Robert Higgs makes an important point that "Consumption Spending HAS Already Recovered," and it's private investment spending that is lagging and holding the economy back:

Commentators and pundits, some of whom ought to know better, continue to harp on the idea that the recession persists because consumers are not spending. Every Keynesian seems to believe that because consumers are in a dreadful funk, only government stimulus spending can rescue the moribund economy, given (to them, at least) that investors will not spend more because the Fed, having already driven interest rates to extraordinarily low levels, cannot use conventional policies to drive them any lower and thereby elicit more investment spending.

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Imports

As important as access to foreign markets is, however, some of the most significant obstacles to U.S. export success aren't foreign-made but homegrown. If the president is genuinely committed to spurring economic growth and job creation, he will take the lead on reducing or eliminating duties that U.S. producers pay on imported raw materials and components they need for manufacturing. This would instantly boost the competitiveness of U.S. products at home and abroad.

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S and P 500: The Lost Decade

We're now over eleven years beyond the S&P 500 2000 high. This little charting exercise gives credence to the frequent reference to a "lost decade" for investors. In nominal terms, the index is about 6.8 percent below where it was at the 2000 peak, but in real terms, it's a disappointing 29.5 percent off the original investment. The chart also offers support for the wisdom of diversification across asset classes ... and perhaps the value of active management during secular bear markets.

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Ben Powell on The American Jobs Act

Powell writes:

After wasting three years and more than a trillion dollars of "stimulus" money, the President has announced he has a new plan for creating jobs.

The problem is: Government doesn't create jobs that add value to the economy; companies and entrepreneurs do. Through taxes, mandates and regulation the government typically discourages hiring and destroys jobs. What Washington should do right now is step aside...

Entrepreneurs create jobs only when they expect the price they will receive for their product or service will exceed the price they pay for labor and other inputs, such as raw materials and equipment. This ensures that the jobs they create make society wealthier.

In contrast, government jobs add little if anything to the economy. They drain resources rather than increase them.

Truth be told, the government easily could solve unemployment tomorrow if our only objective is to say that everyone who wants a job has one. It could do this simply by hiring half of all unemployed workers to dig ditches and the other half to fill them in. Everyone would work. But no net value would be created.

read the entire essay

Peter Schiff on The American Jobs Act

Schiff writes:

Although it was labeled and hyped as a "jobs plan," the new $447 billion initiative announced last night by President Obama is merely another government stimulus program in disguise. But semantics are of supreme importance in American politics...some could argue that word choice is the only thing that matters. As a result, despite the fact that this plan bears no substantive difference from previous stimulus bills...

In the meantime money to fund the stimulus has to come from somewhere. Either the government will borrow it legitimately, or the Federal Reserve will print. Either way, the adverse consequences will damage economic growth and job creation, and lower the living standards of Americans...

The truth of course is that no real economic growth or job creation is going to occur until the failed policies of both Obama and Bush are reversed. In his speech the President mourned the death of the American dream. Obama should stop killing it. To revive that dream we need to revive the American spirit that produced it in the first place. That means returning to our traditional values of limited government and sound money. Unfortunately we are still headed in the wrong direction.

read the entire essay

Anthony Wile on the American Jobs Act

Wile writes:

I've noticed that an old and misleading dominant social theme has taken center stage in America lately. It's the idea that politicians and the political process itself can create jobs.

Of course, government can't create jobs. Government can make things worse, but it can rarely if ever make things better...

Government doesn't create anything of value. It merely taxes and spends. It is impossible for the government to "create" jobs – and the Keynesian nostrums claiming that government can "stimulate" the economy by creating make-work employment are not feasible – and never really were.

read the entire essay

Adrian Krieg on The American Jobs Act

Krieg writes:

The president's speech on the evening of September 8 was without question
not a speech about the economy or how to fix it; it was another campaign speech
for Obama's reelection. The plan as announced is called "The American Jobs Act" – very long on vocalization and very short on substance. The same old class warfare of "tax the rich" was repeated often. I lost count on, "You Must Pass This Bill." There
are, according to White House sources, $447 billion required for implementation
of this Act (Stimulus 4, one would suspect), although the president never once
mentioned any dollar amount.

read the entire essay

Tibor Machan on the American Job Creation Act

Machan writes:

Jobs are created when people who have earned an honest buck go to the market and purchase goods and services that other people need to produce. If a good many go to the market to do this, there will be many jobs; if only a few, there will be few jobs. Moreover, only if the people get to choose what purchases they make in the market will the resulting jobs be more than make-believe or artificial jobs, like digging holes and filling them up again...

The entire plan of the jobs bill amounts to nothing more than artificially manufacturing jobs, from phony money, creating phony demand. And this doesn't even address the issue of Mr. Obama's favorite superstition, namely, his idea that he can somehow turn America into a showcase of green life without incurring massive expenses for this, expenses the country cannot afford.

read the entire essay

Cost of Regulation

"Call it Dodd-Frank Inc. A year after Congress passed the broadest financial overhaul since the Great Depression, the law has spawned a host of new businesses to help Wall Street comply — and capitalize — on the hundreds of new regulations. Besides the lawyers, there are legions of corporate accountants, financial consultants, risk management advisers, turnaround artists and technology vendors all vying for their cut."

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American Jobs Act

Bailing out state governments, extending jobless benefits, etc. all seem to presume that, somehow, the U.S. economy is going to return to its pre-2008 growth track and that all we need to do is give it a little help along the way. With each passing month, that seems more unlikely and it might be a good idea to begin adjusting to a more sustainable economy (i.e., one less dependent on credit, finance, and rising asset prices) sooner rather than later.

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My thoughts: The cost is being reported as $447 billion. This includes $253 billion in tax cuts. Allowing people to keep money that they have earned is NOT a cost. Spending is a cost. The national debt crisis is a result of of overspending, not under taxation.

Trade Deficit July 2011 $44.8 Billion

July exports of $178.0 billion and imports of $222.8 billion resulted in a goods and services deficit of $44.8 billion, down from $51.6 billion in June, revised. July exports were $6.2 billion more than June exports of $171.8 billion. July imports were $0.5 billion less than June imports of $223.4 billion.

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Cartoon: Rhetoric or Reality

Where does someone who supports economic liberty belong?

See Jacob Hornberger's 11 part essay

or read a recent essay by Walter Williams

After reading Hornberger’s “Economic Liberty and the Constitution,” one
cannot avoid the conclusion that the liberties envisioned by the nation’s
founders have been under siege, trivialized and nullified. Philosopher Johann
Wolfgang von Goethe explained that “no one is as hopelessly enslaved as the
person who thinks he's free.” That’s becoming an apt description for Americans
who are oblivious to -- or ignorant of -- the liberties we’ve lost.

Walter Williams 8/24/11

Manufacturing v Service Employment and Job Growth

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Unemployment by Education

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Top 0.1% of Americans

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S and P 500: Bulls and Bears

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Cartoon: Labor Day

Is Social Security a Ponzi Scheme?

Yes: Rick Perry and Michael Tanner

No: Jeff Jacoby and Sheldon Richman

August Unemployment: 9.1%

The jobless rate held steady at 9.1 percent and the official tally of unemployed workers was virtually unchanged at 14 million. The broad U6 measure of underemployment – including those who have given up looking for work and who are working part-time for economic reasons – rose from 16.1 percent to 16.2 percent.

The number of long-term unemployed – those going without work for 27 weeks or more – was unchanged at 6.0 million and they accounted for a stunning 42.9 percent of the unemployed while the civilian labor force participation rate was steady at 64.0 percent.

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Unemployment August: 9.1%

The current employment recession is by far the worst recession since WWII in percentage terms, and 2nd worst in terms of the unemployment rate (only the early '80s recession with a peak of 10.8 percent was worse).

The unemployment rate was unchanged at 9.1% (red line). The Labor Force Participation Rate increased to 64.0% in August (blue line). This is the percentage of the working age population in the labor force. The participation rate is well below the 66% to 67% rate that was normal over the last 20 years, although some of the decline is due to the aging population.

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Bernstein-Romer Chart

The White House budget office forecast Thursday that the unemployment rate won't fall below 6% until 2017 -- two years later than it predicted in February, when President Obama delivered his 2012 budget proposal to Congress.

read the CNN story

My thoughts: Only 5 years after the initial promise.

Cartoon: The First Economist

Cartoon: Keynesianism

The Great Recession Continues

For most people, GDP is an economic abstraction that has little meaning. Employment levels, on the other hand, are a more compelling measure of the economy. Here, then, is a chart of total nonfarm employment, which peaked in January 2008, a month into the last recession. As of last month, nonfarm employment was a painful 4.9% off the peak.

My preferred GDP metric is the per-capita variant. I take real GDP and divide it by the mid-month population estimates from the Census Bureau, which has reported this data from 1959 (hence my 1960 starting date). By this measure, Q2 2011 GDP is 3.4% off its peak.

This chart is a look at Real GDP since 1950 with recessions highlighted. As we can see, at present, more than two years after the end of the last recession, real GDP is still 0.5% off the all-time high set in the last quarter of 2007. The recession officially began in December of that year.

According to the NBER's analytical method, which focuses on major peaks and troughs as boundaries, the June 2009 end for the last recession makes perfect sense. But if you expect the end of a recession to be a return to some semblance of economic normality, then, to paraphrase the immortal words of Yogi Berra, the last recession "ain't over 'til it's over." ...

The recession of 2007-2009 was by far the most savage economic decline over the time frame of these charts. Prior to the last recession, real GDP hit a new peak within a quarter or two of the official recession end. Per capita real GDP usually lagged a quarter before hitting its post-recession peak; the one exception was in 1990-1991, when the per capita variant required an extra three quarters to set a new peak. Employment has historically been slower to hit new highs following recessions.

The so-called double-dip recession of 1980-1982 had a non-recessionary interlude of four quarters. All three of our indicators hit new peaks within in the second quarter after the first of the double dips. Where are we today? We're now in the ninth quarter after the last recession. Real GDP is within shouting distance (0.5%) of a new peak. But real GDP per capita is less than halfway from its trough to a new peak, and, twenty-six months after the recession ended, nonfarm employment is only a bit over 20% of the way from its trough to a new peak.

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The U.S. Justice Department is suing to block AT&T Inc.'s proposed $39 billion takeover of T-Mobile USA, saying Wednesday that the combination of the second- and fourth-largest U.S. cellphone companies would hurt competition and likely raise prices.

read the article

Cartoon: Bernanke's Printing Press

"The U.S. government has a technology, called a printing press (or today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at no cost."

Ben Bernanke November 21, 2002

Cartoon: Debt Ceiling

Cartoon: Too Big to Fail

4 Minute Economic History

Personal Savings Rate: 5%

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Buchanan on Keynesianism

Folly is defined as (1) lack of good sense or of normal prudence, (2) inability or refusal to accept existing reality or to foresee inevitable consequences. Both of these definitions convey something of the policy stance that I associate with the term Keynesian.

Jim Buchanan‘s 1987 essay “Keynesian Follies,” reprinted in Vol. 1 of Jim’s Collected Works (pp. 164-178):

New T-Shirt

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How the Government Caused the Financial Crisis

Obamanonics vs. Reaganomics

Stephen Moore writes:

The two presidents have a lot in common. Both inherited an American economy in collapse. And both applied daring, expensive remedies. Mr. Reagan passed the biggest tax cut ever, combined with an agenda of deregulation, monetary restraint and spending controls. Mr. Obama, of course, has given us a $1 trillion spending stimulus.

By the end of the summer of Reagan's third year in office, the economy was soaring. The GDP growth rate was 5% and racing toward 7%, even 8% growth. In 1983 and '84 output was growing so fast the biggest worry was that the economy would "overheat." In the summer of 2011 we have an economy limping along at barely 1% growth and by some indications headed toward a "double-dip" recession. By the end of Reagan's first term, it was Morning in America. Today there is gloomy talk of America in its twilight.

My purpose here is not more Reagan idolatry, but to point out an incontrovertible truth: One program for recovery worked, and the other hasn't...

There is something that is genuinely different this time. It isn't the nature of the crisis Mr. Obama inherited, but the nature of his policy prescriptions. Reagan applied tax cuts and other policies that, yes, took the deficit to unchartered peacetime highs.

read the entire essay

My thoughts: Moore is forgetting a few things about Reagan.

Let's not forget that Reagan raised taxes six times (including the then-two biggest tax increases in American history), massively increased welfare and warfare spending, ran huge deficits, stepped up the police state, ended financial privacy as part of his drug war, made Greenspan Fed chairman, undid the healthy "Vietnam syndrome" with his great victory over tiny, unresisting Grenada, and much, much more.

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Rothbard on Reagan

Why Americans Hate Economics

Stephen Moore writes:

Christina Romer, the University of California at Berkeley economics professor and President Obama's first chief economist, once relayed the old joke that "there are two kinds of students: those who hate economics and those who really hate economics."... Why? Because too often economic theories defy common sense. Alas, the policies of this administration haven't boosted the profession's reputation...

A few months ago Mr. Obama blamed high unemployment on businesses becoming "more efficient with a lot fewer workers," and he mentioned ATMs and airport kiosks. The Luddites are back raging against the machine. If Mr. Obama really wants to get to full employment, why not ban farm equipment?

Or consider the biggest whopper: Mr. Obama's thoroughly discredited $830 billion stimulus bill. We were promised $1.50 or even up to $3 of economic benefit—the mythical "multiplier"—from every dollar the government spent. There was never any acknowledgment that for the government to spend a dollar, it has to take it from the private economy that is then supposed to create jobs. The multiplier theory only works if you believe there's a fairy passing out free dollars...

The grand pursuit of economics is to overcome scarcity and increase the production of goods and services. Keynesians believe that the economic problem is abundance: too much production and goods on the shelf and too few consumers. Consumers lined up for blocks to buy things in empty stores in communist Russia, but that never sparked production. In macroeconomics today, there is a fatal disregard for the heroes of the economy: the entrepreneur, the risk-taker, the one who innovates and creates the things we want to buy. "All economic problems are about removing impediments to supply, not demand," Arthur Laffer reminds us.

So here we are, three years of mostly impotent stimulus experiments and the economy still hobbled. Keynesians would be expected to be second-guessing the wisdom of their theories. Instead, Prof. Romer recently complained that the political system will not allow Mr. Obama to "go back and ask for more" stimulus.

read the entire essay

Cartoon: Stimulus Spending

Gas Prices May Spike

Hurricane Irene is bearing down on the East Coast, threatening nearly 10% of the nation's refining capacity that lies in Philadelphia, New Jersey and Delaware.

Gasoline futures traded in New York have already spiked, rising 10 cents a gallon this week, largely on fears there will be a disruption in output from the refineries, barge routes or pipelines serving the heavily populated eastern seaboard.

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Cartoon: College Debt

Consumer Sentiment Drops Sharply

The final August Reuters / University of Michigan consumer sentiment index increased slightly to 55.7 from the preliminary reading of 54.9. This is down sharply from 63.7 in July.

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2nd Quarter GDP: 1.0%

The dashed line is the current growth rate. Growth in Q2 at 1.0% annualized was below trend growth (around 3%) - and very weak for a recovery, especially with all the slack in the system.

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Slow Growth Continues

Economic growth in the second quarter was slightly weaker than previously estimated, according to revised U.S. government data released Friday.

Gross domestic product, the broadest measure of the nation's economic health, rose at an annual rate of 1% in the second quarter, the Commerce Department said.

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Cartoon: Choose Your Major Carefully

Apple's New CEO: Tim Cook

read the article

Cartoon: Wall Street

Cheapskate

For those not accustomed to the world of Bugattis, merely paying $2 million for the two sets of keys to your Veyron is only the beginning of an ownership journey. And it is an actual journey; your run-flat tires are only to be removed from their rims in France, and must be replaced every 2,500 miles, at a cost of about $40,000 for all four (made exclusively for the Veyron, the Michelin rubbers are not sold at your local Costco.) A "routine" service runs about $19,000; would you really trust Jiffy Lube with a car that has 10 radiators?

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State Coincident Indicators

Several states have turned red again. This map was all red during the worst of the recession, and all green not long ago. Here is the Philadelphia Fed state coincident index release (pdf) for July 2011.

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Home Sales

Distressing Gap: The following graph shows existing home sales (left axis) and new home sales (right axis) through July. This graph starts in 1994, but the relationship has been fairly steady back to the '60s.

Then along came the housing bubble and bust, and the "distressing gap" appeared due mostly to distressed sales. The flood of distressed sales has kept existing home sales elevated, and depressed new home sales since builders can't compete with the low prices of all the foreclosed properties.

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The Fed's Secret Loans

Secret loans from the Fed to Wall Street totaled $1.2 trillion at the height of the 2008 panic.

That’s the conclusion of Bloomberg after analyzing 29,346 pages of documents released by the Fed only because Bloomberg went all the way to the US Supreme Court to obtain them.

The top 10 recipients alone account for 56% of the total. The $669 billion these 10 borrowed is, um, rather larger than the “official bailout figure” of $160 billion represented by the TARP program.

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Barry Ritholtz writes:

Imagine if the government and the Federal Reserve were run not by knaves and fools and Wall Street sycophants, but instead, were run honestly for the benefit of the taxpaying voter. Imagine the goal was saving the banking system (not the banks), and the financial rescue was for the benefit of the taxpayers, not the bondholders. Naive thoughts, I totally understand, but hear me out.

A person who truly understood what had happened and why would have considered the following actions. Note these are not ideas come about with the benefit of hindsight, but what a small band of insightful people were saying at the time.

An honest broker of the situation would have:

1. Fire the senior management of the banks (see this)

2. Banned all lobbying activity as a condition of any aid (see this)

3. Forced a Swedish style prepackaged bankruptcy (see this and this)

Instead, we bailed out the bondholders and management, choking off hope for a robust recovery. We are in fact slowly turning Japanese, awaiting the next recession (and the next and the next).

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Mises on the Business Cycle

Ludwig von Mises wrote:

The severe convulsions of the economy are the inevitable result of policies which hamper market activity, the regulator of capitalistic production. If everything possible is done to prevent the market from fulfilling its function of bringing supply and demand into balance, it should come as no surprise that a serious disproportionality between supply and demand persists, that commodities remain unsold, factories stand idle, many millions are unemployed, destitution and misery are growing and that finally, in the wake of all these, destructive radicalism is rampant in politics.

The periodically returning crises of cyclical changes in business conditions are the effect of attempts, undertaken repeatedly, to underbid the interest rates which develop on the unhampered market. These attempts to underbid unhampered market interest rates are made through the intervention of banking policy—by credit expansion through the additional creation of uncovered notes and checking deposits—in order to bring about a boom. The crisis under which we are now suffering is of this type, too. However, it goes beyond the typical business cycle depression, not only in scale but also in character—because the interventions with market processes which evoked the crisis were not limited only to influencing the rate of interest. The interventions have directly affected wage rates and commodity prices, too...

All attempts to emerge from the crisis by new interventionist measures are completely misguided. There is only one way out of the crisis: Forgo every attempt to prevent the impact of market prices on production. Give up the pursuit of policies which seek to establish interest rates, wage rates and commodity prices different from those the market indicates. This may contradict the prevailing view. It certainly is not popular. Today all governments and political parties have full confidence in interventionism and it is not likely that they will abandon their program. However, it is perhaps not too optimistic to assume that those governments and parties whose policies have led to this crisis will some day disappear from the stage and make way for men whose economic program leads, not to destruction and chaos, but to economic development and progress.

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Investor Sentiment

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It is a Spending and Debt Problem

"Our true choice is not between tax reduction, on the one hand, and the avoidance of large federal deficits on the other. It is increasingly clear that...an economy hampered by restrictive tax rates will never produce enough revenues to balance our budget just as it will never produce enough jobs or enough profits." John F. Kennedy

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CPI and COLAs

The BLS reported this morning: "The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) increased 4.1 percent over the last 12 months to an index level of 222.686 (1982-84=100)."CPI-W is the index that is used to calculate the Cost-Of-Living Adjustments (COLA). Here is an explanation ...The calculation dates have changed over time (see Cost-of-Living Adjustments), but the current calculation uses the average CPI-W for the three months in Q3 (July, August, September) and compares to the average for the highest previous average of Q3 months. Note: this is not the headline CPI-U, and not seasonally adjusted.

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