Among the issues most commonly discussed are individuality, the rights of the individual, the limits of legitimate government, morality, history, economics, government policy, science, business, education, health care, energy, and man-made global warming evaluations. My posts are aimed at intelligent and rational individuals, whose comments are very welcome.

"No matter how vast your knowledge or how modest, it is your own mind that has to acquire it." Ayn Rand

"Observe that the 'haves' are those who have freedom, and that it is freedom that the 'have-nots' have not." Ayn Rand

"The virtue involved in helping those one loves is not 'selflessness' or 'sacrifice', but integrity." Ayn Rand

For "a human being, the question 'to be or not to be,' is the question 'to think or not to think.'" Ayn Rand

19 September 2011

If Jobs are Foremost, This is How the Election Goes

It is often said that the need to create new jobs is priority one in the minds of Americans.  This may be, but it is not obvious how much weight people are really putting on jobs versus other concerns.  It also is not entirely obvious how many people correctly charge Obama with policies seriously destructive of jobs and which make it difficult for businessmen to calculate whether it makes sense to make a several year investment in a new hire or not.

I am going to make a quesstimate of what such a functional effect on the vote for a generic Republican presidential candidate might reasonably be and apply that function state by state based on the present unemployment rate to predict the shift in electoral votes from Obama's previous 2008 election result.  In that campaign, many Americans bothered to learn little about him and his total commitment to socialism, leftist environmentalism, anti-business bias, and his anti-fossil fuel bias, all of which have proven highly destructive of the economy and jobs.  I am proposing that many Americans have awoken to this reality.  John McCain mounted a feckless campaign and lost big to Obama in the electoral vote.  He lost many states that often vote for the Republican presidential candidate.  Of course, some states are full of people who will refuse to blame Obama even now for the jobs situation or people who so share his political philosophy of collectivism and anti-man religious environmentalism that they will be little driven to address the jobs problem.

Let us assume that the strength of the vote switch is proportional to how high the unemployment rate in a state is.  In fact, I will assume there is no effect for the purposes of this electoral vote projection if the unemployment rate is below 7%.  This is unlikely to be the case, but I want to make a reasonably conservative estimate of the shift in electoral votes.  Also, many people who recognize Obama as a jobs problem in the U.S. as a whole will still be more inclined to vote against him out of concern for those many Americans in states less fortunate than their own with respect to jobs.  The function I will use is:

[ 1 + 8 (State Unemployment % - 7%)/100 ] (% Vote for McCain)

If the projected percentage of the vote for a state becomes 50%, I shift that state's electoral votes to the generic Republican candidate, unless I judge the state's commitment to socialism to be so strong that I do not believe such a shift will occur.  Among the factors I consider in making that assessment are which party now controls the Governor's office and the houses of the state legislature.  Some states I believe will shift based on recent voting patterns in response to the Obama presidency and not entirely because of the state unemployment rate.  The tables below provide the unemployment rate for August 2011 for each state, whether it has gone up or down in the last year, which party controls the governor's office and the legislature, how the state voted in the 2008 election, what the percentage of the vote for McCain was, and my allotment of the electoral votes each state will have in the 2012 election.  The states that shift are in larger font.  Those in gray and larger font shift because of high unemployment according to the above function.

I will discuss each state with a shift or which may refuse to switch even though the unemployment rate would cause a shift if the people of that state were not completely wrongheaded.

California:  Unemployment is very high in CA and my function says the generic Republican should get 52.5% of the vote.  He will not, though he will be very competitive, as California goes.  No shift.

Colorado:  The function says the Republican will get 50.3% of the vote, but the governor and the state senate are controlled by the Democrats and unemployment in CO is somewhat less than the national average.  Colorado is full of religious environmentalists.  I am not now willing to predict a shift for Colorado.

Florida:  Unemployment is very high in Florida.  If those on Social Security and Medicare do not get the wrong idea about Republican intentions on those programs, Florida will shift.  Even McCain had 48.4% of the vote in 2008 and the formula based on the 10.7% unemployment says the generic Republican should be able to get 62.7% of the vote!  Given that Republicans now control the governorship and both state houses, only a goofball Republican would fail to carry the state.

Indiana:  The unemployment rate is less than the national average and McCain got 49.0% of the 2008 vote.  The function says the generic Republican gets 55.7% of the vote.  Since the governorship and both state houses are controlled by Republicans, Indiana will flip.

Maine:  The unemployment rate in self-sufficient Maine is only 7.6%, but the state has recently become solidly Republican.  I believe Maine will likely flip, but not only because of unemployment in the state.

Michigan:  The unemployment rate of 11.2% is very high and the state has moved solidly Republican because of this already.  Michigan should flip, since the formula says the generic Republican gets 54.6% of the vote.

Minnesota:  Unemployment is only 7.2% so jobs will not be as strong a factor here as in many states.  McCain did get 44.0% of the vote and both state houses are controlled by Republicans now.  A reasonable Republican candidate should be able to carry Minnesota.

Nevada:  The unemployment rate is the worst in the nation at 13.4%.  Nevada was booming before the recession and has totally collapsed.  It did vote Harry Reid back in, so I could be wrong about this one.  But, the formula says the generic Republican could get 64.6% of the vote on jobs, so he has a very good cushion to lose votes on other issues.  Nevada probably flips.

New Hampshire:  Unemployment is relatively low in NH at 5.3%, but it is a state of relatively minimalist government with both houses controlled by Republicans.  They are tired of the bumbling and big government Obama now and ready for a change.  NH flips.

North Carolina:  Unemployment is awful at 10.4% and McCain did get 49.5% of the vote.  Both houses of the legislature are Republican.  There should be no question that NC flips.

Ohio:  Unemployment is at the national average of 9.1% and McCain received 47.2% of the vote.  The Republicans have gained control of the governor's office and both state houses already.  The formula says Ohio gives the generic Obama opponent 55.1% of the vote, so he can afford to lose some votes on other issues.  Ohio flips.

Pennsylvania:  Unemployment is below the national average, perhaps because of the Republicans having already gained control of the governorship and both state houses.  Also, unlike Democrat controlled New York, Pennsylvania is eager to develop the rich gas fields in the massive Marcellus Formation and work on that is already providing significant new jobs.  Of course Pennsylvania has also been hurt by Obama's anti-coal policies as well.  PA flips, but not quite because of the formula.

Virginia:  Unemployment is comparatively low at 6.3%, so Virginia does not flip due to the formula.  But McCain did receive 46.4% of the vote here and VA has proven that it is not racist by having voted for Obama.  The governor and the lower house are Republican.  The state has been very actively fighting the constitutionality of ObamaCare.  Virginia has no recent history of being so solidly Democrat Socialist that it will stick with the highly socialist Obama.  Virginia corrects its prior mistake.

Wisconsin:  The unemployment rate is below the national average at 7.9%, so Wisconsin does not flip merely due to the local unemployment.  The flip is because the state has moved Republican generally with the Governor and both houses being Republican.

The end result is that the generic Republican, if he will keep the creation of private sector jobs the primary issue along with opposition to ObamaCare and growing government, will win by an electoral vote of 335 to Obama's 203.  My prediction of Maine, Minnesota, and Nevada switching sides in Obama's re-election effort are the most questionable at this time.  Giving them back to Obama still has him losing 315 to 223.

Of course, I am assuming a reasonable strength in American's interest in jobs here.  It will be interesting to see if I have a good sense of what that interest strength is.  I will be most interested in any readers thoughts on this.

07 September 2011

GDP and Industrial Output Comparisons by Country

I needed to find out if China was the number 1 manufacturing nation in the world or was it the United States?  This proved a bit more difficult question than I thought it would be.  But the CIA World Factbook had the information needed to determine this and to calculate the actual value of each of the three sectors into which they divide the GDP for the year 2010.  These sectors are Agriculture, Industry, and Services.  The results I found for the 7 nations with the largest GDPs expressed in dollars with purchasing power parity are given in the following table:

The answer to my original question is that the value of China's industrial output, which includes mining and construction, is $4.73 trillion, while that for the United States is $3.24 trillion.  China's industrial output is 46% greater than that of the United States.  No other nation comes close to having so much industrial output as China or the United States.  The value of China's agricultural output is also the largest in the world.  In this case, it is 6 times that of the United States.  It is the delivery of services that the U.S. excels in doing.

The per capital GDP for the United States is more than 6 times that of China.  Germany has the second highest per capita GDP on the list and that of the U.S. is 32% higher.  The United Kingdom and Japan both have per capita GDPs very nearly as great as that of Germany.  This group has a per capita GDP more than twice that of Russia, whose per capita GDP is more than twice that of China, whose per capita GDP is more than twice that of India.

Obama Kills Jobs and Resuscitates the Great Socialist Recession

Let us start off with a chart showing the number of jobs missing from our economy since January 2000 in thousands of jobs.  The number of missing jobs in January 2000 was equal to the number of unemployed people then who were looking for jobs or in some cases were simply taking some time off between jobs.  Jobs were plentiful then and had been for several years, so unemployment was only 4.0%.  Because of the boom and bust nature of the economy since then due to the Federal Reserve setting very low interest rates, the deficits run by our governments, increasing regulations and taxes, added energy costs due to drilling prohibitions, recent added uncertainty caused by ObamaCare and Dodd-Frank financial reform, and considerable class warfare and anti-business rhetoric, the number of missing jobs has increased greatly in the course of the last 11 years.

The number of missing jobs is calculated assuming that the same percentage of Americans would work today as did in January 2000 if good jobs were available.  The high tech bubble that burst in 2001 and 2002 had already created a situation with about 5 million more missing jobs than we had had at the beginning of the century.  In December 2007, the United States had not yet been much affected by the recession due to a sharp increase in the price of oil that was already hurting most other countries of the world.  But in 2008, companies began laying off employees and stopped hiring new employees.  This never-ending Great Socialist Recession was underway.

Since Obama occupied the White House, there has been no substantial or sustained return to normalcy.  The number of missing jobs for the last four months has been almost constant.  There was actually a small increase in the number of missing jobs in August, though the statistics are not really good enough to consider that a real effect.  What is real is that over the long term now, there has been no improvement.  This is not surprising since almost every action the Federal Government and the Federal Reserve have taken was effective in killing jobs, not in creating them.  Jobs are conserved in big businesses and many, many jobs are created by small businesses when the government does little to hurt their businesses.  The Federal Government and many state governments have worked very hard to create very tough business conditions and much uncertainty when American business already faced a world largely in recession and stiff competition from abroad.

Obama's socialist viewpoint, his servitude to labor unions, and his academic economic advisers with their belief in Keynesian economic theory, led him and the Democrats down a very wrongheaded path.  America is in misery because of this wrongheaded understanding of the economy and business by our ever more controlling central planners in Washington.  The private sector and Capitalist free market can do much better.

05 September 2011

Everything in the Democrat Economic Central Planning Arsenal is a Dud

The government told us the GDP growth rate in the first quarter was 1.8%, which is not a healthy growth rate at any time and is especially weak if an economy is recovering from a recession.  In May, the government increased that reported first quarter growth rate to 1.9%.  This was still not good, but it seemed to leave the door open to optimism that while recovery was slower than in other recessions, it would occur.  Then, the bottom fell out.  The first quarter GDP growth was revised downward to 0.4% and the second quarter GDP growth was said to be an anemic 1.3%, which has just been revised down to 1.0%.

Jobs growth is not keeping up with the growth in population.  The annual Consumer Price Index (CPI) stands at 3.6% and is running much higher in the last half year.  The average American worker workweek decreased by 0.1 hours and earnings fell by $0.03, which is no way to keep up with the inflation.  Labor productivity has very unusually been falling lately as well.  These factors bode ill for further hiring.

The rest of the world economy is not in good shape either, so there is no chance that exports will do much to change the bleak picture of the American economy.  The Purchasing Managers' Index (PMI), a measure of business purchasing activity, fell to a two-year low in August to 49.0.  Numbers below 50.0 mean contraction of business activity is going on.  Among the European countries with reduced activity are Great Britain, France, Spain, Italy, Ireland, and Greece.  The positive PMI's of Germany, Sweden, and Switzerland dropped.  The PMI of Japan is at a 3-month low and Taiwan's PMI is very negative at 45.2, its lowest value since January 2009.  Canada's GDP contracted, largely due to a 2.1% drop in exports.  The leading retailer in Australia expects falling sales.  China has a PMI on the edge of contraction and its exports to the U.S. have fallen.  The world economy is staggering.

In the U.S., the favorite Democrat central planning tools of stimulus spending and quantitative easing, or creating money from thin air, have not worked.  What a surprise!  Despite the GDP growth of the first half of the year being only 0.7%, the White House is telling us that GDP growth for the year will be 1.7%.  Wow, what a howler that is!  This means they are predicting growth in the second half of this year at an annual rate of 2.7%.  I suppose they think that growth will occur because businessmen and consumers are trusting that Obama's speech on his economic recovery plans this week will solve all of our problems!  For that to be so, all Americans would have to regress to the point that they believed that he could stop the oceans from rising and cure all of the diseases of the world, as many did when they first voted for him.  I think many even of those favorable voters have learned something since!  Even if that were the case, that growth which has not been evident through August, would have to occur entirely in the last 4 months of the year.

Let us examine a few issues with the stimulus approach loved by socialists.  The CBO, not really a very reliable source, recently released a report saying that the $787 billion American Reinvestment and Recovery Act has really cost us a $825 billion increase in debt.  They claim that they cannot figure out how many jobs were created by it, but it was somewhere between 1.4 million and an unbelievably generous 4 million.  I do not think they seriously try to estimate the number of jobs lost due to the bill.  So let us divide $825 billion by 1.4 million jobs and we find each job cost $589,300.  While some investment is needed to create meaningful jobs, that is enough money to pay someone the median income of $46,300 for 12.7 years!  I could readily provide several scientists with jobs with that amount of money, but the federal government is always incompetent and inefficient!  While I do not believe there is even a 1% chance that the stimulus bill created 4 million jobs, even if it did, each job would have cost $206,250 which would have allowed me to provide at least 1.5 long-term new jobs in my laboratory instead of a mythical job.

The CBO report claims that printing up $0.825 trillion in a $15 trillion economy added between 0.8% and 2.5% to the GDP in real, inflation-adjusted growth.  Printing this amount of money diluted the value of all money by at least 5.5% since 0.825/15 = 0.055.  One could argue that the dilution of money value is proportional to the smaller value of money in circulation, making the dilution much greater than this.  The act of printing that money did nothing to add to productivity so its effects upon production are transitory.  Worse yet, that monetary dilution devalued all property, including the already depressed housing market, and all commodities, such as oil, cotton, corn, wood, and metals.  Despite these huge negative effects, the CBO tells us that the expenditure increased the GDP by something in the range from 0.8% to a totally unbelievable 2.5%.  Well, this is another instance of the very bad track record of the CBO showing its lack of understanding of economics or its adherence to rules which do not correspond to reality.

The CBO then goes on to say that direct government purchases of goods and services have a multiplier effect of 1.0 to 2.5 for every dollar spent!  Well that is very interesting.  If that were so then the stimulus bill expenditure of $825 billion would have increased the GDP by between 5.5% and 13.75%!  Clearly, direct expenditures by government have no advantageous multiplier effect.  In fact, we can calculate the effect from their own numbers for the GDP growth they claim for the stimulus bill.  0.8/5.5 = 0.145 for the lower bound multiplier and the upper bound multiplier would be 2.5/5.5 = 0.45.  These calculated multipliers ranging from 0.14 to a clearly too high 0.45 are way below 1.0, which is more like what one expects from an incompetent and inefficient government with no real interest in human productivity.

Alan Reynolds, an unusually insightful economist, has written an excellent article entitled The Fed vs. the Recovery, which first appeared in the Wall Street Journal on 26 August 2011.  It is on the CATO Institute website here.  He says:
In demand-side theorizing, monetary stimulus means the Fed buys more bonds. The Treasury has certainly been selling a lot of bonds, and the Fed has been buying (monetizing) a huge share of those bonds. That helped push the broad M2 money supply up at a 6.8% rate over the past six months. Yet the only thing we have to show for all that stimulus over the past year has been rapid inflation of producer prices and a simultaneous slowdown in the growth of the private economy. Consumer price inflation also accelerated to 5.2% in the first quarter and 4.1% in the second, from just 1.4% in the third quarter of 2010.
He notes that industrial supplies and materials account for 34.5% of our imported goods so far this year and capital equipment and parts add another 23% of imports.  Because of the second quantitative easing (QE2) which began in November 2010 and ended in June of 2011, the value of the dollar fell about 15% relative to the Euro.  The Economist's commodity-price index went up 50.9% in a year in dollars, but 22.8% in Euros.  Our import prices rose by a 15.1% annual rate and our export prices rose by an annual 11.4% over the last three quarters under QE2.  These effects reduced the growth of real GDP.

Alan Reynolds notes that
The net effect was to reduce the profitability of manufacturing and distributing products in the United States, and therefore to shift such activities (and jobs) to other countries which were less handicapped by the dollar's weakness.
Fortunately for the S&P 500 companies, 46% for their sales came from other countries!  As a result, their operating earnings per share rose from $20.40 a year earlier to $24.86 by June 2011.  Thanks to our government's policy of printing money, this did most Americans little good.

One of the commodities whose price was driven up by QE2 with important and devastating consequences was that of oil.  As I have pointed out many times (thanks to reading Alan Reynolds), every postwar recession except that of 1960 has been triggered by a sudden increase in the price of oil. From August 2007 to July 2008 we had such an oil price spike as the value of the dollar fell and oil prices doubled.  We had another large oil price increase due to the dollar losing value from late August 2010 when Bernanke announced QE2 until the end of April 2011.  The price of oil increased from $72.91 to $112.30, an increase of 54%.  Just the price of oil increasing suddenly has a very negative impact on our economy.  This is aggravated by our refusal to allow reasonable increases in domestic production, which makes us more vulnerable to fluctuations in the value of the dollar relative to other currencies.

Both the Stimulus and the Quantitative Easing efforts have depressed the growth of the GDP and resulted in giving companies every incentive to hire aboard and every disincentive for hiring at home.  Meanwhile, the regulatory, tax, anti-business, promotion of labor cost increases, and anti-energy policies and rhetoric of the Obama cabal has been added to the wrongheaded policies of the Federal Reserve to put us into a never-ending recession.

04 September 2011

Is the U.S. More Socialist than Scandinavia?

It is in that we have a more progressive overall tax system than the Scandinavian countries of Denmark, Norway, and Sweden do.

In Denmark, the poorest 30% pay 14.1% of all taxes.  In the United States, the poorest 30% pay only 6.1% of taxes.  In Denmark, the richest 30% pay 48.7% of all taxes.  But in the United States, the richest 30% are soaked for 65.3% of all taxes.

Our poorest 30% in the U.S. pay only 43% of the portion of all taxes paid by the poorest 30% in Denmark, which most Americans assume is much more socialist than we are.  Meanwhile, our richest 30% pay 34% more of the total tax burden than do the richest 30% in Denmark.  These are not small differences in the degree of our socialism.  They are Titanic, with Titanic consequences.  We are more into the envy of class warfare than are the Scandinavians!

The United States has one of the most progressive tax systems in the world.  None of the Scandinavian countries are as bad at soaking their richer citizens and at giving their poorer citizens a pass in taking responsibility for the costs of the very government programs on which they have an equal vote.  Americans are clearly living the socialist dream that those with the greatest income will carry those with less income.  We are living by the socialist mantra that each shall provide to the rulers according to their means.  The rulers will then use the money to subsidize those they who will support them politically with votes or money and to provide distracting circuses.

As with all countries that have tried to live by socialist principles, we are finding that many of the more able or willing to produce are having second thoughts.  We are finding that some of the more able and responsible shrug and retire early.  Or that some simply slowdown and hold their cards until such blithering fools as Obama and Harry Reid are removed from their positions in the 2012 elections.  The majority of businessmen are in such a holding phase just now.  Our economy is in the doldrums as a result and we will not see any growth either until after the November 2012 elections with an Obama loss or until it is absolutely clear that he will lose.  Atlas has Shrugged and is waiting to see if he should put the World back on his shoulder at a later time.

The tax comparisons come from Government vs. Markets: The Changing Economic Role of the State (2011) by Vito Tanzi.  Tanzi is a senior economic official of the IMF.  The tax burden numbers for Denmark and the United States are given by Richard W. Rahn from an article published in the Washington Times on 31 August 2011.  That article also appears on the CATO Institute website here.