Thoughts and Truth from the Impossible Life

ABBOTT and COSTELLO explain unemployment numbers

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ABBOTT and COSTELLO explain unemployment numbers (or, who’s unemployed?)

COSTELLO: I want to talk about the unemployment rate in America.
ABBOTT: Good Subject. Terrible Times. It’s 9%.
COSTELLO: That many people are out of work?
ABBOTT: No, that’s 16%.
COSTELLO: You just said 9%.
ABBOTT: 9% Unemployed.
COSTELLO: Right 9% out of work.
ABBOTT: No, that’s 16%.
COSTELLO: Okay, so it’s 16% unemployed.
ABBOTT: No, that’s 9%…
COSTELLO: WAIT A MINUTE. Is it 9% or 16%?
ABBOTT: 9% are unemployed. 16% are out of work.
COSTELLO: IF you are out of work you are unemployed.
ABBOTT: No, you can’t count the “Out of Work” as the unemployed. You have to look for work to be unemployed.
COSTELLO: BUT THEY ARE OUT OF WORK!!!
ABBOTT: No, you miss my point.
COSTELLO: What point?
ABBOTT: Someone who doesn’t look for work, can’t be counted with those who look for work. It wouldn’t be fair.
COSTELLO: To who?
ABBOTT: The unemployed.
COSTELLO: But they are ALL out of work.
ABBOTT: No, the unemployed are actively looking for work. Those who are out of work stopped looking. They gave up. And, if you give up, you are no longer in the ranks of the unemployed.
COSTELLO: So if you’re off the unemployment roles, that would count as less unemployment?
ABBOTT: Unemployment would go down. Absolutely!
COSTELLO: The unemployment just goes down because you don’t look for work?
ABBOTT: Absolutely it goes down. That’s how you get to 9%. Otherwise it would be 16%. You don’t want to read about 16% unemployment, do ya?
COSTELLO: That would be frightening.
ABBOTT: Absolutely.
COSTELLO: Wait, I got a question for you. That means there are two ways to bring down the unemployment number?
ABBOTT: Two ways is correct.
COSTELLO: Unemployment can go down if someone gets a job?
ABBOTT: Correct.
COSTELLO: And unemployment can also go down if you stop looking for a job?
ABBOTT: Bingo!
COSTELLO: So there are two ways to bring unemployment down, and the easier of the two is to just stop looking for work.
ABBOTT: Now you’re thinking like an economist.
COSTELLO: I don’t even know what the hell I just said! And now you know why Obama’s unemployment figures are improving!”

February 17, 2012 Posted by | Politics/Government/Freedom, Societal / Cultural Issues | , , , , , , , , , , , , , | 1 Comment

Hope and Change of Obama

President Obama was elected on a tide of “Hope and Change”.

But what really HAS changed since he took office in January of 2009?

Well, here are some of his changes:

Item

January 2009

May 2011

Change

Reference

Petrol Price per Gallon (Average)

$1.83

$3.74

104.4%

[1]

Crude Oil, European Brent (Barrel)

$43.48

$99.02

127.7%

[2]

Crude Oil, West TX Inter (Barrel)

$38.74

$91.38

135.9%

[2]

Gold, London (per Troy Oz)

$853.25

$1,369.50

60.5%

[2]

Corn, No.2 yellow, Central IL

$3.56

$6.33

77.8%

[2]

Soybeans, No. 1 yellow, IL

$9.66

$13.75

42.3%

[2]

Sugar, cane, raw, world, Fob per pound

$13.37

$35.39

164.7%

[2]

Unemployment rate, non-farm, overall

7.6%

9.4%

23.7%

[3]

Unemployment rate, African American

12.6%

15.8%

25.4%

[3]

Number of unemployed

11,616,000

14,485,000

24.7%

[3]

Number of Federal Employees

2,779,000

2,840,000

2.2%

[3]

Median Household Income

$50,112

$49,777

-0.7%

[4]

Number of people on Food Stamps

31,983,716

43,200,878

35.1%

[5]

Number of people on Unemployment Benefit

7,526,598

9,193,838

22.2%

[6]

Long Term Unemployed (6 mths+)

2,600,000

6,400,000

146.2%

[3]

Poverty Rate (Individuals)

13.2%

14.3%

8.3%

[4]

People in Poverty in the USA

39,800,000

43,600,000

9.5%

[4]

USA in World Economic Freedom Ranking

5th

9th

-4

[7]

Present Situation Index

29.9

23.5

-21.4%

[8]

Failed Banks

140

164

17.1%

[9]

US Dollar/ Japanese Yen Exchange Rate

89.13

80.76

-9.4%

[15]

US Dollar / Pound Sterling Exchange Rate

0.721

0.606

-15.9%

[15]

US Dollar/Euro Exchange Rate

0.769

0.698

-9.2%

[15]

US Money Supply, M1 (Billion Dollars)

$1,575.10

$1,865.70

18.4%

[10]

US Money Supply, M2 (Billion Dollars)

$8,310.90

$8,852.30

6.5%

[10]

National Debt (Trillion Dollars)

$10.63

$14.05

32.2%

[11]

Federal Spending (Trillion Dollars)

$2.89

$3.82

32.2%

[12]

Approve of the way Obama is handling his job (CNN)

76.0%

48.0%

-28.0%

[13]

Approve of the way Obama is handling his job (FOX)

65.0%

46.0%

-19.0%

[14]

Depression within 12 months Very/Somewhat Likely (CNN)

43.0%

48.0%

+5.0%

[13]

References

[1] U.S. Energy Information Administration

[2] Wall Street Journal

[3] Bureau of Labor Statistics

[4] Census Bureau

[5] USDA

[6] U.S. Dept. Of Labor

[7] Heritage Foundation and WSJ

[8] The Conference Board

[9] FD IC

[10] Federal Reserve

[11] U.S. Treasury

[12] White House Office of Management and Budget

[13] CNN Opinion Research Poll conducted June 3-7, 2011

[14] Fox News/Anderson Robbins (D)/Shaw & Company (R) June 26/28, 2011

[15] XE Currency and Foreign Exchange for 01/24/2009 vs 05/29/2011

July 9, 2011 Posted by | Politics/Government/Freedom, Societal / Cultural Issues | , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , | 1 Comment

Winners and losers – Tax Policy

Any overhaul of the income-tax code will produce more losers than winners. It has to, since the object is to reduce the national debt by squeezing more revenues out of taxpayers without them realizing it by lowering tax rates.

Talk about déjà vu all over again. We last heard this line of reasoning some 30 years ago, when supply-side economics was all the rage. Then, it was claimed, lower taxes would encourage business to invest more, thereby creating jobs and thus more tax revenues.

The huge budget deficits that blew up during President Reagan’s first term demonstrated that what looks good on paper does not always translate into positive results in the real world.

This time around, would-be tax reformers think that by ridding the tax code of most deductions, credits and exemptions, the tax base will be broadened, thus generating more tax revenues.

It remains to be seen how taxpayers will react to the elimination of their cherished deductions and exemptions, but my guess is most won’t exactly be jumping for joy.

For example, changes to the deductions for mortgage interest and property taxes certainly won’t be welcomed by current and prospective homeowners. Without these deductions, the cost of buying and owning a home effectively goes up, thereby pricing many people out of the market.

And do you think charities will greet an end to the deduction for charitable contributions? Quite the opposite, I would think.

As for business, being able to expense the depreciation on a piece of equipment or a building can make the difference between affordability and not for many firms. This, of course, would suggest less, not more, investment with a resulting loss of jobs — the last thing this economy needs.

Tax reform can also be used as a subterfuge for redistributing income and wealth from rich to poor or from business to consumers and vice-versa, depending on which party gets the upper hand in rewriting the tax code.

If the pols would be satisfied by reducing the size of the country’s debt relative to our gross domestic product, this can be accomplished by running smaller budget deficits.

However, to shrink the actual debt itself Washington would have to run surpluses in its budget. This won’t happen anytime soon — nor should it, in view of the precarious state of the economy.

Former Reagan White House budget director David Stockman says the tax deal emerging in Washington is “Keynesian flimflam” that won’t help stimulate the economy. In an interview with Simon Constable, he rails against the current system of deficit financing and warns the U.S. faces a crisis of indebtedness in the long run.

If anything, this economy needs more stimulus, not the restraint that would result from any effort to reduce the budget deficit. This means more deficits — for a while.

When the time comes to reduce the government’s budget deficit, there is one way to do it that does not require alienating a big chunk of the population or getting bogged down in tax reform.

This approach is to get the economy to grow faster. The higher the economy’s growth rate, the more tax revenues it will throw off, which, when combined with spending restraint, will shrink the deficit over time.

To me this is a win-win strategy. Who would argue with a policy that creates jobs and helps improve living standards while boosting sales and earnings at the same time?

The main question is how best to accomplish this objective. Should we cut taxes, raise spending or both? As long as it stimulates the economy, any of these choices is fine with me.

And if it means running a big deficit for a while longer — so be it. The best way to reduce the deficit in the long run is to keep running one in the short run.

December 15, 2010 Posted by | Politics/Government/Freedom, Societal / Cultural Issues | , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , | Leave a comment

Tax Cuts – the real history

We’ve all heard the claims that cutting tax rates for the richest Americans will improve the standard of living for the working class. Supposedly, top-bracket tax breaks will result in more jobs being created, higher wages for the average worker, and an overall upturn in our economy. It’s at the heart of the infamous trickle-down theory.

The past 40 years have seen a gradual decrease in the top bracket’s income tax rate, from 91% in 1963 to 35% in 2003. It went as low as 28% in 1988 and 1989 due to legislation passed under Reagan, the trickle-down theory’s most famous adherent. The Clinton years saw the top bracket hold steady at a higher rate of 39.6%, but under the younger Bush’s tax-cut policies, the rich are once again paying less. The drastic change in tax policy that has taken place since the early 1960s gives us a great opportunity to study and evaluate the claims that lower taxes for the rich translate to more wealth for the average American.

We can compare changes in the top tax rate with the real GDP growth rate (a measure of the growth of the entire U.S. economy), and three measures of how life is for the average working American: annual median income growth, annual average hourly wage growth, and job creation. If cuts for the rich were really the magic elixir for the economy and the middle class that the Republican consensus claims it is, we would see an increase in the four indicators whenever the tax rate dropped. However, this is not the case. Such a trend occurs sometimes, but the opposite happens at other times!

Let’s look one by one at comparisons of key economic indicators to the top tax rate.

1. Cutting the top tax rate does not lead to economic growth.

Top Tax Rate vs Real GDP Growth Rate

This graph shows the fluctuations of the real GDP growth rate over the period, indicating the performance of the U.S. economy as a whole. It is true that growth increased drastically after the 1982 tax cut, reaching as high as 7.3% in 1984. However, as the Reagan-Bush, Sr. administrations went on and taxes for the rich were slashed even further, growth fell to negative levels during 1991, at the heart of the last recession. And, two of the three years with the highest growth were during the 1950s, when the top tax rate was 91%. Overall, there seems to be no close relationship between the top tax rate and the GDP growth rate, and statistical analysis backs this up: the correlation coefficient between the two variables is 0.03, meaning that there is essentially no connection. (If tax cuts were strongly related to GDP growth, we would see a coefficient close to -1.) So much for upper-class tax cuts boosting the economy; now it’s on to median income growth.

2. Cutting the top tax rate does not lead to income growth.

Top Tax Rate vs Income Growth Rate

Again, we see inconclusive evidence for the power of tax cuts. We do see small peaks in median income growth, a good measure of how the average American household is doing, after top-bracket tax cuts in the mid-1960s and early 1980s, but we also actually see income decreases after the tax cuts of the late 1980s, and strong growth after the tax increase of 1993. It is true that in the year with the worst median income decrease (3.3% in 1974), the top tax rate was 70%. However, it was also 70% in the year with the highest median income growth (4.7% in 1972)! Once again, the lack of connection between the two measures is backed up by a correlation coefficient near zero: 0.06, to be exact. And yes, yet again, the coefficient is positive, indicating that income has gone up slightly (though negligibly) more in years with higher taxes. Two strikes. How about hourly wages?

3. Cutting the top tax rate does not lead to wage growth.

Top Tax Rate vs Hourly Wage Growth Rate

Not surprisingly, we have mixed results yet again! Growth in average hourly wages did increase during the 1980s following the first Reagan tax cuts, albeit two years after the cuts took effect. But, just like GDP growth and median income growth, hourly wages decreased following the late 1980s tax cuts, and spiked upwards after the 1993 tax increase.

Furthermore, wages grew at a level of at least 1%, and usually much more, all throughout the period when the top income tax rate was 91%. In fact, it isn’t until 1972 that we see a wage growth rate of less than 1%. However, if we look at the 19 years of the study period when the top tax rate was 50% or less, we see that 8 of the years saw an increase in wages of less than 1%. Thus, it seems that hourly wages grew more when taxes were higher – indeed, the correlation coefficient is 0.34, indicating a mild positive relationship between higher taxes for the rich and higher hourly wages. This finding flies in the face of the conservative theory. As if that’s not enough, now let’s see about what President Bush claimed would be the biggest result of tax cuts – job creation.

4. Cutting the top tax rate does not lead to job creation.

Top Tax Rate vs Change in Unemployment

Here, we see the change in the unemployment rate laid against the top tax rate from 1954 to 2002. Thus, negative values signify a decrease in unemployment — in essence, job creation. Once again, while the top tax rate trends downward over the period, the annual change in unemployment doesn’t seem to trend at all! Although the largest increase (2.9%) did occur in 1975, when the top marginal tax rate was 70%, three of the four largest decreases in unemployment occurred in years when the top rate was 91%. The mixed results do not bode well for those who see tax cuts for the richest as a sparkplug to incite job growth. The correlation coefficient between the variables here is 0.11 — meaning that there have been slightly more jobs created in years with lower top tax rates, but this pattern is negligible — nowhere near strong enough to signify a relationship.

So, can you tell what our conclusion is yet?

Overall, data from the past 50 years strongly refutes any arguments that cutting taxes for the richest Americans will improve the economic standing of the lower and middle classes or the nation as a whole. To be sure, the economic indicators examined in this report are dependent on a variety of factors, not just tax policy. However, what this study does show is that any attempt to stimulate economic growth by cutting taxes for the rich will do nothing — it hasn’t worked over the past 50 years, so why would it work in the future? To put it simply and bluntly, Bush’s top-bracket tax cut is an ineffective attempt at stimulus that will not cause any growth — unless, of course, if you’re talking about the size of the deficit.

December 13, 2010 Posted by | Constitutional Issues, Politics/Government/Freedom, Societal / Cultural Issues | , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , | Leave a comment

   

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