Archives For June 2011

Lots of conservatives are giving President Obama a hard time over his comments on the economy (starts at around 2:00).

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He mentions that technology has taken jobs from people.

He’s right.


He’s not seeing the full picture. Technology may replace workers but it also opens the door to improvement and frees up workers for other jobs.

I would suggest that President Obama read Chapter 7 of Economics in One Lesson, which opens with:

Among the most viable of all economic delusions is the belief that machines on net balance create unemployment. Destroyed a thousand times, it has risen a thousand times out of its own ashes as hardy and vigorous as ever. Whenever there is a long-continued mass unemployment, machines get the blame anew. This fallacy is still the basis of many labor union practices. The public tolerates these practices because it either believes at bottom that the unions are right, or is too confused to see just why they are wrong.

The belief that machines cause unemployment, when held with any logical consistency, leads to preposterous conclusions. Not only must we be causing unemployment with every technological improvement we make today, but primitive man must have started causing it with the first efforts he made to save himself from needless toil and sweat.

Those words were written in the late 1940s!

I think the main reason companies aren’t hiring is because of uncertainty. Where are oil prices headed? What impact with the health care have on business? How many more health care waivers will be issued? Are banks lending? What about China? What about consumer confidence?

I realize that these are all parts of the big wheel and that each are dependent on the other. For instance, consumer confidence won’t increase until companies are hiring. Companies are nervous to hire if consumer confidence shows that they won’t be willing to spend.

For some reason this scene from The Jerk popped into my head and I had to find it:

Lawrence Lindsey wrote an interesting op-ed piece for today’s Wall Street Journal titled The Deficit Is Worse Than We Think.

He points out three reasons for concern:

1. The projected interest rates are based on 2.5% while the average interest rate in the past has been 5.7%.

The 10-year rise in interest expense would be $4.9 trillion higher under “normalized” rates than under the current cost of borrowing. Compare that to the $2 trillion estimate of what the current talks about long-term deficit reduction may produce, and it becomes obvious that the gains from the current deficit-reduction efforts could be wiped out by normalization in the bond market.

2. The growth forecasts are much higher than the academic consensus believes we should expect, which is 2.5%. The president’s budget predicts growth of 4%, 4.5%, and 4.2% (for 2012, 2013, and 2014 respectively). Growing at the trend of 2.5% will add an additional $4 trillion to our debt.

3. The long-run cost estimates of Obamacare will be much higher than expected.

In all fairness, Mr. Lindsey was the director of the National Economic Council for 2001-2002 and had a significant role in passing Bush’s tax cut. He also estimated the cost of the Iraq war to be $200 billion (it’s now supposedly over $700 billion).


Mr. Lindsey played a part in creating this deficit.

As you know, I like to take my S&P 500 total return data base and look at the numbers in different ways and then post what I have found, regardless of the outcome.

My latest look at the data involved looking at the returns for the first six months of each year and seeing what happened the following six months of the year. Here is what I found (you can click on the graphic to see a larger PDF version):

• 17.65% – Negative total return for first six months of year followed by negative total return for the second six months for the rest of the year.

• 22.35% – Negative total return for first six months of year and a negative total return for the year.

• 50.59% – Positive total return for first six months of year followed by positive total return for the second six months for the rest of the year.

• 54.12% – Positive total return for first six months of year and a positive total return for the year.

• 70.93% – Positive total return for the year (out of 85 years).

Food Stamp Fraud

June 23, 2011

Interesting opinion piece in today’s WSJ about food stamp fraud. The last paragraph pretty much sums it up:

H.L. Mencken quipped that the New Deal divided America into “those who work for a living and those who vote for a living.” The explosion in the number of food-stamp recipients tilts the political playing field in favor of big government. The more people who become government dependents, the more likely that democracy will become a conspiracy against self-reliance.

Housing Woes Continue…

June 22, 2011

From today’s Wall Street Journal:

… Sales of homes under $100,000 were up 6.7% nationwide in May, compared with a year earlier, led by a 58% gain in the West. Meanwhile, sales of homes priced between $100,000 and $500,000—which represents the vast middle tier of the market—declined nearly 19%.

The middle tier of the housing market has seen less activity partly because would-be buyers often cannot sell their existing homes or have put buying on hold as prices continue to fall and labor markets remain unstable. Sellers of homes in the middle tier, meanwhile, often won’t capitulate because they are deep underwater on their mortgages—owing more than their homes are worth—or otherwise burdened with debt.

I’m seeing this in my town. We wouldn’t mind trading up to a slightly bigger house with a pool. There are tons of bargains out there but we probably couldn’t sell out current house in order to take advantage of those bargains. So…we are staying put.

Lou Dobbs: “The Baby Boomers have been a highly irresponsible generation.”