Friday :: Feb 20, 2004

The House of the Rising Sum

by pessimist

Jobs remain scarce but disposable income and home ownership are up

Will economy be Bush's downfall? Not if the Straits Times is reading the tea leaves correctly. In their opinion, borrowed from the Washington Post:

The booming housing market has given even struggling workers the ability to latch onto a tangible talisman of personal progress. Wage growth has been nearly stagnant, but thanks to Mr Bush's tax cuts, disposable income has risen.

Now I can't speak for anyone but myself, but my disposable income didn't go up enough to go house shopping! Out here in California, only those who have a lot of equity in their homes can even consider buying a new house. Even a good income in the upper brackets isn't enough to buy a house without existing equity.

But then, there is a lot of blind allegiance out there.

Take this one (PLEASE!), for example:

Ms Mary Beardmore - a Bush voter in 2000 and still unemployed - is willing to give the President a pass. 'You know, George Bush does not control the economy that much,' she said.

Truly a person without a clue as to how the economic disaster that is George Warmonger Bush DOES affect the economy. But individuals can be forgiven their economic ignorance. There's no excuse for a professional saying this:

'The economy is really going to help the President this time around,' said Mr Joel Prakken, an economist with Macroeconomic Advisers, whose political forecasting model predicts Mr Bush will romp home in November. 'I'm not saying the Democrats can't find pockets where they can play the economy card, but it's going to be tough.'

Let's see just how tough it will be. The US military is mired in Iraq - $87 Billion this year alone - and about to climb even higher. No worries, right Georgie? Record budget surpluses have turned into record budget deficits - $7 Trillion and soaring. But we all know, thanks to Vice Chairman, er, pResident Cheney, that deficits don't matter. Since the deficit is of no consequence, then the following statement MUST be true:

'Assuming the electoral structures of the past are going to continue into the future, Bush is almost for sure going to win,' said Mr Ray Fair, an economist at the Yale University School of Management who has been projecting election outcomes for decades.

So how does all of this Pie-in-the-Blue-Sky talk compare with this?

Housing Starts Fall 7.9 Pct. in January

U.S. housing starts fell more sharply than expected in January to the lowest level since August in a sign the housing boom may finally be losing steam, a government report showed on Wednesday. Analysts polled by Reuters were expecting starts to cool to a 2.0 million rate in January. Residential construction starts tumbled 7.9 percent last month to a seasonally adjusted 1.903 million annual rate from a downwardly revised 2.067 million rate in December, the Commerce Department said. Single-family starts slid to a 1.537 million pace from a revised 1.670 million, also the lowest level since August. Permits, an indicator of builder confidence, declined 2.8 percent to 1.899 million units from a 1.953 million rate in December. December housing starts had been at the highest level since February 1984. Housing has surged in recent years as mortgage interest rates dipped to lows not seen since the early 1960s and remained close to that level. But home loan interest rates rose slightly last month as the U.S. economic recovery appeared to gain strength.

Housing starts are down, indicating that sales are as well. Either the market expanded faster than people can buy, or everyone who could buy already has. Either way, when construction PERMITS decline as well, then the builders have no confidence that there is any reason to build more houses any time soon. But then, with no good paying jobs being created in this nation, this should be expected, no? Which would explain these poll numbers, again from the Straits Times via the Washington Post:

A Washington Post-ABC News poll this week found that 54 per cent of voters disapproved of Mr Bush's handling of the economy, up from 47 per cent a month ago. Disapproval nudged up to 57 per cent when voters were asked about Mr Bush's handling of job creation. Asked whom they trusted to handle the economy more, voters sided with the Democratic presidential front runner, Massachusetts Senator John Kerry, over Mr Bush - by 49 per cent to 41 per cent. Mr Kerry was trusted over Mr Bush to create jobs, 51 per cent to 37 per cent.

The Straits Times, however, doesn't share this optimism of the polled American electorate (borrowed from the Financial Times):

Plans to curb job losses may not work

Many economists fear that the plans of Mr John Kerry, the Massachusetts senator and the campaign's front runner, would not only fail to stem the shift of jobs overseas but could also prove counterproductive. Mr Kerry hopes to discourage 'unpatriotic' US companies from shifting overseas through measures such as closing tax loopholes and moral persuasion. The main focus of his scheme, however, is centred on a series of tax breaks for job creation. Under the plan, a new tax credit would refund the payroll taxes for two years for any new employee hired at a manufacturing company. Manufacturers that produce goods in the United States would also pay less corporate tax.

But economists believe the types of policies proposed are unlikely to work. The first problem, they say, is that the massive wage differentials between workers in the US and emerging markets make shifting some jobs overseas inevitable. For example, Chinese manufacturing workers are more than 30 times cheaper than their US counterparts. A software developer who costs US$60 (S$100) an hour in the US could be replaced by an equally skilled worker in India for US$6 an hour.

It is estimated that the cost-savings can reach 65 to 70 per cent. This kind of gulf is hard to counter with tax policy, economists say. The tax incentives proposed by Mr Kerry pale in comparison with these figures. A payroll exemption for two years on new hires gives companies an incentive to churn labour, sacking people after two years, economists say.

There is also a sense among economists that the Democrats have exaggerated the importance of offshoring in leading to a jobless recovery. It has been estimated that only 400,000 jobs from all sectors have been sent overseas - not nearly enough to account for the weakness of the US labour market. Instead the strength of US productivity growth and inadequate demand have been the main culprits, according to economics professor Brad DeLong of the University of California at Berkeley.

Rather than standing in the way of inexorable trends, economists argue that Mr Kerry and the Democrats should focus on smoothing the adjustment.

SMOOTHING THE ADJUSTMENT???? Excuuuuse me?????????????????

This is the sort of advice they should be giving George Warmonger Bush and the GOP!!! If such a strategy were to even be viable, do you not believe that Karl Rove would have already thought of it??? To follow such advice would be the road to electoral disaster, which is why you won't hear this sort of talk from the Republicans! Instead, you hear THIS sort of talk, once again from the Straits Times via the Washington Post:

After nine quarters of slow but steady growth, the economy as a whole is poised to take off. For Mr Bush, as it has been for the economy as a whole these past three years, the housing market may prove to be a salvation. As a barometer for economic well-being, housing catches people's sense of risk and optimism, said Mr Prakken, whose election forecasting model leans heavily on housing starts. If voters are willing to take out large, long-term loans to move into new and larger houses, they must be feeling upbeat.

Global Insight, another forecasting firm, does look at unemployment rates but the more important factor is income growth, said chief economist Nariman Behravesh. 'In the end, it is disposable income growth that really drives things,' he said. 'It's a pocketbook issue: How fast is my income growing?' And there, Mr Bush has himself to thank for Global Insight's prediction of his 6.5-percentage point victory. 'If they've got money in their pockets, it doesn't matter if it came by hard-earned work or tax cuts. That's where the President may have played his cards very well,' Mr Behravesh said. Three successive tax cuts - coupled with the slowing economy - have helped bring personal tax payments down by 19 per cent since 2001, according to the Commerce Department.

Sure, if people have money they are certainly more than willing to spend it - provided they know more income is pending. But there are other things most workers know are coming, things that are going to eat up that 19% reduction in their taxes - and much more:

On bread-and-butter issues, Democrats still believe there is plenty of uncertainty to play on in the coming campaign. And recent polls appear to bear that out, for now. Weekly wage growth has been sluggish since 2001, rising 8.2 per cent since Mr Bush came to office, 4.1 per cent if adjusted for inflation, Labour Department statistics show. Last week, the Democratic polling firm Lake Snell Perry & Associates sent clients a memo saying voter anxieties over layoffs had receded, but concern is rising over health care and education costs, job quality and employee benefits and the long-term implications of job movement overseas.

These are the real trump cards in the pile, which could upset the best laid electoral plans of Administration mice and economics men. As Joel Prakken says:

'If there's any time the equation goes bonkers, it's probably times like this.'

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pessimist :: 2:24 PM :: Comments (0) :: Digg It!