Last week I predicted a bit more rise out of the markets. Nope, wrong again. People are very nervous: is this a double dip? Will unemployment ever recover? Is this the end of capitalism? Will we all have to learn Chinese soon?
There's been a decrease in temporary workers. Temps are brought in early in a recovery, then a bit after that people get hired. A drop off in temps presages a drop off in hiring. New job creation in the private sector is stuck at or below about 25,000 per month, a fraction of what we need to just keep up with population growth. Unemployment continues to slowly rise.
Where are all the jobs? Interestingly, there's anecdotal evidence that it's getting a bit hard to hire people. At the top, unemployment among college graduates is only about 4%, and people are disinterested in changing jobs: they can't sell their house and move, and if you change jobs you're the new guy subject to layoffs at the first hint of trouble. At the bottom, unskilled and semi-skilled workers are taking in $450 per week in unemployment benefits. This is about $11 per hour, but since unemployment benefits aren't taxed, it's about like perhaps $13 / hour in pay. And you get to fish, walk your dog, play video games. Add in the free time and perhaps it takes $20 / hour to lure you out of unemployment retirement. The government is now paying people to stay unemployed, competing with private business. I can see that we can't go cold turkey on 10m unemployed peoples' benefits, but perhaps after six months benefits should start decreasing at 10% per month or so. Just a little nudge from your Uncle Sam to get out and get a job.
The housing market is trending down again now that the tax credit has expired. Foreclosures and delinquencies continue to rise. House prices are starting to drop again. House construction, our single biggest employer, is nearly at a dead stop. If you want to make a case for deflation, here it is: the value of the single biggest asset of most of our citizens is in free fall.
Does China has a property bubble? The Chinese media recently ran a story, denied by their power companies, that 64.5 million urban electricity meters registered zero consumption over a recent six-month period. It seems China has enough empty apartments to house 200 million people.
Obama's approval / disapproval ratings are stuck at about 46% for, 47% against, and have been for the last couple months. Favorable ratings for congress, democrats and republicans are all at all-time lows. 2/3 of Americans think the economy is getting worse and Obama can't handle it.
In the 70's taxes were high - the top income tax bracket in the US was 90%. Growth almost didn't exist except for the government. Inflation was high, unemployment was high. Into this morass Margaret Thatcher stepped up as prime minister of the UK and turned her country sharply to the right, with cuts in taxes and government spending. A short time later Reagan got elected in the US and turned us sharply to the right, also cutting taxes (spending, not so good). Today government spending is high, deficits are high, many think governments have grown all out of proportion, and unemployment seems stuck at near-depression levels. Into this morass steps David Cameron, the new prime minister of the UK, who is turning his country sharply to the right and cutting deeply into his country's bloated government. Will the US follow? It's harder to see this time. Obama has at least two years to go in office. The republican party is unpopular even with republicans. The tea party movement is disorganized and splitting the right. No conservative candidates have caught the publics eye. No republican has given the slightest hint of a new idea. Democrats, meanwhile, seems to have no new ideas at all outside of saving every union job in the US.
There's a big debate going on, how do we get out of this? Some say huge government spending, some say cut the deficit and take your medicine now, it will only be worse later. I think it instructive to consider the Great Depression. I claim the Great Depression was caused not by a single thing, but by a confluence of problems, each of which was probably worth a recession. 1) A financial bubble in the markets, followed by a banking crisis. 2) Mechanization of farms meant that millions of unskilled farm workers were being laid off, and those jobs never came back. 3) Dust bowl conditions made (2) go even faster. 4) Runaway inflation in Germany brought the most powerful economic engine in Europe to its knees. 5) Industrialization was just getting started, and the poverty caused by the other conditions meant there were no consumers for whom to make things. 6) Of course, given the rest of all this, construction of houses and buildings came to a halt, cutting off the single greatest employer of unskilled and semi-skilled workers. Economists often seem to think the depression was caused by a mistake made by the Fed, raising interest rates to cut off inflation; a mistake made by Congress, the Smoot-Hawley tariff act which cut foreign trade in half; and a failure of the government to provide sufficient stimulus. I think economists are like the carpenter who only has a hammer: everything looks like a nail.
What got us out of the Great Depression? Again, I think it was a confluence of things. FDR went into debt by a full year's GDP to fight WWII, to build dams and roads, to dig holes and fill them in. The role of government as consumer of last resort must not be neglected. However, there was a war available to fight, a war which employed several million Americans in the armed forced, and another several million workers in private industry making guns, tanks, airplanes, ships. This was the time when America was industrializing, so all this money dumped into building factories turned out to be a great investment - cars, ships, planes turned out to be big sellers in the new economy. The people who built them wanted to buy houses, ovens, radios. The dams and roads turned out to be really useful too. And, after the war, we were the only country not bombed to rubble, so for 10 years everyone else had to buy our stuff - we got to play the game export stuff, import debt and jobs. The very same game that everyone in the world wants to run against us now.
What will get us out of the Great Recession? A war? Nah, more factories making more planes, tanks, ships will not prove useful after the war. There is already an oversupply in the world of civilian aircraft, ships and cars. More roads, dams, holes? Nope. Our roads desperately need repair, but except in large urban areas we have more or less enough roads. We've already built pretty much every sensible dam in N.America. And if you wanted to dig holes, you would find yourself hiring illegals almost exclusively: great for Mexico, not so much for us. No citizen wants to dig holes for anything near minimum wage. We're in a post-industrial era. China has become the world's #1 manufacturer this year, and at $1.25 per hour we cannot compete in labor intensive manufacturing.
If we wanted to deficit spend a year's GDP, $14T, to build our new post-industrial economy, what would we build? I honestly don't know, but I expect it would turn out to be some combination of bio-chemical companies, green power companies, marketing and management companies, computer and software companies. Note that none of these companies use much in the way of unskilled labor. As long as huge container ships carry things cheaply across oceans, we will have very little use in this country for unskilled labor. Obama says he wants to get college degrees for 70% of our youth, but in what majors? We need engineers, scientists, MBAs - the degrees only available to the brightest 15% of our population. What of the other 85%? How many people does it really take to pick strawberries, mow lawns, clean houses? How many professors of Interdisciplinary Studies do we need? Perhaps I'm wrong - in the 1930s people couldn't imagine 30 million industrial jobs - but I think we have a population problem, not an economic problem. I think continued government stimulus is a doomed attempt to recreate the job market of the 90s. It's just burning borrowed shovel-fulls of our children's $20 bills to heat our houses.
Skin maintenance part 3: A couple months ago I mentioned Efudex generic to identify and kill pre-cancerous growths on your skin. A few weeks ago I mentioned Murad to eliminate age spots and discolorations. Now I'm working on a few spots that are left. Although I have skin that tans easily and almost never burns, I must admit I have abused it with thousands of unprotected hours in the sun, and now I'm playing catch up. I had a solar keratosis on my hand that didn't respond to Efudex (my spot was about a third as bad as the spot pictured.) So I suppose that meant it wasn't pre-cancerous. Nah, I wanted it gone. The spot was about 1/2" x 1/4", a bit whitish, dry, a bit scaly. For a couple of nights I soaked a small cotton square in apple cider vinegar, and held it over the spot with saran wrap and an ace bandage. During the day I took it off and let it air out. The spot is gone. I'm now doing the same thing on a couple warts on one of my kid's hands and it's working well. It works basically by cooking off the outer layer of skin, perhaps a 25th of an inch deep per night. The replacement skin that grows back in a couple days is all shiny and new. You can go to a dermatologist and for $300 they will use a laser to do the exact same thing. But while they're doing it, they'll talk to you in Latin. If you miss the Latin, while you're taping it up repeat "Carpe Diem" or "In nomine Padre, Filius, et Spiritus Sancti."