The number one problem for the US and for Western Europe is job creation. There is no bigger problem. The politicians can focus on all sorts of other things: taxing rich people, subsidizing pet projects, bashing China, etc. But, anyone who thinks there is a bigger problem than unemployment is missing the forest for the trees.
How do we get more jobs? That is not a tough question. It is only tough because we are talking about labor. If we asked the identical question about anything else, the answer would be painfully obvious. For some reason, politicians and many economists become completely irrational when asked how to increase the demand for labor. If the same politicians and economists were asked about how to increase the demand for anything else the answer would be immediately forthcoming.
How do you increase the demand for something?
How about making that something more expensive? Would that help?
What about substantially increasing the taxes for people that use that something? Would that help?
What about passing new regulations that would apply to using that something? Would that help?
To increase the demand for apples, why not make apples more expensive, tax folks who eat apples, and make anyone who buys apples spend one month of every year filling out paperwork to satisfy the regulations required to consume apples. Would that increase the demand for apples?
Yet, politicians and economists (like Paul Krugman) think that this is exactly the prescription necessary to get to full employment of labor. They are wrong.
To get more jobs, you need to reduce the cost of labor, increase the economic incentives for those who employ labor and reduce the regulations that surround the employment of labor. That's how you would increase the demand for anything including labor.
Sunday 30 October 2011
Saturday 29 October 2011
The Anger of the Entitled
Wherever you look these days, there are people demonstrating for their "rights." These "rights" are the right to take money from other people so that the demonstrators can have free this and free that. If education and health care are to be free, who pays? The demonstrators could care less.
Look at Greece. There are daily and massive demonstrations demanding that their failed welfare state continue to support the "entitled." It is always someone else that should pay for all of the things that the "entitled" want. Everything is a fundamental "right" without obligations on the part of the entitled to fund anything. There are no obligations to be imposed on the entitled. After all, they are the entitled.
What about Italy and Spain? Who pays? Their answer is the same as the OWS (Occupy Wall Street) crowd. They payers are "the rich." As if the rich had enough assets to keep all of these entitled folks going on indefinitely. The move to "get the rich" has historical precedents and none of them are very attractive for average people.
The Russian and Cuban experiments were long playing disasters for the average person living through those experiments. It's worth noting that even those "leveling" societies had their privileged. The Castro family lives in a style that America's rich would love to aspire to.
People with responsibilities, kids to take care of, old folks to support and the like don't have time to camp out in make-shift camps around the US and the world and make posters with four letter words describing their hatred for capitalism.
When winter comes, the OWS gang will retreat to the warmth of their comfortable homes or back to their "entitled" college community.
The truly disadvantaged don't have time for this stuff. But the truly "entitled" can camp out for years on end before retreating to a more comfortable lifestyle that they are "entitled" to.
The rest of us have to work for a living.
Milton Friedman noted long ago that the only societies that have ever produced for the average person were capitalist societies. Such societies also produced rich people as a by product of raising the standard of living of the average person. You can see the fruits of capitalism today in China raising the standard of living of hundreds of millions of Chinese. Capitalism is what is needed if the average person is going to have a fair shake.
But, the entitled are not interested in capitalism. They are mainly interested in getting their "rights" at the expense of others.
Look at Greece. There are daily and massive demonstrations demanding that their failed welfare state continue to support the "entitled." It is always someone else that should pay for all of the things that the "entitled" want. Everything is a fundamental "right" without obligations on the part of the entitled to fund anything. There are no obligations to be imposed on the entitled. After all, they are the entitled.
What about Italy and Spain? Who pays? Their answer is the same as the OWS (Occupy Wall Street) crowd. They payers are "the rich." As if the rich had enough assets to keep all of these entitled folks going on indefinitely. The move to "get the rich" has historical precedents and none of them are very attractive for average people.
The Russian and Cuban experiments were long playing disasters for the average person living through those experiments. It's worth noting that even those "leveling" societies had their privileged. The Castro family lives in a style that America's rich would love to aspire to.
People with responsibilities, kids to take care of, old folks to support and the like don't have time to camp out in make-shift camps around the US and the world and make posters with four letter words describing their hatred for capitalism.
When winter comes, the OWS gang will retreat to the warmth of their comfortable homes or back to their "entitled" college community.
The truly disadvantaged don't have time for this stuff. But the truly "entitled" can camp out for years on end before retreating to a more comfortable lifestyle that they are "entitled" to.
The rest of us have to work for a living.
Milton Friedman noted long ago that the only societies that have ever produced for the average person were capitalist societies. Such societies also produced rich people as a by product of raising the standard of living of the average person. You can see the fruits of capitalism today in China raising the standard of living of hundreds of millions of Chinese. Capitalism is what is needed if the average person is going to have a fair shake.
But, the entitled are not interested in capitalism. They are mainly interested in getting their "rights" at the expense of others.
Friday 28 October 2011
Ho Hum
The European "deal" is mostly a mirage. The only "real" thing that takes place in the deal is the 50% write down of Greek sovereign debt and even that write down only applies to the 60 percent of the debt that is in "private" hands, meaning mainly in the hands of commercial banks.
Buried in this deal is the possibility that CDS (credit default swap) contracts will not be triggered. That is probably a sop to the banks who are on the hook for these contracts, which, among other things, insure Greek sovereign debt. No payoff for those who took out insurance. Who would have thought?
Europe is following the American pattern of reneging on past contracts to foster the illusion that they are solving today's problems. (America continues this pattern with debt forgiveness orchestrated by the White House, invalidating legitimate private sector contracts with the hope of securing more votes for Obama in 2012).
As for the EFSF (European Financial Stability Fund), the plan for that entity is ridiculous. Somehow, someway, someone is going to give the EFSF $ 1 Trillion and then that will be used to "insure" the first twenty percent of loss on newly issued debt, presumably debt issued by Greece, Spain and Italy. Who is going to come up with the $ 1 Trillion? The short answer is no one. The long answer involves numerous future headlines about the Chinese, the Saudis, and other targets, who will play nice, but, in the end, will donate nothing at all to this silly idea.
This "deal" now gives breathing space for a further expansion in sovereign debt by the weakest members of the EU so that a year from now, problems will be much, much worse than they are now. Meanwhile, Greece can go back to running the most inefficient economy on the planet without fearing a default (in the next few weeks).
So, why did the markets go up?
Because the US economy continues to grow, albeit slowly, and business is learning how to do without employees and still make money. So stocks will continue their upward march -- at least for a while yet. A sick Europe and an ever growing sovereign debt debacle is factored into market prices already. That's why the market is cheap (but getting less cheap).
Buried in this deal is the possibility that CDS (credit default swap) contracts will not be triggered. That is probably a sop to the banks who are on the hook for these contracts, which, among other things, insure Greek sovereign debt. No payoff for those who took out insurance. Who would have thought?
Europe is following the American pattern of reneging on past contracts to foster the illusion that they are solving today's problems. (America continues this pattern with debt forgiveness orchestrated by the White House, invalidating legitimate private sector contracts with the hope of securing more votes for Obama in 2012).
As for the EFSF (European Financial Stability Fund), the plan for that entity is ridiculous. Somehow, someway, someone is going to give the EFSF $ 1 Trillion and then that will be used to "insure" the first twenty percent of loss on newly issued debt, presumably debt issued by Greece, Spain and Italy. Who is going to come up with the $ 1 Trillion? The short answer is no one. The long answer involves numerous future headlines about the Chinese, the Saudis, and other targets, who will play nice, but, in the end, will donate nothing at all to this silly idea.
This "deal" now gives breathing space for a further expansion in sovereign debt by the weakest members of the EU so that a year from now, problems will be much, much worse than they are now. Meanwhile, Greece can go back to running the most inefficient economy on the planet without fearing a default (in the next few weeks).
So, why did the markets go up?
Because the US economy continues to grow, albeit slowly, and business is learning how to do without employees and still make money. So stocks will continue their upward march -- at least for a while yet. A sick Europe and an ever growing sovereign debt debacle is factored into market prices already. That's why the market is cheap (but getting less cheap).
Monday 24 October 2011
We are All Blacks!
This has been a busy fall so far with a lot of travelling (I am on my way to Sweden), starting a new financial literacy seminar series (more in future blogs), and keeping up with my newly acquired interests: football and rugby! It has been a season full of exciting games, including the Rugby World Cup, which was held in New Zealand. I am extremely happy to announce that the New Zealand All Blacks are the World Cup champions! I am ecstatic and wish I were in New Zealand to celebrate their victory. What could be sweeter than winning the World Cup when your country is the host and your fans are in the stadium? I can only imagine the explosion of joy in Eden Park in Auckland at the end of the match with France (and the sense of relief as well since the score was so close, I could hardly breath...).
I will celebrate this great victory by writing about New Zealand and the role they have played in the field of financial literacy. Under the leadership of feisty Diana Crossan, the Retirement Commission has done a lot of innovative work on financial literacy. I mentioned in a previous post that they have one of the best national web sites dedicated to improving the financial literacy of the population. They were also one of the first countries to conduct a second national financial literacy survey in order to measure financial knowledge over time and therefore assess their progress in improving financial literacy. They have many programs targeted to specific groups of the population, recognizing that different people have different needs and different economic circumstances. One group of great interest is the Maori, and specific programs have been designed for them as well. While small and without a big budget, the Commission is a mighty group. And to better communicate the focus of their work, they have recently changed their name from Retirement Commission to the Commission for Financial Literacy and Retirement Income. The main lesson here is not to underestimate the power and ingenuity of what one institution—however small—can do for financial literacy. And while New Zealand is a small country, it has been a model to look to for financial literacy.
I have one recommendation for Diana Crossan: go to that talented captain of the All Blacks, Richie McCaw, show him your muscles (figuratively, I mean), and ask the team to support financial literacy. I am sure a lot of New Zealanders would pay attention. In my view, sport and financial literacy go very well together (wink)!
But for now, congratulations to the All Blacks and to New Zealand for being World Champions and hosting the World Cup. Bravi!
I will celebrate this great victory by writing about New Zealand and the role they have played in the field of financial literacy. Under the leadership of feisty Diana Crossan, the Retirement Commission has done a lot of innovative work on financial literacy. I mentioned in a previous post that they have one of the best national web sites dedicated to improving the financial literacy of the population. They were also one of the first countries to conduct a second national financial literacy survey in order to measure financial knowledge over time and therefore assess their progress in improving financial literacy. They have many programs targeted to specific groups of the population, recognizing that different people have different needs and different economic circumstances. One group of great interest is the Maori, and specific programs have been designed for them as well. While small and without a big budget, the Commission is a mighty group. And to better communicate the focus of their work, they have recently changed their name from Retirement Commission to the Commission for Financial Literacy and Retirement Income. The main lesson here is not to underestimate the power and ingenuity of what one institution—however small—can do for financial literacy. And while New Zealand is a small country, it has been a model to look to for financial literacy.
I have one recommendation for Diana Crossan: go to that talented captain of the All Blacks, Richie McCaw, show him your muscles (figuratively, I mean), and ask the team to support financial literacy. I am sure a lot of New Zealanders would pay attention. In my view, sport and financial literacy go very well together (wink)!
But for now, congratulations to the All Blacks and to New Zealand for being World Champions and hosting the World Cup. Bravi!
Sunday 23 October 2011
Side Issues and Reality
You might wonder why all the talk about greed and Wall Street. Isn't the real issue that the American economy is moribund and that unemployment is at staggeringly high levels? Why is the national debt important? Because it threatens the economic vitality of the future. These are the real issues -- the economy. They are made more real by the simple fact that opportunities for those who are less fortunate always improve with economic growth and always decline with economic stagnation.
Case in point -- today. As much as the Obama folks crow that they support the economically less fortunate, the Obama policies are devastating the poor, minorities and the less fortunate among us. Folks cannot find work. That is the real problem.
It is clear that President Obama will never focus on the economy's real problem -- stagnation and unemployment. He doesn't understand such problems because he has never experienced them and knows no one who has ever experienced these problems. His olympian view is that politics can solve all ills.
Well, politics has devastated our economy and our economic future. Government policy, regulation, and taxes have brought the American economy to its knees. Europe and the US have made promises to their citizenry that cannot be kept. So, why not change the subject? Find someone else to blame. We've seen this political tactic before many times in world history.
Case in point -- today. As much as the Obama folks crow that they support the economically less fortunate, the Obama policies are devastating the poor, minorities and the less fortunate among us. Folks cannot find work. That is the real problem.
It is clear that President Obama will never focus on the economy's real problem -- stagnation and unemployment. He doesn't understand such problems because he has never experienced them and knows no one who has ever experienced these problems. His olympian view is that politics can solve all ills.
Well, politics has devastated our economy and our economic future. Government policy, regulation, and taxes have brought the American economy to its knees. Europe and the US have made promises to their citizenry that cannot be kept. So, why not change the subject? Find someone else to blame. We've seen this political tactic before many times in world history.
Monday 17 October 2011
If Germany Caves
There is always the possibility that Germany will agree to underwrite the sovereign debt problems of the PIIGS countries (Portugal, Italy, Ireland, Greece, Spain). How would that look? Imagine the concept of creating Eurobonds that all of the Eurozone countries stand behind (which would basically put Germany on a hook that they are not currently on) or have the ECB buy $ 2 Trillion of Sovereign debt (which would be pretty much the same thing). What happens then?
If this happens, you have the situation that will, in time, present itself to the US. There will be a massive debt that really cannot ever be paid off other than by simply printing currency and using the currency to continue to fund the debt. That means massive worldwide inflation with the purpose of destroying the "value" of the outstanding sovereign debt. If the inflation does not spiral out of control, this could work. It would be simply another way of defaulting.
Imagine a 10 percent inflation rate worldwide. In a reasonably short time, the value of outstanding sovereign debt would fall dramatically (along with all currency-denominated assets). In effect, you simply destroy the value of the sovereign bonds as you use the printing press to keep them current. If you can keep the inflation rate high but under control, this will do the trick. The danger is, of course, that inflation can have a mind of its own and might not remain under control. This could mean hyperinflation which could destroy the major economies of the world. But, it is possible that inflation could be kept under control at a high level. Who knows?
One side effect is the destruction of all of the entitlement programs. Social security and pension funds which are denominated in dollars will lose much of their value (politicians will find a way to eliminate cost of living indices that are in place to preserve the value of these funds). Health care programs are budgeted in dollars. They will become worthless as well. Public employees will find their salaries fixed and they will find themselves impoverished.
What will prosper in this environment is anything whose value is not stated and fixed in currency terms -- commodities, free market businesses, anything where prices adjust upward with inflation.
In other words, world wide inflation triggered by selling Eurobonds or some other equivalent scheme, is just a default by another name (see Rogoff and Rinehart's recent book, "This Time is Different").
Just plain defaulting would be much simpler, but may not suit the politicians as well as massive inflation.
If this happens, you have the situation that will, in time, present itself to the US. There will be a massive debt that really cannot ever be paid off other than by simply printing currency and using the currency to continue to fund the debt. That means massive worldwide inflation with the purpose of destroying the "value" of the outstanding sovereign debt. If the inflation does not spiral out of control, this could work. It would be simply another way of defaulting.
Imagine a 10 percent inflation rate worldwide. In a reasonably short time, the value of outstanding sovereign debt would fall dramatically (along with all currency-denominated assets). In effect, you simply destroy the value of the sovereign bonds as you use the printing press to keep them current. If you can keep the inflation rate high but under control, this will do the trick. The danger is, of course, that inflation can have a mind of its own and might not remain under control. This could mean hyperinflation which could destroy the major economies of the world. But, it is possible that inflation could be kept under control at a high level. Who knows?
One side effect is the destruction of all of the entitlement programs. Social security and pension funds which are denominated in dollars will lose much of their value (politicians will find a way to eliminate cost of living indices that are in place to preserve the value of these funds). Health care programs are budgeted in dollars. They will become worthless as well. Public employees will find their salaries fixed and they will find themselves impoverished.
What will prosper in this environment is anything whose value is not stated and fixed in currency terms -- commodities, free market businesses, anything where prices adjust upward with inflation.
In other words, world wide inflation triggered by selling Eurobonds or some other equivalent scheme, is just a default by another name (see Rogoff and Rinehart's recent book, "This Time is Different").
Just plain defaulting would be much simpler, but may not suit the politicians as well as massive inflation.
Saturday 15 October 2011
The Blame Game
If you buy a residence in the US and live in it, you are in a remarkable situation, especially if you finance the home with a large mortgage. If the value of your home rises, you can sell it tax free (in more than 98 percent of actual home sale situations) and if the value of your home falls, you can, in most states, simply move away and owe nothing. Even better, the government subsidizes the interest expense that you pay on the mortgage by permitting tax deductions for mortgage interest paid.
If you decide to pay off your mortgage early (to take advantage of lower mortgage rates), the government insists that all "conformable" mortgage loans (comformable to GNMA standards, which accounts for more than 90 percent of all US mortgages) provide for no penalty whatsoever to homeowners choosing to refinance their homes (a luxury unheard of in the mortgage market for commercial real estate).
As if that isn't enough, Congress has created two "quasi" government agencies, Federal National Mortgage Association (Fannie Mae) and Federal Mortgage Corporation (Freddie Mac) who currently own or guarantee more than half of the mortgages in the US. The effect of this taxpayer largess to home buyers is to lower the interest rates paid on home mortgages by providing massive amounts of taxpayer dollars for the mortgage market.
Is there a wonder that there was a housing bubble? Does it really require predatory lenders to get this rocket-fueled housing bubble going?
If virtually all capital gains on common stock were tax free, we would see a massive bubble in US stocks, especially if the interest on stock loans were tax deductible and if the government provided taxpayer money to loan money to potential stock holders.
So, why the deal with housing?
The government (both political parties) made the decision to favor home ownership over renting for the average American.
Note that none of the legislation introduced by either President Obama or Republicans does anything to change the current government favoritism of residential housing. So, guess what? We are absolutely assured to repeat the housing bubble and bust in the future. Nothing in Dodd-Frank or the other sledgehammer attacks on capitalism initiated by President Obama and his Democratic Congress do anything to change government's policies that guarantee another housing disaster at some future date.
What about Canada? Canada does not have tax-free sales of residential homes. Canada does not permit tax deductions for interest expense. Canada does not have a Fannie Mae or Freddie Mac? Guess what? Canada had no housing bubble either. Are Canadians that different from Americans? Nope. They just have different government policies regarding housing.
So, why are Wall Streeters blamed for the housing bubble, but government policies get a free ride? Because politicans have no clue as to what happened from 2006 to the present. Today's Obama tirades are simply a knee-jerk, anti-capitalism reflex to a downturn that their very own political allies put in motion generations earlier.
Wall Streeters did not cause the housing bubble or its subsequent collapse. Wall Streeters did not put in place the Obama policies that have stifled any hopes of a vigorous economic recovery.
The real blame for the housing bubble and collapse belongs to current government policies regarding residential housing. Until those policies end, we are doomed to repeat the housing bubbles and busts.
If you decide to pay off your mortgage early (to take advantage of lower mortgage rates), the government insists that all "conformable" mortgage loans (comformable to GNMA standards, which accounts for more than 90 percent of all US mortgages) provide for no penalty whatsoever to homeowners choosing to refinance their homes (a luxury unheard of in the mortgage market for commercial real estate).
As if that isn't enough, Congress has created two "quasi" government agencies, Federal National Mortgage Association (Fannie Mae) and Federal Mortgage Corporation (Freddie Mac) who currently own or guarantee more than half of the mortgages in the US. The effect of this taxpayer largess to home buyers is to lower the interest rates paid on home mortgages by providing massive amounts of taxpayer dollars for the mortgage market.
Is there a wonder that there was a housing bubble? Does it really require predatory lenders to get this rocket-fueled housing bubble going?
If virtually all capital gains on common stock were tax free, we would see a massive bubble in US stocks, especially if the interest on stock loans were tax deductible and if the government provided taxpayer money to loan money to potential stock holders.
So, why the deal with housing?
The government (both political parties) made the decision to favor home ownership over renting for the average American.
Note that none of the legislation introduced by either President Obama or Republicans does anything to change the current government favoritism of residential housing. So, guess what? We are absolutely assured to repeat the housing bubble and bust in the future. Nothing in Dodd-Frank or the other sledgehammer attacks on capitalism initiated by President Obama and his Democratic Congress do anything to change government's policies that guarantee another housing disaster at some future date.
What about Canada? Canada does not have tax-free sales of residential homes. Canada does not permit tax deductions for interest expense. Canada does not have a Fannie Mae or Freddie Mac? Guess what? Canada had no housing bubble either. Are Canadians that different from Americans? Nope. They just have different government policies regarding housing.
So, why are Wall Streeters blamed for the housing bubble, but government policies get a free ride? Because politicans have no clue as to what happened from 2006 to the present. Today's Obama tirades are simply a knee-jerk, anti-capitalism reflex to a downturn that their very own political allies put in motion generations earlier.
Wall Streeters did not cause the housing bubble or its subsequent collapse. Wall Streeters did not put in place the Obama policies that have stifled any hopes of a vigorous economic recovery.
The real blame for the housing bubble and collapse belongs to current government policies regarding residential housing. Until those policies end, we are doomed to repeat the housing bubbles and busts.
Thursday 13 October 2011
Background Noise
Occupy Wall Street (OWS) and the President's "jobs plan" have become background noise to the faltering US economy. Far more interesting are the political shenanigans in Europe attempting mission impossible -- trying to keep most of Europe from defaulting. This steady drumbeat of irrelevance beats on as the Western economies slide into the mud.
Capitalism is now so hamstrung in the Western economies that we will soon be trumpeting 8 % unemployment as full employment. Europe is pretty much used to that already. European countries haven't seen four percent unemployment since Queen Victoria's days and they are not likely to see it again in the future. The US is a tag along.
All of our troubles in the Western world stem from one simple consideration: many people have an insatiable desire to be appear to be "good" people. Appearance is the key here. Really helping people is not the plan.
Look at Buffett. He is complaining that people like him don't pay enough taxes. That problem is easily solved. He can send in more money with his tax return. Then he can pay what he deems his fair share. You think he would do that? Are you kidding? Buffett is just trying to prove that he is a "good" guy. This is all about appearances. Buffett has no intention of paying more in taxes. If he did, he would do it. Nothing prevents Buffett from paying more in taxes right now, except that he doesn't want to pay them. But, he sure wants to BS about how he wants to pay more. Interesting!
Most good ideas that people want to foist on others, such as minimum wage laws, don't affect anyone but poor people. Minimum wage laws simply outlaw certain contractual arrangements because one is poor. That's it....nothing more. Heaven help you if your skill set doesn't merit some liberal's idea of a living wage. You are just flat out of lack. Let them eat cake, one supposes.
And so it goes. Laws passed to help workers invariably end up creating reasons for employers to not have workers. Anytime government favors a group, it makes them toxic to other people and especially toxic to people who make hiring decisions.
Good ideas designed to help people become anchors that prevent people from the having the opportunity to improve their lot. That's why inequality has grown so dramatically in the past several decades. Liberal help has created a situation where the poorest among us have no real upside anymore.
The rich are comfortable which is why virtually every wealthy suburb in America is now represented by some arrogant white liberal. Nancy Pelosi's district isn't full of poor people and Nancy Pelosi is herself among the 1/100 of 1 percent of the richest people in America. Let them eat cake. Thanks Nancy!
These folks bask in self adulation thinking that they are doing good, but what they are really doing is preserving their dominance over folks less fortunate. The welfare state is like a boot on the neck of poor people. They just don't have a chance in this kind of environment.
What the less fortunate among us need is for the government to get out of the way and give them a chance. Asia is giving their citizens a shot. That's why Asia will supplant the West as the dominant economic power within another two generations.
Capitalism is now so hamstrung in the Western economies that we will soon be trumpeting 8 % unemployment as full employment. Europe is pretty much used to that already. European countries haven't seen four percent unemployment since Queen Victoria's days and they are not likely to see it again in the future. The US is a tag along.
All of our troubles in the Western world stem from one simple consideration: many people have an insatiable desire to be appear to be "good" people. Appearance is the key here. Really helping people is not the plan.
Look at Buffett. He is complaining that people like him don't pay enough taxes. That problem is easily solved. He can send in more money with his tax return. Then he can pay what he deems his fair share. You think he would do that? Are you kidding? Buffett is just trying to prove that he is a "good" guy. This is all about appearances. Buffett has no intention of paying more in taxes. If he did, he would do it. Nothing prevents Buffett from paying more in taxes right now, except that he doesn't want to pay them. But, he sure wants to BS about how he wants to pay more. Interesting!
Most good ideas that people want to foist on others, such as minimum wage laws, don't affect anyone but poor people. Minimum wage laws simply outlaw certain contractual arrangements because one is poor. That's it....nothing more. Heaven help you if your skill set doesn't merit some liberal's idea of a living wage. You are just flat out of lack. Let them eat cake, one supposes.
And so it goes. Laws passed to help workers invariably end up creating reasons for employers to not have workers. Anytime government favors a group, it makes them toxic to other people and especially toxic to people who make hiring decisions.
Good ideas designed to help people become anchors that prevent people from the having the opportunity to improve their lot. That's why inequality has grown so dramatically in the past several decades. Liberal help has created a situation where the poorest among us have no real upside anymore.
The rich are comfortable which is why virtually every wealthy suburb in America is now represented by some arrogant white liberal. Nancy Pelosi's district isn't full of poor people and Nancy Pelosi is herself among the 1/100 of 1 percent of the richest people in America. Let them eat cake. Thanks Nancy!
These folks bask in self adulation thinking that they are doing good, but what they are really doing is preserving their dominance over folks less fortunate. The welfare state is like a boot on the neck of poor people. They just don't have a chance in this kind of environment.
What the less fortunate among us need is for the government to get out of the way and give them a chance. Asia is giving their citizens a shot. That's why Asia will supplant the West as the dominant economic power within another two generations.
Wednesday 5 October 2011
The Wall Street Protestors
You just knew that it couldn't be confined to Greece. The US has more than its share of folks that feel entitled and now they are congregating daily on Wall Street. Students, having spent four years boozing it up and studying sociology, now wonder where are the jobs?
Corporate greed, huh? Who owns corporations? Workers mainly...in their pension funds. So, if you can destroy corporations, you are basically destroying the savings and the economic future of the average worker -- union worker, state and local public employee worker, anyone with an IRA. There isn't some rich guy out there that owns Big Oil. The average worker owns Big Oil in his pension fund.
So, we come full circle. The attack on greed is really an attack on the retirement hopes and dreams of the average American. They have been so greedy as to plan for retirement or to work for an employer that provides a pension fund. By all means, lets destroy it in a war on "corporate greed."
We are no longer debating policies; we are now debating "sharing burdens." "Sharing" means I want what is yours. That is sharing. The idea is that we no longer intend to see the pie grow, so let's start cutting the pie up and sharing it. Forget about the idea that America can be a properous and growing country. That's so....Reagan-like.
This is what happens when the highest levels of government no longer have any policy prescriptions other than demonizing rich people. It catches on. Pretty soon rich people are really the middle class and the working classes. They are all greedy when compared to a bunch of students used to cutting classes (which they are doing now), and wondering why the world isn't beating a path to their door.
There isn't much of a labor market for empty political rhetoric. These protestors are going to be out there for a long time. They represent the new normal in the Obama economy.
Corporate greed, huh? Who owns corporations? Workers mainly...in their pension funds. So, if you can destroy corporations, you are basically destroying the savings and the economic future of the average worker -- union worker, state and local public employee worker, anyone with an IRA. There isn't some rich guy out there that owns Big Oil. The average worker owns Big Oil in his pension fund.
So, we come full circle. The attack on greed is really an attack on the retirement hopes and dreams of the average American. They have been so greedy as to plan for retirement or to work for an employer that provides a pension fund. By all means, lets destroy it in a war on "corporate greed."
We are no longer debating policies; we are now debating "sharing burdens." "Sharing" means I want what is yours. That is sharing. The idea is that we no longer intend to see the pie grow, so let's start cutting the pie up and sharing it. Forget about the idea that America can be a properous and growing country. That's so....Reagan-like.
This is what happens when the highest levels of government no longer have any policy prescriptions other than demonizing rich people. It catches on. Pretty soon rich people are really the middle class and the working classes. They are all greedy when compared to a bunch of students used to cutting classes (which they are doing now), and wondering why the world isn't beating a path to their door.
There isn't much of a labor market for empty political rhetoric. These protestors are going to be out there for a long time. They represent the new normal in the Obama economy.
Tuesday 4 October 2011
Financial literacy, the Maori, and … rugby
I am just back from Australia and New Zealand and will write first about my trip to New Zealand. I was invited to attend a meeting at the University of Otago with representatives of the Maori population, who have become interested in financial literacy. If you do not know the Maori, they are the indigenous people of New Zealand and represent about 15% of the population today. Their name is derived from “Ma-Uri,” which means “children of Heaven.” Maori comprise many “iwi” (tribes), “hapu” (subtribes), and “whānau” (extended family units). Having originated in Polynesia, they brought with them the rich culture of the region, where song, dance, art, and oratorical skills were significant, especially as there was no written language at that time. On my visit to New Zealand a couple of years ago, I went to Rotorua, a town settled by the Maori on the North Island. This time, I was in Dunedin, on the South Island of New Zealand, home of the Ngāi Tahu. See below a picture of the formal greeting among the Maori.
In one of the papers that is part of an international comparison of financial literacy across countries, which I have edited for a special volume of the Journal of Pension Economics and Finance, a research group in New Zealand headed by Pension Commissioner Diana Crossan documented differences in financial literacy among the new Zealanders of European descent and the Maori population; the Maori tend to know less. However, this is not the case for the Ngāi Tahu, and one explanation offered for this finding is the fact that Ngāi Tahu have promoted a series of programs aimed to increase financial literacy and saving. A description of Whai Rawa, their matched saving initiative, is provided on the web page noted at the end of this post. The meeting at the University of Otago was about trying to measure the effectiveness of the new initiatives and changes in the well-being of this population over time.
It felt special to sit among this group. The meeting opened with the traditional Maori greetings, and much of the discussion and questions were led by one of the Ngāi Tahu representatives. He was just as one would expect a chief to be: charismatic, wise, and pragmatic. His questions to me were remarkably similar to the ones I often hear when I travel around the world: What is the business case for financial education? What works? and How do we know that it works? But there were major differences, too. The Ngāi Tahu’s planning horizon is very long. Their vision is “For us and our children after us” (Mō tātou,ā, mō kā uri ā muri ake nei). They feel strongly about their community and about sustainability of resources over time. I came away with not only a deeply felt respect for such foresight but also admiration for this capacity to lead and look ahead.
You may know about the Maori from the “haka,” or war dance, that the New Zealand rugby team performs before each game (if you have not seen it, you have got to watch the video posted below). I like the haka for many reasons. First, it shows how much the Maori traditions have been embraced by the population in general. Maori or not, every player in the rugby team plays the haka very seriously. Second, one wants to build up energy at the beginning of an important event. Third, it scares the hell out of the opposing team. And this brings me to my next topic: rugby! New Zealand is currently hosting the Rugby World Cup. Their national team is the All Blacks, and I spent a good part of my time in New Zealand watching rugby. The All Blacks are amazing players and I was glued to the TV for hours. On Sunday, I went to the stadium in Dunedin to watch Italy against Ireland. We (Italy) did not win, but we put up a good fight against the Irish; it was a good game. On the first leg of my trip back to the U.S. on Air New Zealand from Dunedin to Auckland, the flight safety video was done by the captain and the coach of the All Blacks and everything on the plane was about the All Blacks, including pictures of the players on the coffee cups. Believe me, they are irresistible! One advertisement said: “we are crazy about rugby.” Well, for a week I was too.
Kia ora.
http://www.facebook.com/pages/Financial-Literacy-Center/119369231450239
http://www.ngaitahu.iwi.nz/News/2011/Whai-Rawa-Five-Years-of-Saving-Success.php
http://www.youtube.com/watch?v=6f3fvUvOiLQ&feature=related
In one of the papers that is part of an international comparison of financial literacy across countries, which I have edited for a special volume of the Journal of Pension Economics and Finance, a research group in New Zealand headed by Pension Commissioner Diana Crossan documented differences in financial literacy among the new Zealanders of European descent and the Maori population; the Maori tend to know less. However, this is not the case for the Ngāi Tahu, and one explanation offered for this finding is the fact that Ngāi Tahu have promoted a series of programs aimed to increase financial literacy and saving. A description of Whai Rawa, their matched saving initiative, is provided on the web page noted at the end of this post. The meeting at the University of Otago was about trying to measure the effectiveness of the new initiatives and changes in the well-being of this population over time.
It felt special to sit among this group. The meeting opened with the traditional Maori greetings, and much of the discussion and questions were led by one of the Ngāi Tahu representatives. He was just as one would expect a chief to be: charismatic, wise, and pragmatic. His questions to me were remarkably similar to the ones I often hear when I travel around the world: What is the business case for financial education? What works? and How do we know that it works? But there were major differences, too. The Ngāi Tahu’s planning horizon is very long. Their vision is “For us and our children after us” (Mō tātou,ā, mō kā uri ā muri ake nei). They feel strongly about their community and about sustainability of resources over time. I came away with not only a deeply felt respect for such foresight but also admiration for this capacity to lead and look ahead.
You may know about the Maori from the “haka,” or war dance, that the New Zealand rugby team performs before each game (if you have not seen it, you have got to watch the video posted below). I like the haka for many reasons. First, it shows how much the Maori traditions have been embraced by the population in general. Maori or not, every player in the rugby team plays the haka very seriously. Second, one wants to build up energy at the beginning of an important event. Third, it scares the hell out of the opposing team. And this brings me to my next topic: rugby! New Zealand is currently hosting the Rugby World Cup. Their national team is the All Blacks, and I spent a good part of my time in New Zealand watching rugby. The All Blacks are amazing players and I was glued to the TV for hours. On Sunday, I went to the stadium in Dunedin to watch Italy against Ireland. We (Italy) did not win, but we put up a good fight against the Irish; it was a good game. On the first leg of my trip back to the U.S. on Air New Zealand from Dunedin to Auckland, the flight safety video was done by the captain and the coach of the All Blacks and everything on the plane was about the All Blacks, including pictures of the players on the coffee cups. Believe me, they are irresistible! One advertisement said: “we are crazy about rugby.” Well, for a week I was too.
Kia ora.
http://www.facebook.com/pages/Financial-Literacy-Center/119369231450239
http://www.ngaitahu.iwi.nz/News/2011/Whai-Rawa-Five-Years-of-Saving-Success.php
http://www.youtube.com/watch?v=6f3fvUvOiLQ&feature=related
Sunday 2 October 2011
Growing Slowly
The US economy is not going to get much worse. It will improve. But, it won't be like the economy in past years. Why?
Unemployment is here to stay and especially for those in the bottom half of the skill pool. The future will have a permanent unemployed part of the American population. The unemployed will survive by various "safety nets" funded by government. It is hard to see how they will ever be legally employable again in any great numbers.
The absence of work opportunities for the unemployed suggests that their children will be disadvantaged as well, since useful employment will not be a day-to-day feature of these households. The US will have a perpetual underclass, basically created by government fiat.
For the upper middle income and the rich, the "new economy" will seem much as before. Using "outsourcing" and technology, the wealthiest part of America will find a way to get by without the unskilled labor force that once had a home in this economy.
The rags to riches stories will be things of the past. Just as in modern day Europe, economic and social classes will be frozen, economic growth will move along at a snail's pace, and social and economic mobility will come to an end.
This unfortunate future is the result of pricing the low income part of the labor force out of the market. Business just cannot afford them anymore thanks to the blithering array of taxes, mandates, litigation fears. All of these things that government has decided to do to "help" workers, simply makes them toxic to employers. We've gone past the tipping point.
These obstacles that shackle poor folks are not that formidable for high income, highly skilled folks. Their incomes are high enough and their skill sets are high enough that they can still be employed -- at least for now.
One way to see what has happened is to imagine that the minimum wage has been raised to $ 50 per hour. Who then will get a job? Those with the skills that are worth more than $ 50 per hour to the employer. Everybody else is flat out of luck.
This doesn't mean that the economy can't grow. It can and will. Europe has grown and gotten used to the idea of double digit unemployment and a permanent underclass with no social and economic mobility. (Europe arrived at this situation by the simple expedient of passing laws that forbid companies to fire anyone). It has taken the US a bit longer to get to the "creeping stagnation" economy, but we're there now.
As the West slowly trudges along, Asia, Eastern Europe, Africa, Latin America and perhaps even the Arab world have a real chance to take over center stage in the world economy. The West has abdicated. It remains to be seen who will supplant the West -- most likely China and the countries on China's periphery.
All of this is why stocks are probably a pretty good bet. Some companies, indeed many oompanies, will do fine in the world that is coming. There will be growing demand from China, Brazil, India, and the rest of the world for products that the West has long taken for granted. This doesn't mean that stocks won't stumble a bit when the inevitable European sovereign defaults begin. But, the defaults are inevitable and everybody but Tim Geithner knows it. The real stock market bottom has probably already passed, but if hasn't, then wait until Greece, Spain, and Italy default and the German and French banks are nationalized and then buy stocks with a reckless abandon.
Unemployment is here to stay and especially for those in the bottom half of the skill pool. The future will have a permanent unemployed part of the American population. The unemployed will survive by various "safety nets" funded by government. It is hard to see how they will ever be legally employable again in any great numbers.
The absence of work opportunities for the unemployed suggests that their children will be disadvantaged as well, since useful employment will not be a day-to-day feature of these households. The US will have a perpetual underclass, basically created by government fiat.
For the upper middle income and the rich, the "new economy" will seem much as before. Using "outsourcing" and technology, the wealthiest part of America will find a way to get by without the unskilled labor force that once had a home in this economy.
The rags to riches stories will be things of the past. Just as in modern day Europe, economic and social classes will be frozen, economic growth will move along at a snail's pace, and social and economic mobility will come to an end.
This unfortunate future is the result of pricing the low income part of the labor force out of the market. Business just cannot afford them anymore thanks to the blithering array of taxes, mandates, litigation fears. All of these things that government has decided to do to "help" workers, simply makes them toxic to employers. We've gone past the tipping point.
These obstacles that shackle poor folks are not that formidable for high income, highly skilled folks. Their incomes are high enough and their skill sets are high enough that they can still be employed -- at least for now.
One way to see what has happened is to imagine that the minimum wage has been raised to $ 50 per hour. Who then will get a job? Those with the skills that are worth more than $ 50 per hour to the employer. Everybody else is flat out of luck.
This doesn't mean that the economy can't grow. It can and will. Europe has grown and gotten used to the idea of double digit unemployment and a permanent underclass with no social and economic mobility. (Europe arrived at this situation by the simple expedient of passing laws that forbid companies to fire anyone). It has taken the US a bit longer to get to the "creeping stagnation" economy, but we're there now.
As the West slowly trudges along, Asia, Eastern Europe, Africa, Latin America and perhaps even the Arab world have a real chance to take over center stage in the world economy. The West has abdicated. It remains to be seen who will supplant the West -- most likely China and the countries on China's periphery.
All of this is why stocks are probably a pretty good bet. Some companies, indeed many oompanies, will do fine in the world that is coming. There will be growing demand from China, Brazil, India, and the rest of the world for products that the West has long taken for granted. This doesn't mean that stocks won't stumble a bit when the inevitable European sovereign defaults begin. But, the defaults are inevitable and everybody but Tim Geithner knows it. The real stock market bottom has probably already passed, but if hasn't, then wait until Greece, Spain, and Italy default and the German and French banks are nationalized and then buy stocks with a reckless abandon.
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