Consumer Confidence and the Effect on the Economy

Many economists predict that the US economy is ready for a turnaround.  After three months of positive growth in the real GDP, all signs seem to point to this. However, consumers are still not on the same page as economists.  The Confidence Board, a private research group, released today a report that their consumer confidence rating had dropped from December to January, respectively at 64.8 to 61.1.  Many different reports have stated the reasoning behind this drop. 

The Wall Street Journal pointed out the sheer evidence of the report: consumer confidence is down because of the lack of finding jobs and the levels of expected income in the near future.  From December to January, there were 75,000 fewer jobs created. 

Along with this, Financial Times reports that housing prices continue to drop, which counters the benefits of growth in real GDP.  Consumers have also seen the prices of gas rise, another crippling effect that surely hinders the amount of disposable income for consumers. 

NASDAQ reports that DOW was going to have their best January ever until a shock in the stock market occurred over the consumer confidence rating.  Even through this, DOW has seen their best January since 1997, so those in the financial industry should still feel some excitement towards investor confidence.

The consumer confidence rating is out of 100 and is pegged to the year 1985.  Many economists had predicted that the rating would have risen from 64.8 to 68 this month, but as stated above, complications aren’t unheard of in the financial industry.

I find that the consumer confidence rating for January is supporting many of the beliefs that economists have had in recent weeks.  While everything looks good and grand with the real GDP growth in the United States, the economy is still far from being at the level that it should be.  The biggest indicators after reading these reports seem to be within the labor market, housing market and fuel prices.  Since these three markets have such a substantial effect on nearly every American, consumers are able to pin the success of the economy on these factors.  Until positive results can be seen in these markets, consumer confidence will lean unpredictable to negative growth rates.   

References:

1. Bond, Shannon. "Jobs and Fuel Prices Weigh on US Confidence". Financial Times. http://www.ft.com/cms/s/0/81cc9264-4c18-11e1-b1b5-00144feabdc0.html#axzz1l4fTe7lo
2. Dieterich, Chris. "US Stocks Fall After Weak Consumer Confidence Report". NASDAQ.  http://www.ft.com/cms/s/0/81cc9264-4c18-11e1-b1b5-00144feabdc0.html#axzz1l4fTe7lo
3. Madigan, Kathleen. "Consumer Confidence Unexpectedly Declines". Wall Street Journal.  http://blogs.wsj.com/economics/2012/01/31/consumer-confidence-unexpectedly-declines/

Some Opinions on SOPA...

As of recent, the Internet has become flooded with complaints and rallies to make sure the Stop Online Piracy Act (SOPA) isn’t passed in the United States.  But what are the economic factors that are put into place by the US government’s actions to allow for a more effective anti-piracy system. 

George Mankiw stated his opinion about SOPA on the 19^th of January via his blog, stating that the complaints by the majority online are missing a very crucial point on what SOPA plans to target.   Intellectual property is the factor that many seem to grasp that, even though certain music and movies may be online, there isn’t legal permission to have this material available to the public for free.  Mankiw creates a great example with tangible goods, “In a free society, you don’t have a right to steal from your neighbor’s property.  And that should include intellectual property” (Mankiw). 

A couple days later, the Economist released an article discussing the reaction of the public when many websites shut down in protest of SOPA, including Wikipedia and Reddit.  Google and other websites showed their disapproval by blacking out their logo linked to the description of SOPA.  The article mentions the dispute between the rights of intellectual property, but also the acts of government officials and what they want to do to effectively make (or break) SOPA.  The most inspirational was by Darrell Issa of the Judiciary Committee, who hopes to reach out to the community to create a balanced act to allow for some protection of intellectual properties, but still uphold copyrights and avoid piracy in America.

So what are the economic effects that are imposed by SOPA?  For one, if intellectual property can be protected, many industries will have a chance to reap the benefits that piracy has cut into.  The music and film industry would be two that would heavily enjoy SOPA, as the level of piracy would be immediately broken.  The costs would also put a hit on potential creativity by citizens of the United States. If one needed the proper copyrights to express certain viewpoints via a podcast, there could be a drop in the level of human capital.  However, this is not certain, and in my personal opinion, do not believe this will effect human capital.

While many may argue that SOPA will destroy all freedom of speech and the rights to public goods via the Internet, I am not totally succumbing to the degree that SOPA will harm society.  If what I have read is correct, the limitations on many currently free goods would still likely be able to be accessed, but in a controlled state.  The music industry would have to be completely off base to get rid of the current state of allowing for music to be streamed online.  The amount of buzz that can be created on the Internet is amazing.  The benefits, while not monetary initially, allows for people to test out what they may buy.  The costs of cutting that off could limit the levels of exposure a musician would receive, but as long as there is approval via copyrights, the music should still be available on the Internet (along with other goods).

I would like to close on the bit on what may occur to human capital if SOPA were to be enabled.  As I have learned in many of my economics courses, I am as much of a good and can offer services just the same as an apple or a computer may offer another human being.  Arguments that are sure to come up with protecting intellectual property are holding back learning and growth within society.  But to me, this is somewhat skewed.  The problem in my opinion wouldn’t be the inability to access Wikipedia; the reason being is that even with all the free knowledge available, the growth in human capital hasn’t found growth among youth over the last decade.  Critical thinking is down, and that goes off on a whole new topic of whether we as a society are holding students accountable for the proper knowledge necessary to succeed in the future. 

I am extremely interested in seeing the outcome of SOPA.  I plan to read more into the actual process that may occur, but based off the two articles I have read (and outside information), SOPA could use some work.  Once fixed up, perhaps through Donald Issa’s approach, we could see a balanced act that protects copyrights yet still hosts the benefits of what the Internet offers today.

                          

References:

1. Mankiw, Greg. “On SOPA”. Greg Mankiw’s Blog. http://gregmankiw.blogspot.com/2012/01/on-sopa.html
2. “Stopping SOPA”. The Economist. http://www.economist.com/node/21543173      

Modern Finance and Modern Art: An Intriguing Connection

After numerous posts discussing the levels of inequality, I decided to mix things up a bit.  Tonight, I found an article via Bloomberg’s Op-Eds written by Mark C. Taylor, professor of religion at Columbia University. 

The article discusses Professor Taylor’s opinions on the development of art and capitalism.  The biggest points that Taylor brings up involve the comparison of intangible and tangible goods found in individual markets.  Financial capitalism takes majority of the actions via intangible goods, whereas art inherently requires the exchange of a tangible good, being the piece of art.

Data was taken from 2006 showing the approximation of private art sold in the market.  At $25-30 billion dollars in the market, people within the United States thoroughly appreciate art, especially in times of economic prosperity.  Taylor noted that many corporations have taken forth the path to purchase high valued are to further improve the image and aesthetics of their office buildings.  To add to this, some of these corporations are even willing to pay advisors or designers to help create this atmosphere.

What I find most interesting about this article is the very unique viewpoint that Professor Taylor is targeting the topic.  As a professor of religion, the presentation of his ideas compared to one of the typical economist or businessman is a change of pace. 

While he continues to discuss another example of an artist who has created a business out of a group of small time artists, I really wonder what the current standing on the private art market is since the Great Recession.  Also, another question remains about the people who are purchasing these pieces of art.  Many of the mentioned pieces in the article range in the multi-millions of dollars, which I can be safe to assume majority of us cannot afford.  Which really begs the question, are these luxury goods necessary to benefit our society?  And should these pieces of art have a more public display than merely in the hands of corporations? 

This article was one part of an excerpt that Professor Taylor has put in his book, “Refiguring the Spiritual: Beuys, Barney, Turrell, Goldsworthy”.  I really hope I have a chance to read the other part once it is released, as I can try to further connect the relativity between art and finance.

Reference:

1. Taylor, Mark C. “Is Modern Finance Ruining Modern Art? (Part 1)”. Bloomberg Op-Eds. http://www.bloomberg.com/news/2012-01-30/is-modern-finance-ruining-modern-art-part-1-commentary-by-mark-taylor.html

Unemployment Rates in Spain Rises to End 2011

While the United States has seen relative growth as of recently, there are many countries, especially in the European Union, that are getting destroyed by the Euro crisis.  Spain is one of the countries topping the list of struggling economies.

BBC UK reports the final quarter of 2011 marked 5.3 million unemployed Spaniards, a growth from 4.9 million in quarter 3 of 2011.  This number is especially scary, as 5.3 million accounts for a 22.8% unemployment rate, more than double the average unemployment rate in the eurozone.  With such a high unemployment rate, the Spanish government is desperately trying to find ways to cut the budget and raise taxes in the upcoming year, but will expect a 1.5% shrink in the economy.

  

The Spanish Unemployment Rate Dating Back to Around 2005.  Since the housing bubble in 2008, Spain has struggled with job growth.

With the unstable European economy as it stands, something has to be initiated to regain investor trust into eurozone countries.  The European Union (and the global economy) will find it near impossible to bail out Spain, and a default would be extremely damaging to the global economy.

If we were to see a 22.8% unemployment rate in the United States, there would likely be riots through every city across the country.  The citizens who are taking the hardest hit in the Spanish economy are the youth.  BBC reports that there is a 48.6% unemployment rate for the ages 18-24.  This is extremely troublesome, as the best hope to build the economy is going to be with new blood and different economic thought to promote growth.

With Spain’s unemployment rate, I wonder what effect on emigration within the EU will happen over the next year.  What I could imagine occurring would be many of the young adults moving to countries with more attractive positions available.  This is not an uncommon notion, especially with the ability to travel between EU countries relatively easy.  

                                                                                                 

Over the last year or two, there have been articles discussing the emigration of Irish after the bail out.  Ireland has experienced two waves within the last 20 years of young adults becoming educated in Ireland, then finding positions in other countries around Europe.  Once the economy begins to pick up in Ireland, many attempts to move back, and as the trend has shown, are able to find jobs and send the economy into a spurt of growth.  

Perhaps Spain will experience a similar movement.  While Spain has a much larger population than Ireland, the incentive to find work remains the same.  I have never been to Spain, and while I wouldn’t necessarily know the social norms to leaving the country, citizens or the Spanish government need to make an effort to save the economy.    

References:     

1. “Spain’s Unemployment Total Passes Five Million”. BBC UK. http://www.bbc.co.uk/news/world-16754600

Romney Gains Support from Cisco's CEO

A large corporation has spoken out about the opinion towards the 2012 presidential election.  CEO John Chambers of Cisco Systems has openly supported presidential candidate Mitt Romney because of his plans to lower the current 33% corporate tax (as stated in the most recent debates, Romney hopes for 15%).  Chambers explains how much cheaper running a business in other countries, including China, Russia, UK, and Canada.

The belief that cutting corporate tax will bring jobs and corporations back to the United States is bold, and seems highly unlikely even with lowered rates.  Countries including China and Russia hold far lower wage levels that even if the corporate tax were to be cut in half, there would be so much uncertainty surrounding whether there would be a financial benefit to bringing companies back.  The United States would surely benefit from job creation, but the bigger question would remain to what would happen to funding of the government in the long run.

As stated in the last post, the percentage of money being put into the education system in America is at a low.  The best way to build on our human capital is giving Americans the best opportunity to succeed and innovate.  This is where economists need to push the realization that the costs of cutting tax money will ultimately harm the economy and the citizens of the US.  This election could effect greatly the outcome of the United States over the long run.  

Again, we fall back to the dispersion of wealth in the United States.  We need to recognize that the rich are getting  richer, while the lower and middle class are being left in the dust.  If these levels of income inequality continue to occur, there will be major problems for the country as a whole.  I truly understand where people believe that having corporations return to the United States could benefit our country, but if only 1% are reaping the benefits of the economic growth, will there be sustainability in the US economy?

Reference:

1. Smith, Aaron. "Cisco's Chambers Backs Romney for President". CNN Money. http://money.cnn.com/2012/01/26/news/economy/davos_chambers_romney/index.htm?iid=SF_E_River

Income Inequality...When Will the Separation End?

Income inequality is one of the topics that I have been looking over the last few weeks in my journal entries.  Last week, the Economist published an article giving the details on who exactly the 1% entails to, given the recent release of presidential candidate Mitt Romney.  One of the big stats in the data is the differential in job positions by the 1% from 1979 to 2005.  

There has been a rise in lawyers in the 1% along with a substantial rise in the financial industry.  The belief is that those who have now gained vast sums of money are innately able to invest in the market to further build their wealth.  The article continues to discuss more about the consequences that occur because of the amount of money invested by in the financial industry.  

In my post on higher inequality and intergenerational mobility (1-19), we see that generation to generation inheritance creates heavy income inequality.  The 1% are able to invest their money and put their family in positions to exceed far beyond what most can even imagine.  Also, the Economist discovered that members of the 1% are more likely to marry within the other members of the 1%.  This leaves the wealthy even better while the middle class shrinks.

Another article that I fell across from a while back was Joseph Stiglitz article on the development and damage of the 1% (written in May 2011).  This came before the Occupy movement began, but explains the reasoning for anger amongst the lower and middle class of America.  While many supporters of the current capitalist system believe the growth in America is strong, that remains to be seen only among the 1%.  

The trickle down effects that are believed to exist have not been working over the past decade, and statistics could support that this has been a problem for even longer.  Among those fighting to protect the rich, numerous government officials entering today are heavily supported by these corporations, and many are part of the 1% themselves.  To think the government were supposed to be protecting and serving the rights of the majority in America.

Now, with this continuous trend of increased differential in incomes, there is a lot to stand by that the United States needs to switch things up.  The amount of tax money that is going into the education systems are at an all time low.  And the worst part is that many government officials want this percentage to be cut even further.  America was built for opportunity for all, but by not only cutting the funds in secondary schools and four year institutions, community colleges are taking heavy hits.  This seems extremely poor considering the fact that many of minds can be garnished after secondary school once students have started to mature.  

For the sake of our country, it would seem wise to invest in the proper places, and not that this income inequality is not going to benefit our economy.  The costs will surely sink the benefits of the corporations that are trying to get tax free to bring growth the economy.

References:

1. "Income Inequality: Who Exactly is the 1%?". The Economist. http://www.economist.com/node/21543178
2. Stiglitz, Joseph E. "Of the 1%, by the 1%, for the 1%". Vanity Fair. http://www.vanityfair.com/society/features/2011/05/top-one-percent-201105

The Deception of the Current Economy

Today, Bloomberg reported on a subject that I managed to recently discuss in last week's journal entries.  Goldman Sachs has recently stated their disbelief on the attractive drop in the unemployment rate and rise in manufacturing in the US.  While they may seem as if a turnaround is approaching the economy, economists from Goldman Sachs are thinking differently.

There has been a drop in the unemployment rate by 0.4% in the past two months, pushing optimistic viewpoints by many.  However, senior economist Andrew Tilton states that seasonality has an effect on the levels of unemployment.  The strategy once used by Goldman Sachs to correct for seasonality has been thrown in a bit of a loop since 2009 after Lehman Brothers Holdings Inc.'s collapsed model.

The growth that has been seen in the last couple months come in similar locations as my previous entry discussing job growth within the state of South Carolina.  While this article discusses the country as a whole, the argument for what sustainable jobs remains present.  With the manufacturing industry increasing the number of jobs, the positions that will be made available may not fill the long term goals that are needed to keep unemployment down.  As stated in the article, seasonal adjustments are made to avoid viewing jobs that are held either high during the summer or during the holiday seasons.  If the growth in the manufacturing industry turns out to be sustainable, this could potentially be great for America, but the economists interviewed by Bloomberg are highly skeptical.

The need to forecast the unemployment rates and growth of specific industries allows economists and investors insight into what to expect for the future.  Understating or being slightly pessimistic may be an optimal choice for  many economists, as backlash usually occurs by those who boldly predict massive growth, only to fall flat on the ground.  Also, the need to accurately portray what is likely to occur is crucial in rebuilding what I believe has been a broken pact between economists and the general public in the United States.  The recession still stings for nearly all Americans, and the greed that many financial institutions have been accused of are primary sources to the mess we all experienced.  Understanding where to fix these problems and how to ethically handle these positions is important in growing as a budding economist.  it should be interesting to see what will occur to job growth this next quarter.

References:

1. Willis, Bob. "Goldman Sachs Says U.S. Performance May Appear Better Than It Is: Economy". Bloomberg. http://www.bloomberg.com/news/2012-01-23/goldman-sachs-says-u-s-performance-may-appear-better-than-it-is-economy.html