U.S. Economy Grows 2.8%, Less Than Forecast

U.S. Economy Grows 2.8%, Less Than Forecast – Bloomberg.

The data is telling the same story that I have saying for months: The basic element for growth is demand. Demand is for the economy what an amino-acid is for a protein: the Building Block. Very few economists recognized this and that is why the federal government embarked in the stimulus programs without taking the necessary steps for spurring demand – other that cheap credit. They also failed to recognize that cheap credit does not help when most consumers are maxed-out and have lost the sense of security in their jobs.

The data is also saying that most of the growth was in rebuilding inventories rather than consumption. Less than 1/3 of the growth was brought about by consumer spending. In an economy where consumer spending represents 70% of the total, the figures for 2011 are alarming indeed.

The pressure will be now to sell that inventory and businesses may have to offer extraordinary discounts to do so. This could lead to deflation – lower prices – which is a good thing for the consumer but also leads to reduction in supply and consequently more layoffs.

Even the president mentioned the other day the idea of taxing more those who outsource overseas and giving tax breaks to those who invest at home. The President did not offer any details and we do not know if there is any concrete plan in Washington. Rewarding those who invest in New Jersey is at the core of my reform plan with abundant specificity. I have introduced that proposal for one simple reason: It is indispensable. But to apply it, it must be defined.

New Jersey is a reflection of the national economic picture, perhaps a bit worse with respect to unemployment figures. The democrats in Trenton have proposed an increase in the minimum  wage and the governor has proposed a 10% tax cut which only has relevant impact on a minuscule portion of the population. Both measures are insufficient with regard to their intended purpose, and the state is hardly in the position to be able to afford them – without some other additional steps. But because the steps involve the dismantling of part of the political bureaucracy, neither party will hear of it in New Jersey.

Economists often use the term aggregate demand which simply means the sum of all demands. I have called it just demand although meaning the same. The economists term is perhaps clearer. Conditions must be created so that demand growth is universal. We can not expect  1% or 10 %, or even 25% of the population carrying the economy on their shoulders. It is not sustainable. For growth to rise, aggregate demand must behave like many Euclidean vectors – there must be a genuine general uplift of the standards of living.

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New Jersey Needs Marshall Plan for Lower, Middle Classes; Not Antics

Gov. Christie will consider raising N.J.’s minimum wage | NJ.com.

The Oliver proposal or raising the minimum wage from $7.25 to $8.50 is a bad joke. For starters, most New Jersey employers pay more than the minimum wage and chances are that most people benefited by the increase would just see raises of $0,50 or less. Oliver is as out of touch as if she lived in outer-space.

Moreover, the proposal is insufficient to have any economic effect. It could truly lead to some layoffs or postpone hiring in some small businesses with marginal profits because the government is taking this step isolated. I have warned many times that the reforms to revitalize the New Jersey economy require a multifaceted approach. Throwing in one ingredient alone, just because it does not affect the political class, will not produce the desired results.

The principal elements missing here are that government must reduce its footprint in the form of eliminating entire subdivisions and all political patronage. Thus, Civil Service Law must be strengthened and teacher tenure must be maintained. The tax code must be drastically changed. Certain consolidations must happen.

The following all must be in: Education (for real; not the fake Christie/Cerf reform), infrastructure, and renewable energy as a growth industry.

That is the complex but apparently the only path to growth and prosperity. Complex problems are not solved with simple solutions.

The governor has graciously agreed to consider the idea of raising the minimum wage. No wonder; the legislature just opened most of the remaining rural areas of New Jersey to wanton development, regardless of any effects it may have on the state’s future in a number of vital factors, such as drinking water quality, infrastructure, and air pollution. He owes the democrats a brief cameo appearance in the theatrical stage of minimum wage increase.

The proposed increase is a political charade and it would be laughable if not because there are hundreds of thousands of New Jersians struggling out there. This irresponsible political gang has ruined the future of an entire generation of young people. I have sons and I can see. Oliver’s idea might have been provoked by my hammering on the self-evident economic law which says that without demand, we can not have growth. To bolster demand, wages must increase; a real increase.

Particulalrly in a depressed economy, demand determines supply; not the other way around.

Washington Liquidating Private Sector Labor Unions Through the Back Door

Crippling the Right to Organize – NYTimes.com.

The National Labor Relations Board, NLRB,  was created by FDR in 1935 and is for the private sector what the Public Employment Relations Commission, PERC, is for public employees in New Jersey. The NLRB covers the entire nation and it is indispensable in arbitrating contract disputes, violation of labor laws by both employers and unions, organizing,  etc.

U.S. Supreme Court ruled last year that the NLRB can not function without a quorum.  As of January 2012 it will lack a quorum.

We are not eliminating labor unions by decree like fascists states did or putting puppets at the head of unions like the communists do. We are pulling the legal platform from under the unions. The  methods may be a bit more refined but the end-result is the same

As the writer notes, the republicans have the bulk of responsibility in this situation but then president Obama shares a great deal of that responsibility as well. In what I perceive as a Machiavellic move, he has proposed two very pro-union candidates for the board, most likely knowing full well that those nominations are going nowhere. So he can tell the unions he tried to place their friends in the board and at the same time renders the board inoperable by default – which is the ultimate goal of the other side. But of course, that is only if there is other side. Perhaps there is only one side.

The NLRB, like PERC, should be populated by civil service professionals, and not political appointments. Healthy labor relations are fundamental for the revival the this nation’s economy.

If the NLRB falls, and if elected governor of New Jersey in 2013, I will propose to the legislature to create a NJLRB or PERC doubling for both public and private sectors. We must never forget that the worker is also the consumer and that without consumer demand there is no economic growth.

With Demand Declining, Companies Turn to Buy Own Stock

Rash to Some, Stock Buybacks Are on the Rise – NYTimes.com.

Please, look at the interactive chart in the NYT article.

This happens just as the U.S. Senate Super-committee calls it a day, throwing any deficit reduction into auto-mode (clause embedded in debt-expansion agreement of the summer)

I wrote about this issue of stock buybacks  a few days ago. But it is symptomatic enough to warrant a second posting.

American companies are going back to the artificial padding of their balance sheets by buying their own stock. More and more companies are doing it in greater volumes of shares and the levels for 2011  have matched those of 2006, just prior to the financial crisis.

Notice in the interactive chart that there was a dip in the practice during the period of the stimulus, around 2009, when demand picked up fueled by federal dollars. But the trend is there since 2004, 2005, slowly climbing  and it is on the rise again.

It is my belief that this phenomenon is inversely proportional to demand, and particularly internal demand since the stimulus of 2009-10 did not have any considerable effect on exports. The money was spent at home.

And this, in my opinion, reinforces the my argument that to have growth we must re-invigorate the American middle and working classes.

Since we have to start somewhere, why not New Jersey?

Falling U.S. wages threaten consumer spending – U.S. Commerce Dept.

Falling U.S. Wages Threaten Consumer Spending – Bloomberg.

Salaries and benefits growth are stagnant at best and if anyone believes that there can be a sustainable recovery in light of that data they should get their head examined for terminal delusion.

70% of the economy is fueled by consumer spending. Companies do not hire if demand is declining, regardless of what the government does.

I post all this again to hammer the point that evidence is coming in almost every day that we must start to rebuild our economy from the bottom up. In the case of New Jersey, we must reform our tax system and abolish the redundant government to have the funds to attract businesses and have employers increase wages – substantially.