Carpe Diem

Goldilocks Rocks in NM, TX, LA, AL, AZ and ID

6 reasons the U.S. economy is not going into a recession:

1. New Mexico’s jobless rate fell to an historical record low of 3.1% in October (see chart above, click to enlarge), according to state labor market data released today by the BLS. October’s rate of 3.1% was almost 3.8% below New Mexico’s average unemployment rate of 6.9% from 1976-2007.

2. Texas’ October jobless rate of 4.1% was also an historical record low that matched the May and June 2007 rates of 4.1%.

3. The October unemployment rate in Louisiana dropped to match a record low of 3.3% that was first achieved in July 2006.

4. As I reported earlier, Alabama’s unemployment rate of 3.1% established a new historical record low in October 2007.

5 and 6. Arizona and Idaho both set record low unemployment rates in September 2007 (3.3% and 2.3% repsectively).

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Higher Paying Jobs Outnumber Lower Paying Jobs

Let’s put the “hamburger-flipping jobs” myth to rest.

Lou Dobbs: Washington is beginning to make the connection between a record trade deficit and the loss of millions of American manufacturing jobs. Since July 2000, 2.7 million manufacturing jobs have been lost as the result of layoffs and outsourcing of work to cheap foreign labor markets.

WSJ: Many of today’s most prominent politicians and pundits claim that the decline in the number of manufacturing jobs has led to the replacement of good middle-class jobs by low-skill, low-pay “hamburger-flipping” service jobs.

Cato Institute: The common story is that globalization has caused the loss of well-paying, mostly unionized, middle-class manufacturing jobs while the service economy creates mostly lower-paying jobs in food service or retail.
The chart above (click to enlarge) is from the Cato Institutes’s study “Trading Up: How Expanding Trade Has Delivered Better Jobs and Higher Living Standards for American Workers,” and shows a pattern of job growth much different than the standard Lou Dobbs, political pundit’s hamburger-flipping mythology. For example:

1. Although there was a decline of 3,332,000 manufacturing jobs from 1997-2007, there was an increase of 17,398,000 jobs in non-manufacturing industries, resulting in a net job increase of more than 14 million U.S. jobs during a period of increasing globalization, international trade liberalization, and outsourcing.

2. And what about the hamburger-flipping story? It’s a myth. The 3.3 million manufacturing jobs that were lost paid an average of $17.12 per hour, but more than 11 million jobs were added to the U.S. economy in sectors that paid an average of $20.79 per hour, or 21.4% MORE than manufacturing.

3. Employment growth from 1997-2007 in just two separate sectors (4 million education and health services jobs, and 3.5 million professional and business services jobs) more than replaced all of the manufacturing jobs lost, and both sectors pay more than manufacturing.

4. Although it is true that 5.8 million new jobs were created in industries that pay less than manufacturing, the number of jobs in higher-paying sectors (11.59 million) outnumbers jobs in lower-paying sectors (5.8 million) by a factor of 2 to 1.

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If Fed Can’t Fine-Tune, It Should Focus on Inflation

Notice in the chart above that over the last 7 years the Federal Reserve has moved the target Fed Funds rate (blue line) from 6% in early 2001 to 1% for about 12 months from mid-2003 to mid-2004, and then back up 5.25% from mid-2006 to mid-2007, and now it’s back down to 4.5%.

And yet despite the 5 percent range (1% to 6%) in the target Fed Funds rate, the 10-year T-note yield has mostly stayed within a half percentage point of its 4.52% average yield during this period. In about 80% of the months from 2001-2007 the 10-year T-note yield stayed within a narrow 1 percentage point range between 4-5%, and varied just slightly above 5% and slightly below 4% with equal frequency the rest of the time.

Bottom Line: The Fed can move its target short-term Fed Funds target rate up and down by a huge 5 percentage point range from a low of 1% to a high of 6%, with no significant effect on long-term rates. If the Fed can’t make long-term interest rates change when it makes dramatic changes in monetary policy, doesn’t that mean the Fed is largely ineffective at discretionary, activist, countercyclical fine-tuning and instead should just focus exclusively on an inflation target?

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Government Failure: “Evidence Of Injustice”

FBI’s Bullet Lead Analysis Used Flawed Science To Convict Hundreds Of Defendants

(CBS) Aside from eyewitness testimony, some of the most believable evidence presented in criminal cases in the United States comes from the FBI crime laboratory in Quantico, Va. Part of its job is to test and analyze everything from ballistics to DNA for state and local prosecutors around the country, introducing scientific credibility to often murky cases.

But a six-month investigation by 60 Minutes and The Washington Post shows that there are hundreds of defendants imprisoned around the country who were convicted with the help of a now discredited forensic tool, and that the FBI never notified them, their lawyers, or the courts, that the their cases may have been affected by faulty testimony.

The science, called bullet lead analysis, was used by the FBI for 40 years in thousands of cases, and some of the people it helped put in jail may be innocent.

As correspondent Steve Kroft reported on tonight’s “60 Minutes,” one of them is Lee Wayne Hunt, who is now serving a life sentence for murder in North Carolina (pictured above).

Do a Google Search for “market failure” and you’ll get 1.33 million hits. Do a search for “government failure” and you’ll find 615,00 links. One might think that market failure happens twice as frequently as government failure.
After serving 22 years and 6 months in jail based on the testimony of two questionable witnesses and what turned out to be erroneous ballistics testimony from the FBI lab, I think Lee Wayne Hunt and the hundreds of other falsely convicted felons are a little more concerned about government failure that any failure the market might pose for them.

See a related Washington Post article “
FBI’s Forensic Test Full of Holes.”
Carpe Diem

Food Fight: Partisanship Kills Senate Farm Bill

Of all of the major news reports on the failed Senate farm bill (and there were dozens, see the Washington Post article here), I found that this front page San Francisco Chronicle article offered the best public choice insights about the political realities of farm subsidies:

Money troubles could be unraveling the age-old coalition of Democrats and Republicans that has preserved Depression-era farm subsidies for most of the past century, as pressure from nontraditional farm interests continues to be felt.

The Senate’s failure Friday to move forward on a $288 billion, five-year farm bill delays the effort to preserve subsidies to farmers of cotton, corn, rice and a handful of other crops. At the same time, it blocks an increase in spending on a vast array of popular programs to improve the American diet, make farming practices more environmentally sustainable, and provide California fruit and vegetable growers a place in federal policy.

The formula of preserving crop subsidies while expanding programs that appeal to urban lawmakers has worked to keep the crop subsidy system alive for 70 years, even as the number of farmers receiving subsidies has shriveled and the payments have increasingly tilted to the largest and wealthiest farms. But with heavy lobbying by environmental groups, efforts to forge a compromise bill this year faced serious funding hurdles.

And here’s the best sentence:

Farm state politicians in both parties face a big problem: the formula of buying off urban interests with food stamps and environmental money in return for keeping crop subsidies is forcing painful budget trade-offs.

In other words, the 70-year tradition of bipartisan consensus to fleece taxpayers, bestow generous benefits on well-organized, wealthy special-interest farm groups, in return for political support (votes, campaign contributions, etc.) fortunately broke down this time. Thank God for occassional partisanship and legislative gridlock.

As P.J. O’Rourke said, “I love legislative gridlock. What I hate is bipartisan consensus. Bipartisan consensus is like when my doctor and my lawyer agree with my wife that I need help.”

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Talk About Cutthroat Competition and Price Wars!!

DETROIT, MI The two gas stations stand across an intersection from each other in Detroit, where even a penny’s difference was enough to lure customers. And so came the price war: One station dropped a cent or two, and the other grudgingly followed.

But the seemingly petty back-and-forth escalated Friday, ending with a fatal bullet in BP station owner Jawad Bazzi’s head over what police say was a 3-cent difference in the cost of regular gas.

The Marathon station dropped its price to $2.93. That angered Jawad Bazzi, whose regular gas was priced at $2.96. Bazzi walked across the street with a couple of employees to confront the Marathon owner and his posse. The groups argued, then began throwing punches. One of Bazzi’s employees hit a Marathon employee with a baseball bat, injuring him. That’s when the Marathon owner grabbed a handgun and fired three or four times. Bazzi, 45, was shot in the head.

And here’s the amazing conclusion to the story:

After the shooting, with the competing station closed, BP’s price per gallon increased to $3.09 for regular.
(HT: Holeydonut)
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Goldilocks Rocks in Alabama; Record Low Un Rate

Birmingham, AL — Alabama’s jobless rate fell to an historical record low of 3.1% in October, state labor figures released Friday show (see graph above). October’s rate of 3.1% was almost 3.5% below the average unemployment rate of 6.55% from 1976-2007, and provides further evidence that the U.S. economy is not on the verge of going into a recession.

A full report on October state unemployment rates is due from the BLS on Tuesday.