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Hi all,
Today is Friday 8/26/2011, the day hurricane Irene makes its approach to USA mainland. It is expected to come ashore in North Carolina, about 50 -75 miles north of this writer and be a real problem for the Washington to Boston areas. The track as I understand it is reminiscent of Hurricane Hazel in 1954 and Donna in 1960. That was the last significant hurricane to hit the Northeast. Most may not remember it. That will be a problem.
Politically one has to wonder. An earth quake, a hurricane, all focused on Washington. The earth quake cracked the Washington Monument and shook some plaster out of the ceiling in the Capital. Maybe the hurricane will wash away some of the dirt in Washington. I guess we can only hope. Someone once wrote about the audacity of hope. Not sure he was taking about the same hope I have.
In the meantime the economy will take a short term hit if the storm really screws up the works in the northeast but a 10 billion dollar disaster could mean work for a few people. In fact, the winds may cause enough damage to create a mini employment boom for the housing industry.
Looking at the statistics the economy reportedly grew only 1% in the second quarter, with car sales being a bright spot. I, personally think that may wane this next month or two. Consumer debt jumped up more than $15 Billion this past month. What is that about? Did we so soon forget that debt is a real problem? Are we moving back to the habits of the past?
Corporate earnings for the second quarter compared to last year grew 0.0%. That is correct. It has grown 0.0%. Didn’t shrink but didn’t grow either. Of course this time last year they were growing around 50% over the prior year so there isn’t any immanent danger of massive corporate collapse. But there also isn’t any pressure to hire either.
Unemployment first time claims has been stubbornly around 400,000 per week. We get a little below that for a week then we pop back up above. The year to date average of about 411,000 is about 33% higher than the average prior to the financial crisis and subsequent recession. It takes about 100,000 new jobs created each month to absorb the new members of the work force like returning military, kids growing up and others re-entering the work force. To reduce the unemployment rate we need to create additional jobs beyond the 100,000 each and every month. Each .1% decline in the unemployment number requires a about 140,000 new jobs. Remember that is in addition to the 100,000 that we need to absorb the growing workforce. To just reach what President Obama told us would be the cap of 8%, we need to create 1million 600 thousand jobs in addition to the 100,000 per month each month that it takes up to get there. That will require an economic growth of around 8% per year. A very long way from our 1% current rate.
Congress does indeed have a tough job ahead. But it is of their own making. They refused to address problems when they were small now they are stuck with the mess. I liken their position to having failed to stop at a gas station because the price was too high and now we have run out of gas on a cold and snowy night without cell phone service. Not a pleasant situation. Unfortunately it is you and I who will have to walk in the cold dark and wet night until we reach help and I imagine that is going to be a very unpleasant journey.
Isolationists would say close off imports with taxation and duties and open up manufacturing at home. While that could work I suppose, the path is ugly. First you raise tariffs and trading partners do the same. Then your exports drop right now and unemployment rises in those sectors. Spooling up manufacturing in the USA isn’t easy. It will take a while to equip factories long shuttered, hire and train people and then actually produce and ship goods. This also takes an enormous amount of money. So the practical approach is to look at imports and exports and work at making our people/businesses more competitive so that this can happen without the intervention of tariffs and the subsequent dislocation that would bring. Oil being the major import, we need to address energy but going green is going to take decades. Drilling and pipelines are much faster. Not that we shouldn’t be working hard on green alternatives it is just that we have to avoid being bitten by the alligators while we work to drain the swamp. Once the swamp is drained the alligators will leave, we just have to prevail.
More competitive may mean lower business taxes and even corporate welfare where it is justified. Tax incentives for job creation. I remember when utilities were tightly regulated. They were allowed to earn a specified rate of return. The rate setting agencies would look at rate requests, look at costs and investment in infrastructure and calculate the rate that would yield the desired return. While consumer advocates argued that there was no incentive for the companies to be more efficient, I remember that they employed a lot more people and didn’t have to drag them across the country every time mother nature through a fit.
Not sure deregulation has worked to advantage. Not sure that the old method was fault free. Maybe we need to look at a hybrid approach of some sort.
Well, stay safe and dry this weekend. We’ll be back with you next week; the good Lord willing and the creek don’t rise more than usual.
