Wal-Mart is the new General Motors for the Middle Class

Posted by PITHOCRATES - February 22nd, 2014

Week in Review

The left hates Wal-Mart.  Because they are nonunion.  And their low prices make it difficult for small mom & pop shops to stay in business charging their customers higher prices.  But being nonunion lets them hire more people.  And their low prices allow people to buy more with their paychecks.  Good things.  Yet the left hates Wal-Mart.  Because they would rather have union jobs even if it means fewer jobs.  And higher prices.  Despite Wal-Mart being the best thing for the middle class since General Motors (see Walmart and the middle class, sinking together by Rick Newman posted 2/21/2014 on Yahoo! Finance).

It was once General Motors (GM) whose fortunes reflected those of the middle-class Americans who bought its products. Now, that bellwether Goliath is Walmart (WMT)…

A chronically weak job market is pinching lower-income consumers — some of whom can’t even afford to shop at Walmart anymore.

The digital revolution has left Walmart at a disadvantage against etailers such as Amazon (AMZN), which has 7 times’ Walmart’s online revenue, and a much smaller physical footprint to manage.

With Walmart tied so closely to the fortunes lower-middle-class Americans, it’s no exaggeration to say that, as goes Walmart, so goes America. And vice versa…

A century ago, Henry Ford famously doubled the pay of his workers — to $5 per day — to reduce turnover and make his production lines more efficient. That move had the added benefit of raising living standards for Ford workers and helping establish the modern middle class.

Even though Walmart is the nation’s largest employer — with 1.3 million U.S. workers — it seems highly unlikely it could achieve anything similar to what Henry Ford did. Global competition gives retailers little room to raise costs without giving away pricing advantages. And fading demand for lesser-skilled workers lacking a college degree leaves few companies with a real incentive to raise wages, aside from earning a bit of public goodwill. Before Henry Ford doubled wages, his workers often left for other blue-collar jobs in a booming industrial economy. Most Walmart workers lack such options.

Amazon is nonunion, too.  But Amazon founder, Jeff Bezos, donated $2.5 million to support gay marriage in Washington State.  Donates primarily to Democrat candidates.  And supports an Internet sales tax (see What Are Jeff Bezos’s Political Leanings, and How Might They Shape the Washington Post? by David A. Graham, The Atlantic, posted 8/5/2013 on the National Journal).  So there are things the left likes about Amazon.  But they only have about 100,000 employees to Wal-Mart’s 2.2 million.  Which is why the left has an all out assault on Wal-Mart.  Because they want to unionize those 2.2 million.  For 2.2 million people would provide a lot of union dues.

Unionization or a higher minimum wage does not build a strong middle class.  A strong economy does.  That’s what helped Henry Ford raise his wages.  To keep his best workers from quitting so they could take higher paying jobs elsewhere.  Which is how people earn more money.  When an economy is so robust that there are more jobs than people to fill them.  Requiring employers to pay more to attract workers.  Not by forcing employers to pay more.  Especially during a weak economy.  When a business’ margins couldn’t be thinner.  Leaving them unable to raise wages without cutting workers.  Which the left will be glad to see.  Lost jobs.  As long as those remaining are union jobs.

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The BLS Employment Situation Summary for January 2014

Posted by PITHOCRATES - February 17th, 2014

Economics 101

The Unemployment Rate is 13.6% when you count all Unemployed Workers

The economy is getting better and better.  There are more new jobs.  And the unemployment rate continues to fall.  According to the Bureau of Labor Statistics (BLS).  But this is little succor for the 10,948,000 who have lost their job since President Obama began trying to make the economy better.  No matter what the BLS says (see the Employment Situation Summary posted 2/7/2014 on the Bureau of Labor Statistics).

Total nonfarm payroll employment rose by 113,000 in January, and the unemployment rate was little changed at 6.6 percent, the U.S. Bureau of Labor Statistics reported today.  Employment grew in construction, manufacturing, wholesale trade, and mining…

Among the major worker groups, the unemployment rates for adult men (6.2 percent), adult women (5.9 percent), teenagers (20.7 percent), whites (5.7 percent), blacks (12.1 percent),and Hispanics (8.4 percent) showed little change in January. The jobless rate for Asians was 4.8 percent (not seasonally adjusted), down by 1.7 percentage points over the year. (See tables A-1, A-2, and A-3.).

The number of long-term unemployed (those jobless for 27 weeks or more), at 3.6 million, declined by 232,000 in January. These individuals accounted for 35.8 percent of the unemployed. The number of long-term unemployed has declined by 1.1 million over the year.  (See table A-12.)

Once again there are more new jobs and the unemployment rate fell.  Further proof the Obama administration says that their policies are working.  But the low unemployment rate is misleading.  As there are 91,455,000 people who are no longer in the labor force (see Table A-1. Employment status of the civilian population by sex and age).  An increase of 10,948,000 since President Obama entered office.  The BLS doesn’t count these unemployed people as unemployed in their calculation of the official unemployment rate.  If you did that would raise the unemployment rate to 13.6%.  Which is a lot higher than the official 6.6%.  And better reflects public sentiment on the economy.

Ironically, the people hurt most by the Obama economic policies—teenagers, blacks and Hispanics—are also the biggest supporters of the president.  Which tells us they obviously support him for reasons other than the economy.  And apparently put those reasons above having a job.  At least based their respective unemployment rates.

If we count all Unemployed and Underemployed the Current Economic Recovery would take more than 20 Years

Of the people they actually count as unemployed about a third of them have been unemployed for 27 weeks or more.  So a large percentage of the unemployed are not suffering from frictional unemployment.  That brief period of unemployment between jobs.  No.  These people have lost their jobs.  And can’t find new ones.  While others can find only part-time jobs.

The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) fell by 514,000 to 7.3 million in January. These individuals were working part time because their hours had been cut back or because they were unable to find full-time work. (See table A-8.)

In January, 2.6 million persons were marginally attached to the labor force, little changed from a year earlier. (The data are not seasonally adjusted.) These individuals were not in the labor force, wanted and were available for work, and had looked for a job sometime in the prior 12 months. They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey. (See table A-16.)

If you add the people up who want a full-time job but can’t get one that’s 9,900,000 who can’t find a full-time job.  If we only add 113,000 jobs a month it will take over 87 months to get these people the full-time jobs they want.  Or more than 7 years.  If we count the last 5 years of the Obama presidency it will take the economic recovery out to 12 years.  If we add the people who have left the labor force to the underemployed (the part-time workers looking for a full-time job) that would extend the economic recovery to 244 months.  Or more than 20 years.  Which is longer than the length of the economic recovery following the Great Depression.

The Obama administration still blames George W. Bush for causing the Great Recession.  But one thing they do say over and over is that it was the worst economic disaster since the Great Depression.  So they are saying that the Great Depression was worse than the Great Recession.  Yet the current economic recovery is on track to last longer than the economic recovery following the Great Depression.

President Obama’s Economic Recovery is on Course to be the Worst Economic Recovery in U.S. History

The Great Depression and the Great Recession share something in common.  In both the government used Keynesian economics to try and pull the nation out of the economic crisis.  With huge government stimulus spending.  You can see evidence of the FDR spending today.  Such as the Hoover Dam.  But you can see little evidence from President Obama’s stimulus spending.  For there are no Hoover Dams anywhere.  Just a lot of empty buildings that housed failed green energy industries.  With no new jobs to show for it.  Such as those good-paying jobs in the green energy industry that President Obama promised his stimulus spending would produce.  But, alas, it did not.  In fact, that’s just one thing this administration is not good at.  Creating jobs.  Even the jobs they created appear suspect.

Employment in manufacturing increased in January (+21,000). Over the month, job gains occurred in machinery (+7,000), wood products (+5,000), and motor vehicles and parts (+5,000). Manufacturing added an average of 7,000 jobs per month in 2013.

In January, wholesale trade added 14,000 jobs, with most of the increase occurring in nondurable goods (+10,000).

Mining added 7,000 jobs in January, compared with an average monthly gain of 2,000 jobs in 2013…

Employment in other major industries, including transportation and warehousing, information, and financial activities, showed little or no change over the month.

These numbers don’t make sense.  Much like Keynesian economics.  The economy created jobs in manufacturing (machinery, wood products, motor vehicles and parts).  Wholesale trade added jobs.  Mining added jobs.  But this new economic activity required no new financing.  Which is odd.  For it takes money to make money.  Also, there were no new jobs in transportation and warehousing.  Which begs the question.  What did they do with all the stuff they made from all those new manufacturing jobs?  Did it ever leave these factories?  Or is there another explanation?  Did the people who entered the labor force just replace people who left it?  For no net change?  Perhaps.

The manufacturing workweek declined by 0.2 hour to 40.7 hours, and factory overtime edged down by 0.1 hour to 3.4 hours.

Or perhaps this explains how they could add jobs in an industry that required no additional financing, transportation or warehousing.  Hiring new workers while shortening the workweek and cutting back on overtime.  Or a combination of this and people leaving the labor force to net out any economic gain from these new jobs.  Whatever the explanation is one thing is certain.  The economy is not improving.  And President Obama’s economic recovery is on track to be the worst economic recovery in U.S. history.  Despite the glowing jobs reports showing new job creation month after month.  And a continuing falling unemployment.  Things they can only show by not counting the 10 million or so who are no longer employed.

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The BLS Employment Situation Summary for December 2013

Posted by PITHOCRATES - January 13th, 2014

Economics 101

The Labor Force Participation Rate has Fallen Steadily since President Obama became President

Ever since the recovery summer of 2010 the Obama administration has told us the recession was over.  And his policies were creating one heck of an economic recovery.  Backed up by all those glowing monthly jobs reports. Like the December 2013 jobs report (see Employment Situation Summary posted 1/10/2014 on the Bureau of Labor Statistics).

The unemployment rate declined from 7.0 percent to 6.7 percent in December, while total nonfarm payroll employment edged up (+74,000), the U.S. Bureau of Labor Statistics reported today.

The unemployment rate is down.  And new jobs were created.  Again.  Jobs report after jobs report it’s the same thing.  The administration touts the falling unemployment rate and new job creation as confirmation that their economic policies are working.  Even though it’s been 5 years.  And the economy is still in the toilet.  Despite that falling unemployment rate.  For there is a reason why the unemployment rate is falling.  And it has nothing to do with an economic activity.

The civilian labor force participation rate declined by 0.2 percentage point to 62.8 percent in December… The labor force participation rate declined by 0.8 percentage point over the year…

In fact, the labor force participation rate has fallen steadily since President Obama became president.  This is not good.  In fact, it’s very bad.  Because it means that under President Obama’s economic policies more people have left the labor force than entered or remained in it.  Meaning that his economic policies have caused a net loss of jobs throughout his presidency.

The U-6 Unemployment Rate is Closer to the Bitter Sentiment of Job Seekers in the Current Economic Climate

In January of 2009 when President Obama began his presidency there were 80,507,000 people not in the labor force.  At the end of December 2013 that number grew to 91,808,000.  Subtracting one from the other and you get 11,301,000 people that have left the labor force since President Obama entered office.  Because his policies destroyed 11,301,000 jobs.  And because these people couldn’t find new jobs they just gave up looking.  Which is why the unemployment rate keeps falling.

So you can talk of new jobs created.  And a falling unemployment rate.  But those numbers don’t reflect the 11,301,000 jobs President Obama destroyed with his policies.  Which comes to 260,200 jobs lost per year.  Or 188,350 each month.  Which is a lot more than the 74,000 new jobs.  In fact, if you look at the change in the number of people not in the labor force from November to December of 2013 you’ll see that 525,000 people left the labor force.  So the December jobs lost is about 2.8 times the average jobs lost during the Obama presidency.  And giving a ratio of about 7 jobs lost for every new job created in December.  Making December a horrible month for jobs.  Much worse than the 6.7% unemployment rate would have us believe.

The funny thing about the official unemployment rate is that the Bureau of Labor Statistics (BLS) doesn’t count people who quit looking for a job.  Or who are working part-time because they can’t find a full-time job.  If we want an alternative measure of labor underutilization (that counts more people who can’t find a full-time job) we should look at the U-6 unemployment rate.  We can find this number in the same BLS jobs report (in Table A-15).  Which was 13.1% for December 2013.  An unemployment rate much closer to the bitter sentiment of job seekers in the current economic climate.

We will have to Wait through many more Bad Jobs Reports before we can Enjoy a Healthy Economy Again

The Employment Situation Summary confirms the horrible economy.  Though misleading with these falling unemployment rates the real economic picture is still in these reports.  All you have to do is look for them.  And understand what they mean.  For example:

In December, job gains occurred in retail trade and wholesale trade…

Employment in retail trade rose by 55,000 in December. Within the industry, job gains occurred in food and beverage stores (+12,000), clothing and accessories stores (+12,000), general merchandise stores (+8,000), and motor vehicle and parts dealers (+7,000)…

In December, wholesale trade added 15,000 jobs. Most of the job growth occurred in electronic markets and agents and brokers (+9,000).

Note that of the 74,000 new jobs 70,000 (94.6%) of them were in retail and wholesale trade.  Which is not surprising when you consider what’s in December.  Christmas.  (While near-zero interest rates sold cars to people who would otherwise not buy them.)  The final sprint of retailers for the year.  And when many of them go firmly into the black.  But while the Christmas surge on employment was underway other sectors did not fare as well.

Within the [professional and business services] industry, temporary help services added 40,000 jobs in December, while employment in accounting and bookkeeping services declined by 25,000.

Businesses add temporary workers when they have a surge in sales they believe won’t last.  And don’t want to have more permanent workers on their payroll when that surge in sales ends.  For it is easier to let temps go than full-time workers.  And less costly.  Accounting and bookkeeping services aren’t the most glamorous of services.  When the economy is growing businesses have more accounting and bookkeeping work.  But when the economy is contracting businesses have less accounting and bookkeeping work.  So a decline here could indicate an economic contraction.

The December 2013 jobs report is bleak.  Just as the oncoming winter looks in December.  Knowing we’ll have to wait through a long and cold winter before we can enjoy the warmth of summer again.  Just as we know we will have to wait through many more bad jobs reports before we can enjoy a healthy economy again.  Thanks to the horrific economic policies of the Obama administration that have failed to work these past 5 years.

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Black Friday

Posted by PITHOCRATES - December 2nd, 2013

Economics 101

Black Friday kicks off the Retailer Sprint at the Homestretch of the Retailing Year

The Thanksgiving weekend is over.  As is Black Friday.  It came.  We shopped.  And now it’s gone.  But have you ever wondered why we call it Black Friday?  Why do we call something so many people look forward to and enjoy ‘black’.  A color more associated with death and mourning?  Because of accounting.  That’s why.  Or so goes the myth.

Retailers survive on razor thin margins.  And many are lucky to break even through most of the year.  While occasionally their costs exceed their revenue.  And when that happens a business is in the ‘red’.  Which is a bad thing.  For if a business is in the ‘red’ too long it can go out of business.  Enter Black Friday.  Which kicks off the retailer sprint at the homestretch of the retailing year.  And the day retailers finally get well out of the red.  And comfortably into the black.

Retailers get most profitable in the last month of the year.  Because of Christmas.  As we celebrate the birth of Jesus of Nazareth by buying Christmas presents for our loved ones.  A bit off message for the true meaning of Christmas.  But it’s now part of the American tradition.  Because we love giving and receiving presents.  Something retailers are grateful for.  For it allows them to become profitable (or much more profitable) based on one month’s worth of sales.  After treading water for the first 11 months.

Accessories and Impulse Buying make for a Successful Black Friday

So what is the secret for a successful Black Friday?  It’s a two-prong strategy.  Get people into the stores with deep discounting.  Things stores break even on or even lose money.  And try to get them to buy other things once they are in the stores.  Things that have little discounting.  And higher markups.  They accomplish this through two tactics.  Accessories.  And impulse buying.

Impulse buying is getting people to buy things they did NOT come into the store to buy.  Retailers will space the discounted items strategically throughout the store.  And place items with higher markups on the pathway to the discounted items.  Things that are so good that people say, “That looks like something I want.  And I’m in such good spirits because of the huge savings on that other thing I’ve always wanted that I’ll throw this into the cart, too.  Why not?  After all, ’tis the season to be jolly.”

Unlike impulse buying accessories are not things that we fall in love with when we see them.  Accessories are the things that allow us to enjoy those discounted things more.  Things that are a pretty good bet that we will buy them.  So they mark these items up a lot.  You may buy a discounted television and home theatre system but the cables that connect the pieces together are typically not included.  A laptop needs a bag to carry it in.  Electronic toys need batteries.  Video game systems need video games.  Smart phones need service contracts.  Printers need paper and extra ink cartridges.  Etc.  Things few people rush excitedly to the store to buy.  But often buy them because they increase the enjoyment of those steep discounted items.

It’s a Good Time to Buy and Sell Stocks but a Bad Time to buy Groceries and Christmas Presents

There is one other element needed for a successful Black Friday.  People must have disposable income.  Or they must be confident in their employment.  Such that they are willing to run up their credit cards because they are relatively certain that they’ll have a paycheck for the indefinite future.  If people don’t have this then all the discounting in the world won’t help make Black Friday a success.  So the prevailing economy matters.  As does the economic outlook.  In fact, the success of Black Friday can tell us the true state of the economy.  And how people feel about the economic outlook.

So what has this Black Friday told us about the state of the economy?  That it’s bad (see Black Friday Weekend Spending Drop Pressures U.S. Stores by Matt Townsend posted 12/2/2013 on Bloomberg).

The first spending decline on a Black Friday weekend since 2009 reinforced projections for a lackluster holiday, increasing chances retailers will extend the deep discounts already hurting their profit margins.

Purchases at stores and websites fell 2.9 percent to $57.4 billion during the four days beginning with the Nov. 28 Thanksgiving holiday, according to a survey commissioned by the National Retail Federation. While 141 million people shopped, about 2 million more than last year, the average consumer’s spending dropped 3.9 percent to $407.02, the survey showed…

For the fourth year in a row, disposable incomes in 2013 have only inched up and job growth remains inconsistent. As a result, low-income Americans will again have a less-merry season than affluent consumers, who are more flush thanks in part to surging U.S. stock markets, which have attained all-time highs. Consumer confidence declined in November to a seven-month low, according to the Conference Board.

“Consumers are generally not in a great mood, feeling very uneasy about the economy and their jobs, and are looking for value this year,” Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Connecticut, wrote today in a note to clients. “They have their list and will check it twice, but they are not going to the mall and grabbing a bunch of random stuff because it is on sale or looks nice…”

This kind of so-called mission shopping, where a consumer buys one bargain-priced item and then leaves, will hurt profit margins, Goyal said. It may also explain why the number of shoppers increased and their spending fell, she said…

While traffic at the Mall of America was higher than last year, shoppers planned ahead of time where they were going and what they were buying, said Maureen Bausch, the mall’s executive vice president. There was “a lot of mission shopping, and you don’t normally see that until later in the season,” she said.

That’s bad news for retailers, who normally get about 20 percent of their holiday sales from impulse purchases, said Marshal Cohen, chief retail analyst for NPD Group Inc.

More people shopped but each shopper spent less.  Resulting in an overall spending decline.  The first since 2009.  The last year of the Great Recession.  The worst recession since the Great Depression.  So these numbers are not good numbers.  And they’re not good because of the economy.  Disposable incomes are flat.  People are worried about the economy.  And worried about losing their jobs.  If they haven’t already.  So there is no impulse buying.  Only mission shopping.  Getting the one thing they came in for.  And then leaving the store without buying anything else.  Because they haven’t a dime to spare.  The economy and economic outlook are that bad.

Over 10 million people have left the labor force since President Obama assumed office.  Making for a bleak Christmas on Main Street.  But Wall Street is doing well under the Obama recovery.  While quantitative easing has raised grocery prices (or reduced portion sizes) that perpetual inflation has inflated stock prices.  And real estate prices.  Making it a good time to make money buying and selling expensive assets.  But a terrible time to buy groceries.  And Christmas presents.

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Alphabet and Writing

Posted by PITHOCRATES - November 27th, 2013

Technology 101

(Originally published November 23rd, 2011)

The Necessary Information to Survive in Prehistory was Minimal and did not Require a Written Language

Hunters and gatherers had little need for language.  For they did little in life but hunt, gather, eat, sleep and propagate the species.  Much like wildlife today.  Such as feral cats.  Abandoned house cats.  Who mate and produce more feral cats.  And these animals are survivors.  They hunt.  Gather food from human garbage.  Eat.  Sleep.  And reproduce.  If you ever had any in your neighborhood you know that they can be very loud, too.  Making a variety of sounds.  Meows, cries, growls and hisses.  Not an advanced language.  But sufficient to survive.  And enough to keep you from trying to pick one up.

Early man was similar to feral cats.  They had a limited language.  That allowed them to survive.  And make modest advances.  They made tools out of stone.  Used fire.  Made clothes from animal hides.  Even left art on the walls of caves.  Far more than any wild animal ever did.  But they didn’t do much more.  If they did it was probably nothing to write about.  Because they didn’t.  Write about it.  Either because they had no written language.  Or because they were a modest people.

History starts with written language.  Before that we have only archaeology.  And best guesses.  But based on the archaeology they weren’t doing much.  Other than surviving.  And in these prehistory times life was pretty simple.  See above.  The necessary information to survive was minimal.  Eat.  And don’t die.  It wasn’t necessary to write that down.  So they didn’t.  Memory was more than sufficient.  And it was like that for millions of years.

The Phoenician Alphabet was the Basis for the Greek and Latin Alphabets

But then the simple became complex.  There were food surpluses that allowed a division of labor that led to trade.  And a burgeoning economy.  Which required a more sophisticated way of communicating.  And a system of maintaining records of economic exchanges.  For memory and talking just wasn’t good enough anymore.

In the 4th millennium BC, in Mesopotamia, this began with clay tokens to represent an economic commodity.  And the first system of accounting was simply counting and storing these tokens.  But as the division of labor produced an ever more complex economy, the number of tokens used became too great.  So they represented the economic commodity with a symbol scratched in a clay tablet.  Instead of counting tokens they read these tablets.  We call this writing cuneiform.   Which was later used to write down the spoken Sumerian language.

Over time we developed alphabets.  We represented the sounds of the words we spoke with letters.  The Phoenician alphabet being one of the first alphabets.  Used by one of the greatest traders and merchants of all time.  The Phoenicians.  Which spread this language around.  Giving rise to Canaanite and Aramaic.  Aramaic giving rise to Arabic and Hebrew.  Incidentally, all languages without vowels.  But the granddaddy of all alphabets was Greek.  Which added vowels.  And formed the basis for Latin.  As well as all other western languages.

We Know about the Glory of Greece and the Grandeur of Rome because they Wrote about It

Athens was the cradle of modern civilization.  The Athenian empire grew because it was based on a complex trade economy.  Ditto for the Roman Empire.  At the height of their power the civilized world spoke their languages.  Conducted their trade in Latin or Greek.  Wrote their laws in Latin or Greek.  Conducted their diplomacy in Latin or Greek.  Why?  Because they could.  Their alphabets and their written language allowed them to manage the complex.

And they wrote.  A lot.  We know so much about Greece and Rome because we can read what they wrote.  And we can build on the glory that was Greece.  And the grandeur that was Rome.  Because we, too, have complex trade economies.  Giving us comforts in life that not even the Greeks or Romans could have dreamt about.

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Division of Labor

Posted by PITHOCRATES - November 4th, 2013

Economics 101

(Originally published October 24th, 2011)

The Division of Labor gives us our Houses, Food, Cars, Televisions, Smartphones, Laptops and the Internet

We can’t do everything ourselves.  It’s not efficient.  And most times not even possible.  We don’t build our own houses.  Grow our own food.  Build our own cars.  Manufacture our own high-definition televisions.  Smartphones.  Laptops.  And we don’t build our own Internet.  No.  Instead, people everywhere across the economy specialize in one thing (i.e., work for a living).  And together these specialists fit into the big economic picture.  Which gives us our houses, food, cars, televisions, smartphones, laptops and the Internet.

It started with the most basic division of labor.  Prehistoric women raised their young.  While prehistoric man hunted.  Which was necessary for the propagation of the species.  And us.  For if they all hunted and no one nursed the young the young would have died.  And with them the species of man.  For there was no formula back then.

The next great leap forward on the civilization timeline was the indispensible plough.  The prime mover of civilization.  With the food problem managed, famines were more the exception than the rule.  And with fewer people needed to produce a food surplus, people could do other things.  And they did.

The Division of Labor let us Create Surpluses in Food, Ploughs, Shoes, Tools, Harnesses, Etc.

The division of labor gave rise to artisans.  The first skilled trades.  Made possible by a food surplus.  As other people grew the food the artisans made the tools and crafts the farmers used.  They specialized in plough making and designed and built better and better ploughs.  Lots of them.  Shoemakers made shoes.  Lots of them.  Metal workers made tools.  Lots of them.  Leatherworkers made harnesses.  Lots of them.  See the pattern?

The food surplus gave us surpluses in ploughs, shoes, tools, harnesses, etc.  The division of labor let us create these surpluses.  Specialists made continual improvements in their areas of specialization.  Producing better things.  And more of them.  Which led to another key to the advanced civilization.  Trade.

The shoemaker didn’t have to grow food.  He could trade shoes for food.  Ditto for the plough maker.  The metal worker.  The leatherworker.  And the farmers didn’t have to make any of these things because they could trade food for them.  So we became traders.  We created the market.  And traders took their goods and/or services to these markets to trade for other goods and/or services.  First by foot.  Then by animal.  Then by boat.  Then by train.  Then by truck.  Then by airplane.  Artisans (i.e., workers) traded their specialization for the product and/or services of another’s specialization.  Then.  And now.

The Division of Labor made the Complex Simple and our Lives Rather Comfortable and Fun

The division of labor gave rise to the artisan.  The skilled trade worker.  The middle class.  People who can specialize in one thing.  And trade that one thing for the other things he or she wants.  Whether it be a skilled blacksmith hammering out farming tools.  A tool and die maker working in a factory.  An accountant.  Or a software engineer.  We have a skill.  Our human capital.  And we trade that skill to get the other things we’re not skilled in.  The end result is a modern, bustling, free market economy.  An advanced civilization.  And a high standard of living.

All thanks to the division of labor.  Which made the complex simple.  And our lives rather comfortable.  And fun.  Unlike prehistoric man.  Who knew of no such things as iPhones.  Indoor flush toilets.  Movie theaters.  Or restaurants.  No, he didn’t do much other than survive.  Which was no easy thing.  But he did.  And for that we are grateful.

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Keynesian Economics

Posted by PITHOCRATES - October 14th, 2013

Economics 101

(Originally published February 20th, 2012)

John Maynard Keynes said if the People aren’t Buying then the Government Should Be

Keynesian economics is pretty complex.  So is the CliffsNotes version.  So this will be the in-a-nutshell version.  Keynesian economics basically says, in a nut shell, that markets are stupid.  Because markets are full of stupid people.  If we leave people to buy and sell as they please we will continue to suffer recession after recession.  Because market failures give us the business cycle.  Which are nice on the boom side.  But suck on the bust side.  The recession side.  So smart people got together and said, “Hey, we’re smart people.  We can save these stupid people from themselves.  Just put a few of us smart people into government and give us control over the economy.  Do that and recessions will be a thing of the past.”

Well, that’s the kind of thing governments love to hear.  “Control over the economy?” they said.  “We would love to take control of the economy.  And we would love to control the stupid people, too.  Just tell us how to do it and our smart people will work with your smart people and we will make the world a better place.”  And John Maynard Keynes told them exactly what to do.  And by exactly I mean exactly.  He transformed economics into mathematical equations.  And they all pretty much centered on doing one thing.  Moving the demand curve.  (A downward sloping graph showing the relationship between prices and demand for stuff; higher the price the lower the demand and vice versa).

In macroeconomics (i.e., the ‘big picture’ of the national economy), Keynes said all our troubles come from people not buying enough stuff.  That they aren’t consuming enough.  And when consumption falls we get recessions.  Because aggregate demand falls.  Aggregate demand being all the people put together in the economy out there demanding stuff to buy.  And this is where government steps in.  By picking up the slack in personal consumption.  Keynes said if the people aren’t buying then the government should be.  We call this spending ‘stimulus’.  Governments pass stimulus bills to shift the demand curve to the right.  A shift to the right means more demand and more economic activity.  Instead of less.  Do this and we avoid a recession.  Which the market would have entered if left to market forces.  But not anymore.  Not with smart people interfering with market forces.  And eliminating the recession side of the business cycle.

Keynesians prefer Deficit Spending and Playing with the Money Supply to Stimulate the Economy

Oh, it all sounds good.  Almost too good to be true.  And, as it turns out, it is too good to be true.  Because economics isn’t mathematical.  It’s not a set of equations.  It’s people entering into trades with each other.  And this is where Keynesian economics goes wrong.  People don’t enter into economic exchanges with each other to exchange money.  They only use money to make their economic exchanges easier.  Money is just a temporary storage of value.  Of their human capital.  Their personal talent that provides them business profits.  Investment profits.  Or a paycheck.  Money makes it easier to go shopping with the proceeds of your human capital.  So we don’t have to barter.  Exchange the things we make for the things we want.  Imagine a shoemaker trying to barter for a TV set.  By trading shoes for a TV.  Which won’t go well if the TV maker doesn’t want any shoes.  So you can see the limitation in the barter system.   But when the shoemaker uses money to buy a TV it doesn’t change the fundamental fact that he is still trading his shoemaking ability for that TV.  He’s just using money as a temporary storage of his shoemaking ability.

We are traders.  And we trade things.  Or services.  We trade value created by our human capital.  From skill we learned in school.  Or through experience.  Like working in a skilled trade under the guidance of a skilled journeyperson or master tradesperson.  This is economic activity.  Real economic activity.  People getting together to trade their human capital.  Or in Keynesian terms, on both sides of the equation for these economic exchanges is human capital.  Which is why demand-side economic stimulus doesn’t work.  Because it mistakes money for human capital.  One has value.  The other doesn’t.  And when you replace one side of the equation with something that doesn’t have value (i.e., money) you cannot exchange it for something that has value (human capital) without a loss somewhere else in the economy.  In other words to engage in economic exchanges you have to bring something to the table to trade.  Skill or ability.  Not just money.  If you bring someone else’s skill or ability (i.e., their earned money) to the table you’re not creating economic activity.  You’re just transferring economic activity to different people.  There is no net gain.  And no economic stimulus.

When government spends money to stimulate economic activity there are no new economic exchanges.  Because government spending is financed by tax revenue.  Wealth they pull out of the private sector so the public sector can spend it.  They take money from some who can’t spend it and give it to others who can now spend it.  The reduction in economic activity of the first group offsets the increase in economic activity in the second group.   So there is no net gain.  Keynesians understand this math.  Which is why they prefer deficit spending (new spending paid by borrowing rather than taxes).  And playing with the money supply.

The End Result of Government Stimulus is Higher Prices for the Same Level of Economic Activity

The reason we have recessions is because of sticky wages.  When the business cycle goes into recession all prices fall.  Except for one.  Wages.  Those sticky wages.  Because it is not easy giving people pay cuts.  Good employees may just leave and work for someone else for better pay.  So when a business can’t sell enough to maintain profitability they cut production.  And lay off workers.  Because they can’t reduce wages for everyone.  So a few people lose all of their wages.  Instead of all of the people losing all of their wages by a business doing nothing to maintain profitability.  And going out of business.

To prevent this unemployment Keynesian economics says to move the aggregate demand curve to the right.  In part by increasing government spending.  But paying for this spending with higher taxes on existing spenders is a problem.  It cancels out any new economic activity created by new spenders.  So this is where deficit spending and playing with the money supply come in.  The idea is if the government borrows money they can create economic activity.  Without causing an equal reduction in economic activity due to higher taxes.  And by playing with the money supply (i.e., interest rates) they can encourage people to borrow money to spend even if they had no prior intentions of doing so.  Hoping that low interest rates will encourage them to buy a house or a car.  (And incur dangerous levels of debt in the process).  But the fatal flaw in this is that it stimulates the money supply.  Not human capital.

This only pumps more money into the economy.  Inflates the money supply.  And depreciates the dollar.  Which increases prices.  Because a depreciated dollar can’t buy as much as it used to.  So whatever boost in economic activity we gain will soon be followed by an increase in prices.  Thus reducing economic activity.  Because of that demand curve.  That says higher prices decreases aggregate demand.  And decreases economic activity.  The end result is higher prices for the same level of economic activity.  Leaving us worse off in the long run.  If you ever heard a parent say when they were a kid you could buy a soda for a nickel this is the reason why.  Soda used to cost only a nickel.  Until all this Keynesian induced inflation shrunk the dollar and raised prices through the years.  Which is why that same soda now costs a dollar.

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President Obama’s Policies are Destroying the Economy and Transforming the Country in a Bad Way

Posted by PITHOCRATES - September 7th, 2013

Week in Review

Is President Obama the worst president ever?  Perhaps.  Based on what he has done to the economy.  FDR and LBJ caused great damage and destroyed families by putting us on the path President Obama has taken us further down than any other president.  Towards European socialism.  It’s all there in history.  And the economic numbers.  How activist governments destroy everything that made capitalist countries great.  Thrift.  Frugalness.  Working hard to save for your future.  Which created a strong banking system.  Where people deposited their money.  Creating investment capital.  And bankers practiced sound lending practices.  And suffered the consequences of making risky loans.  Unlike today.  Thanks to Keynesian economics.  And a monetary policy that controls and plays with interest rates to create artificial demand that causes great bubbles.  And prolonged recessions.  Ever since governments took control of interest rates and began printing money to finance the growth of their activist governments they have set countries everywhere on the path to financial ruin.  And bankruptcy.  As government spending outgrew the ability of taxes to pay for it.  And then the debt grew so great they struggled to finance it.

But it doesn’t deter the Keynesians from trying the same failed policies of the past.  They continue to intervene into the private sector economy.  And when they cause great economic damage they just report bad economic news as good (see Employment Situation Summary by the Bureau of Labor Statistics posted 9/6/2013).

Total nonfarm payroll employment increased by 169,000 in August, and the unemployment rate was little changed at 7.3 percent, the U.S. Bureau of Labor Statistics reported today.  Employment rose in retail trade and health care but declined in information.

Sounds good.  Things are good.  The economy added new jobs.  Fans of the Obama administration are trumpeting this as good news.  And proof that the Obama economic policies are working.  But if you take a close look at the jobs data you find that the economy is horrible.  Because of President Obama.  And his awful, job-killing economic policies.  Such as Obamacare.  Greater regulatory policies.  And higher taxes.  President Obama has advanced (or tried to advance in the case of cap and trade) every policy that he could think of that causes great harm to the economy.  Is he doing this on purpose because he hates capitalism?  Or is he just another Keynesian who thinks that government is smarter than the people going about their business in the private sector economy?  Or both?

The unemployment rate (the official U-3 rate that counts about the fewest of the actual unemployed) has fallen from a high of 10% since he’s been president.  But it’s not because he’s creating jobs.  It’s because these people just gave up and left the labor force.  Because there are no jobs.  As the falling labor force participation rate clearly shows.

U-3 Unemployment Rate and Labor Force participation Rate Jan 2009- Aug 2013

Ever since President Obama took office the labor force participation rate has steadily declined.  Showing a steady trend of destroying jobs.  Not creating them.  If you want to know exactly how many jobs his policies have destroyed you can get that from the Bureau of Labor Statistics, too.  By subtracting the number of people NOT in the labor force when he took office in January 2009 (80,507,000) from the number of people NOT in the labor force from the August Jobs report (90,473,000).  And when you subtract 80,507,000 from 90,473,000 you get 9,966,000 jobs that President Obama and his economic policies have destroyed.  Just under 10 million people have left the labor force while President Obama has been president.  And yet they celebrate the creation of 169,000 jobs in August.

The economy is not good.  It’s not improving.  It will only improve when we finally abandon the failed Keynesian policies of the past.  And get the government out of the private sector economy. The way it was when America became the number one economic power in the world.  Before the progressives/liberals transformed the country into what it is today.  A dying European social democracy.  Where governments tried to give the people everything.  Only to bankrupt their countries.  And caused their people to riot when they couldn’t borrow enough money to keep giving the people what they had been giving them.  Which is usually what happens when you take stuff away from people who have gotten used to having that stuff.  Which is why Obamacare is so insidious.  And important to the left.  Once they make Obamacare a ‘third-rail’ program like Social Security and Medicare they know it will never go away.  No matter what economic damage it does.  Or how much it destroys the quality of health care.

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FT186: “Liberals are so bad at economics because they had no one in their lives to undo the bad education they got.” —Old Pithy

Posted by PITHOCRATES - September 6th, 2013

Fundamental Truth

Minimum-Wage Workers in Fast-Food and at Wal-Mart want a Living Wage for their Minimum-Wage Jobs

Wal-Mart workers are now demanding a living wage.  (Or people hired to protest the company the left loves to attack.)  Awhile back it was the fast-food workers demanding a doubling of the minimum wage.  So they could have a living wage.  Because they can’t raise their families with a minimum wage job.  So they want a pay rate beyond the pay rate of a minimum wage job.

So how much is earning $15/hour?  Well, if you work full-time and get the usual (2 weeks of vacation and holiday pay) that comes to 2080 (40 hours/week X 52 weeks/year) payroll hours a year.  At $15/hour that comes to $31,200 annually.  Which is the ‘living wage’ the fast-food workers want.  And no wonder.  According to the Bureau of Labor Statistics (see May 2012 National Occupational Employment and Wage Estimates) here are some other jobs that pay around $31,200 annually with what they do as noted by the Bureau of Labor Statistics:

Medical Assistants (Perform administrative and certain clinical duties under the direction of a physician. Administrative duties may include scheduling appointments, maintaining medical records, billing, and coding information for insurance purposes. Clinical duties may include taking and recording vital signs and medical histories, preparing patients for examination, drawing blood, and administering medications as directed by physician).  Medical Equipment Preparers (Prepare, sterilize, install, or clean laboratory or healthcare equipment. May perform routine laboratory tasks and operate or inspect equipment).  Ophthalmic Laboratory Technicians (Cut, grind, and polish eyeglasses, contact lenses, or other precision optical elements. Assemble and mount lenses into frames or process other optical elements. Includes precision lens polishers or grinders, centerer-edgers, and lens mounters).  Pesticide Handlers, Sprayers, and Applicators, Vegetation (Mix or apply pesticides, herbicides, fungicides, or insecticides through sprays, dusts, vapors, soil incorporation, or chemical application on trees, shrubs, lawns, or botanical crops. Usually requires specific training and State or Federal certification).  Pharmacy Technicians (Prepare medications under the direction of a pharmacist. May measure, mix, count out, label, and record amounts and dosages of medications according to prescription orders).  Phlebotomists (Draw blood for tests, transfusions, donations, or research. May explain the procedure to patients and assist in the recovery of patients with adverse reactions).  And Substitute Teachers (Teach students in a public or private school when the regular teacher is unavailable).

Some have worked Two or More Fast-Food/Retail Jobs so they could get the Education and Skills for a Higher-Paying Job

These are not entry-level jobs.  You just can’t walk in when you’re still a high school student, fill out an application and expect to get hired in any of these jobs.  They all take training/education beyond high school.  And require a license or certification.  Which requires an investment of time and money to get.  Usually including night school at the least.  And more often at least 2 years of college.  None of which is required for a minimum wage job.

So it’s no wonder people with minimum wage jobs want a pay rate that is beyond their skill-set.  Who wouldn’t?  Wouldn’t you want to get that higher pay without putting in that schooling?  That investment of time and money?  Things you probably can’t even do if you’re raising a family on a minimum wage job.  Or two.  But does that mean we should just pay these people more?  Would that be fair to the Medical Assistants, Medical Equipment Preparers, Ophthalmic Laboratory Technicians, Pesticide Handlers, Sprayers, and Applicators, Vegetation, Pharmacy Technicians, Phlebotomists and Substitute Teachers?

No.  It wouldn’t be fair to them.  For they would have made great sacrifices in their life to get those better paying jobs.  Because that is how you get a better-paying job.  In fact, some may have worked two or more fast-food/retail (such as Wal-Mart) jobs so they could get the education and skills these jobs required.  A lot of people working in fast-food/retail today may be doing the same thing.  For fast-food and retail offer two great things that allow these people to acquire these skills.  They will hire people without any skills (i.e., entry-level workers).  And fast-food and retail have many working schedules available.  Allowing single-parents to work when they have other arrangements for their children (school, daycare, parents, etc.).

The Hippies of the Sixties became Professors and then Moved on to Write the Curriculum

Instead of protesting fast-food and Wal-Mart we should be happy that at least someone in this horrible economy is actually hiring people when so few others are.  As President Obama’s economic policies have made such an anti-business environment.  The economy is so bad that just this past month another 516,000 have left the labor force (see Table A-1. Employment status of the civilian population by sex and age).  Which is the only reason why the unemployment rate fell.  Because of discouraged workers who couldn’t find a job just quit looking for a job.  But the government puts a positive spin on this by lauding the 169,000 new jobs the economy created.  Saying it’s further proof that President Obama’s economic policies are working.  Despite 516,000 who quit looking for jobs that are just not there.

If people are unhappy with their low-paying jobs in fast-food and retail they should be more upset about this economic destruction being waged by the Obama administration.  Which is the reason why fast-food and retail are the only businesses hiring today.  But there is no outrage.  Why?  Because most don’t understand economics.  And there is a reason why most people don’t.  It’s because of our education system.  Which the left has taken over.  Who write a curriculum that teaches students that capitalism and profits are unfair and bad while government and income redistribution so the rich pay their fair share is good.  And just.

A professor at Michigan State is the latest professor to illustrate the indoctrination of our young going on at our public schools and colleges.  Parents had to deal with their kids coming home from high school to hear how they were killing the polar bears because they drive cars.  But when these kids go to college this is the kind of stuff they encounter on a daily basis.  And he’s not the worst offender.  The worst offenders are those who don’t say outrageous things.  But who do it more subtly.  A smile, a smirk, a condescending remark—things that tell a young impressionable mind out from under their parents’ control for the first time that their parents were wrong.  Unless their parents were liberal.  They will believe almost anything these professors say.  Because they are very smart and must know far more than their parents.  And they treat these kids like adults.  And there is nothing that high school/college kids want more.  To be grown up.  It’s why they smoke cigarettes.  And have sex.  Because that’s what grownups do.

So is it any wonder that people have a poor understanding of economics?  Ever since the hippies of the Sixties couldn’t change the country from the outside they became professors to change it from the inside.  And then moved on to write the curriculum.  These people who hated capitalism.  And admired communism.  Which is why so many of them lived in communes in the Sixties.  These are the people writing the curriculum for our children.  Making sure our education system creates like-minded people.  To keep them voting Democrat until wisdom and experience opens their eyes.  And undoes the bad education they got.  This is why people think that it’s fair to pay minimum wage workers the same as Medical Assistants, Medical Equipment Preparers, Ophthalmic Laboratory Technicians, Pesticide Handlers, Sprayers, and Applicators, Vegetation, Pharmacy Technicians, Phlebotomists and Substitute Teachers.  Just to see how pervasive this indoctrination of our children is—and why people keep voting for those who keep trying the failed economic policies of the past—we should put a webcam in every classroom and lecture hall.  So parents—and the rest of America—can see the liberal dogma being fed to the young.  Making them think, and vote, the way they do.  Then we’ll know whether these are isolated incidences.  Or that it is in fact pervasive.  Explaining why so many people today have no understanding of economics.  That minimum-wage jobs are entry-level jobs.  And that if you want to raise a family you probably shouldn’t be voting Democrat.  Whose policies are making the only available jobs in this horrible economy those entry-level jobs.

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FT182: “Obamacare will do to health care what the Soviet Union did to their economy.” —Old Pithy

Posted by PITHOCRATES - August 9th, 2013

Fundamental Truth

The whole East versus West Cold War Showdown was a Battle between Capitalism and Socialism

If you’re not old you may not be familiar with the Soviet Union as it no longer exists.  The Soviet Union was also known as the USSR.  The Union of Soviet Socialist Republics.  And in that full name lies the key to understanding what the Soviet Union was.  That socialist part.  For the USSR was socialism on a grand scale.  Formed following the Russian Revolution of 1917.  Also known as the October Revolution.  When the revolutionaries toppled the Russian monarchy.  And set up a communist state.  Which spilled over in counties surrounding Russia.  And by ‘spilled over’ I mean they conquered those surrounding countries.

People like to make distinctions between communism and socialism but they’re the same thing with a little different window dressing.  Central to both ideologies is a hatred of free market capitalism.  And that enlightened state planners can do everything better than unfettered free markets.  For in socialism they put people before profits.  Whereas in that evil, greedy capitalism they put profits before people.

The whole East versus West showdown of the Cold War was about settling that question.  Which system of government was better?  The free market capitalism of the West?  Or the state planning of the East?  And for a clue to that answer go back to that first sentence.  Where I noted that the Soviet Union no longer exists.  In fact when that socialist utopia did exist those people on the inside dreamed of one thing.  Getting out.

Socialist States use Secret Police to coerce People to Stay and Work for the Greater Good

So why did the people want to get out of their socialist utopia?  Two reasons.  The first was the economy.  Which was horrible.  With state planners managing the economy people waited in line at stores for the things they needed.  Staring at empty shelves where those things should have been.  And seeing shelves full of stuff they didn’t want.  East Berliners risked their lives to climb over the Berlin Wall to get to West Berlin for a better life.  And to go to those stores full of wonderful Western goods.

This brings us back to that other reason.  Which ties into the Berlin Wall.  Which East Berliners risked their lives to climb over.  Why?  Because they couldn’t walk across the street to get to West Berlin.   Or drive there.  And why couldn’t they walk or drive to West Berlin?  Because the East German government wouldn’t allow them to.  The communists built the Berlin Wall because the best and brightest were leaving East Berlin for West Berlin.  And East Berlin, as well as East Germany, couldn’t survive if that brain-drain continued.

Given the choice the people would leave.  If they all left there would be no doctors, scientists, engineers, etc., required in a modern state.  And if they didn’t want to stay and work for the greater good the state used a secret police force (the Stasi, in East Germany) to coerce them to stay and work for the greater good.  To make sure people had the right attitudes and the right thoughts the Stasi spied on people.  Turned people into snitches.  Jailed people.  Tortured people.  And simply made people disappear.  By killing them.  And expunging them from the public record.  As if they never existed.

Liberals in the West loved the Soviet Union and National Health Care

Growing up in the West it’s hard to comprehend life in these socialist utopias.  Thankfully, there are some good movies that bring the fear and loathing of living in a socialist utopia to life.  There’s V for Vendetta.  And Nineteen Eighty Four.  Both set in a futuristic socialist Britain.  If you’re interested in seeing actual life in the former East Germany there’s The Lives of Others.  A movie everyone should watch.  As it is the inevitable destination of creeping socialism.  Life gets worse, not better.  People have less, not more.  And the further we creep towards socialism the worse things get.  And the less we have.

The Democrats passed Obamacare into law on strict party lines.  No Republicans voted for it.  Because history has shown that when the government manages things life gets worse, not better.  And people have less, not more.  This is the basis of the Republican opposition.  On Monday (8/9/2013) President Obama held a rare press conference.  Where he said the holy grail of the Republican Party is taking away health care from 30 million people.  Not their fear of creeping socialism.  Of their fear that health care will get worse, not better.  And that people will have less, not more.

The Soviet Union had national health care.  Liberals in the West loved it.  As they loved the Soviet Union.  College professors.  Public school teachers.  Hollywood.  Even the mainstream media.  Who were (and are) liberal Democrats.  Who all wanted what they had in the Soviet Union.  At least what they believed the Soviets had.  Because the Soviet press wrote glowingly about the Soviet economy.  And the high quality of Soviet health care.  Because enlightened state planners made things better.  Despite the Soviets and the eastern European countries having to use secret police to keep their people from escaping their socialist utopias.  Even with that free high-quality health care.  Because for those living in those utopias it wasn’t everything the liberals in the West thought it was.  Instead, for them, life got worse, not better.  And they had less, not more.  While suffering the brutal oppression of the secret police.

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