Did Christie’s “New Jersey Comeback” Ever Occur – Outside of His Mind?

New Jersey lost 11600 private sector jobs and added 3000 public positions in March. That is the opposite of the image Christie has been bragging about ad nauseam at every town-hall meeting and radio show since January this year. The March figures, even though reflecting a single month, are egg on his face.

Loss of 8,600 NJ jobs clouds economic picture : page all – NorthJersey.com.

Christie’s office referred questions on the job figures to New Jersey’s top economist at the Treasury Department, Charles Steindel, who admitted that there is a definite correlation between between employment and revenue. He did not say it but there are other correlations – sometimes I wonder if they understand them – such as that of employment and economic growth and with aggregate demand. Some are functions of the others.

Steindel said it is a long term relationship, and one month of bad job figures is not enough to redraw the state’s budgeting plan. Again, I must add, one month of good figures is no reason to open the champagne either.

“Data is volatile from month to month, it jumps up and down,” Steindel went on. “I think it’s a little hard to pin too much on the fact that you had a month where things seemed to go in the opposite direction.”

Mr. Steindel is assuming that the natural direction is forward. But there is no natural direction. The economy will move according to a given set of conditions. Those conditions, in New Jersey, do not favor growth. Steindel’s sentence should be corrected and say that we really do not know where the state economy is heading and should include the word stagnation. 

Although an economic failure of the Christie administration would facilitate my election, I do wish the New Jersey economy to improve. The problem is that I do not see real basis for optimism on such an expansion: Not with the current tax and government structures in New Jersey.

The stubbornly high unemployment rate – remains at 9% – betrays the governor’s portrayal of the state under his stewardship as an example of how to rebound the economy.

Christie is a lawyer who has decided to micromanage both education and the economy in New Jersey: That is a recipe for disaster because he is not qualified to do either. But he is not alone. Democrats are not far behind. In fact, he could not do many of the things he is doing without the complicity of at least some of the democrats in the NJ Legislature.

The loss of jobs is always deplorable. Even more deplorable is the rigidity and selfishness of the two political parties which rather see the state decay that give up their power and perks. We are governed by leeches. Significant structural changes in government and the tax system are desperately needed.

My entire economic revival program rests on the premise of increasing aggregate demand in New Jersey. Demand generates supply and increasing supply creates both jobs and wealth.

Advertisements

Disconnect between Wall Street and Main Street Hinders Recovery

Economy improves…incomes don’t – Economy.

I have written about this before and the only reason why I touch this topic so soon again is because the Dow reached 13000 the other day. The Dow and the other market indicators tend to give a somewhat distorted view of the American economy. That is in part because many firms traded are not American and even the stock of American firms may fluctuate due to gains overseas, political news, mergers, decline of competitors, etc. In other words, the gains (or loses) may have absolutely nothing to do with what is happening in the nation.

The lacking elements in this recovery are those which affect aggregate demand. Although there is a school of thought which maintains that supply generates demand, most empirical evidence points to the contrary. Excess in supply can actually lead to deflation and consequently to job erosion. Aggregate demand, as the sum of all demands for goods and services in the economy is tremendously influenced by consumer demand. The U.S. Department of Commerce estimates that 70% of the U.S. economy is internal consumption.

A large majority of American consumers depend primarily on wages to live. Long-term stagnation of real wages is possibly among the greatest threats to the U.S. economy, greater than a break-up of the European Union or a state of general war in the Middle East following a hypothetical attack on Iran.

Since the New Jersey economy is not growing by leaps and bounds, the demand for labor is tepid. We do not have huge gains in productivity which could lead to sizable wage increases, What we have is a lot of competition. We have all the other states around us with more or less similar conditions and in fact, in the competitive ladder, New Jersey is standing on the lowest rung, looking at the backside of New York. And then there is an entire world beyond the two oceans, trying to attract U.S. capital to their shores. Lately, they have been very successful.

Without wage increases, demand remains flat. With low demand, businesses lose traction.

I have a number of proposals to reverse that situation and they are outlined in the Pages of my blog. The tax cuts proposed by both parities have very limited impact on aggregate demand, primarily because they involve too little money spread over a very long period of time. Furthermore, there is no sufficient economic growth to sustain those cuts without leveraging the State even more. The consequence of the latter is that the bill for those tax cuts will come due with accrued interest in a number of years,. The current politicians are not the first ones using the same trick to seduce the voters. Seduction is the right term.

It is very easy to make a demagogic call like “lower taxes” or “tax the rich”. Their appeal is in their simplicity. But to claim that those are solutions is fraudulent. Those steps may be part of the solution; just a small part if at all. To turn New Jersey around there are no simple solutions. If there were we would not be in trouble in the first place.

To build up a fund from which a significant injection of liquidity goes into the pockets of consumers, we have to reduce size the government the right way: By eliminating  not the teachers, or firemen, or cops, or maintenance workers who perform a real service but the political bureaucracy which feeds voraciously from the system. The best way to do so is to eliminate entire layers of government; We simply have too many government subdivisions.

The second step is to reform our tax code rewarding those who invest in New Jersey. Those who chose to invest elsewhere may continue to do so but will not receive our gratitude at tax time. We must be supportive of the New Jersey employer by eliminating their tax liability. As we support the New Jersey employer, we must support the New Jersey employee as well; that is by means of minimum wage increase – not the miser $1.25 proposed in the N.J. Assembly but up to $15 with benefits or $18 without. Employee and consumer are two words referring to the same people.

The measures above intend to reconnect Wall Street with Main Street. Along these proposals, come the elimination of property taxes for most and the abolition of the sales tax.

Mixed Messages on U.S. Economy – Who’s Right?

Economy ends tough 2011 on a surprising upswing – NorthJersey.com.

chart-gdp.top.gif

After healthy growth in 2010, thanks to the temporary government stimulus, the economy plummeted in 2011 but is has been creeping up from the pit of the 1st quarter. Will the upward trend continue?

I am not an economist but I believe the basic elements required for strong growth are missing: We do not have a surge in exports and we do not have increases in wages and the standards of living which would de-leverage the American consumer and stimulate internal consumption.

Then if we add to that the dismal political atmosphere in Washington, we must come to the conclusion that growth will remain anemic throughout 2012.

New Jersey will continue to lag behind the nation due to its enormous political overhead and antiquated tax laws. The number of foreclosed homes and high property taxes will continue to hinder the revival of the housing market.

National employment flat in August

http://www.bloomberg.com/news/2011-09-02/employment-in-u-s-unexpectedly-stagnated-in-august-jobless-rate-at-9-1-.html

Unemployment is said to remain at 9.1% although that figure is, in my opinion, erring low. Bloomberg news  says: “Political squabbling over the budget and mounting fear of a default in Europe caused the Standard & Poor’s 500 Index to plummet 17 percent from July 22 to Aug. 8, prompting companies and consumers to cut back.”

However, the latter conclussion is like the tail wagging the dog. The decline see its genesis at the consumer level and them moves up the totem pole up to Wall Street. Most people do not follow the stock market but they can see their shrinking checkbooks and rising cost of living.

The problems are that people owe to much, earn too little, and have lost confidence that anybody will lead them our of the malaise. At the same time, they see jobs disappearing and instinctively know that it is because our tax policies encourage investment overseas and that our very government is an accomplice in that capital flight. The average American may not understand the concept behind financial derivatives but they do know what NAFTA is.

The greatest disservice both political parties have done to America is to have led the majority of Americans to mistrust the governmental institutions. That in turn has led to the growth of fringe movements like the Tea Party.

The first step in fixing problems is to identify the true causes. Self-deception leads to failure.

 

Corporate growth in profits by attrition is a temporary fable

http://finance.fortune.cnn.com/2011/08/15/three-headwinds-to-corporate-profit-growth/

More or less the same as the government trying to balance a budget by cuts alone, corporations slashing costs – more often than not in labor to keep up profits in the face of a drop in consumer demand – is a short term gimmick that exacerbates the crisis. The lower wages or less employees of course translate into less consumers and/or consumers spending less. There is also the inescapable loss of confidence.

Now, every corporation sets its course of action independently and if one of them altruistically decided to retain all its workers in the middle of a recession, while its competitors do not, the enlightened firm would see itself at a disadvantage, its stock dropping in value, and the shareholders in revolt.

The existence of the firm itself could be put in jeopardy.

Nonetheless, the “growth’ achieved by reductions is a short-lived panacea and it is certainly not “organic” (real) growth. Furthermore, the savvy investors will see the writing on the wall.

But since we are not a planned economy, it is inevitable that corporations will act individually and follow the laws of economic survival.

Catch22 isn’t it?

That is where the government has a role in revitalizing the economy trapped in the vicious circle of less consumer spending/corporate contraction. The government must use its tax policy to reward the local investments, and that gives government the leverage to assure that the worker/consumer is taken care of until the labor market regains its own balance. To be able to do that, fiscally speaking, the government must spend less on itself; cutting not the public workers that give services but the political class that feeds from the system.

Good governance is not sound-bites, or public relations displays, or being everywhere showing oneself, or steamrolling some hapless dissident.

A note about the photo above. It is from Wikipedia and shows a manufacturing worker during WWII. She is working a lathe, manufacturing what a believe is a manifold or block for a rotary engine, presumably for an aircraft. But she is still a lady and amid all the sooth and grease, her nails are neatly painted. Great image of the time.

 

Percentage of Americans working the lowest since 1983

http://money.cnn.com/2011/08/08/news/economy/unemployment_jobs/index.htm?iid=HP_Highlight

Only 58.1% of Americans work; the lowest figure since 1983. Figures about sub-standard employment and part-time jobs were not available in the article.

The reduction of the American work force has ominous implications for the future.