The 47% Getting Government Benefits

This chart shows how the percentage of households in the United States has been increasing since the 1980's. What is interesting is that the percentage dropped in the late 1990's only to then increase. The problem with this statistic is that benefits like Social Security are included which people can't opt out of (I wish they could). When people get something from the government why wouldn't they vote for a party that promises to give them even more of those same benefits?

Food Stamps Increases as Labor Force Decreases

Interesting chart here showing how as the food stamps have been increasing the labor participating labor force rate has been decreasing. The unemployment percentage is somewhat bogus since people keep leaving the work force to collect benefits which means they are not counted. The labor participation labor force rate is a better measure because it looks at how many people are actually working. Seems from this chart that incentives do actually matter. 

H/T- Fidelity

Obama Recovery: With and Without Stimulus

H/T- AEI

Is President Obama Creating Jobs?

Many people were jumping for joy when they heard unemployment decreased to only 8.3%. However, how the unemployment number is calculated can sometimes be misleading. For instance, people serving in the military, people in nursing homes, or prisons are not considered in the unemployment numbers. People who are on unemployment benefits are also not counted. Data from the Department of Labor shows that 3.46 million people are on unemployment benefits. If we include the amount of people who have given up looking for work unemployment would be almost a full percentage point higher.

A better measure is to look at the civil participation ratio which looks at what percent of the population is working. The civilian participation ratio is now 58.5%. The civilian participation rate has only decreased since President Obama has been in office. Today, there 12.8 million unemployed people and 43% of these people have not had a job in more than six months. Jobs skills don’t regenerate over time. Usually if you not constantly doing something every the brain will eventually forget what you are doing.

One positive however is that number of government jobs has been decreasing even though government spending has been increasing. I suppose this gives more power per government worker. In the last year, 276,000 jobs were lost. Nearly all these losses came from local and state government and not the national government.

Having millions of people out of work is unproductive. Not only are people unemployed but they are losing job skills since they are not working which will put them further behind. Many firms are skittish to hire because of fear of upcoming regulations, legislation, and what the future for taxes holds. If the government started to slash the most costly regulation to companies, cut thousands of pages of worthless regulations, and lowered corporate tax rates (also assuming they eliminate all deductions, subsidies, and corporate welfare) the economy would get a much needed jolt.

U.S. Real Productivity 1947-2010

It seems as if the United States has become much more productive over time. Using data from the BLS I use 1947 as a baseline of 100 and adjusted for yearly increases in productivity. The United States is 4 times more productive than we were in 1947! The greatest gains were seen in the 1990's. People argue that tax rates were higher and we still had a great economy during this time period. However, I would argue we had a great economy despite high taxes. People forget the technological revolution we had during this time period. What is interesting is that we still seem to have modest increase in productivity.

Black Friday: Waste of Time (Why You Don't Have To Go To Wal-Mart, Best Buy, or Macy's)

The internet has transformed all of our lives. If you ask most people if they could live without it I have a feeling very few could actually say yes. The internet allows people to do wonderful things like send mail across the world, pay bills, and order items. With the holidays approaching I want to focus on that last thing of ordering things. In the United States, we have an event called “Cyber Monday”. Essentially Cyber Monday is a day where people go online to order gifts for themselves, family, friends or loved ones. This of course is after Black Friday where people wait in tents all night in order to secure great deals on gifts. This year stores many retail stores like Wal-Mart, Best Buy, and Macy’s opened at midnight instead of opening the usual 3 or 4 a.m. like they usually do. This year alone over 220 million people participated in Black Friday. To me I never understand why people spend hours waiting in line to save some money. Of course, there will be other great deals (maybe even online) but what is the opportunity cost of waiting in a line

For those that don’t want to wait in line there is always the internet. In 2011, consumers spent $6 billion from November 28 through December 2. Clearly, this is a lot of money and many retailers are involved. What is interesting however is how online shopping makes things much more efficient. Back in the day people would drive from store to store looking for deals (they may had help from ads or coupons). Today people can find what they want and find it at the cheapest price and have it shipped right to their doorstep without going outside. If anything the internet decreased gas consumption because we don’t have people wandering around wasting gas (not to mention people are also saving gas through their navigation systems). The counter argument might be it takes trucks and cars to deliver all these items people order. This may be true however if you notice UPS and FedEx have trucks that carry hundreds of items and know the most fuel efficient way to deliver these items. FedEx expects to deliver 17 million packages on their busiest day. UPS last year exceeded 25 million deliveries.

Data from Price Grabber shows than 37% more percent of people will shop on Cyber Monday than last year. The major reasons people listed for shopping online were finding the best deals and basically not having to go to the mall. If you think about it people have expotentially more options and a better chance of getting a better deal sitting behind a computer than walking around the mall. Truly technology is glorious.

Standard & Poor's Downgrade, Economy, and Solutions

Early this evening Standard and Poor’s (S&P) downgraded the United States credit rating from AAA (highest) to AA+. S&P cited political instability, a high debt/GDP ratio, and growth of government spending. S&P got this call right. The 2011 budget for the United States predicts a $1.65 trillion deficit. Note this is just an estimate and can be even more than predicted. What I find interesting is that we are predicted to bring in $2.17 trillion in revenue. The budget is divided into mandatory spending and non-discretionary spending. In 2010, over $2 trillion was spent on “mandatory” things like Social Security, Medicare, and Medicaid. Discretionary spending was a little over $1 trillion. My point would be that all spending is discretionary. No doubt the downgrade will have implications for the economy. The most noticeable difference will be a rise in interest rates charged to consumers. When Spain and Portugal faced similar downgrades the interest rates rose between .2-.4 percentage points. This seems small but when you look at how many homes, cars, and other expensive items are financed with interest rates it would have a large impact on the economy as a whole. The entity that will pay the most will be the United States government which will see higher interest payments on the debt.

This week the debt ceiling was raised yet I have a feeling pretty soon the Treasury will find itself in a bind and try to figure out how to pay their bills. The debt ceiling claimed there would be cuts; however I would question what base lines were used to determine if any true cuts were made. It would be like going into a store and learning they are having a sale on everything for 30% yet raised the prices 50% before they lowered them.

The jobs report today showed that 117,000 jobs were added making the unemployment rate 9.1%. However, if you look at the percentage of people in the labor force it was fallen to 58% which is the worst it has been in more than a decade. This I believe is a better measure of unemployment since the way unemployment is calculated is somewhat of an art. People who have stopped looking for the past month for a job are not counted as being unemployed.

The only real way for our country to avoid going down the tubes is to initiate some free market reforms. The government should first go through all regulations and figure out which ones have the highest cost and provide the least amount of benefit. Also taking money from hard working people and transferring it to others is not only wrong it’s immoral. If 47% of people don’t pay any federal income taxes why should they care if income taxes are raised? People claim that other countries in Europe are better because they provide free health care, free education, and other free social benefits that are “more fair”, help them live longer, and make them happier. I would argue our standard of living and purchasing power is much higher in the United States than in nearly any other country. The reason why people in our country don’t live as long is not because of health care, but what we choose to do with our bodies. Everyone could in America could have the best healthcare and best insurance, however if we eat too much, drink too much, or smoke too much statistically we will live lower lives. Also the United States has higher murder and suicide rates than other countries which would decrease our life expectancies.

We are at a turning point for our nation. I hope politicians embrace not only free markets but choice and liberty. If not we will be left with no choice but to succeed.

Bravo Dr. Russ Roberts

Great op-ed in WSJ today...

http://online.wsj.com/article/SB10001424052702304070104576399704275939640.html?mod=ITP_opinion_0