It's the fundamentals of the economy, stupid...

Today's NYT Business section has Leonhardt offering his prognostication for the economy over the next couple months (while he will be away on paternity leave, good man). Leonhardt discusses unemployment, oil prices, education and home prices in a cogent analysis concluding with the idea that there are some fundamental problems underlying the current American (almost?)-recession.

Regarding unemployment, Leonhardt proposes viewing this issue not through an anti-globalization lens, but by noting what he (and the authors mentioned below) term the innovation deficit.

If you want to understand the causes of the innovation deficit, I’d recommend adding one serious book to your summer reading list: “The Race Between Education and Technology,” by Claudia Goldin and Lawrence Katz, two labor economists.

They argue that the American prosperity of the 20th century sprang largely from the country’s longtime lead in educational attainment, a lead that has all but vanished. Future prosperity won’t be based on saving yesterday’s high-wage jobs, as Mr. Katz told me. It has to start with smarter, more strategic investments in education, physical infrastructure and other things that can create the high-wage jobs of tomorrow.

I am a firm believer in the fact that rolling back globalization is not the answer to our problems, and that the appropriate solution to maintaining the accepted American standard of living is to increase our educational attainment levels. The continual chasing of jobs that, in the words of THE BOSS "are going boys, and they ain't coming back," is a reactionary approach to a problem that requires proactive investment in our greatest asset, our people.

Leonhardt goes on to discuss how oil prices are inflated, not by speculators as many politicians would lead you to believe, but by fundamental forces of supply and demand. The world is consuming ever more vast amounts of oil and supply is growing at a much lower rate. Anyone with a basic understanding of economics will tell you that this means an increase in price. Additionally, Leonhardt postulates that the housing values in America will continue to decline over the rest of this year and likely into next year. I know that in comparing prices relative to incomes or rents here in Madison yields a housing market that is still significantly above the historical (and sustainable?) levels.

For the first time on record, an economic expansion seems to have just ended without most families having received a raise. For the first time on record, the typical home price nationwide is falling. The inflation-adjusted value of the Standard & Poor’s 500-stock index has dropped 20 percent in the last year — and 30 percent since its peak in 2000.

I think the public has called this issue exactly right: the American economy has some real problems. Even if this summer’s downturn turns out to be mild, those problems aren’t mild — or simple — and they aren’t going away anytime soon. It’s going to take some real work.

So, as we ride out this economic downtown, let us hope that our business and political leaders recognize that this is not simply a "short and shallow" recession, but should be an economic wake up call to all of us. Our current levels of consumption relative to production will be difficult to sustain over the long term, our desire for lower oil prices won't make it a reality and a lot of people will lose significant amounts of equity in our homes (which is directly related to the inability to sustain current consumer spending, given that so much of it is reliant on home equity lines of credit). So, here's to a good summer and to hope that we are able to both individually and collectively reevaluate our consumption, spending and economic actions.

That didn't take long...

The Donkey's addendum to the growing list of greivances provided at Mel-Anon.

As impressed as I have been with the Obama campaign, one of the lingering issues I have had is popping it's head up in today's NYT. At issue is Mr. Obama's support of ethanol as a viable renewable energy source.

Many economists, consumer advocates, environmental experts and tax groups have been critical of corn ethanol programs as a boondoggle that benefits agribusiness conglomerates more than small farmers. Those complaints have intensified recently as corn prices have risen sharply in tandem with oil prices and corn normally used for food stock has been diverted to ethanol production.

It seems to me that Obama is about as far from right on this issue as one can be without trying. His continued support of farm subsidies that primarily benefit the big corporate farm interests is a problem. These subsidies also create an inherent policy preference towards corn and soybeans, which we don't really need to produce at the level we do. (Maybe he should call Wisconsinite Ron Kind). He also continues to support the tariffs on Brazillian ethanol, which offers significant protection to these same corporate farm interests. Lest we mention, that the Brazillian ethanol is at least three times as efficient in rating energy output vs. input ratios. So, the Obama support of ethanol seems to me to be less about ethanol and energy independence than it is about keeping Archer Daniels Midland happy. This is a real issue, and I can only hope that the campaign wises up a bit.

Feminism, Poverty, Crime, Electric Cars, 11 Big Ideas...

and more. All in the July/August edition of The Atlantic. This issue is being billed as the "ideas" issue, which being the donkey I am begs the question, what are all the other issues supposed to be? But on a more SERIOUS note, there are a number of very interesting components to this summer issue. I would love to link to each of these articles or essays, but unfortunately they are not up on the website (previously linked) as of the date of this being published. Following is a brief rundown of the issue's more interesting components:

Hanna Rosin discusses the rise of crime in many American cities, specifically those of the mid-sized variety. This article focuses on Memphis and specifically on the correlation between crime and the prevalence of Section 8 vouchers in an area. There are countless issues that arise out of discussing this correlation, and many officials are wary to do so, but even if it isn't causal (and what is really when you talk about poverty and crime) there is plenty of room for discussion here.

Nicholas Carr offers the cover story on the effects of the Internet on our brains. I know that a couple of the passages resonated particularly strongly with me, such as

"What the Net seems to be doing is chipping away my capacity for concentration and contemplation. My mind now expects to take in information the way the Net distributes it: in a swiftly moving stream of particles. Once I was a scuba diver in the sea of words. Now I zip along the surface like a guy on a Jet Ski."

I know the feeling. It does seem we are altering our ability to handle large swaths of difficult text.

I didn't read the article on "What Rumsfeld Got Right," because I'm pretty sure the correct answer is two words: Not much.

The 11 1/2 biggest ideas of the year, penned by a variety of contributors (including Fallows, Crook, and Sullivan) offered promise -- but came up a bit short to me. The surge, renting, post-partisanship, mass-market atheism, torture, social networking politics, the return of regulation, personal genomics, not bombing Iran, Carbon Consciousness, the End of 9/11, and being lonely at the top (an aside on the sexual escapades of the powerful) all seem so intriguing, but are glossed over a bit... Maybe they read the Carr piece?

Jonathan Rauch's piece on the Chevy Volt (electric car) project was a good read and offered an interesting look at a project that has lots of hope for America, the world, the environment and GM. All this hope, of course, makes one wonder if it can possibly fulfill it's promise. Rauch doesn't hold out much hope for the behemoth of a company being able to fulfill all of the promises made, but seems to think some good may come from this. We shall see.

Goldberg offers us a piece on the science of "neuromarketing," whereby scientists attempt to map our brain's activity and response to images. This could be used to discern the success of an advertising campaign of course, but as Goldberg points out is more likely to be a vanity project for the well to do and overly self interested in the near term.

"Distracting Miss Daisy" is another argument for limiting the number of traffic signs all over the American roadway. This idea has been floated around before, but we seem to love the idea that a sign makes us safer, when studies and statistics seem to indicate otherwise. The biggest boon to traffic safety is more aware drivers, and four way stops are just one example that makes true awareness of the surroundings secondary to obedience to signage.

I skimmed the article on Rupert's plans to take the Wall Street Journal to war with the New York Times, which probably makes Rupert happy and the author Mark Bowden said, given that Rupert's idea of journalism is focused primarily on scooping a sensational story and using that to fill the content of all his various outlets. Damn, I have to reread this article just to piss him off now.

The Critics section has a lot to offer as well, with Hitchens on Rushdie; Sandra Tsing Loh on modern women's work, parenting, etc.; and Virginia Postrel on a new theory of the leisure class based around inconspicuous consumption. The Tsing Loh and Postrel pieces are very good, and should be read for yourself, so I won't go into too much detail here.

Wow, kind of a long post, but I have to admit this issue was one of the most satisfying print mags I've read in quite some time... and I'm totally SERIOUS.

100 metro areas carbon foot print...

per capita. Brookings has issued a report ranking 100 metro areas on their carbon footprints. I found it interesting that the bottom five were all either in or close to the good old Hoosier homeland. Of course, I shouldn't get too high and mighty as I sit here in Madison, where we are apparently 81st. Oops, so much for being a green city.

I haven't read the entire report, but I would be interested to see how certain elements were handled. The article in the NYT mentions the effects of centralized transportation hubs (e.g. ports and railway centers), but I would also question the validity in comparing some of the smaller Metros to the very large ones. For example, it seems quite likely to me that there is a fixed cost (in carbon footprint) of creating, transporting and providing the infrastructure, goods and services to the population of any area. It would seem, however, that with exceptionally high density (e.g. New York or LA) that the incremental cost for additional residents should be significantly lower than for a smaller metro. I think this is just another example of the Brookings Institute's West Coast Bias, which is promulgated by employees who are trying to get even at the college sports media for always dissing the PAC-10.

Op-ed page offers two goodies...

I know, you can't believe one of them isn't Billy boy, can you? Today's NYT Op-ed page features Tommy Friedman on energy policy and Amartya Sen on food prices.

Friedman aims to send a message to the consumer and automobile manufacturer both via a permanent floor of $4 per gallon of gasoline (1/2 the Euro zone going rate, he adds pertinently)...

But the message going forward to every car buyer and carmaker would be this: The price of gasoline is never going back down. Therefore, if you buy a big gas guzzler today, you are locking yourself into perpetually high gasoline bills. You are buying a pig that will eat you out of house and home. At the same time, if you, a manufacturer, continue building fleets of nonhybrid gas guzzlers, you are condemning yourself, your employees and shareholders to oblivion.

What a cruel thing for a candidate to say? I disagree. Every decade we look back and say: “If only we had done the right thing then, we would be in a different position today.”

Sen also develops an interesting argument related to the food price increases and how they are related to the increase in consumption (demand) of the fast growing economy's winners, at the expense of those winners fellow citizens who are not winning in the global economy.

It is a tale of two peoples. In one version of the story, a country with a lot of poor people suddenly experiences fast economic expansion, but only half of the people share in the new prosperity. The favored ones spend a lot of their new income on food, and unless supply expands very quickly, prices shoot up. The rest of the poor now face higher food prices but no greater income, and begin to starve. Tragedies like this happen repeatedly in the world.

Of particular note, is the fact that energy policy collides with food policy in the fields of Iowa, where we continually use countless bushels of corn to fuel our gas guzzling hybrid SUV's while empty stomachs ache for some of that fuel...

In 2005, the United States Congress began to require widespread use of ethanol in motor fuels. This law combined with a subsidy for this use has created a flourishing corn market in the United States, but has also diverted agricultural resources from food to fuel. This makes it even harder for the hungry stomachs to compete.

Gas consumption is down...

A whopping 0.6 percent from last year. Which, given the 70 cents a gallon (22%) increase over last year, would seem to indicate that if gas rises to $11 a gallon we might cut 10% of our consumption. I recognize, of course, that there is a cliff at which consumption will drastically be ratcheted back, but am admittedly intrigued by the fact that after all of the news about the effects of the increase in fuel costs we have cut consumption by a whopping 0.6%. This just confounds me. I wonder if anyone in Congress is questioning their complete ineptitude with regard to CAFE standards over the past 23 years? I doubt it, but they should recognize that their own capitulation to the auto industry is a significant contributory factor in the current situation, whereby even with large increases in price we are struggling to even hold the line on consumption. I guess you should also blame urban (or suburban) planners, auto manufacturers, and consumers, but it seems to me that a truly strong energy security policy needs to be set from DC.*

* Though I'm beginning to like the small approach favored by sustainable agriculture folks who were left out to dry by the feds for years and are developing their own alternative system of food production. Unfortunately, this may be a little harder to emulate with regards to alternative and sustainable energy.

The Triple Threat...

Perusing the NYT today, I found a very interesting snippet in Friedman's column.

“Call it the triple deficit,” said Mr. Rothkopf. “A fiscal deficit that will soon have us choosing between rationed health care, sufficient education, adequate infrastructure and traditional levels of defense spending, a trade deficit that has us borrowing from our rivals to the point of real vulnerability, and a geopolitical deficit that is a legacy of Iraq, which may result in hesitancy to take strong stands where we must.”

Rothkopf is a visiting scholar at the Carnegie Endowment, and author of the new book Superclass, which I may have to read despite it's conspiracy theory sounding blurbs...

Each one of them is one in a million. They number six thousand on a planet of six billion. They run our governments, our largest corporations, the powerhouses of international ?nance, the media, world religions, and, from the shadows, the world’s most dangerous criminal and terrorist organizations. They are the global superclass, and they are shaping the history of our time.

Under any circumstance the "triple threat" mentioned hits on a lot of my concern with the current American situation. How do we work through these three deficits? I don't know the answer to that, but I do know we aren't doing much to address any of the three at this time.

And the survey says...

According to a CNN/Opinion Research Corporation poll from late April (partially available at pollingreport.com), 60% of respondents stated that the increase in gas prices have caused some financial hardship in their lives. Of particular note here, is the fact that this is down 12% from the 72% who responded in the affirmative to this question in March. This doesn't make much sense to me, unless if the coverage in March focused on the issue more, and therefore informed consumers to be worried little folks during that time... Of course, this is entails taking a rather negative view of the ability of the populace to fully weigh the realities of higher priced oil to their own lives. Or, maybe folks were comforted knowing the $1,200 was in the mail.

Of more interest to me is the fact that 78% of respondents think it is likely that they will pay $5 a gallon for gas at some point this year. Even more astonishing is that 44% think it is very likely to occur. I have to admit that this view is even more pessimistic than I am on energy prices, as I would peg it to top around $4.40 a gallon in mid to late summer. Additionally, five out of six respondents think oil companies are making too much profit, while 13% feel it is a reasonable profit. This poll also shows us that 3% of the respondents have some vested interest in oil, or so I would venture, given that this is the percentage that claimed oil companies were not making enough of a profit!!! For real?

Friedman returns, "Dumb as We Wanna Be"

Mr. Friedman graces us with his opinion in today's NYT, focusing on energy policy. The long and short of it is that our politicians are failing us in a serious way. With Clinton joining McCain in calling for a gas tax holiday and the Bush-Congress inability to figure out a compromise on tax credits for renewables, we are faced with an energy policy that is working directly against our long term sustainable interest.

The McCain-Clinton proposal is a reminder to me that the biggest energy crisis we have in our country today is the energy to be serious — the energy to do big things in a sustained, focused and intelligent way. We are in the midst of a national political brownout.

I hate to focus in on the word Serious (I know Mr. Mel-Anon loves to abuse it), but I really think Friedman is on the money in this instance. Political pandering, or transactional politics, or whatever you wish to term it isn't horrible in and of itself, but when it encourages and incentivizes behavior that is against our long term public interest it really gets my goat. I'm not suprised that the McCain camp would stump for a shortsighted and ass backwards policy, but Clinton joining in is truly disappointing. I don't see how a campaign that highlights it's candidates policy credentials can keep a straight face when it comes to such a silly proposal.

If you want to help Joe and Jane Sixpack, start by developing an energy policy that reduces our reliance on non-renewables and focuses on conservation.