It's Still The Economy, Stupid

Friday, December 12, 2003  

A good read

Black Commentator has two good articles this issue. One is on a 12/7 Dean speech on race and the Democratic Party, and the second by Paul Street on the disenfranchisement of Americans with felony convictions - both definitely worth a read. I probably won't vote for Dean, but if he keeps picking up endorsements and making these kind of speeches (he has some good speechwriters - read it to see how many Bush cliches are turned upon their heads), he won't need me.

Some relevant excerpts:

From Street: Manza and Uggen’s dark finding rests largely on the very disproportionately black composition of America’s official criminal class within and beyond Florida, a reflection of criminal justice disparities so great that an astonishing one in three black adult males in the United States carries a felony record. Manza and Uggen factor in and cross-match all the relevant social-science inputs on race, socioeconomic status, party identification, and voter turnout to show that felony disenfranchisement was a wining tool for the Republican Party, consistent with broader and related Republican efforts to minimize and dilute the heavily Democratic weight and significance of the black vote. Anyone concerned about the prospect of long-term Republican hegemony in the American Party system should support the movement to extend the ballot to ex-felons – a reform that is supported by 80 percent of Americans according to a recent poll.

From the Dean article:

The December 7 speech is a clear and definitive break from the lethal grip of the Democratic Leadership Council, the southern-born, corporate-mouthpiece faction of the party. The DLC’s favored presidential candidate is Senator Joe Lieberman, it’s most illustrious personality is Bill Clinton, and it’s most prestigious founding member is none other than – Al Gore.

Gore’s endorsement of Dean should be viewed as head-swiveling proof of the bankruptcy of the DLC’s white “swing voter” strategy. The DLC-Emeritus has effectively jumped ship.


Where does this leave Al Sharpton and Dennis Kucinich? Exactly as they are, preaching the same social democratic, anti-racist, pro-peace message as before, for as long as their energies can sustain them. Dean’s political leap would not have been possible in the absence of Sharpton’s energetic Black candidacy and Kucinich’s principled, progressive white voice from the Left. At this historic juncture they dare not go anywhere. Dean has picked up the torch that Sharpton and Kucinich have been carrying and they must stay in the race to make sure he doesn’t set it down. By persevering in pressing the Left edges of the Democratic envelope, the “Two Civilized Men” created the political space for Dean to make his historic break. Although we cannot expect either candidate to rejoice in the frontrunner’s actions, Dean’s leftward march is also their victory over the DLC, and they must defend it – against Dean himself and his newfound allies, if need be.


Indeed, Sharpton could have vetted Dean’s speech, which reads very much like the distilled product of A More Perfect Union, the book written by Rep. Jackson and Frank Watkins, Sharpton’s former campaign manager. The same river runs through it, the historical currents that also informed Rev. Jesse Jackson’s speech to South Carolina State University at Orangeburg, last week.

"The big fight in this state should be trade policy and the Wal-Martization of our economy," said Jackson, the local Times and Democrat reported. "The challenge is to get South Carolina to vote its economic hopes and not its racial fears." Most low-income Americans are white and "they work every day. They work at Wal-Mart without insurance. They work at fast-food places. They work at hospitals where no job is beneath them, where they don't have insurance, so they can't afford to lay in the beds they make…

"The challenge for South Carolina is to move from racial battleground to economic common ground to moral high ground."

The first few paragraphs of Dean's speech:

In 1968, Richard Nixon won the White House. He did it in a shameful way – by dividing Americans against one another, stirring up racial prejudices and bringing out the worst in people.

They called it the "Southern Strategy," and the Republicans have been using it ever since. Nixon pioneered it, and Ronald Reagan perfected it, using phrases like "racial quotas" and "welfare queens" to convince white Americans that minorities were to blame for all of America's problems.

The Republican Party would never win elections if they came out and said their core agenda was about selling America piece by piece to their campaign contributors and making sure that wealth and power is concentrated in the hands of a few.

To distract people from their real agenda, they run elections based on race, dividing us, instead of uniting us.

But these politics do worse than that – they fracture the very soul of who we are as a country.

It was a different Republican president, who 150 years ago warned, "A house divided cannot stand," and it is now a different Republican party that has won elections for the past 30 years by turning us into a divided nation.

In America, there is nothing black or white about having to live from one paycheck to the next.

Hunger does not care what color we are.

posted by Teddy | 10:50 AM |


Not related to anything economic, but I just watched "Apocalypse Now" for the ump-teenth time earlier this week, and then I see stuff like this, this and even crazy stuff like this. See what they were protecting man, a f*&*^%$ puppy!

Are any of the Sheen family of military age?

Baghdad...shit, I'm still only in Baghdad. Every time I think I'm gonna wake up back in the desert....

Time to drop that last tab of acid.

posted by Teddy | 8:33 AM |

Consumer confidence declines

This link is the generic Bloomberg variety, so it won't last long at that site. The University of Michigan survey index of consumer confidence fell from 93.7 to 89.6. While I care very little about consumer confidence indices right now, I will note that the index has been stable in the 80-100 range since November 2000. This would seem to indicate consumers have the attitude "growth is nice, but hey buddy, where's the jobs?" I doubt we will see any significant pickup in consumer confidence until we start getting 300,000 new jobs a month and a 5% unemployment rate. One month or one quarter of job growth isn't going to do it. Neither, apparently, is Dow 10,000 or 8.2% growth in quarterly GDP .

So it's a little more disturbing that these kind of things are quoted in other stories below consumer confidence:

The economy's strengthening in the last six months has yet to afford companies the ability to raise prices as they compete with imported goods and manufacturers face excess production capacity. Ford Motor Co. and General Motors Corp. are among businesses that have boosted discounts to lure buyers.

``We have no pricing power -- it's very hard to get a price increase to stick,'' said Joseph Erba Jr., chief executive officer of North Carolina-based Brayton International, in an interview. Brayton is a unit of Steelcase Inc., the largest maker of office furniture. ``A lot of our suppliers are coming to us asking us to take price increases and we've had to stave them off.''


Passenger car prices fell 0.8 percent last month, the biggest decline since April, after rising 1.6 percent in October. General Motors spent $4,406 per vehicle on incentives in November, up from $4,312 in October, according to CNW Marketing Research. Ford spent $4,396, up from $4,277. Chrysler's spending on incentives climbed to $4,351 from $4,235.


Members of the Federal Reserve's rate-setting Open Market Committee said signs of economic growth, while encouraging, still may not generate substantial numbers of new jobs until late 2005, minutes from their Oct. 28 meeting said.

``Members generally anticipated that an economic performance in line with their expectations would not entirely eliminate currently large margins of unemployed labor and other resources until perhaps the latter part of 2005 or even later,'' the minutes said.

posted by Teddy | 8:08 AM |

Dow 10,000

As fascinated as I am with meaningless numbers, I can't get too excited about yesterday's "event". What matters in investment is relative performance.

The S&P 500 first hit its current level in October 1998. The Dow first hit 10,000 in March 1999. The Nasdaq first hit its current level in July 1998. Depending on the mix of stocks in one's portfolio, the long-term investor hasn't made money in stocks in more than five years, plus or minus a few months.

On October 1, 1998 one could have bought a 10-year treasury bond yielding 6% and been up 27.7% in interest and 3.0% in price today. To catch up to a 10-year bond, the Dow would have to hit 13,700 by next year, 14,400 by December 2005 and 15,250 by December 2006. Want to be really depressed? Check out the performance of foreign short-term government bonds (TEMFX - 25%), gold (FGLDX - 43.5%), and natural resources (MDGRX - 90%) over the same period at Microsoft Investor.

Now, don't slug me for bringing this up. If you really need to slug someone (verbally or otherwise), it should be someone like him, her, him, and him for starters. I hope we all learned that stocks have risks and they don't always go up. But apparently there are a few cheerleaders left that think every little thing like Dow 10,000 solves all our problems, which it does not.

posted by Teddy | 7:40 AM |

Thursday, December 11, 2003  

I am the walrus waiter

I think Billmon reacts with the proper amount of sarcasm to media reports that the restaurant industry is hiring. I'd also like to add that restaurant workers who make tips are can be paid a fraction of the minimum wage.

Bill Gross offers investment tips to the Fed's reflationary efforts. I agree with his investment analysis, but not the part that the Fed can actually generate reflation. All they've managed to do so far is generate negative real interest rates, which are nominal rates less inflation. This lines up Bill Gross and his cohorts on one side of the boat against consumers and participating central banks. As more and more people try to exploit this situation, it drives the real interest rate even more negative, which may be inflationary. Problems will of course occur when the trend in the real interest rate reverses itself and they will certainly not be inflationary, nor good for Gross' investments. But I applaud those who try to make money while they can.

posted by Teddy | 2:58 PM |

Issues 2004, part 4

So what is to be done?

For the purposes of this exercise, I'm going to work under the premise that I'm utterly powerless to enforce policy. My vote in 2004 is just one of millions (and depending on the machinations of electronic voting may not even be correctly counted, if at all). I'm also utterly powerless to stop people from shopping at Wal-Mart, or to get people to not buy SUVs, stock in or any other nutty thing.

The other assumption that I'm going to work under is that I'm wrong about everything: the election, the draft, Iraq and the economy. I'll work under the principle that I'm as wrong as can be. Iraqi insurgents drop their weapons and hold free elections next spring. The economy continues to grow, adds 300,000 jobs a month and causes the unemployment rate to fall to 5%. Inflation remains tame and interest rates stay low. Both the budget deficit and the trade deficit fall, and state and local budgets improve greatly as revenue from income taxes expands markedly. Stock prices rally 15% to new highs and Bush is re-elected in a landslide.

Even in this case, I would still have a persuasive argument that the best course of action for Americans is to cut their spending relative to their incomes, and pay off their debts. Even if stocks increase 15%, after taxes that gain will only be 11.5%, and even with inflation under control, it will certainly be higher than the current 3% annual rate. A 4% inflation rate reduces the real, after-tax return on stocks to 7.5%. Meanwhile, it will increase the real after-tax return on debt reduction to 4% higher than the borrowing rate. Paying 9% credit-card returns 13%. Paying a 6% student loan returns 10%. Even paying a 5% mortgage returns only slightly less than 9%, because the debt is usually so large relative to the payments, that the interest expense one can deduct will be reduced very little.

In addition, this argument is even more persuasive because it removes the argument that cutting spending harms the economy. In a recession, it is easy to think: "If I stop spending, and my neighbor stops spending, and everyone stops spending, things will just get worse." By this logic, the best time to cut spending is when the economy is booming; to get one's financial house in order to keep spending during the next recession. The data back this up. Most Americans increase spending relative to income during an expansion - particularly at the beginning of an expansion. If I'm wrong, and prosperity is right around the corner, this is the best time to cut spending and improve your household financial picture.

I'm not recommending cutting spending for the hell of it, but from my personal experience, it has significantly increased my net worth AND it has made me a much more informed consumer and citizen. Asking questions such as: "Do I need this?", "Do I need this NOW?", "Can I get this cheaper?", and "Who makes this?" every time they open their wallet gives citizens a lot more power than just blindly reaching in and handing the money over. As a correlary to HL Mencken's observation that "people get the democracy they deserve" is that "people get the economy they deserve". The successful companies succeed because people buy their products. If we want responsible companies in the economy, we should research what they do and how they conduct business. If these companies are so profit-driven that they sacrifice the well being of their employees and customers, we should not buy their products, and instead buy products from responsible companies. If a company is not doing the right thing, putting profits before workers, or allowing bad things to happen, we need to stop buying their products or buy from their competitors. Some people might say that no company is pure, but regardless, we can always strive to buy from the most responsible ones, that's the way to effect the maximum change possible.

Furthermore, responsible spending is something that anyone can do, regardless of their income. For the libertarians out there, this allows free enterprise, but gives non-capitalists (most of us) a check on the balance of corporate power. And it is not to say that regulation or incentives can't be used where necessary, just that the foundation of responsibility in a capitalist system rests with the consumer. Corporations will always try to maximize profits. But the self-interest of the consumer is far more complex than just receiving the lowest price. In an age where many Americans feel they no longer have a voice in their own government, its nice to know there is not just one way to vote. Merry Christmas.

posted by Teddy | 8:38 AM |

Data review: Retail sales and unemployment claims up

Retail Sales were up 0.9% in November. Ex-autos they were up 0.4%. This comes on the heels of September sales down 0.3% and October sales flat, so consumer spending is hardly thriving. As long as auto companies offer zero-percent financing and $5000 in incentives per vehicle, they will move product and pad these numbers. The rub comes when the economy slackens, oil or insurance prices spike higher, or people have finished upgrading to the new SUVs. Christmas this year looks only average, and the good news has been concentrated on discount realtors. Consumers, already stretched to the limits, are being forced to switch to cheaper goods. As a side note, this is a tremendous bias in the CPI and other inflation indices, which assumes people will switch from steak to hamburger if the former gets too expensive, but that they will never switch back, leading CPI to understate actual inflation.

Unemployment claims spiked upward to 378,000 in the week ending December 6th. Last week's number was unchanged at 365,000. While things are not deteriorating rapidly, this is not a direction that signals any strength in hiring apart from seasonal jobs.

Other indicators released today were business inventories (up 0.4%) and import prices (up 0.4%, 0.3% ex-petroleum).

posted by Teddy | 8:03 AM |