Cartoon: Lunch Money

1st Quarter GDP revised up to 0.9%

from Carpe Diem

U.S. economic growth was slightly better than previously reported for the first quarter, primarily because a weakened dollar reduced imports, according to a revise reading on gross domestic product announced Thursday.

GDP, the broadest measure of the nation's economic activity, stood at an annual rate of 0.9% in the first quarter, adjusted for inflation, the Commerce Department said. That matched the consensus prediction of economists surveyed by Briefing.com.

"Nine-tenths of a percent is not strong on its own right, but if the second quarter does not show decline, it's very unlikely we'll have a recession in 2008," said Wachovia economist Mark Vitner.

read the CNN story

My Thoughts: Not quite the gloom and doom people have been predicting for 6 months.

Cartoon: Supply and Demand

Cartoon: Supply and Demand

Drilling in America

Mounting concerns about global energy supply are fueling a drive by the oil industry and some U.S. lawmakers to end longstanding bans on domestic drilling put in place to protect environmentally sensitive areas.

Increasing U.S. oil production would require overturning decades-old moratoriums that limit offshore drilling and accelerating leasing of federal lands, moves that would trigger a swift and vigorous political backlash. Still, as gasoline prices continue to climb and squeeze household budgets, the momentum appears to be gaining to open up new areas...

"These prices are making voters realize we need to produce [more] energy" domestically, said Rep. John Peterson, a Republican from Pennsylvania who is pushing legislation to open up new offshore areas for energy exploration. The U.S. imports two-thirds of its oil, though less than one-sixth of its natural gas, according to federal data. The rest is produced domestically.

A century and a half after oil production began, there is ample evidence that a lot of oil -- and natural gas -- remains to be found in the U.S. and its territorial waters. Some of those areas are wide open to oil companies, including most of the Gulf of Mexico where deep-water floating rigs now routinely drill wells hundreds of miles from shore. Even in the gulf, areas are off limits, including most of the waters off the Florida coast. The entire East and West Coasts are off limits for new drilling...

New drilling techniques also are driving production in places such as North Dakota's Bakken field, which the federal government estimated in 1995 held 150 million barrels. This year, an updated assessment put the figure at 3.65 billion barrels, said Brenda Pierce, coordinator of the U.S. Geological Survey's Energy Resources Program. "We have the potential to grow production," she said.

read the WSJ article

Cartoon: High Gas Prices

Cartoon: $4 Gas

Cartoon: Luggage Surcharges

Warren Buffett: US in a Recession

Asked by Germany's Der Spiegel weekly whether he thinks the U.S. could still avoid a recession, he said that as far as the average person is concerned, it is already here.

"I believe that we are already in a recession," Buffet was quoted as saying. "Perhaps not in the sense as defined by economists. ... But people are already feeling the effects of a recession."

read the article

Unemployment and Recession

Marginal Tax Rates and Tax Revenues

Gas Insanity: Suing OPEC

The House of Representatives overwhelmingly approved legislation on Tuesday allowing the Justice Department to sue OPEC members for limiting oil supplies and working together to set crude prices, but the White House threatened to veto the measure.

The bill would subject OPEC oil producers, including Saudi Arabia, Iran and Venezuela, to the same antitrust laws that U.S. companies must follow.

The measure passed in a 324-84 vote, a big enough margin to override a presidential veto.

The legislation also creates a Justice Department task force to aggressively investigate gasoline price gouging and energy market manipulation.

"This bill guarantees that oil prices will reflect supply and demand economic rules, instead of wildly speculative and perhaps illegal activities," said Democratic Rep. Steve Kagen of Wisconsin, who sponsored the legislation.

The lawmaker said Americans "are at the mercy" of OPEC for how much they pay for gasoline, which this week hit a record average of $3.79 a gallon.

read the article

My Thoughts: I hope this is parody.

Another Reason to Save and Invest

Barbara Harvey climbs into the back of her small Honda sport utility vehicle and snuggles with her two golden retrievers, her head nestled on a pillow propped against the driver's seat.

A former loan processor, the 67-year-old mother of three grown children said she never thought she'd spend her golden years sleeping in her car in a parking lot.

"This is my bed, my dogs," she said. "This is my life in this car right now."

Harvey was forced into homelessness earlier this year after being laid off. She said that three-quarters of her income went to paying rent in Santa Barbara, where the median house in the scenic, oceanfront city costs more than $1 million. She lost her condo two months ago and had little savings as backup.

read the CNN story

Gas Tax Holiday in Graphs

read the article

Gas Taxes by State

Milton Friedman Institute

The University of Chicago, in a move officials said will build on the school's longtime
strength in economics, said it plans to spend $200 million to create the Milton Friedman Institute.U. of C.

President Robert Zimmer said the goal of the institute "is to build on the university's existing leadership position and make the Milton Friedman Institute a primary intellectual destination for economics," by creating a forum where faculty and students can engage with scholars and policymakers from around the world.

Most of the funds will be raised in donations from alumni and the business community, the university said. Friedman, who died in 2006, was a longtime faculty member at the University of Chicago and was awarded a Nobel Prize in economics for his work.

He is considered a key member of what has become known as the Chicago school of economic theory.

source

Mechanical Gas Pumps

Like a lot of small-scale entrepreneurs, Cathy Osborne worries that she'll go out of business if fuel prices rise above $4 a gallon. Not because she won't be able to buy gas at that price, but because she won't be able to sell it.

The old mechanical gas pumps with scrolling dials at her country store in Fauquier County lack the gears to go beyond $3.99 a gallon. State inspectors shut down her diesel pump several months ago when the fuel topped the $4 mark, so now all that's left are two pumps dispensing 87-octane gasoline, set at $3.75 -- and climbing.

"I don't know what I'm going to do. I don't have $30,000 to invest in new pumps, and I'm barely skipping by,"

from the Washington Post

Cartoon: Tax Rebate

NBER and Recessions

Many people think the definition of a recession is two consecutive quarters of decline in the gross domestic product. But that's a misperception. Hall and his colleagues will look beyond such simple metrics, weighing monthly GDP estimates, employment data, income, industrial production, and other factors. To call a recession, they'll look for clear signs of "a significant decline in economic activity spread across the economy, lasting more than a few months."

Any call, if it comes, is going to take a while. The NBER usually takes 6 to 18 months to decide when a recession starts or ends. Hall's committee didn't announce the end of the 2001 recession until a full 20 months after the fact.

read the entire article

6th Period: Do Not Do the Assignment

Repeat to do NOT do the assignment.

Do not read the article, do not write the summary, do not turn anything in to me.

Have a great weekend.

Map of GDP Comparisons

Gas Prices

Recession?

A funny thing happened to the economy on its way to recession: It's taken a detour.

That, at least, is the view of a growing number of economists -- including some who not long ago were saying a recession was all but inevitable. They note that stock and credit markets have steadily improved since the Federal Reserve intervened to keep Bear Stearns Cos. from bankruptcy in early March, while a series of economic reports have been stronger than expected...

Still, Mr. Bryson and other economists note that though two main pillars of the economy, the labor market and consumer spending, have faltered, they have not collapsed as they did in past recessions. On Tuesday, the Commerce Department said retail sales fell a slim 0.2% in April from the previous month -- a decline due mostly to a steep drop in auto sales. Excluding autos, retail sales climbed 0.5%.

Job losses, meanwhile, have been less severe than they usually are in recessions. And many economists think the government's earliest estimate of first-quarter GDP growth -- 0.6% -- will be revised upward. After reviewing the retail-sales data, economists at Global Insight, a Waltham, Mass.-based forecasting firm, predicted the government would increase its assessment of GDP growth in the first quarter to 1% at an annual rate. They forecast continued growth in consumer spending, partly because of tax rebates and stimulus checks.

read the Wall Street Journal article

My thoughts: Economists have predicted 9 of the last 5 recessions. It is not an exact science. Calling a recession before there is a single quarter of economic decline borders on irresponsible. Yes, there are significicant problems, but whether the NBER will declare a recession is something that we must wait and see.

Economics, Gas Prices, and Emotion

Too "Complex"?
Thomas Sowell

Some people think that the reason the public misunderstands so many issues is that these issues are too "complex" for most voters. But is that really so?

With all the commotion in the media and in politics about the high price of gasoline, is there really some terribly complex explanation?

Is there anything complex about the fact that with two countries-- India and China-- having rapid economic growth, and with combined populations 8 times that of the United States, they are creating an increased demand for the world's oil supply?

The problem is not that supply and demand is such a complex explanation. The problem is that supply and demand is not an emotionally satisfying explanation. For that, you need melodrama, heroes and villains...

If you want cheering crowds, don't bother to study economics. It will only hold you back. Tell people what they want to hear-- and they don't want to hear about supply and demand.

No, supply and demand is not too "complex." It is just not very emotionally satisfying.

source

Recession in 2008?

Gary Stern
President of the Federal Reserve Bank of Minneapolis

Do you think we’re going to avoid a recession?

No. But there are recessions and then there recessions. The previous two were short, and the most recent one was not only short but shallow. I think that’s what really matters to people. The average resident doesn’t distinguish between whether the economy is growing half a percent or one and a half percent. That’s not their interest. It’s more, how does this feel? Are conditions generally improving noticeably or aren’t they?

source

Wow. Who Knew There Were 60 States?

Cartoon: Oil Prices

Cartoon: Gas Prices

Cartoon: Recession, We Are Still Waiting

Bryan Caplan on the Gas Tax Holiday

Most economists oppose the Clinton-McCain gas tax holiday because they can’t see how consumers will benefit. In fact, “most” is an understatement; when challenged to name one economist willing to back her plan, Mrs. Clinton’s response was to disparage the whole profession.

Why are economists so opposed? In the short run, the supply of gasoline is basically fixed; it takes a while to build a new refinery. The demand for gasoline, in contrast, is more responsive to price; we’re already seeing greater use of public transportation and brisk sales of fuel-efficient cars. When you combine fixed supply with flexible demand, it’s suppliers, not demanders, who pocket the tax cut. That’s Econ 101.

So far, I pretty much agree with the consensus. Economists might overstate the rigidity of supply — it’s possible that eliminating the tax could spur producers to find a way to squeeze out a little more gas — but they’re probably right that the Clinton-McCain proposal will not shrink the price at the pump. Nevertheless, I think it’s an idea worth supporting. In fact, I’ve got two arguments in favor of it, though I doubt that either candidate will want to repeat them in public.

The first is that the tax holiday is a relatively cheap symbolic gesture that makes truly bad policies less likely. The main causes of high gas prices are probably factors beyond our control, like rapid growth in China and India and low real interest rates. But voters don’t want to hear this; they want politicians to “do something!”...

Second, even a “giveaway” to the oil industry sets a positive course for the future. During the last crisis, the industry was a scapegoat for scarcity. Politicians scrambled to stop oil companies from profiting from the crisis, even though temporarily high profits end shortages by giving businesses an incentive to figure out how to increase output...

read the entire essay

An Alternative Measure of GDP

from the Big Picture

Cartoon: TANSTAAFL

1st Rule of Economics: TANSTAAFL

1st Rule of Politics: Ignore the first rule of economics.

Pigou Club: Raise Gas Taxes

Oil's climb to $122 a barrel has policy makers and presidential candidates scrambling for quick, feel-good solutions. Trouble is, their ideas are exactly the opposite of what straightforward market economics says is needed.

John McCain and Hillary Clinton want to send cash-strapped consumers on holidays from the federal gasoline tax. But the law they can't rewrite -- the law of supply and demand -- suggests it would backfire. Lower taxes would encourage people to drive more, meaning more demand that would push prices higher again. That would fatten the bottom line of Big Oil and suppliers like Venezuela's Hugo Chávez and add to global carbon emissions.

What the U.S. really needs, if it seeks a real fix to its energy-consumption problem, is less demand, not more. Mr. Market says there's a simple way to do that: Jack up the gas tax. Don't lower it.

Economists call it a "Pigovian Tax," in honor of English economist Arthur Pigou, who early in the 20th century examined economic activity that hurts innocent bystanders. To stop behavior that's not in the public good, you tax it more, not less.

Of course, a higher gas tax would hurt working-class Americans who rely on their cars, though other taxes, like the federal payroll taxes or state sales taxes on food, could be lowered to offset it.

Harvard economist Gregory Mankiw, President Bush's former chief economic adviser, has proposed raising the tax by 10 cents a year for 10 years, to give the economy time to adjust.

read the entire article

Colbert on the Gas Tax Holiday

(HT: Greg Mankiw)

Gas as a Percent of Your Budget

from Carpe Diem

And You Think the US has High Gas Prices

another great chart from Carpe Diem

Cartoon: Gas Tax Holiday

Are Voters Stupid Enough to Sell Their Votes for Just $27 and Change?

Clinton's idea, which is also endorsed by Republican presidential hopeful Sen. John McCain (R-Ariz.), is to suspend the 18.4 cents per gallon federal gas tax for three months in order to give cash-strapped motorists relief at the pump. Assuming that dropping the tax would actually lower the price per gallon by the full 18.4 cents, how much would this actually save the average family?

Let's make a rough calculation, using an average commute of 20 miles per day in an automobile with a 15 gallon tank getting the corporate average fuel economy (CAFE) mileage of 27.5. A commuter would then fill up every 20 days. There are 98 days between Memorial Day and Labor Day, so that means five fill-ups over the summer. Five 15 gallon fill-ups at 18.4 cents per gallon less would mean that motorists would save a total of $13.80 for the summer. Let's double that for vacation driving and shopping and that comes to a grand total of $27.60 in savings. About enough to buy five Big Mac Combos.

read the essay

My Comments: Unfortunately, I think the answer is yes.

Ron Paul on the Current Crisis

Every action the Fed takes sends a signal that the U.S. dollar will continue to be inflated and therefore debased, which is why the correct action is no action at all. Lower interest rates and liquidity injections are viewed with alarm by foreign markets, while higher interest rates and money tightening are anathema to many domestic investors. The Fed is between a rock and a hard place, and its insistence on inflating the money supply to manage the brittle economy will likely be our undoing.

Until we realize that the Federal Reserve system itself is flawed, and until we recognize that no one economic maestro or committee of economic experts can set prices and plan the economy, this nation will continue to flounder about in an economic malaise. Ending that may take a much more serious downturn than anything we’ve seen yet. It is beyond doubt that our economy is in recession, and the only rational response is for the government to allow malinvested resources to liquidate so that we can return to a stable economy.

While the Fed should take a hands-off approach, Congress should aggressively cut taxes and spending and repeal regulations that stifle economic growth, such as the Sarbanes-Oxley Act. This country has enormous economic potential, an industrious work force, and an enviable history of innovation and entrepreneurship. If the government would learn from its past mistakes and abstain from further interference, we could get back on a solid footing and grow to our full potential.

My fear is that the Fed will continue with its policy of inflation and Congress will be pressured to continue to stimulate the economy with government spending, probably extending to even more outright taxpayer-funded bailouts of financial institutions, subprime mortgages, and government-sponsored enterprises that are “too big to fail.” These debt-funded efforts reward the recklessness of some institutions at the expense of the productive sectors of our economy. Until the federal government acts to extricate itself from intervention in the markets, economic activity will be hindered and true recovery will not take place.

read the entire essay

Gerald O'Driscoll on the Current Crisis

The U.S. economy is in the midst of an old-style credit crunch brought on by a combination of bad policies and incredibly lax underwriting standards at financial institutions. The biggest policy failure was the decision by Alan Greenspan’s Federal Reserve to hold interest rates too low for too long. That led to a tsunami of credit that inundated the economy with cheap money. Mortgage lenders in particular were flush with funds and searched for deals wherever they could be found. Heretofore unqualified borrowers suddenly “qualified” as underwriting standards relaxed and then disappeared...

There is a wonderful parallel here to the collapse of the Soviet Union. As the great Austrian economist Ludwig von Mises argued almost 100 years ago, central planning inevitably fails because there are no market prices to allocate resources. Market prices can only be the outcome of actual market transactions among buyers and sellers. Planners used mathematical formulas to value resources, especially capital. Now Wall Street wizards have imported Soviet thinking to allocate financial capital. Is it any wonder that it failed?...

The Fed needs to understand it is facing a capital crisis, not a liquidity crisis. The very low interest rates on safe assets show there is ample liquidity in financial markets. The Fed should not supply capital. That is the job of markets, and they are doing it.

read the entire essay

Cartoon: Stimulus Package

Cartoon: Shortages

Cartoon: Recession

Cartoon: Gas Tax

Inflation

click here for interactive graph

Greg Mankiw on Bailouts

If you start bailing the firms out when they lose, you have to regulate the gambles they take. You can no longer count on the creditors to limit the firms' leverage, as the creditors are counting on Uncle Sam if things go wrong. But the more regulated these firms are, the lower their productivity will be.

The bottom line: The Bear Stearns bailout may have saved the economy from an episode of financial contagion in the short run, but in the long run it will likely leave us with a more regulated and less vibrant financial system.


source

My Comments: Bear Stearns should have been allowed to fail.

How Different Investments Did Last Week

Big Green Egg: Ribs and Boston Butt

Here are the last two BGE cooks.

Two slabs of ribs. 5 hours. 3-1-1 method at 260.


The ribs just before I took them off the BGE.


Friday/Saturday cook. A Boston Butt. 17 hours at 250 degrees. Internal temp hit 208.

Below is the Polder Thermometer

I had a 9.3 pound butt. I got a good fire going, rubbed the butt, and tossed it on the Egg. The entire cook was dome closed. No peeking. "It you are looking, you ain't cooking."


Cook fat side up. Nice crispy bark and falling apart tender.

Cartoon: Election and the Economy

Cartoon: Stimulus Check

Cartoon: Gas Prices

Quarterly GDP Charts