate charged to consumers and businesses when the Fed raises the fed funds rate? Basically, the level of the risk-free rate in the economy rises and, as debt contracts expire or new lending takes place, this higher base rate gets factored into the market rate of interest charged.
Overall, the demand for loanable funds falls, the aggregate demand curve for the economy falls, and equilibrium output and employment fall, RELATIVE to where they would have been without the rate increase. The bright side is that a reduction in the money supply that accompanies an increase in the fed funds rate is absolutely essential to curtailing inflation, which drives the risk premium, and represents a much greater cost to the economy.
An interesting story on the BBC recently. It seems that growth is now “bad” and incompatible with reducing global warming.
I have to say that this always seemed obvious to me (and despite appearances – or indeed pretentions – I am not that clever) since IF industrial production and emissions are creating too much CO2 then it is surely obvious that more of the former will produce more of the latter. Any flaws in this argument will surely be pointed out to me pdq, but I won’t be losing any sleep – or indeed I suspect – the argument!
Well, the theory that growth is bad has now been confirmed by a scientific study ….. of course, we have learned to take some of these studies with a pinch of salt, and it doesn’t help when scientists on the “we are doomed” side sex up their findings to make their case, as was revealed just recently. I found this hilarious!! Once again, a dishonest intention to achieve ONE kind of result (boost the doomsayers’ cause) actually achieved the OPPOSITE!!! When will they ever learn?
As for the evils of growth, I am wondering if the British Prime Minister has been informed? His entire strategy (if that is not too noble a word to use in this context) has for well over a decade been based on growth (indeed growth triumphantly trumpeted in advance as likely to be at a level far higher than it actually turns out to be) bringing in enough money to pay for his humungous over-spending.
He must be urgently rearranging his matchsticks in an effort to cook the books once again ….
And there is another side of the “no-growth” movement. YOU may very well decide that in the cause of saving the planet you will keep your consumption where it is, but – logically – that also means people in the developing world who are incredibly poor keeping THEIR consumption where IT is. That is one hard sell. Of course, YOU may then decide to REDUCE your consumption down until it meets theirs coming up ….. No? Oh well …..
The way I see it, growth is inevitable, whether it is good for the planet or not. Which is a bit of a poser if growth is going to doom us. Still, I remain an optimist – some genius will find a way out of this enigma …. but please make it soon before we grow too much!!
A looming low point in the long history of the Greek empire
It seems the EU is considering whether to bail out Greece, in danger of defaulting on its loans, so high is its debt.
A spokesman has been quoted as saying “it is unthinkable” that Greece should default and that “something would have to be done.”
I imagine the rest of the EU countries (their citizens at least, those who actually pay the taxes) are not exactly slavering over the prospect of their money being used to bail out yet another organism living beyond its means.
And this is the point, we ALL have to start living within our means: individuals, countries, the planet. ANY other course leads to doom. And as an EU taxpayer I feel very hesitant about bailing out ANY country. Not though lack of fellow-feeling (it could be us next time) but because IF you bail them out then they WON’T change their habits. We bailed out the banks; have you seen THEM change their habits? I certainly haven’t, except that they won’t lend small businesses (the TOTALLY INNOCENT VICTIMS of all this) any money. The obscene fat-cat “bonuses” are starting up all over again like mushrooms in the meadow. No, let them go bust; only that will concentrate their minds.
And let us not forget that Greece LIED about its finances in order to qualify for the EU in the first place! An end to lies! An end to the easy option. An end to my taxes bailing out an indisciplined over-spender!