Bits & Pieces (Wednesday Night Cyberspace Edition)

What was I doing at this very moment 26 years ago? This:

It’s amazing I found this interesting enough to do for hours and hours at a time. But I did, smoking my Max Menthol cigarettes, dialing up the local BBS with my acoustic modem, drinking my Diet Pepsi. Sigh. Those were the days.
So, you may be asking yourself. Did Kevin compose an entire album of music dedicated to playing Downland on a TRS-80 Color Computer in 1985? Why, yes I did. Today’s soundtrack I would have wanted to jam to while playing Downland back in the day? Noodles.
This resembles a lot of my daydreaming back in 1985. And possibly yesterday.

I agree with Pat Robertson

That’s right, I said it, I agree with Pat Robertson. He thinks the Republican candidates are being pushed into taking extreme positions that they will later have to step back from in the general election. He says it is a game for losers.

And Captain Obvious apparently visited Perry’s campaign headquarters because Perry now thinks participating in the debates was a mistake.

WI jobs agency’s revoloving door

Governor Scott Walker (R-WI) promised the people of Wisconsin 250,000 new jobs in 4 years as part of his 2010 campaign. So far, it’s been a tough slog. Job creation since Walker took office has been minimal and the WI Department of Revenue now projects the state will fall far short of this goal.

Most of the Midwest is experiencing job creation challenges, so Walker has plenty of company. But one of the quirks that makes Wisconsin unique is a department called the Department of Workforce Development (DWD). The department is now on its third chief in ten months. One wonders how viable programs can get created and sustained when the boss’ office is fitted with a revolving door.

Manny Perez, Walker’s first DWD head resigned in May after less than five months on the job to return to the private sector. Perez had been a co-owner of a Milwaukee-based temp help firm and was a featured speaker at a 2009 seminar on keeping unions out of business. While he resigned allegedly to return to the private sector, there were unanswered questions surrounding his departure.

And now Perez’ replacement, Scott Baumbach, has abruptly left. In his resignation letter to Walker, dated October 24, Baumbach said, in part:

“Very soon, I will be starting this exciting new adventure which will allow me to connect jobseekers to jobs in ways above and beyond what I could do at DWD, and I look forward to sharing this new enterprise with you.”

If I understand this correctly, Baumbach is leaving the DWD to do precisely what he was hired to do as the DWD chief. One hopes his successor, Reggie Newson, will stick around long enough to have an impact.

This raises a lot of questions. Is connecting jobs with seekers far more lucrative in the private sector than the $120K Baumbach was being paid to do it for the state? Is the DWD too bureaucratic/ineffective/antiquated for anyone to turn it into a jobs creation engine? Is Walker selecting the wrong people to head the department? Is the economic situation in WI worse than the Department of Revenue’s already gloomy forecast?

If I were a Wisconsin resident, I’d be writing to Walker instead of posting to this blog.

Morning Report

Vital Statistics:

Last Change Percent
S&P Futures 1226.5 1.9 0.16%
Eurostoxx Index 2361.9 17.890 0.76%
Oil (WTI) 91.94 -1.230 -1.32%
US Dollar Index (DXY) 76.223 0.017 0.02%
10 Year Govt Bond Yield 2.15% 0.04%

Markets are selling off on reports talks are deadlocked in Europe over the haircuts bondholders will have to take. Stocks initially rose on reports that Germany’s lower house approved plans to boost the European bailout fund.

In earnings, Amazon reported disappointing results and is down roughly 10%. Also reporting today: Ford, Nabors, Exelon, Hess, Wellpoint, FMC, Boeing, Sprint, Corning. We are in the heart of earnings season. So far, on average, corporate profits are holding up and CEOs are in general constructive on the near future.

In economic data, durable goods orders were better than expected, with a 1.7% increase ex transportation. New Home Sales came in at 313k, a slight bump from August’s reading of 296k, but still in depressed territory.

Chart: New Home Sales:

COUNTERINTUITIVE (for me)

I have strongly believed, without more evidence than what I see in my life as a lawyer representing small businesses, and the generally repeated “accepted knowledge” that small biz, and especially NEW biz, are the engines of growth.  I was thus struck dumb, deaf, and blind by the following article, which may be behind the NYT paywall for you.

It is deceptively titled, in that we know that consumer spending is the biggest component of the GDP.  What struck me is the assertion that private investment is not historically necessary for growth; that growth is a function of gummint spending and consumer debt.  Which of his assertions are based on misstatements of fact?  Which are correlated to facts that are irrelevant to his conclusions?  Or is this the new wisdom?  I have provided emphasis to the central factual allegations.

It’s Consumer Spending, Stupid

AS an economic historian who has been studying American capitalism for 35 years, I’m going to let you in on the best-kept secret of the last century: private investment — that is, using business profits to increase productivity and output — doesn’t actually drive economic growth. Consumer debt and government spending do. Private investment isn’t even necessary to promote growth.
This is, to put it mildly, a controversial claim. Economists will tell you that private business investment causes growth because it pays for the new plant or equipment that creates jobs, improves labor productivity and increases workers’ incomes. As a result, you’ll hear politicians insisting that more incentives for private investors — lower taxes on corporate profits — will lead to faster and better-balanced growth.
The general public seems to agree. According to a New York Times/CBS News poll in May, a majority of Americans believe that increased corporate taxes “would discourage American companies from creating jobs.”
But history shows that this is wrong.
Between 1900 and 2000, real gross domestic product per capita (the output of goods and services per person) grew more than 600 percent. Meanwhile, net business investment declined 70 percent as a share of G.D.P. What’s more, in 1900 almost all investment came from the private sector — from companies, not from government — whereas in 2000, most investment was either from government spending (out of tax revenues) or “residential investment,” which means consumer spending on housing, rather than business expenditure on plants, equipment and labor.
In other words, over the course of the last century, net business investment atrophied while G.D.P. per capita increased spectacularly. And the source of that growth? Increased consumer spending, coupled with and amplified by government outlays.
The architects of the Reagan revolution tried to reverse these trends as a cure for the stagflation of the 1970s, but couldn’t. In fact, private or business investment kept declining in the ’80s and after. Peter G. Peterson, a former commerce secretary, complained that real growth after 1982 — after President Ronald Reagan cut corporate tax rates — coincided with “by far the weakest net investment effort in our postwar history.”
President George W. Bush’s tax cuts had similar effects between 2001 and 2007: real growth in the absence of new investment. According to the Organization for Economic Cooperation and Development, retained corporate earnings that remain uninvested are now close to 8 percent of G.D.P., a staggering sum in view of the unemployment crisis we face.
So corporate profits do not drive economic growth — they’re just restless sums of surplus capital, ready to flood speculative markets at home and abroad. In the 1920s, they inflated the stock market bubble, and then caused the Great Crash. Since the Reagan revolution, these superfluous profits have fed corporate mergers and takeovers, driven the dot-com craze, financed the “shadow banking” system of hedge funds and securitized investment vehicles, fueled monetary meltdowns in every hemisphere and inflated the housing bubble.
Why, then, do so many Americans support cutting taxes on corporate profits while insisting that thrift is the cure for what ails the rest of us, as individuals and a nation? Why have the 99 percent looked to the 1 percent for leadership when it comes to our economic future?
A big part of the problem is that we doubt the moral worth of consumer culture. Like the abstemious ant who scolds the feckless grasshopper as winter approaches, we think that saving is the right thing to do. Even as we shop with abandon, we feel that if only we could contain our unruly desires, we’d be committing ourselves to a better future. But we’re wrong.
Consumer spending is not only the key to economic recovery in the short term; it’s also necessary for balanced growth in the long term. If our goal is to repair our damaged economy, we should bank on consumer culture — and that entails a redistribution of income away from profits toward wages, enabled by tax policy and enforced by government spending. (The increased trade deficit that might result should not deter us, since a large portion of manufactured imports come from American-owned multinational corporations that operate overseas.)
We don’t need the traders and the C.E.O.’s and the analysts — the 1 percent — to collect and manage our savings. Instead, we consumers need to save less and spend more in the name of a better future. We don’t need to silence the ant, but we’d better start listening to the grasshopper.

James Livingston, a professor of history at Rutgers, is the author of “Against Thrift: Why Consumer Culture Is Good for the Economy, the Environment and Your Soul.”
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