The Great California Exodus: A Closer Look

According to the Manhattan Institute for Policy Research (2012, September), population growth in California may soon lag that of the US as a whole.

California was once a powerful draw for Americans on the move—a golden land, “west of the west,” in Theodore Roosevelt’s famous phrase, where everything could be better. But that California is no more. Around 1990, after decades of spectacular postwar growth, California began sending more people to other states than it got in return. Since that shift, its population has continued to grow (at a rate near the national average) only because of foreign immigration and a relatively high birthrate. Immigration from other nations, though, is declining, and it is likely that the state’s growth rate may soon fall behind that of the US as a whole. As a magnet of opportunity, the state now pushes out where it once pulled in.

Read More

Follow the link below to learn more about the motivations behind those who are leaving California.

Source: Gray, T & Scardamalia, R (2012, September), The Great California Exodus: A Closer Look, Manhattan Institute for Policy Analysis.

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US Economic Prospects for 2012...

Europe will blowup once everyone realizes that the degree of "restructuring" required in Portugal, Italy, Ireland, Greece, and Spain (PIIGS) is politically infeasible. Consequentially, public spending cuts and tax increases are imminent across the PIIGS, be they instituted by public policy or national defaults. Either way, economic depression is descending upon Southern Europe.

Protestors wearing "Guy Fawkes" masks in London

The US is also facing a blowup given that banks made a "seasonal" decision to hold off on new foreclosures until after the New Year. In 2012, the US will be confronted with the largest increase in new foreclosures since 2008.

Likewise, a budget blowup in California has been on tacit hold until after the holidays. Nevertheless, California revenues are trailing budget requirments by a significant margin. Moreover, Gov Jerry Brown appears determined to conduct "business as usual" in order to amplify the California budget crisis into a voter mandate for tax increases. Whatever happens, it's bad news for California where major cuts in government employment and/or tax increases will eventually force California into economic depression on a scale not seen on the West Coast since the Great Depression.

The combination of sharp increases in mortgage foreclosures and budget remedies in California means catastrophe along the US West Coast on a scale similar to what is about to unfold along the southern flank of Europe. Deflation and depression are already evident across America in home values, real wages, and the employment to population ratio.

The economic prospects for 2012 in the US and much of Europe are grim at best. Accredited investors are certainly in a "buy" window of opportunity at this point. However, much of America is in for hard times this coming year...

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Top California Highway Patrol Salaries

The Sacramento Bee publishes a searchable database that lists the salaries for public servants in California, including salaries for California Highway Patrol officers. Below is an extract from a search I conducted. Apparently, California Highway Patrol officers can earn well over $250,000 annually. See for yourself below:

[click to expand]

No wonder California is bankrupt. For that matter, no wonder governments in general are broke...

Source: Search for State Worker Salaries, (2011, April 6), Sacramento Bee.

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Public Corruption in America

I just read a shocking report in the Sacramento Bee describing public salary corruption in the city of Bell, Los Angeles County, California:

Bell is one of Los Angeles County's poorest towns. Ten days ago, its residents woke up to learn that its City Council was paying its city manager, Robert Rizzo, nearly $800,000 a year, its police chief $457,000 and its assistant city manager $376,000.... These disclosures came on top of reports that four of the city's five part-time City Council members were making roughly $100,000 a year. All this in a city with a budget of about $15 million annually.... It's a disaster for taxpayers. Because California pensions are based on an employee's single-highest salary, the CalPERS system may have to pay Rizzo, 56, $600,000 annually over his lifetime.

I served my country for over 15 years on active duty in the military, but my service was never intended to defend this kind of public corruption right here on US soil. Reports like this are very discouraging for citizens trying to make their way through this challenging economy. Frankly, I am starting to wonder where the lines of corruption begin and end in America.

Robert Rizzo, former city manager, Bell, California

Source: Leavenworth, S (2010, July 25), For Whom Does the Bell Toll? All State Taxpayers, Sacramento Bee.

California Municipal Salaries for Executives

Check out this chart of executive salaries for local, city, and county executives in California. Note too that most government workers in California receive 80% of their last year's salary as an annual pension for life upon retirement (even when retirement is early in life). Who said a career in public service meant not getting rich...

[Click to Expand]

Source: Fletcher, E (2010, July 30), Roseville City Manager's Pay Tops Among Sacramento-Area Local Officials, Sacramento Bee.

How to Save the Euro? Lessons from the US

by Jacques Melitz © VoxEU.org

Earlier this year, the fiscal situation in Greece caused turmoil across Europe. This column examines why the financial difficulties of several state governments in the US are not having similar impacts on its economy.

The problems of the Eurozone this year brought to light some failures of the system. Nevertheless, the resulting drop in confidence in the system has gone further than we might have expected. Questions have even arisen about the survival of the system (see Baldwin 2010 and Blejer and Levy-Yeyati 2010 for discussions). Yet monetary systems do not tend to dissolve simply because of faulty performance. On the contrary, as a rule they endure even when they function very badly. It takes a political force majeure to bring about the break-up of a single currency area, typically without connection to monetary performance. Why, then, has the possible default of a country engaged in irresponsible fiscal policy and accounting for only 3% of the Eurozone’s GDP raised questions about ‘saving the euro’ and the survival of the Eurozone?

The issue has not received the attention it deserves. It is often simply taken for granted that the departures from the Stability and Growth Pact provide a sufficient reason for the earthquake that has shaken the whole currency area. Yet if we look around the world past and present, the mismanagement of finances by regional governments has no particular tendency to bring down entire monetary systems, far from it. In line with the usual – I think superficial – diagnosis of the ailment, proposed remedies for the Eurozone centre on strengthening the Pact, increasing joint political control over fiscal policy, and providing joint insurance against government default, or some mixture of the three. But what if a vital element of the problem is really the official doctrine that sovereign default is incompatible with the euro? What if the scale of the crisis that took place this year has resulted from financial markets’ conviction, based on this doctrine, that the future of the euro was at stake? What if assuring the long-run sustainability of the euro means convincing those markets, quite differently, that nothing as manageable as a Greek default can upset the Eurozone?

Lessons from the US

That is precisely what the US example would suggest and what I will defend. With this idea governing beliefs, the right road ahead looks quite different. It means shifting the emphasis away from avoiding government defaults toward assuring the stability and the solvency of the banking system at all times, regardless of the financial difficulties of some member governments.

In the US, default on state and municipal contractual obligations is very much a possibility whenever lower-level governments are in financial trouble; bailout cannot be taken for granted. New York City defaulted in 1975, the biggest default of all by a lower-level government unit since World War II took place in 1983 when the Washington Public Power Supply System went into bankruptcy, and Orange County defaulted in 1995. Various municipal governments have been on the verge of default at times in the last few decades, including Philadelphia and Cleveland. There is also no Stability and Growth Pact in the US. Yet financial discipline is considerably higher in the US at the state government level than in the Eurozone at the national level. All states except Vermont have balanced-budget rules; but these rules are self-imposed. It is easy to argue that this difference in fiscal discipline on the two sides of the Atlantic is related to the fact that when push comes to shove in the US and a lower-level government unit cannot or will not meet its debt obligations, the lenders can expect to take a big part of the hit.

Some rudimentary analysis is relevant. Consider any government unit unable to print money and without any prospect of a bailout. Theory tells us that credit rationing is very much a possibility. As the interest rate that such a government offers on its debt goes up, extra lending dries up completely at some point as the expected rate of return on the government debt falls. This must happen because higher nominal interest rates impair the government’s solvability and bring default nearer. Risk aversion simply lowers the interest rate at which credit rationing begins.

Suppose we compare the situation in the US and the Eurozone since the 2007-2009 financial crisis in this light. The crisis brought about dire financing problems for many lower-level government units in the US and some national governments in the Eurozone. According to the spreads on credit default swaps, California and Illinois now have a higher probability of non-performance on public debt than Portugal and Spain. This has been true for months. Consider next the difference in response in the States and Europe. Recently Illinois simply stopped paying $5 billion of bills. In June of last year California issued vouchers for wage payments. In addition, savage cuts in public services have begun and are now threatened in various states in difficulty, not only these two. Nevada has made startling reductions in spending on higher education and welfare. In the case of Portugal and Spain, nothing so drastic has happened thus far. There have been occasional spikes in interest rate spreads over German bunds of 100 to 200 percentage-points above usual levels. Both Spanish and Portuguese governments have also been forced to plan greater austerity and reduced government deficit spending. Meanwhile, they have been able and willing to keep borrowing.

Why the difference between the Eurozone and the US?

Part of the explanation may be that Portugal and Spain are more able to raise tax revenues than US states. But another part is the higher probability of a bailout in Europe. The example of Greece is to the point. Greece has been able to continue borrowing this year at interest rates typically around 200 percentage-points above Portugal and Spain on 10-year government bonds (and since May more than 500 percentage-points higher than German bunds). If you do the math, it is clear that this could never have happened without a high probability of a bailout. In fact, you do not need to do the math: there have been occasions in February/March and particularly May when some Greek issues would clearly have failed without the assurance of public lending and ECB support. If Greece can borrow on the probability of a bailout, so could Portugal and Spain.

Based on this evidence, the current Eurozone strategy of treating government default as anathema permits member governments to sink into deeper waters, weakens the forces that would otherwise exist toward self-imposed budget restraints, and thereby raises the probability of a bailout. But an actual bailout is perhaps the most likely setting for the breakdown of the Eurozone. If taxes ever need to rise all over the Eurozone in order to bail out a member government, one can easily imagine a pullout by Germany, followed by the Netherlands and Austria (if no others), in order to form a separate monetary union.[1]

What are the dangers of the opposite strategy of mimicking the US instead and moving toward heavier reliance on markets to discipline member governments and to price sovereign risk? The answer lies in the external effects of government default on the payment system and the banks, and this problem would be aggravated by contagion. But those dangers exist in the US as well. If the US federal government were to allow Illinois or California to default on state government debt in today’s circumstances of widespread financial difficulties across the states, there is a serious threat that interest premia would go up on the debt of most state governments and a wave of state defaults would follow. For this reason, the federal government might well step in. But if we look at the institutional manner in which the US deals with the problem, we find the answer to lie in country-wide prudential rules for banks and central bank powers of lender of last resort. There is no general announcement that state government default is incompatible with the dollar. Instead there is a strict separation of the issue of joint support of the financial system and joint support of financing by the sub-government units in the country. Would Europe not be wise to adopt the same strategy and to cease to conflate the two issues?

Tweaking the Pact

What this would mean, of course, is adopting Eurozone-wide prudential rules on banks, providing the ECB full powers of lender of last resort, and, very significantly, dismissing the idea that the Stability and Growth Pact is the pillar on which the whole Eurozone project stands. This idea is highly perilous.[2] Markets believe it, and at times of financial precariousness, what markets believe is extremely important. According to my proposal, the Pact could still be upheld as a code of good behaviour which improves public finances in Europe and facilitates the task of the ECB. But the basic philosophy would be that if any individual member government in the Eurozone engages in irresponsible fiscal conduct, contrary to the Pact, the creditors and its taxpayers would bear the brunt of the consequences. Everything would be done to assure the stability of the financial sector in the Eurozone and the lack of repercussions on the risk premiums that the more financially responsible member governments need to pay. Banks might be bailed out but not governments. Any aid to member governments, if it came, would not concern the euro system but the IMF or if any aid did come from the EU it would be part of a programme that could as well have existed had the euro never appeared and would be clearly sealed off.

VoxEU Editors' note: This article will appear as a roundtable discussion in Miroslav Beblavy, David Cobham and Ludovit Odor, eds., The euro area and the financial crisis, Cambridge University Press, forthcoming.

References:

Baldwin, R (2010), A re-cap of Vox columns on the Eurozone crisis” VoxEU.org, 13 May.

Blejer, M and Levy-Yeyati, E (2010), Leaving the euro: What’s in the box, VoxEU.org, 21 July.

Economist (2010), Can pay, won’t pay, June 19.

Poterba, J (1996), Do budget rules work? NBER Working Paper 5550, April.

Public Bonds (2010), Municipal bonds and defaults, downloaded 23 August.

Reinhart, C M and Rogoff, K (2009), This time is different: eight centuries of financial folly, Princeton: Princeton University Press.

Sinn, H-W (2010), Rescuing Europe, CESifo Forum, special issue, August.

Notes:

[1] Many would say that Greece has already been bailed out. But so far no holder of Greek debt has yet suffered a credit event. Further, no one outside of Greece has yet paid any taxes to fulfil a claim on Greek debt. Thus, according to my usage, no bailout has happened. However, none of the argument hinges on this choice of words.

[2] If we really think that a government default would bring the euro under, we must conclude that the euro has no long-run future ahead – that it is doomed. A reading of Reinhart and Rogoff (2009) should convince anyone.

Republished with permission of VoxEU.org

Future Skill Shortages in the US Economy? Sorting Out the Evidence

by David Neumark, Hans Johnson, and Marisol Cuellar Mejia © 2011 VoxEU.org

The impending retirement of the baby-boom cohort represents the first time in the history of the US that such a large and well-educated group of workers will exit the labour force. Despite the gloomy outlook of recent research, this column suggests there is little likelihood of large-scale skill shortages emerging by the end of this decade.

Ageing workforces pose challenges to governments around the world. While fiscal issues surrounding pension and social security have been very much in the news, a less well-known issue concerns skills.  The impending retirement of the baby-boom cohort brings with it the potential for skill shortages. The boomers are well-educated, having come into adulthood as the nation was rapidly expanding post-secondary educational opportunities. In earlier decades, younger workers replacing older workers were both much more educated and much more numerous. But the baby boomers are nearly as educated as current younger cohorts (Figure 1) and are large in number. Thus, their retirement will slow the growth of skill levels in the workforce, leading to shortages if skill demands continue to increase.

Figure 1. Number of adults with at least a bachelor’s degree by age group (25-44 and 45-64)


Source: Decennial Census (1990 and 2000); American Community Survey (2008)

Carnevale et al (2010) recently projected large shortages by the end of this decade: “By 2018, the postsecondary system will have produced 3 million fewer college graduates than demanded by the labour market” (p 16). But Harrington and Sum (2010) criticise these projections, instead seeing over-education or “mal-employment” – college workers in jobs that do not require college degrees – as “perhaps the most pressing problem facing college graduates in the nation today….”

Our projections of skill supplies and demands for the US economy stake out a middle ground. We foresee rising demand for highly-educated workers. But in the near term this rising demand will by and large be met by rising education levels among the US population, suggesting little risk of a substantial workforce skills gap. At the same time, there are greater risks of skill shortages in states with large and growing, and less-educated, immigrant populations. And over the longer-term, as more baby boomers retire, there is greater risk of substantial skill shortages nationwide.

Projections of skill supplies and demands through 2018

Our demand projections rest on US Bureau of Labour Statistics (BLS) projections of employment growth by occupation to 2018 (Lacey and Wright 2009). To project the education requirements of future jobs, we could also rely on the BLS, which classifies occupations by educational requirements. However, using data from the American Community Survey (ACS), we find substantial labour market returns, within occupations, to educational levels beyond those that the BLS deems “required” (see Neumark et al 2011). We therefore instead use empirical evidence on employment practices to estimate and project workforce skills needs, starting with the baseline education distribution of workers by occupation in 2008 and applying recent trend growth in education distributions within occupation (using ACS and Decennial Census data). Applying these estimates to the occupational projections, we obtain projected skill (education) demands.

To project supply, we construct new population forecasts that take account of nativity (unlike US Census Bureau population projections), and we project population by education, and labour force participation. Three important factors underlie our projections:

• First, that young adults will continue to experience improvements in educational attainment compared to the preceding cohorts;
• Second, that there will be continued upgrading of educational attainment levels of older workers; and
• Third, that labour force participation rates will continue to rise for more highly-educated older adults, and that past patterns in retirement will prevail for the baby boom as it reaches retirement ages.

In Table 1, we compare our preferred educational attainment projections (supply) with the employment projections (demand), in levels and shares. These projections do not point to significant impending shortages of skilled workers in the US through 2018, as the projected demand and supply shares by education are quite similar. We do see projected shortages for people with an Associate’s degree (356,000), and some excess supply of less-educated workers (those with some college or a high school degree or less). Our comparisons are based on projected total labour force supply of workers, and do not include forecasts of unemployment. If we adjust the 2018 supply projections for unemployment rates by education category as observed in 2008, then the projected shortage of workers with an Associate’s degree or higher expands to around 800,000, still far less than Carnevale et al predict.

Conflicting evidence

We have explored numerous explanations for why Carnevale et al (2010) project much more substantial skill shortages. The difference is primarily attributable to the data they use (the Current Population Survey, or CPS). In particular, the CPS data show a higher share with college degrees at the 2008 baseline, and faster growth of these shares over time, both of which lead to considerably higher projected demand for workers with college degrees in 2018. But the CPS data appear problematic. First, the CPS data appear to overstate the share with Associate’s degrees, because the CPS equates occupational or vocational programmes with college degrees, whereas the ACS data do not. The CPS data also show much faster growth rates in the share with Bachelor’s degrees or higher.

We verified that these data differences explain the differences between our demand projections and theirs. Moreover, in both data sets the shares in each education category in 2008 appear anomalous, whereas education trends through 2007 were much more similar. We therefore redid the demand-side forecasts using data from 2000-2007 (rather than 2000-2008) to estimate the within-occupation trends in education, in which case the entire difference between the projections was attributable to the different baseline educational distribution in the CPS. Finally, because Carnevale et al use a supply projection from a completely different source, it seemed likely that using CPS on both the demand and supply sides of the market should substantially reduce the sensitivity of the projections to the definition of education, which we verified. Using CPS data on both sides of the market leads to much milder projections of skill shortages than the dramatic shortages that Carnevale et al project.

The Harrington and Sum criticism of the projections in Carnevale et al (2010) could equally well be directed at our projections. They argue against using observed educational distributions within occupations to measure educational requirements, and instead believe that the BLS determinations of skill requirements are accurate. Although they do not develop projections, our full paper (Neumark et al, 2011) shows that if we project skill demands based on BLS skill requirements, we project massive oversupply of skilled workers. So Harrington and Sum are right that conclusions about skill shortages depend critically on how one measures skill requirements.

However, the argument that BLS skill requirements are accurate is belied by the evidence that there are substantial economic returns, within occupations, to education levels above those “required” according to the BLS. Although Harrington and Sum (forthcoming) present some evidence that appears to suggest the opposite, their evidence is based on earnings regressions that omit occupation controls, leading to spurious evidence of lower estimated returns to education for those in occupations that use less-educated workers. For example, Harrington and Sum (2010) tell the “story” of bartenders (college degree is not required) and compensation and benefits managers (college degree required). The question is not whether bartenders earn less than compensation and benefits managers, but whether the return to education within for bartenders is less than the return to education for compensation and benefits managers. We therefore conclude that the Harrington and Sum critique of using observed rather than “required” education to capture skill demands is unfounded.

Skill shortages in some states?

Although we do not project significant near-term skill shortages nationwide, the situation could differ in states with large and growing Hispanic immigrant shares in which older adults nearing retirement ages are notably better educated than young adults. States that fit this profile include California, Texas, Florida, Arizona, Colorado, New Mexico, and Nevada. The importance of these demographic changes is illustrated by a simple exercise where we project supply for the nation, but substituting California’s ethnic composition in 2018 for that of the entire US. In other words, we ask the question, would there be a national skill shortage if the country had California’s demographic mix? The answer is yes: we project a deficit of 3.1 million workers with an associate’s degree or higher. Of course, domestic migration could ameliorate some of these shortages.

Skill shortages in the longer term?

The longer-term perspective is also less sanguine. Our projections extend to 2018 because the BLS occupation projections end there. But the majority of boomers (two of every three) will be younger than age 65 in 2018, whereas by 2030 all of the boomers will have passed age 65. We expect that projections of the US economy to 2030 would show a continuation of greater rates of growth in industries and occupations that employ highly-educated workers, consistent with the long-standing trend in the US, and accentuated by the increased demand for healthcare as the baby boomers enter old age. Yet the size of the baby boom cohort coupled with its high education levels imply that the replacement of older with younger cohorts will not lead to rising education levels to anything like the extent to which it did in the past (Figure 1). It is plausible, then, that general skill shortages would be much more evident in projections extended out a couple more decades.

The research on the projections was supported by the Gates Foundation and the AARP Foundation. The views expressed are the authors’, and do not reflect the views of PPIC or the AARP or Gates Foundations.

References

Carnevale, Anthony P, Nicole Smith, and Jeff Strohl (2010), Help Wanted: Projections of Jobs and Education Requirements Through 2018, Centre on Education and the Workforce, Georgetown University.

Harrington, Paul E and Andrew M Sum (2010, November), “College Labour Shortages in 2018?”, New England Journal of Higher Education.

Harrington, Paul E and Andrew M Sum (2011), “Recent Projections of Labour Shortages Through 2018: From Great Recession to Labour Shortages? A Critical Look at the Evidence”, forthcoming in Monthly Labour Review.

Lacey, T Alan, and Benjamin Wright (2009), “Occupational Employment Projections to 2018”, Monthly Labour Review, 132(11), November, 82-123.

Neumark, David, Hans P Johnson, and Marisol Cuellar Mejia (2011), “Future Skill Shortages in the US Economy?”, NBER Working Paper No. 17213.

Republished with permission of VoxEU.org

How Would Californians React to Economic Austerity...?

My previous post entitled Greece: What Economic Austerity Looks Like, has inspired a new question: How would Californians react if the same economic austerities were imposed upon them by the US as part of a Federal bailout plan...?

State Flag of California

If the "Greek plan" was thrust upon California, the economic austerity measures would include:

• Reducing effective wages for state workers by 5-15%.
• Banning pay increases for state workers for at least 3 years.
• Raising the state sales tax by 2%.
• Raising taxes on fuel, alcohol, and tobacco by 10%.

Reactions...?

Related Posts:

How Would New Yorkers React to Economic Austerity...?

Main Street Money

Given the extent of the Main Street Depression now raging across America, and given that monetary and fiscal policies have left America with insufficient legal tender to conduct local and regional commerce, should municipalities, counties, and even states consider issuing their own "scrip" as a means to expand the available money supply?

National Park Bank of New York Clearing House Certificate for $500 (1873)

During past depressions in the US, the appearance of local currencies in the form of "depression scrip" became commonplace (see examples). California has recently experimented with issuing warrants to its citizens in lieu of tax returns (see last example). The use of local and regional currencies is not without precedent in the US.

Five Dollar Certificate issued by the San Francisco Clearing House (1907)

Town, cities, counties, and states across the US are being strangled by deficits, and the supply of legal tender for commerce is simply inadequate to sustain current spending levels and public services. Should these same entities consider issuing their own currencies as a way to supplement the local money supply and maintain current levels of public employment and services? So far, a Main Street economic recovery appears elusive, especially given that our nation's fiscal and monetary policy-makers view local prosperity as a by-product of national prosperity. I would not be surprised to see local, regional, and even state currencies sometime in the near future.

Five Dollar Certificate issued by the Chicago Clearing House (1933)

Public entities that create their own currencies could use these "dollars" to pay public employees, contractors, suppliers, and pensioners. Additionally, public healthcare programs funded by states could be paid for using local currencies as services are rendered. Finally, local currencies could be used to pay public taxes due from taxpayers and business entities within those jurisdictions. Of course, this would mean that what America knows to be a "dollar" would become somewhat confusing. However, the creation of local and regional currencies could very well be a useful way for states to manage their budget deficits, or at least until the US money supply becomes more robust on a local and regional basis.

Warrant issued by California (2009)

The shortage of money in various localities and regions across the US has created a crisis, especially given that the nation's largest banks and corporations are continuing to hoard cash for whatever reasons. Perhaps expanding the Main Street money supply can be accomplished without the consent of the US Federal Reserve after all.

Capitalism or Federalism...?

California's financial crisis will be an interesting test for Washington and the future of Federalism. Here's my question: How can Washington deny California after saying yes to General Motors, AIG, and dozens of banks?

Comments welcome...

Related Posts:

Greece: What Economic Austerity Looks Like

How Would Californians React to Economic Austerity...?

How Would New Yorkers React to Economic Austerity...?

How Would New Yorkers React to Economic Austerity...?

My previous posts entitled Greece: What Economic Austerity Looks Like and How Would Californians React to Economic Austerity...? have generated pointed reactions from readers. However, one reader sent me an interesting note saying that the fiscal situation in New York is far worse than in California. Thus, I am now asking New Yorkers to respond to the same question I asked Californians: Assuming the US had to bailout the State of New York, how would New Yorkers react to a bailout plan that included the same economic austerities that the EU/IMF forced upon Greece...?

State Seal of New York

Keep in mind that the "Greek plan" would transpose into the following specific austerity measures for New York:

• Reducing effective wages for state workers by 5-15%.
• Banning pay increases for state workers for at least 3 years.
• Raising the state sales tax by 2%.
• Raising taxes on fuel, alcohol, and tobacco by 10%.

Reactions welcome...

The G20 Toronto Summit Legacy

The Europeans assume that the world is going to go along with their austerity planning. However, the US cannot turn its back on California and New York the way that Germany and France can shun Greece, Spain, and Portugal. Monetary expansion in the US is immiment, whether Europeans like it or not. The European Union is blundering and may very well force the world into a deeper recession, or even depression...

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Depression or Inflation...?

California Lifeguards Earn $120,000+ Annually

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Real Unemployment in the US

According to the Wall Street Journal (2011):

• At least 13.9 million people are unemployed in the US today.
• More people are unemployed in the US today than there are people in any US state, with the exceptions of Florida, New York, Texas, and California.
• More people are unemployed in the US today than the combined populations of Wyoming, Vermont, North Dakota, Alaska, South Dakota, Delaware, Montana, Rhode Island, Hawaii, Maine, New Hampshire, Idaho, and the District of Columbia.
• More people are unemployed in the US today than there are people in either Greece or Portugal.

To the above, I would add the fact that more people are unemployed in the US today than at the peak of the Great Depression in 1933.

Real unemployment is measured in number of souls.

Source: Wessel, D (2011, August 19), The United States of Unemployment, Wall Street Journal Online.

Related Posts

Greek Austerity Measures Hit Public Sector Hard

Elizabeth Palmer of CBS News reported that the $430 billion in spending cuts recently passed by the Greek parliament will have a significant impact on public sector wages and entitlements. For example, Greek teacher salaries will decline 38% from $1,450 to $900 per month, and the basic old age pension will drop by 23% from $600 to $460 per month. The unemployment rate for Greeks younger than age 24 is now almost 50%, and suicides in Greece have increased 22% since the fiscal crisis began.

Imagine what US public reaction might be if these same austerities were imposed upon a defaulting California or New York...

Source: Greek Citizens Bear Brunt of Massive Spending Cuts (2012, February 13), CBS News.

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Seven The Steakhouse

Next time you visit Minneapolis, check out Seven The Steakhouse, which is arguably the best steakhouse in the Twin Cities.

I was at Seven this past weekend and enjoyed the 1881 KC Strip 21 oz bone-in strip loin with spinach on the side, and a bottle of Kenwood “Jack London” Zin red wine from Sonoma County, California. The flavors were bold and the cuts of meat premium!

Follow the link below to learn more about Seven The Steakhouse and to make reservations.

Seven The Steakhouse

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The Rhetoric of Depression...

"There will be no interruption of our permanent prosperity." ~ Myron E Forbes, President, Pierce Arrow Motor Car Company, January 12, 1928

"I have no fear of another comparable decline." ~ Arthur W Loasby, President, Equitable Trust Company, quoted in NY Times, October 25, 1929

"In most of the cities and towns of this country, this Wall Street panic will have no effect." ~ Paul Block, President, Block newspaper chain, editorial, November 15, 1929

"I cannot help but raise a dissenting voice to statements that we are living in a fool's paradise, and that prosperity in this country must necessarily diminish and recede in the near future." ~ E H H Simmons, President, NY Stock Exchange, January 12, 1928

"Buying of sound, seasoned issues now will not be regretted." ~ E A Pearce market letter quoted in the NY Herald Tribune, October 30, 1929

"...despite its severity, we believe that the slump in stock prices will prove an intermediate movement and not the precursor of a business depression..." ~ Harvard Economic Society, November 2, 1929

"For six years American business has been diverting a substantial part of its attention, its energies and its resources on the speculative game... Now that irrelevant, alien and hazardous adventure is over." ~ Business Week, November 2, 1929

"This crash is not going to have much effect on business." ~ Arthur Reynolds, Chairman, Continental Illinois Bank of Chicago, October 24, 1929

"For the immediate future, at least, the outlook (stocks) is bright." ~ Irving Fisher, leading US economist, early 1930

"Financial storm definitely passed..." ~ Bernard Baruch, cablegram to Winston Churchill, November 15, 1929

"The end of the decline of the Stock Market will probably not be long, only a few more days at most." ~ Irving Fisher, Professor of Economics at Yale University, November 14, 1929

"Hysteria has now disappeared from Wall Street..." ~ The Times of London, November 2, 1929

"... a serious depression seems improbable..." ~ Harvard Economic Society, November 10, 1929

"Gentleman, you have come sixty days too late. The depression is over." ~ Pres Herbert Hoover, responding to a delegation requesting a public works program to help speed the recovery, June 1930

"This is the time to buy stocks." ~ R W McNeel, market analyst, NY Herald Tribune, October 30, 1929

"There may be a recession in stock prices, but not anything in the nature of a crash." ~ Irving Fisher, leading US economist, NY Times, September 5, 1929

"There is nothing in the situation to be disturbed about..." ~ Andrew Mellon, Secretary of the Treasury, February 1930

"I think the bloom is off the rose, but there is no doom and gloom." ~ Alan Nevin, Chief Economist, California Building Industry Association.

"While the crash only took place six months ago, I am convinced we have now passed through the worst ~~ and with continued unity of effort we shall rapidly recover." ~ Pres Herbert Hoover, May 1, 1930

"[1930 will be] a splendid employment year." ~ US Dept of Labor, New Year's Forecast, December 1929

"The former great periods of prosperity in America averaged eleven years. On this basis we now have three more years to go before the tailspin." ~ Stuart Chase, American economist and author, NY Herald Tribune, November 1, 1929

"The spring of 1930 marks the end of a period of grave concern... American business is steadily coming back to a normal level of prosperity." ~ Julius Barnes, head of Hoover's National Business Survey Conference, March 16, 1930

"All safe deposit boxes in banks or financial institutions have been sealed... and may only be opened in the presence of an agent of the IRS." ~ Pres Franklin D Roosevelt, 1933

"Buying of sound, seasoned issues now will not be regretted..." ~ E A Pearce market letter quoted in the NY Herald Tribune, October 30, 1929

US Policy Makers Preparing for State Defaults (Bankruptcies)

According to Mary Williams Walsh of the NY Times (2011):

Policy makers are working behind the scenes to come up with a way to let states declare bankruptcy and get out from under crushing debts, including the pensions they have promised to retired public workers.

State defaults leading to some form of public bankruptcy will make the Wall Street crisis pale in comparison. Defaults in states such as California, Illinois, and New York would no doubt become the main events of the ongoing economic crisis in America.

Source: Walsh, M W (2011, January 20), Path Is Sought for States to Escape Debt Burdens, NY Times.

Sharing Economic Hardships

Gov Arnold Schwarzenegger has proposed that all state workers in California be paid only the minimum wage until Sacramento legislators come up with a balanced budget -- interesting. Indeed, Gov Schwarzenegger's proposal may be instructive for other states or even the Federal government. Solving the nation's budget crisis would be much easier if the economic hardships were shared by everyone...

Spending Less versus Taxing More

Note that the debate about "spending less" versus "taxing more" is really an argument about how to implement "austerity" -- that this debate has ended in an impasse (in the US, Europe, and even California) highlights why austerity fails, which is the chronic lack of a public mandate -- austerity proposals are failing in the US and all over the world, which leaves only two other macroeconomic ways forward: default or monetary expansion -- we will see whether the US falls into default or monetary expansion in the coming months...

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