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Economy

I often remark on the powerful effect of incentives.  Lately it’s been with creating an incentive to cross a busy freeway.  My point being that the government can cause perverse incentives.

In the past I’ve mentioned that unemployment benefits create the same condition.  By the nature of paying someone not to work, you create an incentive NOT to work.  At lest on some level.  Further, if the benefit is large enough, the individual is going to create an internal value proposition and will only return to work when that value proposition reaches an inflection point that benefits him.  In other words, no one is going to work for 40 hours for $320 when he can not work for 40 hours and make $335.

For evidence, I wanna share this editorialHat Tip Dan Mitchell

Last year the demand for our construction services, to our delight, was as they say “going through the roof” to a point where were turning down more work than we were accepting. Frustrated that we could not be available to the potential new clients that were calling on us, and simultaneously excited that this was happening to our company, since unemployment had broken the double digits marker. I decided we would grow, work to sign up as much as 40% more in total contracts, and hire up to 12 additional full time employees. Basically take advantage of our good fortune and get a small portion of our community back to work.

The plan was initiated, the additional contracts were signed up and then we set out to hire the employees. Little did I know that attempting to hire the employees needed, which I had thought to be the easiest part, would turn out to be a nightmare if not impossible. I’m sure that reading this you will be almost as surprised as I was directly experiencing it.

My experience: Before 2009 if our company advertised for an open position, on average we would get 20 to 30 applications, interview six to eight of the applicants, and hire one or two, based on the quality and potential of the candidates. This process has been deteriorating dramatically since 2009 and now at the end of 2011 it has completely hit bottom. Of all the applications that we have received this year, when asked why they were seeking a job with us, one out of three answered: my unemployment is running out and I have to go back to work. Earlier this year after I hired two new full-time employees, went through our company’s orientation process, fitted them with our work clothing and booked them to start within a week, they both quit. One called ahead of the start date to apologize but wanted to inform us he would not be coming in because the government had just extended unemployment benefits again. The second one just did not show on his first day and when I called him he said he couldn’t come in now because unemployment had been extended and he was making almost as much as we were planning to start him out with. If this is not frustrating enough to those of us that provide jobs and pay taxes let me give you my last two attempts this year. Both times we advertised in various media at great expense. The first time only seven applicants came in, I set up personal interviews with two for potential hiring, neither of them even showed up. The second time with six applicants, I set up interviews with four, one called in to cancel the interview, one did not even show up, two actually came in, though one was late. To summarize (in case you missed the math) of the last six people that I called for interviews for potential full-time employment only two came with one being late. It is more than frustrating, it’s perverted.

If we are going to insist on providing unemployment benefits, at least reform the process so that the individual has to report to an office, perform community service when waiting for responses and allow for better monitoring.

Obama may be the least business friendly President we’ve had in my lifetime:

Washington — Federal regulators have delayed the proposed merger of Duke Energy and Progress Energy late Wednesday, setting back into plans to merge the two North Carolina-based utilities by the end of the year.

How many corporate deals has this man’s administration destroyed?

Off the top of my head:

  1. Duke-Progress merge
  2. AT&T – TMobile merge
  3. Pipeline
  4. Boeing
  5. Obamacare

That’s just 5.  Right here with little or no thought.

I often tell people that America and being “American” is more of an ideal than a real descriptor of one’s nationality.  For example, if you say he is a “Japanese” you will know that he is a man born and raised in Japan.  His heritage is Japanese.  Same for a German or a Mexican.

But when you say he is an American you can not assume him to have been born in America.  Nor can you assume race or historical nationality.  Rather, American means that quality that embraces the pioneer, the risk taker the lover of freedoms and Liberty.  It is an ideal of hard work results in hard rewards.  Of all the nationalities that one could be, American conjures the bootstrap.

Obama is not American in that sense.  And in that way and measure, when he says he is going to fundamentally transform America, I believe him.

It’s the classic tribal warfare.  The Republicans wanna blame the Democrats for the boom then bust of the housing bubble.  Specifically they wanna blame Carter for the CRA, then Clinton for accelerating it and finally Barney Frank for enabling Fannie Mae and Freddie Mac.

For their part, the Democrats wanna blame the Republicans for easing regulations and over site of the financial markets.  Most especially with regards to leveraging, allowing banks to act as investment firms and the existence of the derivative market.

I have long been a believer that it was Fannie and Freddie that drove us up to and then over the cliff.  And for a long time have held the Democrats responsible.  I am learning and need to amend my position.

It was government policy that drove us up to and then over the cliff.  Policy that began with the noble intention of  providing affordable housing to more and more people.

However, when government subsidizes, we often always get poor results:

It was perhaps a worthwhile goal, but it caused the financial crisis when it was done by lowering mortgage underwriting standards. In the end, it was a colossal policy error by Congress and two presidential administrations.

Data from the article demonstrates the government’s involvement:

The affordable housing law required Fannie and Freddie to meet government quotas when they bought loans from banks and other mortgage originators.

At first, this quota was 30%; that is, of all the loans they bought, 30% had to be made to people at or below the median income in their communities. HUD, however, was given authority to administer these quotas, and between 1992 and 2007, the quotas were raised from 30% to 50% under Clinton in 2000 and to 55% under Bush in 2007.

It is certainly possible to find prime mortgages among borrowers below the median income, but when half or more of the mortgages the GSEs bought had to be made to people below that income level, it was inevitable that underwriting standards had to decline. And they did. By 2000, Fannie was offering no-downpayment loans. By 2002, Fannie and Freddie had bought well over $1 trillion of subprime and other low quality loans. Fannie and Freddie were by far the largest part of this effort, but the FHA, Federal Home Loan Banks, Veterans Administration and other agencies–all under congressional and HUD pressure–followed suit. This continued through the 1990s and 2000s until the housing bubble–created by all this government-backed spending–collapsed in 2007. As a result, in 2008, before the mortgage meltdown that triggered the crisis, there were 27 million subprime and other low quality mortgages in the US financial system. That was half of all mortgages.

In short, the government created the criteria, or the supply, and then the government created the agencies, or the demand.

Of these, over 70% (19.2 million) were on the books of government agencies like Fannie and Freddie, so there is no doubt that the government created the demand for these weak loans; less than 30% (7.8 million) were held or distributed by the banks, which profited from the opportunity created by the government.

So yes, it was the government POLICY that created this bubble.  But, back to Fan and Fred, did they have a role?

Of the 19.2 million subprime and low quality loans that were on the books of government agencies in 2008, 12 million (about 62%) were held or guaranteed by Fannie and Freddie.

Yes.  And a big one.

However, I’m forced to amend my position.  It was not the SOLE fault of Fan and Fred for the crisis, but they are certainly a major player.

To his credit, and to complete the Liberal tragedy, even Frank himself acknowledges his errors:

I hope by next year we’ll have abolished Fannie and Freddie … it was a great mistake to push lower-income people into housing they couldn’t afford and couldn’t really handle once they had it.

 

Suppose I’m a hiring manager.  And I’m interviewing for an open position.  Can I legitimately use the fact that one of the candidates showed up for the interview in his pajamas as a reason not to consider him for employment?

How about if one of the candidates pulls out a cigarette and lights up.  How about that?  Can I use that fact to disqualify a candidate?

So, if I can discriminate against jammy wearing smokers, why can’t I discriminate against people who won’t go and get a job?

The latest report from the OECD should make those in favor of redistributive policies vindicated in their opinion that the income disparity is growing.  Data suggests that it is:

THE gap between rich and poor has grown ever wider in wealthy countries over the past three decades. A new report by the OECD has reams of data on this phenomenon and is well worth looking at. The Gini coefficient, a measure of inequality in which zero corresponds to everyone having the same income and one means the richest person has all the income, increased by almost 10% from 0.29 in 1985 to 0.32 in 2008, for working-age people in OECD countries. The trend is caused by earnings: the pay of the richest 10% of employees has increased at a far greater rate than that of the poorest 10% of employees. Within the upper echelons, the top 1% have reaped the greatest gains.

I have ideas about why this gap is growing.  I think that much of it is the way in which they measure the Gini.  For example, you could take 4 people with incomes described as:

  1. $24,000
  2. $30,000
  3. $50,000
  4. $75,000

The Gini coefficient for the above data is .24162

Now, marry two of those wage earners:

  1. $24,000
  2. $50,000
  3. $105,000

The Gini coefficient for THAT data is .301676.  Without ANY income changing at all, the Gini increases by 25%.  In other words, the same number of people are working the same number of jobs and earning the same number of dollars.  The only difference is the method by which they calculate the Gini.

But are there other reasons for the Gini to increase?  Why yes:

Technology has disproportionately benefited high-earning workers, who also spend far longer at work than do low-earners. High earners marry other high earners. And governments are doing less to redistribute wealth than they have done in the past. So far, so familiar. But the report also argues that globalisation is not a significant cause of inequality, and that one of the many reasons for the rise in income inequality is that more people are in work now (or at least they were before the financial crisis hit) compared with the 1970s.

So, we have factors such as:

  1. Technology has helped the wealthy [did it create them?].
  2. Productive people marry other productive people .
  3. Governments are correctly not redistributing wealth.
  4. More people are “in work” now.

In the end, I’m not sure that the use of the Gini is an appropriate measure of income disparity.  Further, I’m not sure it even matters.

I have long argued that if we are going to pay people not to work, we should be allowed to dictate what we want for that pay.  For example, when I go to work, my boss is able to guide my activities.  He gets to prioritize my day and my efforts.  He gets to do this because we have entered into some agreement where I end up getting paid.

I see little difference when we provide Unemployment Benefits to folks who aren’t working.

In theory, the benefits are meant to provide some relief to the out of work individual during their time looking for gainful employment.  Even while I disagree with the program, I can understand what we’re all trying to do.  I really do.

However, if we are going to be spending all this money to help people out, I think that we should be able to watch over the program.  For example, if we want people to find a job, we should ask that they come to a “job finding office”.  That is a place where computers would be available, resume consultants and even job placement professionals.  To be sure, if someone has an interview, they would be free to attend and “time off” would be accommodated.

Further, if there is time in the day when filling out applications and constructing resume’s has ended, there must, MUST, be good work the folks could engage in in an effort to “earn” the benefit pay.  That good work could even be charity or community service; reading to kids or the elderly.  Anything.

Well, it seems as if lawmakers are reading Tarheel Red:

A Georgia lawmaker wants the unemployed to put in community service hours in exchange for their government-paid jobless benefits.

John Albers, a Republican state senator, has proposed a bill that would require out-of-work Georgians to volunteer at charities at least 24 hours every week, according to MyFoxAtlanta.com. Otherwise, they wouldn’t receive unemployment benefits.

“We want to have a society that is responsible and that is accountable,” he said.

The lawmaker, who calls his bill the Dignity for the Unemployed Act, brushed off concerns that the volunteerism would cut into valuable job-searching time. And he said the law would provide “flexibility” so that if somebody needs to go to extra interviews one week, he or she could make up the volunteerism hours the following week.

Now, to be sure, I have some issues with the good congressman.  I don’t think that we need the government to dictate charity, this sounds like Obama.  And second, I would flat out give the candidate excused time for ANY work related activities.  Got an interview?  Go, good luck and win that job!

Certainly there is room for compromise here, yes?

Even as the unemployment rate is going down, and maybe more because people are opting out of the workforce, it still is true that getting a job working for the government is a good bet:

Durham, N.C. — The Durham County Board of Commissioners’ recent approval of salary increases for county employees of up to 32 percent, which has raised questions among some.

While most county employees were awarded raises of up to 4.25 percent, County Manager Mike Ruffin received a 10 percent raise and the clerk to the Board of Commissioners, Michelle Parker-Evans, got a 32 percent raise.

Nice.

I have been harsh in my critique of the Occupy crowd.  In reality, the majority of the protesters are unemployed kids who’ve been coddled through life and feel that the world owes them …. something.  They don’t even know what.

Whatever.

I was very surprised today to read something that shocked me.  An idea generated from the 99% that could get even me to join in.  They wanna start a bank:

Members of Occupy SF announced their ambitious plans to turn protesters into bankers by creating the People’s Reserve Credit Union. According to Occupy SF’s Facebook page:

The goal of this project is to encourage San Francisco residents, businesses, as well as nonprofit and city agencies to keep their money out of the big banks and to redistribute that money locally. Initial services will include micro-loans for the working poor and homeless, and subsidized student loans at low interest rates.


This is EXCELLENT news.  And not only because I think that young energetic people who have nothing better to do with their time should get a job, but because I have long LONG begged for the Leftists of the world to unite and build a company, a non-profit, that would put their beliefs into action.

Wanna get food to poor people cheaper?  Open a not for profit grocery store.

Wanna make gasoline affordable?  Open a not for profit gas station.

Cars too expensive?  Open a car dealership?

Jobs for everyone and cheap shit too!

Even more impressive, in my mind, is the actual definition of a plan.  Something that the Left can’t do.  EVER.

Tax the rich, make them pay their fair share!

More money for education; you hate kids!

More money for homeless kids; you hate the poor!

But when asked how much that would be?  When would enough be enough?

Gotz.  Nada.  Nothing.  Blank “I went to Yale and learned bullshit” looks.

But these kids, they got game:

  • Accumulate capital assets of $7 million or more, through investments by different organizations, members, et al.
  • Open two credit union branches within the city of San Francisco. The first branch location in the mid-Market Street corridor , in the former Social Security Administration storefront (MOCD) , with the assistance of other local nonprofits. Each branch will have a cafe within it and a commercial kitchen available to rent.
  • The credit union will employ students and homeless, creating 60 part-time jobs.
  • Issue 300 to 500 micro-enterprise loans (max. $5,000).
  • Add 1,000 people overall to the city employment payroll.
  • Finance and start a food co-op large enough to support a neighborhood.

If THIS is what the 99% is talking about, count me in!

Today a friend of mine got a new job.  She didn’t get a promotion, just a new job at the same level she’s been at for the last, oh, 8 years at least. No raise.  No more vacation.  Bonus is the same.

Now, to be sure, she is a VP in her company and is paid well.  But she travels extensively.  She has factories in Asia, Europe and the Americas.  I would estimate that she is gone about 30% of the time.

Her job requires her to work nearly 70 a week minimum; often more than that.  Further, the times of the day that she is working are sporadic; foreign mangers often are not awake in American daylight hours.

The best part?  The was told Friday that she would have to take this new job.  Friday.  And she was told that she would have to move from Seattle to Bismark.  1,200 miles.  This represents the 4th such move, dramatic and required, that she has made in the last 15 years.

She is the 1%.

She deserves it.

It doesn’t matter the organization.  Or the society.  Or the group.

People stratify.

It is the nature of man to maximize self interest.  It’s bred into us through 1000’s of years of evolution.  We look out for ourselves.  And when ourselves are looked out for, we look out for “the us”.  We are tribal individuals.  We just are.

If you can find a system that changes humans from the selfish creatures we are to ones that live in “peace” and “harmony”, then we can talk about how better to arrange human society.  But until then, free and open markets are the single best way to organize ourselves.  If you don’t like human greed and our focus on the material thing, open a church or a synagogue or a mosque.  Something that speaks to improving a man’s character.  His inner self.

But don’t legislate it.

Which brings me to Jon Stewart.  And Occupy Wall Street.

Jon continues to be my 2nd source of comedy; Modern Family is hands down #1.  And in this episode he actually takes down the Occupy crowd.  To his credit.

http://www.thedailyshow.com/watch/wed-november-16-2011/occupy-wall-street-divided

I love the fact that the park has segmented into two classes.  And my favorite part is when the protester dweeb is rambling about “access to the goods of life”.  You know, the guy who is worried about “personal property” as opposed to “private property”.

Props to Jon for a humorous sketch on OWS.  Good stuff.