Friday, May 30, 2008

Not Much Comfort in Stimulus Payments

The decline in economic activity in the United States is confirmed by the recent GDP data. Spending went up ever so slightly in the first quarter, but consumers and businesses got less for their money because of higher prices for energy. Business spending looks positive only if you are impressed at businesses “investing” in larger inventories — like all those houses builders keep building that may take five years to sell.

Some experts are saying they can see the effect of the stimulus payments in April retail sales, but I am having trouble seeing it myself. To my eye, the jump up in sales last month is not quite as big as the jump up in prices of energy and food. So again, people are spending more and getting less. You can call that inflation, but you can’t call it an increase in economic activity. And here’s another version of the story: during the recent holiday weekend, drivers drove fewer miles than last year, according to two estimates I read, but still set a record for spending money on gasoline, which has gone up in price for 22 straight days.

The treasury says it has made $50 billion in stimulus payments so far, so it’s not too soon to look at where the money is going. AP put together a roundup of consumer and expert reaction that’s worth looking at, if only to confirm what almost everyone had expected.

The stimulus payments were supposed to make consumers feel better about spending, yet by most accounts consumer confidence is the lowest it has been in a generation. The feeling seems to be, we are “just keeping up” this month, but what about next month?

The silver lining in the current situation is that energy and food prices cannot keep rising as fast as they have been rising so far this year. There is a tough period of adjustment ahead, but the current crisis is not the beginning of the end.

Sunday, May 25, 2008

The Thirty-Second Web User

You could get the impression that web users are starting to live their whole lives online by looking at the recent trends in virtual worlds, social web sites, and blogs, but at the same time, there is a larger trend going in the opposite direction. As I recently wrote elsewhere, the next big trend in the web will be a move to sites that let people get answers and get things done quickly, in a minute or less. Advertisers and sites resist this trend at their peril; people who are pressed for time will leave a site that takes two minutes if they can get the same answer elsewhere in one minute.

According to one expert who actually watches the way people use web sites, web users are measurably more quick and ruthless than they were last year, often having a very specific goal in mind and either achieving it or giving up in a very short time.

Web users who want quick results are “getting very frustrated with all the extras” that advertisers are putting on web pages, says the BBC summary of the report.

This is not entirely a new trend. suffered huge losses around six years ago when pop-up advertisements slowed down its pages and most users left. The site’s performance is much better in recent years, but users have not flocked back to it. Everyone remembers too how quickly Google came to dominate Internet search with its uncluttered, plain-white site design and how Amazon has never been seriously challenged by online retailers with more conventionally cluttered page designs. Web designers for years have told us how important it is to get people quickly and easily from the advertised start page of a web site to a completed transaction. But users are getting quicker; more often, a web session is one search, one answer, and that’s the end of it.

You would expect this when people use the web as a dictionary, but it is applying to the entertainment side of the web experience too. This morning, I sat down at my computer, went to YouTube, watched one video (the new song by Weezer), then got up and went back to my household chores. And I know I’m not the only one doing this. When you’re in a hurry, a four-minute video beats watching a half-hour television show by 26 minutes. If people can cut back their entertainment this way, I believe they can be quick about almost everything they do on the web.

Monday, May 19, 2008

New Republican Slogan Boosts Drug

The new slogan of the Republican Party, which they have been using for about two weeks, is taken from an antidepressant drug. “The Change You Deserve” is widely associated with the drug Effexor, as a trademark that has been used in the drug’s advertising.

Democrats and political pundits think this is hilarious, and even Republicans are joking about the way Republican policies might lead people to think they need an antidepressant, but after you stop laughing, this situation is deeply troubling. The Republicans, like U.S. politicians generally, get the biggest chunk of their funding from the pharmaceutical industry. If they have decided to return the favor by using their political literature to promote a product of that industry by repeating its well-known slogan, then we must ask what has become of the Republican Party. There are serious questions to be asked:

  • Was the new Republican slogan specifically paid for?
  • How much money from Wyeth, the manufacturer of Effexor, has gone to the Republican party and Republican candidates?
  • Is anything about this arrangement a violation of campaign finance laws?
  • Is the Republican party in such dire financial condition that they need a drug company’s advertising money?

It is possible that the Republicans’ choice of a slogan that happens to come from the industry that has provided their strongest financial support in recent decades is an innocent coincidence. Of course it’s possible. But it certainly doesn’t seem likely. We have seen politicians and industry taking care of each other before. It’s an all-too-familiar scene that has long since passed the point where you can dismiss it as a coincidence.

More Corn Coming, Weather Permitting

Pre-season surveys found U.S. farmers planning to plant as much as 30 percent less corn than last year, but farmers changed their minds when they saw how much of a shortfall was coming. More recent surveys show plans to plant 5 to 10 percent less corn.

The fact that we are still talking about plans to plant corn is not a good sign, however. While some farmers have managed to plant their cornfields, others are just getting started because of the persistent rains across the corn belt in the past month. The ideal time to plant corn is roughly May 1, and the current season is said to be the latest start on corn that anyone can remember. Some fields never will get planted, at least not with corn, and the late start is historically associated with crop yields that are around 10 percent less than usual.

The likely outcome is a 20 percent decline in the U.S. corn crop along with a slight decline in the Canadian corn crop. Some economists think a 20 percent decline in production would double corn prices. Even if the price increase is not that much, the higher cost of corn will put further pressure on world grain markets and the prices of milk, meat, and some of the staples of Mexican food.

Sunday, May 18, 2008

Delaware Marathon

I ran the Delaware Marathon this morning . . . and finished. It was my fifth time running a marathon, and I finished every time, but it still amazes me that I get to the finish line.

The marathon has always appealed to my economic sensibilities. The strategy is all about economy of effort, conserving energy, being efficient. And compared to other sports, it’s not very expensive.

After 2 hours and 11 miles I was still all smiles.

Tuesday, May 13, 2008

Putting the Strategy Back in the Strategic Petroleum Reserve

The U.S. Senate voted this afternoon to stop oil deliveries to the Strategic Petroleum Reserve for 6 months to try to lower the summer cost of oil and gasoline. This is a move that makes a lot of sense. It could lower the price of gasoline by, I’m guessing, 3 cents a gallon all summer long. At the same time, it will actually save the U.S. government money by having it buy crude oil at times when prices are lower.

The idea of the Strategic Petroleum Reserve was supposed to be that the U.S. government buys crude oil when prices are low, stores it in a hole in the ground, and pulls it out in time of emergency. Congress envisioned that the President would stop oil purchases on his own in times like this, when the reserve is nearly full and oil prices are hitting new records every week. After all, the name includes the word “strategic,” which seems to imply that a strategy ought to be used to maximize the economic benefit. But the current White House is so resistant to this idea that Congress is having to take action to force it to follow the intent of the law.

I don’t see this as an example of Congress trying to micro-manage government operations. The action could save the government a quarter of a billion dollars and help the broader economy at the same time, and it is something the President is supposed to be doing on his own initiative. It is reason enough for Congress to take action.

The House is expected to pass a similar measure later this evening.

Monday, May 12, 2008

Men Losing Jobs, Women Gaining: 5 Reasons

According to the Bureau of Labor Statistics’ Household Survey, in the last year, American women have gained 912,000 jobs while American men have lost 268,000. In other words, there has been something close to normal job growth for women, while at the same time, there has been a decidedly recessionary trend for men. Men still hold 11 million more jobs than women, so it’s not like this employment gap is closing, but it’s noteworthy that it has shrunk by more than a tenth in just one year.

These are some of the reasons why this is happening now:

  1. Wage disparity. Men make about 40 percent more than women, on average. A history of high earnings helps a man land high-paying jobs when employers have lots of money to spend, but it works against him when times are tight and employers want to save money. Also, higher wages translate to higher unemployment benefits, giving men, on average, a greater incentive to stay on unemployment instead of taking a low-paying replacement job.
  2. The housing bust. It’s no secret that construction workers are mostly men. It’s also no secret that the home-building bubble has burst — builders would have to stop building homes completely for at least 3 years just to sell off the inventory they have already built. So there are lots of unemployed construction workers, most of them men.
  3. Nursing. One of the few growth areas in the economy is nursing. Employers have suddenly been able to fill nearly all of their nursing positions for the first time in years, as a large number of nurses have come out of retirement to help cover their families’ financial shortfalls from such things as mortgage costs, unemployed family members, energy prices, and the declining returns on retirement savings. More than 90 percent of nurses are female.
  4. Cultural demographic trends. The retirement-age generation includes many women who rarely held jobs during their adult lives. Yet nearly everyone in the generation now leaving high school expects to work.
  5. The war. Some veterans returning from Iraq have injuries, mysterious illnesses (apparently caused by military vaccinations), and post-traumatic stress that make it a little harder for them to keep up with their jobs. At the same time, employers can be reluctant to hire workers who might be drafted and sent back to Iraq in a year or two. More than 80 percent of veterans are men.

Saturday, May 10, 2008

Retailers Are Now Feeling the Credit Squeeze

The credit crunch is starting to affect retailers in a big way.

Retail chains fail even in the best of times, so manufacturers have to be careful how much inventory they let stores get. Stores can get all the merchandise they want if they pay for it up front, of course, but very few retail chains are in a position to do that. Traditionally, a retailer that wanted to buy lots of inventory from a manufacturer would get a bank guarantee — basically, the bank promising the manufacturer that it will put the screws to the retailer if they decide they don’t want to pay. But banks let credit standards get much too loose, and with the tighter credit standards they are using this year, even a relatively healthy retail chain can have trouble getting bank guarantees for all the merchandise they would like to display.

This means manufacturers are shipping less to retail. Store displays may look a bit bare, and the specific item, model, or color you want may not be there on the day you go in. This hurts retailers’ revenue, as shoppers go into the stores planning to buy something, but often walk out without buying anything.

It is also going to hurt the economic aggregates, the numbers policy makers use to decide how the economy is doing. If you were counting on consumer spending to bring the economy out of its recession, forget it.

Shoppers are a little smarter than retailers give them credit for. A friend told me one of the clothing discount chains has been going through hard times: “You can tell when the buyers can actually get stuff, and when they’re just getting crap. A lot of what they’re showing now is designer stuff that’s made just to make the designer look good, and it was never really meant for anyone to wear.” A retailer’s buyers are the employees that select the merchandise for the chain. If they don’t have enough money to spend, they generally have to compromise on the quality or style of the merchandise they buy.

You can also tell by the prices. If you see a lot of jeans and shirts at $35–60 in a discount clothing store, they don’t really want to sell them. They’re really just props, priced high to keep them on the racks so the store won’t look empty. Every kind of store, outside of crowded urban centers, has items that serve this purpose. Often, the store paid just a dollar or two to get them. They know items like these won’t sell until they cut the price to $5 or so at the end of the season, but then they hope the appearance of deep discounts will make customers feel better about getting them.

Disappointed, frustrated consumers who can’t buy what they want will, in many cases, just not buy anything, or put off purchases till next year. Already retail sales are declining month by month if you exclude Wal-Mart and gasoline. As retailers get squeezed and store displays get thinner, shoppers are likely to buy even less.

Thursday, May 8, 2008

In Defense of Economists

Okay, Hillary, let me get this straight.

You’re calling me an elitist.

Me. The Shamanic Economist. An elitist. Along with all other economists in the history of the world. Elitists all.

Well, that’s what you said.

This all started when you were being interviewed by George Stephanopoulos, not exactly a tough interviewer if you had to pick someone in the news media to talk to, and he asked you to explain the economic basis for your proposals. Instead of answering the question, you responded with a two-minute rant in which you basically implied that economists were to blame for the problems in the United States’ political system.

Really? Economists? You don’t think that you could find a politician or two who could share in the blame for the things that have gone wrong in Washington? Maybe a senator who voted for one bill or another that maybe, in retrospect, she shouldn’t have?

Now, one interview could be misinterpreted. You might have gotten flustered and said something you didn’t really mean. But in the days since, you’ve expanded your attack on economists. You came right out and said we’re elitists.

And what makes me, as an economist, an elitist, in your opinion?

Well, apparently, it’s something about me sitting at a desk. Reading the news. And trying to follow what is going on in the world.

I can’t say I understand that. How does having a desk make a person an elitist? I understand you have several desks. Does that make you a multi-elitist? Am I missing something here?

You said I’m out of touch with the problems of the working people of the United States.

You would never say that if you actually looked at the way I work. And I don’t even earn a salary. There is no guarantee that I will make any money at all. In a bad month I might work 300 hours and bring in $800. And then the government takes all of it — every dollar of it — in taxes. It’s really pretty scary to see how that works.

So I don’t think it makes any sense for you to suggest that I’m out of touch with the way ordinary people relate to money. I am one of the ordinary people you are talking about.

I think you think economists are a safe group for you to attack because there aren’t so many of us, and we don’t tend to vote.

Even if that were true, though, it isn’t a smart thing for you to declare yourself the enemy of all economists.

To begin with, economists are popular. We know where money comes from. We can explain why prices go up, and why they go down. These are things people care about. And many of us have some skill at predicting the future. Oh, I know, it looks bad because our predictions always disagree, but we still get things about right most of the time, and all my friends think that’s pretty impressive.

Economists are popular because we have skills, and if you want to be more popular, these are qualities that you would do well to imitate, not denigrate.

And because economists are popular, and everyone knows someone who knows someone who knows an economist, when you attack economists, you are indirectly attacking the very people who you are asking to vote for you. Politically, that just doesn’t work as a strategy.

Look at what happened to that other presidential candidate who said something that seemed to criticize Pennsylvania voters. And he apologized for his remarks. You are still on the attack. The word apology hasn’t even crossed your mind.

And there is a more fundamental issue. It is not really about the economists. It is the principles of economics that bother you.

Hearing you and your political friends say how bad economists are is a lot like hearing someone say that psychiatrists are all buggerheads. A person who says that doesn’t really hate psychiatrists. What they hate is the idea of mental health.

Well, in the same way, when people hear you say that economists are all elitists, everyone knows that you are about to do something stupid with your money. Or in this case, with their money. Something as stupid as giving away billions of dollars to the big oil companies. Laying off 100,000 people who keep our highways and bridges working. For no reason at all.

You want to do something that anyone can tell, if they look at it systematically or scientifically, is going to make things worse.

You are proposing to do something that is self-destructive.

So instead of going around railing against economists as a class, maybe you should look in the mirror and ask yourself why you want to do something that is self-destructive. Why you want to advocate something that doesn’t make any sense. Why, when you had just gotten yourself back into the fight, you would go and do something like this to put yourself back on the ropes.

It’s something I hate to see, because the truth is, you would make a fine president. But no one can tell it when you go around doing things like this.

Tuesday, May 6, 2008

Save the Gasoline Tax: 5 Reasons

Recent calls to repeal the federal tax on gasoline — either temporarily or permanently — fall somewhere in the hazy area between cheap political gimmickry and a conspiracy to destroy the country by destroying its economy. Yes, the high cost of gasoline is painful, but the repeal of the gasoline tax would be far worse. Here are five reasons to keep it:

  1. Highways. The federal gasoline tax pays for highway construction. Perhaps the politicians who want to take that money away have forgotten that several major interstate highway bridges have collapsed in recent years. A few people died. Millions were inconvenienced. As simplistic as it might sound, federal highway spending can prevent disasters like this from occurring.
  2. Oil company profits. The tax repeal would mostly benefit the big oil companies. An individual might save $1 a week from this particular tax break. The biggest oil companies might gain $1 billion a week in additional profit.
  3. Dependence on foreign oil. The proposed tax break would say, in effect, “Go ahead and burn all the petroleum you want.” Yet this is at a time when it is urgent for the United States and many other countries around the world to reduce their dependence on imported oil. The U.S. dollar is plummeting largely because we spend so much money on energy that comes from other countries. Energy is more than half of everything the United States imports! We can only rescue the U.S. dollar by importing less energy. And if we cannot rescue the U.S. dollar, the current recession could last long enough to be considered a depression.
  4. Terrorism. A small fraction of the money we spend importing oil eventually makes its way to terrorist groups who have sworn to destroy the United States. If we burn more oil because of a tax break, then the terrorist groups end up with more money. The politicians who are promoting this tax break might as well write a check to Osama bin Laden personally.
  5. Integrity. An ancient political theorist, I forget who, wrote that democracy could never work because if you put “the people” in charge, they would not be able to keep their hands off the country’s money. The treasury would go bankrupt and the country would collapse. The United States, with the largest budget deficits of any country ever, is already uncomfortably close to this scenario. We protect democracy — and the country — by maintaining the integrity of the institutions that keep the country going. Cheap political stunts like the repeal of the gasoline tax encourage citizens to nickel-and-dime the country they belong to — the exact opposite of what a country needs, which is to encourage citizens to do their part to support the country.

An old joke says that if you lined up two hundred economists end to end, they wouldn’t reach a conclusion. There is more than a grain of truth in this joke — reputable economists do not even agree on the current state of the U.S. economy — but I have not been able to find even one economist who supports the repeal of the federal gasoline tax. Today’s headlines tell of a letter signed by more than 200 economists, including four who have won the Nobel prize, rejecting a suspension of the gasoline tax. You will never get all economists to agree on anything, but this might be the exception. Why do so many economists agree? It’s because economists, by nature, want to see decisions that are in agreement with priorities. To respond to a problem with a feel-good action that makes the problem worse while procrastinating on a solution, like an addict going for another hit, or a country suspending a tax on the one product that is causing its worst problems — well, that’s just wrong.

Monday, May 5, 2008

Don’t Sign Up for Stimulus Payments!

A criminal organization is sending e-mail messages trying to use the current round of stimulus payments to get U.S. taxpayers’ personal information.

The messages appear to come from the Internal Revenue Service and say, “Our records indicate that you are qualified to receive the 2008 Economic Stimulus Refund.” The message contains a link to a web page that has Internal Revenue Service branding. The criminals who are impersonating the Internal Revenue Service hope taxpayers will fill out the form with information on their bank accounts.

This is a typical phishing scheme, in which anonymous and fraudulent messages ask for personal information. Phishing has worked to a slight extent because a few of the people who are new to computers imagine that the rules of self-protection that apply when you are out on the street do not apply on the Internet. The unfamiliarity of the stimulus payments might lead a few more people to mistake these criminal messages for legitimate messages.

To protect yourself, treat unsolicited e-mail messages with the same skepticism that you would apply to unsolicited advice from a stranger on the street. Remember that the “From” header in an e-mail message is just an assertion by the person who sent the message. Getting an e-mail message “from” “” is like having a stranger come up to you on the street and say, “Hi, I’m with the IRS! How about telling me your bank account numbers?” When you see it this way, it is harder to mistake this kind of fraudulent message for a legitimate one.

In reality, the stimulus payments are based solely on the information in 2007 income tax returns. If you filed a 2007 return, then you are probably getting a stimulus payment. There is no other way to sign up. You can just ignore anyone who tries to tell you how to apply for a stimulus payment.

Yahoo Survives

Yahoo can continue to operate now that Microsoft has failed to corral enough support among Yahoo shareholders to take over and shutter the company. And I have to ask if this was the way Microsoft planned it all along.

Microsoft’s board cannot seriously have expected Yahoo’s board to accept a price that implied that Yahoo was in trouble or Yahoo’s employees to go along with a plan to split them up among various divisions at Microsoft and replace their web pages with MSN pages. If it had really meant to buy Yahoo, Microsoft could have made a different offer or suggested a different plan.

And so it seems likely that Microsoft made its offer mostly in order to weaken a competitor by calling its future into question. What will happen to my personal data if Microsoft gets its hands on it? Will my business services at Yahoo be at risk if Microsoft shuts Yahoo down? These are the questions that have made Yahoo’s customers hesitate of late. Will I have to work 80 hours a week on a project hobbled by Microsoft’s secrecy rules? This is one of the questions that led Yahoo engineers to leave the company in droves in March.

By keeping Yahoo’s customers and workers in suspense, Microsoft may have slowed down activity at that competing company. Yet the massive free publicity, with news stories often incorrectly positioning Yahoo as a direct competitor to search giant Google, has helped solidify Yahoo’s brand. At the same time, Yahoo responded to the Microsoft threat by finding ways to increase its revenue, making it a more formidable competitor than it was before.

If Microsoft thought buying off a competitor was a shortcut to get them in front of the Internet market, they were mistaken. If it wants MSN to be taken seriously as an Internet gateway, it can’t just continue offering a level of service that Internet users find disappointing. MSN is already a well-known brand. To compete, all it has to do is deliver.