Is current unemployment structural?

Mark Thoma, writing for Money Watch, identifies the three basic types of unemployment. Frictional unemployment arises mainly from the combined movements of a free people. Cyclical unemployment, what most economists believed was the cause of the current recession, is the normal ups and downs of the business cycle. There is a growing body of evidence that the persistent unemployment we are experiencing may be structural:

…defined as unemployment arising from technical change such as automation, or from changes in the composition of output due to variations in the types of products people demand.

In a letter published on the Federal Reserve Bank of San Francisco‘s website, authors Mary Daly and Bart Hobijn find evidence of structural unemployment in a divergence in Okun’s Law, a law that has remained true for 60 years, until now.

In 1962 Arthur Okun, then a Yale University professor, had been tracking GDP and unemployment statistics dating back to 1949. He found that for every 2% that real GDP fell below its trend, there was a 1% increase in the unemployment rate. As time passed and the ratio held, this became known as Okun’s Law.

As seen by the red boxes in the chart below, Okun’s Law has remained consistent up until 2009.


By permission of FRBSF

As Daly and Hobijn point out:

Since real GDP was almost flat in 2009 while its trend level increased by 3%, the unemployment rate under Okun’s law should have increased by 1½ percentage points. Instead it rose by 3 percentage points, more than twice the predicted increase.*

Evidence suggests that the reason for this was an unusually rapid rise in worker productivity. Output remained stable while businesses shed excess labor, as shown by GDP per hour in the chart below.


By permission of FRBSF

It should be remembered, however, that GDP is mostly measured on the buy side, not the sell side. In 1949 there was no such thing as a Japanese import. 1949 was the year of the communist take-over in China. In 1949, products stamped “Made in USA” were commonplace throughout the world. Measuring what was bought in America would produce a nearly identical statistic as measuring what was made in America. To put it mildly, things are a little different now.

Whether you’re buying a shirt made in Mexico, a coffee maker from China, or an automobile made in parts unknown around the world and assembled here, it all gets counted as domestic product. The growing body of evidence for structural unemployment, is matched by a growing body of evidence that GDP has become an archaic metric.

There is also the difference between the industrial economy of 1949, and the service economy of today. It is much easier to lay-off a service worker and still maintain a reasonable amount of service, than to lay-off a manufacturer and maintain output. This could help account for the rise in GDP per hour.

In any case, economists are still sifting through the rubble of the recession that began in 2008 to understand what happened. Any decisions made by politicians now, will be based on incomplete evidence.

*Reprinted from the Federal Reserve Bank of San Francisco Economic Letter 2010-07. The opinions expressed in this article do not necessarily reflect the views of the management of the Federal Reserve Bank of San Francisco, or of the Board of Governors of the Federal Reserve System.

The specter of “Somethingflation”

There is a moment in every horror movie between the first appearance of a ghost and the pretty lady’s scream. It begins with an unrecognizable shape, a strange color, or the glimpse of a sudden unexpected movement on the periphery of vision. The heart leaps, the adrenaline flows, and the brain begins a wild search for pattern recognition. Our nation’s economy has been stuck in this moment for the better part of two years. (Think Vincent Price on valium). Hollywood will never produce an economic horror movie.

The general public is skittish, as are the markets, and understandably so. The emerging shapes and colors of our present difficulties are vague and mysterious. Like synapses firing, the deflation/inflation debate in the financial opinion pages offer patterns at random, that never quite explain what we are facing. Paul La Monica, of CNN Money, has coined a name for this apparition, “Somethingflation.”

The barrage of conflicting patterns we’ve been subject to, can be lessened by a few rational observations. The increasing or decreasing prices on common items, such as a gallon of gas, a loaf of bread, or a pair of basic shoes can be used to determine inflation or deflation. Note: Any American female, from pre-teen to grandma, is a good source of information on these things.

In his book, The Return of the Great Depression, author Vox Day identifies a more nuanced way to determine what Somethingflation might be:

Econometric Uncertainty Principle… the inevitable pressure on the measuring agency and subsequent bureaucratic manipulation of any statistic identified as a politically significant macroeconomic measure.

Priceless. But, separating politics from political economy is more an art than a science. Of the six possible scenario’s in Day’s book, two of which are relevant here, inflation can be determined by the spot prices of commodities. Gold provides a good benchmark of inflation.



The deflation scenario states that the rising supply of debt will be met with a dwindling demand from buyers. The Greek near-default earlier this year is an example, only in our case, there’s no group large enough to save the U.S. The yield on Treasury Bills is a good indication of demand. With the Fed Funds rate already at zero, the 10 Year T-Bill is our next best option.


Source: Dept of the Treasury

So there is our outline of Somethingflation; a slightly rising gold price indicating inflation, and a slightly falling Treasury yield indicating deflation. These two trends cannot continue together. One must inevitably give way to the other. Whatever this ghost turns out to be, friendly or otherwise, screaming is optional.

The beauty of bad credit

A few weeks ago, a Chart of the Day showed the rise of consumer credit in America since the end of World War II. The hook at the end is the beginning of the housing market collapse and cut-backs in credit card purchasing.



What are the ramifications of this major trend reversal? Certainly the banks and credit companies will be struggling well into the future, more bailouts not withstanding. Mark Whitehouse writing in the Wall Street Journal points out a related trend:

As of April, 25% of Americans had fallen into the least-creditworthy category, garnering a rating of less than 600 from FICO, the main arbiter of consumer credit in the U.S. That compares to only 15% before the recession, according to data compiled by Deutsche Bank.

Mr. Whitehouse goes on to explain how the time element involved in one in four Americans re-establishing credit will be a drag on any recovery. But, Barry Ritholtz, of The Big Picture sees a silver lining:

…I am going to posture that easy credit allowed some people borrow to maintain a lifestyle, rather than earning to maintain a lifestyle.

I wonder: Will the lack of credit spark a revival of creativity and industriousness amongst those that want to maintain their spending habits? Asked another way, could bad credit spark more economic activity?

The answer, I believe, is yes. It will just be different economic activity. Living without credit, whether by choice or necessity, focuses the mind on long term value.

Walk into any retail store, or any mall complex, and note how much space is dedicated to impulse buying. Note also, the space dedicated to items whose only appeal is to young mothers and teenagers. Once you start looking for it, you can’t help but notice how these spaces overlap. To one without a credit card, these spaces are a swamp of useless social decorations- something to be waded through on your way to somewhere else.

For decades, every teenager has been told of the importance of establishing good credit. This usually takes the form of a credit card. “Use it and pay it off”, they are told, “it shows responsibility.” But, is that really true?

Taken by itself, paying off credit is certainly responsible. Its antithesis, not paying off credit is not responsible. But, in order for buying on credit to be responsible, its antithesis, buying with available cash, living within one’s means, would have to be irresponsible.

The spending habits of the American consumer are certainly changing. Whether that leads to a revival towards quality and long term utility remains to be seen. One can always hope. In any case, retailers beware.

Nevada’s workforce deflation

The Bureau of Labor Statistics (BLS) released their projected unemployment numbers for June 2010 yesterday. The 0.02% rise in unemployment to 14.2% no doubt caused some anguish in Carson City. The BLS stat sheet also included total workforce, total employment, and total unemployed. By looking at some of these other numbers, another story appears.

The chart below shows the total number of people available for work (workforce), and the total number of people employed from one month to the next.


Source: Bureau of Labor Statistics

Though the mid 2000’s job creation, expressed by employment, was keeping pace with the rising population. The unemployment rate during this time was within the “normal” range, between 4 and 4.5%. At the beginning of 2006, of the 1.25Million people available for work, 1.20Million were working. It wasn’t until after the banking collapse in 2008, and the resulting recession became apparent, that the rising workforce began to level off. What is of particular interest, is the workforce in the last few months.


Source: Bureau of Labor Statistics

Although the last month’s figure is only a projection, it shows a significant decrease in the population is expected. The next few months will determine whether or not this is the beginning of a new trend. A decrease in the workforce population, could cause an improving unemployment rate. If that happens, it would be a mistake to believe that a lowering unemployment rate automatically signals an improving economy. A lower rate could be caused simply by people leaving our state to seek work elsewhere.

Saving the dollar

There is quite a lot in the financial press these days about whether our government should be piling up more debt or cutting expenses. It’s all politically motivated, and therefore as a matter of economics, is safe to ignore. This chart showing congressional spending demonstrates why.


Courtesy Pajamas Media.

One would not be going out on a limb to say no matter who wins in November, our congress will be spending more in the future.

Of greater importance is the inflation/deflation debate. It’s a near certainty that we are about to get a massive dose of one or the other. The debate is about which one it will be. There are good arguments on both sides, but both often suffer from the same problem; archaic definitions of money. From the Free Dictionary website (italics mine):

Inflation…an increase in available currency and credit beyond the proportion of available goods and services.

Deflation…a persistent increase in the purchasing power of money because of a reduction in available currency and credit.

Both terms assume that currency and credit are two different things; a condition that has not been true since June 24, 1968, the last day a Silver Certificate was redeemable in coin or bullion. From then on, the Federal Reserve Note currency has only been a form of credit.


Silver Certificate, courtesy Wikipedia.

As world currency’s become increasingly cheaper due to globalization‘s emphasis on exports, and sovereign debt obligations turn into a Keynesian nightmare, the current system of “faith based currencies” appears to be reaching its final solution. A global standard, if not a global currency, is the next logical step. With gold prices too high for practical everyday use, a silver standard would make more sense.

At today’s prices, a $5 silver coin would be roughly the size of a quarter. Silver Certificates could be reissued and redeemable at any bank. With a stable price for the dollar, the U.S. just might remain the world’s currency of last resort.

How to build a corporate state using a simple yield curve

In a strange twist of fate, I've begun to cheer for the Democrats. My thinking is that the faster they build their progressive utopia, the sooner rational people will see it for the Orwellian nightmare that it is. Many Republicans believe this is already happening, and all will be well in November. I believe it will take longer, mainly because the Republicans seem to be helping them.

Just to make sure we're all starting on the same page, here's a quick and easy explanation of the yield curve.


The maturity on the bottom is the time element. The yield is the promised return on the investment. The longer the time, the greater the risk, and therefore, the higher the return. You don't need to calculate the yield to understand the curve. I told you it was easy.

There's a terrific animated chart on stockcharts.com that compares the yield curve on government bonds with the S&P 500. The last 8 years provide a good demonstration of the yield curve's importance. I can't bring the animation here, but the site encourages people to take screenshots. And, now that I've successfully navigated the Microsoft labyrinth and found the magic snipping tool, we can look at some.



We start our latest round of corporate-nation building in mid July of 2002. On the left, the black line is the yield curve, and the gray areas show the movement and velocity. At this time, the yield curve is in near perfect formation. The chart on the right is the S&P 500. We can see that in 2002, the S&P was just bumping along in no particular direction. Short term investors were having a hard time outguessing which way it would go, and long term investors weren't making anything. Nobody was happy. Stability breeds boredom.



June of 2003: In an effort to get things moving, the Federal Reserve steps in and lowers short term interest rates (dropping the yield). This causes investors to move their money from treasury bills and other short term bonds into the stock market. The S&P hits new highs, and the rally is on. Long term rates remain the same to help home buyers. This move was wildly applauded by nearly everyone at the time.



November of 2005: With the rally sustained, the Fed raises short term interest rates. They do this to prevent what Alan Greenspan once dubbed "irrational exuberance". Having started the rally, they now try to dampen the enthusiasm for it. On the S&P chart, notice the stair step nature of the upward momentum, with double and triple peaks followed by minor sell-offs. Each incremental increase in rates by the Fed causes a few investors to exit the stock market. A general upward trend continues as Keynes' "animal spirits" are still in the majority.



March of 2006: The first sign of trouble, the yield curve turns flat. It's generally considered to be a precursor of an economic transition. Still, it's only one negative sign in a field of positives. The rally continues.



June of 2006: An ominous sign. The yield curve is now inverted with short term yields paying more than longer term yields. The previous 6 recessions were preceded by an inverted yield curve. "Not to worry", say the talking heads, "we've had inversions without recessions, and recessions without inversions before. 6 straight doesn't necessarily mean there will be a 7th." They're right, of course, it doesn't. In fact, the longer a trend is, the less likely it will continue.



November of 2006: The yield curve flattens and inverts again. This time, it's more pronounced and unmistakable. Talk in the press of an impending recession becomes more numerous. The "doom and gloom" forecasters are largely ignored.



November of 2007: The S&P 500 is at the tail end of a major double peak formation, suggesting the years-long rally has lost its momentum. The Fed begins lowering interest rates to keep the rally going, or at the very least, produce a "soft landing." With short term yields still relatively high, the smart money exits the stock market.



August of 2008: The Bush stimulus in the spring helps with a small upward spike, but the major sell-off continues. Worst of all, as we now know, is many company's borrowed heavily on the way up. With prices falling and investors becoming scarce, they are now strapped for cash. As the old saying goes, "Adventure is the result of bad planning." But dude, check out that good lookin' yield curve!




December of 2008: This is what a panic looks like. It's hard to say who's having the greater adventure here, corporate officers, stock market investors or Federal Reserve officials. Interest rates hit zero, and $400 dollars invested in a 3 month Treasury Bill now brings a profit of 1 cent. Even that won't get money back into the stock market.



March of 2010: The S&P 500 hits bottom. The stimulus plan was passed in February and together with the government's buying of millions of shares of stock, we have a new meaning to the term "corporate welfare." We might also note that with interest rates at zero, an inverted yield curve is impossible. A flat curve, while theoretically possible, isn't very likely. As a predictive tool, the yield curve is now a meaningless relic. Government manipulation of interest rates is over, for the time being.



June of 2010: So, here we are today, with the S&P a couple of hundred points above where we started and heading down.

On the political left, there are calls for another round of stimulus and government buying of private debt. This has the unhealthy side effects of ever more federal debt and government ownership of for-profit industry (corporatism). I can't be the only one who noticed that the last round of stimulus did wonders for the stock market while doing nothing for the unemployed; and this from the Party of the Common Man.

On the right are the inevitable calls for tax cuts to "promote growth." Aggregate debt for the S&P alone is over $2.5 Trillion. Are there enough taxes to cut to make up for that much? I don't know, but forget the scissors, better fire up the chainsaw.

All across the political spectrum is a small but growing minority that wants to dump the Federal Reserve altogether. While this won't solve the current dilemma, it might prevent another one. After all, it only took 8 years from the Fed's creation (1913) to the first recession (1921), and 16 years to the first crash (1929). Their record since has been marginally better, but remember, they're supposed to be maintaining stability.

Historically, the stock market is pretty quiet through the summer, and if there is to be another plunge, it would happen in October. Second quarter earnings reports will be released over the next few weeks. We will soon know whether we will have a quiet summer, or an adventurous one; a work stoppage, or more building.

Masters Of Delusion

I believe that this nation should commit itself to achieving the goal, before this decade is out, of landing a man on the moon and returning him safely to the earth.
John Kennedy

Putting a man on the moon was easy. What people often forget is that doing so without killing him was the hard part. Fooling Mother Nature is always a temporary project. July 20th will mark the 41st anniversary of the greatest trick humanity has ever played on Mother Nature. Like all anniversaries indivisible by 10, it will pass largely unnoticed.

What is being noticed is that the long predicted collapse of the engineered economic order is about to be realized. It’s gotten so bad that even Paul Krugman is noticing. Robert Samuelson, the 2nd smartest guy in economics, is noticing too. Hopefully, the peasantry is noticing that economics is not engineering.

What really got the economists attention was the continuing problems in Greece. In spite of multiple promises of “austerity measures”, and bailouts by a variety of governments and institutions, Greek bond rates are still rising. How can this be? The people with credentials have studied the problem and made their decisions. The policy prescriptions have been put in place, so everything will be ok, right?

As always, there is one thing missing from the equations produced by the would-be Masters of Capital Markets; the peasant class.

I’ve commented many times over the last 2 years about the disappearance of the small investor. (Being a blogger, and therefore one step below a journalist, I’m far too lazy to dig through the archives, so you’ll just have to take my word for it). Disappearance may have been too strong a word, as rising gold and silver prices are a good indication of where he has gone. Precious metal prices are also an indication of the amount of trust in one’s leaders. Like the millions of jobs that became obsolete in the last 2 years, trust shows no sign of making a comeback.

The reasons for this lack of trust are many. The most recent example was nicely demonstrated by Nancy Pelosi when speaking of unemployment checks:

This is one of the biggest stimulus’s to our economy, economists will tell you…it injects demand into the economy…

Even the simplest logic seems to escape both economists and politicians alike. Why not just hand out money to business people and skip the middleman? Oh wait, that was the first and second stimulus. Do you get the impression that if they could nationalize the unemployed, they would? It is one of modern life’s mysteries why so many smart people, who themselves are doing well financially, can’t see the difference between credit and wealth. Perhaps it is because we have been on the Federal Reserve system for so long, they can’t imagine things being any other way.

I know there are some who can’t stand song lyrics in blog posts, but I just can’t resist an old Jethro Tull* favorite.

The excrement bubbles,
The century slime decays,
And the brain-washing government lackey’s
Would have us say,
“It’s under control
And we’ll soon be on our way
To a grand tea for babies
And quiz panel games,
Of the heart-hungry millions
You’ll be sure to remain.”
The natural resources are dwindling
And no-one grows old.
And those with no homes to go to,
Please dig yourselves a hole.

Like the Apollo astronauts preparing for their return, our fate is dependent on the plan made long before. Our current national bank will soon inflate itself out of existence, the same way our country's first three national banks did.

Unlike the astronauts, our plan did not include a safe return, only constant trickery by delusional economic engineers. Our return to earth will not be a joyous occasion. We would do just as well placing our trust in the hands of poets.

*from Wondrin' Again

Internet Dating In The Over 50 Club- A Field Study

Yep, summer is upon us, it is time once again for yours truly to dip his toe into the storm tossed sea that is internet dating. My primary interest is in “50ish” women, and as such, I have a few observations that I would like to relate. Young fella’s take note, it‘s a possible future you may want take steps to avoid.

It may seem hard to believe, but single women at 50 are even pickier than single women at 30. My theory on this is that they know they are on the tail end of the attractiveness bell curve, and knowing that we fella’s are sex-obsessed, visually stimulated creatures who lose our minds at the slightest hint of cleavage, they feel they have to get it right this time. Spending the next 2-3 years with some ne’er-do-well goofball means spending the next 20-30 years by themselves. It’s a classic case of the perfect being the enemy of the good.

Thanks to modern technology, women no longer even have to say “No”. They are now equipped with a reject button, and it works like this:

Step 1) You cruise through the pictures and profiles picking out someone who is tolerably attractive, seems reasonable enough, and isn’t overly picky about who/what she’s looking for.

Step 2) You send her an email, written in a light-hearted and breezy tone, suggestive of what a fine, good-natured fellow you are. Careful attention is paid to include the proper amount of wit and charm, along with an offer to spring for lunch, should she be so inclined.

Step 3) After nearly a week or so of outer-space-like silence from her, you send a second email. This is written in a more serious tone, suggestive of your maturity, good sense and magnanimity, and that you are not nearly as goofy as your first email may have indicated.

Step 4) After several more days of vacuum-like nothingness from her, you send a third email, all but begging her to just acknowledge your existence. You are now one click away from virtual oblivion.

Step 5) Intuitively sensing that you are at the lowest point of morale that you can achieve on your own, her nurturing instincts now compel her to “help“ you discover new depths of despair. She taps the reject button, and away you go.

Step 6) News of your departure is cheerily delivered by “the staff”, who inform you that although this particular woman thinks you’re a twit, that doesn’t necessarily mean that you are the total loser that you now feel like. They encourage you to try someone else. It’s enough to make you long for the good old days when a woman would just slap you across the face and walk away.

In my own survey of 50ish women on one particular website, I’ve been able to identify 3 distinct groups so far: The Incline Villagers, the soul-mate searchers, and normal human beings.

The Incline Villagers: The first thing one notices about this group is the marvels of medical science. I just can’t wrap my head around the idea that granny is hot. I mean, attractive, sure, pretty, you bet; yes, even beautiful is believable, but hot? Man, I don’t think so. Call me old-fashioned, but natural is always preferable to bionic. Even a good looking Frankenstein is still Frankenstein.

They all make a point to tell you they are “financially secure”. No doubt, this is because they took the last poor sap to the cleaners. Sure, some of them had professional careers, breaking glass ceilings and generally being a middle managers worst nightmare. Either way, even medical science can’t completely hide sharp claws and fangs. If you’re a 50ish guy and you’re still working at getting that first sailboat/airplane/Caribbean condo, you’ll want to skip this group anyway.

The Soul-Mate Searchers: Seriously. If your soul-mate had been on planet Earth at anytime in the last 50 years, wouldn’t you have found him by now? I mean, it’s a little late in the day for King Arthur to pull the sword from the stone, isn‘t it? Am I being too practical here? I’d like to think I’m a romantic at heart too, but please. Maybe setting one’s sights just a tad lower, like say, someone who loves children and animals, is kind and thoughtful but not overly so, adventurous yet stable, sincere, honest and witty, strong yet gentle, generous yet thrifty, open-minded but with solid values, is forthright but knows how to compromise, is in touch with his emotions and makes $100,000 a year. Y’know, a real man.

The Normal Human Beings: This group is easily identifiable in that they have no idea what-so-ever in how to describe themselves. They’re normal. What is there to say? They go to work, they come home, they do what they do, and so what. Who doesn’t? Most of these women got traded in for a newer model by their former husbands, and there are at least 2 subsets.

The first is the group that, having found independence from both kids and husbands, are now ready to PARRR-TAAYYY! Check the contents of your wallet, and if you must, proceed with extreme caution.

The second subset is a more nuanced group. After decades of child rearing, her idea of a party is something involving cake and ice cream. She is facing another Saturday night with a bag of low sodium popcorn, a chick-flick DVD, and her cat. Before the night is over, the idea will enter her head that she is too fat. Although she’s a bit out of practice, she is still capable of gracefully delivering a well-timed slap across the face.

All in all, it’s an interesting collection of humanity. More study is needed.

History On The Tiny Screen

I ran across a short article with big implications in the latest issue (spring 2010) of American Heritage magazine about historians and cell phone technology. Historical parks and museums have been using cell phones for guided tours for a while now, but it looks like we are on the verge of a great leap forward. The combination of internet, video, and GPS can bring full-scale productions and education to lesser known historical sites. The idea is already branching out in several ways.

Ron Coleman, a computer science professor at Marist College in New York, has developed an open source program for the Staatsburgh State Historical Site that features a GPS triggered prompt that starts a video “mobi-sode” (mobile episode). The idea is to expand the system throughout the Hudson River valley. You can find out more about the open source project at geoplicity

Documentary film-maker and author of the article, Eric Stange, teamed with Michael Epstein of MIT to produce a “terra-tive” (a narrative about a place) about the 1849 Parkman-Webster murder case in Boston. There are several sites relating to the murder still visible, and combined with old photographs, maps and so forth, a visitor can take a kind of "walking cinema" tour, learning about the case while standing at the spot where things happened.

It’s not hard to imagine this being applied to Nevada. Quite a lot of our history is still here. From mining towns to emigrant trails, pony express stations and train routes, mansions and courthouses, the list is endless. Places like Tonopah/Goldfield and Austin could benefit. In Virginia City alone, a visitor could spend a week and still not see everything.

One website mentioned in the article is historic map works. You can overlay old maps onto current maps to see how things have changed. There are several old maps of Reno there, one dating to 1885. Also of interest is the 1906 map, the year of the original California refugee following the San Francisco earthquake and fire. There is also a demonstration video to show how it works.

This would not only help bring back the tourists, with something other than comps at the casino, but also help with historic preservation efforts. It is also the kind of thing that eventually leads to small business start-ups. In the right hands, this could be the next big idea.

Needed- A Blog Strategy For Unhinged Eccentrics

Ever since I started blogging a couple of years ago, there has been a question nagging me that I can’t seem to shake. “What is your blog about?” It came back again when the subject of this years Nevada Interactive Media Summit came up. I attended last year and had a great time. I learned a lot, met a ton of interesting and friendly people. But, when it came around this year, I decided to skip it. Why? It has to do with what we might call, “the rules of engagement.“

Marketing people, as well as others, can tell us all about the importance of staying focused, to set a goal and work towards it. If you’re going to sell shoes on the internet, then By Jove sell shoes on the internet. Never let a day go by when you’re not blogging about shoes. Get on Twitter and tweet about shoes. Start a Facebook Shoe Fan Club. Join a shoe forum. It’s all shoes all the time, 24/7. “Need a shoe? I’m your man.J”

But bloggers aren’t selling anything, so why would we need to limit ourselves? For bloggers, this sort of thing seems just plain wrong. It brings out the worst of all possible tyrants; the tyrant of the self. It represents the conscious choice of a free individual to confine himself, to stamp a label on his own forehead and willingly enter a box, never to come out again.

The ability to have disparate interests is a common human trait. If the internet were a true reflection of humanity, there would be very few goal oriented, single focus blogs. It seems that bloggers have adopted a set of rules that don’t necessarily apply to us. We have accepted a strategy that encourages self limitation. Even if you think you are marketing yourself, surely your product is greater than a single dimension.

So, taking it to the other extreme then, what would an unhinged eccentric’s blog be like? Y’know, some guy let’s say, oh I dunno, a jet boat racing court stenographer with a bee-keeping hobby, who rides a Harley, wears brown shoes with dark suites, listens to Black Sabbath and has an H.O. train diorama set-up in his basement. What would his blog strategy be? Would those of us who are only a half bubble off center, find it useful?

At first, I thought a kind of anti-brand was the answer. But, it turns out that an anti-brand is still a type of brand. The deliberate lack of a strategy is still a strategy. Is there no escape from the yoke of the tyrant? Even if you set about to purposely make your blog a chaotic whirlwind of meaningless futility, the whirlwind would be your strategy and futility would be your brand.

What is needed is a method of random subject selection. It would be like being lost in a maze with each dead-end representing a different subject. True, entering a maze with the deliberate intention of becoming lost is a strategy, but once inside, aimless wandering can take place. Once the aimlessness is achieved, the randomness of the dead-ends (new subjects) become possible.

The human mind seems to insist on making plans. Reaching the apex of randomly scattered, diffuse nebulosity won’t be easy. I’m still working on it. In the mean-time, my next post will likely be about the same damn thing my last post was about.

Nevada's Numbers- A Personal Journey

There are many arguments over methods in economics. For instance, during the depression, when GDP was invented, we were an industrial nation. Now that we have become a service based economy, many economists question the validity of GDP as an accurate measuring device. There are other lesser disagreements that at times become mind-numbingly arcane, but one statistic that is difficult to misinterpret is income. There are traps for the unwary, like full-time versus part-time employment and comparing total, or per capita income, to population trends. One can get lost in the maze pretty quickly. Looking at income democratizes the economy in a way that corporate profits and industrial output don't. The trick is to keep the questions simple. How do people in Nevada make a living? As a group, how well, or not so well, are we doing? Are there any clues on how we might avoid another economic train wreck in the future?

Thanks to the REAP website and the BEA's new interactive regional section, there are now quite a lot of statistics for our area published on the web. With my growing familiarity with Open Office, I've begun assembling a spreadsheet that is already turning into a monster. But, undaunted, I've made some charts that will begin to answer some of the questions. I intend to follow the numbers wherever they lead, and I've already found some surprises, at least, they surprised me.


Source: BEA

The first surprise is in mining. The stability of the trend line can be accounted for by the fact that there have been no major discoveries lately, but why the low level? For all the attention mining gets, there seems to be few Nevadans who make their living this way. Mining does provide a base of support for other businesses and this is something I'll want to look at in a future post.

The second surprise is retail. Conventional wisdom holds that retail is a leading economic indicator. Looking at the late 1990's, we can see that construction led retail in the downturn by a full two years. In 2007, construction is already heading down while retail is still in the turn. For income in Nevada, construction is the better economic indicator.

As I dug around some more, I began to wonder about the low numbers in the basic commerce categories. If we don't make much from mining, manufacturing, or retail, then how do we make a living here? I switched from looking at categories to just looking for large numbers. I found some in a category called, "Interest, Dividends, and Rents."


Source: BEA

I included construction and retail from the previous chart for reference, along with the ever increasing transfer payments. Assuming that the rents make up the lion's share of the amount, I can only conclude that we seem to be a society determined to create living space for people who really don't buy very much. In other words, we have an economy not so different than that of a Carribean island nation; a few hot spots for the tourists with a lot of low wage workers and an ever increasing amount of government involvement just to keep everybody alive.

One benefit of the Great Recession will be that we now have the opportunity to ditch this economic model and replace it with something more sensible. Whether we will or not is an open question, but the chance to do so is upon us.

In a post to be published soon, I'll look at Reno/Sparks in detail and eventually a look at the importance. or non-importance of mining.

Bankster PR

It's been pretty quiet in the banking sector lately. That's not to say the banksters haven't been busy. According to the LA Times, they've launched a PR campaign to improve their image, complete with interviews and OMG! they're even blogging now! And here all this time we thought they were blood-sucking pond scum. But no, it turns out that behind those Italian suits and manicured fingernails, they're just regular Joe's like you and me.

Tim Pannell, CEO of Financial Marketing Solutions, is quoted in the LA Times article explaining the strategy:

We realized that we really need some really genuine, believable pathos -- look you in the eye and say, 'We acknowledge the troubles, we understand maybe we could have done things differently,'...

...Like not looting the public treasury , for instance. In what appears to be his first attempt at "really genuine, believable pathos", Citigroup CEO, Vikram Pandit has this to say:

It's clear that we made some mistakes coming into this environment, and we have to acknowledge that...We have to take responsibility for what we didn't do correctly.

It's almost enough to make you want to start a Citigroup Fan page on Facebook. Of course, most people's "mistakes" generally don't threaten the continued existence of the western democracies. For that we need people so morally bankrupt that even hedge fund managers look down on them.

...in Finance, we have a carnivorous sales force that eats its young, and sells their grandmothers near worthless CDS at par. Forcing this rapacious group of Ferengi to comply with fair cost disclosure is not asking too much.

But it is asking too much. This week the House passed a finance reform bill that puts the new consumer protection bureaucracy inside the Federal Reserve, right where the banks wanted it, right where it will do the least amount of protecting. The Fed was already supposed to be regulating the banks and maintaining our country's financial stability for the benefit of everyone. The results of their work are found in the dismal numbers all around us.

I ran across an Ayn Rand quote in Ilana Mercer's column last week that sums up things pretty well. Whatever one thinks of Ms. Rand and/or her adherents, the truth is still the truth.

When you see that trading is done, not by consent, but by compulsion – when you see that in order to produce, you need to obtain permission from men who produce nothing – when you see money flowing to those who deal, not in goods, but in favors – when you see that men get richer by graft and pull than by work, and your laws don't protect you against them, but protect them against you – when you see corruption being rewarded and honesty becoming a self-sacrifice – you may know that your society is doomed.

I can see it. A lot of people are seeing it. A PR campaign can sometimes change perceptions, but it cannot change what has become obvious. The Banksters compel taxpayers to cover their losses. Their losses come from producing nothing but the trading of favors. Their corruption of Congress is our doom.

The Invisible Voter

I've been reading a book called Literature and the Economics of Liberty, a collection of essays about economic principles found in classic novels. What drew my attention to it was one of the essays on The Invisible Man by H. G. Wells. I had read the book as a kid, strictly as a science fiction story, with no thought of it's literary value. Most literary types will tell you that it is a story of the loss of individualism in modern society. In the essay, Paul A. Cantor says it's a critique of capitalism. I think I'll stick with conventional wisdom on this one, but it did get me thinking about alternative interpretations.

The story itself, for those who only saw the movie, concerns a young scientist of limited income. Rejected by the powers that be, he takes a room in the London slums to work on his idea. He is forced to deal with the worst of humanity, from petty thieves to snooping landlords. Once his experiments become reality, he soon finds disadvantages to invisibility that he hadn't considered. There is no way for him to make an honest living. He can have all the money he wants, but there is nothing he can buy. He can eat the finest food, but only in isolation. He can hear any private conversation, but there is no-one with whom he can talk. His attempts to find an ally all end in betrayal. His frustration turns to anger and the townspeople's curiosity turns to fear.

Jump forward now, from 1898 when The Invisible Man was first published, to yesterday, when this appeared on the Vox Day blog:

In 2008, the bankers, bureaucrats, and politicians tore the veil of the unwritten American social contract that permitted our debt-based economy to function. While the deck was always stacked to the benefit of the financial elite, it wasn't always so egregious. But in ramming through TARP and the bailouts over the furious objections of the American people, they shattered the illusion of relative fairness... The parasites came to believe they were invaluable and in doing so forgot the very first rule of parasitism: do not harm the host.

We, the host, have become invisible. We can see the bankers, bureaucrats and politicians, but they can't see us. Outside the halls of money and power, there are only the faint sounds of footsteps and the vague feeling of an unseen presence. We hear them talking and have no means to enter the conversation in any meaningful way. Our coins are worthless. Our isolation from them is as near complete as their betrayal is of us. Yes, we are frustrated and angry, and for that, we receive fear in return.

Unlike Mr. Wells' story, we the invisible are many, and the townspeople are few. For the time being, there is little we can do about the massive fraud of our bankster government. The fix is in. They're going to get away with it, and everybody knows it. We are at the point in the story where the Invisible Man sits alone in the countryside, pondering his next move, thinking through how best to make his retribution felt. And the townspeople are hearing strange stories, unsure of what to believe, but planning their defense nonetheless.

When the politician's solicitations appear in your inbox, when their pictures are above the fold, and when their blathering voices won't leave the TV set, remember, they can't see you. They're unsure you even exist. When the time comes to enter the voting booth and make your presence known, ask yourself; 'Who among these people could hear the sound of my voice without reacting in fear? Who will be an ally of the invisible?'

REAP's Website Upgrade

Dr. Gary Smith, who heads the Regional Economic Analysis Project (REAP), has announced a major upgrade for the Nevada website.

Many of the enhancements we made to the website are backstage and may not meet your eye from the front end: a new computer server, new server software (Win Server 2008), and a major revamp and restructuring of the programming architecture for the entire website...we’ve endeavored to make more explicit the functional characteristics of the menus to help novices better navigate.

Well, I think I qualify as a "novice economist" (who isn't?), so I decided to give it a spin. Just poking around in the introductory analysis on income growth, Dr. Smith's analysis, along with Dr. Tom Harris of UNR's University Center for Economic Development (UCED), shows a rise in property income and transfer payments as indicative of an influx of retirees. So, is Reno turning into a retirement community?

In the "Personal Income by Major Source" section, is a spreadsheet that anyone can use. A menu on the right side of the page offers several choices for different areas. I made the following chart showing Reno/Sparks, using Population Growth as a yardstick to compare with Transfer Payments (social security, medicare, etc.). Transfer Payments also includes sub-categories that are not retirement related, but I'll dig a little deeper later. I also included State/Local government income and non-military Federal income just because the growth of government is my favorite pet peeve.



Population shows a steady rise while transfer payments are going through the roof. Income from state and local government workers also shows a sharp increase, which in fairness, could be due as much to the housing situations between Reno and Carson City, as well as other factors. The Feds keep a low profile in line with population.

There are several sub-categories for things, and I had wanted to look at housing a little deeper, but there are just enough years marked "U", for unreported, to make a chart rather meaningless. The Retail Trade category might offer some insight as to how things have been going.



The retail trade looks to have had a mini-boom/bust cycle in the late 90's from which it has never recovered. This is only one small piece of the puzzle, and a bit of an apples to oranges comparison at that, but comparing retail to transfer payments, it's easy to see why our state has a budget problem. The supply of the profit-seeking and productive has been shrinking while the demands of the unprofitable and unproductive has been rising. The so-called "Death of Capitalism" may yet take the welfare state with it.

In any case, Dr's Smith and Harris have been doing yeoman's work gathering and publishing economic data tailored to our area. As I've noted in previous posts, most economists are content to talk to each other. A precious few are willing to take the time and make the effort to educate the general public. This website does seem much easier to use than before. Why that is, is hard to say. There is a more natural progression between the pages, and the menu's are better explained. Like all websites everywhere, it remains a work in progress. This a tremendous asset for any Nevadan interested in the relationships of economic growth and decline.

No Fear, Much Loathing

I'm not the first one to notice this, and I won't be the last, but our country is in desperate need of a paradigm shift in the "political process". Not to pick on Sue Lowden, although she does make a fun target at times, I'll use her HQ "Grand Opening" yesterday only as an example. If I was a Democrat, I could just as easily use Harry Reid, or any other candidate for any other office for that matter. With my experiences in 2008 in mind, where I was an increasingly discouraged rookie volunteer, I came away from Mrs. Lowden's event feeling as if I had just seen Dracula rise from his coffin. The elections approach, the darkness has fallen.

Half way down a dead-end side street, not far from the airport and just off the flight path, is a row of one story offices. A sign in the parking lot says there are 24 hour security cameras, which seems wise since this is prime wine-o territory. Around the corner, unseen from the street, is the headquarters of a major candidate of a major party for one of the highest public offices in the land, in the greatest nation the world has ever known. It's opening day, but there is no band playing, no banners waving, no flags flying, no hot dogs for the kids, no Uncle Sam guy on stilts walking around; not so much as a single balloon or a funny hat to be seen. Could somebody please put a John Phillip Sousa record on the phonograph, or something? I've been in bus stations that were more lively than this. I left early.

Later that evening, I received an email from Mrs. Lowden; that is to say, an email from her campaign. She/It informed me that she/it had raised $800,000 in the last quarter, along with the standard "I need your help now more than ever" plea. How is it that someone who made $800,000 in 3 months is asking for "even $5" from someone who has never seen $800,000 in his life, and likely never will? Does this seem just plain wrong to anyone but me? Doesn't the high dollar amount of the campaign war chests seem odd compared to the cheapness of the events and complete abandonment of personal word of mouth advertising? It's not just the money itself that is offensive, but the lack of seeing it being put to good use.

I'm sure anyone with campaign experience could show me a binder full of statistics that would show why this is necessary. Where are the statistics for how many voters are disappointed with it? There was a time when candidates didn't campaign at all. It was considered unseemly by both candidates and the general public alike. They didn't ask for anyone's money either as any individual in a free society should be self-sufficient. To ask for a handout would be a sign of failure. Both of these perceptions still exist in the general public and are the reasons why so little faith is put in elected officials.

A Mild Application Of Common Sense

Oh to have been a fly on the wall when the two old bulls, Paul Volker and Larry Summers, locked horns preceding President Obama's unveiling of his latest finance reform plan. Hopefully, little Timmy Geithner was taking notes. Volker, the ex Fed Chief and the only contrarian advisor the the president, has been pounding the table for months about the looting rampage the banks have been on. It appears he's had some effect.

Quickly dubbed "The Volker Rule", the plan's main function is to re-separate hedge funds, investment banks, and mortgage banks. The idea is to prevent mortgages from being used as collateral by anyone contemplating a night at the Wall St. Bordello.

Reaction in the press has been all over the map, reflecting factional differences in both political partys. Among the economically inclined, the point is made that the plan does nothing to halt CDO's and default swaps from happening. True, but I think irrelevant. The market for such things is in the mud and likely to stay there. No regulation required.

The consensus seems to be that it was a political move to stabilize the president's sinking poll numbers. But, isn't it any politician's duty to at least give passing thought to the will of the people? It would appear the people want a refund. The people don't much appreciate having their future earnings hand delivered to a pack of gold plated jackasses from New York.

There is a simple rule of investing that can be applied to any situation. Whenever investing in anything, one should consider the exit point, both on the upside and the downside. Once invested, it's good to ask yourself, 'If I didn't already own this, would I still want to buy it?' If the answer is no, it's time to sell.

When we bought the idea of banking deregulation in 1999, it seemed like a winner, and for a while it was. A lot of people made a lot of money, only to hang on too long and lose it. Knowing what we know now, would we buy today? Our investment in financial Frankensteins has gone south. We are a little poorer and a little wiser. The evidence is in. It's time to sell.

The Top Nine Biggest Possible News Stories In Nevada

No matter how the Democrats play it, the news of a Republican win in the Massachusetts senate race was a big deal. It got me thinking about what could be big news here in Nevada. Sure, Harry Reid losing would be big, but what else could happen that would really grab the nation's attention? I assembled the crackerjack Not-Ready-For-Letterman News Team for a little brainstorming.

The top 9 biggest news events possible in Nevada that could rival the outcome of the Massachusetts senate vote are...

9) Sue Lowdon announces she’s actually a man.

8) Harry Reid, speaking before the Nevada Chapter of the National Association for the Advancement of Colored People, uses the word “negro”, but pronounces it “naaahgraaah”.

7) The vote to unseat Harry Reid is diluted after every man, woman, and child in the state, enters the Republican primary race.

6) Danny Tarkanian stuns Tea Party revelers by not only saying nice things about their causes, but by actually showing up at one of their rally’s.

5) As part of a new fiscal austerity program, the governor’s mansion is declared a toxic asset, bundled with the eastern shore of Walker Lake and a vacant lot at Hallelujah Junction, they are sold to JP Morgan/Chase for $1.4 trillion. The new Governor’s Residence will be a room at the El Cortez.

4) A day goes by without a single Republican starting a new Facebook group.

3) After serving out his term, Jim Gibbons joins a monastery. John Ensign announces his intention to join his friend there, just as soon as he's done milking the senate retirement plan for all it's worth.

2) After looking over the field of candidates, Nevada Republicans start a write-in campaign to have Dean Heller serve in every public office there is.

And the number one biggest possible news event in Nevada that could rival the Massachusetts senate vote is...

1) Barbara Vukanovich comes out of retirement and kicks everybody’s ass.

Seeds Of Civil Disobedience

In less than a year of Democratic one party rule, it seems our government has produced the most feared of all political outcomes; a general sense of unease. Among Republicans, there is the predictable righteous indignation; with the so-called "progressives", there is the growing realization that they've been had; and for the highly prized independents, a simple case of buyer's remorse. All of which is fertile ground for a little mischief.

One of the interesting things about the financial blogs is, from time to time, there is a story about unusual forms and/or uses of money. At Global Trend Analysis, Mish notes the use of money in Iran as a form of communication.

Facing hard-line forces on the streets, Iran's anti-government demonstrators have taken their protests to a new venue: writing "Death to the Dictator" and other opposition slogans on bank notes, while officials scramble to yank the bills from circulation.

"What did they die for?" asked one message on a bill,...others were stamped with the imprint of a red hand, signifying the images of protesters showing bloodstained palms,...and "Down with Khamenei" scrawled across the edges.

"Death to the Dictator" might be a bit much for use in America, but "Jail the Banksters" might be appropriate. $Bill chimes in with the idea of stamping "Audit the Fed" on our money. "Got Gold?" and "End the Fed" are other possibilities. But, the obvious Ron Paul connection leaves out a lot of people. Something in a more general sense might be good too, like for $1 bills, "Real Worth 4 cents", or "Thanks from AIG". "Delivered By Helicopter" might be a little long.

Of course, there is that little problem of defacing the currency. It's not as clear cut as you might think. From the Department of the Treasury's
Bureau of Printing and Engraving FAQ section is this about "celebrity dollars":

At least two statutes that may apply to celebrity notes are 18 U.S.C. ?? 333 and 475. 18 U.S.C. ? 333 provides: Whoever mutilates, cuts, defaces, disfigures, or perforates, or unites or cements together, or does any other thing to any bank note, draft, note, or other evidence of debt issued by any national banking association, or Federal Reserve bank, or the Federal Reserve System, with the intent to render such bank note, draft, note, or other evidence of debt unfit to be reissued, shall be fined not more than $100 or imprisoned not more than six months, or both.

Additionally, 18 U.S.C. ? 475 subjects to punishment anyone who writes, prints, or otherwise impresses upon or attaches to any such instrument, obligation, or security, or any coin of the United States, any business or professional card, notice, or advertisement, or any notice or advertisement whatever...A determination of the legality of any particular celebrity note is a matter within the authority of the Department of Justice. The Bureau of Engraving and Printing's position regarding this matter is that this and similar other treatments of United States currency are demeaning.

So the bottom line here is; does stamping a slogan on currency render it unfit for further distribution? Googling "Where's George" shows 712,000 places to buy rubber stamps for the express purpose of defacing currency. I think we're on pretty solid ground here, but then I'm not a Federal Court Judge, so what do I know. Proceed at your own risk.

Bloomberg Update And "The scariest jobs chart ever"

Way back in August, I mentioned a Bloomberg article regarding their court case against the Federal Reserve Bank of New York. At the time, Manhattan Chief U.S. District Judge Loretta Preska had ordered the government to hand over TARP fund documents within 30 days. Well, the 30 days came and went with no news forthcoming. Nearly 5 months later, SURPRISE, the government is going to appeal the ruling. It's beginning to look like this one will end up in the Supreme Court.

“The question is at what point does the government get so involved in the life of the institution that the public has a right to know?” said Charles Davis, executive director of the National Freedom of Information Coalition at the University of Missouri in Columbia. Davis isn’t involved in the lawsuit.

We are in it for $2.14 trillion. I'd say we've reached the point.

One group that is involved with the lawsuit is Clearing House Association LLC, whose members include Bank of America, The Bank of New York Mellon Corp., Citigroup, HSBC, JPMorgan Chase, US Bancorp and Wells Fargo. They don't like transparency. Nor do they like new rules. The lobbying effort by this group was largely responsible for gutting HR4173, the financial reform act passed in December.

And, as promised, one of the best and most prolific chart makers on the internet, Calculated Risk, offers what some are calling, "The scariest jobs chart ever."



Although the government cheerleaders are heralding the "recovery", we are continuing in the worst jobs market since the end of WW II (on a percentage basis). It should be clear to all which side of the Wall St./Main St. divide our representatives are on.

How I Met The Girl

It was another cold, overcast day in January. There was only a week left before the Rembrandt exhibit at the Nevada Museum of Art would close, and I hadn't been to see it yet. There was also going to be a Raphael painting that had just been put on display, but I really wanted to see the Rembrandt's.

Hanging 'round
Downtown by myself
And I had so much time...*

It looked like the museum was having a good turn-out, but it wasn't overly crowded. There was only one guy in front of me in the ticket line. Up on the 3rd floor, there were 7 or 8 walls covered with Rembrandt's etchings. They were made using a pretty complex process involving copper plates and acid baths. I was a little disappointed that they didn't explain the process more.

What was really good was they had quite a number of his early attempts. Many of them are fairly crude and don't show a lot of detail. They're also very small. They show mostly street scenes; beggars, and washer women, and rat poison salesmen. As you move around the room the etchings get better, and larger, and more complicated. Even Rembrandt had to practice. In places they have a series of etchings all showing different versions of the same picture. Rembrandt was very experimental, even in depicting biblical scenes.

After an hour or so, I started wandering the hallways. I hadn't been to the museum in quite a while, so I took advantage of a wandering-opportunity. On the 2nd floor, I turned a corner...

and there she was...*

But, sorry fella's, this was no "Disco lemonade" here. This gal's the real deal; La Donna Velata. It just rolls off the tongue doesn't it.

I stood in the doorway looking into the small, dark room. The only light shining, was shining on her. Her brown eyes peering over the heads of a small group of people standing in front of her. Two beefy security guys, strategically located, were looking at me. They didn't smile. The people were whispering to each other in reverential tones. I entered the chamber as one about to be knighted by the queen. The only thing missing was a chorus of angels.

She is surrounded by an ornate, golden frame from the 17th century; a rarity in itself. Dressed in fine silks, with a simple necklace of precious stones, there is no gaudy display of wealth from her. Of course, the important thing about her is her smile. It's not so much a happy smile, though she appears happy, but one of inner peace.

Nobody knows who she was. Some speculate that she was Raphael's mistress. Others say that she may have only existed in the mind of the young painter. I tend to go with the latter. La Donna Velata seems to be a kind of 16th century version of the nice girl-next-door, the kind of girl a young mis-fit painter would take home to meet his parents as a way of reassuring them that it was all going to work out ok. In the modern world, she would be the one who sits up straight in class, always has her homework done on time and with neat penmanship too.

After viewing the painting and reading some of it's history, I knew that my wandering opportunity was over. Nothing I would see after La Donna Velata would compare, so I headed back out into the gray afternoon. Whether or not you've ever been to Italy and seen portraits by the thousands, you owe it to yourself to see this one. Oh yeah, and this is the last week for Rembrandt too.

*There She Was by Marcy's Playground