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.


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.

The Woman in the Eye of the Storm – Video

BBC News – Christine Lagarde’s campaign to save the global economy.

Christine Lagarde, former swimmer, U.S. Capitol intern, and French finance minister who took over the International Monetary Fund last year is the woman trying to save the world economy. And she may succeed. Her goal is convincing world leaders to bankroll the formation of a new firewall to prevent the Greek crisis from spreading to other indebted economies. She is not asking for small change: Half a Trillion US dollars, mostly from the G20.

Her greatest challenge is not only to convince non-eurozone political leaders to contribute when their own economies are in trouble. It is also to sell the concept that the astronomical sovereign debt of some nations of the eurozone is not the main problem. Rather, It is the economic stagnation. Without economic growth, all the shoring up of the critical spots, Greece, Portugal, Spain, Italy will just accomplish gaining some breathing time.

The European economies must outgrow their debt and the first fundamental step should be devaluating the euro to make European exports more competitive and imports into Europe more expensive. Ideally, the euro should descend to parity with the U.S dollar.

EU Leaders Declare Crisis Turning Point as Focus Starts Shifting to Growth – Bloomberg.

Ironically, it is the strongest economy in Europe, Germany, that opposes devaluing the common currency. The first reason is that German exports are still strong . The second reason is historical: Devaluation of the Reichmark during the Great Depression led to high inflation and the rise of the Nazis to power in 1932.

Thus chancellor Merkel has made the point of blocking the reduction of the prime rate by the ECB while pushing the troubled neighbors to the south to adopt unpopular austerity measures. But the austerity measures reduce aggregate demand in those economies and such reduction is incompatible with growth. Short term spending with long tern austerity only works if the aggregate demand increase attained with the first is sustainable through the latter.

Private investors may be taking up to a 70% loss in the restructuring of the Greek debt. European banks are hoarding cash to withstand the blow. We may see how the rearrangement works out by mid March. There is a lot at at stake for everyone, including the United States, itself with a huge sovereign debt and anemic growth. Let’s all hope that Mme. Lagarde’s firewall stands.