U.S. unemployment drops to 7.7 % 236,000 jobs created in February

Posted on March 8, 2013 by haroldchorneyeconomist

There was some good news on the unemployment front in the U.S. The Bureau of Labour statistics has released the report for February and it shows that the unemployment rate has fallen to 7.7 % which is positive news. Total non farm payroll employment increased by 236,000 jobs. Employment gains were reported in professional and business services, construction and health care. The participation rate was 58.6 % and the broad measure U6 of unemployment fell to 14.3 % down from 15.0 % a year ago.

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Sequester underway in U.S. Cracks appear in British austerity wall.

Posted on March 7, 2013 by haroldchorneyeconomist

We will soon be a full week into the foolish sequester experience in the U.S. So far it is way too soon to assess the damage to the growth rate and the slowdown in employment that cutting the first 100 billion $ from government spending will bring about.  But it ought to be clear that even this relatively small amount in comparison to overall spending sends the wrong signal about how to recover from a recession and is  nevertheless significant.

 Key areas being cut back include defense , important aspects of services to the poor and general provision of services in the U.S. More importantly it sends the wrong signal to consumers and employees that the time for retrenchment is now just when the economy was showing some signs of recovery. The bullish tendency in the stock market if it continues, supported as it is by an accommodating monetary policy benefits wealthier Americans and the financial markets but this needs to be translated into job creating investments and not just increased savings for those who own stocks.

In the U.K. where growth has turned negative and the economy is on the cusp of a triple dip recession the senior Liberal Democrat minister of business Vincent Cable has called for a program of investment in education, infrastructure and housing financed by deficit spending as a partial alternative to the Osborne austerity program.He argues that the markets might well accept this as an alternative to the full speed ahead strategy of Osborne, Cameron and Clegg. Although Cable is proposing only a modest investment program in his article in The New Statesman this is an important break in the wall of the austerity co-alition that emerged out of the last election and it is an important development.

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Italian electorate rejects austerity by overwhelming margin

Posted on February 26, 2013 by haroldchorneyeconomist

The Italian electorate has overwhelmingly rejected the austerity which its technocratic government led by Mario Monti with the backing of Germany had imposed on the country. Mr. Monti’s party according to La Repubblicca received a mere 10.5 % of the vote and thereby elected only 45 members of the House. It was a resounding defeat for the austerity camp.The centre left coalition led by Pier Luigi Bersani received 29.5 % of the vote and elected 340 members to the House. The former prime minister Silvio Berlusconi also ran against austerity and his right of centre coalition received 29.1 % of the vote and received 124 seats. The anti politician comedian Beppo Grillo received 25.5 % of the vote and secured 108 seats in the House.Because of the special rules that reward the top party additional seats the Centre Left can control the house but it does not control the Senate . In the Senate the results are tabulated on a regional basis and the Bersani coalition received 31.6 % and 113 seats; Berlusconi 30.7 % and 116 seats; Grillo 23.8 % and 54 seats; Monti 9 % and 18 seats. So because there does not appear to be a stable coalition there may well be new elections in a short period of time. in the meantime, however, the EU’s obsession with austerity has been dramatically and democratically defeated. It is long overdue to rethink the policy and respect the democratic wishes of its people. The markets not surprisingly reacted negatively. But upon reflection they ought to understand that a policy that does not work and lacks democratic backing cannot last and that sustainable growth and recovery is only possible with alternative stimulative policies.

Posted in austerity, business cycles, classical economics, deficit hysteria, deficits and debt, European debt crisis, European unemployment, fiscal policy, Italian debt crisis, J.M.Keynes, monetary policy, treasury view, Uncategorized, unemployment | Tagged , , | Leave a comment

Oscars reflect and influence changing American culture

Posted on February 25, 2013 by haroldchorneyeconomist

I have watched the Oscars for many years, not just because like hundreds of millions I love the movies but also because I think they are a cultural artifact which can help us understand the direction American and our own society is heading.

Hollywood , of course, is still the capital of the American entertainment industry and is driven in large part by the money that it generates from not only American markets but global markets where its influence on popular culture has been enormous and sometimes resented. This has been particularly so when the films it produces offer a seductive alternative to domestically made films which speak directly to the local regional or national culture. But increasingly the world is a global place and Hollywood itself and its awards are increasingly open to global influences. We can see this in the results. A Brazilian story originating with the Brazilian  novelist Dr.Moacyr Scliar adapted and changed by a Montreal writer , Yann Martel which wins the Booker prize  and directed by a Taiwanese American Director who is a Hollywood star, wins several awards including the award for best director. An American story,Argo, with a central Canadian role, the brave and daring rescue of six American diplomats hidden in the Canadian embassy and spirited out of the country on Canadian passports by a CIA agent on tickets acquired by the Canadian ambassador Ken Taylor who along with his colleague John Sheardown had risked their lives to hide and shelter the diplomats in revolutionary Iran in the grip of Ayatollah Khomeini until they could be smuggled out of the country wins the award for best picture. Again a global story with a strong Canadian twist that is I  suppose understandably underplayed by the American film makers  who wrongly suggest that it was largely the Americans doing that rescued the diplomats. Among the other films nominated for best film is the French film Amour, winner of many awards in Europe and itself winner of the best foreign language film. Winner of the best actor award Daniel Day Lewis the great Croom’s hill Greenwich UK actor who himself is the son of the British writer and poet C.Day-Lewis and the British Jewish actress Jill Balcon and who amazingly brilliantly portrays the great American President Abraham Lincoln in Stephen Spielberg’s wonderful film Lincoln.

Many of the Oscar winners are from Britain, one is from Germany, one from Chile and others from Europe. The winner of the best supporting actress role Oscar is Anne Hathaway who wins for the musical version of the great French writer Victor Hugo’s magnificent story Les Misérables.

Culture clearly transcends boundaries and it is the genius of the American cinema that has remained open to the world and influences and in turn is influenced by the evolving potential humanistic global culture that we see presented in many of these films. It is still a world of tinsel and popcorn, occasional American triumphalism, violence and dreams and fantasies but it is one whose better side offers the promise of a better world that celebrates values  like freedom, compassion, healing, courage  and love, despite the dark times that surround us. 

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Canadian inflation falls to 0.5% in January compared to January 2012. Further evidence of slowdown ?

Posted on February 23, 2013 by haroldchorneyeconomist

The latest inflation data for Canada adds further evidence that the Canadian economy is slowing and perhaps even teetering on the edge of deflation.The trend in inflation has been persistently in a downward direction over the past year. Year to year inflation as measured by the cpi was 3.3 % in April 2011, 2.6 % in March 2012, 1.2% in November 2012, 0.8% in Dec.2012 and 0.5% in Janury 2013.
Indeed this trend is true for Japan, Europe and Canada which is all the more reason to avoid austerity policies like the plague at this time. Unfortunately due to domestic politics, the U.S. is now embroiled in a struggle to avoid the unnecessary and damaging cuts associated with sequestration, a foolish policy that both the Republicans and Democrats imposed upon themselves in the passions of the moment over the obsession with deficit cutting and “entitlements” that is, social democratic minimum programs that all capitalist societies sensibly have in place. Instead of waiting for the economy to properly recover and the unemployment rate to drop below 5 % and then assess the long term sustainability of their programs at low unemployment they blundered into this debate prematurely. Given the inflation data we are seeing and the continued high unemployment these are clearly inappropriate and untimely obsessions.

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American Recovery Act and stimulus program has a multiplier of more than 2: hence it was a very effective program

Posted on February 20, 2013 by haroldchorneyeconomist

There have been a lot of false claims made about the ineffectiveness of the American Recovery act and the stimulus that it administered. But if one actually examines the data and calculates the rise in the GDP over the years since the GDP bottomed out in 2009 in chained 2005 dollars we discover that the rise in the GDP since then as of the fourth quarter  of 2012 again,  calculated in chained 2005 dollars, is more than twice as large as the stimulus. The precise value of the multiplier is 2.18 Given that state and local authorities and even the federal government were also cutting some expenditures during this period the number is a solid demonstration of the value of stimulus.

According to the official data as of Jan 2013 a total of 493.6 billion has been spent so far under the authority of the Act. Once we adjust that for the average of 2008 chained dollars and 2013 chained dollars its value is 434.4 billion. Similarly the rise in GDP in chained dollars from the first quarter of 2009 -the Recovery act was signed into law on Feb. 17, 2009- is 946 billion. So the multiplier is 946 divided by 434 = 2.18.

Posted in business cycles, deficit hysteria, fiscal policy, Keynesian multiplier, treasury view, U.S., Uncategorized, unemployment | Tagged , | Leave a comment

Europe still mired in austerity, slow growth and possible recession and excessive unemployment

Posted on February 12, 2013 by haroldchorneyeconomist

The situation in Europe continues to be worrisome and exasperating. The stubborn ideologically driven opposition to stimulating the economy through major infrastructure and employment creating investments and a supportive low interest monetary policy including where appropriate quantitative easing is long overdue for replacement. The unemployment rates in Spain,26.6 % Ireland 14.4%, Greece 26%, France 10.5 %, Italy 11.1%, Portugal 16.3 %, Slovakia 14.5%, Hungary 10.9 %, Bulgaria 12.4 %, Latvia 14.1%, Lithuania 12.5 % are all very elevated. The total number of people unemployed in the EU has risen by over 2 million people since November 2011. It should now be clear that austerity is the wrong policy to overcome a deep recession. Despite this clear evidence austerity bound politicians carried the day in the European debate over their administrative budget. Fortunately, this budget is only a small percentage of the European GDP so the consequences are not great in any immediate sense. Rather , the problem is the symbolic value of the victory which suggests that aside from France there are no powerful political forces committed to ending austerity and switching to stimulus. Yet, this is the only sensible policy under the circumstances. Future historians of this slump will look back in astonishment at the level of policy ignorance displayed by the European leadership.

Posted in austerity, business cycles, classical economics, deficit hysteria, deficits and debt, European debt crisis, European unemployment, France politics+economy, full employment, J.M.Keynes, Keynesian multiplier, labour market clearing, monetary policy, quantitative easing, Spain, treasury view, U.K. economy, Uncategorized, unemployment | Tagged , , | 2 Comments

German American economist N.Johannsen and impair savings:important clue to current slow recovery

Posted on February 10, 2013 by haroldchorneyeconomist

The German American amateur economist Nicholas Johannsen (1844-1928) published a work in 1908 entitled A Neglected Point in Connection with Crises in which he developed the notion of ”impair savings” He used this notion to point out that crises originated with a slump in investment. The peak of a cycle and prosperity was associated with a high rate of capital investment and the smooth transfer of savings into capital investment and these new investments in construction and enterprise created employment. (See the discussion of Johannsen and his work in Robert Dimand , The Origins of the Keynesian Revolution and in Lawrence Klein, The Keynesian Revolution,London: Macmillan, 1965. pp.143-145)  Keynes also devotes a brief footnote in TheTreatise of Money to Johannsen and his argument (See  The Treatise on Money bk.vol.2 bk. 6 p.100 note 4. See also Phillip Arestis and Malcolm Sawyer, A Biographical Dictionary of Dissenting Economists published by Edward Elgar, 2000.) Keynes calls them ”savings withheld from consumption expenditure but not embodied in capital expenditure and so causing entrepreneurs who have produced goods for consumption to sell them at a loss” (or not sell them at all my addition) Keynes suggests that Johannsen regarded this situation as a permanent condition of modern capitalism circa 1908 but the remedy according to the Keynes of The Treatise era lay in a fall in the rate of interest to ensure that the banking system passed on the full amount of savings to investors.

Klein explains that once one clears up some of the ambiguities in Johannsen’s definitions his notion of impair savings is an important break through in thinking against the over-investment theories of economists like Hayek who argued that crises occurred because of excessive over investment which in effect blamed the crisis on a shortage of savings rather than the opposite.  Klein puts Johannsen’s argument rather well. Impair savings result when profitable investment opportunities fall after a period of intense capital accumulation. Investment outlets decline faster than continued savings until this imbalance results in a sharp decline in growth. (Klein,p.145) In the current climate of depressed entrepreneurial expectations the money hoards of the corporations, the wealthy and the banking system still being uninvested represent impair savings of the kind that Johannsen described. Johannsen also had some interesting notions about the employment multiplier as well . He appears to be the first to use the term, multiplier, although his calculation was somewhat crude.

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Canadian employment falls by 21,900 but headline unemployment rate falls to 7.0 %

Posted on February 8, 2013 by haroldchorneyeconomist

Statistics Canada has released its latest Labour force survey for the month of January. It shows that unemployment has fallen to 7.0 % but there are 21,900 fewer people employed and the fall in the headline rate is due to more discouraged workers dropping out of the labour force. Employment fell from December 2012 by 30.9 thousand in education; 21.6 thousand in manufacturing; 11.3 thousand in the utilities sector; 10.3 thousand in real estate and finance; and 8 thousand in health care.

Unemployment remains elevated in the Atlantic region, Ontario and Quebec, 7.7 % and 7.1 % respectively. It is much lower in Manitoba , Saskatchewan and Alberta where the participation rates are also substantially higher. The national participation rate is around 66 % but the rate is 65.4 % in Quebec, 66.3 % in Ontario, 69.6 % in Manitoba where unemployment is 5.0%; 70.2 % in Saskatchewan where unemployment is 4.0 % and 72.9 % in Alberta where the unemployment rate is 4.5 %. The participation rate is 64.0 % in B.C. where the headline unemployment rate is 6.3 %.

We shall see if this falling off in employment continues or is simply a temporary set back in next month’s report. But it is clearly no time for austerity budgeting.

Posted in Alberta, austerity, business cycles, Canada, fiscal policy, full employment, J.M.Keynes, labour market clearing, monetary policy, Québec, Uncategorized, unemployment | Tagged , , | 1 Comment

U.S. jobs report January 2013 unemployment 7.9% 157,000 jobs added:clear need for further fiscal stimulus

Posted on February 1, 2013 by haroldchorneyeconomist

The U.S. Bureau of Labour Statistics has released the employment report for January . It shows that unemployment rose slightly to 7.9 %, 157,000 new jobs were added and there were significant upward revisions to employment numbers for last November and December. However, employment gains would have been 166,000 if the government level had not cut 9000 jobs during January. The broad definition of unemployment  U6 was a seasonally adjusted 14.4 %. So the picture is mixed. If one were to calculate the high employment surplus or deficit choosing 4 -5 %  unemployment as our target rate we would likely find that the current stance of the government level as a whole is not stimulative but possibly contractionary. In order to be stimulative as Robert Eisner has shown in his work How Real is the Federal Deficit   it is the high employment surplus or deficit that counts . There is a crucial need for Ben Bernanke’s accomodating monetary policy to be combined with a stimulative fiscal policy. Q.E. on its own cannot do the heavy lifting that is required.

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