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"...contributors will only give money to challengers when they have a realistic chance of winning, and incumbents only spend a lot when they have a chance of losing"
~ Steven Levitt

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Today's Commentary: 10.17.03
Double Up and In
As baseball winds its season down, the terminology of "double up and in" comes to mind in trying to explain why this recovery has no real legs. This is a pitching strategy designed to throw the batter off balance. Fastballs hurtle at the batter high and inside causing him to lean back avoiding pitches that are just out of the strike zone but perilously close to the batter's head. This is immediately followed by a curve ball that breaks to the outside leaving the batter too far away to take a stab at a pitch as it creases the low outside corner of the plate for a strike.

We are, if unwittingly, receiving more than our share of this type of pitching. It pulls us back not once, but twice, only to dangle a financial curve ball that not only throws off whatever strategy we may have had but pre-empts future attempts at developing a good solid one.

If your attention hasn't been drawn to the strike in southern California, I will. 70,000 grocery workers have taken to the streets in this dire economic time to make known to the companies who employ them and bargain contracts as a group, that they are dissatisfied with the company's attempts to wrangle cash out of pocket to pay for health and welfare costs. Willing to sacrifice pay raises, they are unwilling to open the door to co-payments of insurance that has been historically a benefit. Non-union workers look on a wonder how they can request such a thing from their employer when many have had to chose between having coverage and going without.

The importance of this issue is not local, nor even regional. On a national level, it is the one of the many stagnating forces that will slow this recovery. Let's start with the six point plan as restated by the President in early September.

Before the Greater Kansas City Chamber of Commerce, Mr. Bush said that the economy was indeed recovering but that it was "hard to feel confidence if you're somebody looking for a job". His belief that increasing the deficit, slicing off huge tax cuts for those in the highest tax bracket, and continuing to create policies that are detrimental to those that are undermining those that are employed, have created this lack of confidence. In that same speech, Mr. Bush suggested that the job losses that have occurred during his administration would have been much worse accompanied by a deeper recession had he not reacted in the manner that he had.

While job creation is important, those that have jobs are feeling the presence of these unemployed. The unemployed meanwhile are looking at jobs that pay less than a living wage and sometimes less than the unemployment benefit. As each state grapples with their own economic difficulties, benefits have largely been extended creating a working class with little incentive to find work if the only pay available is based on a minimum wage. The current federal minimum wage of $5.15 per hour has not increased in 20 years. At the behest of small businesses, many of whom find themselves in the services sector of the economy, this wage was kept as low as possible in the attempt to grow a better bottom line.

All of us know an unemployed person. We may stay clear of them but somewhere in your extended family or living in your neighborhood is the very drag on the economy that no tax cut will aid. In fact, these people are not likely to take minimum wage employment for two reasons. Minimum wage is not full time employment and there is little chance that once the job is taken, they will ever return to a job that pays more. As Aimee S. told me in the lobby of a Starbucks just the other day, "every application wants to know what your last employer paid. If I land a job that pays the minimum", she said, "there is no chance the next employer will offer more if they can get me for less." She has been unemployed for over eighteen months, well above the national average of 18 weeks. Minimum wage, even the $8.50 being proposed in California, is not a living wage by most of our standards. And as she put it, those low wages are not attached to a forty hour a week job. She refuses to become an employed statistic if the job she does land means that she "needs to have two to break even". This is not job creation.

Recent figures point toward the fact that jobs are being created. They are just not being created fast enough to eclipse the flip side of the coin, job elimination. According to the Bureau of Labor Statistics, job creation in the last three months of 2002 fell behind those created by 100,000. Even a mediocre economist will agree that this is one of the surest signs of a struggling economic recovery. Add to that the cost cutting through job elimination and you now have the new profit center for the upcoming earning season.

But those same figures fail to point at jobs that have been eliminated during the statistical gathering during the quarter. Even Richard L. Clayton, a division chief at the Bureau of Labor Statistics admits there are flaws in the numbers. Take a high paying skilled job and eliminate it, replacing it with a lower paid job, and the numbers show no difference in employment rates. Although we know that the higher paying job was more likely to create a stronger consumer base, having a job does not, in this instance create economic strength. These understated numbers are the basis of Mr. Bush's six point program. Without the creation of good jobs, people working for less is not a sign of strength.

So the first fastball up and in is the lack of good jobs with a solid pay package that can create a living standard. The second has to do with taxes.

There are very few local and state governments that have been able to survive the last several years with their budgets intact. Cost cutting, which starts with services that many of the lower wage earners have come to expect and depend on have been slashed at not only the state level but the federal one as well. This puts increased burdens in the hands of those that are still employed. My property taxes have increased by 9% over last year and an additional payroll tax has been deducted from my withholding. This will not only creates drag the recovery but slows any long term chances that the recovery will last. This acts as negative income growth at a time when the President insists that economic conditions are improving. While tax relief should have a trickle down effect, it instead is merely a shift in who will collect.

Part three: How broad national and global economic policy will keep the recovery from happening.

Today's Commentary: 10.14.03
Absolute Powerlessness Corrupts...
....absolutely. I must tell you right at the outset, I did not coin that phrase. I heard it during a lecture about volunteerism on NPR one afternoon driving down the freeway. But somehow it applied, I thought, to the state of the average wage earner, who is often referred to as an investor, a consumer and more importantly, a tax payer. This powerlessness doesn't come in the usual manner. It is isn't fuedal. It isn't ignorance. It isn't informational starvation. What it is has done though is hobbled us with too much mobility, too much information, and a banquet of facts and figures that allow us to become picky eaters when we should be hungry. Our insousience has made us powerless.

In the last week or so, the markets have shrugged off bad news, embraced good news, and ignored whatever seemed unsavory or promised to be. How can the pulse of the economy be beating so strongly in light of the ever increasing warning signs of difficulties ahead?

There are several groups to blame here for this powerlessness. First and foremost, we need to blame those that are out of work. Those pesky unemployed have not been able to understand that they have become the anchor skipping along the sandy bottom of this recovery looking for something to grab. Once that anchor does latch onto something solid, those workers whose jobs have been eliminated will begin to weigh heavily on the otherwise cheery future that is now being portrayed as all but inevitable. Then, when that happens and the anchor does find a footlod, the question will be not in who is to blame but who was telling the truth.

With every new report on the employment picture in this country dutifully dispersed by the Bureau of Labor Statistics, the question of rounding the numbers by the Democrats (using the often mis-stated 3 million jobs lost as opposed to the actual 2.84 million jobs since the President has taken office), the discounting of those numbers by Republicans (they have been saying that the business survey is less accurate that the household survey and the real unemployment picture is much clearer, pointing to almost no-job losses over the same time period) and spin of positive patience from the White House (the latest campaign by the administration suggests that had it not been for those tax cuts, the recession would have been much deeper and longer), have only served up more confusion into the already problematic event.

It is difficult to imagine how 382,000 first-time filings for unemployment insurance last week amounts to an insignificant number. Economist are often heard suggesting that any number below the 400,000 mark is a sign of improvement in the economy. On the other hand, another camp of economist are saying that the recovery will continued unabated with or without those jobs because productivity has improved so much.

To add a little more seasoning to the confusion, a recent study conducted by the Federal Reserve Bank of New York doesn't believe that those laid-off workers will return once the economy is deemed recovered. Neither do I. And neither do those unemployed workers. One of the main reasons is the belief that those job losses, while not an insignificant number, if they can be ignored long enough they will eventually be deemed irrelevant. If the belief that the economy can recover without them and this can be accredited to tax policies, then we have become quite gullible. Gullibility is the first step towards acknowledging our powerlessness not only to create jobs but to redirect our energies to protecting those that we have. Both of these approaches have serious flaws.

The economy cannot fully recover without job creation. Job creation cannot come from protectionism, a belief that is growing in popularity. The jobs that have gone overseas are gone for good and may have been the result of a natural process. The technological process tends to take jobs from those that invented them and find cheaper sources for production overseas. The textile industry felt similar job losses only to find those workers re-employed at another occupation. This capitalistic Darwinism is beginning to gain favor. The jobs we have sent to India and China were similar in nature to those that were replaced in previous business cycles. But those cycles were aided by policies that created jobs in new industries, protected those that had jobs, and encouraged new job growth.

Those policies are not currently in place. The tax cuts were misdirected towards taxpayers who were supposed to re-invest the relief into the creation of jobs. With those cuts already absorbed, the question is why hasn't the policy worked. The mounting deficits were supposed to help also by creating an atmosphere of short term fiscal sacrifice. Instead it sent the message that borrowing to stay afloat was okay. The consumer embraced this notion, spending the tax rebate first followed by the self satisfying use of credit. This will become a damaging side effect. As we watch the fifth largest economy in the world elect a governor with no experience to solve a problem that is similar to that of the largest economy in the world and one it is closely affiliated with, we have to wonder how much more can the consumer carry?

Part two: The burden of local taxes, health and welfare, and the wages that won't increase all play a roll in the recovery that won't fully develop.