Professor Mark J. Perry's Blog for Economics and Finance
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UI benefits are a few hundred dollars per week.5 unemployed job-seekers per available job. Skilled unemployed are valuable assets of this country, and the long-term highest use of those assets is to employ their skills, not putting a trained craftsman or accountant to work cutting sod because they can't find appropriate work within six months during the largest recession in 3 generations and 17-20+% true un-/under-employment.Do that, and you are destroying value.Democratic capitalism is supposed to try to maximize economic value over the long-run for the majority of citizens. Short-term spending can increase that long-term economic value. If that's not true, what is capitalism?
steve-i think you are leaving something important out of your thinking.if the country has a demand for X carpenters (trained craftsmen per your example) and there are X+1 carpenters looking for work, the incremental benefit of putting that last one to work is zero. his services are not in demand. if the demand for sod cutters is Y, and the number of sod cutters is Y-1, then he would be satisfying incremental demand there and contributing more even if it were not a full utilization of his skills.
Steve,Why couldn't a skilled craftsman and accountant start a sod business together if that is what the economy can supply? After two years, a strategic decision has to be made because that is a lot different than a six month search for appropriate work. "Appropriate" changes over time.
Makes me wonder if Steve missed this John Stossel special: John Stossel - Top 10 Politicians' Promises Gone Wrong?
Steve: "5 unemployed job-seekers per available job."There are many more available jobs than there are workers. Always. Here's an example of an available job which is not currently advertised:If an unemployed worker offers to wash the 18 windows of my home for $30, he's got a job for a few hours. It doesn't pay much - probably $8 an hour after expenses. But he can probably do three homes like mine a day.If workers have to find work in order to eat, they'll find ways to make money. If taxpayers continue to bail them out, many will keep waiting for a high-paying job.
Mark,The link to Mitchells website is no good
Richard: Thanks, it's fixed now.
I would like to see the same skepticism directed to the floods of subsidies we pour into rural America--including $1 billion since 1995 to subsidize tobacco farmers. Don't rural subsidies delay the time when rural Americans can stand on their own two feet? And can you name the rural state that is not heavily subsidized by the federal government? Wrong--there is not even one. Without subsidies, rural America would blow away. Dynamic capitalistic destructionism would wipe out most burgs within two years...bring it on, I say. I like to see free enterprise work.
benji-i think you are overstating your case here. sure, there are rural subsidies, but they are TINY compared to some of the urban ones. washington DC gets back $5.55 per dollar of taxes paid.your claim that there are no rural states not paying more than they get is also totally unsupportable:oregon, wisconsin, washington, minnestoa, illinois, florida, colorado, new hampshire, and nevada all pay more in federal taxes than they get back.indiana, ohio and georgia are all pretty near even. those are some pretty rural and agricultural states. http://www.taxfoundation.org/research/show/266.htmli think you will do better making your case without all the hyperbole.
U.S. agriculture subsidies are chicken feed :):Most U.S. Farm Subsidies Go to 10% of Recipients, Group SaysMay 04, 2010"U.S. farm subsidies topped $15.4 billion last year, according to the Environmental Working Group, which says the payments are too costly and more of the funds should be used to promote green agricultural practices."I guess, corn isn't green enough.
morganovich,I've followed the link you provided, but I cannot determine the source for the figures provided.Do you know whether the figures provided by the Tax Foundation include such federal spending as military bases, border patrols, air traffic control, and highway funds? Some states - due to geographic size, strategic location, and degree of interstate commerce - incur expenses which actually benefit all states. So I'm not sure that comparing federal tax revenues and expenditures across states tells us very much. Also, I think that many of those retirees collecting social security checks in Scottsdale, AZ, and Hilton Head, SC, previously paid a lot of taxes while living in New York, Illinois, and Pennsylvania. Although we may be able to say that a certain state receives more federal benefits than taxes paid, I don't think we can say with certainty that the same is true for the people living in those states.
Benji the Broken Record says, "I like to see free enterprise work."Meanwhile, today at Scott Grannis' site, Benji is looking for his own bailout: "As a property owner, every night I pray to the Money Dieties that we have a nice round of inflation.."Hypocrisy, thy name is Benji.
Guys-It is not just USDA that is a lardbutt for rural businesses to stick it into.The highways, the power systems, the $8 billion a year in rural telephone subsidies, the water systems, the mail delivery, broadband, airports--everything in rural America is subsidized by urban America. Kentucky gets net--net--$4000 in federal money for every resident (Tax Foundation). That's where Mitch McConnell and Rand Paul hail, btw. Oh sure, they will cut the budget. Sure. Creative destructionism has been thwarted by Congress--otherwise rural America would empty out, as it should.Rural residents contribute much less to GDP growth than urban residents, the world over. Paul--what is wrong with wanting inflation?Check out Bloomberg today on Japan--despite 20 years of deflation, Japanese bond buyers are essentially betting on another eight years (minimum) of deflation.In other words, Japan looks like it is going to reach 30 years of deflation--wrecking asset values, property values, equity values of all kinds. All down by 75 percent, and still declining.That is what the Nipponistas and Sarah Palin will bring to us too. Paul, what will your portfolio be worth in 30 years, after 30 years of deflation? And what lender will give you or anyone else a property loan?Making your property, even after 30years of deflation, worth about what? Goose eggs, baby, goose eggs. Vote in some Nipponistas, vote in Palin, and kiss your portfolio goodbye. You wil be worth nothing. Bush got us rolling downwhill, and maybe Palin can complete the process.
jet-the data come from this report:http://www.hartfordinfo.org/issues/wsd/taxes/federaltaxburdens.pdfwhich breaks it out in a great deal of detail and provides sourcing info - mostly the OMB, IRS, and NBER.i wasn't really making a point about spending apart from demonstrating that benji's claim that all rural states are heavily subsidized is not true.
Benji,"Paul--what is wrong with wanting inflation?"For starters, it rips off savers, and bails out property investors looking for a grubby hand out. "Vote in some Nipponistas, vote in Palin, and kiss your portfolio goodbye. You wil be worth nothing. Bush got us rolling downwhill, and maybe Palin can complete the process."I LOVE THIS, coming from an Obama voter. You voted for Brown and Boxer, too, didn't you?
"That's where Mitch McConnell and Rand Paul hail, btw. Oh sure, they will cut the budget. Sure. "Well, they just defeated your boyfriend's $ 1.3 trillion dollar omnibus pork fest. That's a nice start. "Rural residents contribute much less to GDP growth than urban residents, the world over."And I would say it's a cinch the avg Obama voter contributes much less to GDP growth than people who didn't vote for a socialist to the highest office in the land.
Benjie, your case against deflation is way overstated, particularly your favorite example of Japan. The truth is that Japan has essentially the same price level today as in 1990, that's not deflation. In any case, they haven't done as well since the 80s but to blame that on a stable price level is just silly. They have a host of problems- like huge govt spending that has left them with govt debt of 200% of GDP, onerous regulations that make it impossible to fire people, a xenophobic culture that is resistant to immigration- mild deflation is at best a symptom of those endemic problems, rather than being the cause that monetary idiots would like to pin the blame on. They had huge growth in the postwar years but are now stuck at a lower GDP PPP per capita than Mississippi, the poorest US state. It can be relatively straightforward for formerly poor nations like Japan or China to catch up to OECD levels, not so much to reach the top like the US, largely because they don't really embrace free market policies. This is why China will also fail and long before they reach OECD levels. It is funny to read people like you and Krugman who think that simply repeating Japan's mistakes, huge govt spending, regulation and eventually easy money, but bigger this time will somehow make this time better.
sprewell-you raise excellent points. i'd like to add a couple more to the mix.japanese companies are funded far more by debt that equity. the japanese unwillingness/inability to let banks fail or write off assets created "zombie banks" that were unable to fund expansion as they had before the bubble burst. keeping them on life support prevented the economy from recovering.japan is also a demographic disaster. the population is among the world's oldest and birthrates are extremely low reaching 1.26 in 2005. combine that with a xenophobic culture that prevent immigration, and you have a population that will shrink over 35% in a generation. between the coming population contraction (after a decade of complete stagnant population) and the aged and aging population, the workforce has been in decline while the drain from medical care for the elderly has mushroomed. has and will continue to have a massive effect growth and prices. there is no even remotely plausible monetary policy that can offset this kind of decline.arguing that the Japanese deflation/stagnation is a result of monetary policy is ridiculous benji, as is a comparison of the US to japan.our banks have taken their medicine to a far greater extent that japan ever did and comprise a much smaller driver of growth.our demographics are infinitely more favorable, even with the boomers retiring.our debt is lower (for the moment) and our labor and capital markets are much freer. the us is nothing like japan. to expect it to behave as japan did is groundless and a sign that you have no understanding of either economy.
Perhaps in that person's head it might, but in reality it provides a jumpstart as long as businesses are willing.Jet Beagle said on 12/20/10 at 12:44PMSo you want to create the happy days of the 1930's all over again, hobos and all.That in itself creates its own unintended consequences. Knowing that people will starve without work, businesses can further lord upon people. Also, consider the increase in crime that you have just caused in the name of survival. The only thing your desperation-driven plan would create is a larger problem.That's what you get when you apply a 1:5 applicant:position strategy in the reality of a 5:1 applicant:position economy.
sethstorm,The 1930's was an economic disaster precisely because of government intervention. In answer to your question, no, I do not want to create the 1930s all over again. I want exactly the opposite: as little government intervention as we can possibly achieve.
"Japan is the only country where accurate deflation predictions are made by linking bonds to price changes. In the bond market investors still do not agree with hope of end of deflation in 2011 and continues to see a fall of prices for the next eight years.The Bank of Japan has predicted an end to deflation in 2011.Prime Minister Naoto Kan is deeply concerned about the fact that China, biggest Asian rival has now crossed Japan and has become second largest economy of the world. BOJ Governor Masaaki Shirakawa has been asked by the PM to abolish deflation which is exterminating growth.During the twenty years through 2009, Japan’s gross domestic product raised by 15 percent, whereas US grew by 158 percent and China’s increased by 20 folds."Boy, you thik we have bad leadership? Our economy up 150 percent in 20 years, while Japan eseentially died. But they had a strong yen, and no inflation, and deflation since 1980, and stock and equity markets down by 75 percent--and still going down. And at least eight more years of delfation ahead, say bond traders. Yes, Japan has some demographic issues--issues some say caused by tight money. Who wants to have a baby in a declining economy? The Nipponistas in America make the Taliban look like good guys. You want to wreck America, try tight money ala Japan.
benji-those are total non sequitors. you have demonstrated no relationship between the variables.japan is a failure of demographics and corporate structure.their problems are not nor were ever monetary in nature.japan's birth rate was dropping, its population was leveling off and aging dramatically long before their economy turned down.this implies that the causality goes the other way.from 1985 to 2007, japan's population grew 5.6%. it's been flat since 2000 and has now actually gone into decline. the median age is now 45, up 3 years since 2002.contrast this to the US whose population grew 29% over the same period and china that grew nearly 30%. show me any country EVER that experienced negative population growth and extreme aging and did not suffer as japan has.you are mistaking a symptom for a cause.
your yen argument also fails to hold water.there is no obvious relationship between the value of the yen and japanese GDP growth.the yen is right where it was in 1995.from there it weakened massively (over 80%) from 1995 to 1998, a period in which japan's GDP growth slowed.it then strengthened by over 30% from 1998-2000, a period in which japan's GDP growth recovered. it then strengthened for 5 years while growth was stable. you will not find any actual data showing that a strong yen correlates to weaker Japanese growth. if anything, it's the opposite as they are an export based economy so that a strong economy tends to create a positive trade balance and a strong yen.
Morgan-Japan is way underperforming. They have educated and dedicated work force. Honest government, a healthy literate population. And yet they have been wallowing in last place for 20 years. Their economy has grown by 15 percent vs. 150 percent for the US, and we are hardly a paradise, either for management or investors. I think Japanese culture is fine, the government is okay. What could account for such rotten growth--below that of statist France, even on a per capiat GDP basis? Their central bank is murdering them, pettifogging about inflation, sermonettes about the need for price stability, as they tighten the monetary noose around the Japanese economic neck.The Nipponistas in America, such as John Taylor and Sarah Palin, would do the same thing here.
The 1930's was an economic disaster precisely because of government interventionHad businesses decided to play ball with FDR, there wouldn't be a problem. But they didn't and decided to drag people through anyway.I want exactly the opposite: as little government intervention as we can possibly achieve.While business takes that as an opportunity to become royalty. No thank you, but divine right for businesses needs to die.
benji-yet again, you state a bunch of opinion with ZERO evidence.it is demographics that are killing them along with the rot of the kieretsu system from within as the banks that drove all the corporate investment wallow under bad loans they will never write off.japan has not had tight money. their real rates have been under 1%. there is no negative relationship between yen strength and growth. as i showed you, if anything, growth causes a strong yen.japan has had loose money and stimulus package after stimulus package for decades. they are the most stimulated economy in history and have debt of 200% of GDP to show for it.you have yet to show even a single piece of evidence that the problem is monetary.repeating the same groundless nonsense over and over will not make it true nor convincing.
benji-also realize that japan has an economy driven by exports but has very few natural resources. tanking the yen jacks up their costs of food, fuel, and inputs. this makes their exports less competitive and jacks up the cost of living at the same time, which is a disastrous combo.japan has had interest rates under 1% (and often at 0) for a decade and literally a dozen stimulus packages.it is the loosest long term monetary policy in all of history.if you think that is too tight, then i have no idea what you would consider loose.if you find the japanese example to be relevant, then answer me this: if a decade of essentially zero interest rates and massive stimulus packages did not pull japan out of its spiral, way do you have any faith in those tools at all?japan now has the highest debt in the developed world, but never got any growth out of it.great plan.let's definitely copy that.
"Had businesses decided to play ball with FDR, there wouldn't be a problem. But they didn't and decided to drag people through anyway"...Well sethstorm you did miss the obvious, it wasn't FDR's money to be frittered away foolishly on 'nanny state programs', hence there was no desire to 'play' by the people who had earned the money in the first place...
alternately, if FDR had decided to play ball with business instead of erecting a horrible thicket of regulation, massive uncertainty about future laws, and aggressive government competition like the TVA, businesses might have had the confidence and ability to invest and get the economy moving again.citizens and property owners are supposed to be protected and served by the government. they are not its subjects.the role of government is to facilitate industry and commerce, not control it. FDR was a fascist. he was an admirer of and based his policies upon Mussolini.
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Dr. Mark J. Perry is a professor of economics and finance in the School of Management at the Flint campus of the University of Michigan.
Perry holds two graduate degrees in economics (M.A. and Ph.D.) from George Mason University near Washington, D.C. In addition, he holds an MBA degree in finance from the Curtis L. Carlson School of Management at the University of Minnesota. In addition to a faculty appointment at the University of Michigan-Flint, Perry is also a visiting scholar at The American Enterprise Institute in Washington, D.C.
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