Comments on Steve: state of the economy

I was watching The Closing Bell on CNBC today on m...

2008-04-28T17:04:00.000-07:00

I was watching The Closing Bell on CNBC today on my lunch break and they had the president of Tyson Foods on the show. They had just reported a Q1 loss, compared to I believe a $40B gain in Q1 2007. He said it is mostly due to everyone pushing for ethanol fuel from corn. He said that 30% of the corn produced in the US has gone to ethanol which has drastically increased the price of corn that they use in their feed for the chicken, cows, pigs etc and as such consumers should start to expect drastic increases in food costs.

So looks like you hit the nail on the head with that one.

Hope your doing well.

-Oaf

Steve,Enjoyed your post! I have studied two years...

2008-02-14T20:12:00.000-07:00

Steve,

Enjoyed your post! I have studied two years in B-School just so I could understand it - money well spent! A few thoughts (is anyone still following this, though?)

- I'd love you sometime go talk about the differences between consumption, investing, and saving. Saving is, obviously, putting money in a bank or security (like a bond or something). And people (especially republicans) think consumption and investing is the same (ricardian econ, i believe?). But they're not. Consumption is buying $150 True Religion jeans. (Sorry Novak ladies - they look great, but it ain't doing nothing for the economy). Investment is backing your friend who is starting up a restaurant. US proportions of consumption vs. investment vs. saving are WAY out of whack with our international peers. In case you couldn't guess, we're pretty consumption heavy, they're pretty savings heavy. Then when we (or some idiot) thinks we need to build some more bombs, we have to borrow money from singapore to do it. And yes, strong/weak dollar values can sometimes make this really painful. My advice to anyone wanting to do their part: stop spending money, and if you are spending it - spend it on an investment, not new shoes. (Note: Do as I say, but not as I do on that one...)

Next, to address Steve's dissatisfaction with US automakers: allow me to be the stinker who drops this bomb on the Manos clan: unions are indeed crippling Detroit, and the government is making sure they stay that way.

Will all the accountants, red and blue alike, please stand up and read the balance sheets of the Big 3 and pay specific attention to pension liabilities? Shame on the companies themselves for making such deals with these people, but you gotta feel for them. Not only are they shelling out money for pensions, but now that people are living so long these liabilities are ballooning to the moon. The unions also try to run the actual business itself!

Don't believe me? Watch GMC sell it's commercial truck division to International (Harvester) this year. Less competition in all already slim industry lessens the need for product leadership and innovation for firms to create competitive advantage. How is this the union's fault? You tell me how it's not when the company had paying customers lining up (don't tell anyone, we're supposed to be in a recession!) to go away because it couldn't increase capacity because the union wouldn't allow the plant in Flint, MI to bring on more workers for a second shift.

Shutting down a much-needed sale and then influencing the fire sale of an entire division is not what I like to see unions getting their hands in. But don't take my word for it; look at unemployment rates abroad. they will correlate with union membership. Wage floors and employment guarantees are great... for doing hurting the same people they're supposed to help.

I've said it before and I'll say it again: Unions are like political parties in that they purport to serve one group... but the only thing they serve are themselves.

As for the automakers and government and innovation, Bill and Edsel Ford told me (personally!!!!!) that the reason Ford is such a stinker on cleaner drivetrains is because at the scale they have to invest to bring a product to market (hundreds of millions), they felt they had to adopt a strategy of keeping one toe in every swimming pool: bio-diesel, Plug-in Hybrid (PHEV), battery electric (BEV), regular hybrid. Why this strategy? Because they thought the laws that will one day mandate their behavior are voted on by headline-savvy politicians (read: Hillary) that simply want to make a name for themselves - and there's no guarantee that the headline-producing solution will be the right one. So they took a wait-and-see strategy because going headlong into one of them (a la toyota) seemed too risky at the time - they're not exactly flush with cash, remember? It obviously didn't pan out, but it wasn't because they didn't want to innovate: they did, but they were hamstrung! And there's STILL no decision from the politicians, and Ford still has invested millions into each of the above technologies waiting to learn of their fate. And to preempt comments about"getting in on the front side", it's hard to get in on the front side when every time you go to congress you are asked to give away costly and competitive knowledge to your competitor and then bbq'd in front of the committee just for good measure. Bill Ford is one of the "greenest" people I've ever met.

The real story on Ford's committment to their national community? Google "ford 3 wet paint" or wait for reporters NOT to do a story on the plug-in hybrid F500 heavy duty trucks that Ford and U-Haul will be putting into service in So Cal (these trucks will put electricity BACK into the grid at night).

Are the big 3 fat and bloated? sure - but there are plenty of companies like that don't have unions or tough regulation that are lauded by media and are doing quite nicely for themselves.

OK, enough finger pointing. Focus on saving and Just feed the pig, ok? Keep fighting the good fight!

Stu

Steve I found your thoughts to be well thought out...

2008-02-12T23:06:00.000-07:00

Steve I found your thoughts to be well thought out and full of several valid points. I could not agree with you more about the min. wage increase and the ramifications of establishing a price floor and the subsequent excess supply of workers. Beyond the higher unemployment rate, it will often lead firms to decrease the quantity of nonmonetary benefits such as safe work environments and on the job training due to the deadweight loss.

Your comments on alternative energy and the eventual increase of commodity prices, sounds as though you were describing our current problems with oil. Just as oil prices have spiked upwards and we are left with no alternatives it seems as though we would eventually create a similar situation, substituting corn or sugar.

The one group that I think you let off the hook were all of the banks on the street. Even though the process was initiated through the lenders, there is no way that anyone could have looked at this style of debt, especially the sub-prime debt, and felt as though this was a suitable investment. Which has led us into a sticky situation, one in which it the Fed has to create liquidity, but at what cost?, seen as how inflation has begun to pickup steam agian. Luckily much smarter people, like yourself, can sort this out.

The topic regarding the stimulus package seems to be no more than pandering to the public, in a sense a way for politicians to say "look at how much we care."

Alright Steve I'm going to get out on my recent trip to Boise. To help create a visual for you think of "Tommy Boy," during the sales pitch when he is demonstrating the brake pads and smashes the model cars. Upon arrival the weather was 40 at midnight, my thought was I'm going to catch a break, as Lee Corso says "not so fast my friend." What followed was a snow storm for the next 72 hours. Luckily Hertz provided me with a 2 wheel drive vehicle and a pat on the back, neither of which came in handy. So I'm driving along, begin to think Tommy Boy, driving along and I see a detour sign up ahead (side note: I have grown accustomed to streets being encompassed by sidewalks and curbs). So, I decided to make the logical decision (philosophy major at work) "U-turn." However the roads, now on hour 40 of the ice storm, were a little slick, so as I went to make my turn the only thing I could think of as I was spinning is "I can't stop!" Or so I thought thank god for that ditch, not curb, which brought me to sudden stop. 45 minutes a tow truck pulls up tows me out and the new guy was in the corner puking his guts out.

Steve hope all is well,

AJ

It is dissapointing that recess is so awesome and ...

2008-02-12T14:28:00.000-07:00

It is dissapointing that recess is so awesome and recessions are not.

A know the technical definition of a recession is ...

2008-02-12T13:24:00.000-07:00

A know the technical definition of a recession is two consecutive quarters with negative growth and so we are not in one technically. But I agree with Mooch in that in a lay person's view, a recession is when all the economic factors are negative and we are certainly at that point now. She also makes my corn argument better than I. It appears on the surface that corn prices play a bigger part in my life than in the rest of yours. But my point was that right now, they are playing a huge point in everyone's life. The cost of food is skyrocketing, as Maw-Maw pointed out. And it is going to get much worse before it gets better. And what excerbates this whole mess is that living costs are rising as unemployment rises. This makes the standard reaction to either one difficult because they are opposite in nature. And in this case, the price of food is tied directly to the price of fuel. The two things we all need are increasing. Throw in water, as the ethanol project uses mass quantities of that also, and you are left with even a bigger mess.

I think the commonlaw definition of a recession is probably more valid now than the economic definition. We have so many negative factors. Construction is almost non-existant. The decrease in the commercial market lagged behind the residential, but it is now tanked also. Tom has told me the percentage of local governments, cities and towns, that relied on the construction industry were huge. So, the government is out of money. With construction comes all of the subsidiary industries, banks, mortage companies, title companies, Home Depot, carpettime. What is left to pull us out?

Steven is right that the only thing that has ever brought us back is small businesses. But if they cannot get capital for expansion, then they too are stagnant. Instead of handing out checks to everyone, the Government should have guaranteed small business capital needs. This would generate jobs.

I don't agree that this recession will be short or mild.

Hey Steven,I don't know why you and David can't ad...

2008-02-12T11:08:00.000-07:00

Hey Steven,
I don't know why you and David can't admit we ARE in a recession. On NPR yesterday they said "61% of the population think we are in a recession as do MOST ECONOMISTS.Now, I agree with Brian's blog. I don't know you but you're right. Jim you are right about the Fed's lowering the interest. I say this for selfish reasons as David remarked. I agree whole heartedly with Bean's assessment of the minimum wage problem (or lack of)and Ted's blog mentioning OPEC< China and Eu being bigger players. Aren't they the loaners and we the borrowers now? Sad. As for the economy as a whole, it stinks. I paid $1.00 for one white onion, a dollar for one bell pepper and a dollar for one navel orange. Thankfully I can afford it, pity the ones that can't. I know I'm not in your class as far as understanding ecconomics but I do have one advantage....I have lived longer than any of you guys.

Hi Steve, That certainly was a very thoughtful ana...

2008-02-12T09:42:00.000-07:00

Hi Steve, That certainly was a very thoughtful analysis! Hayak, Walter Williams, Thomas Sowell etc. would be very proud of you. I took it home with me last night to digest it. Too few Americans know anything about economics. Such ignorance can be very, very costly. I do so hope that when you are finished with all of your treatments and are feeling better that you can send us yet another blog on the economy. In the meantime, I hope that you are feeling a lot better. May you soon be able to eat and discourse on economics to your hearts content. I love you very much and continue to pray for you every day. May God strengthen and heal you. Love, Aunt Diane.

I too would like to thank Mary N, Lindsey, Mary G....

2008-02-12T09:10:00.000-07:00

I too would like to thank Mary N, Lindsey, Mary G., and Jen for clarifying this post for me. While I did read everyword (more because I could not believe you found the energy to be so passionate than because I understood) all was clarified by Jen in her post. I hope this week is good to you. We love you so.

Mary D.

Wow. I read this on Sunday night and it took me u...

2008-02-11T22:32:00.000-07:00

Wow. I read this on Sunday night and it took me until tonight to comment, mostly because I am speechless. I am thrilled by this blog. Not because I understand it, not because I have a heart for economics, but because if this is any measure of the energy you have left to beat this cancer, we no longer need to be concerned! All of the talk about the weak dollar also brought up some highschool memories of all of you guys trying to bribe cashiers with the almighty "George Washington." "Are you sure you don't have seats left for the 7:15 movie? Because George Washington says you do!"

Oh, how I miss you! So much of you came out in thi...

2008-02-11T20:18:00.000-07:00

Oh, how I miss you! So much of you came out in this piece. I wish we could aimlessly drive the back roads of CT to discuss the state of the US economic affairs further.

We employ over 800+ minimum wage earners. We have had state mandated hourly wage increases in CT and MA. We were forced to accept living wage initiatives in Vermont, and we are still in business and growing. I am not taking sides on an issue but merely giving one employer's facts.

As long as there exists a level playing field, domestically and internationally, jobs numbers should feel very little affect with mandated minimums.

Employee health insurance is a prime example of the affect of uneven playing fields. Most businesses are not experts in the field of in insurance. With the burden of employee health insurance belonging to the employer, employers have to become educated in an industry which has no bearing on their own. Let all employers pay the same amount for employee health insurance and then let us move on.

Level playing fields are what it is all about.

I am ussually not so public with my thoughts, a combination of your father and Jim. Something I read in your blog today, made me want to be with you.

Thanks for the Blog!

Steve,Very interesting observations, many of which...

2008-02-11T15:48:00.000-07:00

Steve,

Very interesting observations, many of which I was surprised to find that at least in part, I agreed with. O.K. We, have Jim in Agriculture and David in Health Care. The only area I find myself with any shred of credibility is as a traveler and as someone fairly well informed about the current political atmosphere.
You alluded to the fact that the "weak dollar" shouldn't affect us as long as we spend them inside the country. Well, I don't want to do that. I'd like to go back to Europe, but the prospect of a $11 dollar pint of Guinness is a bit harrowing. On a more abstract level, the inability for us financially to travel outside North America as individuals is going to make us more isolationist as a nation. This is something I don't think we really need given global political circumstances. "No man is an island" but the current administration is working very hard to make sure that an entire nation can be.
As we've discussed before, Steve, it's disgusting how much stock people put in the Executive Branch's ability to steer fiscal policy. OPEC, China,the EU and other entities increasingly (and not necessarily regrettably)are becoming bigger player, even when it comes to the price you pay for something as simple as a Snickers bar.
The talk of the "recession" and how they [politicians] are going to "fix the problems" is like someone saying the're going to stop an oncoming runaway freight train by throwing a marble at it. Americans are simply too short-sighted to see that not Barack Obama, Not Hillary, Not McCain, not anybody can solve the problem of a potential recession.
Is the recession a self-fulfilling prophecy? Are people going to stop spending because of the fear tactics of politicians and the media? Maybe. But let's be fair. The Economist did have a cover of a diving line on a graph (meant, I assume, to signify growth in a nose dive) with the accompanying "It's Rough Out There" quote (Jan. 26th to feb. 1st.). It's not just Michael Moore and Newsweek. I think the issue is all about personal interpretation. Think about the idea you alluded to that implied that fear is that which the economy has to fear. How many of us have let the news of the last month prompt us to spend more (or less), drive less, buy local, adjust travel plans or make any real changes to our lifestyles?
I truly think it takes a longer time than most people might think to allow changing realities in the market to change the way we live our lives. Concerned about the price of gas? Don't write your politician, ride your bike. Concerned about the high cost of using of corn as a source of energy because of our trade deficit with China to curb our dependence on foreign oil? Dont' boycott Chinese imports,become a vegetarian (it takes about 10 lbs of corn produce one Outback's steak) . Concerned about the price of a baguette in Paris? Well, I guess I'm screwed there. The point is, our vote for who we want to run our country is not the most important way we can change our country and the world. It is in the choices we make as individual consumers. Namely, the choice to consume less and simplify our lives.
O.K., Steve, I'm done now. I'm gonna go stick a "save the whales" sticker on my VW, throw on my birkenstocks (with socks), down some granola and hug a tree...and figure out how the hell I'm ever going to afford to visit Switzerland.

I forgot to mention the cheesy stuff like I'm thin...

2008-02-11T14:39:00.000-07:00

I forgot to mention the cheesy stuff like I'm thinking of you constantly...and that I can't wait to be on the beach with you, Poder, Ted, Wack, and Dan playing some otl. All my thoughts.

Moke: Pretty dense material for a Monday afternoon...

2008-02-11T13:50:00.000-07:00

Moke: Pretty dense material for a Monday afternoon. Very interesting though, at least the parts I could understand. My take -- we need to be looking at the bigger picture of inflation instead of scaring ourselves into a recession.

Point being, if the Fed continues to lower interest rates, isn't that a precursor to inflation? If so, when does the Fed have to say to itself, "how much more can we cut interest rates before the effects get to be inflationary?" Correct me (Moke/Jim/David) if I'm wrong, but cutting interest rates at the pace the Fed has in the last few months correlates to a weaker currency down the road. And with that, continous unemployment, decline in foreign investments, etc. Instead of a recession, we'll be hearing of a depression.
Jim hit on the inflation point, and I agree that the Fed is in a bind. But, as Moke suggests, if the impending recession is going to be mild and short-lived, why take precautions (i.e, like continuously lowering interest rates) that will presumably create a bigger, more complex problem? Steve? Buellar? Buellar?

Btw, I heard on NPR last week that Zimbabwe, the country with the world's highest inflation (150,000 %), printed a ten million dollar bill.

Steven - I did start to read your posting, but...

2008-02-11T10:40:00.000-07:00

Steven -
I did start to read your posting, but Jen took the words right out of my mouth, "Whoa, cowboy" - although for me, it had a very different meaning. I also glanced at the comments of the others, but it all reminded me of my abbreviated attempt at Stephen Hawking's book (also supposedly dumbed down for the masses)- it's all above my pay rank. Some sleepless night I'll take another crack at it.
Beginning of another week. Hope it's a good one for you, Moke. Love, Greg

Jen,Thanks for that outstanding clarification. Now...

2008-02-11T10:04:00.000-07:00

Jen,
Thanks for that outstanding clarification. Now bring on the BLT'S....

Love you!

Jen...This is the type of economics I can comprehe...

2008-02-11T09:28:00.000-07:00

Jen...This is the type of economics I can comprehend...thank you for bringing it down to my level!

Thinking of you and Steve often...wishing you all the best!

Love,

Mary G.

Mary,True Religion jeans and bacon are imperfect s...

2008-02-11T08:57:00.000-07:00

Mary,

True Religion jeans and bacon are imperfect substitutes, since very few of us can consume them jointly -- you wear one or the other. Thus, their prices should follow each other. If price of bacon decreases, fewer will fit into TR jeans, so demand should decrease, thus decreasing prices. I'd say the pork market is the best indicator for True Religion prices.

Speaking of consuming pork and True Religion jeans simultaneously, the lovely Gisele could classify them as complementary goods. She also has taken a strong stance on the weakening dollar -- she won't accept the USD for payment ("Gisele Dumps Ben"). That's gotta be a blow to the US economy.

Steve,After reading your entry this morning, I tho...

2008-02-11T08:11:00.000-07:00

Steve,
After reading your entry this morning, I thought about calling in Collin Blattener, the little tool, to show him what he may have learned. Very impressive. sweetie. Linds and I just had one question.......Is the price of True Religion jeans going to go up or down in the coming months....and Danny is wondering the same thing about bacon......

Hi Baby,I sure hope you had a better weekend. I wo...

2008-02-11T00:16:00.000-07:00

Hi Baby,
I sure hope you had a better weekend. I woke up this morning and immediately (after getting my java) looked on your blog to see if you wrote something new, and you hadn't....so I immediately thought you were having a bad weekend.

Then I checked tonight and I was surprised to see how much you wrote-so I assumed that you must be OK...I can't imagine feeling bad, and putting your thoughts together and typing away on such a difficult topic. I did read everything you and Jim wrote, then looked at David, and said that I needed to read more (or at least different types of books) take a few classes, because there were some things my feeble brain could not comprehend. So David responded for us. Yipee, a new blogger!

It's midnight and my eyes are drooping. We sure missed mama Jean and Jenny at the shower last night. I think we took a picture of Mary Beth opening Jenny's and Jean's presents. There weren't many items that were passed around, but Jenny's did.It was very cute and also very useful in a fun way. I thank mama Jean and Jenny, for taking time out of their insanely busy schedules to shop for the baby, and then make arrangements to get the gifts to Phoenix.

The picture we did not take was of me doing two shots (one for Jenny and the other for Jean). Well Aunt Mary has the biggest shot glasses I've have ever seen. The next problem was that Mary didn't have any tequila, so she poured straight vodka...I don't think I will be drinkingpogbazwp for awhile.

Well I am so proud that I have such a smart nephew, who in turn has a smart girlfriend.

I'm blowing kisses your way, and praying this week will go quickly
and better than last! Love to you whole family!

I'll love you forever....

Love,
Aunt Lynnie

I forgot: the big photo from the desert is superb!...

2008-02-10T23:22:00.000-07:00

I forgot: the big photo from the desert is superb!

Wow Steven, what a post. Jim, you nearly did run ...

2008-02-10T23:21:00.000-07:00

Wow Steven, what a post. Jim, you nearly did run me off with all that corn talk, but I suppose one man’s healthcare is another man’s corn… This economist wannabee couldn’t resist commenting.

I do agree with your comment that enough talk about a recession could lead to a recession. However, I recall that real GDP in Q4 2007 was something like .6%. That’s hardly expansionary in my estimation. I have read several articles that suggest that the fed funds rate will decline to about 1% by the end of 2008, early 2009, which suggests that the feds will be trying their best to stimulate this economy. One of the things I’ve learned in healthcare over the years is that our business tends to be a leading indicator of the economy. In 2007, we saw a significant decline in primary care visits in our owned physician practices. Why? Because consumers will not spend on healthcare given other needs. We also saw a significant decline in our elective outpatient procedures, while our emergency and inpatient volume was increasing. While I’m not ready to predict a recession, I do believe that our economy is in trouble.

So, what impact will the feds lowering rates have on the economy? For starters, most short term investment rates will decline. Just check the slide in CD and money market rates the last couple of months. Anyone on a fixed income will feel the pinch. Just ask Maw Maw how her investments are doing and I bet you will get an earful.

The other rather insidious impact of lowering the feds funds rate is that other rates will likely decline. And what is tied to money indices? That’s right, can anyone say variable rate mortgages? Yikes, I bet that all the lenders will be gun shy and very selective about offering variable rate mortgages, so the drop in rates may not have the desired effect on mortgage lending. We have had a flat to inverted yield curve over the last several years, so the long end (30 year mortgages) of the curve may not drop as rapidly as the short end of the curve (1 to 5 year mortgages). In addition, some economists are predicting another 25% drop in housing prices with the bottom hitting in 2010. Housing inflation created much of the increase in wealth from 2000 – 2005. Price declines will be a blow to overall wealth and inhibit spending, at least in the short term.

I agree with you about the corporate tax rate. One of the dilemmas about lowering the tax rate is the assumption that there will be enough business expansion to cover the tax shortfall caused by decreasing the marginal tax rate. Not an easy call for politicians. Talking about taxes, did you know that personal income taxes were introduced to cover the civil war and the government levied a 3% tax on incomes above $800, rising to 5% for incomes above $10,000? Rates were raised in 1864, but repealed in 1872. Boy have we come a long way…

I also agree with your assessment about the minimum wage. Let economic forces drive wages. That should be enough fuel to keep the responses flowing!!

wow! i officially learned more in this one post th...

2008-02-10T23:13:00.000-07:00

wow! i officially learned more in this one post than i do in two weeks of school. and the great thing was that i was fully able to pay attention during the whole thing! Thank you very much steve, now i will actually feel like i know what my history class is talking about when they discuss this. This must have been really hard work, but i for one aprreciate it! Stay strong!

To me it's amazing you find the resources to write...

2008-02-10T23:11:00.000-07:00

To me it's amazing you find the resources to write all these This is a blog that's supposed to be positive so I will refrain from dumping my pessimism about the prospects of US economy. Suffice to say I am in the same boat with Nouriel Roubini from NYU. If you guys check his blog you can get as much negativity as possible. Steve, I don't recommend you that blog for now.
So I will continue, since you touched on the corn thing, with some words of a farmer from Kentucky:

The peace of wild things
Wendell Berry

When despair for the world grows in me
and I wake in the night at the least sound
in fear of what my life and my children's lives may be,
I go and lie down where the wood drake
rests in his beauty on the water, and the great heron feeds.
I come into the peace of wild things
who do not tax their lives with forethought
of grief. I come into the presence of still water.
And I feel above me the day-blind stars
waiting with their light. For a time
I rest in the grace of the world, and am free.

You are in my thoughts. Hope the week will go quickly.

I'm not an economist but I play one on TV.Why not ...

2008-02-10T22:39:00.000-07:00

I'm not an economist but I play one on TV.

Why not remove the tariffs on imported sugar cane to help take the pressure off the price of corn? It is several times more efficient to make ethanol from cane.

As it stands, corn based ethanol for your car does not improve the fossil fuel problem.

Nuclear is great from a carbon emission standpoint but what about the fish with three eyes in Springfield? Would anyone build a plant if they had to take the full responsibility for waste storage and disposal? I don't think their ROI presentation would be quite so attractive if we removed the subsidies.

I agree with Uncle Jim. Scrap the refund. The economy is slowing down because of a credit crunch because people "over-borrowed". What is the politician's solution? Borrow!!! The most recent federal budget weighed in at over three trillion dollars. The refund package is not included. I doubt that the stimulus package will be balanced by a corresponding spending cut.

Are you turning liberal? Thanks for including seco...

2008-02-10T22:23:00.000-07:00

Are you turning liberal? Thanks for including secondary education reform, something that I can follow. No national program will turn around secondary schools.

When's the mirco economics post? There must be some way to pull this all off into a dissertation? I was just about to suggest something about taco trucks and public schools, and decided not to as I have yet to take an ECON course.