March 8, 2020

by Steve Stofka

A heartfelt endorsement by veteran S. Carolina Congressman Jim Clyburn ignited a outpouring of voter support for Joe Biden in that state’s primary a week ago. Mr. Biden rode that momentum into Super Tuesday a few days later and the campaign that was on life support became the leading candidate in the Democratic race.

The following day the stock market rallied a whopping 4%. Big investors know that Mr. Biden will not make life difficult for them. He is old school. He knows that there are two sets of rules and the rich write the rules. Mr. Sanders makes Wall St. uncomfortable because he also knows that there are two sets of rules. He wants to write a new rule book where the rich don’t write the rules. That’s bad for rich people. Here’s why.

Bernie Sanders is often branded as a socialist. He brands himself with the qualifier Democratic Socialist. As the Wall St. Journal’s Richard Rubin pointed out this week, Mr. Sanders is not proposing a European model of socialism (Rubin, 2020). Those progressive systems are funded by a regressive sales tax called a VAT (Wallop, 2010). This tax burden falls mostly on middle class and working families. Mr. Sander’s plan funds progressive programs with progressive taxes falling mostly on the wealthy. That ain’t socialism. We need a naming contest for a system where the wealthy do extra to help the community. Four syllables or less. I’d suggest Neighborism based on the movie “It’s a Wonderful Life,” with Jimmy Stewart. What’s your suggestion?

Last month President Trump launched a political tweet missile at the Supreme Court (Baker, 2020). This past week Senate Minority Leader Chuck Schumer hand carried his warning to the steps of the Supreme Court. He was part of a protest regarding a current course case that tests the court’s earlier decisions beginning with Roe v. Wade almost fifty years ago. Chief Justice John Roberts has admonished President Trump, Mr. Schumer and others that they should not threaten the Supreme Court. Mr. Schumer says he regrets his remarks (Pecorin, 2020). President Trump last apologized for his remarks when he was in the first grade.

The high court’s Bush v. Gore decision chose the outcome of the 2000 Presidential election and tarnished the court’s reputation as an objective body. Since the beginning of his tenure as Chief Justice in 2005, Mr. Roberts has tried to resuscitate the court’s reputation. In this age, tarnished reputations stay tarnished.

Was the court ever impartial? Over a hundred years ago, Albert Einstein sparked a revolution in physics with a set of mathematical equations which showed that impartiality was impossible. Our observations and conclusions are based on our frame of reference. In the past century an overwhelming body of evidence has substantiated Einstein’s claims.

A central proposition in physics has spread to the humanities. Is this a “hey man, everything is relative” moment? No. Understanding an argument’s frame of reference takes time and research. Most of us are too pressed for time and tend to discard arguments that we don’t instinctively like. Chief Justice Roberts maintains that the members of the high court are not prone to this common human fallibility. Do they cast aside the ideological framing they have formed during their life and career and reach a deliberative decision that fully balances all the considerations of a case before the court? No, of course not. Mr. Roberts is still living in a Newtonian world of imagined impartial justice. Perhaps he should remove his robe while shaving and see the man reflected in his mirror.

A long time ago, my sales manager said to me, “Either you believe in your own b.s. or someone else’s b.s. Wouldn’t you rather own it?” This week Mr. Biden looked like a man who owns someone else’s b.s. – that of Jim Clyburn and the folks in S. Carolina who gave Mr. Biden a sense of confidence. His walk up the stairs to a stage platform has grown more vigorous since Super Tuesday. His voice projects with a confidence and assuredness that I didn’t hear just two weeks ago. He no longer sounds like a frail man. I’m still not convinced he owns his b.s., but he may get there in the next few months.

Mr. Sanders, on the other hand, is a man who has owned what he says for decades. As an Independent, he has played a minor role in the Democratic political hierarchy despite his many years in the Senate. Will voters choose the man of measured manner, Mr. Biden, or put their money on the impassioned and principled Mr. Sanders?

I wish my teachers had told me that I needed to be 70+ to run for President. We have too many old people in Congress. I thought so when I was young. I think so today. Yes, old people have experience, sagacity and some have a more measured temperament. The age of the people we send to represent us in Washington does not reflect us.

The Congressional Research Service recently computed the average age of the House at nearly 58 years; of the Senate, 62 years (Manning, 2018). According to the Census Bureau, the U.S. population – including children – has a median age of 38 (2019). If we take out the 25% of the population under 18, a reasonable estimate of the median age of adults might be an age of 50, ten years younger than the current average age of the members of Congress.

Patrick Leahy, the other Senator from Vermont, has held his seat for almost half a century. They come to Washington and die in Washington. They believe that they have earned an objective wisdom through their long service in their seats. To paraphrase Socrates, the man who thinks he is wise is a danger to himself and others. Step aside. Let the young blood walk the halls and make a different set of mistakes than the ones you once made. Let go. Our country will be better for it.


Baker, P. (2020, February 25). Trump, in India, Demands Two Liberal Justices Recuse Themselves From His Cases. Retrieved from

Manning, J. (CRS). (2018, December 20). Membership of the 115th Congress: A Profile. Congressional Research Service. Retrieved from

Pecorin, A., et al. (2020, March 5). Schumer says he regrets comments Chief Justice Roberts called ‘dangerous’ threats. ABC News. Retrieved from

Photo by Louis Velazquez on Unsplash

Rubin, R. (2020, March 6). Bernie Sanders’s Tax Plan Would Be Biggest Expansion of Taxation Since World War II. Wall St. Journal. Retrieved from (paywall).

U.S. Census Bureau. (2019, July 16). Median Age Doesn’t Tell the Whole Story. Retrieved from

Wallop, H. (2010, April 13). General Election 2010: a brief history of the Value Added Tax. The Telegraph. Retrieved from

President Mayor?

March 1st, 2020

by Steve Stofka

Among the Democratic candidates for President are two mayors. Mike Bloomberg was mayor of New York City for the twelve years following 9-11. Pete Buttigieg just completed an eight year stint as mayor of South Bend, Indiana. Americans have never elected a recent mayor to the presidency (Badger, 2019). Will this year be different?

Mayors are responsible for everything that happens in their city – from policing practices to snow removal. John Lindsay, a former mayor of New York City, almost lost his job because of a snowstorm (Marton, 2019). Too many homeless people in Los Angeles? Mayor Eric Garcetti takes full responsibility (City News Service, 2019). Few residents write to the mayor to say that they are so happy that their streetlights are working. The lack of complaints tells a mayor that he or she is doing a good job. Mayors are a tough bunch with strong shoulders.

Do we take the same responsibility for our savings portfolios? If interest rates are too low, do we keep all the money in a savings account and blame the system? When the market goes down, do we rethink our risk appetite, or do we blame those invisible market forces?

 At nearly 11 years, this bull market is the longest running in the past one hundred years. The 400% gain since the March 2009 low beats both the gains of the 1920s and 1990s bull markets. Just a month ago, the investment firm Goldman Sachs estimated that there was still room for more price appreciation this year (Winck, 2020).

This week’s downturn was made sharper by several practical factors. In any abrupt downturn that last a few days or longer, margin calls prompt more selling. What is a margin call? Let’s say I borrow $50 from my broker to buy a $100 stock. If the price goes down to $90, my broker wants me to pony up another $5. If I don’t have the cash, the broker will sell some of my holdings to raise the cash.

The Coronavirus prompted investors to reassess projected earnings for this year and to assign a greater risk to their stock exposure. A lot of investors bought bonds with the proceeds from their stock sales. Worst time to buy long term bonds? Probably. An ETF of 30-year Treasury bonds (TLT) hit its highest price ever this week.

President Trump regards stock market performance as an important indicator of his success. What will he do if market prices decline another 10%? Will he attack Fed chairman Jerome Powell as he did in 2018? Has Mr. Trump become the most wearisome President in modern history?

Joe Biden took almost half the votes in the S. Carolina primary this week, but Bernie Sanders is still leading the roster of candidates with 54 delegates (Leatherby and Almukhtar, 2020). It’s a long road to the goal of 1991 delegates to secure the nomination. The delegates captured in the first four primaries are dwarfed by the 1344 delegates in play this week on Super Tuesday. 643 of those delegates are in California and Texas. It’s a reminder of the power of a few states in the selection of a President.

What about the mayors in the race? Pete Buttigieg is 3rd in delegate count. Because Mike Bloomberg entered the race late, he set his sights on Super Tuesday and currently has 0 delegates. Elizabeth Warren and Amy Klobuchar have both worked long and hard, have enthusiastic supporters but have earned few delegates. Running for the top office is a hard job.

Will this week bring more downturns in the market? There was a big surge of investors willing to buy late Friday afternoon. It’s a good sign when large investors are willing to take a position before the weekend.  



Badger, E. (2019, November 18). Pete Buttigieg Tests 230 Years of History: Why Can’t a Mayor Be President? N.Y. Times. Retrieved from

City News Service. (2019, August 26). Mayor of LA Promises More Help to Solve Homelessness Problem. Retrieved from

Leatherby, L., & Almukhtar, S. (2020, February 3). Democratic Primary Election Results 2020. Retrieved from

Marton, J. (2019, January 28). Today in NYC History: John Lindsay’s No Good, Very Bad Snowstorm of 1969. Retrieved from

Photo by Mateus Campos Felipe on Unsplash

Winck, B. (2020, January 23). GOLDMAN SACHS: Lagging fund inflows can drive the stock market even higher | Markets Insider. Retrieved from

The Billionaire Ballot

February 16, 2020

by Steve Stofka

“Dad, can I get a new bike?”

“What do you think money grows on trees?”

“No. If it grew on trees, I wouldn’t ask you for a new bike. I’d ask for a ladder so I could pick my own money.” A great comeback that I never said. No new bike. I could still dream of being President someday.

My dad was born before the Great Depression, a time when money lived in the ground. In 1849, people went crazy when they learned that there was gold in the dirt of California (PBS, n.d.). It’s God’s will, some said. In 1876, eight years after the Federal government signed a treaty with the Sioux Indians, gold was discovered in the Black Hills of North Dakota. Sorry, Sioux Indians, but you’ll have to move (NPS, n.d.). 

It took labor and money to dig up money when it lived in the ground. Now it lives in the digital “cloud.” Are we inherently distrustful of money that can be created with the push of a finger on a computer terminal? Seems too easy. We are 50 years into a system that is untethered from any practical restraint. The Federal Reserve guides their monetary policy according to goals set by a law passed at the height of inflation in the 1970s. They do not have to dig up dirt to get more money. They don’t have to keep gold or silver reserves. It seems like the same magical thinking of a kid who dreams about becoming President.

Presidential candidates must work hard to generate enthusiasm and donations of time and money to fuel their campaigns. A successful candidate for the Presidency usually finds a phrase that resonates with supporters.  In 2008, former President Obama used “Yes, we can” and various combinations of “Change” (List of U.S. presidential campaign slogans, 2020). President Trump used “Make America Great Again” during his 2016 campaign. His current slogan is “Keep America Great.” I heard Presidential candidate Sen. Elizabeth Warren sound out “Fighting Back” at a Virginia rally this past Thursday (C-Span, 2020). Mike Bloomberg has blanketed media with the phrase “Mike will get it done” (Mike Bloomberg, 2020).

In 2016, Marco Rubio and other Republican candidates complained that the inexperienced Donald Trump could buy the party’s nomination with his vast resources. Mr. Trump had promised to spend $100 million of his own money and spent $65 million in the final accounting (Peters & Storey, 2016). This was only half of the $121 million in inflation adjusted dollars that Ross Perot spent on his Presidential campaign in 1992 (Boaz, 2019).

Enter Mike Bloomberg. In the few months since he announced his candidacy, his campaign has spent $400 million (Burns & Kulish, 2020). His political spending is dwarfed by his charitable giving. In 2019, Mr. Bloomberg’s foundation donated more than $3 billion to charity. Unlike President Trump, Mr. Bloomberg has demonstrated his business acumen and has past political experience in the mud pit of New York City politics. He is used to the tough bargaining and political alliances that consume Washington. Mr. Trump knows only intimidation, not bargaining. He is the Twitter version of Venezuela’s former President, Hugo Chavez, who used radio to attack his political enemies.

What entices these billionaires to want a high stress job in Washington? What lies in the ground in Washington is not gold, but great power and reputation. Under FDR in 1932, the Democrats first began to consolidate political power in Washington. World War 2 and the Cold War helped grow that power base. So did the Federal programs of social support – Social Security, Medicare, Medicaid and countless others. Beginning in the 1960s, Congress began to grant the President more executive power to conduct war and administer the growing array of Federal agencies.

As the power of the Presidency grew, each Presidential campaign attracted more money. Through a series of campaign reform bills, Congress attempted to regulate the flow of money into politics. In the past decade, two recent Supreme Court decisions have undone many campaign regulations (Ballotpedia, n.d).

The discovery of gold in California and South Dakota attracted many prospectors who worked hard to grab the prize. Like today’s Presidential candidates, many miners did not have the resources necessary to capitalize on the opportunity. Well-funded companies like Homestake Mining proved successful. This is the era we are in now. Little Johnny or Mary can put away their dreams of being President. Is that good for the country?



Ballotpedia. (n.d.). Bipartisan Campaign Reform Act. Retrieved from

Boaz, D. (2019, July 9). RIP Ross Perot, the Billionaire Who Ran for President. Retrieved from Mr. Perot spent $65 million, or about $121 million in current dollars.

Burns, A., & Kulish, N. (2020, February 15). Bloomberg’s Billions: How the Candidate Built an Empire of Influence. Retrieved from

C-Span. (2020, February 14). Senator Elizabeth Warren Campaigns in Arlington, Virginia. Retrieved from (43:08).

List of U.S. presidential campaign slogans. (2020, February 14). Retrieved from

Mike Bloomberg 2020. (2020). Mike Bloomberg for President: Official 2020 Campaign Website. Retrieved February 14, 2020, from

Peters, J. W., & Shorey, R. (2016, December 9). Trump Spent Far Less Than Clinton, but Paid His Companies Well. Retrieved from

Photo by annie bolin on Unsplash

Manufacturing Miracle Coming Soon

August 21, 2016

In the olden days, like the late ’90s and early ’00s, it was a good thing that America was ridding itself of heavy manufacturing industries. They were, like, so 20th Century, man.  We were entering a new century of computers, the internet and high tech manufacturing.  Compaq Computer, Sun Microsystems (Java), Microsoft, Oracle (databases), and Apple expanded in Massachusetts, Colorado, California and N. Carolina.  Bye, bye old smoke belching industries and hello new clean room high tech industries.  America was becoming a knowledge and service economy.  Let those third world countries like Mexico, China and Thailand make stuff and pollute their cities, and ship the finished products to our shores.

Wind the clock of history to the present day and we are having a markedly different discussion.  Donald Trump, the Republican candidate for President, vows to bring old time manufacturing back to the U.S.  Under pressure from the leftist wing of the Democratic Party, Hillary Clinton pledges to kill the Trans-Pacific-Partnership (TPP) trade agreeement in its present form. The theme of this election: jobs and security.

Remember the billionaire Ross Perot who ran for President in the 1992 and 1996 elections?  Ross and The Charts.  Sounds like a Motown group.   While Perot didn’t get any votes in the electoral college, 20% of voters pulled the lever for him and probably pulled most of those votes away from George H.W. Bush, the incumbent Republican President in the 1992 election.  Bill Clinton won that one with the lowest popular vote in history and may send Mr. Perot a Christmas card each year as a thank you.  Perot said that if NAFTA passed – and it did pass in 1993 – there would be a big sucking sound as jobs were vacuumed from the U.S. into Mexico. In the late 90s, not too many companies had moved to Mexico yet.  The high tech and internet booms were in full swing and the unemployment rate was less than 5%.

 No big suck until…

In 2001 China was admitted to the World Trade Organization (WTO).  Put into a big pot a lot of cheap labor, eager urban planners in China, and lax environmental regulations.  Stir vigorously.  A black hole forms that sucks jobs from America and other developed countries.

From 2000 to mid-2008, before the financial crisis, manufacturing industries lost four million jobs.  Almost 25% of the work force gone in just eight years.  The transition from manufacturing had been going on for several decades but at a much slower pace.  In the previous twenty-two years, from 1978 to 2000, the manufacturing work force fell by two million.  As more product manufactures moved to China and southeast Asia in the 2000s, the job loss rate was five times what it had been in those two decades.

Manufacturing is a stew of many ingredients called the supply chain.  The chain includes the companies that make parts and tools for big industry as well as the transport needed to get raw materials to these suppliers.  It includes the housing, schools, shops and hospitals for a large regional work force.  Donald is going to bring that huge infrastructure back.  All by himself.  Yay for Donald.


Franklin D. Roosevelt and the Banking Panic of 1933

Two days after FDR took office in March 1933, he declared a national bank holiday, shutting the nation’s banks for a week.  For a month before FDR took office, depositors had been withdrawing their money from banks in a concerted panic.  The conventional narrative is that FDR’s quick action saved the banking system from a certain collapse.  But wait, there’s more.  Why were people in a panic?

In order to win the election in November 1932 against the incumbent Herbert Hoover, FDR used a familiar tactic – scare the voter.  In the midst of the Depression, this wasn’t difficult.  Britain had gone off the gold standard in 1931 and American confidence in their financial institutions and their very currency was sorely tested. FDR’s oratorical and theatrical skills helped convince many voters that only an FDR presidency could rescue the American family.

In those days, a new President did not take office until March of the year following a November election. Soon after FDR was elected, people began to fear that he would devalue the dollar once he took office. En masse, people wanted to trade in their dollars for gold or something that could be converted to gold. In the first months of 1933, states began to declare bank holidays to halt the wave of withdrawals but the panic caused many more banks to fail. (A detailed account of the bank panic)

When FDR took office, 35 states had declared bank holidays of various extent.  FDR made the bank holiday a national one that included the reserve banks.  In the ensuing week people grew more confident as they realized that FDR would not devalue the dollar and that the Federal Reserve would guarantee all deposits until a national insurance program could be enacted.  When the holiday was over, people began to return the hoarded money to the banks. To sum it up, FDR’s quick action helped alleviate the panic which was started in part by FDR’s election.  Here’s a more complete account from the FDIC    I wish history was more like the simple version found in our grade school history books.

Labor Report and Debate

A less than forceful President Obama appeared in Denver this past Wednesday at the first of three debates in the closing weeks before the November elections. (The Secret Service was rather more forceful, mandating a shut down of the main north-south highway through town during the debate.)  Republican contender Mitt Romney showed more preparation and assertiveness but unfortunately left some of the facts behind in his hotel room.  Neither candidate can look the truth in the face.  Mr. Obama’s repeated claim that his economic plan saves $4 trillion uses many discredited (even by his sympathizers) gimmicks to arrive at that figure and yet he continues to trot out the assertion.  Mr. Romney really wants us to believe that Congress is going to jeopardize their jobs by taking away popular tax deductions in order to pass his 20% rate cuts.  Congress will pass the rate cuts, which are good for re-election.  Take away the mortgage interest deduction?  We’re not betting on it, Mr. Romney.  The end result of his tax plan and his pledge to increase military spending would be a $2 trillion deficit, double the annual deficit we are currently running.

Mr. Obama continues to pledge his support for the middle class, many of whom continue to slide down from the middle middle class to the lower middle class on their way to upper lower class and downright poverty.  Mr. Obama spent much of the debate consulting his notes on supporting the middle class as though he were teaching a class on the subject.  Note to Mr. Obama: you are no longer in the classroom.  This is the real world.

There are any number of fact checks on claims by both Mr. Romney and Mr. Obama during the debate.  Here is a fairly short summary from several Associated Press writers.

Then Friday morning, the heavens parted and the voice of – no, not God – the Bureau of Labor Statistics issued forth in their monthly pronouncement on the state of the job market: “The unemployment rate decreased to 7.8 percent in September”.

Throughout the country millions of pundits, economists and average Joes and Bettys stopped in disbelief and reached for their ear trumpets.  Had they heard right, they wondered?  Tweet, tweet, tweet went the twittersphere.  Blah, blah, blah went the blogosphere.  Lies, lies, lies went the right wing cons over at Fox and dance, dance, dance went the lefties at MSNBC.  For the first time in his presidency, Mr. Obama has seen the unemployment rate drop below 8%.

Had a large number of people simply given up and left the work force, causing them not to be counted as unemployed?  This has been a characteristic of the decline in the unemployment rate earlier in the year.  But not this month. 

Was the number of jobs created particularly strong?  Not this month.  At 114,000, job growth was not strong or weak and probably not enough to keep up with population growth.  A third of that job growth was in the health care sector.  A nation that continues to show its greatest growth in taking care of an aging and poorer population is not building a foundation for sound long term economic growth.

Many of the unemployed simply did the best they could do – get a part time job.  The number of involuntary part timers increased by more than a half million this past month. From the BLS Employment Release:

“The number of persons employed part time for economic reasons (sometimes
referred to as involuntary part-time workers) rose from 8.0 million in August
to 8.6 million in September. These individuals were working part time because
their hours had been cut back or because they were unable to find a full-time

There are good and bad trends that cause the unemployment rate to fall.  The two most problematic of the bad trends are 1) unemployed people simply giving up, and 2) involuntary part timers.  We have now seen both of these trends this year.

The steep drop in discouraged workers contributed to the decline in the unemployment rate.

“Among the marginally attached, there were 802,000 discouraged workers in
September, a decline of 235,000 from a year earlier. (These data are not
seasonally adjusted.) Discouraged workers are persons not currently looking
for work because they believe no jobs are available for them.”

Below is a 10 year graph showing the level of discouraged workers. (Click to enlarge in separate tab)

Another contributing factor was the revision in the number of net jobs gained in the two previous months.

“The change in total nonfarm payroll employment for July was revised from
+141,000 to +181,000, and the change for August was revised from +96,000 to
+142,000.”  Last month, many were scratching their heads when the BLS released their August report showing a dramatically lower number of jobs gained than reported by the payroll processing company ADP. It seems that some companies may have been too busy hiring to fill out and turn in their August BLS survey form.

Discouraged workers comprise part of a larger total of 6.4 million people who want a job but have not actively looked for one in the past 4 weeks.  A year ago, in Sept. 2011, the figure was 5.9 million.

Homebuilder stocks have been on a tear this year but construction employment, at 5.5 million, has barely budged in the past 3 years.

The core work force, those aged 25 – 54, continue to show some improvement but still have not reached the post-recession level of late 2009.

In the larger work force, aged 25 and up, the number of employed has risen almost to pre-recession levels, indicating that there are more older people continuing to work when they can – at full or part time jobs. 

As the population ages, so too does the work force – a natural demographic change.  But older workers are not stepping aside for young workers just entering the work force.  Those who can work do so to compensate for the lackluster growth or decline of retirement funds and declining property values, the two chief sources of wealth that a person builds over a lifetime of work. Below is a graph of workers aged 55 and older.

The number of hours worked per week edged up slightly – a good sign.  But – “over the past 12 months, average hourly earnings have risen by 1.8 percent, ” the BLS report notes, indicating that family earnings are just not keeping up with inflation.

On the bright side, we are doing better than much of Europe which is probably already in recession.  Returning to the topic of debates, did we hear either candidate offer a recovery plan for … not this past recession but the one that will probably occur during the next Presidential term.  “What!!!???” you say, “we haven’t even gotten out of this past recession!”  The law of averages, like the law of gravity, is a pesky, problematic force of nature.  The 1960s and the 1990s are the only two decades in the past century where we did not witness a recession within an eight year period (Source), yet few Presidential candidates dare to discuss the eventuality of such a thing.  Even the Congressional Budget Office does not factor in recessions to their ten year budget projections unless the recession is ongoing.  As the Presidential contender, Mr. Romney must play the part of the man with a plan.  After four years, Mr. Obama probably understands that “hope and change” is little more than rousing rhetoric; that the President must steer the raft through dangerous currents without capsizing or losing any passengers, while the other political party rocks the raft enough to make his task even more difficult.  Should Mr. Romney win the Presidency, he will discover the same sobering truth.

The Job Growth President

Both incumbent President Barack Obama and Republican challenger Mitt Romney are making the case to American voters that each has better policy answers for future job growth.   Obama touts total job gains of 4+ million jobs since the recession ended.  Romney points out that this is less than half of the 9 million jobs lost since the end of 2007.

An economy is a dynamic resolution of the tension between supply and demand among all the people, companies and governments that participate in that marketplace.  Obama’s approach focuses on the demand side of the economy and believes in government borrowing and spending to temporarily take up the slack in private sector demand. The stimulus of government spending is supposed to both support and kickstart demand in the private sector, particularly consumer demand.  The fault of focusing on the demand side of an economy is that “demand-siders” presume that the supply side of the economy will naturally increase production to meet the sustained or increased demand.  In 2009, the Obama administration, together with a Democratic House and Senate passed a stimulus bill that included a lot of money for sorely needed infrastructure projects.  Democrats, most of them demand-siders, simply assumed that there would be a number of “shovel-ready” projects on the drawing board, projects that would employ construction workers laid off during the severe housing decline.  Since demand-siders do not pay as much attention to the process of producing or constructing something, they were dismayed that there were so few such projects ready to go.  Decades of labor, environmental impact and traffic impact regulations had dramatically increased the planning time required for many highway improvement projects.  At a meeting with his council on stimulus planning, Obama commented wryly, “Shovel-ready was not as shovel-ready as we expected.”

Romney’s approach focuses on the supply side of the economic dynamic.  “Supply-siders” believe that the government’s role in the economy should be limited; that government should remove many regulatory barriers and hinderances to the producers of economic goods and services.  The fault of this approach is that it presumes that consumer and inter-business demand will naturally increase as producers are able to make more goods and products available at a cost that has been lowered by the removal of hurdles to production.  The producers will hire more workers, will buy goods and services from other businesses who will hire more workers;  demand will inevitably increase which will support and stimulate more production.  Many adherents of the supply-sider hypothesis believe that defense of the country is a government’s primary proper role.  They advocate a large amount of military spending but regard taxation as a barrier to production.  These two competing and antagonistic ideas – more military spending, less tax revenue per dollar of economic activity – has resulted in large budget deficits which contradict the professed fiscal frugalness of many in this ideological camp.  Libertarians advocate a more consistent supply-side philosophy, arguing for lower military spending in addition to reduced government spending on social programs. 

Demand-siders argue that workers are both producers and consumers.  Supply siders contend that workers are consumers but not producers; workers are a cost of production.  Demand-siders focus on domestic civilian consumption.  Although supply-siders do not focus on consumption, they do emphasize military consumption.

Who is right?  Both of them and neither of them.  The political discourse and election structure aims to separate people into ideological and emotional teams; over the past decade many politicians who were less polarized in this debate have lost their seats.  A hundred years ago, this country began a transition away from party leaders picking candidates for national office to a primary system whereby voters would choose candidates.  In the two decades after World War 2, our political system made a complete transformation to a primary system, which has produced two increasingly polarized political teams.  A small group of voters in each political camp now elects the candidates for national office; in the last presidential election, less than a 1/4 of registered voters voted in the primaries.  We have traded a system where party bosses in a backroom picked candidates to one in which a small contingent of passionate people pick candidates.  We need a new system.

In his “Believe in America” plan Romney asserts that his policies will foster stronger job growth. (Long version and Short version).  They include reducing the corporate income tax rate, more free trade agreements, more oil and gas leases, reducing federal retraining programs and a 5 percent reduction in non-defense discretionary spending, a relatively small reduction in federal spending of $20 billion, or 1/2 of 1% of total federal spending. (Discretionary spending is government spending which excludes those social programs like Social Security and Medicare and Medicaid whose spending is on “auto pilot”).  Romney’s proposals are consistent with a supply-sider philosophy.

Beginning with the conventions in these next few weeks, both political campaigns are about to go into full court press during the remaining days before the election in November.  Each candidate will argue that their approach will foster job growth.  What neither candidate will tell us are some of the complexities that continue to trouble economists who study the labor market.  Why has job growth been rather anemic during the recoveries of the past thirty years?  Below is a chart of the year-over-year (yoy) percent gain in employment.

Notice two changes in the pattern:  the frequency of job losses has decreased but so have the employment gains during recoveries.  Economists at the Federal Reserve have analyzed the factors for this long term trend and concluded: “The analyses discussed here suggest that weak labor demand is the primary explanation for prolonged unemployment duration observed in the recent recession and recovery. The weak recovery of employment is similar to the jobless recoveries that followed the 1990–91 and 2001 recessions. This suggests that the labor market has changed in ways that prevent the cyclical bounceback in the labor market that followed past recessions. ” (Source)  The authors of the study analyze and isolate several factors to account for the change, including changes in how the numbers are reported, the longer duration of unemployment benefits, and the reduced manufacturing production in this country which would respond quickly during recoveries and recall laid off workers.  Weak labor demand is the chief culprit of anemic job growth and the lengthening duration of unemployment.  Why?  In the past thirty years, underdeveloped countries in Asia, India and South America are now offering a ready supply of un-educated or moderately educated workers.

The increase in the global labor supply is a particularly challenging problem because it is accompanied by an increase in productivity; i.e. less workers are needed to produce a unit of something.  Obama’s answer to this problem is more government support for educating young people and retraining those in the workforce whose skills are not suited to the changing demands of producers.  Obama has essentially given up on jobs for low and moderately educated U.S. workers other than government spending on infrastructure projects.  He hopes that American workers can command more of the global market for highly skilled workers. 

Romney wants to reduce federal retraining programs for workers and turn that task over to states.  He hopes that, somehow, someway, businesses with lower production costs will hire more workers.  More oil and gas drilling will employ more moderately educated workers but even Romney knows that these job gains are modest relative to the entire labor market.  More defense spending will employ workers in defense industries but many of those jobs require higher skills; lower skilled workers will benefit as a consequence, as part of an economy that supports defense contractors and military bases.  Increasing the number of soldiers reduces the number of available workers and reduces unemployment.

Neither candidate proposes to address an intractable problem:  too many workers around the globe.  Below is a chart of the y-o-y change in the number of people employed.  Due to a glut of workers, the structure of the labor workforce in this country is inherently weak.  The chart below shows the drastic drop in employment.

A winning economy, like a top-rated tennis player, blends strategies.  Politicians and players that strictly adhere to a school of thought or a school of play lose out to those are able to see and employ the benefits of differing strategies.


Obama’s GDP Problem

In these home stretch months before the election, President Obama and Republican nominee Mitt Romney will be repeatedly challenging each other’s economic performance; Obama as President and Romney as Governor of Massachusetts.  Already the initial attack ads of both campaigns are running and each has plenty of factual ammo they can aim at the other.  Contrary to all common sense, we continue to measure Presidents by the health of the economy.  Although Congress is largely responsible for the laws that govern the economic dynamo of a country, we look to the President to set priorities for Congress – or at least that’s what we tell ourselves.  In truth, we are rather simple minded and prefer to hold one man responsible rather than a group of 535 Congress people and Senators. 

For some background, let’s take a look at a chart showing the real GDP, that is GDP in constant 2010 dollars, per capita over the past five decades.

Then zoom in on the last ten years, showing the severe decline of per capita GDP during this recent recession.

Now let’s look at the total per capita GDP growth by President.  If real GDP per capita was $100 when a President took office and $120 when he left office, then total real GDP growth was 20% during that President’s watch.  We’re not going to look at the annual percentage of growth, only the total.  For the most recent GDP data I have used BEA estimates of $15,454 trillion as of the first quarter of 2012. I have used Census Bureau estimates of a total population of 313 million and a BLS inflation factor of 2.186 since 2010.

Almost by instinct, the voters do not re-elect Presidents who are at the helm of a low growth country.  Below is a chart of the first term total real GDP growth of Presidents who were re-elected.  I have not included Johnson because he only served for a year before he was re-elected.

As you can see, GW Bush was the only President re-elected with a total growth gain less than 10% and Bush won re-election by winning Ohio by two percentage points or 118,775 votes.  Had 60,000 voters cast their ballot for Kerry, GW Bush would have lost Ohio’s 20 electoral votes and the election.  As the first Presidential election after 9/11, the election focused more on national defense and foreign policy, not the economy.  A barrage of attack ads, the Swift Boat campaign, against Kerry in the last weeks leading up to the election proved to be a decisive factor in Bush’s re-election.  Had the election concentrated more on the economy, Bush probably would have lost the election.

I have listened to several conservative pundits who criticize Obama for continuing to run against Bush’s economic policies, contending that it has been 3-1/2 years since Obama took office.  Many conservatives are devotional acolytes of the Ronald Reagan legacy and their devotion often clouds their memory.  Obama is using the same strategy that Reagan did in 1984, who ran against Carter’s former Vice President, Walter Mondale.  I will paraphrase a common refrain of Reagan during his re-election bid: “Do you want someone (Mondale) who helped get us in this mess in the first place?” Reagan asked.  The voters answered a resounding “No” and sent Mondale down to a crushing defeat.  Reagan employed this tactic of running against a former President despite the relatively strong growth during his first term. 

Although Obama’s total GDP growth is better than GW Bush’s total, it is less than former President Carter, a guy who lost his job over relatively weak growth and Obama’s 1st term growth numbers are less than Bush’s first term growth. A strong 1st quarter of economic growth in 2012 has helped pull up the President’s economic growth numbers but the first reading of 2nd quarter GDP growth that comes in July may further weaken his chances just before the election.  By the time 3rd quarter GDP numbers come out in October, many voters will have already made up their minds.

For his part, Romney’s tenure as governor of Massachusetts was hardly exemplary.  We will have two contenders for the Presidency running on an economic platform and neither one of them has a strong record of economic growth while in office.  Both campaigns will have plenty of arrows in their quivers and each candidate presents an inviting target.  Enjoy the show!

Recession and the Presidency

On Tuesday, President Obama will give his annual State of the Union address to Congress and the nation.  This past Saturday, South Carolina chose Newt Gingrich, the former Speaker of the House, as the front runner in their Republican primary.  In three grassroots states, Iowa, New Hampshire and South Carolina, primary voters have chosen three different Republican contenders who are vying for the Chief Executive Office.

For the past 150 years, every President except Lyndon Johnson, Jack Kennedy and Bill Clinton has had to contend with recession during their tenure. (NBER Source)  Every Presidential contender promises that they are going to stop the vicious business cycle that inevitably leads to recession.  With the advent of “JIT” – Just In Time Inventory – increasingly adopted by businesses and their suppliers in the mid to late 90s, recessions were pronounced a thing of the past.  No more would there be an excess build of supply by the nation’s businesses, leading to a sagging economy when product demand inevitably fell.  Advances and investments in technology enabled businesses to respond quickly to fluctuations in demand.  As the milennium approached, it was truly the dawning of a new age.

What was dawning was the advent of a secular bear market, a long period of time when the market falls for a few years, struggles up again, then falls, then rises again as fear and hope compete against one another.

A few weeks ago, I noted that in the middle of 2011, we had finally come out of an almost four year  recession.  This was not the official National Bureau of Economic Research end of the recession.  That happened in the middle of 2009.  This mid-2011 recession end was the “How It Feels” variety as real GDP finally gets back and surpasses the level it was at before GDP started its decline.

Below is a graph comparing the official lengths of recession and the “how it feels” recession length and a comparison of the two during each President’s tenure in the past sixty years.  This comparison helps explain the mood of the country when Presidents Ford, Carter and HW Bush lost re-election bids (Ford was actually not up for re-election since he had taken over the Presidency when Nixon resigned in August 1974).  The chart also gives an insight into the success of re-election bids by Eisenhower, Nixon, Reagan, and GW Bush. The economic pain was either less than or about equal to the official figures of economic distress during their presidencies.

As he prepares for his third State of the Union address, the lesson for President Obama is stark.  History unfortunately repeats itself.  It is also a lesson for any Republican Presidential hopeful; the odds are that he will have to contend with a recession during his tenure if he wins election.  On the campaign trail, how many Presidential hopefuls of either party ever broach the subject of what their administration will do during the eventual recession while they are in office?  Better to promise that it won’t happen on their watch.  It will.


Obamanomics, Reaganomics, Clintonomics – we love our monikers, our taglines that we lay on a President and his administration.  We don’t need to bother with facts or complexity when we have a simple moniker.  Proctor and Gamble have known that for years.

The conservative media often paints the Reagan years as a time of economic prosperity, appealing to romantic idealists with a highly selective memory of the facts.

Is the unemployment rate too high now?  Yes.  Were the Reagan years the Golden Age of Unemployment?  No.  During Reagan’s two terms the average unemployment rate was 7.5%, according to the Bureau of Labor Statistics. No post WW2 president has done worse, although Obama is trying.

Is 3 – 4% unemployment rate normal?  No.  Until the late nineties, the guideline was that an unemployment rate less than 5% was inflationary or indicated a bubble of some sort in the making. In the late 90s, there was supposedly a new paradigm, a new economy and those old guidelines no longer applied. We now know that the low unemployment rate of the late 90s was a tech bubble in the making. During the 2000s, the low unemployment rate was a housing bubble in the making. As a rule of thumb, the “ideal” UI rate would probably be 5.5% – not too hot, not too cold.

During the two Clinton administrations, the UI rate averaged 5.2%.  George W. Bush maintained that same average.  The single term of his Dad was marked by a 6.3% average, slightly lower than the 6.5% average of the four years under President Carter in the late 70s. 

The winner in the unemployment department was Johnson, with a 4.4% average UI rate during his 6 year tenure.  Not only did the Vietnam war take a lot of working age men out of the workforce but the defense spending was a boom to the economy.  Within 2 years after Johnson left office, the stock market bubble deflated, losing 25% of its value.

Second place for lowest unemployment goes to Eisenhower whose 8 year term enjoyed a 4.9% unemployment rate.  Eisenhower takes first place among post WW2 administrations for the number of recessions – 3.  The chief reason for these were changes in monetary policy by the Federal Reserve.

Selective memory is a cornerstone of both progressive and conservative media. 

Did Reagan begin the destruction of manufacturing in this country?  No.  Did Clinton and the signing of NAFTA in 1993 destroy manufacturing?  No. As the chart below shows, manufacturing jobs actually increased after NAFTA was signed.  The dramatic decline began at the beginning of the first G.W. Bush administration.

BLS Source

Where did those 4,271,000 manufacturing jobs go?  Some of them went overseas. Almost a million of them, or 20%, went into Construction.  1.4 million went into state and local government.  The majority of them went to various service industries, where the pay, on average, is lower.

BLS Source

With the wave of my hand, I am going to magically undo the housing bust and add back the 2 million construction related jobs lost since the height of the real estate bubble.  What is the unemployment rate in this fairy land?  Still a high and unacceptable 7.7%.  With another wave of my hand, I am going to add back in the 4 million manufacturing jobs that have disappeared during the past decade.  What is the UI rate in this Never-Never Land?  5.3%.  6 million jobs magically added to the nation’s payrolls and the unemployment rate is STILL over 5%.

That is what most in the conservative and progressive media don’t get.  Stop bashing or praising Bush, Clinton, or Reagan.  We have a much more serious problem in this country – structural unemployment.  Broad technological changes dawned during the Reagan years, then accelerated during the Clinton and Bush administrations, sparking a widespread use of the computer, the internet and other electronic technologies.  Millions of bookkeepers, cashiers, phone receptionists, stock brokers, salespeople and highly skilled fabricators are no longer needed in this economy because sophisticated machines and  programming have eliminated their jobs.  No political philosophy by either party, no President, no international cabal put these people out of work.  Efficiency and imagination put them out of work.

Our job, as a people, is to figure out how we are going to reconfigure our society when we can anticipate having a UI rate of 7% or more.  As the boomer generation phases out of the workforce, that percentage might come down to 6% for a few years but, as they are drifting out of the workforce, the “Echo Boomers” are now entering the workforce. The lower UI rates of the bubble years in the late 90s and 2000s are over, yet I occasionally talk to people in their twenties and thirties who think 4% unemployment is “normal” because it’s all they have known.  4% is not normal.  Until we accept this structural unemployment and deal with it, we are doomed to escalating deficits and strained social programs which try to cope with the needs of those who are not employed, both seniors and the unemployed.

The relatively high unemployment of the Reagan years will be the standard for the coming decade and beyond.  The Obama administration is on track to surpass the record that the Reagan administration set for unemployment and wishes that presidential history would repeat itself.  In 1984, the Democrats put up a tired and uninspiring party hack, Walter Mondale, and Geraldine Ferraro, the wife of a possible mob boss, as competition against Ronald Reagan, who swept the vote.  Obama probably wishes that the Republican party would do him the same favor.  Presidents with high unemployment need help from the other party.