Author: bill

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Job Creation Performance and Unemployment Rates for Wisconsin and Ohio

Everyone seems to be talking about state budgets and governors performance. I guess Menzie started things out with this post. Joe Wiesenthal followed up with this post. Although the job creation performance of Governor Walker in Wisconsin and Governor Kasich in Ohio are not resounding successes they are not complete failures either. In a recent post I found both states showed a dramatic improvement in business environment over the last two years according to ChiefExectutive.net. Unfortunately popularity with chief executives does necessarily translate into jobs. The optimism of chief executives is not echoed in the 2012 State Business Tax Climate Index report by Tax Foundation. Wisconsin is number 43 on the list and Ohio is number 39.

Since Menzie pursued the job creation angle, I decided to use Fredgraph to create an unemployment graph for Wisconsin, Ohio, Illinois, and the United States, http://research.stlouisfed.org/fredgraph.png?g=7eN. Looking at the graph I am not sure I would be complaining too much if I lived in Wisconsin. It could be worse. The job situation is much more precarious in Illinois. Although Menzie correctly points out that the job creation in in Wisconsin is pretty anemic, both Wisconsin and Ohio unemployment rates are below the national average. This is pretty good job performance considering how poorly they rank in business tax climate. Unfortunately most of the future job gains in Wisconsin and Ohio will probably come from job losses in other states such as Illinois. If Illinois’s unemployment rate remains above the average, their government financing remains a mess, and if either Wisconsin or Ohio can improve their business tax climate to a Illinois’s level, then Wisconsin and Ohio should be successful at poaching jobs from Illinois. This should be a major part of any jobs plan along with new jobs created by green industries and shale gas.

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A Tale of Two States, or: If They’re Going to Recall Walker, What’ll They Do to Brown?

Here are the two highlights from this post, A Tale of Two States, or: If They’re Going to Recall Walker, What’ll They Do to Brown?.

SACRAMENTO, Calif. (AP) ”” California’s budget deficit has swelled to a projected $16 billion ”” much larger than had been predicted just months ago ”” and will force severe cuts to schools and public safety if voters fail to approve tax increases in November, Gov. Jerry Brown said Saturday.

Gov. Scott Walker’s administration released improved budget projections Thursday that would leave [Wisconsin] with a $154.5 million surplus a year from now.

The problem for the United States is that California is 13.09% of the economy in 2010 according to http://www.usgovernmentrevenue.com/ versus 1.71% for Wisconsin. If we look at the historical trend using a date from before the real estate collapse(2007), we get a cumulative growth of 1.40% for California versus 3.55% for all of the states combined. If 2008 was the peak of the real estate boom then it is easy to conclude that California has been stagnating for some time and we have flawed decision making that transcends the real estate bubble. Since I doubt a recovery in real estate construction will help California’s economy any time soon, they are being hit with the double whammy, real estate bubble and self inflicted wounds from bad decision making. When your plans for growing the economy fail, the only plan left is hoping that austerity measures will keep enough of your tax base around until the economy recovers. Pitting teachers, police, and social welfare programs against each other in a budget battle is never pretty. It should be interesting to see how voters respond in Wisconsin with the recall vote and in California with the tax raising referendums. Does running a balanced budget matter to voters?

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Analyzing the European Austerity Argument

Veronique de Rugy started the uproar when she wrote this article, Fiscal Austerity in Europe Doesn’t Mean Large Spending Cuts. The graph everyone is linking to is:

This article evidently rubbed the folks at The Economist the wrong way and they piped in with this analysis.

Progress through last year is quite striking, given that the crisis only began in earnest in 2010. It has occurred despite truly pitiful growth (and ongoing recession in Greece). And there is more to come.

But what of the complaint that this is all due to tax increases, which don’t count, for some reason? That, too, is mistaken:

Read more: http://www.businessinsider.com/economist.online.21554444.xml#ixzz1uTxwRJfl

For a person who has looked at a lot of graphs and tables in my life, the Economist analysis and graph is odd. I am not sure what these stacked bars, percentages, and projected expenses are supposed to tell me about austerity. Is that the total change in government spending since 2009? What does 2011-2013 projected spending have to do with spending over the last two years? So I downloaded the OECD data, reproduced Ms. de Rugy’s charts, and noticed this tidbit. If 2009 is the baseline then the Economist chart for Germany must be wrong. The OECD government final consumption data for Germany was $591.4 billion in 2009 and $630.1 billion in 2011 at current prices and current PPPs. Obviously this means that Germany increased their spending rather than reduced it. A similar argument can be made for France. Although the 2011 data was not available for France, it is unlikely France’s 2011 data will be below their 2009 number.

If we can agree that the OECD government final consumption data is a valid measure of austerity since it measures government spending and incorporates changes in purchasing power, then we can conclude that austerity is probably occurring in all of the countries in the graph except Germany and France.  The overall level of reduced spending in these “austerity”countries(excluding Greece) is less than -3%. It is interesting to note that only Greece and Ireland are spending less than they did 2008 while most of the countries are well above their 2008 levels. Austerity seems to be defined as slightly less spending than you spent in 2009 but higher than what you spent in 2008. Since most of the countries listed in the chart are spending at 2008 levels or higher, I agree with Ms. de Rugy that the European austerity except for Greece has not meant large spending cuts. Austerity has not occurred in Germany and France and has been pretty mild in the rest of the “austerity” countries.

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Spain, Portugal, and Humpty Dumpty

370px-Denslow's_Humpty_Dumpty_1904I was reading this morning about the never ending financial problems in Spain, Greece, and Portugal. These problems along with all of the countries and states who are following down the same path have left everyone in a general state of malaise and Greece’s election of neo-Nazis to their parliament aggravated it. This is an auspicious sign for the world. Our grand experiment with socialism and big government solutions is winding down and there is not much we can do about it. Fixing it will require politicians to make hard and unpopular choices. This leaves an opening for fascism. One of Hayek’s great concerns in the Road to Serfdom was that socialism would lay the groundwork for a return to fascism. Socialism is temporary state for someone intent on accumulating political power. All of this reminded me of this old nursery rhyme.

 

Humpty Dumpty sat on a wall,
Humpty Dumpty had a great fall.
All the king’s horses and all the king’s men
Couldn’t put Humpty together again.[1]

Humpty Dumpty – Wikipedia, the free encyclopedia

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Is “right to work” laws a form of redistributing the wealth?

I was reading a Buckeye Institute paper advocating “right to work” laws in Ohio and came up with this question. Does a government preference to contract for services at the prevailing union wages necessarily make the government pay more for government services than they would in a “right to work” state? If you  believe that the market rates in “right to work” states is the correct price for these services, then a government that pays too much for these services is redistributing the wealth to a select group of people.

I would not be surprised that the employees do not share this sentiment. Although they might agree that there may have been abuses in the past, I think they would quickly point out the good and bad points about their wages and benefit plans. Although wages are an obvious issue to the casual observer, both employees and management are primarily concerned with workplace and seniority rules as it relates to staffing. This has caused an embarrassing staffing mess in several cities and counties. It is ironic that the primary reason for a state like Ohio to embrace “right to work” statutes is because collective bargaining does not appear to allow any room for improvements on these issues. So the solution is to throw out collective bargaining. Hmm… I wonder how this is going to work.

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Business Environment and Recently Elected Governors

I was looking at the recent annual survey of business leaders on ChiefExecutive.net and wondered how the recently elected governors stacked up. The report had one year and five year performance but I was interested in the performance since the most recent election. So I combined the two most recent surveys and got this table. I guess it is no surprise that the leaders of the top five states that showed the most improvement over two years are Republican. The performance of Louisiana and Governor Jindal is spectacular. Those freshman Republican governors of Wisconsin and Ohio seem to have done their part of improving their state’s economies. It may not be much to brag about but it is definitely better than no improvement or a deteriorating business environment.

2012 RANK STATE 2011 RANK 1-YEAR CHANGE 2010 RANK 1-YEAR CHANGE 2-YEAR CHANGE
13 Louisiana 27 14 40 13 27
20 Wisconsin 24 4 41 17 21
5 Indiana 6 1 16 10 11
15 North Dakota 21 6 24 3 9
35 Ohio 41 6 43 2 8
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Bad Debt is Forever!

Business Insider is highlighting a paper just published by economists Ken Rogoff, Carmen Reinhart and Vincent Reinhart, called Debt Overhangs: Past and Present. This paper builds upon the research published in the book, This Time It’s Different, which I read and reviewed in January. In this article the authors are saying that countries debt levels above 90% of GDP correspond to lower growth rates, 2.3% versus 3.5% for low debt periods, and an average debt duration of 23 years.  Ouch! 23 years of substandard GDP growth is a very, long time and it implies a significant wealth transfer to other nations. The authors implied those results in their book but it looks like they backed it up with some more research into countries with debt levels above 90%. I guess we have to start admitting that debt does matter and big stimulus plans like those advocated by Krugman to grow out of our mess without the pain of austerity are officially dead. That leaves us with very few options. Since we cannot rely on the next generation’s income to grow fast enough to pay for our increasing Social Security and Medicare benefits, those programs have officially become a “pact between one generation and the next” systems. This should be amusing. Democrats loath to use those words while Republicans prefer to not talk about it at all. Now they both have to acknowledge that the growth in Social Security and Medicare benefits is not sustainable and that those benefits are now subservient to the taxes you can collect from the next generation. This is no surprise to the young voters. Considering the enthusiasm the young voters have for Ron Paul, we have to assume that they know how to count and they are not happy with the answer they keep coming up with. So the young voters are pissed and the elderly will be pissed shortly. I doubt anyone will be happy. The only positive thing coming out of this affair is that it should be pretty amusing to listen to our politicians spin the politically unattractive option of implementing something pretty similar to Bowles-Simpson plan, the Ryan plan, or sequestration as good for the country.

Read more: http://www.businessinsider.com/chart-reinhart-rogoff-2012-5?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+businessinsider+%28Business+Insider%29#ixzz1teHrJZYF