The 12/02/2011 Jobs Report: An Unemployment Rate Illusion.

The 12/02/2011 jobs report showed the unemployment rate fell to 8.6% from 9%. That’s an illusion. Why? If the economy was improving the unemployment rate would increase. Rather counter intuitive huh?

The reason for both the illusion and the counter intuitive point is related to the calculation of unemployment and the dynamics of the components. In the latest report the denominator shrunk by 315,000 people during the most recent measurement. That is, people seeking a job became totally discouraged and left the workforce [actively seeking a job]. Meanwhile the numerator grew by 278,000 jobs [employed]. Hence with the numerator growing and the denominator shrinking you get an illusion.

Why would the unemployment rate rise if the economy was growing? Growth of the economy would cause the discouraged worker (not currently seeking a job) to be attracted back to the workforce [those actively seeking a job]. Hence with growth, the initial response would be an upward movement in the measurement [unemployment rate] as the denominator would be flooded by people now seeking jobs. Hence the new 8.6% unemployment rate down from 9% is really an indicator of the overall weakness in the economy not a robust economy.

Furthermore, the January 2012 unemployment rate will likely fall as well. Why? Historically speaking, the January unemployment rate is below the preceding December unemployment rate due to an arbitrary statistical decision each January: a statistically significant number of workers are automatically retired by labor statisticians each January. Therefore the denominator is reduced and unemployment arbitrarily looks better in January than the preceding December all things being equal.

Curb excessive drinking? Sell beer!

"West Virginia University says it has found a profitable way to curb excessive drinking at home football games: sell beer at concession stands.

By tapping kegs at Mountaineer Field, West Virginia has added $700,000 to the athletic department and reduced the number of incidents in which police were called because of excessive drinking by around 30 percent, Athletic Director Oliver Luck said in an interview".

http://www.bloomberg.com/news/2011-12-09/football-beer-taps-add-safety-700-000-to-west-virginia-university-sports.html


"Consider this—in 1989, Playboy magazine purposefully excluded WVU from the top ten list, noting that the magazine does not rank professional partiers".


http://www.onlineuniversities.com/rankings/10-biggest-party-schools/


Update 01/11/2012

“The same ethic applies to road games: In September, LSU and its fans traveled to West Virginia, which has one of the few college stadiums that serves alcohol.

According to a school spokesman, Mountaineer Field sold over $120,000 in beer alone that night—even though parts of the stadium sold out of cold Bud Light around halftime. Not only was that figure 33% higher than the figure for the next-highest game, it accounted for 23% of the season's total beer sales over seven games.

"The whole line was LSU fans buying four beers at a time," reports Judson Sanders, a 31-year-old Tigers fan who works in electrical contracting. “ - You Can't Spell 'Lush' Without L-S-U, The Wall Street Journal, 01/05/2012

http://online.wsj.com/article/SB10001424052970203471004577141180847382556.html

Obama’s Kansas Speech: Fairness, Pinocchio, and Pig Judging

"The Pinocchio Test"

"The president does not need to lard his case with such suspect data. There are few independent tax analysts who have much good to say about the Bush tax cuts. But it is difficult for Obama to justify blaming those tax cuts for being mostly responsible for today’s slow job growth, especially when he wants to retain a good chunk of those tax cuts.

To bolster his case about unfairness, the president is also relying on a suspect statistic about billionaires paying as little as one percent in taxes. Even if true, it is a clearly a rare event. Moreover, it is certainly surprising the White House would rely on such a dubious, unverified source for a major presidential address". - Glenn Kessler, Washington Post, 12/07/2011


"Moreover, it is certainly surprising the White House would rely on such a dubious, unverified source for a major presidential address".


Really? Its surprising? Whenever a politico debates "fairness" it has to be a notional argument as its rather apparent: fair is what you are doing and the other guy is not doing -or- fair is where you go to get your pig judged.


http://www.washingtonpost.com/blogs/fact-checker/post/obamas-kansas-speech-some-suspect-facts/2011/12/06/gIQAUU45aO_blog.html

Housing and Urban Development Secretary Shaun Donovan: “positive fund balance and the current book of business is strong”. Really?

More Housing Red Flags 


"Housing and Urban Development Secretary Shaun Donovan told the House Financial Services Committee last week that "unlike many other institutions," the taxpayer-backed Federal Housing Administration "retains a positive fund balance and the current book of business is strong." If only the numbers would cooperate.


The American Enterprise Institute's Ed Pinto recently unearthed new FHA lending data buried in a little-known HUD website called Neighborhood Watch. As of Oct. 31, 17% of FHA's loans were in delinquency or in trouble, up slightly from September. Of that total, 9% of FHA loans are "seriously delinquent," up from 8.2% at the end of June. To put this in perspective, FHA has around 75,000 more bad loans today than it had a few months ago. Meanwhile, the agency's capital reserves are languishing at 0.24%, well below the 2% legally mandated floor.


FHA waves away these worries by arguing that the business it did since the 2007 housing crash is in better shape than the guarantees made at the height of the boom. AEI's Mr. Pinto calculates that 1.9% of loans signed between Nov. 1, 2009, and Oct. 31 of this year are seriously delinquent, which is a far cry from 9% but still exceptionally high. And this comes after FHA installed a chief risk officer and boosted its underwriting standards, among other things.


In effect, FHA is betting that it can grow its way out of trouble by insuring higher-end homes and higher-quality borrowers. Mr. Donovan, in his written statement to Congress, also promised to raise premiums, crack down on bad lenders, look at reforming claims processes and more. But none of this will shrink the FHA down to its traditional role as a lender to first-time low- or moderate-income homebuyers. Until that happens, the agency will continue to dominate the mortgage insurance market, and private competitors will shrink or go bust. That's the last thing the U.S. economy needs".

-- Wall Street Journal, political diary, 12/05/2011, by Mary Kissel

Temporary Payroll Tax Holiday Extension Debate‏

Milton Friedman’s permanent income hypothesis basically states that consumer consumption is based more on long term expected income patterns than current income. That a determining factor of the pattern is real wealth (capital and human capital) and much less real current income. Friedman’s permanent income hypothesis blows a major hole in the Keynesian consumption function proposition. (1)


Art Laffer and other supply-siders have evidence that “tax time horizon” has influence on consumption patterns. That is, a short term tax cut is saved as the consumer knows the tax is returning in short order. Long term tax reductions cause consumption expectations to move in a positive direction as the tax reduction is long lasting/durable (long term permanent tax increases cause the reverse effect) . Hence we end with the tax time horizon proposition being to one degree or another related to Friedman’s permanent income hypothesis. (2) (3) (4)


Given the above, the current debate over the temporary payroll tax holiday extension misses the mark completely in regards to Friedman’s points of: (a) long term expected income patterns, (b) real wealth determinant. Further, payroll tax holiday extension dismisses Laffer and other supply-siders tax time horizon proposition.

Which begs the question: is the temporary payroll tax holiday extension merely politicos exercising poor economics?


Notes:

(1) Theory of the Consumption Function, Milton Friedman, 1957, Princeton University Press

(2) Dr. Art Laffer, http://www.cnbc.com/id/24732335

(3) Fact vs. Fiction: Temporary Tax Cuts, Norbert Michel, Ph.D.
http://www.heritage.org/Research/Reports/2003/01/Fact-vs-Fiction-Temporary-Tax-Cuts

(4) Why Permanent Tax Cuts Are the Best Stimulus, John B. Taylor, WSJ, 11/25/2008
http://online.wsj.com/article/SB122757149157954723.html

Capital and Labor: distorted definitions leading to sophistical debate.

"The discussion of "the relations of labor and capital" has not hitherto been very fruitful. It has been confused by ambiguous definitions, and it has been based upon assumptions about the rights and duties of social classes which are, to say the least, open to serious question as regards their truth and justice. If, then, we correct and limit the definitions, and if we test the assumptions, we shall find out whether there is anything to discuss about the relations of "labor and capital," and, if anything, what it is.

Let us first examine the terms.

1. Labor means properly toil, irksome exertion, expenditure of productive energy.

2. The term is used, secondly, by a figure of speech, and in a collective sense, to designate the body of persons who, having neither capital nor land, come into the industrial organization offering productive services in exchange for means of subsistence. These persons are united by community of interest into a group, or class, or interest, and, when interests come to be adjusted, the interests of this group will undoubtedly be limited by those of other groups.


3. The term labor is used, thirdly, in a more restricted, very popular and current, but very ill-defined way, to designate a limited sub-group among those who live by contributing productive efforts to the work of society. Every one is a laborer who is not a person of leisure. Public men, or other workers, if any, who labor but receive no pay, might be excluded from the category, and we should immediately pass, by such a restriction, from a broad and philosophical to a technical definition of the labor class. But merchants, bankers, professional men, and all whose labor is, to an important degree, mental as well as manual, are excluded from this third use of the term labor. The result is, that the word is used, in a sense at once loosely popular and strictly technical, to designate a group of laborers who separate their interests from those of other laborers. Whether farmers are included under "labor" in this third sense or not I have not been able to determine. It seems that they are or are not, as the interest of the disputants may require.


1. Capital is any product of labor which is used to assist production.


2. This term also is used, by a figure of speech, and in a collective sense, for the persons who possess capital, and who come into the industrial organization to get their living by using capital for profit. To do this they need to exchange capital for productive services. These persons constitute an interest, group, or class, although they are not united by any such community of interest as laborers, and, in the adjustment of interests, the interests of the owners of capital must be limited by the interests of other groups.


3. Capital, however, is also used in a vague and popular sense which it is hard to define. In general it is used, and in this sense, to mean employers of laborers, but it seems to be restricted to those who are employers on a large scale. It does not seem to include those who employ only domestic servants. Those also are excluded who own capital and lend it, but do not directly employ people to use it.

It is evident that if we take for discussion "capital and labor," if each of the terms has three definitions, and if one definition of each is loose and doubtful, we have everything prepared for a discussion which shall be interminable and fruitless, which shall offer every attraction to undisciplined thinkers, and repel everybody else".  - 1883, William Graham Sumner,  What Social Classes Owe to Each Other.

Employer Sponsored Health-Care: has it always been that way?

"We have become so accustomed to employer-provided medical care that we regard it as part of the natural order. Yet it is thoroughly illogical. Why single out medical care? Food is more essential to life than medical care. Why not exempt the cost of food from taxes if provided by the employer? Why not return to the much-reviled company store when workers were in effect paid in kind rather than in cash?


The revival of the company store for medicine has less to do with logic than pure chance. It is a wonderful example of how one bad government policy leads to another. During World War II, the government financed much wartime spending by printing money while, at the same time, imposing wage and price controls. The resulting repressed inflation produced shortages of many goods and services, including labor. Firms competing to acquire labor at government-controlled wages started to offer medical care as a fringe benefit. That benefit proved particularly attractive to workers and spread rapidly.


Initially, employers did not report the value of the fringe benefit to the Internal Revenue Service as part of their workers’ wages. It took some time before the IRS realized what was going on. When it did, it issued regulations requiring employers to include the value of medical care as part of reported employees’ wages. By this time, workers had become accustomed to the tax exemption of that particular fringe benefit and made a big fuss. Congress responded by legislating that medical care provided by employers should be tax-exempt". - Milton Friedman from the essay How to Cure Health Care, 07/30/2001, link appears below.


http://www.hoover.org/publications/hoover-digest/article/7298