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Mark's Market Blog

9-8-13: Give, so that others may receive.

By Mark Lawrence

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People are settling in to the idea that a strike on Syria is unlikely to include troops or do much to the world economy. Europe seems to be continuing to recover, and the US seems to be continuing to do ok. So markets seem to have resumed moving upwards. I expect them to keep meandering upwards for a couple more weeks; then the Fed will talk, which is always special, and we start moving towards October when the government will consider debt limits and other contentious issues.


S&P 500 March 15 2012 to September 6 2013

A couple months ago I said that it appeared you cannot have an aging population and inflation at the same time. Now that's gone mainstream: a recent paper by the IMF "Shock from Graying: Is the Demographic Shift Weakening Monetary Policy Effectiveness" – IMF economist Patrick Imam links aging populations in countries like the US, UK, Japan, Germany, and Canada to evidence that monetary policy has become less effective. Japan, the country with the most seriously aging population, is also right now the country leaning most heavily on monetary policy to stop deflation and create inflation. It's not going to work. A couple decades from now there will be college courses in the central bank policy failures of the early 2000s.

The jobs report came out and unemployment dropped again, now to 7.3%. Good news, right? Not exactly - almost all of that drop was due to a decrease in the labor participation rate. We're paying more and more people to sit home, and as the work force shrinks so does unemployment. And the number of people paying taxes to support the rest also shrinks. Who has quit working? 2% of high school dropouts. 7% of college graduates. There's only one group where the participation rate is increasing, and that's men over 55. The biggest participation losses are men age 16-24, the group that's supposed to be learning to work and pay taxes and support the rest of us. But they've learned that expensive college educations and high paying jobs just mean higher child support payments - your best bet is a part time job, a used Camaro, a seriously big flat screen and X-Box, and live with your mom.

Remember Clinton's welfare reform? "A hand up, not a hand out." Yah, that's pretty much gone now. In 35 states welfare pays better than a minimum wage job - including the earned income tax credit. In another 12 states leaving your welfare behind for a job that paid the same as welfare would see a decrease in actual income. In the 13 worst states, welfare pays more than $15 per hour - more than $30k / year. And in all cases, if you leave welfare you no longer have your life of leisure. In the top 43 states, a life on welfare puts you above the federal poverty level. What's included in the table below? Temporary Assistance for Needy Families, Supplemental Nutrition Assistance Program, Medicaid, Section 8 Housing Assistance, Utilities Assistance, Women, Infants and Children Program, and The Emergency Food Assistance Program. If that it? Nah, there are 126 separate federal anti-poverty programs: no one knows about all of them. Of course, what this all boils down to is a free living for unwed, uneducated mothers.

What Welfare pays
StateWelfareEquivalent
pre-tax
Hawaii 49,175 60,590
DC 43,099 50,820
Massachusetts 42,515 50,540
Connecticut 38,761 44,370
New Jersey 38,728 43,700
Rhode Island 38,632 43,450
New York 38,004 43,330
Vermont 37,705 42,350
New Hampshire 37,160 39,750
Maryland 35,672 38,160
California 35,287 37,160
Wyoming 33,119 34,300
Oregon 31,674 32,620
Minnesota 31,603 29,820
Nevada 31,409 29,350
Washington 30,816 29,220
North Dakota 30,681 28,840
StateWelfareEquivalent
pre-tax
New Mexico 30,435 28,830
Delaware 30,375 28,670
Pennsylvania 29,817 27,900
South Dakota 29,439 26,930
Kansas 29,396 26,610
Alaska 29,275 26,490
Montana 29,123 26,430
Michigan 28,872 26,400
Ohio 28,723 26,200
North Carolina 28,142 25,760
West Virginia 27,727 24,900
Indiana 26,891 23,310
Missouri 26,837 22,900
Oklahoma 26,784 22,800
Alabama 26,638 22,480
Louisiana 26,538 22,250
South Carolina 26,536 21,910
StateWelfareEquivalent
pre-tax
Wisconsin 21,483 15,320
Arizona 21,364 14,890
Virginia 20,884 14,870
Nebraska 20,798 14,750
Colorado 20,750 14,420
Iowa 20,101 14,200
Maine 19,871 14,060
Georgia 19,797 13,950
Utah 19,612 13,920
Illinois 19,442 13,580
Kentucky 18,763 13,350
Florida 18,121 12,600
Texas 18,037 12,550
Idaho 17,766 12,230
Arkansas 17,423 12,120
Tennessee 17,413 11,830
Mississippi 16,984 11,150

What do we buy with our welfare money? Last year, the Maryland NAACP released a report concluding that "the ready access to a lifetime of welfare and free social service programs is a major contributory factor to the crime problems we face today." Research by Dr. June O’Neill’s and Anne Hill for the U.S. Department of Health and Human Services showed that a 50% increase in the monthly value of combined AFDC and food stamp benefits led to a 117% increase in the crime rate among young black men. A 50% increase in the value of AFDC and foodstamp payments led to a 43% increase in the number of out-of-wedlock births. An increase in welfare benefits of $200 per month per family increased the rate of out-of-wedlock births among teenagers by 150%. Children raised in single-parent families are one-third more likely to exhibit anti-social behavior. Black children from single-parent households are twice as likely to commit crimes as black children from a family where the father is present. Nearly 70% of juveniles in state reform institutions come from fatherless homes, as do 43% of prison inmates. President Johnson's Great Society is producing a huge cohort of uneducated unemployed unwed government-dependent mothers who produce a new generation of criminals and unwed, uneducated mothers.

What about men? Is it fair that all women need to do is have a kid and they get to sit home? Under the Obama administration there has been a huge increase in the number of people getting long-term disability; paying men to stay home too. One would not characterize the Obama administration as sexist. Basically more and more of everyone gets to stay home.

How big is this effect really? The chart below tracks the change in the proportion of our population that's married, etc.

Apparently a Chinese chemical plant discharged some waste ammonia into a local river. Several hundred thousand fish died and washed up. Authorities ordered the plant operations suspended, warned people not to eat the fish, and said drinking water was still fine. I really don't want these guys pushing their ships through the Arctic.

Temporary Detroit Mayor Gary Brown has a self-imposed deadline - November 3, the start of daylight savings time - to fix many of the cities broken street lights before kids have to walk home from school in the dark. Again. Detroit has 40,000 broken street lights. He's also looking for ways to get tow trucks to drag abandoned vehicles off the streets, and he wants crews to cut down and remove dead trees that are fire hazards to houses. I read this and I think, where are the people? Why can't Detroit citizens chip in to save their city? But this is what democrat-controlled cities are about: the government takes care of the citizens, not the other way around. Kids walking home in the dark? How about your local fire crew lifts up some people to the lights to fix them? Nah, better to have your kids in the dark and complain about how the city is failing. This is the future of large cities everywhere, huge groups of people will be dependent on the government for the most basic things. If a storm hits and does real damage, then that's a job for Super-Government, the Feds must step in and fix those problems.

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