About Me

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Los Angeles, California, United States
The blog 'Breaking Bread' is for a civil general discussion, like you might have at the dinner table with guests. The posts 'Economics Without the B.S.' are intended for a general audience that wouldn't have to know the difference between a Phillips Curve, a Laffer Curve, or a Cole Hamels Curve. Vic Volpe was formally educated at Penn State and the University of Scranton, with major studies in History, Economics and Finance, and Business; and, is self-educated since by way of books and on-line university courses. His practical education came from fifty years of work experience in the blue-collar trades as well as a white-collar professional career -- a white-collar professional career in production and R&D. In his professional career and as a long-haul trucker, he has traveled throughout the lower forty-eight. From his professional career alone he has visited many manufacturing plants in the United States, Europe and China. He has lived in major metropolitan areas and very small towns in various parts of the United States. He served three years with the U.S. Army as an enlisted man, much of that time in Germany.

Thursday, October 16, 2014

Economic Opportunity for the Working Man

Economics Without The B.S.**:  Thoughts on Economic Opportunity for the Working Man



[**  Double entendre intended.]


Thought for the Day:  Economic Opportunity for the Working Man



I have learned from the old prairie farmer of the 1930’s that is dirt rich and cash poor when someone comes around to better your life with economic opportunity, free enterprise, and personal freedom it is time to gather up the children for safe keeping and place one hand on your wallet.





Deflation Ahead?

Economics Without The B.S.**:  Deflation Ahead?


[**  Double entendre intended.]


IS A DEFLATIONARY SPIRAL AHEAD?


[This is not a prediction.  I have absolutely no qualifications, and a spotty past performance, when it comes to making predictions.  This is just a general interest discussion.]

          It has been six years since the Financial Crisis of 2008 and the Great Recession which started at the last three months of 2007, the most serious economic downturn since the Great Depression of the 1930s.  Our Federal Reserve and the Central Banks from the major economies around the world have taken extraordinary coordinated actions to avoid a deflationary spiral like we had in the 1930s.  They are limited to monetary policy; but, the fiscal policy of the various governments from around the world have been anything but coordinated.  While the monetary policy has been positive for abating the negative effects of the Great Recession, the fiscal policy measures have been quite lacking for any sustained positive effect and have even been negative in some circumstances.  We have spent the last six years muddling through with positive but sluggish economic performance.
          So, the question is:  With the negative reaction of the financial markets these past several weeks for stocks, bonds, some commodities, and gold, are we headed for more economic distress with the Fed and Central Banks out of ammo for more monetary stimulus and fiscal policy changes that would be too late and too weak to have any immediate positive effect?

Let’s take a look at the picture:

1.  GROWTH:  Growth in China, Japan, Brazil, and Europe are slipping.  In the U.S. growth has been tepid – around 2 percent when most economic recoveries are around 4 percent or better.  Only in India has growth been good during this year.    The poor growth is the result of weak demand.  How will poor growth around the world affect the U.S. economy?

2.  EMPLOYMENT:  There is some growth in employment in the U.S.; but, nowhere near full employment.  And there are still many who have dropped out of the labor force participation in a stagnant economy.  Europe is still plagued by high unemployment – even Germany has not been anywhere near a full employment economy and Germany has been one of the better economies.

3.  INCOME:  In the U.S., while there has been some growth in employment, income for hourly and salaried workers has been mostly flat (no increase) for several years.  This is why demand is weak – it has been positive, but not robust like you would expect during a recovery from an economic set-back.

4.  STILL A CONSUMER ECONOMY:  We are still a consumer economy – at least 50 percent of the overall economy.  The industrial and commercial sectors are still around 10 percent.  Government (Fed, state, and local) are running around 40 percent.  The consumer sector has a multiplier of about $.70 of output for each $1.00 of input.  Manufacturing has the highest multiplier of $1.40; Agriculture around $1.10; Info Tech around $1.00. 

It is difficult to stimulate the overall economy when such a large sector is made up of the lowest payback.  Plus, this sector requires the lowest demand for educational performance with respect to technical skills.  This affects young people coming out of school and landing in a job where they can climb a career ladder.  This is important to lower income families because traditionally this has been the pathway to the middle class – jobs requiring educated skills, paying well through time, and moving up in social status, spending money accordingly and engaging in the community accordingly.

This is important because the makeup of the economy will determine the social structure within that society.  What drives/determines public policy? – quality of life, environment, security and stability, opportunity and free choice, economic well-being?  The investment dollar will be influenced by public policy and flow to those sectors where the incentives and best payoffs are, whether they are here at home or overseas.  All societies have income inequality; but, when income is disproportionately distributed and you have concentrated wealth, that influence enters into politics and affects public policy.  We have many counties in the U.S. that have at least 30 percent low income to poor family households.  Should the economy reflect this or change this?  What investors do, makes a difference.  And what shape a society is in compared to other societies affects how other investors react, including foreign investors who buy our treasury bonds.

5.  TAX CUTS FOR STIMULUS:  Cutting income taxes benefits upper income Americans more than middle-to-low income Americans; and, will not be enough of a boost to stimulate consumer spending and probably not boost investment in capital equipment while demand is weak.  President Bush found this out with his massive tax cut in the early ‘00s.  To stimulate consumer spending you have to affect low-to-middle income Americans; and, because they pay so little in income taxes, this is now done by payroll tax cuts, namely reducing Social Security taxes that appear on the paycheck – since Social Security taxes (along with MediCare) are usually larger than income tax withholdings on paychecks for low-to-middle income Americans.  This is what Presidents Bush and Obama have had to do in 2008/2009 for a stimulus – but I have no idea what figure they use for each percentage of reduced tax amounts to how much more they get in consumer spending.  And I don’t think this will result in much of a stimulus – I would think you would have to couple this with other fiscal measures.

6.  CURRENCY MANIPULATION:  Countries used to devalue their currency during economic difficulties.  The U.S. did this when FDR first became president; and, Nixon did this also.  But this is no longer available as a tool in most cases.  Currencies are not fixed anymore – against Gold, or the Dollar – except in a few cases.  Today, currencies float against one another – the Dollar goes up, the Euro goes down, and the Yen and the Yuan act accordingly.  Actually, the Yuan is one that still gets some manipulation by the Chinese.  Commodities, like Gold and Oil, may be priced against the dollar; but, they adjust in the marketplace as the value of the dollar goes up and down.

7.  EXPERT PROJECTIONS:  Let’s title this missing projected economic targets.  In the United States, Europe, Japan, and China the experts who govern have set targets for economic performance:
          a.  Growth – they over-estimated
          b.  Inflation – they over-estimated, except in China where they vastly under-
                   estimated.
          c.  Deflation – they all under-estimated
          d.  Recovery – they are still at it six year later

NOW WHAT?
Well who knows?  But to be contrary, after all economists always talk about the ‘on the other hand’:  the U.S. economy is still improving, slow but improving.
          a.  Consumers carry less debt.
          b.  Corporate profits have been good.
          c.  Employment is improving.
          d.  By-and-large inflationary fears are not realistic.
          e.  Housing and construction, two of the sectors that were hit the hardest, have 
                  been improving.

So, what is the Stock Market doing:  selling off or taking a little breather?
Time to take profits?  Take some money off of the table?  If you don’t have profits after this run-up of the markets over the past several years, you haven’t been playing the right game and don’t belong in the stadium at this time.

Will it be an orderly retreat in stock prices to reflect realignment of future expectations; or, will a pullout by a major investor or two be followed by a stampede to get out?

WAIT AND SEE!


Wednesday, October 15, 2014

Thought for the Day: On Planning

Economics Without The B.S.**:  Thoughts on Planning



[**  Double entendre intended.]


Thought for the Day:  On Planning



“Everyone has a plan until they get punched in the mouth.”

                                                        Mike Tyson









Sunday, October 5, 2014

TEACHING AMERICAN HISTORY

Economics Without The B.S.**:  Teaching American History


[**  Double entendre intended.]



TEACHING AMERICAN HISTORY


         We study history, as one branch of knowledge, to understand our place in the universe.  The human animal is the one animal that has a cultural evolution as well as a biological evolution.  We can shape and change that cultural evolution.  We are the one animal that can change its environment and move about anywhere on Earth and beyond.  The study of history is the link between the Past, the Present, and the Future – the link between knowledge and progress.  Our progress as a species is linked to our quest for knowledge; and, technological advance and an understanding of our past is the key to the pace of that quest.
          As one branch of knowledge, history involves inductive as well as deductive reasoning.  But unlike the sciences, which rely on empirical evidence and are objective in their analysis and conclusions, historical analysis is subjective but never-the-less still relies on making a rational argument.  The study of history is influenced by the social movements that affect people at any particular time.  So in our history, the role of the individual in a society and the role of government in that society, the expansion of the American nation westward and the conflict of cultures between a native inhabited people and new settlers, slavery and civil rights struggle, the industrialization of the American economy from a rural/agrarian economy along with labor/management issues in a corporate setting, immigration, the participation of women in society to include politics, are all topics , among others, that get discussed and can be influenced by the particular generation that deals with these issues.
          The American experience is a unique experience in the historical context.  The fundamental principle of our nation’s founding was that people could govern themselves.  We are not the oldest democracy; and, we are not the only republic that was ever created.  But our founders did create a system for governing with the consent of the governed while respecting dissenting opinions – a constitutional, democratic, republican form of government.
          Unlike other societies in history, institutionally and culturally we are not a status quo nation.  Institutionally we have a federal system of government that not only divides power among the branches of government but also between the federal government and state and local governments.  That division of power may cause competitiveness in our political system; but, it means that in order for something to get accomplished cooperation rules and the game plan is to build viable coalitions.  Those political leaders that can forge a consensus are successful in our political system.
          In addition to the institutional framework of our governing system there is also “We the People”.  While we are a representative democracy and not a direct democracy we do have a civic engagement of the governed.  Culturally we have always been a diverse nation, right from our beginning.  Very quickly in our history we spanned the continent to become a contiguous continental nation.  We have always had a mixture of people in our nation, non-English speakers and not of a European origin.  We are probably the only nation in history that is not defined by an ethnic or religious makeup but instead by a loose governing concept. 
      In our founding documents, the Declaration of Independence and the Constitution, you will find a variety of values stated: liberty, equality, promoting the general welfare, life and the pursuit of Happiness.  They are neither defined, delineated, nor ranked in order.  They can at times conflict with one another.  Sometimes we lean one way during a conflict; and, sometimes we lean the other way.  We are constantly re-examining our values.  During Andrew Jackson’s Presidency was the first deviation from the founding fathers,  giving a Western/frontiersman interpretation to liberty, rugged individualism mixed with an egalitarian spirit, and the ‘Common Man’ mythology that departed from the Jeffersonian concept of an educated, almost an elite, citizen.  Each generation that comes along does this, a re-evalution of our traditional values in a contemporary setting.  Even newly arrived immigrants eventually figure this out.  That is what makes us unique and has contributed to our greatness.
          The dynamism in our culture that comes from our makeup and institutional framework feeds our innovative spirit that drives our economy and well-being.  The competitiveness in our fragmented system allows individual initiative to function in an institutional setting.  The advancement of creative enterprise depends on the ability to convince others and gain cooperation.  For change to take effect and bring progress, the old order will likely be upset.  The American experience has linked progress with the individualistic enterprise found in a capitalistic economic system and the liberty and civic engagement of a democratic political system.
          An understanding of American history does not come naturally.  It takes effort.  Our diversity can pull us apart.  We have had a historical common thread as one nation, with its faults, but never-the-less with progress shown.  For the most part, the American people through history have not been won over by an idealistic notion of existence.  The collectivist society of New Harmony couldn’t make it for even twenty years.  And the fate of an idealistic New Liberty on the style of the Cato Institute or Koch Brothers would likely have no better an outcome.  Instead, Americans, for the most part, have been a practical people who have fumbled their way forward, sometimes making mistakes, but ever trying to right the way and do a practical justice for their forebearers and progeny.  If a teacher fails to drag (or is lead a better word) students, either children or adult learners, through this process of inquiry, they are failing in a good civics lesson; and, we are teaching ideology and not history.
          Hopefully, in studying the Past, we will come to understand ourselves better and where we are at Present.  The Past is not always Prologue.  As human animals we can learn from our Past and master our Present rather than be trapped by our Past.  We are capable of change.

                 The living shall not be in peace,
                         When the Past is not at rest.
                 The Present holds the Future's lease,
                         When We give not our best