Chart of the Day - Manufacturing Job Losses Edition

CNN:

One word: China (they joined the WTO in December 2001).

Thanksgiving / OSU-Michigan / Grey Cup Weekend Links

Some interesting reads if you've gotten your fill of football already this weekend:

Jack Trice: Football Martyr - SBNation

Wojo's Pigskin Picks: Michigan-OSU has lost sizzle, needs spark - Detroit News.  Usually he can be counted on for some good slams on Ohio State.  I guess Michigan losing every year has taken the fun out of it for him.

Introducing the Weekly Glean - Modern Farmer.  A new weekly set of links to ag news.  One of this week's links- Benjamin Franklin's letter promoting the turkey as the national bird.

Can Breeders Cure What Ails Our Breast-Heavy Turkeys? - The Salt

Shorting Chickens Becomes Hot Trade After Prices Surge - Bloomberg

Thanksgiving in the Dust Bowl - James Fallows

Energy Quakes As OPEC Stands Pat - Wall Street Journal. See also, OPEC might get last laugh on oil - MarketWatch.   I was tempted to short Continental Resources and other shale plays, but because I thought production would peak, not because prices would crater.  Didn't do it, though.

Mystery of Scotch Whiskey Rings Solved [slide show] - Scientific American

Watch GE Test Its Jet Engines by Putting Them Through Hell - Wired.  Cool shit.

Inside Elon Musk's $1.4 Billion Score - Fortune.  Goddamn, corporate subsidies are such bullshit.

A Massacre in the Family - Wall Street Journal.  Sand Creek.

'God is not a magician': Pope says Christians should believe in evolution and Big Bang - Raw Story

The Making of Ferguson - The American Prospect.  Very interesting story highlighting racial segregation as government policy.

What a Difference Fourteen Years Make - Texas Monthly.  14 years of Rick Perry as governor.

The Oil and Gas Recovery

Via Ritholtz:

Chart of the Day - The Healthcare Economy

From the WSJ:

That makes me sad. Also, too:

Yeah, the on-shoring movement has been vastly overblown.

Home Energy Use

From Early Warning:

At least my space heating is mostly wood.  Not good for the air, but good for the wallet.  I'd guess that about half of my electric is refrigerator and hot water heater.

Chart of the Day

From Krugman, via Yglesias:

Looks to me like we could use single-payer health care.

Chart of the Day, Part 2

This chart is from Jared Bernstein, using an interactive graphic from the Washington Post (h/t Mark Thoma):

It shows the change in employment from the runup to the Great Recession until the present, in various job sectors.  I was curious what the roller coaster line was which goes above the Health and education sector early, then drops way down, then comes back down.  Turns out that it is the Mining and logging sector, which is a fairly small sector of total jobs.  The manufacturing and construction lines are interesting, and professional services is interesting, personally.  That sector has shown a trend of increased hiring for a while, but total jobs are still well below pre-Recession levels.

Bernstein makes the following note about the Health care and education sector:

I didn’t bother labeling every sector because I just wanted to make one simple point.  Look at health care/education (which is driven by health care).  Even throughout the worst recession since the Great Depression, with payrolls tanking worse than I’d ever seen, HEALTH CARE ADDED JOBS EVERY SINGLE MONTH.
The graph makes the point…um…graphically.  It’s a straight line sloping steadily up amidst all that carnage!
So there’s the other hint.  This is a sector with great demand, tough to outsource, strong gov’t involvement (and yes, unsustainable spending—and that’s not solely a public sector issue; it’s just as bad on the private side), and limits to productivity growth, relative to say, widget production.

As he mentions, this is one of the reasons why health care costs in the United States are unsustainable compared to any other industry, labor costs keep increasing.  Other sectors have cut jobs and wages over the past twenty years, but health care hasn't, and all those costs are passed on to the rest of society.  With an aging population, we will continue to need more workers, but we need to figure out how to limit cost increases while continuing to provide good health care outcomes (actually, to improve those outcomes).  This will be our greatest political challenge going forward.

Wages Are Rising?

Felix Salmon:

To put this in terms even a politician can understand, the average weekly paycheck is now $787.19. That’s $59.78, or 8.2%, higher than it was at this point four years ago — and the rate of increase in wages is not slowing down. If you have a job at the next election day, you’ll likely be earning between 8% and 10% more than you were when Barack Obama was elected. This country has many problems, unemployment first and foremost among them, but stagnant wages and employees being underpaid are pretty low down the list, if they’re on it at all.
I do think that productivity gains should go more to labor and less to capital, but in the first instance that should take the form of increased hiring, rather than wage increases for the already-employed. Those of us with jobs are the fortunate ones — and yes, if we’re paid more, we’ll spend more, and that in turn is likely to show up in higher prices. The Fed is probably right to be worried about wage inflation. But that just means that it should look for ways to divert that money into new hiring, rather than raising rates to choke it off altogether.

This surprises me, although I guess it would be true in nominal dollars.  In real dollars, I would suspect that wages are just about the same, or even lower in purchasing power.  The other question I would have would be if this figures in benefits?  Some of the calculations of employee pay figure in benefits, and health insurance costs going up get reflected as wage increases for workers.  I'm pretty sure that doesn't make workers feel better off.

Manufacturing Data Shows Weaker Recovery

Mike Mandel, (via Mark Thoma):

There’s been a lot of happy talk recently about the revival of U.S. manufacturing .  According to an article in the New York Times,  “manufacturing has been one of the surprising pillars of the recovery. “  In a Forbes.com column entitled “Manufacturing Stages A Comeback,”  well-known geographer Joel Kotkin talks about “the revival of the country’s long distressed industrial sector.”  The Economist writes that “against all the odds, American factories are coming back to life.”*
Truly, I’d like to believe in the revival of manufacturing as much as the next person. Manufacturing, in the broadest sense,  is an essential part of the U.S. economy, and any good news would be welcome. 
Unfortunately,  the latest figures do not back up the cheerful rhetoric.
Newly-released data suggest that the manufacturing recession was deeper than previously thought, and the factory recovery has been weaker. On May 13 the Census Bureau issued revised numbers for factory shipments,  incorporating the results of the 2009 Annual Survey of Manufacturers. 

He follows up with a number of charts, which show that previous data releases were revised downward significantly.  I also think sentiment numbers in manufacturing have been trending downward, while still on the expansion side.  I would anticipate some further decreases in upcoming months.

Was the Auto Bailout Worth It?

David Kiley says yes (via Ritholtz):

The GAO is merely doing its job as watchdog on government spending. Even though the benefits are clear, there are still plenty of pundits and politicians who have doubted the value and propriety, even the constitutionality, of the government bailouts of the two automakers two years ago. Two years in, and they are still complaining. Critics are entitled to their ideology about letting free markets determine the fate of private companies. But the White House and auto companies should not have much trouble defending the wisdom of not letting GM and Chrysler, representing more than a quarter of the U.S. auto industry, collapse into liquidation, which would have created chaos and vast unemployment in the most important manufacturing industry remaining in the U.S.

Both automakers are here today, building cars, mostly in the Midwest, and re-hiring thousands of workers, because the U.S. government kept both companies, in the midst of the meltdown of financial markets in 2008 and early 2009, from being chopped up piecemeal. The rescue of the two automakers also kept hundreds of auto parts companies from going bust. The U.S. auto industry is still the spine of the economies of Michigan, Ohio, Indiana, as well as being important to other states including Pennsylvania, Illinois and Kentucky.

In all, the Center for Automotive Research (CAR) in Ann Arbor, Mich., reckons the government's bailouts of the U.S. auto industry spared more than 1.14 million jobs in 2009, and prevented "additional personal income losses" of nearly $97 billion in 2009 and 2010. Another 314,400 jobs were saved in 2010. The research organization based its conclusions on the potential impact of auto-industry collapse for jobs at U.S. automakers and suppliers, and ripple effects on the economy at large.

The legion of critics of the bailout is quite a gallery: from Presidential hopefuls Rep. Michele Bachmann (R-Minn.) and Mitt Romney (let's see if he sticks to that when he campaigns in Michigan this year) to the more thoughtful, if still stubbornly incorrect, Dan Ikenson, associate director of the libertarian Cato Institute's Herbert A. Stiefel Center for Trade Policy Studies.

Of all the decisions made during the financial crisis, this was probably the most controversial.  I don't see how they could have let GM and Chrysler go under at that time.  It wasn't ideal and it wasn't pretty, but I think it worked out for the best.  If those two companies failed, and they dragged down a bunch of parts suppliers with them, we'd have had a tremendous mess on our hands.  As the article goes on to say, the banks weren't healthy enough to try to finance GM and Chrysler as they entered bankruptcy, so the government was the lender of last resort.

What Economics Brings to the Table

Edward Glaeser, highlighting what he sees as the role of economists, as he finishes his stint blogging at Economix (via Mark Thoma):

Economics marries a predilection for personal freedom with a longstanding tendency to view the interests of the government as being distinct from the welfare of the people. Adam Smith’s “Wealth of Nations,” modern economics’ founding document, emphasized that point.

In the 18th century, it seemed clear that what was good for King George III was not necessarily good for Britain and certainly was not necessarily good for his American subjects.
Democratic revolutions muddied the waters and made it possible for some to think that the government was a faultless servant of the people’s will, but a healthy skepticism about the benevolence (and competence) of the state continued within economics.
Both markets and governments are quite imperfect, and it is important to weigh their failures against each other.
The world isn’t and shouldn’t be run by economists — many perspectives need to be at the table. But economists have plenty to add: formal models, statistical evidence, a focus on freedom and a sophisticated centuries-old approach to public policy.

Can't really argue with that.  Too bad economists argue like surveyors.

A Bullish Trend

Mark Hulbert says the ECRI WLI indicates fears of a double dip recession, like I was voicing, are wrong (via Ritholtz):

 A double-dip recession? More like double-dip sloppy thinking.
No, I’m not saying that all of those advisers who believe another recession is imminent are automatically guilty of sloppy thinking. But many of them are: When the facts on which they base their argument end up changing, they simply look elsewhere to find other facts that support their conclusion.
They remind me of the famous line with which Adlai Stevenson, the Democratic party candidate for president in 1952 and 1956, used to mock his opponents: Here’s the conclusion on which I base my facts.

I hope he's right.  Only time will tell.

Taxes in the U.S.

Matthew Yglesias includes the following chart in his post about whether the U.S. can preserve Medicare as currently constituted:

One thing to note is that each of those other countries has some sort National Health System which covers more people than our government does.  Once you figure in the privately funded portion of our health care system, which could truly be looked at as a privately administered tax which is paid to health insurance companies, doctors, hospitals and malpractice insurance providers, we would probably move up on the list a decent amount.  Also, imagine how low our taxes could be if we didn't carry the burden of defending all these other developed world countries who spend very little on defense.

Trying to Get to the Definition of Inflation

Robert's Stochastic thoughts (via Mark Thoma):

Most people in the USA use "inflation" to refer to increased prices and assume that inflation does not cause increased nominal wages. They will not be surprised by the graph. That's what they imagine when they say inflation is a problem. Most US adults would not object of told "inflation reduces the amount of goods workers can buy with their salaries." They hate inflation (considering 10% inflation by far the biggest problem for the USA in the 70s) exactly because they assume that price increases don't cause wage increases even in the long run.

Evidently the idea is that lower inflation (and they ask economists how to achieve it) means higher real wages and the same employment. Then in a sick twist the older New Keynesians (Fischer, Taylor, Gordon) argue that central banks are tempted to cause surprise inflation, since lower real wages are clearly desirable.

Most people who fear the inflation monster under their beds don't fear a wage price spiral, they don't hope for a wage price spiral. They think higher inflation means lower real wages forever which are not compensated by any benefit such as higher employment ever.

The debate is schizoid because economists and not totally ignorant policy makers accept the public view that inflation is hugely costly (assuming complete nominal wage rigidity) and also assume that high inflation is persistent and hard to eliminate because they know how nominal wages really respond to inflation.

At the moment this is all irrelevant (as you note) since core inflation is low, wage inflation is low and a higher relative price of petroleum really does reduce US aggregate real income. But the current insanity is made more likely by the general inflation insanity. Basically policy makers know that high gasoline prices make people vote against incumbents and they demand that Bernanke save them from the effects of increased Chinese demand for petroleum.

There is a lot of truth there.  The 70's inflation was driven by Nixon dropping the gold standard, along with the oil embargo and decreasing oil production in the U.S. (Texas reaching peak production) driving down the dollar and driving up oil costs.  This combined with automatic cost-of-living wage increases tied to the consumer price index to kick in, starting a wage-price spiral.  Today we have the weaker dollar and the higher oil prices, but we don't have the wage increases.  What wage increases we do have go directly to helath insurance companies.  With high unemployment, workers don't have leverage to push for wage increases, and must make do by cutting back.  Employers have enough trouble passing on raw material costs, let alone labor cost increases.  Our main hope would be to reduce consumption of energy, and bring down that dead load cost on our economy, but that means getting off of our fat asses and walking, biking or using public transit, and since suburbal sprawl has made that tremendously difficult, I don't think we'll be seeing much voluntary decrease in energy usage.

More on the Endgame

John Mauldin, over at the Big Picture:

Let me jump out on a real limb. I was having dinner last Monday with Christian Menegatti, the #2 economist at friend Nouriel Roubini’s economic analysis shop. We were comparing notes (imagine that), and he said their opinion is that the US has until 2015 before the bond market really calls the deficit hand. Knowing that Nouriel is seen as the ultimate bear, it makes me nervous to put out my own even more bearish analysis.
I think the crucial point will be reached in late 2013. If the bond market sees a serious move to control the deficit, I think they let us “skate.” Then we Muddle Through. But if not, I think we begin to see some real push-back on rates then.
Why so early? Because bond investors are going to be watching the slow-motion train wreck that is happening in Europe and especially Japan. It is one thing for Greece to default (which they will in one form or another, with lots of rumors flying this morning), yet another for Japan to do so. Japan is big and makes a difference. Japan could start to go as early as the middle of 2013. As I have said, Japan is a bug in search of a windshield. Whenever this happens, 2013 or a year or so later, it is going to spook the bond market. The normal indulgence that a superpower and reserve-currency country would be accorded will become much more strained. It will seemingly happen overnight. Think Lehman Brothers on steroids.
I think the chances we will deal with this potential crisis are about 75%. Not doing so is such a horrific outcome that I think politicians will do the right thing. See, I am an optimist. (What was it Winston Churchill said? “You can always depend on the Americans to do the right thing, after they have exhausted all the other possibilities.”)

He is endorsing $3 in spending cuts for every $1 in tax increases.  I would think more along the lines of drastically overhauling the heath care sector with single payer, slashing defense spending and wrapping up the wars in Iraq and Afghanistan, (and Libya), then $2 in tax increases/tax reform for every $1 of spending decreases.  I think he is right that the deficit and debt are huge issues, but I think he is slanted too much in an anti-government direction.  Likewise, he is much more optimistic about Republican politicians being able to fix this mess.  So far, I have yet to see a decent likely candidate for the GOP nomination in 2012.  I sure don't want any of the guys who participated in the debate last week running the country.  He also doesn't mention issues we may face with resource scarcity or climate change.  We face a lot of hurdles in the near future, and we're going to have to put aside much of our enmtiy with our political opponents and make true shared sacrifice.  So far, I don't see much of that from Republicans.  I don't even see them acknowledging what I think are pretty obvious facts.  This is going to be a tough process.

David Hume's Birthday

Crooked Timber (h/t Mark Thoma) marks David Hume's 300th birthday on May 7 (April 26-Julian calendar):

David Hume was born 300 years ago today. His influence on philosophy is well recognized. His influence on the social sciences, rather less so. Dan Sperber proposes that readers of his blog celebrate this anniversary by selecting particularly relevant quotes. Sounds like a good idea – let me start the ball rolling by stealing a particularly appropriate one from Cosma Shalizi.

It is excellent reading.  Commenters added their own favorite quotes.  My favorite came from commenter Geo:

Hume, Of Commerce:
“A too great disproportion among the citizens weakens any state. Every person, if possible, ought to enjoy the fruits of his labor, in a full possesion of all the necessaries, and many of the conveniences, of life. No one can doubt that such an equality is most suitable to human nature and diminishes much less from the happiness of the rich than it adds to that of the poor. It also augments the power of the state, and makes any extraordinary taxes or impositions be paid with more cheerfulness. Where the riches are engrossed by a few, these must contribute very largely to the supplying of the public necessities. But when the riches are dispersed among multitudes, the burden feels light on every shoulder, and the taxes make a not very sensible difference on any one’s way of living.
“Add to this that, where the riches are in few hands, these must enjoy all the power, and will readily conspire to lay the whole burden on the poor and oppress them still farther, to the discouragement of all industry.”

We could stand to consider that again today.

Irish Economy Struggling With Austerity

NYT:

Benefiting from years of low interest rates that followed the creation of the euro zone in 1999, Ireland enjoyed one of the biggest growth spurts of any country in Europe, and spent lavishly as its wealth increased. The economy expanded an average of 7 percent in the decade leading up to 2007 before plunging into a deep recession. Per person, inflation-adjusted economic activity has fallen approximately 18 percent from the peak, when the average gross domestic product per person was a shade over 43,000 euros ($62,000). Now it is less than 35,000 euros ($50, 767).
As the country tries to recover from the bust, many of its people are paying a tremendous cost for the folly of the country’s banks and to bring its government finances back in order.
As part of Ireland’s effort to pay down its immense debts and bail out the banks, the Condras’ salaries from their state jobs as hospital workers have been cut 20 percent in two years. Higher taxes and further spending cuts are on the horizon.

It looks like years and years of pain for the Irish as they bail out their corrupt banks.  They should have let them fail.  Bondholders should have taken haircuts and stockholders should have been wiped out.  Now the taxpayers are going to be slowly bled out.

244,000 Jobs Added in April

From Calculated Risk:

We're starting to climb away from the bottom, but I get the feeling that we're working toward another leg down.  I wouldn't be surprised if we are losing more jobs in the fall, the weekly unemployment claims are growing again, and we're going to start feeling the drag from local, state and federal spending cuts.  I also wouldn't be surprised if a combination of commodity prices and Euro-zone issues bring on a double dip.  Even if we avoid the double dip, growth will be anemic.

Limited Resources

Ryan Avent looks at the commodity price boom and the rapid development in emerging markets, and comes away with this observation:

The ADB is saying that 3 billion Asians could reach European income levels by 2050, on top of the billion affluent Europeans and North Americans, not to mention the contemporary ranks of rich Latin Americans and Africans.
I don't think it's impossible to imagine a world in which four times as many people enjoy rich-world living standards as is currently the case. But for it to be possible, humanity must either start discovering and exploiting new earthlike planets, or come up with revolutionary new ways to increase terrestrial supplies of critical resources, or dramatically decrease the resource-intensity of wealth. The mechanism that will encourage one or some (or, I suppose, all) of these developments is high resource prices. And until those developments materialise, high prices will act, instead, to check growth. Or so it seems to me.

Dramatically decrease the resource-intensity of wealth.  In other words, the world must make improvements in standard-of-living without being as wasteful as America has.  Our first step has to be increasing efficiency in transportation and electrical distribution, as both are tremendously wasteful.  If we don't, our standard-of-living will decrease dramatically.

Are the Chinese Hoarding Commodities For Financing?

Yves Smith highlights  that Michael Pettis claims China is importing excess copper because (somehow) it allows cash-strapped businesses to access financing.  He also speculates that they might be doing the same thing with soybeans:

As much as it may sound barmy to stockpile commodities to obtain better terms on financing, Michael Pettis claims that’s one of the factors behind what looks to be unduly aggressive purchases of copper by the Chinese. An excerpt from his latest newsletter, courtesy Michael Shedlock:

China had been importing for many months far more copper than was needed for real use…. Imports continued even when London prices exceeded Shanghai prices by more than the equivalent of China’s value-added tax.

Instead of being shipped to end users, it seems that copper was being stockpiled in warehouses.　 Why?　 One possibility of course was pure speculation…

It turns out, that the copper purchases were not entirely, or even mainly, speculative.　 They were part of a financing scheme for companies that….were having trouble accessing bank credit.　

Credit-starved companies were importing copper because they could obtain trade finance or some other sort of foreign financing, and then used the physical copper (or warehouse receipts, I guess) as collateral for domestic borrowing.　 The financing was continually rolled over.　 Buying copper was just a way to borrow for companies that needed loans and were otherwise unable to get them.

As I mentioned two weeks ago, when I discussed this in February with a senior executive in a major commodities company, he responded by saying that he thought the same thing might also be happening in soya…

I don't understand this at all, but if they cut back purchases, we might get some really nasty price drops, especially if this wet weather continues and the market gets concerned about acres switching from corn to beans at the end of the month.