When is the value of something not its true value? When you’re adding up Gross Domestic Product (GDP) of course. That may sound ridiculous, given that the rise and occasional fall of GDP is the yardstick by which we measure how we’re doin’ as an economy. Isn’t it just the sum total of all the goods and services that we produce?
The short answer is “no”, but the long answer is “yes”. It depends a lot on what you mean by “goods” or “service” or “produce”. If that sounds like a huge amount of fudge for something so important, you may want to just enjoy the chocolate induced coma for a bit. Because some goods, like computers and software, have been falling in price but increasing in potential and quality dramatically for a while. Hardware is “hedonically adjusted” to take care of this, but software isn’t. And that difference might be extremely important.
Big incentives lure a big employer into town. It’s the dream many rural regions coping with high unemployment and a “brain drain” of their best and brightest long for and have often put up big subsidies to make it happen. Sadly, however, the dream doesn’t last long and many small cities which put their futures on the line saw the big employer move on. We’ve seen this happen for decades, and usually call it “corporate welfare”.
Today is no different, except for one thing – business is moving much faster and the net time from groundbreaking to heartbreaking is only a few years. That was the experience in Dubuque Iowa and Columbia Missouri who spent a total of $84M luring IBM to expand in their towns. Six years on, a struggling IBM has let go of half of their staff in those places.
How effective are these subsidies? And why does this keep happening?
When will the Fed raise interest rates? If you ask investors, the answer is “Not this year”. Bets have been placed on bond futures which imply that the Fed Funds Rate will be no higher than a quarter of a percent at the end of the year – hardly any rise at all.
But if you ask the Fed, it’s going to come soon. Why doesn’t anyone believe them?
Last week the Bureau of Labor Statistics (BLS) announced labor productivity declined for the second straight quarter. It’s a worrisome figure for many reasons, the most important being that this is usually the signal of an upcoming recession. Headlines in the financial world were quick to fret that this is the first back-to-back decline since 2006, a strong signal in advance of the big recession in 2007.
Should we be worried? This is never a good sign, but the situation is very different. There are very good reasons why there is a decline in productivity and they all have the potential for signaling a recession ahead. But it also may be the last gasp of the bizarro economy where good news comes to us in the form of bad news, at least at first.
“Half the money I spend on advertising is wasted, the trouble is I don’t know which half.”
– John Wanamaker, Philadelphia retail giant, circa 1893
During the internet boom that defined the previous bull market, before 2000, one thing was clear. Advertising as we knew it was dead. Any maven or guru of the ‘net pointed to the ability to target audiences with pinpoint precision and collect real-time data on how effective the spending was. It was a feature that broadcast, direct mail, and print media would never be able to achieve.
Fifteen years on, we can see just how this has worked out. The short answer is that advertising is just as wasteful and untargeted as ever, even online. Worse, advertisers have not substantially moved away from broadcast ads, with teevee still the largest category of spending.
Is internet advertising a flop, or was the hype just ahead of the promise?
If you’re like most people living paycheck to paycheck, you have a simple problem at the end of the month – not enough cash. There’s nothing to be embarrassed about here – it’s a common problem that is faced by a large number of families as the economic recovery struggles on.
But if you’re an S&P 500 company, you may have a different problem – too much cash. Not precisely too much cash on hand, that is, since that’s never a problem. You may have something like cash sitting around somewhere in the world that you have trouble bringing home to make use of the way you want to.
Therein lies the problem with this economy – not that there isn’t enough to go around, but that it isn’t going around.
A reflection for May Day, the International Worker’s Day.
Imagine for a moment that you live in the most fair and equitable economy you can dream up. There are some very specific things that most people in the developed world, especially Americans, would think would be a part of this.
There would be upward mobility, where family circumstances do not determine the kids’ future. People could find their own way according to their own talents and choices as to what makes a good life. Money would rarely limit dreams, as a free-flowing capital market would provide funding for good ideas at reasonable rates. Most would own their own homes and have control over their own destiny. Workers would own the company they work for, banking their retirement at a reasonable age on the place that they helped build. Basics like food and access to health care would not be expensive.
Such a place is the embodiment of pieces of both the Democratic and Republican parties in odd turns. This place of the imagination has also been pretty close to the perfect state envisioned by Karl Marx, although it may be descending into an oligarchy (which I prefer to call “gangster state”).