June 4, 2010
Once again the Bank of Canada has shown how eager it is to fight a mythical beast. Inflation is nowhere to be seen, unemployment remains stubbornly high yet the Bank recently announced a 25 basis point rise in interest rates joining the Bank of Australia among leading economies as the only countries to risk raising interest rates. The bank did admit this rate rise was no guarantee of further rate rises but the rise is premature and Liberal leader Michael Ignatieff was right to criticize it as unnecessary and premature. The latest unemployment numbers show that unemployment remains elevated at 8.1 % with the rates in our two largest metroplises Toronto and Montréal well above this.In fact in most of what normally is associated with the heartland of the Canadian economy and its manufacturing and financial centre, unemployment is very high. Look at this list of urban centres and their unemployment rates for May and the previous month.(The percentage to the right is the previous month's unemployment rate)
city Unemployment rate Previous month.
Toronto 9.5 % 9.5 %
Montréal 8.8 9.0
Vancouver 7.5 7.5
Windsor 12.7 12.6
Oshawa 9.6 9.6
Ste.Catherine's8.8 9.3
London 8.6 8.8
Calgary 7.7 7.6
Sudbury 8.9 9.7
Edmonton 7.4 7.6
Tois Rivières 9.1 9.4
St.John's 7.3 7.3
Saint John 7.1 6.9
Abbotsford 7.9 6.9
Halifax 5.8 6.1
Winnipeg 5.7 5.4
Victoria 5.9 6.5
Source: Labour force survey, Statistics Canada
These cities account for close to 50 % of the Canadian population and include our 3 most important metropolises. The unemployment rates, except for possibly Halifax, are way too high to justify a rise in interest rates, even one as small as 25 basis points. What is the justification ? the strong growth in the first quarter of 2010 while welcome has yet to translate into a rapid fall in unemployment. The Canadian dollar dropped slightly on the announcement but it has since strengthened to 9523 cents U.S. this strong Canadian dollar will continue to make it harder for our export industries particularly if U.S. employment growth continues to be sluggish.
In the U.S. where the Fed so far has wisely resisted the foolish temptation to raise interest rates prematurely
todays job numbers were a disappointment. there was a total rise of 431,000 jobs in May and the unemployment rate dropped from 9.9 to 9.7 %. but 4111, 000 of those jobs were temporary jobs associated with the census. Stock markets were disappointed. The recovery is happening but it is still painfully slow.
Wednesday, October 27, 2010
Spain, debt and the chicken little squad
May 29, 2010
The chicken little squad of debt doomsters has now moved on from Greece and Portugal to Spain. Spain with a population of 45 million finds itself in a difficult spot because of the severe impact of the 2007- 2008 financial crash which hit its construction sector hard.Spain had been experiencing a boom, perhaps even a bubble in home construction. The Mediterranean coast , a region that I know reasonably well from several lengthy tourist visits ,has had a number of property booms and busts over the years.This one is particularly severe and overall industry has also suffered a big downturn. Unemployment which had fallen for Spain to historic lows of under 9 % has more than doubled to 20 %. Hardship for the Spanish population has been widespread. There are 4.6 million people currently unemployed in Spain.The left of centre government has enacted an austerity program in response to demands from the financial interests that buy Spanish bonds.I think that this austerity will not help because it will prolong the high unemployment but the bond raters perversely might like it.
But let us examine the Spanish debt and deficit situation more carefully than the hysterical headlines in the business press. First of all the debt to GDP ratio is under 60 %, hardly the stuff of calamity. The deficit which reached 11 % of the GDP in response to the crisis in the years preceding it was very much smaller and even in the middle of the past decade a small surplus.Revenues have suffered a shock and expenditures have risen dramatically in response to the crisis.
I have just spent the last hour going through the Spanish Finance ministry's data bases and the results are far from the gloomy assessment of some of the headline writers in the financial press. Unemployment is clearly far too high and real estate will probably be depressed in value for sometime(although there may now be some good long term investments available in what is one of the more beautiful warm countries in Europe) but I would bet that Spain will recover as Europe recovers. The risk of default on their debt given the backing of Europe provided the ECB does its job and an irrational spike in interest rates is avoided is very unlikely.
Unemployment in Spain 2001 to 2010
2001 10.6 %
2002 11.5
2003 11.5
2004 11.0
2005 9.2
2006 8.5
2007 8.3
2008 11.3
2009 18.0
2010Q1 20.0
Source: Spanish Ministry of Economy and Finance
The chicken little squad of debt doomsters has now moved on from Greece and Portugal to Spain. Spain with a population of 45 million finds itself in a difficult spot because of the severe impact of the 2007- 2008 financial crash which hit its construction sector hard.Spain had been experiencing a boom, perhaps even a bubble in home construction. The Mediterranean coast , a region that I know reasonably well from several lengthy tourist visits ,has had a number of property booms and busts over the years.This one is particularly severe and overall industry has also suffered a big downturn. Unemployment which had fallen for Spain to historic lows of under 9 % has more than doubled to 20 %. Hardship for the Spanish population has been widespread. There are 4.6 million people currently unemployed in Spain.The left of centre government has enacted an austerity program in response to demands from the financial interests that buy Spanish bonds.I think that this austerity will not help because it will prolong the high unemployment but the bond raters perversely might like it.
But let us examine the Spanish debt and deficit situation more carefully than the hysterical headlines in the business press. First of all the debt to GDP ratio is under 60 %, hardly the stuff of calamity. The deficit which reached 11 % of the GDP in response to the crisis in the years preceding it was very much smaller and even in the middle of the past decade a small surplus.Revenues have suffered a shock and expenditures have risen dramatically in response to the crisis.
I have just spent the last hour going through the Spanish Finance ministry's data bases and the results are far from the gloomy assessment of some of the headline writers in the financial press. Unemployment is clearly far too high and real estate will probably be depressed in value for sometime(although there may now be some good long term investments available in what is one of the more beautiful warm countries in Europe) but I would bet that Spain will recover as Europe recovers. The risk of default on their debt given the backing of Europe provided the ECB does its job and an irrational spike in interest rates is avoided is very unlikely.
Unemployment in Spain 2001 to 2010
2001 10.6 %
2002 11.5
2003 11.5
2004 11.0
2005 9.2
2006 8.5
2007 8.3
2008 11.3
2009 18.0
2010Q1 20.0
Source: Spanish Ministry of Economy and Finance
Stimulus works
May 26, 2010
The independent non partisan Congressional Budget Office has released an excellent detailed analysis of the American stimulus which shows that through the first quarter of this year the stimulus has created and saved more jobs than it was expected to and also increased the GDP by more than was expected. The multiplier for the stimulus turns out to be as much as 2.5 if one takes the best assumptions. Using very pessimistic assumptions about possible leakages and crowding out the multiplier is still one.The highest multiplier appears to occur when the program monies were spent directly by the Federal government on infrastructure.
Total employment was boosted by between 1.3 and 2.8 million additional jobs which would not have existed without the stimulus. This amounts to 1/4 to 1/2 as many jobs as were expected. The GDP was between 1.7 and 4.1 percentage points higher than it would have been in the absence of the stimulus.So contrary to conservative claims the stimulus was effective but clearly not large enough to dramatically lower unemployment except in a slow and gradual fashion. It needs to be supplemented and the sooner this happens the better because stimulus works. With proper central banking and appropriate monetary policy crowding out is a myth.
The independent non partisan Congressional Budget Office has released an excellent detailed analysis of the American stimulus which shows that through the first quarter of this year the stimulus has created and saved more jobs than it was expected to and also increased the GDP by more than was expected. The multiplier for the stimulus turns out to be as much as 2.5 if one takes the best assumptions. Using very pessimistic assumptions about possible leakages and crowding out the multiplier is still one.The highest multiplier appears to occur when the program monies were spent directly by the Federal government on infrastructure.
Total employment was boosted by between 1.3 and 2.8 million additional jobs which would not have existed without the stimulus. This amounts to 1/4 to 1/2 as many jobs as were expected. The GDP was between 1.7 and 4.1 percentage points higher than it would have been in the absence of the stimulus.So contrary to conservative claims the stimulus was effective but clearly not large enough to dramatically lower unemployment except in a slow and gradual fashion. It needs to be supplemented and the sooner this happens the better because stimulus works. With proper central banking and appropriate monetary policy crowding out is a myth.
Wall street Woes
May 25, 2010 11:33 a.m.
The stock market continues to be mired in excessive pessimism and irrational fear over both global events and European debt questions. The supposed fear over North Korean outlaw behaviour seems particularly foolish since North Korea has been a ''bad boy'' in Asia for a very long time. What has changed ? Traders and hedge fund investors as usual are being hyper sensitive and historically out of touch.
With respect to the sovereign debt issue Greece is now well in hand with the full backing of the European union including Germany and France. There is zero possibility of a debt default. Chancellor Merkel has acted decisively on derivatives shenanigans following the sensible lead of Hong Kong and China on these matters some years before. Other states are negotiating with Germany to harmonize rules. Panic by traders and hedge fund investors based on faulty logic about debt and the ability of states to manage their debt portfolios is strongly overdone. Despite the hard times there are signs of improving consumer expectations and sentiment, unemployment is still too high but conditions are slowly improving and the global powerhouse, the U.S. is showing signs of recovery and more rapid growth.
The only negative indicator aside from trader and hedge fund anxiety is the rush to slash spending by governments world wide. This is of course a negative trend that can only make matters worse.It also repeats the blunders of the 1930s.
In the U.S. Larry Summers is correctly calling on congress to pass what he is calling a mini stimulus of some $200 billion directed at increased loans for small business, aid to states to retain teachers instead of laying them off and extending unemployment benefits. These are all sensible well directed measures that should have immediate positive benefit. Hopefully the Congress will pass the measures quickly.
It is a beautiful hot summer day here in Montréal. It is time for a sunnier outlook on the financial markets and the restoration of hope and prosperity for people the world over.
The stock market continues to be mired in excessive pessimism and irrational fear over both global events and European debt questions. The supposed fear over North Korean outlaw behaviour seems particularly foolish since North Korea has been a ''bad boy'' in Asia for a very long time. What has changed ? Traders and hedge fund investors as usual are being hyper sensitive and historically out of touch.
With respect to the sovereign debt issue Greece is now well in hand with the full backing of the European union including Germany and France. There is zero possibility of a debt default. Chancellor Merkel has acted decisively on derivatives shenanigans following the sensible lead of Hong Kong and China on these matters some years before. Other states are negotiating with Germany to harmonize rules. Panic by traders and hedge fund investors based on faulty logic about debt and the ability of states to manage their debt portfolios is strongly overdone. Despite the hard times there are signs of improving consumer expectations and sentiment, unemployment is still too high but conditions are slowly improving and the global powerhouse, the U.S. is showing signs of recovery and more rapid growth.
The only negative indicator aside from trader and hedge fund anxiety is the rush to slash spending by governments world wide. This is of course a negative trend that can only make matters worse.It also repeats the blunders of the 1930s.
In the U.S. Larry Summers is correctly calling on congress to pass what he is calling a mini stimulus of some $200 billion directed at increased loans for small business, aid to states to retain teachers instead of laying them off and extending unemployment benefits. These are all sensible well directed measures that should have immediate positive benefit. Hopefully the Congress will pass the measures quickly.
It is a beautiful hot summer day here in Montréal. It is time for a sunnier outlook on the financial markets and the restoration of hope and prosperity for people the world over.
Stock markets traders hysteria
May 21, 2010
Here is a comment that was posted on the Financial Times site yesterday in response to an excellent piece by Samuel Brittan arguing the British sovereign debt question has been overblown.I agreed and wrote the following.
Samuel Brittan is correct to argue (in the F.T) that there is no immediate crisis surrounding British indebtedness. The problem lies not in the debt and deficit or gross financing requirements but in the paralysis of common sense that now appears to affect youthful traders and investor traders with virtually zero knowledge of history round the world. Todays(i.e.yesterday's) panic in the stock markets because of the totally irrational over reaction to the sensible efforts by Germany to curb naked short selling of stocks and purchases of derivatives insurance products in a wholly speculative manner is an excellent example of this problem.(Such curbs have existed in Hong Kong for a decade and have also been adopted by China)
The global environment is not inflationary but still quite disinflationary and even border line deflationary. Britain may be temporarily outside of this framework but I suspect that this state of affairs won't last for long. Traders would be well advised to take a long overdue break from panic selling and read some economic history and the rewarding debate about fiscal policy and debt management that is available in scholarly literature. Those who refuse to learn from history are condemned to repeat it. The G8 and G20 countries and their central banks still have plenty of ammunition left to stimulate the economy and avoid a depression or even a prolonged slump. but the old discredited dogmas about the perils of debt need to be jettisoned.
Here is a comment that was posted on the Financial Times site yesterday in response to an excellent piece by Samuel Brittan arguing the British sovereign debt question has been overblown.I agreed and wrote the following.
Samuel Brittan is correct to argue (in the F.T) that there is no immediate crisis surrounding British indebtedness. The problem lies not in the debt and deficit or gross financing requirements but in the paralysis of common sense that now appears to affect youthful traders and investor traders with virtually zero knowledge of history round the world. Todays(i.e.yesterday's) panic in the stock markets because of the totally irrational over reaction to the sensible efforts by Germany to curb naked short selling of stocks and purchases of derivatives insurance products in a wholly speculative manner is an excellent example of this problem.(Such curbs have existed in Hong Kong for a decade and have also been adopted by China)
The global environment is not inflationary but still quite disinflationary and even border line deflationary. Britain may be temporarily outside of this framework but I suspect that this state of affairs won't last for long. Traders would be well advised to take a long overdue break from panic selling and read some economic history and the rewarding debate about fiscal policy and debt management that is available in scholarly literature. Those who refuse to learn from history are condemned to repeat it. The G8 and G20 countries and their central banks still have plenty of ammunition left to stimulate the economy and avoid a depression or even a prolonged slump. but the old discredited dogmas about the perils of debt need to be jettisoned.
The Euro and the U.K.
May 18, 2010
The Euro continues to come under speculative short selling pressure because of the fallout from the Greek debt crisis and the hyper panic behaviour of twenty something traders with virtually no historical knowledge of sovereign debt and monetary policy. The European central bank recently quite sensibly acquired some 16.5 billion dollars worth of sovereign debt bonds to ease the situation. It held on to them for about a week and then began reselling them to the market thereby unwinding the positive impact they had had on rates and panic. They need to continue to intervene where appropriate and hang on to the debt before sterilizing its monetary impact for a longer period of time than simply a few days.But at least they are moving in the right direction.
The panic artists have begun to talk about Britain where the change in government has permitted the new 39 year old Tory coalition chancellor to muse aloud foolishly about the Greek situation and its implications for the U.K. The truth is there are none, except among panicky twenty and thirty year olds who don't know their history nor understand that British debt levels are at historically quite low levels in comparison to the GDP.
As I have said many times before, the current ratio is about one fifth of where it was at the end of the Second world war and about a third or less than it was in the 1920s and thirties.If it were affordable and manageable then when the U.K. was a much poorer country in terms of its GDP per capita it is certainly manageable now when the U.K is much richer. Deficits as a proportion of the GDP were also much higher during the war years.
Furthermore , less than thirty percent of the debt is financed by foreigners.The F.T. has just pointed out that in the first quarter of 2010 foreigners bought a record amount of British gilts because they see it as a safe haven for their money.They bought a total of 20.4 billion pounds worth of gilts.this is quite contrary to what the new Chancellor was claiming in his press conference.
Since the debt exclusive of the monies advanced by the central bank to bail out the British banks is about 55 % of the GDP then 30 % of that is about 16.5 % of the GDP. So about 270 billion British pounds worth of debt is really in play and subject to speculative buying and selling by foreigners.Assume at worst 30 % of that , say 81 billion is subject to short time horizons.
Given the power of the Bank of England to offset speculative short selling through the buying and selling of debt and through quantitative easing there is no danger of a crisis.Traders should calm themselves and recognize short of blundering fiscal policy by the new Government obsessed with deficit reduction, the recovery will proceed and the UK pound is still a good bet for the future.
The Euro continues to come under speculative short selling pressure because of the fallout from the Greek debt crisis and the hyper panic behaviour of twenty something traders with virtually no historical knowledge of sovereign debt and monetary policy. The European central bank recently quite sensibly acquired some 16.5 billion dollars worth of sovereign debt bonds to ease the situation. It held on to them for about a week and then began reselling them to the market thereby unwinding the positive impact they had had on rates and panic. They need to continue to intervene where appropriate and hang on to the debt before sterilizing its monetary impact for a longer period of time than simply a few days.But at least they are moving in the right direction.
The panic artists have begun to talk about Britain where the change in government has permitted the new 39 year old Tory coalition chancellor to muse aloud foolishly about the Greek situation and its implications for the U.K. The truth is there are none, except among panicky twenty and thirty year olds who don't know their history nor understand that British debt levels are at historically quite low levels in comparison to the GDP.
As I have said many times before, the current ratio is about one fifth of where it was at the end of the Second world war and about a third or less than it was in the 1920s and thirties.If it were affordable and manageable then when the U.K. was a much poorer country in terms of its GDP per capita it is certainly manageable now when the U.K is much richer. Deficits as a proportion of the GDP were also much higher during the war years.
Furthermore , less than thirty percent of the debt is financed by foreigners.The F.T. has just pointed out that in the first quarter of 2010 foreigners bought a record amount of British gilts because they see it as a safe haven for their money.They bought a total of 20.4 billion pounds worth of gilts.this is quite contrary to what the new Chancellor was claiming in his press conference.
Since the debt exclusive of the monies advanced by the central bank to bail out the British banks is about 55 % of the GDP then 30 % of that is about 16.5 % of the GDP. So about 270 billion British pounds worth of debt is really in play and subject to speculative buying and selling by foreigners.Assume at worst 30 % of that , say 81 billion is subject to short time horizons.
Given the power of the Bank of England to offset speculative short selling through the buying and selling of debt and through quantitative easing there is no danger of a crisis.Traders should calm themselves and recognize short of blundering fiscal policy by the new Government obsessed with deficit reduction, the recovery will proceed and the UK pound is still a good bet for the future.
British GDP grows 0.2 % what lies ahead
April 23, 2010
The latest data on the first quarter results for the British GDP shows that while growth was positive it was barely so at 0.2 % for the quarter.Where is the British economy likely to go in the months ahead? If one compares this recession to previous slumps then it would seem that while it is a very severe recession whose trajectory resembles that of 1930-34 it is not as severe and more resembles the recession of 1979 to 1983 when there were five consecutive quarters of negative growth from 1980 to the first quarter of 1981 followed by five more quarters of very anemic growth and two of slightly negative growth.
So far the British economy has slumped about 6 % roughly what it did in the early 1980s.There have been 6 consecutive quarters of negative growth including two where the overall slump exceeded 4.4 % the greatest two quarter slump since the 1930s. The last two quarters have seen positive growth, but barely so.
It is definitely not the time for cuts to public spending as this will only derail the modest recovery that is now haltingly under way.The recession this time has had 6 quarters of negative growth plus the major financial collapse in the City which has greatly complicated the recovery. Six months to a year from now it will be much clearer how the recovery is going and then it will be time to examine the prospects for efficiency gains in government as the unemployment rate begins to drop.
Those who are concerned about the British deficit and debt ought to realize that in the 1950s the UK had a much larger debt to GDP ratio than now(191 % in 1950 and 141 % in 1955 versus under 55 % now))
and was only one third as wealthy measured in inflation adjusted per capita GDP and still managed to handle its debt load.
The shock of the financial crisis on public accounts cannot be solved overnight . It can be sensibly managed over a number of years, once the unemployment rates are reduced to reasonable levels.The Bank of England should do its job of helping to manage Treasury debt in an orderly fashion ensuring low interest rates continue.
The latest data on the first quarter results for the British GDP shows that while growth was positive it was barely so at 0.2 % for the quarter.Where is the British economy likely to go in the months ahead? If one compares this recession to previous slumps then it would seem that while it is a very severe recession whose trajectory resembles that of 1930-34 it is not as severe and more resembles the recession of 1979 to 1983 when there were five consecutive quarters of negative growth from 1980 to the first quarter of 1981 followed by five more quarters of very anemic growth and two of slightly negative growth.
So far the British economy has slumped about 6 % roughly what it did in the early 1980s.There have been 6 consecutive quarters of negative growth including two where the overall slump exceeded 4.4 % the greatest two quarter slump since the 1930s. The last two quarters have seen positive growth, but barely so.
It is definitely not the time for cuts to public spending as this will only derail the modest recovery that is now haltingly under way.The recession this time has had 6 quarters of negative growth plus the major financial collapse in the City which has greatly complicated the recovery. Six months to a year from now it will be much clearer how the recovery is going and then it will be time to examine the prospects for efficiency gains in government as the unemployment rate begins to drop.
Those who are concerned about the British deficit and debt ought to realize that in the 1950s the UK had a much larger debt to GDP ratio than now(191 % in 1950 and 141 % in 1955 versus under 55 % now))
and was only one third as wealthy measured in inflation adjusted per capita GDP and still managed to handle its debt load.
The shock of the financial crisis on public accounts cannot be solved overnight . It can be sensibly managed over a number of years, once the unemployment rates are reduced to reasonable levels.The Bank of England should do its job of helping to manage Treasury debt in an orderly fashion ensuring low interest rates continue.
UK national debt to GDP 1916 to 1998
April 21, 2010
The current controversy over the national debt in Britain is as usual totally ahistorical. Fortunately, the British office of National statistics has excellent historical data on the national debt going all the way back to 1855. I reproduce a portion of that data courtesy of them to drive home the point that the current hysteria over debt levels in the UK and elsewhere is absolutely foolhardy and quite simply reveals historical ignorance at work. The current Feb. 2010 ratio of the public sector net debt to GDP in the UK is 60.3 % If we exclude the financial interventions that the British government undertook to bail out the banks the ratio is only 52.6 %. The larger figure of debt amounts to 857.5 billion pounds and the figure excluding financial interventions is 741.6 billion pounds. Is this ratio somehow a disaster ? The answer must be clearly no when we compare it to the historical data since 1916.
Year U.K. National Debt as % of GDP
1916 61 %
1917 90
1918 114
1919 136
1920 133
1921 150
1922 170
1923 180
1924 176
1925 167
1926 175
1927 167
1928 165
1929 162
1930 162
1931 173
1932 177
1933 183
1934 177
1935 168
1936 162
1937 150
1938 147
1939 141
1940 121
1941 131
1942 149
1943 168
1944 194
1945 232
1946 252
1947 245
1948 217
1949 201
1950 197
1951 178
1952 164
1953 154
1954 149
1955 141
1956 134
1957 126
1958 121
1959 117
1960 110
1961 106
1962 103
1963 101
1964 93
1965 87
1966 84
1967 81
1968 81
1969 74
1970 67
1971 60
1972 58
1973 52
1974 50
1975 46
1976 47
1977 48
1978 49
1979 46
1980 43
1981 46
1982 44
1983 43
1982 45
1983 43
1984 45
1985 46
1986 44
1987 46
1988 44
1989 39
1990 35
1991 35
1992 36
1993 40
1994 46
1995 50
1996 52
1997 53
1998 50
Source: British Office of National Statistics http.wwwstatistics.gov.uk/downloads/theme_other/GSSmethodology_ No12_V2pdf
The current controversy over the national debt in Britain is as usual totally ahistorical. Fortunately, the British office of National statistics has excellent historical data on the national debt going all the way back to 1855. I reproduce a portion of that data courtesy of them to drive home the point that the current hysteria over debt levels in the UK and elsewhere is absolutely foolhardy and quite simply reveals historical ignorance at work. The current Feb. 2010 ratio of the public sector net debt to GDP in the UK is 60.3 % If we exclude the financial interventions that the British government undertook to bail out the banks the ratio is only 52.6 %. The larger figure of debt amounts to 857.5 billion pounds and the figure excluding financial interventions is 741.6 billion pounds. Is this ratio somehow a disaster ? The answer must be clearly no when we compare it to the historical data since 1916.
Year U.K. National Debt as % of GDP
1916 61 %
1917 90
1918 114
1919 136
1920 133
1921 150
1922 170
1923 180
1924 176
1925 167
1926 175
1927 167
1928 165
1929 162
1930 162
1931 173
1932 177
1933 183
1934 177
1935 168
1936 162
1937 150
1938 147
1939 141
1940 121
1941 131
1942 149
1943 168
1944 194
1945 232
1946 252
1947 245
1948 217
1949 201
1950 197
1951 178
1952 164
1953 154
1954 149
1955 141
1956 134
1957 126
1958 121
1959 117
1960 110
1961 106
1962 103
1963 101
1964 93
1965 87
1966 84
1967 81
1968 81
1969 74
1970 67
1971 60
1972 58
1973 52
1974 50
1975 46
1976 47
1977 48
1978 49
1979 46
1980 43
1981 46
1982 44
1983 43
1982 45
1983 43
1984 45
1985 46
1986 44
1987 46
1988 44
1989 39
1990 35
1991 35
1992 36
1993 40
1994 46
1995 50
1996 52
1997 53
1998 50
Source: British Office of National Statistics http.wwwstatistics.gov.uk/downloads/theme_other/GSSmethodology_ No12_V2pdf
How large a deficit is appropriate?
( A comment of mine which appeared on the NYT site in response to an article by Carl Hulse on April 9, 2010.
Harold R.Chorney
Montreal
April 10th, 2010
6:33 pm
The way to resolve the problem of how large a deficit you are willing to run or how austere, versus how generous a society you wish to have has to begin with an analysis of the way in which the real economy actually operates. People can and obviously do disagree about values. For example, if you decide to stop spending money to help the long term unemployed there are many who would say this promotes additional unnecessary misery in a society and since the unemployed are almost always unemployed through no fault of their own, it is unjust not support them and the children dependent upon them.
Others argue that people should be more self reliant. They prefer to blame the victim of unemployment rather than help them. Perhaps they also believe that smaller government somehow solves the unemployment problem in the longer run by acting as an incentive for private investors to create more jobs. They argue that labour markets once wages are allowed to drop will clear and unemployment that remains is somehow voluntary. But this classical laissez-faire view did not work in the 1930s. Instead it reinforced the depression.
But the macro-economic question is somewhat different from the values question. My motivation for exploring the theoretical problem of how the real economy actually works is partly an ethical one- I dislike unemployment on moral grounds- but it is also driven by a desire to design a policy that makes the economy work better by increasing both growth and efficiency. Unemployment undermines both.
So we ought to design a policy response that sharply limits the damage that a deep recession and financial crash causes and helps reverse it as quickly as possible.
That is precisely the role of deficit finance or economic stimulus . When someone is unemployed they are not going to be spending as much of their income and wealth as they did in the past. The subtraction of their spending undermines the economy as a whole and affects businesses who depend on people's spending to sustain their business.
So unemployment undermines business confidence and contributes to excessive pessimism on the part of investors. As unemployment rises investors will postpone investments and instead sit on cash and thereby withdraw it from total aggregate demand for goods and services. This aggregate demand which consists of consumption expenditures, investment expenditures and the difference between exports and imports has one other additional component.
That is government expenditures on consumption and investment. This government portion of consumption and investment has to subtract taxation because taxation removes spending power from both individuals and businesses. G for government minus T for taxation is also a measure of the government deficit. If because of the shock of a crash and a deep recession private spending and private investment has diminished then we can compensate for this by spending on the government side using the mechanism of a deficit to transfer savings held by businesses and consumers while they are not spending to governments who spend the money on stimulus. the G-T deficit stimulates the economy so long as interest rates do not rise to choke off private investment. The Fed by keeping the rates low accomplishes this.
The money to finance the deficit is borrowed by governments who pay a low rate of interest on it because interest rates are very low in a recession. To make sure that the rate stays low for some time the Federal Reserve ensures a loose monetary policy by buying more of the treasury debt than they would in booming times. The vast bulk of the U.S. public debt is borrowed from American savers including pension funds and institutional investment funds. China only finances under 10 % of the American debt.
As the economy recovers and grows the ratio of debt to the GDP will begin to fall again so long as the interest rate charged on the debt is less than the growth rate in the economy. As the unemployment rate drops tax revenues will rise and expenditures on the unemployed will drop and budget balance will be easier to achieve. The key is to set a consensual target on how low of an unemployment rate you as a society wish to have , what state of repair of your infrastructure you feel is acceptable and then having achieved these goals strive for a balanced budget.
It also helps to separate out out capital expenditures from current ones in terms of accounting for them in the budget. Investments in human capital for example bear fruit over many years . They should be expensed accordingly.
Treasury bills and U.S. government bonds are sound investments. The historical record shows this. At the end of the second world war, a war which could not have been won without using the tool of deficit finance, the ratio of the debt to the GDP was far higher than today. it was over 120 % of the GDP.(121.7 % in 1946 table 7.1 , p.126,Budget of the U.S.Government historical tables, 2008)
Harold R.Chorney
Montreal
April 10th, 2010
6:33 pm
The way to resolve the problem of how large a deficit you are willing to run or how austere, versus how generous a society you wish to have has to begin with an analysis of the way in which the real economy actually operates. People can and obviously do disagree about values. For example, if you decide to stop spending money to help the long term unemployed there are many who would say this promotes additional unnecessary misery in a society and since the unemployed are almost always unemployed through no fault of their own, it is unjust not support them and the children dependent upon them.
Others argue that people should be more self reliant. They prefer to blame the victim of unemployment rather than help them. Perhaps they also believe that smaller government somehow solves the unemployment problem in the longer run by acting as an incentive for private investors to create more jobs. They argue that labour markets once wages are allowed to drop will clear and unemployment that remains is somehow voluntary. But this classical laissez-faire view did not work in the 1930s. Instead it reinforced the depression.
But the macro-economic question is somewhat different from the values question. My motivation for exploring the theoretical problem of how the real economy actually works is partly an ethical one- I dislike unemployment on moral grounds- but it is also driven by a desire to design a policy that makes the economy work better by increasing both growth and efficiency. Unemployment undermines both.
So we ought to design a policy response that sharply limits the damage that a deep recession and financial crash causes and helps reverse it as quickly as possible.
That is precisely the role of deficit finance or economic stimulus . When someone is unemployed they are not going to be spending as much of their income and wealth as they did in the past. The subtraction of their spending undermines the economy as a whole and affects businesses who depend on people's spending to sustain their business.
So unemployment undermines business confidence and contributes to excessive pessimism on the part of investors. As unemployment rises investors will postpone investments and instead sit on cash and thereby withdraw it from total aggregate demand for goods and services. This aggregate demand which consists of consumption expenditures, investment expenditures and the difference between exports and imports has one other additional component.
That is government expenditures on consumption and investment. This government portion of consumption and investment has to subtract taxation because taxation removes spending power from both individuals and businesses. G for government minus T for taxation is also a measure of the government deficit. If because of the shock of a crash and a deep recession private spending and private investment has diminished then we can compensate for this by spending on the government side using the mechanism of a deficit to transfer savings held by businesses and consumers while they are not spending to governments who spend the money on stimulus. the G-T deficit stimulates the economy so long as interest rates do not rise to choke off private investment. The Fed by keeping the rates low accomplishes this.
The money to finance the deficit is borrowed by governments who pay a low rate of interest on it because interest rates are very low in a recession. To make sure that the rate stays low for some time the Federal Reserve ensures a loose monetary policy by buying more of the treasury debt than they would in booming times. The vast bulk of the U.S. public debt is borrowed from American savers including pension funds and institutional investment funds. China only finances under 10 % of the American debt.
As the economy recovers and grows the ratio of debt to the GDP will begin to fall again so long as the interest rate charged on the debt is less than the growth rate in the economy. As the unemployment rate drops tax revenues will rise and expenditures on the unemployed will drop and budget balance will be easier to achieve. The key is to set a consensual target on how low of an unemployment rate you as a society wish to have , what state of repair of your infrastructure you feel is acceptable and then having achieved these goals strive for a balanced budget.
It also helps to separate out out capital expenditures from current ones in terms of accounting for them in the budget. Investments in human capital for example bear fruit over many years . They should be expensed accordingly.
Treasury bills and U.S. government bonds are sound investments. The historical record shows this. At the end of the second world war, a war which could not have been won without using the tool of deficit finance, the ratio of the debt to the GDP was far higher than today. it was over 120 % of the GDP.(121.7 % in 1946 table 7.1 , p.126,Budget of the U.S.Government historical tables, 2008)
Canada's unemployment rate unchanged 8.2 %
The unemployed rate remains unchanged at 8.2 % despite a small increase in the number of jobs of 17,900 below economist's predictions.there was actually a net loss of 14,200 full time jobs but 32,200 part- time jobs were created The rate remained at 8.8 % in Ontario and diminished slightly in Québec to 8.0 %.
So the recovery is still far too timid for the Bank of Canada to raise interest rates anytime soon. If the governor Mr. Carney does so, he will make a blunder of considerable proportions
So the recovery is still far too timid for the Bank of Canada to raise interest rates anytime soon. If the governor Mr. Carney does so, he will make a blunder of considerable proportions
US unemployment holds at 9.7 %
8:37 a.m. April 2, 2010
Despite rapid growth in the GDP U.S. unemployment unfortunately has held steady at 9.7 % in March. The broader U6 measure of unemployment which includes discouraged workers, those working part-time rather than full-time and other marginally attached workers still stands at 16.9 %. Employment was up in several sectors of the economy including government services, because of census hiring but the increases were not enough to lower the overall rate.
Despite rapid growth in the GDP U.S. unemployment unfortunately has held steady at 9.7 % in March. The broader U6 measure of unemployment which includes discouraged workers, those working part-time rather than full-time and other marginally attached workers still stands at 16.9 %. Employment was up in several sectors of the economy including government services, because of census hiring but the increases were not enough to lower the overall rate.
Deficit Hysteria and the Liberals
March 28, 2010
Well the three day policy meeting of the Liberal party held before a carefully pre-screened physical audience in Montreal has just ended with a speech by leader Michael Ignatieff. The successful part of the weekend was the use of networking technology which permitted thousands of people across the country who were unable to attend in person to participate at the virtual reality margins of the conference through a chat line, skype or e mail. A number of the speakers were also interesting including a few who actually had some good ideas about increasing volunteerism, Canadian foreign policy, pension reform, the Arctic , environmentalism and social justice . The disappointing part of the event however was the ongoing obsession of some young Liberals attached to the Paul Martin and Ignatieff wing of the party who continue to obsess over Canada's modest and stimulative public sector deficit which is helping to bring about an economic recovery in the country and our debt level which is even less of a problem at a little over 34 % of the GDP.
Unfortunately, Michael Ignatieff in his speech has committed the party to arguing that the deficit is a problem (when clearly it is not) and calling for a freeze on corporate tax reductions , possibly a popular idea but not necessarily good economics as you emerge from a recession.
I, of course, repeat this ad nauseam but the cure to an unbalanced budget is to rebalance the budget by creating jobs,keeping interest rates low, lowering the unemployment rate to 5 % or preferably below this level, fixing all of our infrastructure, investing in training and education, our defense forces and quality health care and allowing the resulting boom to generate a flood of tax revenue.
The Liberal leadership and some of its inner circle including apparently some young Liberals who think that neo-con ideas like ending universality in health care and slashing deficits are cutting edge new thinking continue to control the policy process. Some of what Ignatieff proposes to do in the areas of financing students, early childhood education and investing in better health care including home care and several other progressive proposals are good and supportable ideas. But why risk them by making deficit reduction such a priority since the deficit is largely if not entirely due to the global economic recession which also impacted Canada.
Too bad.
The Federal corporate tax rate is now 18 %. Corporate taxes yield about 29 billion dollars in revenue.The Conservatives had scheduled the corporate tax rate to fall to 15 % by 2012. This represents a a reduction in the federal tax rate of about 16 %. If you eliminate it and make the critical but controversial assumption that doing so will not cost any new investment or job creating expansion nor result in cutbacks of existing investments and activity the net gain in revenue might be of the order of 16 % of 29 or about 5 billion dollars.
But these are heroic assumptions that probably would not hold since the corporations shift their taxes forward to final consumers of their products who facing an increase in taxes will spend less leading to lower sales and higher unemployment than would otherwise prevail and thereby lower income tax revenues by some amount. The net gain is therefore likely to be smaller. some analysts would dispute this arguing that one has to decompose the impact of the tax into its various components including its impact upon the deficit to assess its overall impact and the degree to which it is shifted.(See the essay available on line by A.J Laramee, The incidence of the corporate profits tax revisited A Post Keynesian approach, originally published by the Jerome Levy foundation in 1999. See http://ideas.repec.org/p/wpa/wuwpma/9906012.html) One thing is clear if the actual deficit is reduced then corporate profits are likely to actually fall as aggregate demand is subtracted.
Obviously yields vary from year to year depending upon corporate profitability and the business cycle.The provincial rate on corporate income varies from province to province.
Income taxes yield well over 120 billion dollars. It makes much more sense to focus on reducing unemployment than freezing corporate tax rates particularly since much of the corporate tax rate is shifted forward to their consumers, although in a recession that is diminished. A three percentage point fall in the unemployment rate creates several 100,000 new jobs. 575,000 more jobs to be precise.People with jobs pay taxes.A very large amount of additional tax revenue would flow from this which exceeds the uncertain tax revenues projected by the corporate tax freeze.
The employed no longer collect employment insurance or social assistance. Employed people suffer much less from health problems and family stress thereby saving money otherwise expensed by governments on each of these areas. It is about time that the Liberal party establishment came to terms with these facts and adopted full or at least low unemployment as their overall strategy.
Well the three day policy meeting of the Liberal party held before a carefully pre-screened physical audience in Montreal has just ended with a speech by leader Michael Ignatieff. The successful part of the weekend was the use of networking technology which permitted thousands of people across the country who were unable to attend in person to participate at the virtual reality margins of the conference through a chat line, skype or e mail. A number of the speakers were also interesting including a few who actually had some good ideas about increasing volunteerism, Canadian foreign policy, pension reform, the Arctic , environmentalism and social justice . The disappointing part of the event however was the ongoing obsession of some young Liberals attached to the Paul Martin and Ignatieff wing of the party who continue to obsess over Canada's modest and stimulative public sector deficit which is helping to bring about an economic recovery in the country and our debt level which is even less of a problem at a little over 34 % of the GDP.
Unfortunately, Michael Ignatieff in his speech has committed the party to arguing that the deficit is a problem (when clearly it is not) and calling for a freeze on corporate tax reductions , possibly a popular idea but not necessarily good economics as you emerge from a recession.
I, of course, repeat this ad nauseam but the cure to an unbalanced budget is to rebalance the budget by creating jobs,keeping interest rates low, lowering the unemployment rate to 5 % or preferably below this level, fixing all of our infrastructure, investing in training and education, our defense forces and quality health care and allowing the resulting boom to generate a flood of tax revenue.
The Liberal leadership and some of its inner circle including apparently some young Liberals who think that neo-con ideas like ending universality in health care and slashing deficits are cutting edge new thinking continue to control the policy process. Some of what Ignatieff proposes to do in the areas of financing students, early childhood education and investing in better health care including home care and several other progressive proposals are good and supportable ideas. But why risk them by making deficit reduction such a priority since the deficit is largely if not entirely due to the global economic recession which also impacted Canada.
Too bad.
The Federal corporate tax rate is now 18 %. Corporate taxes yield about 29 billion dollars in revenue.The Conservatives had scheduled the corporate tax rate to fall to 15 % by 2012. This represents a a reduction in the federal tax rate of about 16 %. If you eliminate it and make the critical but controversial assumption that doing so will not cost any new investment or job creating expansion nor result in cutbacks of existing investments and activity the net gain in revenue might be of the order of 16 % of 29 or about 5 billion dollars.
But these are heroic assumptions that probably would not hold since the corporations shift their taxes forward to final consumers of their products who facing an increase in taxes will spend less leading to lower sales and higher unemployment than would otherwise prevail and thereby lower income tax revenues by some amount. The net gain is therefore likely to be smaller. some analysts would dispute this arguing that one has to decompose the impact of the tax into its various components including its impact upon the deficit to assess its overall impact and the degree to which it is shifted.(See the essay available on line by A.J Laramee, The incidence of the corporate profits tax revisited A Post Keynesian approach, originally published by the Jerome Levy foundation in 1999. See http://ideas.repec.org/p/wpa/wuwpma/9906012.html) One thing is clear if the actual deficit is reduced then corporate profits are likely to actually fall as aggregate demand is subtracted.
Obviously yields vary from year to year depending upon corporate profitability and the business cycle.The provincial rate on corporate income varies from province to province.
Income taxes yield well over 120 billion dollars. It makes much more sense to focus on reducing unemployment than freezing corporate tax rates particularly since much of the corporate tax rate is shifted forward to their consumers, although in a recession that is diminished. A three percentage point fall in the unemployment rate creates several 100,000 new jobs. 575,000 more jobs to be precise.People with jobs pay taxes.A very large amount of additional tax revenue would flow from this which exceeds the uncertain tax revenues projected by the corporate tax freeze.
The employed no longer collect employment insurance or social assistance. Employed people suffer much less from health problems and family stress thereby saving money otherwise expensed by governments on each of these areas. It is about time that the Liberal party establishment came to terms with these facts and adopted full or at least low unemployment as their overall strategy.
Recent videos on Keynes and the financial crash
March 19, 2010
Check out You Tube to see two interviews I did with researcher and video maker Tania Boufajreldin on the Return of the Keynesian revolution and on the Financial crisis on You Tube. They are accessible under my name.
see them at http://www.youtube.com/watch?v=kHUWMVTn-Z4
and at http://www.youtube.com/watch?v=fekdRFu2a_g
Check out You Tube to see two interviews I did with researcher and video maker Tania Boufajreldin on the Return of the Keynesian revolution and on the Financial crisis on You Tube. They are accessible under my name.
see them at http://www.youtube.com/watch?v=kHUWMVTn-Z4
and at http://www.youtube.com/watch?v=fekdRFu2a_g
Some progress in overcoming deficit hysteria
March 8, 2010
Despite a widespread outbreak of this malady here and there are signs of progress. One of them is an article in the Financial Times on the wisdom or lack thereof of shorting U.S.debt because of growing fears that the deficit is too large. The article by Dino Kos, ''Shorting U.S. treasuries could be a mistake'', appears in the F.T. today. Kos points out what I have been arguing for decades that there is no evidence of crowding out despite the higher deficits.
In fact, as deleveraging proceeds Americans are increasing their savings rates and there is plenty of domestic demand for U.S. government debt. Holdings by foreigners are significant but not overly burdensome. The Chinese for example, according to the article and the U.S.Treasury's report for February recently sold off some of their holdings but then bought back in so that they now hold 894 billion $ of the more than 11 trillion dollar debt.Previously they had held 800 billion but reduced that to 755 billion. Japan is also a major holder of U.S. debt. The last time I looked they were second only to the Chinese in terms of the amount of U.S. debt they held. Japan has used quantitative easing for years and not experienced any inflation. In fact, they have struggled to keep deflation at bay.
So Kos concludes in the medium run there is very little risk to U.S. debt holders and that the U.S. dollar will probably strengthen against the euro. It is a useful article because it helps puncture the many myths that circulate because of deficit hysteria.
Despite a widespread outbreak of this malady here and there are signs of progress. One of them is an article in the Financial Times on the wisdom or lack thereof of shorting U.S.debt because of growing fears that the deficit is too large. The article by Dino Kos, ''Shorting U.S. treasuries could be a mistake'', appears in the F.T. today. Kos points out what I have been arguing for decades that there is no evidence of crowding out despite the higher deficits.
In fact, as deleveraging proceeds Americans are increasing their savings rates and there is plenty of domestic demand for U.S. government debt. Holdings by foreigners are significant but not overly burdensome. The Chinese for example, according to the article and the U.S.Treasury's report for February recently sold off some of their holdings but then bought back in so that they now hold 894 billion $ of the more than 11 trillion dollar debt.Previously they had held 800 billion but reduced that to 755 billion. Japan is also a major holder of U.S. debt. The last time I looked they were second only to the Chinese in terms of the amount of U.S. debt they held. Japan has used quantitative easing for years and not experienced any inflation. In fact, they have struggled to keep deflation at bay.
So Kos concludes in the medium run there is very little risk to U.S. debt holders and that the U.S. dollar will probably strengthen against the euro. It is a useful article because it helps puncture the many myths that circulate because of deficit hysteria.
US unemployment stable at 9.7 %
March 5, 2010
The U.S. Bureau of Labour Statistics has released the latest data on employment. It shows that job losses in February has slowed to some 36,000
and that unemployment remains at 9.7 %.Of the 14.9 million people out of work in the U.S. some 6.1 million people are now unemployed for more than 27 weeks. the rate of unemployment is 10 % for adult men; 8.0 % for adult women; 25 % for teens; 8.8 % for whites; 15.8 % for blacks; 8.4 % for Asians; and 12.4 % for Hispanics. in terms of educational attainment the rates vary in non surprising ways , the higher the level of education the lower the rate of unemployment: for all workers over the age of 25 the rate is 8.3 %; for those without a high school diploma 15.6 %; high school graduates 10.5 %; some college education 8.0 %; a bachelor's degree or beyond 5.0 %. Clearly higher education is a good investment both for the individual and for society.
These rates are, of course, still far too high and the hardship involved substantial. As growth continues there will be a reduction in the rate provided that employers begin the necessary task of rehiring workers and spending the large amounts of cash they have accumulated during the downturn by payroll savings and in the case of the banks through government subsidies and the margins on loans and the benefits they have reaped through their treasuries on the stock, bond and derivative markets.
The U.S. Bureau of Labour Statistics has released the latest data on employment. It shows that job losses in February has slowed to some 36,000
and that unemployment remains at 9.7 %.Of the 14.9 million people out of work in the U.S. some 6.1 million people are now unemployed for more than 27 weeks. the rate of unemployment is 10 % for adult men; 8.0 % for adult women; 25 % for teens; 8.8 % for whites; 15.8 % for blacks; 8.4 % for Asians; and 12.4 % for Hispanics. in terms of educational attainment the rates vary in non surprising ways , the higher the level of education the lower the rate of unemployment: for all workers over the age of 25 the rate is 8.3 %; for those without a high school diploma 15.6 %; high school graduates 10.5 %; some college education 8.0 %; a bachelor's degree or beyond 5.0 %. Clearly higher education is a good investment both for the individual and for society.
These rates are, of course, still far too high and the hardship involved substantial. As growth continues there will be a reduction in the rate provided that employers begin the necessary task of rehiring workers and spending the large amounts of cash they have accumulated during the downturn by payroll savings and in the case of the banks through government subsidies and the margins on loans and the benefits they have reaped through their treasuries on the stock, bond and derivative markets.
Budget murky on unemployment projection
March 4, 2010 5:20 p.m.
The budget is out and there is a lot of information on the debt and deficit ratios to GDP and the numbers of jobs created by the economic action plan.But so far and I have looked and scanned the documents quickly, I see very little specifically on projecting unemployment rates over the next twelve months. But this projection is critical in making sense of the deficit projections and in assessing how effective the plan is likely to be in achieving its goals.
Obviously a projection of 7.0 % unemployment at year end is rather different from a projection of 6.5 % or even 6 %. The details are needed so a proper analysis can be made.
Aha, after a second look at the first budget document I have found the table I was looking for.It is quite frankly the most important table in the budget. It gives a consensus of private sector forecasts and the budget's own projections on unemployment over the next seven years.
The projections clearly show that unemployment is expected to remain far too high to allow the government to safely slash government expenditures without generating higher unemployment and prolonging the miserable consequences of the recession.
The projected unemployment rates are as follows: 2010 8.5 %; 2011 7.9 % ;2012 7.4 %; 2013 6.9 % ;2014
6.6 %; and 2015 7.6 %.
Clearly projections for years from now are rather unreliable. But none of these projected unemployment rates are low enough to justify austerity cuts and certainly not the cuts laid out in the budget.
This is particularly true of the projected cuts to the defense budget which needs to be maintained in order to rebuild the military and resupply it after its arduous and brave service in Afghanistan.
The opposition parties and the media ought to ask some very tough questions about the thinking that lies behind this budget in the light of these unemployment projections.
The budget is out and there is a lot of information on the debt and deficit ratios to GDP and the numbers of jobs created by the economic action plan.But so far and I have looked and scanned the documents quickly, I see very little specifically on projecting unemployment rates over the next twelve months. But this projection is critical in making sense of the deficit projections and in assessing how effective the plan is likely to be in achieving its goals.
Obviously a projection of 7.0 % unemployment at year end is rather different from a projection of 6.5 % or even 6 %. The details are needed so a proper analysis can be made.
Aha, after a second look at the first budget document I have found the table I was looking for.It is quite frankly the most important table in the budget. It gives a consensus of private sector forecasts and the budget's own projections on unemployment over the next seven years.
The projections clearly show that unemployment is expected to remain far too high to allow the government to safely slash government expenditures without generating higher unemployment and prolonging the miserable consequences of the recession.
The projected unemployment rates are as follows: 2010 8.5 %; 2011 7.9 % ;2012 7.4 %; 2013 6.9 % ;2014
6.6 %; and 2015 7.6 %.
Clearly projections for years from now are rather unreliable. But none of these projected unemployment rates are low enough to justify austerity cuts and certainly not the cuts laid out in the budget.
This is particularly true of the projected cuts to the defense budget which needs to be maintained in order to rebuild the military and resupply it after its arduous and brave service in Afghanistan.
The opposition parties and the media ought to ask some very tough questions about the thinking that lies behind this budget in the light of these unemployment projections.
Canadian budget not time for deficit cutting
March 4, 1:03 a.m.
The speech from the throne suggests that the Budget to be released tomorrow will propose government expenditure cutbacks in 2011 in an effort to reduce the deficit. This action is premature because it is very unlikely that the unemployment rate will have fallen to less than 6 % by the beginning of 2011 only 9 months from now. The policy that the Government ought to pursue is to focus on disbursing the remainder of the stimulus package announced last year, ensure that the Bank of Canada does not raise interest rates over the coming two quarters and target a large reduction in the jobless rate. As the rate of unemployment is reduced the flow of revenues into government coffers will increase and the outflow of expenditures on the unemployed will decline. Overtime the ratio of debt to GDP will begin to stabilize and fall. Remember that currently the ratio of debt to GDP is at a very tolerable level, some 32.1 % and the deficit is quite small in comparison to the 1.4 trillion dollar GDP, less than 3 % of the GDP. Remember during the Second world war the ratio exceeded 20 % .
We shall see what the budget says tomorrow and I will comment in detail about it once I have had a chance to study it carefully.
Since deficit hysteria like the measles spreads quickly I now have a number of countries to worry about from Europe to America. The good news is that more and more people question the conventional fiscal conservative wisdom and are looking for a more rational response to the crisis of our times. That crisis is not the deficit but the problems of unemployment, poverty, financial instability and the age old threats to humanity from disease and the sometimes harsh unpredictability of nature.
Here reason can light a path to a better solution.
The speech from the throne suggests that the Budget to be released tomorrow will propose government expenditure cutbacks in 2011 in an effort to reduce the deficit. This action is premature because it is very unlikely that the unemployment rate will have fallen to less than 6 % by the beginning of 2011 only 9 months from now. The policy that the Government ought to pursue is to focus on disbursing the remainder of the stimulus package announced last year, ensure that the Bank of Canada does not raise interest rates over the coming two quarters and target a large reduction in the jobless rate. As the rate of unemployment is reduced the flow of revenues into government coffers will increase and the outflow of expenditures on the unemployed will decline. Overtime the ratio of debt to GDP will begin to stabilize and fall. Remember that currently the ratio of debt to GDP is at a very tolerable level, some 32.1 % and the deficit is quite small in comparison to the 1.4 trillion dollar GDP, less than 3 % of the GDP. Remember during the Second world war the ratio exceeded 20 % .
We shall see what the budget says tomorrow and I will comment in detail about it once I have had a chance to study it carefully.
Since deficit hysteria like the measles spreads quickly I now have a number of countries to worry about from Europe to America. The good news is that more and more people question the conventional fiscal conservative wisdom and are looking for a more rational response to the crisis of our times. That crisis is not the deficit but the problems of unemployment, poverty, financial instability and the age old threats to humanity from disease and the sometimes harsh unpredictability of nature.
Here reason can light a path to a better solution.
U.S. GDP grows by 5.9%in fourth quarter
Feb 25, 2010
The latest data revision for the fourth quarter GDP result for the U.S. shows that largely on account of a reduced rate of inventory destocking in the manufacturing sector growth was a robust 5.9%.
This is good news. Exports were also up, as well as non residential fixed investment and business investment. Consumer spending was up but by a subdued amount.The housing market the scene of the original disaster that provoked this slump is showing some signs of recovery although month to month sales were down although higher than a year ago. The next quarter will reveal if this trend continues as inventories are drawn down by an up tick in production and sales.Since more of the stimulus monies will be spent in the next quarter this should help support the nascent recovery. If that happens then greater confidence should result in eventual employer rehiring and a reduction, albeit slowly, in the unemployment rate.
The latest data revision for the fourth quarter GDP result for the U.S. shows that largely on account of a reduced rate of inventory destocking in the manufacturing sector growth was a robust 5.9%.
This is good news. Exports were also up, as well as non residential fixed investment and business investment. Consumer spending was up but by a subdued amount.The housing market the scene of the original disaster that provoked this slump is showing some signs of recovery although month to month sales were down although higher than a year ago. The next quarter will reveal if this trend continues as inventories are drawn down by an up tick in production and sales.Since more of the stimulus monies will be spent in the next quarter this should help support the nascent recovery. If that happens then greater confidence should result in eventual employer rehiring and a reduction, albeit slowly, in the unemployment rate.
Misleading data on debts and growth
Feb. 17, 2010
Kenneth Rogoff of Harvard and Prof. Carmen Reinhart
have a new paper out that purports to show rising indebtedness above 90 % of the GDP impedes the rate of economic growth by 1 %. But the paper is less than convincing. In the first place in the developed world of advanced capitalism the number of data points of countries where debt levels exceed 90 % for any prolonged period of time are rather limited. They have a large set of data over many years but most of it is for lower debt levels and much of it for less developed countries where a lot else is going on with respect to economic growth than simply public sector debt.
But in addition there is a bigger problem with their analysis as it is presented and commented upon by Martin Wolf in the FT today. There is no discussion of causality. There may well be a correlation between slower growth and rising debt beyond 90 % of the GDP but which causes which ?
Almost always , particularly in monetarist policy oriented central banks interest rates are raised before a recession sets in. So slower growth is no surprise . It is a result of interest rate rise induced recession. Given the slower growth, debt levels inevitably rise because that is how the fiscal system of the advanced western countries is designed.There is no surprise here. But the cure to these higher debt levels is the restoration of growth and lower unemployment. So Rogoff and Reinhart because they do not, at least in the version of the paper that is posted on line(a link is provided in Martin Wolf's column in the FT on walking the fiscal tightrope), discuss this issue of causation have not demonstrated the conclusions they claim.
Rather than some arbitrary policy rule about debt to GDP, I prefer the following formulation which I have written about in the past. Responsible fiscal policy budgeting entails separating out investments in human capital and other capital account expenditures from the current expenditure budget, lowering the rate of unemployment to a consensually arrived at target range(below 5 % for the U.S. and Canada, ensuring that infrastructure is on a sustainable path through appropriate investment in it, and then and only then balance the current expenditure budget.
Kenneth Rogoff of Harvard and Prof. Carmen Reinhart
have a new paper out that purports to show rising indebtedness above 90 % of the GDP impedes the rate of economic growth by 1 %. But the paper is less than convincing. In the first place in the developed world of advanced capitalism the number of data points of countries where debt levels exceed 90 % for any prolonged period of time are rather limited. They have a large set of data over many years but most of it is for lower debt levels and much of it for less developed countries where a lot else is going on with respect to economic growth than simply public sector debt.
But in addition there is a bigger problem with their analysis as it is presented and commented upon by Martin Wolf in the FT today. There is no discussion of causality. There may well be a correlation between slower growth and rising debt beyond 90 % of the GDP but which causes which ?
Almost always , particularly in monetarist policy oriented central banks interest rates are raised before a recession sets in. So slower growth is no surprise . It is a result of interest rate rise induced recession. Given the slower growth, debt levels inevitably rise because that is how the fiscal system of the advanced western countries is designed.There is no surprise here. But the cure to these higher debt levels is the restoration of growth and lower unemployment. So Rogoff and Reinhart because they do not, at least in the version of the paper that is posted on line(a link is provided in Martin Wolf's column in the FT on walking the fiscal tightrope), discuss this issue of causation have not demonstrated the conclusions they claim.
Rather than some arbitrary policy rule about debt to GDP, I prefer the following formulation which I have written about in the past. Responsible fiscal policy budgeting entails separating out investments in human capital and other capital account expenditures from the current expenditure budget, lowering the rate of unemployment to a consensually arrived at target range(below 5 % for the U.S. and Canada, ensuring that infrastructure is on a sustainable path through appropriate investment in it, and then and only then balance the current expenditure budget.
Greek debt 'crisis' overblown 2
Feb 10, 2010
The financial press is full of stories warning of the impending disaster that has befallen Greece because of its supposed sovereign debt crisis. But this crisis is largely manufactured by the absurdly out of date and totally arbitrary deficit and debt criteria imposed by the European union and the European central bank.You will recall that these august institutions cry wolf whenever a member country has a deficit level that exceeds 3 % of the GDP and a debt level in excess of 60 %.
Almost all of the analysis lacks the salient statistical data about the Greek debt situation including its debt to GDP ratio over the past fifty years, the list of foreign holders of the debt, the percentage of the debt held by foreigners, the rate of unemployment in Greece and so on.
It is possible to assemble much of this information using Eurostat, the BIS and quality papers like the FT, the Wall Street journal etc. When one does that here are some of the salient facts.
Unemployment as of December 2009 was 9.7 % in Greece.
About 30 % of the Greek debt appears to be owed to foreign bond holders.These appear to be principally in France, Germany and Switzerland. Since about 99 % of the debt is denominated in Euros there is no exchange rate risk. (It is difficult to tell from the official data that I have searched so far as to who the principal foreign bond holders are but some of the financial press make these claims.But they sometimes get things wrong. For example, the Economist at one point claimed the population of Greece was only 7 million people. In fact, it is 11 million from the Government 's official data.)The debt to GDP ratio was as high as 119 % in 2005. It is now currently lower than this. One official site gives it as about 100%.
The proportion of the debt apparently owed to foreigners is higher than other EU members but it is not inherently a disaster unless the financial press can create an emotional stampede about the possibility of default and the necessity of austerity and bailout. This may happen but one must ask to whose benefit?
Since Greece has to rely upon the European central bank for help in managing their sovereign debt they are in an awkward situation because of the dogmatic rigid monetarism of that institution. The central bank should actually step in and buy a sufficient quantity of the Greek debt to calm nerves and assist the Greek government in the management of their debt.
It does not have to buy it all but a significant purchase that is in proportion to the size of Greek economy in monetary terms in relation to the whole Euro area would be appropriate.The ECB should be buying and selling govenment bonds from all of its member states as a normal part of its monetary policy.
It would help show that the panic is irrational and will be self-fulfilling with unforeseen consequences if left unchecked. Eurostat data suggests that the Greek debt to GDP ratio as of the end of the 3rd quarter 2009 was of the order of 99 %. Italy was higher 107 %. Japan was higher over 160 %.As stated above in the recent past 2005 it was higher at 119 % of the GDP according to the Greek Ministery of Finance, 2007 budget.
Now the recession has battered Greece as it has a number of countries.
Hence its projected deficit this year is about 13 % of the GDP. This is a significant figure but hardly Armageddon. If the media had not seized upon the situation and played up the fears that monetarists have about deficits I very much doubt that we would be having this crisis.The behaviour of speculative hedge funds in buying credit default swaps on Greek sovereign debt, thereby increasing pressure on Greece in managing its bond sales, even when the speculators hold none of the debt in their portfolios has also not helped. Such speculation should be strictly regulated.
One thing that is clear. IMF style austerity will not solve the problem but further strain the Greek economy which needs to recover to bring Greece through the crisis. It is a very bad and damaging policy idea. By all means support Greece. But forget austerity in an economy that already suffers from 9.7 % unemployment.
The financial press is full of stories warning of the impending disaster that has befallen Greece because of its supposed sovereign debt crisis. But this crisis is largely manufactured by the absurdly out of date and totally arbitrary deficit and debt criteria imposed by the European union and the European central bank.You will recall that these august institutions cry wolf whenever a member country has a deficit level that exceeds 3 % of the GDP and a debt level in excess of 60 %.
Almost all of the analysis lacks the salient statistical data about the Greek debt situation including its debt to GDP ratio over the past fifty years, the list of foreign holders of the debt, the percentage of the debt held by foreigners, the rate of unemployment in Greece and so on.
It is possible to assemble much of this information using Eurostat, the BIS and quality papers like the FT, the Wall Street journal etc. When one does that here are some of the salient facts.
Unemployment as of December 2009 was 9.7 % in Greece.
About 30 % of the Greek debt appears to be owed to foreign bond holders.These appear to be principally in France, Germany and Switzerland. Since about 99 % of the debt is denominated in Euros there is no exchange rate risk. (It is difficult to tell from the official data that I have searched so far as to who the principal foreign bond holders are but some of the financial press make these claims.But they sometimes get things wrong. For example, the Economist at one point claimed the population of Greece was only 7 million people. In fact, it is 11 million from the Government 's official data.)The debt to GDP ratio was as high as 119 % in 2005. It is now currently lower than this. One official site gives it as about 100%.
The proportion of the debt apparently owed to foreigners is higher than other EU members but it is not inherently a disaster unless the financial press can create an emotional stampede about the possibility of default and the necessity of austerity and bailout. This may happen but one must ask to whose benefit?
Since Greece has to rely upon the European central bank for help in managing their sovereign debt they are in an awkward situation because of the dogmatic rigid monetarism of that institution. The central bank should actually step in and buy a sufficient quantity of the Greek debt to calm nerves and assist the Greek government in the management of their debt.
It does not have to buy it all but a significant purchase that is in proportion to the size of Greek economy in monetary terms in relation to the whole Euro area would be appropriate.The ECB should be buying and selling govenment bonds from all of its member states as a normal part of its monetary policy.
It would help show that the panic is irrational and will be self-fulfilling with unforeseen consequences if left unchecked. Eurostat data suggests that the Greek debt to GDP ratio as of the end of the 3rd quarter 2009 was of the order of 99 %. Italy was higher 107 %. Japan was higher over 160 %.As stated above in the recent past 2005 it was higher at 119 % of the GDP according to the Greek Ministery of Finance, 2007 budget.
Now the recession has battered Greece as it has a number of countries.
Hence its projected deficit this year is about 13 % of the GDP. This is a significant figure but hardly Armageddon. If the media had not seized upon the situation and played up the fears that monetarists have about deficits I very much doubt that we would be having this crisis.The behaviour of speculative hedge funds in buying credit default swaps on Greek sovereign debt, thereby increasing pressure on Greece in managing its bond sales, even when the speculators hold none of the debt in their portfolios has also not helped. Such speculation should be strictly regulated.
One thing that is clear. IMF style austerity will not solve the problem but further strain the Greek economy which needs to recover to bring Greece through the crisis. It is a very bad and damaging policy idea. By all means support Greece. But forget austerity in an economy that already suffers from 9.7 % unemployment.
Campaign to lower unemployment essential
Harold R.Chorney
Montreal
February 9th, 2010
The New York Times' Bob
Herbert is correctly arguing that something massive is needed to lower the unemployment rate to reasonable levels in all income classes in the U.S.
What is needed to address this enormous problem is an all out Campaign to End Unemployment above 3-4 % of the labour force. This low rate should prevail throughout even the lowest income classes.
It may be even be possible to lower the rate below this level.But that would require a new consensus at the Federal Reserve on how low unemployment can fall before it acts to raise interest rates in response to supposed inflationary expectations in the bond market.
Some unemployment is accounted for by the simple desire to change jobs . But this may only be 1 or 2 % points. The late William Vickery, a Columbia university economist who won the Nobel prize and came originally from British Columbia argued that 1 % unemployment in the U.S. was both possible and feasible.
The key to lowering unemployment is to adopt very serious targets and provide the resources both from the Federal Reserve in terms of low interest rates and employment generating infrastructure spending from the Federal and state governments. This cannot happen if short term deficit reduction through expenditure cuts are the priority of government.
Unemployment in the past could be reduced in this way in a matter of months. Just look at the experience from the period 1939 to 1943.The rate in the U.S. fell from over 12 % in 1939 to under three percent by 1943. Unemployment fell to very low rates from high rates once the political opposition to government spending and deficits was eliminated by the patriotic exigencies of wartime.
But there is no need for another war to solve the problem. The point is what ended unemployment then and what could end it now is well planned government financed investment in the economy in highway projects, bridge construction and renewal ,air transportation up-grading, energy efficient mass transportation, harbour improvements, city beautification and renewal, reforestation, irrigation and water control projects , improved educational facilities, social, and co-operative housing projects, investments in innovative technologies, awards to job creating entrepreneurship.
Some of this is part of the current stimulus bill. But the amount of the stimulus although it has helped to reverse the slump in growth is regrettably too small to accomplish the laudable goal of dramatic reductions in the unemployment rate.
With proper regulation low interest rates do not have to result in another bubble. The concern about the public sector deficit is understandable, although largely misguided. Before people leap to conclusions about its burden they should understand that there are very serious methodological issues involved in its calculation. One of them is what is the acceptable rate of unemployment that the government is using to calculate the structural deficit associated with medicaid and medicare and the aging of the population.
It matters a lot what rate you
choose because other things being equal a higher rate enlarges the structural deficit.
It also matters how you account for expenditures such as health care and education. If you consider a large portion of them as investments in human capital they then get amortized over a long time period and are included in capital budgets rather than the current budget. I could go on and have in my many publications on this issue dating back to 1983, but the main point is that a lot of politics and debate clouds the issue of how to account for the burden of the debt. There is a lot of myth and hysteria here.
It would be far better to attack unemployment and put things right first . Then the U.S. and other countries can turn to their public sector debts and have a properly informed debate on the basis of a far more just society.
Montreal
February 9th, 2010
The New York Times' Bob
Herbert is correctly arguing that something massive is needed to lower the unemployment rate to reasonable levels in all income classes in the U.S.
What is needed to address this enormous problem is an all out Campaign to End Unemployment above 3-4 % of the labour force. This low rate should prevail throughout even the lowest income classes.
It may be even be possible to lower the rate below this level.But that would require a new consensus at the Federal Reserve on how low unemployment can fall before it acts to raise interest rates in response to supposed inflationary expectations in the bond market.
Some unemployment is accounted for by the simple desire to change jobs . But this may only be 1 or 2 % points. The late William Vickery, a Columbia university economist who won the Nobel prize and came originally from British Columbia argued that 1 % unemployment in the U.S. was both possible and feasible.
The key to lowering unemployment is to adopt very serious targets and provide the resources both from the Federal Reserve in terms of low interest rates and employment generating infrastructure spending from the Federal and state governments. This cannot happen if short term deficit reduction through expenditure cuts are the priority of government.
Unemployment in the past could be reduced in this way in a matter of months. Just look at the experience from the period 1939 to 1943.The rate in the U.S. fell from over 12 % in 1939 to under three percent by 1943. Unemployment fell to very low rates from high rates once the political opposition to government spending and deficits was eliminated by the patriotic exigencies of wartime.
But there is no need for another war to solve the problem. The point is what ended unemployment then and what could end it now is well planned government financed investment in the economy in highway projects, bridge construction and renewal ,air transportation up-grading, energy efficient mass transportation, harbour improvements, city beautification and renewal, reforestation, irrigation and water control projects , improved educational facilities, social, and co-operative housing projects, investments in innovative technologies, awards to job creating entrepreneurship.
Some of this is part of the current stimulus bill. But the amount of the stimulus although it has helped to reverse the slump in growth is regrettably too small to accomplish the laudable goal of dramatic reductions in the unemployment rate.
With proper regulation low interest rates do not have to result in another bubble. The concern about the public sector deficit is understandable, although largely misguided. Before people leap to conclusions about its burden they should understand that there are very serious methodological issues involved in its calculation. One of them is what is the acceptable rate of unemployment that the government is using to calculate the structural deficit associated with medicaid and medicare and the aging of the population.
It matters a lot what rate you
choose because other things being equal a higher rate enlarges the structural deficit.
It also matters how you account for expenditures such as health care and education. If you consider a large portion of them as investments in human capital they then get amortized over a long time period and are included in capital budgets rather than the current budget. I could go on and have in my many publications on this issue dating back to 1983, but the main point is that a lot of politics and debate clouds the issue of how to account for the burden of the debt. There is a lot of myth and hysteria here.
It would be far better to attack unemployment and put things right first . Then the U.S. and other countries can turn to their public sector debts and have a properly informed debate on the basis of a far more just society.
Unemployment some international data
Feb. 5, 2010
The latest U.S. unemployment rate is 9.7 %. Job losses continue but there are signs of a recovery in manufacturing and some employers are beginning to hire again. We shall see if this is the beginning of a trend.In previous recoveries a drop of 3/10 of a percent month to month is usually that.Some analysts are overly pessimistic and arguing it is simply a one month sample survey error but I doubt it. the rate also fell by 1/10 of a percent in Canada, falling to 8.3 % for January.
My water pipe has thawed out ! Here is some very interesting data on unemployment in ten of the world's leading economies. They show the depth of the global recession. the country that appears to be doing the best of these is the netherlands which has managed to keep its unemployment rate below 4 %, a remarkable accomplishment that reflects its labour market policies.
TABLE 1. Unemployment rates adjusted to U.S. concepts, 10 countries, seasonally adjusted, 2007-2009
United
States Canada Australia Japan France
(1) Germany
(1) Italy
(1) Nether-
lands (1) Sweden United
Kingdom
2007
U.S. Can Aus. Jap. France Germ It. Neth. Swe U.K.
4.6 5.3 4.4 3.9 8.1 8.7 6.2 3.2 6.2 5.4
2008
5.8 5.3 4.2 4.0 7.5 7.5 6.8 2.8 6.2 5.7
Qtr 1 2007
4.5 5.4 4.5 4.0 8.6 9.2 6.2 3.6 6.3 5.5
Qtr 2 2007
4.5 5.2 4.3 3.8 8.2 8.8 6.1 3.2 6.1 5.4
Qtr 3 2007
4.7 5.2 4.3 3.8 8.1 8.5 6.3 3.0 5.8 5.3
Qtr 4 2007
4.8 5.2 4.4 3.9 7.7 8.3 6.4 3.0 5.8 5.2
Qtr 1 2008
4.9 5.2 4.0 3.9 7.2 7.8 6.6 2.9 5.7 5.3
Qtr 2 2008
5.4 5.3 4.2 4.1 7.4 7.6 r 6.9 2.8 5.8 5.4
Qtr 3 2008
6.0 5.3 4.2 4.1 7.5 7.4 r 6.8 2.6 5.9 5.9
Qtr 4 2008
6.9 5.6 4.5 4.1 8.0 7.4 7.1 2.8 6.5 6.4
Qtr 1 2009
8.1 6.7 5.3 4.5 8.7 7.7 r 7.4 3.1 7.4 7.1
Qtr 2 2009
9.2 7.5 5.7 5.3 9.3 8.0 r 7.6 3.3 8.2 7.8
Qtr 3 2009
9.6 7.8 5.8 5.5 9.7 8.0 7.9 3.5 8.5 7.9
Jun 2008
5.6 5.3 4.2 4.1 7.4 7.5 (2) 2.5 6.3 5.5
Source: U.S. bureau of labour statistics.
The latest U.S. unemployment rate is 9.7 %. Job losses continue but there are signs of a recovery in manufacturing and some employers are beginning to hire again. We shall see if this is the beginning of a trend.In previous recoveries a drop of 3/10 of a percent month to month is usually that.Some analysts are overly pessimistic and arguing it is simply a one month sample survey error but I doubt it. the rate also fell by 1/10 of a percent in Canada, falling to 8.3 % for January.
My water pipe has thawed out ! Here is some very interesting data on unemployment in ten of the world's leading economies. They show the depth of the global recession. the country that appears to be doing the best of these is the netherlands which has managed to keep its unemployment rate below 4 %, a remarkable accomplishment that reflects its labour market policies.
TABLE 1. Unemployment rates adjusted to U.S. concepts, 10 countries, seasonally adjusted, 2007-2009
United
States Canada Australia Japan France
(1) Germany
(1) Italy
(1) Nether-
lands (1) Sweden United
Kingdom
2007
U.S. Can Aus. Jap. France Germ It. Neth. Swe U.K.
4.6 5.3 4.4 3.9 8.1 8.7 6.2 3.2 6.2 5.4
2008
5.8 5.3 4.2 4.0 7.5 7.5 6.8 2.8 6.2 5.7
Qtr 1 2007
4.5 5.4 4.5 4.0 8.6 9.2 6.2 3.6 6.3 5.5
Qtr 2 2007
4.5 5.2 4.3 3.8 8.2 8.8 6.1 3.2 6.1 5.4
Qtr 3 2007
4.7 5.2 4.3 3.8 8.1 8.5 6.3 3.0 5.8 5.3
Qtr 4 2007
4.8 5.2 4.4 3.9 7.7 8.3 6.4 3.0 5.8 5.2
Qtr 1 2008
4.9 5.2 4.0 3.9 7.2 7.8 6.6 2.9 5.7 5.3
Qtr 2 2008
5.4 5.3 4.2 4.1 7.4 7.6 r 6.9 2.8 5.8 5.4
Qtr 3 2008
6.0 5.3 4.2 4.1 7.5 7.4 r 6.8 2.6 5.9 5.9
Qtr 4 2008
6.9 5.6 4.5 4.1 8.0 7.4 7.1 2.8 6.5 6.4
Qtr 1 2009
8.1 6.7 5.3 4.5 8.7 7.7 r 7.4 3.1 7.4 7.1
Qtr 2 2009
9.2 7.5 5.7 5.3 9.3 8.0 r 7.6 3.3 8.2 7.8
Qtr 3 2009
9.6 7.8 5.8 5.5 9.7 8.0 7.9 3.5 8.5 7.9
Jun 2008
5.6 5.3 4.2 4.1 7.4 7.5 (2) 2.5 6.3 5.5
Source: U.S. bureau of labour statistics.
The current crisis:Hayekian, Keynesian or Marxian?
Jan 30, 2010
It was minus 23 celsius last night, my intake water pipe appears to have frozen and I am busy trying to unthaw it according to my city's engineer's instructions but it seems more appealing to spend a few minutes pondering the state of the global economy and the potential explanations for the crisis we are emerging from. The cure for the crisis so far has been rather Keynesian, a major but not massive injection of state funds into the economy designed to build infrastructure, reverse negative animal spirits and boost aggregate demand. This has been combined with action on the monetary front which most but not all monetarists support, very low interest rates and a good measure of quantitative easing , a policy which I developed in the late 1980s and early 1990s. I called it then temporary monetization of a greater portion of the public debt.
I had presented the idea and the research and articles I had published on the subject to my former L.S.E. supervisor, Meghnad Desai in 1993 in London as a plausible alternative to monetarist strictures on deficit finance but he had dismissed it at the time claiming wrongly that it was both impractical and even illegal and in any case would only spook the financial markets.As he put it to me then," Harold the financial houses all employ Ph.D. economists who will see this as automatically inflationary and act to counteract it. It won't work." Well Desai turned out to be wrong about this as did a number of other economists who had listened to my presentation of the idea at a major conference of business economists in Ottawa in 1994 where I shared a panel with the Canadian associate deputy minister of finance at the time, Don Drummond and who were similarly skeptical. This non inflationary turn around and recovery which has involved significant quantitative easing shows that they were all wrong and that my policy innovation had merit.
But rather than dwell on the difficulties of overcoming conventional wisdom lets explore for a moment the roots of the current crisis. It began in the housing market bubble which rather swiftly drew in the bulk of the financial industry and the major investment banks on Wall Street. If you are a Hayekian you would quickly seize on this and argue with some justification that this is precisely what Hayek predicts. Overinvestment occurs because the interest rate is reduced below the natural rate in a Wicksellian sense. this leads to a bubble which then bursts as the expected investment return does not materialize and the burst bubble creates a depression or deep recession. So far so good.
But , the problem with Hayek's rather intriguing theory of the cycle is that once the bubble has burst raising interest rates as Hayek appears to propose won't cure the problem. Nor will discouraging investment or consumption accomplish what we want.Furthermore, the low interest rates were introduced because of the legitimate fear of deflation after the crisis of 9/11. Still Hayek's ideas are worth exploring.
Hyman Minsky draws upon Keynes and his notion of uncertainty but also has Hayekian elements in his analysis of Ponzi or Madoff finance in his brilliant theorization of speculative bubbles that threaten the entire financial system.
Keynes' work argues that declining animal spirits wracked by uncertainty and a structural tendency toward underconsumptionism and disproportionality between savings intentions and investment intentions leading to inadequate aggregate demand are responsible for slumps. He also is a sharp and hands on experienced critic of the irrational speculations of the stock markets and unregulated free for all that they tended to become whenever manias affected them.
His cure of greater regulation of the investment process, a strong dose of deficit financed intervention to push an economy out of depression and a modest redistribution of wealth and income to ensure adequate aggregate demand still seems to be the best cure.
Marx was clearly an Hegelian romantic(although he expressly denies this) but nevertheless a powerful critic of the horrors of Dickensian nineteenth century capitalism. He has an analysis of the tendency of the rate of profit to fall because of the growth in the organic composition of capital(that is the ratio of machinery, plant and embodied technology to the wage portion of output)and the need to extract a higher rate of surplus value to counter that but all bound up with the very abstract labour theory of value. The transformation problem still bedevils his analysis. Bohm Bawerk wrote a trenchant critique of Marx's method which was first published in 1896.Marx drew his analysis of the labour theory of value directly from David Ricardo in his work the principles of Political Economy and Taxation. Ricardo ideas about free trade, the doctrine of comparative advantage and free competion came to dominate the economics profession. But his labour theory of value clearly articulated in the first chapter of his great work was eclipsed by neo classical marginal utility theory developed by Carl Menger, Alfred Marshall, Leon Walras and Stanley Jevons in the late 19th and early twentieth century. Ricardo put the matter boldly drawing from the work of Adam Smith before him:
"The real price of everything" says Adam Smith, "what everything really costs to the man who wants to acquire it, is the toil and trouble of acquiring it...Labour was the first price-the original purchase money that was paid for all things....It is natural that what is usually the produce of two days' or two hour's labour should be worth double of what is usually the produce of one day's or one hour's labour." that this is really the foundation of the exchangeable value of all things,excepting those that cannot be increased by human industry is a doctrine of the utmost importance in political economy. ..if the quantity of labour realised in commodities regulate their exchangeable value, every increase of the quantity of labour must augment the value of that commodity on which it is excercised and every diminuation must lower it." (pp6-7 The Principles of Political Economy and Taxation London, Everyman Library, 1965.)
Ladislaus Von Bortkiewicz sought to show the errors in Marx's treatment of the transformation problem in 1907.(See Bohm -Bawerk, Karl Marx and the close of his system and Bohm Bawerk's criticism of Marx, by Rudolf Hilferding with an appendix by Ladislaus von Bortkiewicz, On the correction of Marx's fundamental theoretical construction in the third volume of capital; edited by Paul Sweezy, 1975, the Merlin Press.) Bohm -Bawerk was an advocate along with Carl Menger of the then new subjective value theory based upon the concept of marginal utility. He was also Austrian finance minister in three different Austrian governments. He finished his career as a chaired professor in political economy at the University of Vienna.He was a founder of the Austrian school to which Hayek belonged.Von Bortkiewicz , on the other hand , was a statistician who spent much of his life working in Germany although he was from a Russified Polish family. He was appointed to the University of Berlin in 1901 and taught there until his death in 1931.
Thomas Sowell( ''Marx's Capital after 100 years'' Canadian Journal of Economics, vol.33, 1967,pp.50-74) and others have argued that Marx understood that capitalism functioned on the basis of exchange prices and not on the basis of value and that his intention was always to show that prices diverged from value and that in so doing periodic crises, disproportionalities and booms and busts and financial bubbles would characterize the system.As Sowell puts it:''When the inherent disproportionalities of capitalism reach sufficient magnitudes, price fluctuations become great enough to precipitate scrambles for liquidity in sectors threatened with bankruptcies; this in turn leads to general monetary contraction and depression. A growing capital:labour ratio in the economy means that the workers' share of gross output declines over time...''
Desai (Marx's Revenge, p.64)argues that Anwar Shaikh has demonstrated empirically that although values do not transform precisely into prices there is empirical evidence that suggests despite some discrepancies , if properly calculated for a representative list of products using an input output model there is a rough correlation between the two at least for Italy and the U.S. between 1947 and 1963. But clearly profits come not just from labour but from information technology and other innovations that greatly enhance labour productivity including managerial innovation including self -management.They may themselves have their origin in labour but they present themselves in a different identity in the contemporary production process. Still the issue is complex and subject to considerable debate.
However, Marx did fairly accurately predict globalized capitalism and as Desai points out in his work Marx's Revenge he rather welcomed it as eventually delivering both higher productivity and material wealth and with the appropriate societal changes a better form of civilization.
If over time globalized corporations under the pressure of requiring higher rates of profit continue to outsource their production to lower wage economies outside of the core countries and thereby undermine the Keynesian prescription which is , after all, based on increased aggregate demand and fuller employment in the core then some serious thought will have to be given to the questions raised by these different theoretical approaches.At the very least the regulatory framework and the design of tax benefits and tax breaks for corporate employers will need to have some employment conditions attached to them. Otherwise , the recovery will be a hollow one.
In the meantime the debate over the causes and solutions to the crisis will continue. It is a debate worth having.
It was minus 23 celsius last night, my intake water pipe appears to have frozen and I am busy trying to unthaw it according to my city's engineer's instructions but it seems more appealing to spend a few minutes pondering the state of the global economy and the potential explanations for the crisis we are emerging from. The cure for the crisis so far has been rather Keynesian, a major but not massive injection of state funds into the economy designed to build infrastructure, reverse negative animal spirits and boost aggregate demand. This has been combined with action on the monetary front which most but not all monetarists support, very low interest rates and a good measure of quantitative easing , a policy which I developed in the late 1980s and early 1990s. I called it then temporary monetization of a greater portion of the public debt.
I had presented the idea and the research and articles I had published on the subject to my former L.S.E. supervisor, Meghnad Desai in 1993 in London as a plausible alternative to monetarist strictures on deficit finance but he had dismissed it at the time claiming wrongly that it was both impractical and even illegal and in any case would only spook the financial markets.As he put it to me then," Harold the financial houses all employ Ph.D. economists who will see this as automatically inflationary and act to counteract it. It won't work." Well Desai turned out to be wrong about this as did a number of other economists who had listened to my presentation of the idea at a major conference of business economists in Ottawa in 1994 where I shared a panel with the Canadian associate deputy minister of finance at the time, Don Drummond and who were similarly skeptical. This non inflationary turn around and recovery which has involved significant quantitative easing shows that they were all wrong and that my policy innovation had merit.
But rather than dwell on the difficulties of overcoming conventional wisdom lets explore for a moment the roots of the current crisis. It began in the housing market bubble which rather swiftly drew in the bulk of the financial industry and the major investment banks on Wall Street. If you are a Hayekian you would quickly seize on this and argue with some justification that this is precisely what Hayek predicts. Overinvestment occurs because the interest rate is reduced below the natural rate in a Wicksellian sense. this leads to a bubble which then bursts as the expected investment return does not materialize and the burst bubble creates a depression or deep recession. So far so good.
But , the problem with Hayek's rather intriguing theory of the cycle is that once the bubble has burst raising interest rates as Hayek appears to propose won't cure the problem. Nor will discouraging investment or consumption accomplish what we want.Furthermore, the low interest rates were introduced because of the legitimate fear of deflation after the crisis of 9/11. Still Hayek's ideas are worth exploring.
Hyman Minsky draws upon Keynes and his notion of uncertainty but also has Hayekian elements in his analysis of Ponzi or Madoff finance in his brilliant theorization of speculative bubbles that threaten the entire financial system.
Keynes' work argues that declining animal spirits wracked by uncertainty and a structural tendency toward underconsumptionism and disproportionality between savings intentions and investment intentions leading to inadequate aggregate demand are responsible for slumps. He also is a sharp and hands on experienced critic of the irrational speculations of the stock markets and unregulated free for all that they tended to become whenever manias affected them.
His cure of greater regulation of the investment process, a strong dose of deficit financed intervention to push an economy out of depression and a modest redistribution of wealth and income to ensure adequate aggregate demand still seems to be the best cure.
Marx was clearly an Hegelian romantic(although he expressly denies this) but nevertheless a powerful critic of the horrors of Dickensian nineteenth century capitalism. He has an analysis of the tendency of the rate of profit to fall because of the growth in the organic composition of capital(that is the ratio of machinery, plant and embodied technology to the wage portion of output)and the need to extract a higher rate of surplus value to counter that but all bound up with the very abstract labour theory of value. The transformation problem still bedevils his analysis. Bohm Bawerk wrote a trenchant critique of Marx's method which was first published in 1896.Marx drew his analysis of the labour theory of value directly from David Ricardo in his work the principles of Political Economy and Taxation. Ricardo ideas about free trade, the doctrine of comparative advantage and free competion came to dominate the economics profession. But his labour theory of value clearly articulated in the first chapter of his great work was eclipsed by neo classical marginal utility theory developed by Carl Menger, Alfred Marshall, Leon Walras and Stanley Jevons in the late 19th and early twentieth century. Ricardo put the matter boldly drawing from the work of Adam Smith before him:
"The real price of everything" says Adam Smith, "what everything really costs to the man who wants to acquire it, is the toil and trouble of acquiring it...Labour was the first price-the original purchase money that was paid for all things....It is natural that what is usually the produce of two days' or two hour's labour should be worth double of what is usually the produce of one day's or one hour's labour." that this is really the foundation of the exchangeable value of all things,excepting those that cannot be increased by human industry is a doctrine of the utmost importance in political economy. ..if the quantity of labour realised in commodities regulate their exchangeable value, every increase of the quantity of labour must augment the value of that commodity on which it is excercised and every diminuation must lower it." (pp6-7 The Principles of Political Economy and Taxation London, Everyman Library, 1965.)
Ladislaus Von Bortkiewicz sought to show the errors in Marx's treatment of the transformation problem in 1907.(See Bohm -Bawerk, Karl Marx and the close of his system and Bohm Bawerk's criticism of Marx, by Rudolf Hilferding with an appendix by Ladislaus von Bortkiewicz, On the correction of Marx's fundamental theoretical construction in the third volume of capital; edited by Paul Sweezy, 1975, the Merlin Press.) Bohm -Bawerk was an advocate along with Carl Menger of the then new subjective value theory based upon the concept of marginal utility. He was also Austrian finance minister in three different Austrian governments. He finished his career as a chaired professor in political economy at the University of Vienna.He was a founder of the Austrian school to which Hayek belonged.Von Bortkiewicz , on the other hand , was a statistician who spent much of his life working in Germany although he was from a Russified Polish family. He was appointed to the University of Berlin in 1901 and taught there until his death in 1931.
Thomas Sowell( ''Marx's Capital after 100 years'' Canadian Journal of Economics, vol.33, 1967,pp.50-74) and others have argued that Marx understood that capitalism functioned on the basis of exchange prices and not on the basis of value and that his intention was always to show that prices diverged from value and that in so doing periodic crises, disproportionalities and booms and busts and financial bubbles would characterize the system.As Sowell puts it:''When the inherent disproportionalities of capitalism reach sufficient magnitudes, price fluctuations become great enough to precipitate scrambles for liquidity in sectors threatened with bankruptcies; this in turn leads to general monetary contraction and depression. A growing capital:labour ratio in the economy means that the workers' share of gross output declines over time...''
Desai (Marx's Revenge, p.64)argues that Anwar Shaikh has demonstrated empirically that although values do not transform precisely into prices there is empirical evidence that suggests despite some discrepancies , if properly calculated for a representative list of products using an input output model there is a rough correlation between the two at least for Italy and the U.S. between 1947 and 1963. But clearly profits come not just from labour but from information technology and other innovations that greatly enhance labour productivity including managerial innovation including self -management.They may themselves have their origin in labour but they present themselves in a different identity in the contemporary production process. Still the issue is complex and subject to considerable debate.
However, Marx did fairly accurately predict globalized capitalism and as Desai points out in his work Marx's Revenge he rather welcomed it as eventually delivering both higher productivity and material wealth and with the appropriate societal changes a better form of civilization.
If over time globalized corporations under the pressure of requiring higher rates of profit continue to outsource their production to lower wage economies outside of the core countries and thereby undermine the Keynesian prescription which is , after all, based on increased aggregate demand and fuller employment in the core then some serious thought will have to be given to the questions raised by these different theoretical approaches.At the very least the regulatory framework and the design of tax benefits and tax breaks for corporate employers will need to have some employment conditions attached to them. Otherwise , the recovery will be a hollow one.
In the meantime the debate over the causes and solutions to the crisis will continue. It is a debate worth having.
DEC. 2009 U.S public sector debt data
The U.S. treasury publishes on a monthly basis the totals of marketable and non marketable public debt outstanding. It divides the debt between debt held by the public and debt held intragovernmentally by federal, state and local government agencies.The data is provided by the U.S. bureau of the public debt and examining the data can clear up some of the misconceptions that people commonly hold about the debt. For those that hold the debt it is an asset, not a liability.
Here is the data for December 2009, courtesy of the U.S. treasury.
All data is in millions of U.S. dollars
Marketable debt held by the public. 1. Intra governmental holdings 2.
1. 2.
bills 1,787,913 5567
notes 4,179,412 1696
bonds 714,672 3259
treasury inflation protected
securities 567,851 205
federal financing bank 0 11,921
total 7,249,848 22,465
grand total 7,272,498
marketable
bills 1,799,480
notes 4,181,108
bonds 717,931
treas.inflationprotected
securities 568,055
fed.financing bank 11,921
Total marketable 7,272,496
non marketable total
domestic series 29,995
foreign series 4386
REA series 1
state and local govt.series 214,199
U.S.sav.securities 191,298
govt. acct. series 4,597,132
Hope bonds 492
other 1411
Total non marketable 5,038,853
Total public debt
outstanding 12,311,350
The most important insight to draw from this data is that 40.9 % of the debt is not in the form of marketable debt . 4.5 trillion dollars or 36.6 % is held intragovernmentally by local, state and Federal agencies.Hence, the pressure on financial markets is smaller than what critics allege.
Here is the data for December 2009, courtesy of the U.S. treasury.
All data is in millions of U.S. dollars
Marketable debt held by the public. 1. Intra governmental holdings 2.
1. 2.
bills 1,787,913 5567
notes 4,179,412 1696
bonds 714,672 3259
treasury inflation protected
securities 567,851 205
federal financing bank 0 11,921
total 7,249,848 22,465
grand total 7,272,498
marketable
bills 1,799,480
notes 4,181,108
bonds 717,931
treas.inflationprotected
securities 568,055
fed.financing bank 11,921
Total marketable 7,272,496
non marketable total
domestic series 29,995
foreign series 4386
REA series 1
state and local govt.series 214,199
U.S.sav.securities 191,298
govt. acct. series 4,597,132
Hope bonds 492
other 1411
Total non marketable 5,038,853
Total public debt
outstanding 12,311,350
The most important insight to draw from this data is that 40.9 % of the debt is not in the form of marketable debt . 4.5 trillion dollars or 36.6 % is held intragovernmentally by local, state and Federal agencies.Hence, the pressure on financial markets is smaller than what critics allege.
Obama to announce deficit reduction cuts ?Bad idea
January 25, 2010 8:29 p.m.
According to CNN President Obama will announce spending restraint measures in an effort to appeal to Republicans, fiscal conservatives, blue dog Democrats and other fiscally conservative independent voters . He is doing so apparently in response to his political defeat in Massachusetts and growing pressure from fiscal conservatives in his inner circle. It is a bad idea and a slippery slope to the hell of cutbacks, slower recovery from the recession and red meat for reactionary political interests in the U.S. It is also not what he got elected to accomplish. There will be and there should be a strong negative reaction from mainstream liberal democrats, the trade unions and community activists who after all are largely responsible through their hard work on the ground for his election in 2008.
In addition in purely economic terms it will not help the recovery and withdraw stimulus from the economy. The amount initially is fairly symbolic rather than substantial but it is the thin edge of the wedge. You can be sure the amount will not appease the Republicans and demands for far greater cuts will quickly materialize.Fiscal conservatism is a bit like poison ivy once you get it it spreads rapidly.
The solution to deficit reduction is to reduce the unemployment rate as swiftly as possible and continue to keep interest rates as low as possible. low interest rates stimulate investment and reduce the burden of the interest payment on the debt.This leads over time to the shrinking of the debt to GDP ratio and a slow down in the rise in the deficit and its eventual shrinking.Remember also that the bulk of the debt, over 70 % of it, is financed domestically and represents a method of channeling domestic savings into domestic investment, a critical function during a slump.
The debt shrinks in relative terms because as the economy begins to grow again the ratio of the debt to GDP stabilizes and then falls.In arithmetic terms the denominator, the GDP, grows faster than the numerator , the mass of debt. This is because as job losses end and new jobs are created and rehiring begins, unemployment shrinks, and government expenditures to support the unemployed also falls and the newly employed formerly unemployed people now pay taxes to governments.Hence revenues rise, expenditures shrink and deficits fall.
There is no reason in this 10 % unemployment economy to focus on deficit reduction through budget cuts which can only slow the reduction in the unemployment rate. There is however every reason to focus on stimulus, employment generation and building entrepreneurial animal spirits to undertake new employment generating investments.Cutting government expenditures accomplishes none of this.
According to CNN President Obama will announce spending restraint measures in an effort to appeal to Republicans, fiscal conservatives, blue dog Democrats and other fiscally conservative independent voters . He is doing so apparently in response to his political defeat in Massachusetts and growing pressure from fiscal conservatives in his inner circle. It is a bad idea and a slippery slope to the hell of cutbacks, slower recovery from the recession and red meat for reactionary political interests in the U.S. It is also not what he got elected to accomplish. There will be and there should be a strong negative reaction from mainstream liberal democrats, the trade unions and community activists who after all are largely responsible through their hard work on the ground for his election in 2008.
In addition in purely economic terms it will not help the recovery and withdraw stimulus from the economy. The amount initially is fairly symbolic rather than substantial but it is the thin edge of the wedge. You can be sure the amount will not appease the Republicans and demands for far greater cuts will quickly materialize.Fiscal conservatism is a bit like poison ivy once you get it it spreads rapidly.
The solution to deficit reduction is to reduce the unemployment rate as swiftly as possible and continue to keep interest rates as low as possible. low interest rates stimulate investment and reduce the burden of the interest payment on the debt.This leads over time to the shrinking of the debt to GDP ratio and a slow down in the rise in the deficit and its eventual shrinking.Remember also that the bulk of the debt, over 70 % of it, is financed domestically and represents a method of channeling domestic savings into domestic investment, a critical function during a slump.
The debt shrinks in relative terms because as the economy begins to grow again the ratio of the debt to GDP stabilizes and then falls.In arithmetic terms the denominator, the GDP, grows faster than the numerator , the mass of debt. This is because as job losses end and new jobs are created and rehiring begins, unemployment shrinks, and government expenditures to support the unemployed also falls and the newly employed formerly unemployed people now pay taxes to governments.Hence revenues rise, expenditures shrink and deficits fall.
There is no reason in this 10 % unemployment economy to focus on deficit reduction through budget cuts which can only slow the reduction in the unemployment rate. There is however every reason to focus on stimulus, employment generation and building entrepreneurial animal spirits to undertake new employment generating investments.Cutting government expenditures accomplishes none of this.
U.S. state unemployment Dec. 09
Jan. 22, 2010
The U.S. bureau of Labour statistics has released data on unemployment for states and regions for Dec. 2009. The national rate remains at 10.0 % but a number of states continue to have unemployment rates well in excess of 10 %. This , of course, is the source of considerable hardship for Americans as it is for anyone . The rates are clearly far too high and need to be reduced as quickly as possible. Deficit reduction should not be the priority whatever the political popularity of this slogan. Deficits fall when unemployment falls. Growth and growth in employment is the key to deficit reduction. Over time as employment grows and unemployment rate falls toward more reasonable values ( 4-5 % or below) deficits shrink as tax revenues grow and the cynical politics of fiscal conservatism which seek to gain political advantage on the backs of the poor and the unemployed and the sick retreat.
Here courtesy of the excellent U.S. Bureau of Labour Statistics are some excerpts from their release.
U.S. REGIONAL AND STATE EMPLOYMENT AND UNEMPLOYMENT -- DECEMBER 2009
Regional and state unemployment rates were generally higher in
December. Forty-three states and the District of Columbia recorded
over-the-month unemployment rate increases, four states registered
rate decreases, and three states had no rate change, the U.S. Bureau
of Labor Statistics reported today. Over the year, jobless rates
increased in all 50 states and the District of Columbia. The national
unemployment rate was unchanged in December at 10.0 percent but was
2.6 percentage points higher than a year earlier.
In December, nonfarm payroll employment increased in 11 states and
the District of Columbia and decreased in 39 states. The largest over-
the-month increase in employment occurred in Virginia (+9,500), fol-
lowed by Oklahoma (+5,000), Oregon (+2,900), New Hampshire and Washington (+2,000 each). New Hampshire, Oklahoma, and Virginia experienced the largest over-the-month percentage increase in employment
(+0.3 percent each), followed by the District of Columbia, Hawaii,
and Oregon (+0.2 percent each). The largest over-the-month decrease
in employment occurred in California (-38,800), followed by Texas
(-23,900), Ohio (-16,700), Illinois (-16,300), Michigan (-15,700),
Wisconsin (-15,200), and Georgia (-15,100). Montana (-1.5 percent)
experienced the largest over-the-month percentage decrease in employ-
ment, followed by Nevada (-1.0 percent), Iowa and South Dakota
(-0.9 percent each), and Vermont (-0.8 percent). Over the year, non-
farm employment decreased in all 50 states but increased in the
District of Columbia. The largest over-the-year percentage decreases
occurred in Wyoming (-6.8 percent), Nevada (-6.6 percent), Michigan
(-5.1 percent), and Arizona (-4.8 percent).
Regional Unemployment (Seasonally Adjusted)
The West had the highest regional jobless rate in December, 10.7 per-
cent. The Northeast recorded the lowest rate, 9.2 percent. The North-
east had a statistically significant rate increase over the month
(+0.5 percentage point). The South had the only other significant re-
gional rate change (+0.3 percentage point). Over the year, all four
regions registered significant rate increases, the largest of which
was in the West (+3.3 percentage points). (See table 1.)
Among the nine geographic divisions, the Pacific continued to report
the highest jobless rate, 11.7 percent in December. The East North
Central recorded the next highest rate, 11.3 percent. The West North
Central registered the lowest December jobless rate, 7.3 percent,
followed by the West South Central, 8.0 percent. The South Atlantic
rate (10.3 percent) set a new series high. (All region, division, and
state series begin in 1976.) Five divisions experienced statistically
significant unemployment rate increases from a month earlier, the larg-
est of which were in East South Central and New England (+0.5 per-
centage point each). No division had a rate decrease. All nine divi-
sions reported significant over-the-year rate increases of at least
1.8 percentage points. The largest of these occurred in the East South
Central (+3.8 percentage points) and East North Central (+3.7 points).
State Unemployment (Seasonally Adjusted)
Michigan again recorded the highest unemployment rate among the
states, 14.6 percent in December. The states with the next highest
rates were Nevada, 13.0 percent; Rhode Island, 12.9 percent; and South
Carolina, 12.6 percent. North Dakota continued to register the lowest
jobless rate, 4.4 percent in December, followed by Nebraska and South
Dakota, 4.7 percent each. The rate in South Carolina set a new series
high, as did the rates in three other states: Delaware (9.0 percent),
Florida (11.8 percent), and North Carolina (11.2 percent). The rate in
the District of Columbia also set a new series high (12.1 percent).
In total, 27 states posted jobless rates significantly lower than the
U.S. figure of 10.0 percent, 10 states and the District of Columbia
had measurably higher rates, and 13 states had rates that were not ap-
preciably different from that of the nation. (See tables A and 3.)
Twenty-one states reported statistically significant over-the-month
unemployment rate increases in December. Louisiana and Mississippi
experienced the largest of these (+0.8 percentage point each). One
state, South Dakota, saw a statistically significant rate decrease
from November (-0.2 percentage point). The remaining 28 states and
the District of Columbia registered jobless rates that were not
appreciably different from those of a month earlier, though some
had changes that were at least as large numerically as the signifi-
cant changes. (See table B.)
All states and the District of Columbia recorded statistically sig-
nificant increases in their jobless rates from December 2008. The
largest of these increases were in Nevada and West Virginia (+4.6
percentage points each), closely followed by Alabama (+4.5 points)
and Michigan (+4.4 points). The smallest rate increases occurred in
Minnesota and Nebraska (+0.8 percentage point each). (See table C.)
Table A. States with unemployment rates significantly differ-
ent from that of the U.S., December 2009, seasonally adjusted
--------------------------------------------------------------
State | Rate(p)
--------------------------------------------------------------
United States (1) ...................| 10.0
|
Alaska ..............................| 8.8
Arkansas ............................| 7.7
California ..........................| 12.4
Colorado ............................| 7.5
Connecticut .........................| 8.9
Delaware ............................| 9.0
District of Columbia ................| 12.1
Florida .............................| 11.8
Hawaii ..............................| 6.9
Illinois ............................| 11.1
|
Iowa ................................| 6.6
Kansas ..............................| 6.6
Louisiana ...........................| 7.5
Maine ...............................| 8.3
Maryland ............................| 7.5
Michigan ............................| 14.6
Minnesota ...........................| 7.4
Montana .............................| 6.7
Nebraska ............................| 4.7
Nevada ..............................| 13.0
|
New Hampshire .......................| 7.0
New Mexico ..........................| 8.3
New York ............................| 9.0
North Carolina ......................| 11.2
North Dakota ........................| 4.4
Ohio ................................| 10.9
Oklahoma ............................| 6.6
Oregon ..............................| 11.0
Pennsylvania ........................| 8.9
Rhode Island ........................| 12.9
|
South Carolina ......................| 12.6
South Dakota ........................| 4.7
Texas ...............................| 8.3
Utah ................................| 6.7
Vermont .............................| 6.9
Virginia ............................| 6.9
Wisconsin ...........................| 8.7
Wyoming .............................| 7.5
--------------------------------------------------------------
1 Data are not preliminary.
p = preliminary.
The data clearly shows the very serious nature of this recession and its deep impact in major centre of population throughout the United States. stimulus money that is yet unspent and there are large sums involved here
need to be injected into the economy as soon as possible.
It would be extremely unwise to raise interest rates any time soon and it is imperative that business starts addressing its employment policies with the help of Government wherever necessary and possible to ensure more rapid rehiring and greater job retention in order to reverse the trend of the recessions trough.
It is also essential that the banking system unlocks its commercial loan programs and ensures that credit worthy businesses receive adequate loan support.
We should see in the coming months provided that policy remains supportive improved results on the critical employment front.
The U.S. bureau of Labour statistics has released data on unemployment for states and regions for Dec. 2009. The national rate remains at 10.0 % but a number of states continue to have unemployment rates well in excess of 10 %. This , of course, is the source of considerable hardship for Americans as it is for anyone . The rates are clearly far too high and need to be reduced as quickly as possible. Deficit reduction should not be the priority whatever the political popularity of this slogan. Deficits fall when unemployment falls. Growth and growth in employment is the key to deficit reduction. Over time as employment grows and unemployment rate falls toward more reasonable values ( 4-5 % or below) deficits shrink as tax revenues grow and the cynical politics of fiscal conservatism which seek to gain political advantage on the backs of the poor and the unemployed and the sick retreat.
Here courtesy of the excellent U.S. Bureau of Labour Statistics are some excerpts from their release.
U.S. REGIONAL AND STATE EMPLOYMENT AND UNEMPLOYMENT -- DECEMBER 2009
Regional and state unemployment rates were generally higher in
December. Forty-three states and the District of Columbia recorded
over-the-month unemployment rate increases, four states registered
rate decreases, and three states had no rate change, the U.S. Bureau
of Labor Statistics reported today. Over the year, jobless rates
increased in all 50 states and the District of Columbia. The national
unemployment rate was unchanged in December at 10.0 percent but was
2.6 percentage points higher than a year earlier.
In December, nonfarm payroll employment increased in 11 states and
the District of Columbia and decreased in 39 states. The largest over-
the-month increase in employment occurred in Virginia (+9,500), fol-
lowed by Oklahoma (+5,000), Oregon (+2,900), New Hampshire and Washington (+2,000 each). New Hampshire, Oklahoma, and Virginia experienced the largest over-the-month percentage increase in employment
(+0.3 percent each), followed by the District of Columbia, Hawaii,
and Oregon (+0.2 percent each). The largest over-the-month decrease
in employment occurred in California (-38,800), followed by Texas
(-23,900), Ohio (-16,700), Illinois (-16,300), Michigan (-15,700),
Wisconsin (-15,200), and Georgia (-15,100). Montana (-1.5 percent)
experienced the largest over-the-month percentage decrease in employ-
ment, followed by Nevada (-1.0 percent), Iowa and South Dakota
(-0.9 percent each), and Vermont (-0.8 percent). Over the year, non-
farm employment decreased in all 50 states but increased in the
District of Columbia. The largest over-the-year percentage decreases
occurred in Wyoming (-6.8 percent), Nevada (-6.6 percent), Michigan
(-5.1 percent), and Arizona (-4.8 percent).
Regional Unemployment (Seasonally Adjusted)
The West had the highest regional jobless rate in December, 10.7 per-
cent. The Northeast recorded the lowest rate, 9.2 percent. The North-
east had a statistically significant rate increase over the month
(+0.5 percentage point). The South had the only other significant re-
gional rate change (+0.3 percentage point). Over the year, all four
regions registered significant rate increases, the largest of which
was in the West (+3.3 percentage points). (See table 1.)
Among the nine geographic divisions, the Pacific continued to report
the highest jobless rate, 11.7 percent in December. The East North
Central recorded the next highest rate, 11.3 percent. The West North
Central registered the lowest December jobless rate, 7.3 percent,
followed by the West South Central, 8.0 percent. The South Atlantic
rate (10.3 percent) set a new series high. (All region, division, and
state series begin in 1976.) Five divisions experienced statistically
significant unemployment rate increases from a month earlier, the larg-
est of which were in East South Central and New England (+0.5 per-
centage point each). No division had a rate decrease. All nine divi-
sions reported significant over-the-year rate increases of at least
1.8 percentage points. The largest of these occurred in the East South
Central (+3.8 percentage points) and East North Central (+3.7 points).
State Unemployment (Seasonally Adjusted)
Michigan again recorded the highest unemployment rate among the
states, 14.6 percent in December. The states with the next highest
rates were Nevada, 13.0 percent; Rhode Island, 12.9 percent; and South
Carolina, 12.6 percent. North Dakota continued to register the lowest
jobless rate, 4.4 percent in December, followed by Nebraska and South
Dakota, 4.7 percent each. The rate in South Carolina set a new series
high, as did the rates in three other states: Delaware (9.0 percent),
Florida (11.8 percent), and North Carolina (11.2 percent). The rate in
the District of Columbia also set a new series high (12.1 percent).
In total, 27 states posted jobless rates significantly lower than the
U.S. figure of 10.0 percent, 10 states and the District of Columbia
had measurably higher rates, and 13 states had rates that were not ap-
preciably different from that of the nation. (See tables A and 3.)
Twenty-one states reported statistically significant over-the-month
unemployment rate increases in December. Louisiana and Mississippi
experienced the largest of these (+0.8 percentage point each). One
state, South Dakota, saw a statistically significant rate decrease
from November (-0.2 percentage point). The remaining 28 states and
the District of Columbia registered jobless rates that were not
appreciably different from those of a month earlier, though some
had changes that were at least as large numerically as the signifi-
cant changes. (See table B.)
All states and the District of Columbia recorded statistically sig-
nificant increases in their jobless rates from December 2008. The
largest of these increases were in Nevada and West Virginia (+4.6
percentage points each), closely followed by Alabama (+4.5 points)
and Michigan (+4.4 points). The smallest rate increases occurred in
Minnesota and Nebraska (+0.8 percentage point each). (See table C.)
Table A. States with unemployment rates significantly differ-
ent from that of the U.S., December 2009, seasonally adjusted
--------------------------------------------------------------
State | Rate(p)
--------------------------------------------------------------
United States (1) ...................| 10.0
|
Alaska ..............................| 8.8
Arkansas ............................| 7.7
California ..........................| 12.4
Colorado ............................| 7.5
Connecticut .........................| 8.9
Delaware ............................| 9.0
District of Columbia ................| 12.1
Florida .............................| 11.8
Hawaii ..............................| 6.9
Illinois ............................| 11.1
|
Iowa ................................| 6.6
Kansas ..............................| 6.6
Louisiana ...........................| 7.5
Maine ...............................| 8.3
Maryland ............................| 7.5
Michigan ............................| 14.6
Minnesota ...........................| 7.4
Montana .............................| 6.7
Nebraska ............................| 4.7
Nevada ..............................| 13.0
|
New Hampshire .......................| 7.0
New Mexico ..........................| 8.3
New York ............................| 9.0
North Carolina ......................| 11.2
North Dakota ........................| 4.4
Ohio ................................| 10.9
Oklahoma ............................| 6.6
Oregon ..............................| 11.0
Pennsylvania ........................| 8.9
Rhode Island ........................| 12.9
|
South Carolina ......................| 12.6
South Dakota ........................| 4.7
Texas ...............................| 8.3
Utah ................................| 6.7
Vermont .............................| 6.9
Virginia ............................| 6.9
Wisconsin ...........................| 8.7
Wyoming .............................| 7.5
--------------------------------------------------------------
1 Data are not preliminary.
p = preliminary.
The data clearly shows the very serious nature of this recession and its deep impact in major centre of population throughout the United States. stimulus money that is yet unspent and there are large sums involved here
need to be injected into the economy as soon as possible.
It would be extremely unwise to raise interest rates any time soon and it is imperative that business starts addressing its employment policies with the help of Government wherever necessary and possible to ensure more rapid rehiring and greater job retention in order to reverse the trend of the recessions trough.
It is also essential that the banking system unlocks its commercial loan programs and ensures that credit worthy businesses receive adequate loan support.
We should see in the coming months provided that policy remains supportive improved results on the critical employment front.
Taxing the banks& mythical debt burdens
January 18, 2010
The Haiti rescue operation continues to do its life saving work. We wish them well and urge you to help out with whatever cash donation you can manage.
On another front President Barack Obama has recently announced a tax on the banks to help recover some of the money that the American government gave to the banks during the height of the financial crisis. The money is to be
collected from the banks over the next ten years and will total close to 100 billion dollars. The move will prove to be politically popular because of the widespread resentment among the American public over the monies that the big banks received, the grotesque nature of their greed inspired bonuses and the fact that they have prospered all the while that the ordinary American has suffered high unemployment, depleted retirement accounts and low wages because of the economic crisis.
The bankers did not help their cause by the testimony of some of their leading CEOs before congress during which they sought to defend their bonus policy behaviour.
However, the danger in any tax of this sort is the capacity of the banks to pass on the tax to their clientele in the form of higher service charges and fees .The biggest banks to which these taxes will apply may well have the market share to ensure the partial shiftability of the tax. The President's economic team will have to monitor the evidence of this shifting over the coming months and years.
On another critical front, politicians in Canada and the U.S. continue to repeat false and misleading statements about the burden of the public debt on future generations.
This burden is largely a myth and reflects considerable confusion on the part of otherwise intelligent politicians about the nature of public debt and how it is financed.
Firstly, most of the debt is financed from domestic savers. It is financed by the sale of treasury bills, bonds and other paper instruments. The generation that buys them rightly sees them as assets. If they have not redeemed them at their death their heirs inherit them. So not only does the next generation inherit the debt but it also inherits the assets that go with the debt. There is no intergenerational burden.It is largely a fiction.
In addition not only does the next generation inherit the interest bearing assets alongside the debt but they inherit the infrastructure that is built and restored by the stimulus that has been financed by the debt as well as benefit from the care and education that their parents' generation spends on them , some of it financed by the stimulus itself.
So this burden is a myth.
The schools, colleges, hospitals , roads, ports and so on built by the stimulus will last and provide value for future generations for decades to come. There is no net burden but there is definitely a large net benefit.
Politicians ought to do their homework more carefully before speaking publicly about these issues.
If they do not find my words convincing enough(I have been saying and writing this sort of thing for the past three decades) simply have a look at an excellent book by Francis X.Cavanaugh,the truth about the National Debt:five myths and one reality, published by Harvard Business School press, 1996.
In particular read the first couple of chapters where he discusses the myth of the burden of public debt on future generations.
His credentials are impeccable. He was the first executive director and CEO of the Federal Retirement Thrift Investment Board. He was also an economist and senior career executive in the U.S. Treasury responsible for debt management policy advice. His book on the subject is one among many worth reading . His perspective coming as it does from a former senior official is particularly valuable.
The Haiti rescue operation continues to do its life saving work. We wish them well and urge you to help out with whatever cash donation you can manage.
On another front President Barack Obama has recently announced a tax on the banks to help recover some of the money that the American government gave to the banks during the height of the financial crisis. The money is to be
collected from the banks over the next ten years and will total close to 100 billion dollars. The move will prove to be politically popular because of the widespread resentment among the American public over the monies that the big banks received, the grotesque nature of their greed inspired bonuses and the fact that they have prospered all the while that the ordinary American has suffered high unemployment, depleted retirement accounts and low wages because of the economic crisis.
The bankers did not help their cause by the testimony of some of their leading CEOs before congress during which they sought to defend their bonus policy behaviour.
However, the danger in any tax of this sort is the capacity of the banks to pass on the tax to their clientele in the form of higher service charges and fees .The biggest banks to which these taxes will apply may well have the market share to ensure the partial shiftability of the tax. The President's economic team will have to monitor the evidence of this shifting over the coming months and years.
On another critical front, politicians in Canada and the U.S. continue to repeat false and misleading statements about the burden of the public debt on future generations.
This burden is largely a myth and reflects considerable confusion on the part of otherwise intelligent politicians about the nature of public debt and how it is financed.
Firstly, most of the debt is financed from domestic savers. It is financed by the sale of treasury bills, bonds and other paper instruments. The generation that buys them rightly sees them as assets. If they have not redeemed them at their death their heirs inherit them. So not only does the next generation inherit the debt but it also inherits the assets that go with the debt. There is no intergenerational burden.It is largely a fiction.
In addition not only does the next generation inherit the interest bearing assets alongside the debt but they inherit the infrastructure that is built and restored by the stimulus that has been financed by the debt as well as benefit from the care and education that their parents' generation spends on them , some of it financed by the stimulus itself.
So this burden is a myth.
The schools, colleges, hospitals , roads, ports and so on built by the stimulus will last and provide value for future generations for decades to come. There is no net burden but there is definitely a large net benefit.
Politicians ought to do their homework more carefully before speaking publicly about these issues.
If they do not find my words convincing enough(I have been saying and writing this sort of thing for the past three decades) simply have a look at an excellent book by Francis X.Cavanaugh,the truth about the National Debt:five myths and one reality, published by Harvard Business School press, 1996.
In particular read the first couple of chapters where he discusses the myth of the burden of public debt on future generations.
His credentials are impeccable. He was the first executive director and CEO of the Federal Retirement Thrift Investment Board. He was also an economist and senior career executive in the U.S. Treasury responsible for debt management policy advice. His book on the subject is one among many worth reading . His perspective coming as it does from a former senior official is particularly valuable.
Unemployment remains elevated in December.
January 9, 2010
Yesterday unemployment data was released by various bureaus of statistics in Canada, the U.S. and Europe. The results while not surprising were nevertheless somewhat disappointing. Instead of a small but significant rise in employment as befits the beginnings of a recovery results were less encouraging. In the U.S. there were a total of 85,000 more job losses . Unemployment remained stable at 10.0 % but only because some 661,000 left the job market and became discouraged workers who had given up looking for work. Had they remained the unemployment rate would have risen to 10.4 %. The broader definition of unemployment that includes discouraged workers and marginally attached workers now stands at 17. 3 % in December up from 17.2 % the month previous.The U.S has now lost 7.2 million jobs since the recession began. The rate of monthly job losses is now a small fraction of what it was at the height of the recession but the net total is still negative. This has to be reversed in the coming months if the recovery is to bear positive fruit for people.
It is time that employers began to hire more workers, that governments spend the stimulus monies that are available to them and that innovative employment generating programs including tax incentives for hiring and to avoid lay-offs are added to the mix of policy options. Combining employment insurance benefits with reduced working time to prevent layoffs is a good temporary idea that has worked well in the past in a number of countries.
In Canada results were also disappointing as the unemployment rate stalled at 8.5 % (8.4 % in Quebec, 9.3 % in Ontario and 6.7% in Alberta which incidentally has the highest labour participation rate in the country at 73.8 % versus only 67 % in Ontario and even less in Quebec. Total employment now stands 323,000 below its October 2008 peak. Any talk of the central bank raising interest rates should be put on the back burner until evidence is firmly established that unemployment rates are dropping below 6 %. and that inflation above 3 % is beginning to appear. We have a way to go before this occurs.
In Europe joblessness rose by 102,000 in the euro-zone countries to bring the total of jobs lost to about 4 million. Unemployment remained elevated, although Germany has recently experienced a small drop in its rate.The unemployment rate for the Euro zone 16 is 10 % for November while the European area 27 countries rate is 9.5 % up from 9.4 5 the previous month October 2009.there are now 15.7 million unemployed in the eurozone and 22.9 million unemployed in the European 27 countries area.Unemployment has risen by 4.97 million in the EA 27 since the start of the recession in 2008. Unemployment is 7.9 % in the U.K., 10 % in France and 7.6 % in Germany. It is 5.2 % in Japan.
So although I have not changed my view that a double dip recession is unlikely it is clear that now is not the time to withdraw stimulus or focus on deficit reduction. The global economy is still in a fragile if improving state.Governments should be certain to ensure that their stimulus programs are being implemented on the ground where it counts.Words are not enough.
Yesterday unemployment data was released by various bureaus of statistics in Canada, the U.S. and Europe. The results while not surprising were nevertheless somewhat disappointing. Instead of a small but significant rise in employment as befits the beginnings of a recovery results were less encouraging. In the U.S. there were a total of 85,000 more job losses . Unemployment remained stable at 10.0 % but only because some 661,000 left the job market and became discouraged workers who had given up looking for work. Had they remained the unemployment rate would have risen to 10.4 %. The broader definition of unemployment that includes discouraged workers and marginally attached workers now stands at 17. 3 % in December up from 17.2 % the month previous.The U.S has now lost 7.2 million jobs since the recession began. The rate of monthly job losses is now a small fraction of what it was at the height of the recession but the net total is still negative. This has to be reversed in the coming months if the recovery is to bear positive fruit for people.
It is time that employers began to hire more workers, that governments spend the stimulus monies that are available to them and that innovative employment generating programs including tax incentives for hiring and to avoid lay-offs are added to the mix of policy options. Combining employment insurance benefits with reduced working time to prevent layoffs is a good temporary idea that has worked well in the past in a number of countries.
In Canada results were also disappointing as the unemployment rate stalled at 8.5 % (8.4 % in Quebec, 9.3 % in Ontario and 6.7% in Alberta which incidentally has the highest labour participation rate in the country at 73.8 % versus only 67 % in Ontario and even less in Quebec. Total employment now stands 323,000 below its October 2008 peak. Any talk of the central bank raising interest rates should be put on the back burner until evidence is firmly established that unemployment rates are dropping below 6 %. and that inflation above 3 % is beginning to appear. We have a way to go before this occurs.
In Europe joblessness rose by 102,000 in the euro-zone countries to bring the total of jobs lost to about 4 million. Unemployment remained elevated, although Germany has recently experienced a small drop in its rate.The unemployment rate for the Euro zone 16 is 10 % for November while the European area 27 countries rate is 9.5 % up from 9.4 5 the previous month October 2009.there are now 15.7 million unemployed in the eurozone and 22.9 million unemployed in the European 27 countries area.Unemployment has risen by 4.97 million in the EA 27 since the start of the recession in 2008. Unemployment is 7.9 % in the U.K., 10 % in France and 7.6 % in Germany. It is 5.2 % in Japan.
So although I have not changed my view that a double dip recession is unlikely it is clear that now is not the time to withdraw stimulus or focus on deficit reduction. The global economy is still in a fragile if improving state.Governments should be certain to ensure that their stimulus programs are being implemented on the ground where it counts.Words are not enough.
Keynesian revival ends year on upturn
December 28, 2009
I have been digging myself out from under grading a mountain of exams and essays as well as some snow and also enjoying the holiday season. This most extraordinary year is now drawing to a close. On the economic front the near catastrophe that was unveiled in 2008 has now been stopped and the reversal back to economic growth and falling unemployment is now either underway or about to materialize in most of the global economy. Stock markets continue to rise overall although considerable nervousness remains. Job losses have slowed dramatically and retail sales show signs of improving. Tarp monies have substantially been repaid and some cautious optimism is returning.None of this would have been possible if governments world wide had not rediscovered the clear virtues of Keynesian economics. His return to prominence was long overdue.The global meltdown and panic that ensued created the right circumstances for the return of his ideas in a way that he would have found deeply gratifying after so many years of foolish neglect by most but not all of the economics profession.
Neo-con and neo-liberal politicians are now either silent or actively rooting for a continued slump to rescue their ideological baggage from the rubbbish heap to which the crash consigned them.Fiscal conservatives are still plentiful but their damaging advice on balanced budgets at all times is now less influential.
Of course, not all of these neo-con ideas were totally wrong. Bureaucracy and arbitrary rule are still problems . The state must be counterweighed by responsible market actors wherever possible. Entrepreneurship and innovation are important.Human rights and individual liberty are still important values. But the extreme ideology of laissez-faire has been correctly discarded for the balanced middle way that respects both markets and human dignity, security and stability as well as growth and prosperity.
We shall see what the new year brings but for the moment things are much better than they were 12 months ago. I expect them to continue to improve.
I have been digging myself out from under grading a mountain of exams and essays as well as some snow and also enjoying the holiday season. This most extraordinary year is now drawing to a close. On the economic front the near catastrophe that was unveiled in 2008 has now been stopped and the reversal back to economic growth and falling unemployment is now either underway or about to materialize in most of the global economy. Stock markets continue to rise overall although considerable nervousness remains. Job losses have slowed dramatically and retail sales show signs of improving. Tarp monies have substantially been repaid and some cautious optimism is returning.None of this would have been possible if governments world wide had not rediscovered the clear virtues of Keynesian economics. His return to prominence was long overdue.The global meltdown and panic that ensued created the right circumstances for the return of his ideas in a way that he would have found deeply gratifying after so many years of foolish neglect by most but not all of the economics profession.
Neo-con and neo-liberal politicians are now either silent or actively rooting for a continued slump to rescue their ideological baggage from the rubbbish heap to which the crash consigned them.Fiscal conservatives are still plentiful but their damaging advice on balanced budgets at all times is now less influential.
Of course, not all of these neo-con ideas were totally wrong. Bureaucracy and arbitrary rule are still problems . The state must be counterweighed by responsible market actors wherever possible. Entrepreneurship and innovation are important.Human rights and individual liberty are still important values. But the extreme ideology of laissez-faire has been correctly discarded for the balanced middle way that respects both markets and human dignity, security and stability as well as growth and prosperity.
We shall see what the new year brings but for the moment things are much better than they were 12 months ago. I expect them to continue to improve.
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