Obama is about to become more popular. Then less

Since I've been throwing around predictions as freely as Joe Lieberman has been throwing around positions on health care legislation, here's one more. Obama's popularity ratings in recent polls has been around 48-49%. I predict he gets about a 5 point bump if health care reform passes both houses and he signs it into law. This will last about 15 minutes, then Obama's popularity will resume its downward slide, into the mid 40s, or perhaps even the low 40s. From there I'm not sure yet. I have him in the low to mid 40s in say mid-February, the next move in his popularity will depend on: (1) the strength of my predicted Obama Boom; and (2) how much credit Obama gets for the coming recovery in the job market. I'm not sure about how much credit he'll get for that, I'll have to think about it.

Projected unemployment rates going forward.

I decided to predict job growth and thus unemployment rates going forward as the Obama Boom gains steam. The results were incredibly disappointing.

June 2010: 9.5%

December 2010: 8.7%

June 2011: 8.2%

December 2011: 7.7%

June 2012: 7.2%

December 2012: 7.1%

In other words, assuming I am right about the predicted Obama Boom, assuming it is of decent strength, and assuming it lasts uninterrupted until at least December 2012, three years, the unemployment rate in December 2012 will be around 7.1%. Although hugely better than the current 10%, 7.1% isn't exactly what we would call a Boom. That's how deep of a hole we are in as a result of 8 years of failed Bush policies, coupled with 8 years of total abdication of oversight responsibilities by Congress, including the last 2 years in which democrats had control of both houses of Congress. Nice work people.

My predictions on the general course of the economy since January 2009 have been good. Let's see if I can continue my recent economic forecasting, and put it to some good use. I am, of course, on record predicting an Obama Boom, starting about now, with job growth beginning before February. In this post, I decided to make some assumptions about the number of jobs created going forward and to crunch some numbers and thereby project the unemployment rate

In this post, I predict what the US unemployment rate is at various points in the future. The unemployment rate is of course a percentage, or a fraction, with the numerator being the number of unemployed people in the country and the denominator being the total work force (employed persons & unemployed persons who wish to work). The denominator does NOT count people not looking for work. So to take a simple example, if 10 people want work, and of the 10 9 are working and 1 is not, the unemployment rate is 10%. Thus in order to predict the unemployment rate, I must predict 2 things; (1) the number of net jobs created per month; and (2) the growth in the labor force. Predicting job growth is very hard, to say the least. Predicting labor force growth is quite easy in normal economic times. Coming out of a recession is the one time it is hard, and coming out of a deep recession it is especially hard.

The number of unemployed people are reduced each month by the number of net new jobs minus the growth in the labor force. That is, growth in the labor force tends to increase the unemployment rate, all other things (namely net job growth) being equal. For the mathematically inclined, number of people currently unemployed - (net new jobs created in December 2009 - growth in labor force in December 2009) = the number of people unemployed at the next report, in January 2010. To find the reported unemployment rate in January 2010, you take that new number of unemployed and divide it by the total labor force in January 2010.

That's how it works. I'm sure there's a simpler way to explain it to all of you, but I can't figure out how in a text format. I'm confident that if someone buys me a drink I can explain it better f2f.

As of December 1, 2009, according to the Bureau of Labor Statistics (the most commonly accepted and most comprehensive source), there are 15.375 million unemployed people, and the Labor Force is 153.9 million. Hence the 10% unemployment rate widely reported in the media. Note that these figures come from the current population survey.

http://www.bls.gov/

According to that survey, there are 138.5 million people working. 15.38 million unemployed + 138.5 million people working = 153.8 million for the total labor force. 15.38 million unemployed divided by 153.8 million total labor force = 10% unemployment. The total labor force does not perfectly equal the number of employed + the number of unemployed (as it should) due to rounding and other minor issues. Nevertheless, these are the numbers used by the bureau of labor statistics and reported on by the press.

According to the other major government employment survey, which attempts to accurately count the number of jobs, there are, as of December 1, 2009, 131 million non farm jobs, almost exactly. When you hear in the news that the economy created/destroyed X number of jobs in a given month, or year, that number is from this second survey. In the past, the number of jobs according to the second payroll survey has increased far faster than the number of jobs in the population survey. Thus the reported unemployment falls noticeably more slowly than the actual improvement which takes place in the job market. This is highly likely to happen in the coming Obama Boom. In any event, don't worry too much about this relatively minor statistical issue. If you read the rest of this post and the media reports in the coming months you'll understand my predictions (and, more importantly, what's going on in the labor market) just fine.

In general, when our economy is weak, growth in the labor force slows or even stops, as many people despair of finding a job, stop looking for work, and thus are no longer counted as part of the labor force (discouraged workers). As the economy recovers, the number of people in the labor force increases faster than usual, as formerly discouraged workers begin to look for work again. This will have a very significant impact on the size of the labor force as the economy recovers in 2010 and 2011. Alan Greenspan estimated recently that the Labor force under normal circumstances grows about 100,000 per month. This figure is consistent with what I have read elsewhere, and I accept it. The labor force did not increase at all in 2008 and 2009 due to the weak economy. Given that the labor force did not increase at all in 2008 or 2009, it thus has 2.4 million fewer workers than it would have if the economy had remained reasonably strong. (24 months (I'm assuming no growth for December 2009) multiplied by 100,000 per month). This is a huge, huge number! As many of these people happily trickle back into the labor force, the reported unemployment rate will drop far more slowly than it otherwise would as strong job growth resumes in 2010 (see my predictions, below). In short, this very unnatural pause in the growth of the labor force means that absent truly spectacular job growth, the reported unemployment rate will stay quite high for years to come.

I am, for simplicity, estimating 1/3 of this 2.4 million people are added back into the labor force each of the next 3 years. That's highly unlikely to happen so precisely, of course. Instead, more will reenter the labor force as time goes on and the economy improves, thus convincing people they can find work. However (a) I can't really make even an educated guess how it would break out; and (b) doing so would mean a lot of extra work for little extra gain in the accuracy of my predictions.

Accordingly, I assume for purposes of this post that the Labor force increases by 2 million per year for each of the next 3 years. This figure covers both the 1.2 million people that would normally be added to the labor force each year, plus the 800,000 per year for each of the next 3 years that are going to return to the labor force due to the stronger economy, as discussed above.

Two million people per year results in an average increase in the labor force of 166,666/month, for the next 3 years. This means that going forward if the economy gains 166,666 jobs in a given month the unemployment rate will stay the same (assuming no statistical fluctuations). If the economy gains 200,000 jobs per month for the entire year of 2010 (a halfway decent total, if a weak number at the start of an expansion), unemployment drops by only 400,000 people, a pathetic, godawful number for an entire YEAR early in a recovery. The unemployment rate would only drop by .4%, from 10% currently to 9.6%!!! Fortunately, I predict that job creation is going to be significantly stronger than 200,000 per month.

Note that I further assume that for the month of December 2009, there is no growth in the labor force and zero net jobs created. This assumption is merely for convenience.

Predicting how many jobs will be added per month, is of course very difficult. I could end up being way, way off. In addition, I predict a fairly smooth path to recovery. This is in fact unlikely to happen. Month to month, or even quarter-to-quarter, events are highly likely to unfold quite differently from how I predict. But over 6 month or year-long periods, my predictions may fairly be judged, as longer periods of time smooth out random fluctuations in both the economy and the federal statistics.

Here are my predictions, for all the world to see, and marvel at down the road:

January-June 2010: 275,000 jobs created per month.

Unemployment rate projection for June 2010: 9.5% (with 154.877 million people in the Labor Force and 14.73 million people still unemployed!) Since I don't expect as many people to rejoin the labor force earlier in the Obama Boom as I do later on, my REAL prediction for unemployment for June 2010 is 9.4%.

I note that this is an exceptionally daring prediction, FAR more optimistic than nearly every private forecaster. My reasons for being so optimistic about this time period are:

1) More of the federal stimulus money will be being spent;

2) Businesses cut far more jobs in 2009 that was justified by the drop in output/orders. I call these "panic job cuts." These will, I predict, begin to be quickly reversed, as corporate America already realizes that the risk of a second Great Depression has been more or less eliminated and will soon realize that the Obama Boom has begun.

3) Rock bottom interest rates have had even longer to work their way through the economy;

4) A boatload of temporary workers, more than 500,000, will be hired for the census, mostly during this time period;

5) I think that the jobs survey is currently underestimating the number of jobs being created, thus my 250,000 per month estimate is less of an increase over what is currently going on that is apparent;

6) I expect the serious problem of banks being unwilling to loan money to the small business sector, probably the number 1 headwind the economy faces, to begin to be solved towards the end of this 6 month period

7) I expect mortgage and car loans to get slightly easier (less hard) to get during this time period;

July-December 2010: 355,000 jobs created per month (!)

Unemployment rate projection for December 2010: 8.7% (with 155.877 million people in the Labor Force and 13.6 million still unemployed!)

Now the job machine has really turned on. This is also a daring prediction. Basically, I'm predicting a very strong recovery in 2010, with GDP growth probably above 4% and very possibly above 5%. This is of course in line with my other various posts predicting an Obama Boom, but is WAY WAY off of the consensus economic forecast of the people with the ultra fancy degrees and years of experience. Well, pardon my immodesty, but barring some huge external event, like a new big war, or oil going back over $150 a barrel and staying there, I'm RIGHT and the fancy PHDs that make good money trying to predict the economy are WRONG. What makes this fun, of course, is that time will answer this question. At the end of 2010, I'll either be right, plenty close enough to declare victory or, if the economy is much weaker than I expect, just dead wrong. And it'll be clear to all that read my blog and all those I talk to.

January -June 2011: 300,000 jobs created per month.

Unemployment rate prediction for June 2011: 8.2% (with 156.877 million people in the Labor force and 12.8 million people still unemployed.

I expect at least a mild slowdown from the previous 6 months because temporary census workers will be laid off starting late in 2010, the stimulus' effect will have largely been felt. On the other hand, by this time it will be crystal clear to all that the recovery is very real, and business investment and consumer spending could both propel upwards rather quickly.

I should add that trying to predict minor fluctuations a year out is, well, impossible. Predicting the macro trend of the economy is incredibly difficult, predicting minor changes within that trend is well-nigh impossible.

July-December 2011 255,000 jobs created per month.

Unemployment rate prediction for December 2011: 7.7% (with 157.877 million people in the Labor force and 12.27 million people still unemployed.

I expect monetary policy to tighten (interest rates increasing and the fed rapidly slowing the growth of the money supply and ending various extraordinary programs) beginning in about July 2010 and picking up speed through the end of 2010. The strong effects of these changes should begin to be felt in the July - December 2011 time frame.

January-June 2012 295,000 jobs created per month. The economy rebounds from a slight slowdown the previous 6 months, just in time to ensure Obama's reelection.

Unemployment rate prediction for June 2012: 7.2% (with 158.877 million people in the Labor force and 11.5 million people still unemployed.

This number is crucially important to Obama's reelection chances. If I'm way too optimistic here, and the actual unemployment number is over say 8.5%, he's in trouble. Over 9% he's toast. If, however, I'm right, and the unemployment rate is fairly close to 7.2%, and has been dropping for a long term, I think he'll win by more than 10 points.

July-December 2012 200,000 jobs created per month

Unemployment rate prediction for December 2012: 7.1% (with 159.877 million people in the Labor force and 11.3 million people still unemployed.

The economic hole we are in is SO DEEP that even after 3 years of pretty damn good growth in the number of jobs in America, the unemployment rate will still be 7.1%, a figure well above the average for the any decade since the 1930s. This is really not good.

Its of course possible that I'm not being optimistic enough. However, even a REALLY strong Obama Boom would still only bring the unemployment rate in December 2012 down to around 6%, still not full employment.

A final word of caution: Needless to say, my predictions after say June 2010 are merely guesses. But I have to make them in order to even take a stab at projecting/predicting the national unemployment rate in the future. And you wonder why economic forecasts are so very unreliable? The actual results are unlikely to be this smooth. But if I'm pretty close on each of these I will have done a spectacular job at predicting the recovery of the shattered job market. Conversely, if I'm way off, well I'll join the crowd.

Time listens to me

Time has named Ben Bernanke person of the year, just as I advocated. Glad someone out there is doing as flyingpinkunicorns suggests. Now if only congress and the president would listen to me, we'd all be much better off!

Ben Bernanke should be Time's person of the year

I call on Time to make Ben Bernanke the 2009 person of the year. Its not even close. Sorry Barack. More so than even Geithner, he has led a hugely aggressive, hugely creative and hugely successful effort to save the US and world economies from a second Great Depression, a fate which looked altogether too likely when 2009 began. This famous scholar of the Great Depression was and is bound and determined not to let another depression happen on his watch, and he has succeeded beyond almost everyones expectations, though not mine. As 2010 begins, the economy has, at a minimum, even if I'm WRONG on all of my predictions, clearly avoided a Great Depression, where unemployment rises well above 15%, perhaps even 20%, and mass bread lines form. And with a different less aggressive and determined Federal Reserve Chairman, that could have been our fate.

And, of course, as my loyal readers know, I believe that the economy is poised to begin a spectacular multi-year boom, which I have labelled the Obama Boom (because that is how the public will perceive it) although it really should be called the Bernanke boom. And with private debt considerably lower than before the Great Recession began in 2008, we are beginning 2010 on a sounder footing for a sustainable recovery than at any time in a great many years, probably since before the Vietnam buildup in 1966! Bernanke is in no small part the one man to thank for this wonderful scenario, and that's why he's my runaway choice for person of the year. In fact, if I were to pick person of the decade he would be a serious contender, and probably my pick, (Bin Ladin? W?) despite being only a minor player on the world stage until he succeeded Greenspan in 2006. Here's to W's one positive lasting legacy! When you sip champagne at 12:00 a.m. on 1/1/10, spare a thought for Ben the Great!

I'm going to donate $100 to Sarah Palin if I'm wrong.

EDIT 12-14-09: I have decided that the terms of my promise were too lenient-- I will donate $100 to good old Sarah unless the economy creates at least 75,000 jobs in at least one of December, January 2010 or February 2010. The only caveat is that this wager may not be settled until the final revisions for these months come in, in the middle of 2010. I actually think that we may be well over 100,000/month by February, and I may win this little wager very easily.

The job market is going exactly as I predicted. If the economy doesn't add jobs in a month before March 2010 (that is, in at least one of December 2009, January 2010 or February 2010), I will donate $100 to Sarah Palin's PAC (absent, god forbid, some huge calamity that interrupts the normal ebb and flow of the economy).

http://www.sarahpac.com/

As I DESPISE Sarah Palin passionately, this will HURT! But I need to demonstrate to all of you how sure I am that not only is the recession well and truly over, but that we will have a strong recovery, that will have job growth and that that will happen beginning VERY soon! I recently predicted that the economy would begin gaining jobs in about February 2010. Looks like I wasn't optimistic enough!

Oh, and if there's only one positive month, and its just BARELY positive, that will be a cheap win, and I'll STILL donate the $100!

All of the political discourse these days is about how Obama's poll ratings are falling (they are), health care reform is mildly unpopular (it is), and the job market, though less bad, is still absolutely awful (it is). This last point, as I've been telling you for months, is about to change. Too bad it won't be in time to help Obama pull the mediocre health care reform effort over the finish line.

Its amazing that the conventional wisdom is so slow to adjust to events that are reasonably clear. The conventional wisdom is still that the job market may get worse through at least the first half of 2010 and in any event won't improve much. Well, either I'm right and the conventional wisdom is wrong, or Sarah Palin's getting $100 from yours truly.

Recent economic reports have been strong. Consumer confidence (according to the University of Michigan survey, highly regarded in this area) rose to 79.1, from 68.8. In March 2008, as the recession had just begun and Lehman Bros was still worth billions, it was 84.2. Consumer confidence is at a number which indicates a soft economy, but NOT one in recession. Consumer confidence, and perceptions, are catching up to reality. The recession is of course well and truly over and GDP is expanding quickly.

I don't have the time right now to do the research to compile an estimate of 4th quarter GDP (the 4th quarter does end on December 31), but the growth will be strong, at least 3%, and don't be shocked if its up over 4%. Inventories at businesses are up, which is usually BAD for growth, but right now indicates rapidly increasing business confidence (rapidly increasing from the sub-basement that is).

The early news on holiday sales is reasonably good. In fact, retail sales jumped 1.3% in November, a stunningly good number, if it were free from sizable distortions. It isn't, but its still a solid number, indicating strong growth in the overall economy, and of a piece with the improved consumer confidence numbers.

Between improving consumer confidence, downright decent retail sales, the fallen dollar (which has already helped exports), and fairly good import/export reports, businesses are rapidly becoming convinced that they need to stop shedding employees, and need to consider starting to add employees.

Stay tuned. In an upcoming post I'll make some predictions about how many jobs will be created on average every 6 months, and working from that will make an educated prediction on the unemployment rate over the next few years.

Obama will dedicate leftover monies from the bailout to deficit reduction and job creation

As you may have heard, the Treasury Department has announced that it now expects to recover a lot more of the money it lent out to banks and other financial institutions in the various bailouts than was previously announced. In fact, as of this moment, the Treasury expect to MAKE A SMALL PROFIT from the money lent to the banks.

www.nytimes.com/2009/12/07/business/07/tarp.htmp?_r=18&hp

In short, the bank bailouts worked, and worked spectacularly well, at saving the banking system, as I have been saying. Bernanke/Geithner/Paulson are, at least as of now, heroes for their post September 2008 actions. (Their role pre September 2008 is, happily, beyond the scope of this post).

There is a large amount of money currently available to the Treasury Department for additional bailouts. I don't know how much, as this amount hasn't been released, but it is likely over $100 billion, possibly way over. The huge majority of this money is very unlikely to be needed for additional bailouts. I therefore predict that Obama and Congress will soon agree to dedicate around half of this "found money" to deficit reduction, in order to sound concerned about the deficit/high levels of spending, and around half to a new stimulus package, labelled a job creation program. Its a political win-win, and reasonable economically. This new job creation package will likely focus on construction spending. This could happen quickly, perhaps even as soon as Obama's speech on the economy tomorrow night.

Folks, the bailouts worked, the economy is recovering, the economy is on the verge of creating new jobs, and a new road/highway/bridge/tunnel building program is about to begin (which program is perfectly reasonable, given the decrepit state of our nation's infrastructure). My predicted Obama Boom will be clear to all in a few short months. If you have money you're thinking about investing, for heaven's sake, MOVE. Stocks and houses will both be more expensive in a few months than they are now, stocks much more so. Buy now, before the market realizes that the Obama Boom has begun!

The job market has already improved


The news on the labor market, and thus the overall economic recovery, is even better than I thought. The job market is only slightly ahead of where I expected it to be on its road to recovery, and is significantly further along than nearly anyone expected. I remain extremely optimistic about the coming Obama Boom, far FAR more optimistic than nearly every economic forecaster and talking head.

Here are two articles about the November employment report, released yesterday.

http://money.cnn.com/2009/12/04/news/economy/jobs_november/index.htm

http://www.nytimes.com/2009/12/05/business/economy/05jobs.html?_r=1&hpw

In November, the economy lost 11,000 jobs. (I note that this number is seasonally adjusted. This means that, for example, the economy ALWAYS gains a lot of jobs in November as retailers gear up for the Christmas shopping season. The 11,000 number is derived after the seasonal effect of increased November hiring is stripped out). Given that there are 130 million jobs in the US, 11,000 is a tiny, number, statistically. Basically, there was no net job loss in November. We always speak of NET job gain or job loss, because many tens of thousands of jobs are gained and lost in every month; jobs are created in the deepest of recessions, and lost in the strongest of booms. That churning always takes place. What matters from the perspective of the entire economy is the net of those numbers. And in November, the net was about zero, and the closest it has been to zero since late 2007.

The media focused on the unemployment rate dropping by 2 tenths of a percent. While this was surprising indeed, in my opinion the important number is the number of net new jobs, not the unemployment rate, which is, in my view, a more flawed statistic, for a variety of reasons that I'll explain by e-mail if someone asks.

Since the labor force grows by 130,000 per month, or thereabouts (immigration, more people turning 18-23 than are retiring) the economy needs to gain about that many jobs each month just for the unemployment rate to stay even. So if the economy loses 11,000 jobs and the unemployment rate drops, you have a statistical anomaly. The statistics are flawed enough that this sort of anomaly is well within the normal range of statistical background noise.

Back to the actual employment report. As the New York Times article above put it, the jobs report is the strongest since the recession began in late 2007. Since 11,000 jobs were LOST, least bad since late 2007 is a better way of putting it.

There were, however, significant positive indicators in last month's employment report. First, the number of jobs lost in September and October were both revised down, by a total of 159,000. In and of itself this is good news. The fact that both revisions were in the same direction is even more significant.

Second, the average work week increased from a record low of 33 hours in October to 33.2. This is highly significant, because in many cases businesses can work their existing employees harder before hiring new people. That number, still extremely low, is at least on the rise. In addition, increased hours means, in many cases, increased income, which means increased consumer spending. One month's increase in the average hourly work week is not very significant, but if this becomes a trend, it becomes highly significant, both because employers will be forced to hire more employees, and because of the aforementioned increase in consumer spending.

Third, the number of temporary workers increased by 52,000, the most in five years. In many cases, businesses hire temporary workers when they first need additional labor, and later, as conditions for their business continue to improve, they add permanent workers. The number of temporary workers is the proverbial canary in the mine-- temporary workers are, almost by definition, the first to be fired in a downturn and the first to be hired in an upturn. The 52,000 number is itself somewhat significant, but the trend, if it continues, is hugely significant.

In summary, this was a significantly less bad report than any in the last 24 months, and it gave tantalizing hints of possibly GOOD employment reports to come, starting soon. It is encouraging for my predictions of a very strong economic recovery.

What does this report mean going forward?

The first rule of interpreting government statistics (after being skeptical in general) is that one month does not a trend make. That must be kept in mind. It wouldn't surprise me overmuch if December and January's reports were less positive/more negative. You need at least 2 months, and preferably more, before you can begin drawing conclusions.

However, the other news I have seen recently gives me no reason to believe that the underlying labor market has become significantly less bad, and will continue to improve in the next few months and beyond. I have had absolutely no reason to question my great optimism about the vigor of the coming Obama Boom.

First, Challenger has reported that the number of job cuts slowed in November to the lowest rate in two years.

http://money.cnn.com/2009/12/02/news/economy/job_cuts/index.htm

This is consistent both with the November employment report (released two days later) and with what I have expected to see and am now seeing. Businesses have cut so very many workers that they are about done cutting headcount, unless demand (the overall economy) takes a sharp turn for the worse. Businesses, in my opinion, have already cut enough workers given the current demand for the goods & services. As that demand picks up, the number of new jobs created (not net new jobs, just new jobs) should increase sharply from the current low levels. This, of course, leads to the creation of net new jobs in the event that the numbers increase above job cuts.

Second, new filings for unemployment claims have also fallen recently, though to still fairly high levels. This number (correlating strongly with the number of jobs destroyed due to falling demand) dovetails with the above-mentioned Challenger report. Simply put, businesses are firing a lot fewer people, since they have already laid off so many due to the decline in demand. As soon as businesses realize that they need significantly more workers, which I still predict will occur this Winter, probably in February, the number of net new jobs should turn (and stay) positive. This will not be a jobless recovery. To borrow a phrase, net new jobs, and lots of them, are right around the corner.

Friedman and Kristoff get it


In a column published in the NY Times on November 7 of this year

http://www.nytimes.com/2009/11/08/opinion/08friedman.html


Thomas Friedman basically gave up on the prospects of peace between Israel and the Palestinians in the short term, and came out against any further US involvement in trying to restart negotiations between the parties. I (sadly) agree strongly with this column, the thesis of which is that the US should stop bothering to try and broker a peace agreement that neither side wants! If they decide they want it, they know where to find us. As he put it, borrowing a line from the State Department, the Israelis want negotiations without a deal (so they can be seen and see themselves as trying for peace while always expanding their precious settlements which, given the dramatic downturn in violence from the Palestinians, is Israel's primary short term goal these days), while the Palestinians want a deal without negotiations. Oh sure, the Palestinians want a peace treaty, but even those that will negotiate with Israel, such as Abbas, don't want to actually give up anything, such as a never-will-exist right to return to Israel proper, or a total giveback of all lands captured in 1967. (I favor such an Israeli giveback, except for the old City of Jerusalem, as in Israel's selfish interests, but never mind...) And why won't Abbas and his ilk negotiate about now? Because even so-called moderates in their midst might well put a bullet in their heads. Oh, and Hamas runs the West Bank, and their official position is that Israel has no right to exist, and of course no formal negotiations. Lovely. Even if Israel WANTED a workable peace deal, which in my opinion it basically doesn't, it has literally no one to negotiate with!



So neither side really wants to talk turkey. I said a while back that I'm opposed to Israel resuming peace talks because Abbas has no base and can't deliver anyone. While that was and remains true, Frideman's argument is vastly better than mine. No more negotiations because neither side really wants to reach an agreement. So taking Friedman's insights and formulation into account, my plan is: (1) leave both sides mostly to their devices; (2) prevent the Israelis from further self-destructive settlement expansion; (3) let the Gazans stew in their rocket launching juices; (4) ignore the West Bank; and (5) be done with the whole damn thing. Friedman's right, if they want to talk, they know where to find us. I wish I could support peace negotiations, but right now I don't, for the reasons so very well stated in Friedman's column. Excellent job, Tommy!


As for Kristoff, in his column in the Times Thursday November 19th,


http://www.nytimes.com/2009/11/19/opinion/19kristof.html

he said that the GOP health care naysayers of today are saying many of the same things, sometimes literally the same things, that (mostly) GOP opponents of the creation of Social Security in 1935 and Medicare in 1965, said. Back in the day, the naysayers said Medicare would ruin health care, it was a step to socialized medicine, the government would get between you and your doctor. Nonsense. In 1964, way too many elderly in America HAD NO REGULAR DOCTOR because they couldn't afford it. After 1965, they could. Medicare was the reason. Sure, its mighty expensive, and has to be radically altered or it will, literally ruin the country, but America without Medicare is literally unthinkable. Elderly people having to chase down free/reduced cost care. Monster unmet health needs. Gigantic numbers of elderly dying for want of readily available care. Appalling. Kind of like what happens to thousands of uninsured annually today, you understand, but radically worse, because the elderly need health care far more than younger folk, and are in a worse position to find information, reduced cost or free care, etc. In short, it would be a nightmare for the nation and a living hell for way too many of the elderly. As for the politics, if the GOP ever put to a vote a full repeal of Medicare it would probably be the end of them as a party, literally. I could imagine the democrats winning a 50 state landslide by 25 points, and holding 80-85 seats in the Senate and a similar proportion in the House after the GOP tried it. Medicare is wildly popular among the elderly, for all of its flaws, and both parties know it. It is also popular among the non elderly population.



As for social security, the "end of the progress of a great country," was the quote from one speaker. That's right, ensuring that no elderly person in America lives in truly abject poverty will finish us off as a great nation! Think we're richer and better off than in 1935? Or 1945? By a wide, wide, wide margin, in every measure. Longer life expectancy, lower infant mortality, better health, more/better cars, vastly more/better consumer goods, and far more. Social Security was down a path to the dreaded "socialism." Without getting into silly labels, would it be better if millions upon millions of elderly were in dire poverty? I think NOT.


Now both programs have huge downsides, cost and otherwise, don't get me wrong. But their upsides are absolutely massive; in my humble opinion, they radically changed the country for the better!



Kristoff is 100% right! The democrats should bring up these long-ago objections from GOP naysayers, demonstrate that they proved wildly off the mark, remind the public that the GOP (and some democrats, to be sure) have been against the great progress represented by the two huge social entitlements, medicare and social security, and the same arguments that are wrong then are wrong now in today's health care debate. Bravo, Mr. Kristoff! I couldn't have said it better myself!

Jobs created by Presidency.

While I was listening to the un-illuminating debate about health care on the house floor, I decided to show you all just how bad George Bush's economic record was.

In the 4 years of Jimmy Carter's presidency, the economy gained 10.5 million jobs. That's actually a huge number, but I'm not surprised. This is when women were entering the labor force in huge numbers, and we were a lot younger as a nation than we are today, so more workers were entering the workforce every year. Its not nearly as impressive as it sounds, but not godawful either.

In Reagan's 8 years, the economy created 16 million jobs. What's interesting is that only 5 million and change were created in his first 4 years, as a result of the bad recession of the early 1980s, whereas 11 million were created in the last 4 years in the 1980s boom.

George Bush senior took over when the economy was strong, so his 1-term presidency should not have created many jobs. And it didn't, only 2.6 million in the 4 years. Not as bad as it sounds, but not good.

During Clinton's 8 years the economy created a whopping 22.5 million!!! Now the economy was weak but recovering when Clinton took over, so his first term should have had a bunch of new jobs created. And, with a larger labor force, you would expect a larger number of jobs to be created than in past presidencies. Still, this is a HUGE, HUGE number.

During Bush 43's 8 year disaster of a presidency, the economy created 2 million jobs!!!! Yes, 2 million net jobs in 8 years!!! Now the 2001 recession wasn't his fault AT ALL, and he took over right at the end of a boom, so the fact that literally zero jobs were created in his first term is somewhat forgivable. But only 1.8 million in his second term? Beyond pathetic!!!

Review of 8-year presidencies:

Reagan: 16 million.

Clinton: 22.5 million.

Bush 43: 2 million.

16, 22.5, 2. Yes, there are mitigating factors, but not ANYWHERE near enough to account for this huge, HUGE difference in economic outcomes. Amazing. Hey, who out there still likes Bush?

Have my economic projections changed?


I was recently asked whether, given the still awful employment reports coming out every month, whether I'd care to revise my economic projections. The answer is basically no. I was precisely correct regarding when the recession would end and the growth in the economy in the last quarter, but I was perhaps too optimistic in terms of the recovery of the job market. Job losses have slowed dramatically. The economy lost 645,000 jobs/month from November 2008-April 2009, 357,000 from May-July 2009, and 188,000/month from August-October. So the job market is clearly deteriorating at a much slower rate than late last year and early this year.



http://www.bls.gov/news.release/empsit.nr0.htm



But less bad being the new good isn't really very good. I actually thought the job market would be closer to zero jobs lost by now. That less unhappy day is probably still a few months away. But it won't be long before we're gaining jobs, and after a few sluggish months of job growth I still think that by the middle of next year job growth will be quite strong.

So nothing has changed my prediction for a strong economic recovery, which will be clearly felt by the middle of next year. I may have been off on timing, but everything else stands.



A window into my thinking can be seen by the striking Third Quarter 2009 Productivity Report, released Thursday.


http://www.bls.gov/news.release/prod2.nr0.htm


The money sentence is, "Nonfarm business sector labor productivity increased at a 9.5 percent annual rate during the third quarter of 2009." This is the best quarterly result since the third quarter of 2003, and is a huge number. Since that third quarter of 2003, the next highest number was the 6.9% of the 2nd quarter of 2009, and the next highest 5.5 percent in the third quarter of 2007 (just before the recession began). No quarter since 1999 has been over 10%, so 9.5% is a big number. Output increased 4% (not bad at all, but not quite a boom), and hours worked DECREASED 5%. Business cannot keep that up for long at all. Fewer hours worked and more production. Very soon, if more production is desired by business, more worker hours will be needed. This will first be accomplished by asking current workers to work longer hours. There is, sadly, plenty of scope for this, which is why I may have been too optimistic about how fast the labor market would recover. However, you can only produce so many more widgets (or cars, or refrigerators, or legal briefs) with your current staff before you have to hire more people. That point will be reached soon, probably during the Winter or very early Spring. From there, I expect demand to be so robust, as a result of government stimulus, very low interest rates, a lot of money sloshing around, and pent up demand for consumer goods, including, incredibly, cars, that businesses will have to hire a lot of workers, quickly, and continue doing so for a long long time.

Health Care reform passed the House. 220-215, only 2 votes to spare! Nancy must have done yeoman's work arm twisting "moderate" dems. One Republican voted for it, which is one more than I expected. Although the House did pass it, the margin was SO narrow that it gives a lot of cover to wavering moderate dems in the Senate.


Just a short time ago, the House passed one of the 2 or 3 most important pieces of legislation in the last 50 years. Yet another step in the never-ending journey towards a just and more sensible country was passed. The Senate is taking its sweet time, and then there will be a conference committee, and the House passage was a nearly foregone conclusion for months, but it is still one of the most dramatic bills ever to pass the House. This is a truly historic day, a key step on the road to a more sane health care system. That less-than ringing endorsement STILL means that this is a Monster Important Bill. Health care is THAT important.

This post is going to be on the rambling side, because I have a few different threads going through my head, and don't want to do two separate posts, so please bear with me. Health care is crucial and I have some interesting things to say, I think, so bear with me.

In general, I'm of two minds on health care reform. The health care reform I REALLY prefer is frightfully simple. The House bill is 2,000 pages long. My health care bill is literally a paragraph: "All Americans shall have the right, and be required, to purchase access to Medicare at prices to be set by a Panel of 5 members appointed by the President and Confirmed by the Senate. This Committee, called the Medicare Committee, shall have the power to promulgate rules and regulations it deems appropriate, with Congress having the right to veto said regulations within 30 days of their promulgation; otherwise they have the force of law."

That's it. Basically, Medicare access for all. The idea is for private insurance to whither on the vine and end up with a single payer system. But Obama and many others deemed that FAR too radical, and they are surely correct. The democrats just wouldn't go for it.

So we end up with reform designed to make the current system work less dysfunctionally, less badly, rather than, as I much prefer, ripping it up, stomping all over it, burning it to a crisp and forcefully throwing it in a landfill, to die a well-deserved death.

But if you're going to make the health care system work less badly, the House Bill seems to me to be a very good start. I haven't followed the health care debate closely, for some reason, but this bill does restrict the more odious health insurance company practices. We appear to be stuck with the private system, but it will be less awful. The success or failure of this great reform effort, assuming it passes, will be in whether health care costs stop soaring far beyond inflation, and instead go up at around the rate of inflation. That change may not sound like much, but over a 10-20 year period, its HUGELY HUGELY important. We spend circa 2.2 TRILLION dollars a year on health care. Call it 2 trillion for simplicity. A difference of 5% in the rate of growth of health care spending is $100 BILLION a year in growth in spending avoided. That's well over a trillion ANNUALLY in avoided growth in health care costs in 10 years time, and far more than double that in 20 years time. I know I sound a bit hysterical when I say this, but slowing the growth in health care costs is, literally, crucial for the survival of this nation. Without exaggerating one iota. Every other problem America faces absolutely pales in comparison to the inexorable growth in health care costs, and the hugely dysfunctional health care system. And even though the lack of insurance by 50 million people is HUGELY significant, costing by most estimates more than 30,000 lives per year (that's nearly a 9-11 EVERY MONTH) self inflicted by our insane health care system, even that enormous problem pales in comparison to the ridiculous costs in our system. If we spent per person what France (a rich complex economy and a healthy country) spends each year, we would spend about $800 BILLION less each and every year on health care. $800 billion!!! That amount of money just dwarfs everything else in our national discussion. That's the total cost of the Iraq war-- EVERY YEAR, above and beyond what France spends, if only we spent what France spends per person! This is, beyond a shadow of a doubt, the most significant domestic issue facing America. Its fiscally critical, its the civil rights issue of our times, its so very important!

Civil Rights? Huh? Has Flyingpinkunicorns flown into a brick wall and suffered a concussion? Not at all. I think that health care should be a right, like the right to equal justice, the right to a free to the student public education through high school, the right to freedom of speech. If we don't provide AS A RIGHT health care to every single American (and not merely access to an emergency room) I think we should e-mail Gordon Brown, the PM of Britain, CC the Queen, and tell them we screwed up in 1776 and we want back into the British Empire! I really do-- I don't think we are a worthy nation right now because health care is not a right. It should be. That's a civil rights issue if ever I saw one; we discriminate on health care access based on ability to pay. If anyone proposed instituting charges for public schools such that poor parents couldn't afford to send their kids to school, in an attempt to secure a better life, there's be million person marches and riots! If we had previously enshrined health care as a right, and tried to take it away, the same would result. We should move towards making access to health care a right. Now you don't have a right to the very best private schools, and I'm actually 100% ok with having more expensive and less expensive plans. But access to a basic "Ford" plan should be, must be, a right. The democratic health care reform bills do NOT do this, but they do move several steps in that direction, which is why I support the effort on civil rights grounds.

I watched a lot of the house speeches today. They were not illuminating. There are a great many things I could say about the STUPID things the Republican members said, but I want to focus on just one. The GOP fancies itself the party of freedom. And at least 5-7 members mentioned the loss of FREEDOM in the House bill. You know, those who would sacrifice liberty for security deserve neither, blah blah blah. That's one of many sayings that if you think about it for a nanosecond you'll realize just how silly it is. Now government can EASILY go too far, and restrict liberty without increasing security correspondingly. See airport security. But having regulations decreases freedom? Want the freedom to drive without the restriction of traffic lights? Let the market decide? How about preventing insurance companies from discriminating based on pre-existing conditions. This decreases freedom for insurance companies, but as for individuals, not so much. Oh, the horror of government bureaucrats getting between you and your doctor. What do you think the private insurance sector does, every hour of every day in every state? This is just silly. Think most seniors think they've lost freedom by being on Medicare? Go ask them, Medicare is hugely popular. Veterans care, despite some problems, also works fairly well. The idea that millions of uninsured, myself included, who will soon enjoy vastly cheaper access to the health care system somehow are losing freedom is, of course, insane. Even those who have insurance will, if this bill works, pay less/their employers will pay less in coming years. Not much of a loss of freedom! The only persons losing "freedom" are health insurance companies, which have had far too much freedom and have done a huge degree of harm with it.

Anyway, there are some anti "freedom" provisions, to be sure. But overall, I'm with FDR who spoke of freedom from want and freedom from fear. Its easy to take that way too far, but this legislation doesn't even come close. By and large, this bill rationalizes to an extent a partially irrational health care system. It puts sensible regulations on insurance companies, protects individuals from arbitrary practices, and so on.


Now don't mistake for a second what I've said to indicate that I buy what the democrats are saying. What the democrats are saying is in many cases nearly as silly as what the GOP says, which is impressively silly indeed! Here's my favorite: several female legislators said that they rise to support this bill because it prohibits insurance companies from charging women more than men. Now let's assume that they insurance companies do so not out of animus, but because women's health care costs more. I don't know this to be the case, but I'm assuming it, as its overwhelmingly likely to be true.


So why on earth shouldn't insurance companies be allowed to charge more to those who cost more to service? GEICO charges more for bad drivers than good drivers, because paying out claims for bad drivers cost more. This makes all the sense in the world. Now if government thinks for social policy reasons that women shouldn't be charged more for health care (a somewhat reasonable position) then it should be government that pays for this preference somehow, either for a credit to the private sector or, better yet, by being the insurer (I support a single-payer system, strongly, for all of its flaws). But why on earth should this preference be imposed on the private sector? Similarly, why should an insurance company be forced to cover a pre-existing condition, presumably without being allowed to charge an appropriate rate? If someone has diabetes or the like, and is likely to cost a lot, and is getting new insurance, why should the insurance company be forced to insure at less than a market rate? This forces a private, for profit business to subsidize someone it does not have a business relationship with. That's INSANE! INSANE! It really is. Should American Airlines pay if I get cancer next week? No? Then why should a new insurance company? Because its in the insurance business? But I thought the private sector should be allowed (in the bounds of other laws) to act as it pleases. You are taking away what the private sector can do usefully; set prices. Using the private sector in this way is crazy; you get all of the downsides of the private sector (incentives to deny care, huge marketing costs, incentives to delay payment, etc) with few or none of the upsides (a market based pricing mechanism). The design of the democrats' health care reform is so far from optimal it isn't even funny. Of course, its still far, far better than our crazy, insane health care system, but it sure as heck isn't the way I would design it.


If you want to see a democrat saying what I'd like to say about the GOP and health care, look up on c-span.org the speech by George Miller on Saturday night the 7th at 8:40 p.m. eastern. HOO BOY! Tell em what you really think George! And he's 100% right. The GOP has no answers for the huge problems in our health care system. Zippo. Well, they have a few good ideas. We do need to reform the medical malpractice system. Its not nearly as big a deal as you've heard, but it is a problem, a meaningful one, and it should be addressed. The government should be the primary watchdog over bad doctors, either state or federal. But that doesn't really happen overmuch now; so the tort system takes on this role. And it does so hugely inefficiently. So reform is needed.



And the GOP is going on and on and on about allowing insurance companies to sell across state lines. Now this creates huge new marketing costs, so I'm not wild about it. Still, if we're stuck with this insane system, we may as well have the competition that selling across state lines will bring. Would you prefer that only 2 or 3 car companies be allowed to sell in your state? I didn't think so.



But these "ideas" do literally nothing to deal with the uninsured, and little to nothing to deal with runaway health care costs. The GOP is out of ideas. Completely out. If you're in any way surprised by this, you haven't been reading my blog! Or paying close attention. Well, that's what we have bloggers for!

Obama won the Nobel Peace Prize. Huh? I'm a bit tardy, but better late than never.

This announcement had me scratching my head from the instant I heard about it.


According to the Nobel web page, "Since World War II, the Peace Prize has principally been awarded to honour efforts in four main areas: arms control and disarmament, peace negotiation, democracy and human rights, and work aimed at creating a better organized and more peaceful world."


http://nobelpeaceprize.org/en_GB/about_peaceprize/history/


Well, although it does say "efforts" rather than "results," what special efforts has Obama made? Talks with North Korea and Iran? Whoopee. A return to American engagement after the Cowboy diplomacy of the Bush years, particularly the first term? Worthy of a pat on the back, but a Nobel Peace Prize?



At least for me, one should have tangible ACHIEVEMENTS in areas involving peace and human rights before receiving probably the most prestigious award in the world. Starting the peace process between the Israelis and Palestinians in the early 1990s DID qualify in my view, even though it didn't work out. At least there was a tangible accomplishment, substantive talks where there were none before with a clear possible path towards the resolution of one of the world's more intractable conflicts. But talks with Iran having just begun, following years of talks with the Europeans? Worthy of note, perhaps, but a Nobel? In short, whatever ones views of Obama, he has only been in office 9 months, and on the international front has nothing tangible whatsoever to show for it. Now that's not a damning indictment or anything, but we're talking about the NOBEL PEACE PRIZE here.


Oh, and while we're on the subject of PEACE, he's only very slowly winding down our 100,000 troop commitment in Iraq. What are we accomplishing there for regional, or even local peace? Don't know. And he's considering a troop buildup in Afghanistan, which will more likely than not lead to years of inconclusive war, civilian casualties, and all without Afghanistan being a viable nation state under a stable government at the end of this process. Now perhaps this can be defended, but we're talking about a NOBEL PEACE PRIZE here.

Look, I've predicted that the economy will boom, health care reform will pass and Obama will wind down our wars. Despite a VERY VERY slow start, I'm still at least lukewarm on him, if not a little better. But this award was just silly.

What really happened is that the elites of Europe were just horrified by Team Bush, and are so thrilled to have them replaced by a team that actually wants to talk to Europe and values its opinion, that they threw a wholly undeserved Nobel at him. Its their award to cheapen, I suppose, and they have indeed cheapened it, and not just a little. Nice going peoples.

The Obama boom has begun, Part II, the Politics



As I said in a post a few weeks back, the Obama boom has begun. The economy will do spectacularly well over the next several years, far better than nearly everyone is predicting. In addition to the significant economic ramifications, as discussed in the companion post, the coming boom will have big political ramifications.

As of this moment, the democratic part of the US electorate is dissillusioned with Obama. Nothing seems to have changed, and all we hear is TALK about health care, not action. Well, this too shall pass. It is overwhelmingly likely that a bill will be signed into law, and no one will care down the road that it took ridiculously long; instead, the voters will ask; what's in it for me.

Similarly, people are frustrated and pissed that the economy still sucks. If my Obama Boom does come to pass, and I'm even surer than before that it will, all will be forgiven. Unemployment was still over 7% when Reagan won 49 states in 1984, he won such a roaring landslide because everyone could see that things were getting much better. The same will be happening before 2012, and Obama will be similarly headed to a rocking reelection landslide.

Obama will likely win a 40-45 state reelection landslide. If my predictions about the economy are right, and nothing else ala war or watergate goes disastrously wrong, Obama will win reelection by 15 points.

Second, the boom will come in time to avert what could otherwise be bad losses for the democrats in the 2010 midterm elections, and instead leave the dems with only modest losses.


Third, and much more important than the short term political ramifications, the coming Boom will likely serve to remind Americans that government can and often does things right. The reaction to the disastrous meltdown of 2008 was spectacularly effective, and, I predict, the reaction to the coming Boom, with the fed slowly raising interest rates and taking money out of the economy, money it created in order to stimulate the economy and prevent a depression, will be almost as successful. I predict that the number of Americans who think government can actually do a lot of good, and get a lot right, will soar, from the very low numbers of today to numbers more in line with historical norms. I realize that this prediction is out there, even wacko. But when you try and predict the future sometimes there ARE sharp breaks with the present. Of course when you're wrong you look super foolish. I'm not saying that faith in the government will truly soar, but it will rise. And since the GOP is the party of government can't do anything right, it will be electorally disasterous for them. Not only will Obama win big, but he'll have big coattails. The dems could gain 15-25 house seats and 5-8 Senate seats in 2012 if what I forsee comes to pass.

Put another way, the above will make GOP attacks on government fall on far less receptive ears than they have since the late 1970s, which will have the extremely positive side effect of forcing the GOP to come up with a new message. Say, the government spends too much, and doesn't do what it does well. THAT's the message that the GOP used to send, and its a vital message! They've gotten away from that, to "Government isn't the solution, government is the problem," Reagan's famous line. Well, mostly not. If you're old, young, sick, or in any other way not fully able to take care of your needs as well as a healthy middle class adult, government IS the solution. Oh, and even if you are middle class, prosperous and well, you need government to regulate the financial markets, the health care system, and so on. Ask Lehman. Ask millions of foreclosed homeowners. Yes, Middle America, I'm talking to you! Not to mention getting the basics right. Americans understand that Bush ran two wars badly, failed during Katrina (with plenty of Louisiana (democratic party) failure thrown in, left the economy teetering on the edge of depression, and allowed America's problems to fester. Even people who don't follow politics overmuch get that. Ask President McCain.


Now, if after a few years of Obama the economy is booming, health care is being partially reshaped, the war in Iraq is winding down and the war in Afghanistan is being won, all of which I predict, faith in him, the democrats, and the federal government in general, will go way up! This will have profound ramifications, some of which I have outlined, some of which I can't even begin to guess. But this is the near term political future. Democrats up, Republicans down further, and, after a weak showing in 2010, democrats should be able to make gains all around in 2012 on the coattails of Obama's landslide reelection.

The Obama boom has begun; Part I: the economic ramifications.


This is a 2-part post. This post is Part I, in which I will discuss the ECONOMIC ramifications of the coming Obama boom. The coming boom is a monster, and thus the ramifications are highly significant! Even just my basic predictions have huge, HUGE ramifications. The Dow will, conservatively, I think be at about 17,000 in 2012, up almost 45% from where it is now. Even the highly likely economic ramifications from my predictions make this post well worth reading. In Part II, the companion post, I'll discuss the likely POLITICAL ramifications. If I'm even close to being right the political ramifications have the potential to be sweeping, reshaping American politics for a generation, as the depression did, in a coalition favoring the democrats in a very big way. Unfortunately, at least in the short run, this won't have much practical effect. As the health care debate has shown all too clearly, Obama is a compromiser, unwilling to go to the mat for most anything, and the barons in Congress are a heck of a lot more concerned about their pet projects then about solving America's problems.


In my post on July 9, I predicted a strong recovery. The shape of that recovery is becoming crystal clear to me, and it will blow your mind. Yes, it will be V shaped, for those who have followed discussion about the shape of the recovery in terms of a letter of the alphabet. Like the letter V, the economy went down sharply, and its going to go up sharply. In fact, it has already not merely hit bottom, but began growing fairly strongly. The initial estimate for 3rd quarter (July-September) GDP comes out at the end of October, and I'm looking for a number north of 3%, and possibly around 4. The 4th quarter will be over 2.5% as well. Not yet a boom, but definitely growth. 2010 will be the BIG year, the year the economy really takes off.

Jobs are what everyone is (rightly) worrying about. Job loss will stop quickly, before the end of the year. Job growth will start out slow and then, as I discuss later, shoot up very suddenly and very very sharply, in the early to middle part of next year.

I'm not prone to excessive optimism, I'm really not. But the American economy is about to roar back to life, haul Europe's along with it, and shock the world. Put on your party hats, peoples, the good times are about to ROLL!


In my July 9th post I explained a bit about why I think economic growth will be so strong over the next few years. Let's try some hard number predictions (guesses, really).


A) The short term:


For the second half of this year, which has begun, growth will be fairly strong. I'm thinking 3% or so for the 3rd quarter, and about the same, to perhaps as high as 4% for the final quarter. This Christmas will be a strong holiday season, with sales up more than 10% from last year's poor levels. Even though these are strong predictions, they aren't the stuff of legend, given the economic free fall of late 2008/early 2009. In fact, jobs will most likely continue to be shed, and unemployment will tick up to 10.3% give or take a few tenths. But 10.3% should be the high water mark for unemployment for this cycle. From there the unemployment rate will decrease, very slowly (if at all) for a few months, then pretty rapidly for a long time thereafter.

In short, the $64,000 question is the job market. When will the economy begin creating jobs, and lowering the monster 9.8% unemployment rate? The very short term news on this front is awful. The average number of hours each working American works each week is the lowest on record. This means that as company order books begin to increase (this has already begun) companies can easily work current employees a little harder before even thinking of hiring new employees. And companies will be VERY cautious in hiring new people.

To explain what will happen next, a brief look back is required. Between September 2008 (Lehman) and about March 2009, businesses in America were in full out panic mode! The financial system teetered on the edge of collapse, a collapse which would very likely have resulted in unemployment over 15% nationally, bread lines reminiscent of the 1930s, and all sorts of other awful outcomes. In this environment, with sales of things like refrigerators, tvs, CARS, and other consumer durables falling faster (by far in some cases) than at any time since 1945, business understandably lost its nerve, panicked, and laid off, en masse, millions of workers. What's weird about the Great Recession of 2008-2009 (I like the name Great Recession, it really captures the moment -- I didn't make it up) was that FAR more jobs were shed than should have been based on the GDP numbers, as I said earlier. Given the sharp decline in GDP, unemployment should be around 8.3-8.5% now. Instead, its 9.8. A 1% + difference in unemployment is a big deal, its about 1.5 million job. So we're basically short about 1.5 million jobs from where we "should" be based only on the GDP decline. In broad brush, those 1.5 million jobs are "panic" jobs. Jobs that were destroyed not because they couldn't be supported by the companies that had them, but because companies were hugely fearful. Now this was perfectly rational, don't misunderstand my point. But now that the financial crisis is over (yes, its OVER), American business has fewer workers than it needs RIGHT NOW by at least 1.5 million. As GDP picks up, that shortage is going to grow, fast. Real fast. So does this mean businesses are a few months from a hiring boom that will will take the job market in 3 big steps from godawful to weak to mediocre to good? Nope. Businesses will project the recent past into the near future (perhaps the most common human mistake-- if on my epitaph it is said that I cautioned against making the mistake of projecting the recent past into the near future, I will have accomplished something, as it is one of my two basic motifs in life) and businesses will be very cautious in expanding payroll, particularly with the crushing costs of health care added onto the cost of hiring most workers. Thank you GOP and weak-kneed democrats. More on health care coming to a post near you.

In any event, sometime late this year or early next year, probably in January or February 2010, a funny thing is going to happen to American business, in a fairly short time frame, circa 2 weeks. Businesses from the redwood forest, to the gulf stream waters, from California (yes, even California) to the New York islands, are going to be caught short. Their order books, down so sharply, will begin to revive. Nothing too dramatic, but instead of having orders for 100 units as we projected, we've got orders for 108. Now we can get out 108 with current payroll, but its a strain. And our customers are telling us they might want 115 over the next period. Wow, we need to hire new workers! Well, let's DO IT. This will happen, literally in a few weeks, all over the country. And so begins robust job growth.

Beginning early next year, Bernanke and the fed will see that my predicted Boom is really here, and begin draining money out of the system, and raising interest rates, in short undoing the huge stimulus efforts undertaken in recent years.

I predict that job growth is on the verge of turning positive, and that for September-December job loss will be very small, less than 100k/month on average, and that by February there will be net new jobs. Even manufacturing employment, which has been just decimated, is going to increase. In the most recent national report on manufacturing, for August, the purchasing managers' index registered 52.9, indicating slight growth in the manufacturing sector overall. This is the first month of growth in 18 months, and surprised me somewhat. Its not a strong report per se, but for manufacturing of late it is strong indeed.


http://www.ism.ws/ismreport/mfgrob.cfm


This report implies, based on past correlation, that the economy is already growing at an ok clip, 2-3%. Given that the recession has just ended, this isn't bad. Given that businesses inventories are way down, there is thus an immediate need for more manufactured items. Now of course some of this will come from overseas, but a fair bit will come from the good old US of A. So the manufacturing recovery has already begun! This will alas come as news to Ohio, Michigan, etc, which have been so hard hit in recent years, but if order books are growing employment will grow too. In the short term at least.


Since inventories are low, and there is pent up consumer demand for cars (some of which was satisfied by cash for clunkers) electronics, and other items, economic growth should be fairly strong in the coming months, as it usually is after a recession. Recovery from the last 2 recessions (2001-03, 1991-2) was painfully slow. Most commentators are predicting a similarly slow recovery this time, in particular because of the huge problems in the financial sector. These predictions are reasonable and understandable. And dead wrong!


These predictions by others ignore the huge actions by the fed, treasury, and the congress, as outlined in my July 9th post, which I take so very seriously. In short, there is a totally unprecedented amount of stimulus in the pipeline, and now that the financial system isn't a total mess, that stimulus will work its magic.


To conclude predictions for the near term:


2nd half 2009: 3.5%.


1st half 2010: 5% (that's not as shocking as it sounds after such a steep recession).


2nd half 2010: 3.5%



Not bad at all, I'd say!

B) The next few years:

As I've said, starting late this year or early next year the economy will take off like a rocket, and one of the great booms in American history will begin. Figure on better than 4% growth for 2010 and at least 3% for 2011.

Because the economy is so weak now, and has been for a while, it can grow for quite some time without increasing the types of inflationary pressures that come from a strong economy, namely a wage-price cycle where emboldened workers demand and receive higher and higher salaries and other forms of compensation, and then spend that money chasing a relative shortage of goods and services.

Will inflation kick up and become a serious problem, as many suggest? No. Why? Because I have nearly unlimited faith in Bernanke's ability to manage the money supply and other factors within the control of the fed. The recovery will be faltering at first, and Bernanke will be cautious in undoing the massive amount of stimulus that he has injected. But the GDP growth that I have predicted is so strong that he will by the middle of next year begin fairly aggressively raising interest rates, selling back treasury bonds that the fed has bought, thereby reducing the money supply, and slowly begin eliminating the other extraordinary stimulus measures which took place in 2008 and early 2009. This will have the desired effect of clamping down on inflationary pressures caused by very very easy money, and, I predict, cause the dollar to soar. These two things in conjunction will be enough to prevent inflation from increasing more than modestly.

Once the markets become convinced that I am correct, and that a strong noninflationary recovery/boom is underway, the markets will take off like a rocket! My advice on buying stocks? If it isn't nailed down, buy it. If it is nailed down, get the nail off the damn stock and then buy it! The conditions I outline are ideal for a long sustained stock market boom (which will, by 2012, be creating its own problems, but more on that in a few months). My 17,000 prediction on the Dow Jones by 2012 could prove conservative.

C) The ramifications:

Much has been written about how American consumer behavior has really changed this time. And it has, for a while. There is MUCH less conspicuous consumption. Frugality is in. Had the hard times lingered, this change may have lingered. But since a boom, and prosperity is really right around the corner this time, old habits will reassert themselves. Debt will again be in. Even a housing boom wouldn't surprise me, but that's several years away at least.

The federal budget deficit will close much more rapidly than the CBO or congress is predicting. It won't be balanced anytime soon, that's just not in the cards, but it will shrink and shrink dramatically. In fact, if reelected, it wouldn't surprise me that much if Obama duplicates Clinton's feat of the federal budget balance moving in the correct direction for 8 years in a row! In any event, the Boom will be strong enough to fundamentally rewrite the budget picture for the next several years, but not anything like strong enough to solve the long term budgetary problems, of course. These require a significant cut in the rate of growth of Medicare, AND significant tax increases, as well as modest cuts elsewhere in the federal budget.

Today is the most important day in the health care reform effort, and likely one of the most important days of Obama's Presidency. Here's why.

As you have all likely heard, Ted Kennedy died last night after a battle with brain cancer. As you also likely know, Ted Kennedy had always considered national health care reform and universal coverage as a crucial battle to be won in order to make America a better place, and the next logical step in the great liberal reform efforts from Teddy Roosevelt, to Social Security, to the civil rights laws, medicare and medicaid, in the 1960s.

We're going to learn an awful lot about Obama's presidency today, and unfortunately I don't think we're going to like it.

If LBJ were president right now, he would shamelessly exploit Teddy's death in order to pass health care reform in his name. His speech would go something like this: "America lost a Senate legend today when Ted Kennedy passed away. I got to know him over the last few years, and grew to really appreciate what a giant he was. He will be missed, and I hereby declare today a day of national mourning in his honor. Health care reform was his life's work. He said on many occasions that he hoped to live long enough to see America pass a real national health care system, one which would cover everybody. So we would have an America in which people could no longer go bankrupt because they got sick, or have their health insurance taken away. I demand that Congress act quickly after its recess to pass comprehensive health care reform legislation that would make Ted Kennedy proud. And I assure each and every member of congress that he is watching from on high, and will take careful note of what goes on in this debate.

Health care reform was Ted Kennedy's life's work, his great goal. I call on Congress to pass, without delay, a health care reform bill, entitled the 'Ted Kennedy Health Reform Act of 2009.' I have been discussing for months now the details which must be in that bill. The ball is now in Congress' court. Teddy is watching. Thank you and goodnight."

Something like that. Despite the fact that its the end of August, and despite the fact that Obama has been talking ENDLESSLY about health care, he should take 5-10 minutes of prime time tv tonight, and make a speech along these lines. Then, Kennedy's name should be repeatedly and shamelessly mentioned in the press, in order to pass the act. His family won't mind, I strongly assume, and no one could DARE accuse him of taking advantage, because the media won't allow it; as they know that he would have been the first to approve of his name being exploited for THIS cause. LBJ would do it. FDR would do it. Lincoln might well. Nixon certainly would. But its not in Obama's nature to so shamelessly use a man's death for the cause. So he won't. He'll issue kind words, and mention health care reform, but not in the very direct and clear way I outline. And it will be a missed opportunity, perhaps even a missed golden opportunity, to reclaim the debate.

Oh, one other thing. We're going to learn whether Obama or Rahm Emanuel is running the White House. Rahm Emanuel, as I understand him, would exploit the death of his own mother in order to accomplish a relatively minor goal. He CERTAINLY would endorse a strong program along the lines I mention, and, I humbly submit, doesn't need flyingpinkunicorns to suggest it to him. So in addition to learning how much Obama is willing to exploit Kennedy's death, we're going to learn a lot, I think, about Emanuel's power to shape the agenda. The next 24-48 hours are going to be both crucial and fascinating for those paying close attention. So pay close attention.

The economy will recover strongly in 2010. Nearly every economist on record is predicting a very slow recovery. Nearly every economist is wrong.

First, its not at all unusual for the huge majority of economists to be fundamentally wrong on the course of the national economy. Very few predicted the vigor of the recovery starting in 1994, following a very slow start to the recovery after the recession of 1991. Very very few predicted a steep recession following the bursting of the housing bubble in 2007-2008. And now, most economists, seeing the truly dreadful economic numbers that are coming out this year, are predicting a very slow recover, if any at all. A lot of ordinary people are wondering if the economy will ever recover strongly.

It will. Betting against America has been a losing bet for 400 years. It continues to be, particularly since we have reasonably competent leadership in the White House.

Anyway, all of the economists and ordinary people I have alluded to above are making the same fundamental mistake. They are projecting the recent past into the near future! It is my belief that this error is very common among people of all stripes, is deep in human nature, and in fact is one of the key obstacles people face regarding trying to get an idea of what will happen in the future.

Housing prices went up recently? They will continue to do so. The stock market? Ditto.

It takes vision (and guts, and insight) to predict a radical break from the recent past. After all, the recent past often DOES indicate the course of the near future. But sometimes it doesn't, and recognizing those times is crucial if you're going to be worth a crap as an analyst of any sort.

Let's see if I'm worth a crap as an analyst of the economy about now.

The reason I am predicting a strong recovery is simple; there are so many huge efforts in place to stimulate the economy. These are, in order of importance:

First, and most importantly, Hank Paulson and Tim Geithner have apparently stabilized the banking system. When's the last time you heard truly awful news about a major bank/financial institution? Been a while, hasn't it. We've progressed through a stimulus package, health care reform, Iranian elections, Michael Jackson, and so on. Its easy to forget that from September to early February the financial system was at various times teetering on the edge of the abyss. With the help of (eventually) good leadership from Paulson, under Bush, and (reasonably) good leadership under Geithner, the banking system has apparently stabilized. This was absolutely necessary for economic recovery to take root. If I am reading the treasury department website correctly, and I think I am, a total of slightly over $70 billion dollars has been repaid to the treasury, from various banks, out of $203 billion the government put in.

http://www.financialstability.gov/docs/transaction-reports/transactions-report_070609.pdf

Given where we were just a few months ago, that's an incredibly good sign for the health of the banking system.

Second, the Federal Reserve has created an absolute boatload of money. M2 is the aggregate total of all physical currency, amount in demand accounts, savings accounts and a few other areas. This is the measure that the fed currently uses to determine the broad money supply. Between September 2008 and July 2009, the fed (wisely in my opinion) increased M2 from
$7.65 trillion to $8.3 trillion, a nearly 10% increase. This 10% increase is a fairly large increase historically, and is highly likely to stimulate the economy in the short run. In so doing, the fed dramatically increased the amount of reserves held by banks. This change allows banks to make more loans. This process has begun, but not yet in a big way.

Third, interest rates have been cut by the fed, to the floor. This hasn't really mattered yet, due to the banking/credit market crisis, but as these areas continue to return to normalcy (I predict) interest rates will regain their potency to stimulate the economy, as businesses and individuals will again want to borrow to grow/expand their business, buy cars and houses (more on that later in this post) etc. With banks increasingly able and willing to lend (there has been progress already in this area, and I predict much more in the next 6 months) the low cost of capital will stimulate, as it always has.

Fourth, the Obama stimulus. It has been criticized (correctly) for being slow to really get moving. Much of the actual government spending will occur between this October and next October. This fact will turn out to be a blessing in disguise, as the spending will likely have far more knock-on effects than it would have earlier this year, because the banking system will be healthier. In any event, the stimulus will add somewhere around 1.5 points to GDP growth for the next fiscal year (beginning October 1st).

Fifth, businesses have already cut so very many workers. This, perversely, should indicate that the rate of job loss should slow, very very soon. It already has slowed, but only from frightfully high levels, to high levels. This should progress, in turn, to fairly high levels, little job loss, and then a little job gain. The sectors that have been hardest high (finance, construction, especially residential housing construction and manufacturing) have had absolutely savage, depression-like job cuts. I admit to not knowing the details at all on this point, but it seems to me that further serious job cuts in these areas are highly unlikely. Many of the weak businesses in these areas have gone out of business, the survivors have already cut to the bone. Businesses have cut jobs in many cases even faster and further than the demand for their goods/services have fallen. When demand stabilizes (which may have happened already, and in any event should happen quite soon), businesses will quickly stop cutting jobs, and then tentatively start adding a few. This process tends to build on itself in normal recoveries.

Sixth, there is beginning to be pent-up consumer demand. The sales of cars in particular dropped so steeply in 2008-2009, that the average age of vehicles in America has soared to the point where in the past car sales really picked up. This may take a little while this time around because of the credit crunch and particular worries about GM and Chrysler, but with the government bailouts in place, I predict these worries will soon be overcome. 2010 should represent a big percentage increase in car sales off of the truly godawful levels of 2009. This will boost the economy.

The same is true to a lesser extent for other consumer goods. Demand fell so far so fast, that it will likely rise soon.

With housing, I doubt this is the case. Housing prices still probably have further to fall, and I can't see a housing recovery of any kind until at least 2011. In past recoveries housing has usually led the economy out of recession, as lower interest rates entice buyers. That is most unlikely to happen this time, which is why the recession has gone on for so long (18 months and counting assuming it is not quite over yet).

However, the other elements of recovery that I have outlined should be so vigorous that a very weak housing market is overcome, and a reasonably strong economic recovery should take root sometime late this year or early next year. The naysayers, who are predicting a double dip recession, with unemployment eventually reaching north of 12%, are wrong.

Having said all this, job losses should continue for several more months, and unemployment will top 10% for certain. Its possible that everything I predict in this post could come to pass except for job growth, and that unemployment could still rise through next Spring, topping out at around 11.5%. I doubt it, but its possible. That would merely set the stage for a delayed, and thus stronger recovery, as the job market catches up to the other underlying forces in the economy.

I know I seem ridiculously optimistic to many of you, but what I am doing is not simply projecting the recent past into the near future, but instead trying to understand the forces that will shape the near future. And what I see is an array of forces constituting wind at the back of the economy, and only housing as a strong headwind. There are many, many more tailwinds than headwinds.

By all means, judge me favorably or harshly over the next year, depending on what happens. But this is, in broad outline, how I see the economy.

Panic, despair, health care

These words now go together.

The effort to reform health care is in real trouble. Here's one recent article among many.

http://www.washingtonpost.com/wp-dyn/content/article/2009/07/08/AR2009070804184.html?hpid%3Dtopnews&sub=AR

The dems are badly floundering because of intra-party disagreement (not surprising) coupled with the entirely expected nearly uniform GOP opposition. Anyone who thought the GOP would participate in actually trying to solve a crucial national problem must have spent the last 8 years on Neptune. Well, prescription drugs for seniors. Anyway, we KNEW the GOP wouldn't work with President Obama on health care. After all, can't give the democrat a victory! Although there is a lot of talking by Chuck Grassley, the ranking Republican on the crucial Senate Finance Committee, he has few GOP followers. As Jon Kyl, the # 2 Republican in the Senate recently said, Grassley has no authority to represent Republicans.

http://www.latimes.com/news/nationworld/nation/la-na-baucus-grassley9-2009jul09,0,5713295.story?page=2

So the democrats have put in a HUGE effort to be bipartisan in the Senate, only to be predictably disappointed. Sure, the dems may pick off 3 or 4 Republican Senators, at most, but that's it. And more likely they'll get only 1 or 2. And that's worth fundamentally watering down health care reform?

In any event, the Obama administration realizes that their signature issue, health care, is in big trouble. To its credit, the administration has awakened, big time. The early strategy was to give congress their head, let them work out the trade-offs with minimal supervision/input, and weigh in where necessary. After all, the Congressional committee chair people are really feeling their power these days because of the huge democratic majorities, and a top-down approach from the White House might really have not worked any better than it did for Hillary in 1994. Alas, that particular plan has run into the iceberg of democratic disunity, and, like the Titanic, the leave-it-to-Congress ship is taking on water fast. Oops.

The administration has now realized that the democrats in Congress can't agree amongst themselves and, as Andrew put it, are like petulant children, requiring careful adult supervision. Well fortunately, adults, from Obama to Emanuel and on down, run the White House. The adults are now in the game, and are pushing, pulling, arm twisting, begging, threatening, cajoling, convincing, negotiating and other adjectives I can't think of at the moment, with congress, mainly the Senate. All is negotiable, but the noises coming out of the White House recently have been hugely encouraging; more willingness to negotiate over how to pay for it (I couldn't possibly care any less), while less negotiation on a public option (I couldn't possibly care any more). All to the good, as far as it goes.

The (really) bad news is that with the clock ticking towards Obama's (meaningless) August deadline, the Senate isn't close to agreeing on the big issues. The Senate HELP Committee (Health, Education, Labor and Pensions, Kennedy, Chairman), put out a reform bill tentatively scored at $600 Billion over 10 years. Chump change, in other words, given that we will spend more than $40 Trillion over that stretch. If Kennedy put it out, I'm for it (on Health Care). If we can't pass this reasonable bill, the sky has fallen. Obama will be shown to be totally impotent. Like the Emperor in the Wizard of Oz.

To be defeated by Max Baucus and the other compromisers when you hold 60 seats (57 or so is the real number-- there are a few dems that really aren't, but Snowe and one or two Repubs are listening) is just sad.

Based on what I know now, and I have been following of late, I'd say that its no better than 50-50 that a serious reform bill is signed into law. The House will do what its told, and Nancy will pass a strong bill with a PUBLIC OPTION (insert steroids here), but the Senate???? And even if the Senate does pass a real bill, that conference committee will be one whale of a monster-fight. Will Nancy and Steny Hoyer in the House just cave to the Senate, after being told we can't get to 50 in the Senate without doing it the Senate's way? I predict yes, they will. If they didn't, the thing could die. I don't think red state dems like Nelson of Nebraska, the two dems from Arkansas (Pryor and Blanche Lincoln), Landrieu of Louisiana, etc. are afraid of bucking Obama. They think it will HELP them politically in their states, and they're almost certainly correct. Since they're not running for president, what do they care if health care reform whithers on the vine?

I advocate the democrats in the Senate writing a reasonable bill, compromising within the party, ignoring the GOP, and going from there. I truly hate to try and do such a massive reform effort in a partisan fashion, its far from optimal. But alas the GOP just isn't willing to deal on any terms except their own, and they're not willing to really try and dig in and help solve America's huge problems. So we'll have to do it without them, and let the chips fall where they may.

I urge everyone to contact their house member and Senators on this. www.house.gov, and www.senate.gov. Finding links to send your rep/Senator a message on-line is a piece of cake on the main web sites. This issue is so huge that its worth the few minutes to send your comment.