Friday, May 13, 2011

My View

Random ruminations from your resident curmudgeon...

Economic growth equals jobs growth, right? That maxim is deeply ingrained in our economic thinking and strategies. There is emerging data, however, that is suggesting that this relationship is not as solid as once thought. Beginning with the fourth quarter of 2007 until the second quarter of last year, the U.S. economy lost 8 million jobs, causing unemployment to soar from just over 4% to over 10%. During the same period, according to the National Bureau of Economic Research, economic activity as measured by our Gross Domestic Product (GDP), declined only 1.3%. In the second half of 2010, economic activity picked back up while unemployment remained stubbornly over 9%. The data is indicating that as our economy improves, jobs are not being added. Why is this? Two main reasons. The first is the globalization of our economy. Many manufacturing and technical jobs have moved off shore to other nations that have a lower cost structure than the U.S. Manufacturing as a component of the economy is lower now than at any time over the last three decades. This trend will continue. The other reason presents a more difficult problem for our country. Much of our new job creation is in technology and other "knowledge" based industries. The difficulty that this shift creates is that it means that we must reconsider our approach to education and equipping our students to compete in a knowledge based economy. The lag time to make a structural change in our educational system and better equip graduates to compete in a global economy is significant. Fail to change our educational system and our economy will suffer continued significant job loss, and the jobs created will not be the type that will generate income levels to which we have been accustomed. And even with appropriate changes in our educational system, it will take a number of years to reverse this negative trend.

This "if you want something done right, do it yourself" thing didn't work out so well with my last surgery.

We all know the housing market is bad, and the hope is that we have seen the bottom in housing prices. Stabilizing housing prices will eventually help to stabilize our economy. New data from Zillow, the real estate pricing information company, suggests that perhaps we are not at the bottom for housing prices. If they are right, this is not good news for homeowners or the economy. According to Zillow, average home prices are down 8% from this time last year. There was hope that prices had reached their nadir when the first time home buyers credit was introduced by Congress in 2008, but all that did was create a sucker's rally in prices. Once the credit expired, prices continued to fall (and the American taxpayer had another $22 billion added to the deficit). It is estimated that a record 16.3 million Americans are underwater on their mortgage- they owe more than the house is worth. This has negative repercussions for the lenders that hold these mortgages and for the homeowners that live in the homes. How much farther will home prices fall? That is any one's guess, but some economists expect another 20% decline in home prices before the bottom is reached. Regardless, this data suggests that home prices, and subsequently our economy, are a long way from recovering.

I like to enjoy a quiet beer, followed by 12 noisy ones.

With April 15th and the tax deadline fresh in our minds, one has to wonder what will happen with tax rates. The two year extension of the Bush tax rates will expire at the end of this year, and as sure as the sun comes up in the east, you can expect tax rates to go up next year. Congress will soon take up the debate on where tax rates should go, and this will be something we all should watch. Where will rates go? No one knows, but I would expect rates to rise at least 25% across all tax brackets. Watch for Democrats to engage in class warfare and vilify those that are working and look to confiscate even more of their hard earned income. And while income tax rates will most assuredly rise, also look for the introduction of a value added tax that will be assessed on all goods and services that are produced or rendered in this country. There is no doubt that we as a nation are in dire financial straits. The knee jerk reaction of many in Congress will be to raise taxes. It will be interesting to see if Congress is serious about reining in spending as well as taking more of your income.

It is said that "I am" is the shortest sentence in the English language. I will submit that "I do" is the longest sentence.

And that, my friends, is my view.

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