April 4, 2009
Donald R. Byrne, Ph.D.
Edward T. Derbin,
Note: To print a hard copy of this newsletter, click on the following link for a PDF download…
2000, real GDP growth for the entire
similar pattern can be seen in the employment numbers. Employment in
the summer of 2000, the unemployment rate in
structural recession in
was a Visiting Scholar at the Federal Reserve Bank of Chicago
(FED). The FED was invited to a presentation at the Delphi
number two in charge at
knew the traditional portion of the
The second point was why the heavy use of overtime. It became clear as a bell. At time and one half, the $18 per hour became $27 but most non-wage benefits were capped at the straight time hours so that $24 became $6 to $8 per hour at most. Add that up and you get about $35 per hour or less than straight time total compensation. As I heard him, and made a few quick calculations in my head, a popular tune from the 60s popped into my head:
“Those were the days my friend, I thought they’d never end”. Well, they have ended.
To paraphrase Winston Churchill, it was NOT “the end of the beginning,” but the beginning of the end.
A year or so ago, the total labor compensation peaked at $75 per hour or $150,000 per year. Let’s put that into perspective...
median household income, as estimated by the Census Bureau, is about $50,000
currently. If we adjust the auto worker’s household income for a
second worker and add $25,000 for a second worker, we arrive at $175,000.
Looking at the current estimates of the household income distribution of the
Census Bureau that puts our auto worker’s household in the top 5% of all
households. “Don’t cry for them
unions are cartels. They behave much like OPEC with one exception, they
rarely accept cuts in the price of labor, they choose less employment over both
the short run (strike) and the long run (lower labor to output ratio).
This cartel power, termed downward wage rigidity in economic theory, has
been a major reason for the decline of the Big Three-UAW portion of the auto
industry and of the structural recession occurring in
hold your breath waiting for the resurrection of the auto industry in
The revised National Income and Product Account figures released last week by the Bureau of Economic Analysis of the U.S. Department of Commerce shows Disposable Personal Income for the fourth quarter of 2008 as growing at a real or constant dollar rate of 1.5% and the Personal Savings rate of 5.0%. That Personal Savings rate in the Flow of Funds Accounts is usually one and one half to two times that in the National Income and Product Accounts.
The real problem in the economy is in the financial sector. If it continues to fester, it can drag down the rest of the economy as it has already helped do so in the automotive, real estate, and residential construction industries.
have argued in the most recent issue of my Newsletter (“Financial Fiasco of
2008”) and more recently at an Economic Symposium at the University of Detroit
Mercy, copies of which you were provided to you, it has been bad economic
policies based on bad or irrelevant theories that have caused the collapse of
the U.S. economy in 2000 (not 2001). and again
in 2008. The private sector of the economy has steadily improved as it
has gradually become more competitive since the Second World War. There
have been occasional exceptions to this gradual but profound improvement such
as the recartelization of the
FED has failed to understand the changes that have occurred in the
activities of investment bankers were a major cause of the current collapse of
the financial services industry. As I detailed fully in my Newsletter,
the “Financial Fiasco of 2008”, a number of factors helped change the U.S.
financial system into a powder keg waiting to blow. The
re-cartelization of the
While sub-prime lending was part of the problem, all segments of the adjustable rate mortgage market suffered, even prime and super prime segments. Theoretically, there is nothing wrong with adjustable rate mortgages. But when the FED becomes paranoid in respect to inflation and conducts policies of monetary restraint in the short-term end of the financial markets, as they have been doing in recent years, ARMS will be the first victim.
A few facts…
Spending on health care
Total spending on health care in 2007 = $2.3 trillion http://www.nchc.org/facts/cost.shtml
$1.1 trillion government expenditure (or nearly 1/2 of all health care spending is through the government).
Hospital and supplementary medical insurance $423.7 billion
Military medical insurance $2.5 billion
State and Local
Medical Care $336.6 billion
Medicaid $323.7 billion
Other Medical Care $12.9 billion
To say that we don't have some degree of national health insurance already is ridiculous. The problem is that the cost to take over the balance of the health care costs would be enormous, resulting in an increase in spending from $4.4 trillion in expenditures in 2007 to at least $5.6 trillion.
The 2007 tax burden as a percent of GDP in nominal dollars:
Total expenditures at Federal, State and Local level $4,396.7 billion
Total Nominal GDP 2007 $13,807.5 billion
Total Tax Burden as a % of GDP = 32%
Adding in the $1,201 billion in private spending on health care to the $4,396.7 billion in total government brings us to $5,597 billion in total government spending.
New total tax burden as a % of GDP = 41%
That's what is really at stake...do we want the government to increase its stake in our economy in such permanent and invasive manner?
Medicare and Medicaid are already insolvent. Social Security is heading for insolvency by around 2040 (the current surplus in the trust fund will turn into a deficit around 2017-2019).
See linked file with Income, Poverty, and Health Insurance Coverage in the United States U.S. Census Bureau
DECLINING INFLATIONARY BIAS AND THE NEW PARADIGM
Why has the long standing relationship between the PPI and the CPI changed dramatically in recent years?
Why did the former FED Chairman Greenspan, complain about the CONUNDRIM, referring to the longer term interest rates not rising as the FED crunched the economy with a policy of monetary restraint, thus causing short-term interest rates to rise and the yield curve to invert?
reasons are explained at length in my Newsletter issue, “Cartelistic Free
Market Capitalism vs. Competitive Free Market Capitalism”, also provided to
you. A gradual but nonetheless profound change has occurred in the
economic landscape of the
The recent collapse in 2008 resulted from number of factors within the financial system creating what I have referred to as a powder keg ready to blow and two detonators, so to speak, bad anti-trust policy in the 1990s and bad monetary policy beginning in 2004.
The so-called fiscal stimulus bills passed last year and this year does little to point out the real problems and do nothing to remedy the situation. Believe me: the financial volcano can blow again in the near future.
A few pieces of good news…while the unemployment is spiking, the overall unemployment rate for 2008 was not all that high.
PERSONAL INCOME AND OUTLAYS: JANUARY 2009
Personal outlays and personal saving
Personal outlays -- PCE, personal interest payments, and personal current transfer payments increased $54.5 billion in January, in contrast to a decrease of $103.5 billion in December.
PCE increased $56.4 billion, in contrast to a decrease of $101.2 billion.
Personal saving -- DPI less personal outlays -- was $545.5 billion in January, compared with $416.8 billion in December. Personal saving as a percentage of disposable personal income was 5.0 percent in January, compared with 3.9 percent in December. For a comparison of personal saving in BEA's national income and product accounts with personal saving in the Federal Reserve Board's flow of funds accounts and data on changes in net worth, which help finance consumption, go to www.bea.gov/national/nipaweb/Nipa-Frb.asp.
Real DPI and real PCE
Real DPI -- DPI adjusted to remove price changes -- increased 1.5 percent in January, compared with an increase of 0.4 percent in December.
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