Unemployment exceeds 10%!

On Friday, November 6 th, the nation officially went north of  10%  unemployment. When we have a problem of this magnitude, fixing blame for it is a useless distraction. We are adding to the unemployment totals at a slower pace than we were a year ago, but this seems little consolation. Another near 10% are underemployed, working part-time or temporarily in jobs with little certainty of continuing.  At 1 in 5 out of work or underemployed the problem touches nearly everyone. Older, retired grandmothers and grandfathers have to dig into retirement savings to help kids and even the grandkids get by–even when retirement reserves and other assets have been cut significantly by recent market failures. The 80% plus who are still employed are, in some cases, fearful their jobs will be cut as well. And, those who still work spend less on average for lots of reasons–reduced value of homes and other assets, long-term retirement investment losses being chief among them.  Free lancing intrapreneurs and those trying to create value-added internet jobs are having an effect at the edges, a small one in terms of the real problems we face.

The markets seem to be on the upswing, but Wall Street has not yet come to Main Steet.  Trillions remain hidden away from markets which have not fundamentally changed their boom-bust logic  in which the small investor tends to buy high and sell low providing liquidity for a financial community which is no longer trusted. The average investor fears quite rightly that it will take some time for the banks and financial houses to work their way free of trillions in bad assets, most of which may still be “off-the-books.”

We’re close to needing a second and then maybe even a third stimulus, that would include public works/infrastucture programs. Certainly expenditures are needed in transportation (roads, bridges, trains), and renewable energy (solar, wind, geothermal–even nuclear).

If the current administration doesn’t get smart soon, the voters will look elsewhere, and will continue to do so until they find someone with workable ideas that can be put into action.  Unhappily the current administration seems unable or unwilling to get us moving in a meaningful direction–and the so-called loyal opposition may be even worse.

Shifting to Renewables, Economics and Global Warming

The push to use renewable forms of energy such as solar, wind and geothermal (even nuclear) makes sense economically. Alternative energy production can be justified on grounds that may be completely separated from the issue of global warming.

However, while global warming is real, the average person cannot evaluate the issue clearly. The melting of northern and southern regions may actually produce economic benefits in the short term particularly in Arctic regions. For example, you can expect the Russians to look for more oil and find it on the northern shores of Siberia.

However, increases in sea levels produced by the melting ice could inundate major population centers in coastal regions around the world. Slowly (one hopes) people living there would be forced to move to higher ground. But in the extreme we’re looking at the forced relocation of more than 100 million in a relatively short period–maybe 10-20 years (or less).

How soon?  No one can really say. But if you’re over 50, it’s not on your radar screen, unless a major accelerating even occurs–e.g. the Greenland ice cap slipping into the sea, or major small state-size Antarctica ice-shelf breakaways.

In addition, as the world goes green and particle pollution from burning coal and other fossil fuels is reduced, the warming trend will likely increase in the short term. Particle pollution blocks some of the warming by the sun and if pollution were reduced one could expect more warming given our present CO2 levels–which will peak and only reduce slowly once we stop burning fossil fuels altogether.

Cash for Clunkers

Did the Cash for Clunkers Program do more than we think?  From the start, the program looked like a good deal for the environment, improving the nation’s carbon footprint, and at the same time lowering the need for imported oil. The program began with a modest one billion in government funding and, proving immensely popular, was quickly expanded to three billion. If the car companies and consumers took full advantage of the program, it should have replaced about a half-million clunkers with the same number of more-energy efficient new cars. While that number represents but a tiny fraction of the total number of autos on American roads, symbolically it’s still quite important.

For the purposes of illustration, let’s run some sample numbers.  Suppose the average new car owner gains 10 miles per gallon in fuel efficiency and drives an estimated 10,000 miles per year, going from say 10 mpg to 20 mpg. Then instead of buying 1,000 gallons of gas to feed the clunker, the new car will use only 500 gallons, cutting costs in half. But perhaps more importantly, the half million new car owners who replaced their clunkers would burn 250 million fewer gallons of gas in their new cars in the next year than they would have in their clunkers. (Of course, you’re going to have to go along with me on the idea that the clunker, for the purposes of our calculation, would have been forced to do those 10,000 miles if the cash for Clunkers program had not come along in such a timely way.)

In addition to being a good deal on the gas mileage and emissions front, the clunkers in death have something to contribute on their own. They’ve created some new substrate for the junk yards—parts harvested to make other clunkers more road-worthy, at least temporarily, and scrap metal to be recycled.

Getting a half million new cars off the lots so quickly has also stimulated both additional auto sales, and new car construction. Some previously furloughed auto workers have already made it back to work, and there are suggestions that some assembly lines in quiet plants will be back in action soon.

And there is even some evidence that the excitement created by the Cash for Clunkers Program did not end on August 24^th. People are continuing to come in spite of the fact that the program is now formally over. Interestingly, last week consumer confidence rose for the first time in a while. The market is generally up and refusing at least at the moment to take its correction. Ben Bernanke is talking about the recession being nearly over—even as we wait for new economic growth to reappear in earnest and for the burgeoning unemployment figures to decline.  Maybe we’re not quite ready to go back to our old spending habits, but people are looking cautiously optimistic.

Alternative Energy Development

Just where are we in alternative energy development? We’re going to need 20% more oil than we have now by mid-century, but everywhere we look oil-producing nations are producing less.  We will have to increase the average mileage of the fleet dramatically and soon or we will pay a lot more than we can afford. We’re going to hybrids quickly, then plug-in hybrids and electrics. Most likely a number of cars can become plug-in hybrids, but that will be costly. Probably we’re going to drive less, car-pool, or use bicycles more than we ever have before. 

We may be even more inventive. Certainly, we can have solar-electric driven vehicles for short distances in confined neighborhoods. I don’t know how that will work, but it sounds reasonable.  Of course, for longer distances we can go over completely to high speed trains. But, it will be very hard to give up the family auto.  

In domestic electric power generation, we’re not using oil presently.  We’re using coal and nuclear. We really desperately need to replace coal with renewable alternatives (solar, wind, geothermal), although in the short run improvements in electric power grid efficiencies will help considerably.

Coal plants capable of being modernized should be. It’s clear that we have to do a much better job of capturing toxic materials like mercury and sulfur–otherwise it would be best to stop eating the fish raised in fish farms–particularly those located in the south. To capture most of the carbon dioxide from coal plants would be very expensive, but that’s a cost we should absorb since it would be worth the expense in the short run.  Costs of bringing a coal plant online would increase about 35%. We’d need to build about 3 plants for power generation and a 4th to cover the cost of managing the pollution to the environment. But that’s the only way we get the time to replace coal with renewable while still beginning to reduce carbon dioxide emissions in a serious way.

In summary, we can and should start now to clean up the environment.  The total transition to renewable and clean energy alternatives we cannot presently foresee will likely take until 2040 to implement in a comprehensive way.

The State of the Economy at Summer’s End

We are about nine full months into serious economic difficulty.  In November-December of 2008, the root problems were well-known to the financial community but were not yet very clear to most of the rest of us.  Since then the Federal Reserve has been pumping money into the banks and now, in August 2009, there seems to be a general feeling that we have the worst behind us. However, many of the banks are still acting like zombie institutions.  Though they have been recapitalized by the Fed, which bought a lot of bad debt, the banks nevertheless continue to refuse to lend out the money, perhaps out of a realistic fear that they won’t be paid back.

Given the collapse of the housing market and the significant loss of value of equity in housing and in stocks, many people feel as though they have lost a significant fraction of their net worth. So there is a growing fear that the money is not there to spend, even though losses are currently on paper mostly within the real estate and retirement savings holdings of individuals. Many individuals have losses that are likely to be recouped in time, but their fears remain real–causing them to sell stocks low after significant reductions in value or sell houses at substantial losses, when holding onto either or both for the long haul might have been a better course of action.

Substantial sums appear to remain uninvested and outside the financial system–several trillion appears to be hidden away in matresses.  The stock market watchers keep wondering when this money will reappear in the form of reinvestment. But the market rises and falls and usually not by very much. Fears of a downward correction in the market have kept most of these investors on the sidelines.  Thus, the money has remained in the matress! Neither is there increased spending.

In sum, while job losses are slowing and the stimulus seems to be working, people are still quite reluctant to spend. Many are out of work, and there is a general feeling we cannot spend our way through this downturn. While the worst may be over, there is still the likelihood of a prolonged economic contraction with very weak if any growth in the economy over the next several years.

Hello world!

How silly is that. We have a blog and we’re not totally certain what we want to say. So we’re just going to experiment a bit and see how things fall into place. We are both retired university professors so there is absolutely no end to what we could talk about.

We are both interested in education, health care, science, politics, the state of the world and the future. So we’ll see where it goes.