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US Economy

A long video presentatio on this link on reforming the US pension system(s). Most municipal and State government pensions are dangerously underfunded and overgenerous (the city of Detroit went bankrupt for this reason), and the cumulative total for unfunded liabilites has been estimated to be anywhere from 2 to 4 trillion dollars. This is in addition to the declared debt liabilities of municipalities and States through bonds and deficit spending. To put in perspective, if the various US Municipal and State civil service unions were somehow able to take Canadian wealth to fund their pensions, it would take 2 to 4 years of our GDP to fill that hole.


Municipal Bankruptcy and Pension Reform: A Way Out? - Event Audio/Video
Sponsored by the Practice Groups of the Federalist Society
October 15, 2013

Thomas W. Merrill, David Skeel, Erik S. Jaffe
The following audio and video were recorded on October 11, 2013.

Municipal Bankruptcy and Pension Reform: A Way Out? 10-11-13
Running Time: 01:21:19
[ Full Audio]

As an increasing number of local and municipal governments find themselves in dire financial straights, leaders are looking towards new methods of increasing revenues and cutting costs. One cost saving method already attracting a great deal of legislation and litigation is pension reform. Our experts discussed the challenges faced by cities considering a restructuring of their pension plans, as well as the strength of various arguments regarding the legality of these efforts.

Prof Thomas W. Merrill, Charles Evans Hughes Professor of Law, Columbia Law School
Prof. David A. Skeel, S. Samuel Arsht Professor of Corporate Law, University of Pennsylvania Law School
Moderator: Mr. Erik S. Jaffe, Sole Practitioner, Erik S. Jaffe, PC
Long article from the Economist on how corporations are changing the way they work. While the usual crowd will scream about unconstrained corporate power, please note that:

a: Corporations adopted the structure because government laws changed; and,
b: Corporations are using these laws and regulations creatively in order to escape the laws and regulations that are suffocating the conventional corporate structure.

Without either a or b happening, these changes would not have occured:


Rise of the distorporation
A mutation in the way companies are financed and managed will change the distribution of the wealth they create
Oct 26th 2013 | NEW YORK |From the print edition

AT THE beginning of the 1980s capital was flooding into the American oil and gas industry. Apache Corporation, an erstwhile conglomerate spanning steel, dude-ranching and car sales, sought to tap into the flow in a novel way. It wrapped a bunch of private oil and gas assets into a new ownership structure that was akin to a partnership but was publicly listed. It was a useful idea—until steep declines in tax rates and energy prices put the Apache Petroleum Company to rest in 1987.

This time round the master limited partnership (MLP) structure which Apache pioneered is no longer just a footnote. In the 2000s such companies allowed the capital-intensive energy industry to attract vital funds even during a devastating financial crisis. Kinder Morgan, a complex entity built around interlocking MLPs, has an enterprise value (its market capitalisation plus its debt) of $109 billion. The collective market capitalisation of MLPs recently passed that of Exxon Mobil, the most highly valued energy company on the New York Stock Exchange.

The new popularity of the MLP is part of a larger shift in the way businesses structure themselves that is changing how American capitalism works. The essence is a move towards types of firm which retain very little of their earnings: “pass-through” companies which every year pay out more or less as much as they take in. Many of the standard rules that corporations which retain their earnings have to follow when dealing with shareholders do not apply to such firms. And, crucially, so long as they distribute their earnings such set-ups can largely avoid corporate tax.

Not all shall be partners

Mindful of that last point, the American government has in the past restricted the use of such structures. But these restrictions have eased, and more and more businesses are now twisting themselves into forms that allow them to qualify as pass-throughs. The corporation is becoming the distorporation.

Collectively, distorporations such as the MLPs have a valuation on American markets in excess of $1 trillion. They represent 9% of the number of listed companies and in 2012 they paid out 10% of the dividends; but they took in 28% of the equity raised. And these statistics underplay the true scale of the shift. Structures like MLPs are used to house the management of big private-equity companies, thus sitting atop industrial empires of much greater worth. Among all firms, in 2008 pass-through structures accounted for 23% of companies and 63% of profits, according to the latest data available from the Internal Revenue Service (IRS). Widely cited research by Rodney Chrisman, a professor at Liberty University School of Law, says such businesses account for more than two-thirds of new companies.

The shift to the distorporation comes at the expense of the “C” corporation, the formal name for the familiar limited-liability joint-stock structure that emerged a century ago (see chart 1). The newer structures still protect investors from liability. But the requirement for partnerships to pass through their money blocks the accumulation of earnings. In C corporations retained earnings can be used to fund investment and growth, assuring persistence. Without them, pass-through businesses have to be far more intertwined with investors. Staying alive means routinely inhaling capital, as well as exhaling.

These arrangements can be spectacularly lucrative for their general partner. Richard Kinder, who founded Kinder Morgan in 1997, now has a $9 billion stake, and received dividends of $376m over the past year. In a conventional C corporation shareholders might complain. In a complex set-up based around a pass-through entity, the views of the “limited partners”—investors—matter little. Their contracts give management a much freer hand than in familiar corporations, where government regulation grants shareholders a lot of rights. And those who invest in distorporations do pretty well out of the deal. Shareholders, or to be more precise “unit holders”, have received dividends double or triple the market average.

These beneficiaries, though, are a select class. Quirks in various investment and tax laws block or limit investing in pass-through structures by ordinary mutual funds, including the benchmark broad index funds, and by many institutions. The result is confusion and the exclusion of a large swathe of Americans from owning the companies hungriest for the capital the markets can provide, and thus from getting the best returns on offer. (Interpolation: Is this a facet of Crony Capitalism or an unintended result of poorly drafted laws?)

This shift in how companies are governed and raise money is bringing with it a structural change in American capitalism. That should be a matter of great debate. Are these new businesses, with their ability to circumvent rules that apply to conventional public companies, merely adroit exploiters of loopholes for the benefit of a plutocratic few? Or do they reflect the adaptability on which America’s vitality has always been based? Alas, it is a debate the country is either blithely or studiously failing to take up.

Natural resources and unnatural acts

The move away from the C corporation began in earnest in 1975. Wyoming, that vibrant business hub, adopted a new entity structure, the limited-liability company (LLC). Imported from Panama, it provided the tax treatment of a partnership while preserving the corporate protection from individual liability for company debts and litigation. Other states followed in adopting the model. Businesses were quick to see the advantages.

The various new types of firm that have risen in the wake of the LLC (see table 2) make similar use of partnership structures. They have tended to be industry- or sector-specific, at least to begin with. The energy business has a lot of MLPs not only because it needs capital but because it is an easy place to set them up: since 1987, tax law has allowed “mineral or natural resource” companies to operate as listed partnerships, while withholding that privilege from others. But as with other pass-through structures, the constraints are being lowered and circumvented.

For MLPs, the definition of “mineral or natural resource” is elastic. These days, for example, it is not just income from coal that qualifies; money made from rolling stock that carries coal on railways qualifies too. Allan Reiss, a lawyer at Morgan Lewis, notes that a year ago the IRS issued a ruling allowing the processing, storage, transport and marketing of olefins, a type of synthetic polymer, to be included as qualifying income. In 2007 private-equity firms seized on another clause in the tax law on interest and dividends that enabled the MLP structure to be used for publicly listed components of Apollo, Blackstone, Carlyle, KKR and other private-equity companies.

These days the limitations on becoming an MLP seem to be tied more to legal dexterity and influence than any underlying principle. Politicians want to extend the benefits of partnerships to industries they have come to favour either on the basis of ideology, or astute lobbying, or a bit of both. Sporadic interest in closing the loopholes companies use to twist themselves into such structures tends to sputter out, whether through genuine concern at the economic fallout or as a result of corporate emoluments spread over the appropriate constituencies. Meanwhile the regulatory burdens on C corporations that make people look for alternatives in the first place grow apace.

Another booming pass-through structure is that of the “business development company” (BDC). These firms raise public equity and debt much like a leveraged fund. As vehicles for investing in other companies, BDCs are regulated by a division of the Securities and Exchange Commission (SEC) which is considered particularly pernickety, and thus, other things being equal, to be avoided. Other things are not equal: the arrangement has virtues for managers, the public and investors.

Of more than 40 publicly traded BDCs, only seven are structured in a manner that truly resembles an ordinary corporation, with boards and conventional shareholder votes. What they all share is an ability to do bank-like business—lending to companies which need money—without bank-like regulatory compliance costs. Since the investors providing capital are not insured by the government as bank depositors are, BDCs are not pressured to invest in designated “low risk” areas such as government bonds. Instead they can focus on funding private enterprise, filling credit needs conventional banks now ignore.

The largest and oldest group of companies to have a similar structure are the real-estate investment trusts (REITs). In 1960 clever property owners who wanted access to the public’s capital managed to insert a provision into the Cigar Excise Tax Extension Act which purported to expand opportunities to small investors. The REITs thus created were initially used as ways of owning residential housing and office space; they now encompass casinos, hospitals and mobile-phone towers. As with other pass-through structures, companies that cannot distort themselves enough to meet the definitions can still get some of the benefits. The premises of Walmart and CVS, a chain of drug stores, are held by REITs, as are the headquarters of the New York Times; the paper sold them and leased them back in 2009.

Hurly Berle times

Andrew Morriss, of the University of Alabama law school, sees the shift as an entrepreneurial response to a century’s worth of governmental distortions made through taxation and regulation. At the heart of those actions were the ideas set down in “The Modern Corporation and Private Property”, a landmark 1932 study by Adolf Berle and Gardiner Means. As Berle, a member of Franklin Roosevelt’s “brain trust”, would later write, the shift of “two-thirds of the industrial wealth of the country from individual ownership to ownership by the large, publicly financed corporations vitally changes the lives of property owners, the lives of workers and …almost necessarily involves a new form of economic organisation of society.”

In the late 19th century industry had a voracious need for capital; it found it by listing shares publicly on exchanges. The problem with this, Berle observed, was that over time big successful corporations would come to finance themselves out of retained earnings and have little need for investor-supplied capital. So while the ownership structure provided liquidity for shareholders—they could easily exchange rights for cash—it did not give them the authority tied to conventional ownership, because the company did not need to maintain their support.

“Management thus becomes,” Berle wrote, “in an odd sort of way, the uncontrolled administrator of a kind of trust.” As these trusts became huge, it was inevitable that laws would be passed requiring them to use their wealth “more or less corresponding to the evolving expectations of American civilisation”. These included rules governing the treatment of employees and customers that went beyond what they might have been willing to enter into through private contracts, as well as rules which governed how management should treat owners. The SEC was established two years after the book by Berle and Means was published, and reflected just this sort of thinking.

Several minor retreats notwithstanding, the government’s role in the publicly listed company has expanded relentlessly ever since. Recent attempts by entrepreneurial legislators to exert more power over companies have, unsurprisingly, led to legal entrepreneurialism on the private side: hence the distorporation. As the move to new structures has picked up speed, from 1997 on, the number of companies with enough of a conventional structure—and trading volume—to be in Vanguard’s total market index fund has plunged from 7,306 in 1997 to 3,369 today.

The conventionally structured companies in this group are required to be ever more open to the wishes of their shareholders, with huge battles over such matters as compensation and the voting procedures for directors, work conditions and human rights, the virtues of which may not include higher returns. Meanwhile, an entire layer of public companies using these new structures stands outside the debate. The prospectuses that Apollo, Blackstone, Carlyle and KKR published before listing are clear about the rights of unit holders to influence corporate decisions: “limited” is an understatement.

This does not mean management is unconstrained. The requirement that most or all earnings must be returned means that investment capital must constantly be raised afresh. That means the financial markets are much more closely entangled with keeping these firms running, providing vast buckets of money when, as has been the case recently in energy, conditions are promising, and turning the taps off when they are not.

The relationship between owners and managers, however, has effectively been reduced to a single critical factor: the ability of these sorts of entities to pay out large distributions (see chart 3). Protection from corporation tax means that a pipsqueak MLP with a low credit rating can profitably acquire assets from established giants such as Chevron and Shell. For an oil or gas pipeline with a stable business, a common payout is 6%—extraordinarily high in the current environment when the average yield is 2%. For an exploration company, the payout could be in the mid-teens. Blackstone’s yield is 4%; KKR’s 8%. As in emerging markets without formal financial systems—where investors often lack principal protection, faith in accounting and confidence in government actions—investors make their choices purely on the consistency of payments.

Perhaps not surprisingly, one area where the structures have a particularly strong impact is on compensation. It typically follows either the hedge-fund model—based on assets, with a healthy slug of profits (20%) on top—or some sort of stepped arrangement, with the general partner receiving as much as 50% of the quarterly distributions as thresholds are reached. The full benefits of such partnerships can be remarkable. For a partner a payout can be considered merely a return of capital rather than a profit, and consequently no tax is due until the sale of the underlying security. When tied to nuances of estate law, this may mean no tax at all.

Breathing in, breathing out

For institutions such as endowments and sovereign wealth funds which themselves can be entirely or partially tax exempt, the issues tied to investing in these entities are formidably complex. They thus provide lucrative opportunities not only for people running companies but for accountants, lawyers, lobbyists, and those well versed in the state and local politics tied to the finer points of the tax code.

That is good for insiders but not so helpful for people trying to understand what is going on. The standard approach to security analysis, capital allocation and market valuation that begins with comparisons between companies’ returns using metrics such as price to earnings or book value becomes much less relevant, and possibly misleading, in such situations. There is, for example, much debate about Kinder Morgan’s true worth.

Because all these structures rest on special provisions and waivers of law, they survive on the whims of Washington. Their attempt to escape the reach of politically motivated changes in governance and taxation inevitably tends to hinge on lobbying and cronyism somewhere along the line. It is, in short, an example of how the system can be rigged to favour the connected. It may seem odd, then, that the shift has not produced more of an outcry.

In part, this is because its complexity shields it from scrutiny, and because, unlike politicians who seek to publicise their attempts to regulate business, business tends to keep quiet about its successful acts of resistance. But it is also because the questions it raises do not fit into the established world views of either the left or the right. The left typically responds to concerns about business with a belief in antitrust actions to break up size and with strengthened regulation. The conservative alternative has been to emphasise corporate governance, level playing fields and best practices. Neither approach offers much in this case.

But if the shift prompts genuine concerns, it is also specifically and broadly virtuous—because it enables capital to be channelled to where it can have a return, rather than sitting in the roach motel of retained earnings on which C corporations are based. That may, in the end, be the most compelling component of whatever defines the American system and enables it to be productive and innovative. For all the inequities, when vast wealth has been made through these structures, it has been in cases where the underlying assets produced more cash, not less.
Another example of the negative intersection between politics and business. While I would normally be in favour of having the private sector purchase the "dark" fiber and offer services, large telecom companies using the political process to stifle competition (sound familiar?) are simply preying on consumers and establishing entry barriers to competitors. Perhaps the only way to break this impass would be the private sector, a company like Google or Apple has the financial resources to purchase the dark fiber and the technical ability to deliver highspeed broadband, should they decide to go head to head with companies like Comcast or Verizon. The question is would they see this as a market opportunity or would they stick to their core competencies?


Comcast is donating heavily to defeat the mayor who is bringing gigabit fiber to Seattle
October 31 at 3:59 pm

Seattle Mayor Mike McGinn (photo by Jen Nance/office of the mayor)

One of Seattle Mayor Mike McGinn's big policy initiatives has been expanding the quality and quantity of high-speed Internet access throughout the city. A public-private partnership plans to offer higher speeds at lower prices than most broadband providers currently offer. And incumbent providers, particularly Comcast, have invested heavily in defeating McGinn in Tuesday's mayoral election. While Comcast denies there is any connection between McGinn's broadband policies and their donations, the company has given thousands of dollars to PACs that have, in turn, given heavily to anti-McGinn groups.

McGinn's major opponent, state Sen. Ed Murray (D-Seattle), has committed to honoring the city's existing contracts for a 14-neighborhood pilot project, but has shown limited enthusiasm about McGinn's plans to expand the network in the future. So the election could determine whether Seattle residents have new options for high-speed broadband service, or will have to make do with the slower services already offered by incumbents like Comcast.

McGinn's broadband initiative

According to Robert Cruickshank, a senior communications adviser for McGinn, one of McGinn's core promises in the 2009 campaign was to "develop a city-wide broadband system." The mayor considered creating a citywide broadband system as a public utility, like water or electricity. But aides say that would have been too expensive, so the mayor settled on public-private partnerships using city-owned dark fiber. This dark fiber was laid down starting in 1995, and the mayor's office now says there are some 535 miles of it, only a fraction of which is being used.

In a partnership with the University of Washington, the city put out a request for proposals in late 2012. "The RFP process is not intended to pick one provider," says Cruickshank, but one company -- Ohio-based Gigabit Squared -- is currently farthest along. The company is still wrapping up its funding and finalizing plans with the city. They expect to begin offering gigabit-speed service to households with a combined population of 50,000 in early 2014, according to Mark Ansboury, co-founder of Gigabit Squared.

In June, Gigabit Squared announced pricing for its Seattle service: $45 dollars a month for 100 Mbps service or $80 a month for 1 Gbps service plus a one-time installation cost of $350 that will be waived for customers signing a one-year contract. For comparison, Comcast, one of the primary Internet providers in the area, offers 105 Mbps service in the area for $114.99 a month according to their website. (It's unclear if there is an installation charge.)

McGinn has suggested that Comcast hasn't taken this threat of competition lightly. In a recent question and answer session on reddit, he was asked what would happen to Gigabit Squared if he were to lose the race. "I don't know, but I do know Comcast gave Murray a big pile of money," McGinn responded.

Ansboury believes Gigabit Squared's plans will continue regardless of who wins the mayoral election Tuesday, saying that although he supports McGinn -- who he calls an "avid supporter of broadband and fiber services" -- his company's pursuit of fiber service is a community initiative focused on the citizens. "It's pretty clear that outside of the politics, the citizens of Seattle are really looking forward to getting gigabit connections," he said.
Murray does not mention broadband policy or his stance on the mayor's fiber initiative on his Web site. A spokesman for his campaign said that the lack of comment was because "this issue has not come up before in the campaign," so it had not "drilled down yet to make systematic assessment of how the City's approach to promoting ultrafast broadband is going."

The spokesman also committed that, if elected, Murray would honor the current agreements between Gigabit Squared and the city, "but he will also makes sure that the City monitors the company's performance to ensure that they are delivering the promised results as the project moves forward." In other words, the limited pilot project would likely go forward in a Murray administration, but there's more of a question about whether the rest of Seattle would be offered gigabit service via a private-public partnership.

Comcast's contributions

Mayoral candidate Sen. Ed Murray (Photo by Joe Szilagyi)

An analysis of Murray's campaign contributions show that he received $700 from Centurylink WA PAC less than a month after the Gigabit Squared project was announced. Comcast has previously donated to Murray's state senate campaigns, and records also show that a Comcast executive named Janet Turpen contributed $500 to Murray's mayoral campaign in October 2013. Her LinkedIn profile describes her as the VP of Government Affairs for Comcast Cable in Seattle.

Comcast's donations to political action committees (PACs) suggest Comcast has poured dramatically more resources into defeating McGinn. The Broadband Communications Association of Washington PAC, which received 94 percent of its 2013 contributions from Comcast, donated $5,000 to the group People for Ed Murray less than a month after Gigabit Squared's pricing announcement. That was the PAC's largest single donation. Unsurprisingly, People for Ed Murray has made significant expenditures supporting Murray's candidacy. The Web site of the Broadband Communications Association of Washington also lists Janet Turpen as president-elect.

Comcast also donated $5,000 to the PAC called the "Civic Alliance for a Sound Economy," or CASE, whose largest expenditures were donations to People for Ed Murray, to the tune of $52,500 -- over half of the money spent by the group according to the most recent disclosures online. Their second largest expenditures was $10,000 to People for a New Seattle Mayor, a group opposing McGinn's reelection.
Seattle Ethics and Elections Commission recently levied a fine against CASE for failing to disclose that a major donation (from a party other than Comcast) was earmarked for People for Ed Murray.

In a statement to The Post, Comcast denied their donations to the Murray campaign were related "in any way to any actions of the current Mayor," instead saying they reflected their prior support for Murray's state senate campaign. On the issue of the CASE donations, they said the PAC "gives to a wide variety of candidates, and which candidates they support is in no way determined by us." A follow-up inquiry about their donations to the Broadband Communications Association of Washington was not returned by the time this blog item was published.

For his part, Ansboury, was not surprised to hear about Comcast's contributions, saying "it's not uncommon in the industry that the larger incumbents, cable operators, and PACs support certain policy initiatives that favor" their interests. Established Internet providers are often afraid of the disruptive nature of fiber competitors, he says, whose potential for much higher speeds can be disruptive to their business.

Often, he believes, these incumbent providers seem to think they know what consumers need more than consumers themselves, but says Gigabit Squared has received over 10,000 requests for gigabit service before even launching in Seattle. That demand is at odds with the argument a Comcast executive vice president made in an op-ed this summer, suggesting that the reason there weren't higher broadband speeds was that consumers didn't want them.

If Comcast is indeed attempting to sway the election, it would fall in line with a larger pattern of telecom interests lobbying against municipal efforts to create their own municipal broadband systems or leveraging city-owner fiber resources to create more competition for incumbent providers. A number of states have even enacted legislation banning municipal broadband.

A loss for McGinn on Tuesday probably won't mean the end of Gigabit Squared's work in the Seattle metro area, though it could curtail Gigabit Squared's plans to expand to other parts of Seattle. More importantly, though, if Comcast's donations help Murray defeat McGinn, it will send a powerful message to mayors in other American cities considering initiatives to increase broadband competition.

Correction: This post initially described Gigabit Squared as a Washington, D.C. based start up. It is based in Ohio. We regret the error.
Thucydides said:
Another example of the negative intersection between politics and business. While I would normally be in favour of having the private sector purchase the "dark" fiber and offer services, large telecom companies using the political process to stifle competition (sound familiar?) are simply preying on consumers and establishing entry barriers to competitors. Perhaps the only way to break this impass would be the private sector, a company like Google or Apple has the financial resources to purchase the dark fiber and the technical ability to deliver highspeed broadband, should they decide to go head to head with companies like Comcast or Verizon. The question is would they see this as a market opportunity or would they stick to their core competencies?


Good to see that they are using the money I pay them for something more useful than improving service.
A lot of charts, tables and graphs on the link. The really surprising thing is US unemployment is quite a bit higher than I had expected (I was estimating in the 10.5% range). this has dire downrange effects on us, an adult population higher than the entore population of Canada is not going to be in the market for our exports (in our number one trading partner). Think of the additional boost to the Canadian economy an extra 38 or so million customers would generate:


What Is the Real Unemployment Rate?
It's far higher than the official 7.3 percent.

November 12, 2013 - 10:39 pm

Just beneath the surface, the government’s latest employment report shows how much damage the POR (Pelosi-Obama-Reid) economy, now well into its sixth year, has done to the country’s economic fabric. The impact of Obamacare, if it isn’t stopped, will only compound it.

Even the relatively decent news in Uncle Sam’s October report was suspect.

Employers are said to have added 204,000 seasonally adjusted jobs. But as the Associated Press noted, the government, thanks to the 17 percent government shutdown, had an extra week to retrieve its surveys from employers, and therefore had a higher than usual response rate. It doesn’t seem as if this should matter, but apparently the Bureau of Labor Statistics has a history of estimating high in its initial releases when it has more time to collect and assemble the data. Additionally, economist Mark Zandi believes that “businesses may have inadvertently counted employment for an extra week.”

Even more questionable are the BLS’s revisions to August and September. As seen below, the raw (i.e., not seasonally adjusted) figures show no revised net improvement during those two months. But that goose egg somehow turned into 60,000 additional jobs during seasonal conversion:

Then there’s the unemployment rate. Even though it ticked up to 7.3 percent, that was also supposedly good news, because it would have dropped if it weren’t for the 850,000 federal government workers furloughed during part or all of the partial shutdown and treated as unemployed.

The real problem, thanks to the POR economy’s progenitors and the Obamanomics policies which have accompanied it since January 2009, is that the official unemployment rate is more unreflective of true job market conditions than it has ever been.

During Republican and conservative presidential administrations, those on the left, particularly in organized labor, often complained bitterly that the official unemployment rate fails to count discouraged workers and those who are working part-time for economic reasons. For some reason — I wonder why? — they’re incredibly quiet these days, even though their complaint, as we will see, is far more valid.

In August 1982, AFL-CIO head Lane Kirkland contended that the previous month’s official 9.8 percent unemployment rate, so adjusted, would have been 13.6 percent, or 3.8 points higher. That’s interesting, because October 2013′s seasonally adjusted “U-6″ unemployment rate, after I adjusted the official 13.8 percent down by 0.2 points to account for those furloughed government workers, was that very same 13.6 percent, even though the official 7.3 percent “U-3″ unemployment rate was 2.5 points lower than it was at the time of Kirkland’s complaint.

Though Big Labor’s beef has always been somewhat valid, the difference between the U-3 and U-6 rates was almost always between three and five percentage points throughout the 1980s, 1990s, and the majority of the most recent decade, meaning that there was no reason to be overly concerned about that difference — until the POR economy came along.

As seen in the above chart, the difference between the U-3 and U-6 rates gradually and consistently fell during the first six years the BLS began formally tracking U-6. It rose during the 2001-2002 recession, fell slightly for a few years after that, and remained stable until the spring of 2008.

Then disaster struck. The difference quickly widened, not at all coincidentally beginning when America figured out that Barack Obama would likely become its next president, i.e., when the POR economy began. After only a year, the U-3 vs. U-6 gap, which had almost never been above 5 points, exploded to over 7 points. After Barack Obama’s nearly five years at the helm, the gap has barely narrowed, and is still miles above any previous era.

But even the U-6 rate understates how bad things are. That’s because of the staggering number of people who have dropped out of the workforce entirely. While many of those involved are retirees, most aren’t.

The civilian labor force dropped by a seasonally adjusted 720,000 in October. The BLS says that the government furloughs did not influence that decline. In the 57 months since Barack Obama took office, the labor force has grown by only 607,000 — an average of less than 11,000 per month. Meanwhile, the adult population has grown by 11.642 million.

If only a very conservative one-third of the 11.035 million additional adults who are now sitting things out (11.642 million minus 607,000) were included in the workforce, the U-3 and U-6 unemployment rates (without adjusting for the furloughs) would be much, much higher:

Based on the above, it is reasonable to assert that almost 16 percent of Americans would like to be working full-time somewhere — and aren’t.

Related to all of this, the overall workforce participation rate has dropped from 65.7 percent to 62.8 percent during Barack Obama’s presidency thus far. That rate dropped by 0.4 points in October alone, to the lowest level seen since 1978.

Add to all of this the fact that millions of workers are, out of necessity, in jobs for which they are overqualified. Half of all college graduates are working jobs which do not require a college degree. Even if you subtract out those who are exactly where they want to be by choice, that’s a staggering figure. The “underemployment rate,” if you will, is surely well above 20 percent. Yet we continue to churn out college grads, pretty much ensuring that this dangerously wasteful trend will continue, even as household incomes continue to stagnate.

Obamacare threatens to turn what is already a very rough situation into a potential cataclysm.

Barack Obama’s “signature achievement” discourages work. Its millions of individual and small employer group policy cancellations will suddenly force millions of Americans to spend hundreds of dollars extra per month most of them don’t have, leading to massive cuts in discretionary spending — or will cause them to go without insurance entirely. A no-growth Obamacare Christmas may well be in the offing.

As long as the Obamacare albatross hangs around, employers will have to play it close to the vest on hiring. The uncertainties about what this authoritarian administration may or may not do are too daunting — and we don’t even know whether the Mother of All Website Failures will ever function properly.

The only real solution is the one certain courageous conservatives pushed in September before they were overcome by the wing of the Republican Party which, carrying on in the sellout tradition of Bob “Tax Collector for the Welfare State” Dole, is on track to become the welfare state’s health insurance premium collectors.

At this point, defunding Obamacare and repealing it entirely is an absolute necessity. Once that occurs, we might finally be able to talk about how to embark on a meaningful economic revival and how to make the all-inclusive unemployment rate come down.

Along with having a decades-long career in accounting, finance, training and development, Tom Blumer has written for several national online publications primarily on business, economics, politics and media bias. He has had his own blog, BizzyBlog.com, since 2005, and has been a PJM contributor since 2008.
In addition to the horrifying effects on the US economy and political system, screwing with unemployment figures and other metrics in the US hurts Canadians and indeed the entire global econoy, since people are trying to make rational plans based on the information they are receiving. Now some people have known for a long time the figures have been manipulated by "counting out" the long term unemployed and so on, but now we know the figures are not distorted, they are fantasy:



Posted by Jeff Carter on November 18th, 2013

The Obama administration has faked the census numbers that are used to compile unemployment statistics.  Government stats are now no more believable than anything you read in the old Pravda. We know that China fakes most of their numbers. But, they aren’t a democratic country.

We know Obama lied about healthcare.  We know he lied about Benghazi.  He tells fibs about other things in the name of politics.  But, no administration should ever intentionally lie about Labor statistics, crop reports or market moving government statistics.

Lies throw the capitalistic market mechanism off its kilter because it screws up transparency.

Economists, financial institutions, people, hedge funds, state/private pension funds, and other governments base policy, predictions, expectations and invest hard earned dollars based on those numbers.

Screwing with them shakes the foundations of lots of things to their core. Your own personal savings/investments are at stake.

And a knowledgeable source says the deception went beyond that one employee — that it escalated at the time President Obama was seeking reelection in 2012 and continues today.

We always used to joke about it in the pits.  We never truly thought it was true. Sure, numbers were revised.  But we never thought the government employees were manipulating them for real.

Jack Welch was castigated for saying unemployment was being manipulated. Turns out he was right.

What about inflation numbers? Maybe Rick is correct?

We ought to disband every agency in the government that collects stats and turn it over to the private sector.  In the old days, it was expensive to collect and compile data.  Now, not so much and private reports are often more accurate than government ones.

There are some big apologies due. And, it might be nice of the press to become objective and dispassionate about what they are reporting and play it straight for once. The integrity of the US government is at stake.


I reflected on this overnight.  People that are fans of Obama are going to say, “Bush lied, people died.”.  I don’t want to get in a pissing match with them.  What I want them to think about is that the President, and our federal government have entirely too much power and both factions need to return power to individuals.

I also thought about the Labor Department.  How come the culture inside our federal agencies is so bad that no one stopped this person?  Maybe government employees try to cheat, but someone at the top ought to put a stop to it so everything is on the level.  Unless, the cheating fit their personal agenda or they were afraid of losing their job because of strong arm tactics coming from higher up.

I also neglected to mention Obama’s use of the IRS to target political opponents.  And the IRS complicity in going after them.

The whole thing stinks no matter which side of the political aisle you are on.



Census ‘faked’ 2012 election jobs report
By John CrudeleNovember 18, 2013 | 8:06pm

In the home stretch of the 2012 presidential campaign, from August to September, the unemployment rate fell sharply — raising eyebrows from Wall Street to Washington.

The decline — from 8.1 percent in August to 7.8 percent in September — might not have been all it seemed. The numbers, according to a reliable source, were manipulated. (interpolation: even without that manipulation, the real [U3] figure should have been batween 10 and 11% on election day)

And the Census Bureau, which does the unemployment survey, knew it.
Just two years before the presidential election, the Census Bureau had caught an employee fabricating data that went into the unemployment report, which is one of the most closely watched measures of the economy.

And a knowledgeable source says the deception went beyond that one employee — that it escalated at the time President Obama was seeking reelection in 2012 and continues today.

“He’s not the only one,” said the source, who asked to remain anonymous for now but is willing to talk with the Labor Department and Congress if asked.

The Census employee caught faking the results is Julius Buckmon, according to confidential Census documents obtained by The Post. Buckmon told me in an interview this past weekend that he was told to make up information by higher-ups at Census.
Ironically, it was Labor’s demanding standards that left the door open to manipulation.

Labor requires Census to achieve a 90 percent success rate on its interviews — meaning it needed to reach 9 out of 10 households targeted and report back on their jobs status.

Census currently has six regions from which surveys are conducted. The New York and Philadelphia regions, I’m told, had been coming up short of the 90 percent.

Philadelphia filled the gap with fake interviews.

“It was a phone conversation — I forget the exact words — but it was, ‘Go ahead and fabricate it’ to make it what it was,” Buckmon told me.
Census, under contract from the Labor Department, conducts the household survey used to tabulate the unemployment rate.
Interviews with some 60,000 household go into each month’s jobless number, which currently stands at 7.3 percent. Since this is considered a scientific poll, each one of the households interviewed represents 5,000 homes in the US.

Buckmon, it turns out, was a very ambitious employee. He conducted three times as many household interviews as his peers, my source said.
By making up survey results — and, essentially, creating people out of thin air and giving them jobs — Buckmon’s actions could have lowered the jobless rate.

Buckmon said he filled out surveys for people he couldn’t reach by phone or who didn’t answer their doors.
But, Buckmon says, he was never told how to answer the questions about whether these nonexistent people were employed or not, looking for work, or have given up.

But people who know how the survey works say that simply by creating people and filling out surveys in their name would boost the number of folks reported as employed.

Census never publicly disclosed the falsification. Nor did it inform Labor that its data was tainted.

“Yes, absolutely they should have told us,” said a Labor spokesman. “It would be normal procedure to notify us if there is a problem with data collection.”

Census appears to have looked into only a handful of instances of falsification by Buckmon, although more than a dozen instances were reported, according to internal documents.

In one document from the probe, Program Coordinator Joal Crosby was ask in 2010, “Why was the suspected … possible data falsification on all (underscored) other survey work for which data falsification was suspected not investigated by the region?”
On one document seen by The Post, Crosby hand-wrote the answer: “Unable to determine why an investigation was not done for CPS,” or the Current Population Survey — the official name for the unemployment report.

With regard to the Consumer Expenditure survey, only four instances of falsification were looked into, while 14 were reported.
I’ve been suspicious of the Census Bureau for a long time.

During the 2010 Census report — an enormous and costly survey of the entire country that goes on for a full year — I suspected (and wrote in a number of columns) that Census was inexplicably hiring and firing temporary workers.

I suspected that this turnover of employees was being done purposely to boost the number of new jobs being report each month. (The Labor Department does not use the Census Bureau for its other monthly survey of new jobs — commonly referred to as the Establishment Survey.)
Last week I offered to give all the information I have, including names, dates and charges to Labor’s inspector general.
I’m waiting to hear back from Labor.

I hope the next stop will be Congress, since manipulation of data like this not only gives voters the wrong impression of the economy but also leads lawmakers, the Federal Reserve and companies to make uninformed decisions.

To cite just one instance, the Fed is targeting the curtailment of its so-called quantitative easing money-printing/bond-buying fiasco to the unemployment rate for which Census provided the false information.

So falsifying this would, in essence, have dire consequences for the country.
Know who you are dealing with. US States ranked using economic stats including debt, credit ratings and so on. It is interesting how Primary industry (mining, resources) has become the driver of wealth again. Full rankings on link:


The Best and Worst Run States in America: A Survey of All 50
November 21, 2013 by Mike Sauter

Source: ThinkstockHow well run is your state? It can be difficult to objectively assess the quality of a state’s management. The economy and standard of living can be affected by decisions made decades ago, forces outside the control of the state’s government and administrators, as well as the government’s own actions.

Every year, 24/7 Wall St. tries to answer this question by conducting an extensive survey of every state. To determine how well states are managed, we examined their financial data, as well as the services they provide and their residents’ standard of living. This year, North Dakota is the best-run state in the country for the second year in a row, while California is the worst-run for the third year in a row.

Read: The Best and Worst Run States in America

Identifying appropriate criteria to compare the 50 states can be challenging because they vary so much. Some states have abundant natural resources, while others rely on services or innovation. A few have been burdened by struggling industries. Some are more rural, while others are more urban. Because of such differences, a spending or tax policy that can be beneficial in one state can be disastrous in another.

Many of the best-run states in the nation benefit from an abundance of natural resources. North Dakota, Wyoming, Alaska, and Texas, among the best-run states, are all among the states with the greatest concentration of GDP in the mining industry, which includes activities such as oil and natural gas extraction, as well as coal mining. The presence of this industry benefits states in several ways. North Dakota and Texas led the nation in real GDP growth in 2012, while Alaska has used its oil revenue to establish a permanent fund that pays residents an annual dividend.

The housing crisis has had a major negative impact on a number of the worst-run states. It caused a drastic decline in construction employment in states like Arizona, California, and Nevada. Many of these lost jobs have yet to be replaced. In the hardest-hit states, this has resulted not only in worsening unemployment, but increased poverty and budget shortfalls. Although the economies of these states have largely improved, the residual effects of the housing crisis remain.

While these can be considered extenuating circumstances, the fact is that each state must deal with the cards it is dealt. Governments must plan for worst-case scenarios, including the collapse of an industry. Several resource-rich states have squandered their advantages and rank poorly on our list. Good governance involves raising and spending enough to provide for the well-being of the population without risking the state’s long-term stability.

To determine how well the states are run, 24/7 Wall St. reviewed hundreds of data sets from dozens of sources. We looked at each state’s debt, revenue, expenditure, and deficit to determine how well it was managed fiscally. We reviewed taxes, exports, and GDP growth, including a breakdown by sector, to identify how each state was managing its resources. We looked at poverty, income, unemployment, high school graduation, violent crime and foreclosure rates to assess the well-being of the state’s residents.

While each state is different, the best-run states share certain characteristics, as do the worst run. For example, the populations of the worse-off states tended to have lower standards of living. Violent crime rates in these states were usually higher and residents were much less likely to have a high school diploma.

The worst-run states also tended to have weak fiscal management reflected in higher budget shortfalls and lower credit ratings by Moody’s Investors Service and Standard & Poors.

The better-run states tended to display stable fiscal management. Pensions were more likely to be fully funded, debt was lower, and budget deficits smaller. Credit ratings agencies also were much more likely to rate the well-run states favorably. Only two poorly run states received a perfect credit rating from either agency. California and Illinois, which are ranked worst and third worst, received the lowest ratings from both agencies.

The states that were well-managed also tended to have lower unemployment rates. Eight of the 10 states with the lowest unemployment rates ranked as the best-run states. California, Illinois, and Nevada — the states with the highest unemployment rates as of 2012 — were among the five worst-run states.

These are the best- and worst-run states in America.
Finally, a bit of common sense from a judge. If this is upheld, the principle can be used to lift the burden of between 2-4 Trillion dollars of unfunded municipal and State pension liabilities that have been racked up by feckless politicians promising unrealistically high pension benefits to workers, underfunding pension contributions and making unrealistic ROI assumptions on their funds, a massive relief to taxpayers everywhere:


Detroit Pension Debt Not Special in Written Ruling
By Steven Church  Dec 5, 2013 3:39 PM ET  1 Comment  Email  Print

Detroit’s pensions can be cut in bankruptcy because they are no different from any other contractual obligation, the judge overseeing the $18 billion case said in his written opinion.

In the opinion published today, U.S. Bankruptcy Judge Steven Rhodes in Detroit expanded on the reasons why he ruled that city could remain under court protection, a decision he announced in court Dec. 3.

“Nothing distinguishes pension debt in a municipal bankruptcy case from any other debt,” Rhodes said in his ruling, which is more than 140 pages long.

Rhodes rejected the claim by union and retirees’ lawyers that cutting pensions would violate the 10th Amendment of the U.S. Constitution, which limits the powers of the federal government over states.

Michigan’s constitution bars cuts to pensions as well as other contractual obligations, like bonds. Pension advocates claimed cutting them would infringe on state rights.

If the U.S. Constitution bars cuts to “pension benefits in this case, then it would also prohibit the adjustment of any other debt in this case,” Rhodes wrote.

Detroit, the country’s 18th-largest city, has said it doesn’t have the money to pay bondholders, retirees and employees everything it owes them while still providing its 700,000 residents basic city services, such as ambulances and streetlights. The city filed bankruptcy in July.

Union and pension officials have said they will appeal the ruling.

The case is City of Detroit, 13-bk-53846, U.S. Bankruptcy Court, Eastern District of Michigan (Detroit).
If I remember correctly property prices were artificially inflated by the predatory lending practices of  corrupt bankers. Property taxes easily covered the cost of pensions until the bankers destroyed everyone's equity and the tax base by gambling.

Perhaps the banks that destroyed house prices and the economy should shoulder some of this burden?
I suddenly feel an urge to invest in Tulips and Teapots.
Nemo888 said:
If I remember correctly property prices were artificially inflated by the predatory lending practices of  corrupt bankers corrupt politicians who forced banks to lend to unqualified people as part of their voting base. Property taxes easily never covered the cost of pensions until the bankers destroyed everyone's equity and the tax base by gambling but this coud be disguised by technicolour estimates of pension fund returns until more and more the municipal and State employees started reaching retirement age.

Perhaps the banks politicians and union leadersthat destroyed house prices and the economy should shoulder some of this burden?

The US finally sells its shares in GM and the taxpayers lose $10 billion dollars. One wonders what our losses will be if/when the Canadian and Ontario governments finally unload the last of their shares. Another lesson in what not to do:


U.S. Sells Off Last of Its General Motors Stock, at $10.5 Billion Loss
Brian Doherty|Dec. 9, 2013 5:27 pm

For one of the few times in its macro economic policy thought and action, the federal government relies on a subtle analysis of "things not seen" to defend its apparent $10.5 billion loss on the General Motors bailout as a success, via USA Today:

U.S. taxpayers no longer own any of automaker General Motors. The Treasury sold the last of its remaining 31.1 million GM shares today.

The taxpayer loss on the GM bailout finishes at $10.5 billion. The Treasury department said it recovered $39 billion from selling its GM stock, and had put $49.5 billion of taxpayer money into the GM bailout....

The administration emphasizes that the loss it took on GM shares is far less constly than had GM been allowed to fail.

"Inaction could have cost the broader economy more than one million jobs, billions in lost personal savings, and significantly reduced economic production," Treasury Secretary Jacob Lew said in a statement announcing that Treasury had sold all its remaining shars.

What might have happened to that money, those resources, those skills, those people, if they had not been diverted by government action? No one knows, or will ever know, and the government would prefer you not think about it.

See "Illegal. Illiberal. Ill-Fated," our Aug/Sept. 2009 cover story on why Washington shouldn't have bailed out the auto industry.
Thucydides said:
If I remember correctly property prices were artificially inflated by the predatory lending practices of  corrupt bankers corrupt politicians who forced banks to lend to unqualified people as part of their voting base. Property taxes easily never covered the cost of pensions until the bankers destroyed everyone's equity and the tax base by gambling but this coud be disguised by technicolour estimates of pension fund returns until more and more the municipal and State employees started reaching retirement age.

Perhaps the banks politicians and union leadersthat destroyed house prices and the economy should shoulder some of this burden?


I'm not sure I'd even call that an oversimplification of what caused the collapse in 2008, because it leaves out some very key points.

NPR's Planet Money and This American Life did several excellent show to explain various aspects of the economic and housing market collapse.


I'm still wondering why none of the major players did a perp walk over what would amount to criminal activities with respect to the development of the toxic assets and default swaps.

And with respect to the failure of Detroit, the housing market collapse really was not a significant factor in the cause, but was more like the gust of wind that blows over a house of cards.
A quick look at what political party the majority of the players donated money to should answer the question of "why" no one has done a perp walk. Actually, most of the major players know to fill the bank accounts on both sides of the ailse, to keep their options open.
Well some number crunching makes the reason for the sluggish US economy clear: Unemployment has been above 10% since 2009, and never dropped. With such a large percentage of the adult population you can see why economic recovery is so hard (and of course other positive indicators like savings and investment will be negative with this population almost by default). The counterproductive actions of this administration has prevented markets from clearing, and pushed or pulled people into dependency on government handouts as well, while on the supply side, a "Capital Strike" similar to the 1938 one is ongoing as companies are reluctant to invest (what can they invest in since interest rate signals are masked by ZIRP, while the threat of your investment being neutralized due to the actions of crony capitalists hangs overhead? Hiring is questionable since Obamacare raises the costs of hiring and maked dumping benefits like healthcare cheaper than offering it to workers).


Who Needs Ayn Rand? America Has Already Gone John Galt

January 10th, 2014 - 11:08 am

Tell all your “Objectivist” friends and the libertarian gang at Reason magazine to break out the champagne. Americans may have skipped the movie of Atlas Shrugged, nor have many read any of Ayn Rand’s works, but they have taken the author’s advice anyway and gone John Galt, quitting the work force in record numbers.  According to Zero Hedge, the latest figures show the labor participation rate at 35 year low.

Realistically, it’s even more than 35 because that figure reflects an employment bump when larger numbers of women joined the work force in the seventies and eighties.  (They’re gone now, with or without Gloria Steinem.)

Currently a record 91.8 million Americans are no longer looking for work. That’s almost one and a half times the entire population of France.

Although I admit to libertarian tendencies, I don’t think any of us can celebrate because of this.  It’s an economic disaster that should be blowing even Chris Christie off the front pages.

In fact, it’s much worse than that. It’s a human emotional disaster.  Freud may have been wrong about a number of things, but he was right about this. Two mainstays that get us through life, other than religion, which Freud didn’t cotton to,  are “love and work.”  I don’t know about love,  but the work part of our lives has been brutally kicked out from under us in the Obama years.

The implications of this are actually terrifying.  What are those nearly 92 million people doing with their time, other than sitting around depressed?.  Many, of course, are on some version of welfare.  Some are panhandling.  We see the homeless on the streets of all our big cities. Others are moving into a shadow economy, much of it illegal (drugs, prostitution), not paying taxes on whatever they earn. It’s truly a sad situation.  No wonder so many states are moving toward legalizing grass.  Everyone wants to zone out.

This is rapidly approaching a a pre-revolutionary condition, but not for a revolution many of us would want to undergo.  To avoid it, a massive change must occur at the federal level.  But Barack Obama, mired in a dead ideology, doesn’t seem prepared to do anything but prolong the situation with highly  conventional liberal solutions that have failed for decades, maybe even centuries.

And yet there is so much he could do.  The most obvious, many of us know, is to unshackle the energy industry. He should dismantle much of the bureaucracy as well. There’s a lot more, of course.  But the point now is to realize that when you have nearly 92 million people deserting the labor force in a country of 317 million (many of who are children too young to work), you have a catastrophic problem on your hands.

And finally, let’s do away forever with the silly unemployment statistic (as in today’s 6.7% unemployed).  It has no relevance to anything and is a form of disinformation.  The labor participation rate is the true story.
Once again, this is important to us since the United States is our biggest trading partner. American unemployment has been at 10% pretty much since 2008 (a number of people almost equal to the entire population of Canada), so a further hit, and a corresponding increase of U6 beyond its already high 16% or so will make our own recovery that much more difficult. While the Canadian government seeking entry into the TPP and signing deals with the EU might not have generated much enthusiasm or comment among the Canadian media, branching out like this might be the only way for us to prosper in the future:


Duke University: 44% of U.S. firms consider cutting health care to current workers

Adding to a devastating CBO report of how Obamacare could damage the economy, a Duke University survey of top companies found that 44 percent are considering reducing health benefits to current employees due to Obamacare, confirming the fears of millions of American workers.

In its December survey of chief financial officers around the country, Duke also found that nearly half are “reluctant to hire full-time employers because of the Affordable Care Act.”

And 40 percent are considering shifting to part-time workers and others will hire fewer workers of fire some to avoid the costs of the program.

What’s more, they said in the study, “One in five firms indicates they are likely to hire fewer employees, and another one in 10 may lay off current employees in response to the law.”

Without the law, the CFOs told Duke that they would hire more full-time workers.

The survey adds to the Congressional Budget Office’s study in raising new questions about the economic impact of Obamacare. Both give Republicans ammunition to continue their efforts to repeal the program that has upset how millions of Americans get health insurance. The survey was initially released in December and re-released Wednesday to provide context to the CBO report.

Duke University’s Fuqua School of Business Professor Campbell R. Harvey said that the school’s survey shows that the economic hit the CBO warned of will be worse.

“Our survey shows that the situation is much more serious because employers tell us that they will choose not to hire and may lay people off,” he said. “I doubt the advocates of this legislation anticipated the negative impact on employment. The impact on the real economy is astonishing. Nearly one-third of firms may either terminate employees or hire fewer people in the future as a direct result of ACA.”

His colleague John Graham said in a statement promoting the survey, “An unintended consequence of the Affordable Care Act will be a reduction in full-time employment growth in the United States. Companies plan to increase full-time employment by 1.4 percent in 2014, a rate of growth which is down from last quarter and unlikely to put a dent in the unemployment rate, assuming that the labor force participation rate remains constant. CFOs indicate that full-time employment growth would be stronger in the absence of the ACA.”

See the full survey here.

Paul Bedard, the Washington Examiner's "Washington Secrets" columnist, can be contacted at pbedard@washingtonexaminer.com.
Toyota leaves California for Texas. A cautionary tale, we will probably see many similar moves from high tax, high regulatory provinces like Ontario to Alberta and Saskatchewan, emulating Toyota's move, but probably not quite so dramatic in scale:


Toyota moving U.S. headquarters to Texas

Chris Woodyard, USA TODAY 7:45 p.m. EDT April 28, 2014

LOS ANGELES — Toyota announced on Monday that it will move its national headquarters to Plano, Texas, after a half-century in the Los Angeles suburbs.

The company will create a campus north of Dallas that will bring together 4,000 employees from manufacturing, sales and marketing and corporate operations around the country. Also moving will be Toyota Financial, its financing arm.

A company statement said the automaker is trying to create a "One Toyota" vision for the U.S. and Canada.

With its worldwide headquarters in Japan, Toyota's U.S. operation has headquartered in Southern California for more than 50 years. Most employees affected by the move, which begins in 2016, work on a sprawling campus in Torrance.

"This is the most significant change we've made to our North American operations in the past 50 years, and we're excited for what the future holds," says Jim Lentz, Toyota's U.S. CEO.

Southern California once was the U.S. home to Japan's Big 3 — Toyota, Nissan and Honda. Then Nissan announced in 2005 that it was leaving for Tennessee. It initially moved to Nashville, then to Smyrna, Tenn., where it also has manufacturing operations. Honda last year started relocating its North America corporate headquarters to Ohio, near its Marysville plant.

Though Texas has been aggressive in luring companies, it seems, on the surface, an unusual move for Toyota. It makes its Tundra pickup trucks there, at a plant in San Antonio, but its largest manufacturing facility is in Kentucky. Also, as a company known for its hybrids and other "green" technologies, Toyota's spiritual home seemed to be firmly rooted in Southern California.

But over the years, Toyota has gone from an importer of vehicles from Japan to a company that makes most of its U.S.-market vehicles in North America. Texas will put it closer to its key plants in a location with a lower cost of living and tax structure than in California.

Texas Gov. Rick Perry hailed the news. "Over the past decade, Texas and Toyota have developed a strong partnership that has resulted in good-paying jobs for thousands of Texans," Perry said in a statement. "Toyota understands that Texas' employer-friendly combination of low taxes, fair courts, smart regulations and world-class workforce can help businesses of any size succeed and thrive."

Toyota's move will involve 2,000 employees from its sales and marketing arm, Toyota Motor Sales, in Torrance. Another 1,000 will come from Toyota Motor Engineering and Manufacturing North America in Erlanger, Ky. Corporate employees from Toyota Motor North America in New York will be offered jobs in Texas. Toyota Financial Services in Torrance, with 1,000 employees, will follow in 2017.

With all its major units consolidated in a single campus, "We will be better equipped to speed decision making, share best practices and leverage the combined strength of our employees," Lentz says. The result, he adds, will be better products.

Toyota will continue to have about 2,300 employees in California, where it will retain its Calty design studio, and 8,200 in Kentucky at its extensive manufacturing operations.

And as Instapundit says, this could be the start of activist driven movements as well:

UPDATE: Jim Bennett emails: “So, will shareholders of California-based companies start asking at shareholders’ meeting why their company isn’t moving? It affects the bottom line and return to shareholders fairly dramatically. For that matter, will shareholders start suing boards for not moving?”
A look at how Obamacare is unfolding (the way sceptics predicted). The massive financial stresses it is causing insurance companies and the need for ever greater amounts of public funding to pay for the sick clients on the "exchanges" will create greater strains on the Treasury as well (crowding out other spending):


Obamacare's Prognosis Grows Dimmer
3616 JUN 26, 2014 9:03 AM EDT
By Lanhee Chen

A nightmare for Affordable Care Act supporters has been the possibility that only the sick would be left to purchase insurance through its exchanges, driving premiums up and insurers out. While the law’s boosters have been quick to dismiss the possibility that such a so-called death spiral could occur, data published in the Wall Street Journal suggest that this chain of events may not be so far-fetched after all.

The findings are significant not just for what they say about how Obamacare is working now, but also for their impact on the political debate over its future.

At its base, the data show that people insured through the law’s exchanges have higher rates of serious medical conditions. Of the enrollees who have seen a doctor or other health-care provider in the first quarter of this year, 27 percent have significant medical problems, including diabetes, cancer, heart trouble and psychiatric conditions. That rate is substantially higher than that for patients in nonexchange market plans over the same period. And it’s more than double the rate of those who were able to hold onto their existing individual market insurance plans after President Barack Obama was forced to allow them to keep them.

Related: Why Obamacare Can't Be 'Fixed'

This outcome should not surprise anyone. The law’s one-size-fits-all regulatory regime, which requires insurers to offer coverage to all comers and prohibits pricing of coverage based on an applicant’s health status, was bound to increase the number of relatively sicker people purchasing insurance through the exchanges. Moreover, Obama’s executive action, which effectively allowed many people who had individual market plans to remain in them through at least 2016, bifurcated the insurance markets such that healthier people remained in the plans they already had, while relatively sicker patients were left to acquire coverage through the Affordable Care Act’s exchanges.

Some of the bad risk in the exchanges has been offset by the enrollment of relatively healthy people who acquired coverage because of the law’s generous subsidies. Yet the numbers make clear that the exchanges remain a haven for those who may consume more medical services than others.

The data portend a vigorous debate over the “risk corridors” program, which is one of three mechanisms in the law designed to give insurers incentives to continue to participate in its exchanges even if they are at risk of significant financial losses. Some Republicans, particularly Senator Marco Rubio of Florida, Senator Jeff Sessions of Alabama and Representative Fred Upton of Michigan, have decried this program as an insurer bailout.

The premise behind the risk corridors is that the financial winners in the Obamacare exchanges would compensate the financial losers such that the flow of money would make the system self-sustaining. What may not have been anticipated was what would occur if the financial losers (the sicker enrollees) far outpaced the financial winners (the healthier ones). (Interpolation: this was well known and commented upon long ago. The fact that no effective action was taken can be a sign of incompetence, or since ethe consequences were well known in advance, a desire to see this sort of outcome).

The Obama administration recently issued regulatory guidance suggesting that if the program wasn’t solvent, billions of dollars in funds appropriated for other purposes could be used to make the program whole. But the nonpartisan Congressional Research Service has made clear that this diversion of funds is impermissible under existing law. Meanwhile, Rubio, Sessions, Upton and others have called for legislation to ensure the risk-corridors program will remain budget-neutral and not place taxpayers at financial risk.

This debate will become more vociferous in the period before the midterm elections in November. The chance that the risk-corridor arrangement won’t be entirely self-financed puts vulnerable Democrats, who are already facing strong headwinds created by Obamacare, in an even more precarious position.

Finally, and notwithstanding the risk-corridor issue, the data suggest that insurers will respond to having to cover more people who are relatively sicker by raising premiums in 2015 and beyond. As Chet Burrell, the chief executive officer of CareFirst BlueCross BlueShield, concluded, “Over a period of time, the rates have to go up to catch up with the reality of who enrolled.” If that reality didn’t look good for Obamacare in 2014, it isn’t likely to improve in 2015, either.

So while Obamacare’s exchanges are still some distance from a death spiral, it’s pretty clear that the path ahead for the law -- and for the politicians whose fortunes may turn on its success or failure -- is fraught with peril in the months and years ahead. (Interpolation: Actually, it is in a death spiral. People simply choose not to see it for whatever reasons).

To contact the writer of this article: Lanhee Chen at lchen30@bloomberg.net.

To contact the editor responsible for this article: Katy Roberts at kroberts29@bloomberg.net.
The availability of usable wealth and resources defines the true power of a nation. This is incredibly bad news for the United States, her allies abroad and for us (as the biggest trading partner). Less wealth and resources for them means less customers for us (and the masses of unemployed Americans already is close to the number of Canadians in our entire country; we are missing a nation's worth of customers for our goods and services):


Where Have All the Jobs Gone?
Stephen Moore / @StephenMoore / June 28, 2014 / 0 comments 167 5.5k

Stephen Moore, who formerly wrote on the economy and public policy for The Wall Street Journal, is chief economist at The Heritage Foundation.
The commerce department reported Wednesday that the economy contracted by nearly 3 percent from January through March. This dismal shrinkage in output has many Americans worrying about a dreaded double dip recession.

On the jobs front, it feels to many Americans that the recession never ended. One of the misleading headlines from last month’s employment report was that all the jobs lost during the recession have finally been won back.

Well, not really.

According to the Bureau of Labor Statistics (BLS), in 2007 on the eve of the recession, there were 146.6 million Americans working. Today, there are 145.8 million Americans in jobs. So nearly 7 years later, we are still 800,000 jobs below the previous peak. That’s some jobs recovery.

But the missing jobs in this economic recovery are much higher than that. A new analysis of the labor force numbers by Heritage Foundation economists places the real jobs deficit in America closer to 5.5 million, even after accounting for changes in population and demographics.

This jobs deficit results from two unfavorable developments in the labor market. First, the unemployment rate is far higher than expected at this stage of a recovery. Mr. Obama promised an unemployment rate of 5 percent after he passed his $830 billion “stimulus” plan in 2009. The difference between the expected 5% jobless rate we were supposed to have by now and the actual 6.3% rate (as of May 2014) is 1.3%.The math here is straightforward. The shortfall in jobs comes to just about 2 million, based on the number of those officially in the “labor force.”

But that’s only half the story. Nearly everyone knows the real unemployment rate is far above the “official” 6.3 percent rate because of the disappearance of Americans over the age of 16 from the workforce. Since the peak of the last recovery in 2007, the labor force participation rate (the percentage of the population either employed or actively seeking employment) has fallen by more than three percentage points (7.9 million people) to 62.8%.

Some of this drop in labor force participation is due to the changing age profile of workers over the last six years. Since 2008, the ranks of the 65+ plus demographic have swelled by about 8 million Americans. On average, the older population is less likely to be part of the workforce than the younger population. As the older population grows proportionally larger, this does tend to lower the overall participation rate.

However, our analysis reveals that the increased numbers of those aged 60+ only accounts for only a bit more of one-third of the decline in the participation rate. More than 5 million additional people age 16-50 would be in the labor force today had the rate remained unchanged for those demographics. The drop in labor force participation for the younger population (under 60) is responsible for 63% of the drop!

A summary of these statistics reveals a startling pattern. Of 9 age demographics analyzed, labor force participation declined in the 7 youngest brackets and increased in the 2 oldest brackets.
A one quarter contraction of -5.5%? that is an insane drop and bodes ill for us as well, tied as we are to the US economy:


Is the Economy Already in Another Recession?

Posted By Tom Blumer On July 3, 2014 @ 12:25 am In Column,economy,Health Care,Money,US News | 9 Comments

Last week, the establishment press largely shrugged off the awful and ominous news that the economy shrank at an annual rate of 2.9 percent [1] during this year’s first quarter. When they deigned to notice it, they usually told their readers, listeners and viewers that happy days have now returned.

Unfortunately, the reported contraction is historically foreboding:
The 5.5-point downward swing from the fourth quarter’s 2.6 percent annualized growth to the first quarter’s 2.9 percent contraction was the largest such move from expansion to decline since the fourth quarter of 1981 [2].
•Since the government’s Bureau of Economic Analysis began tracking quarterly gross domestic product in 1947, U.S. GDP “has never fallen [3] by more than 1.5 percentage points except during or just before an officially-defined recession.”
•Bloomberg’s Richard Yamarone, who is warning [4] that a second-quarter contraction is probable, notes that [5] there has never been a time when year-over-year quarterly current-dollar gross domestic income has been at its just-reported pace of just 2.6 percent without the economy ultimately going into recession.

The press would be making these historical points, and many more, following a steep quarterly dive in a Republican or conservative presidential administration, and would be knocking down the office doors of contrarians like Yamarone to get interviews. We know this because they did such things even during quarters of reported growth during the Bush 43 administration, which put up 25 consecutive quarters of expansion through the fourth quarter of 2007 before the POR (Pelosi-Obama Reid) economy [6] ultimately sent the nation into a recession as normally defined [7] in the third quarter of 2008 [7]. Instead, they have either pretended that the first-quarter contraction didn’t happen, made phony excuses, or put forth assertions which would have embarrassed Izvestia [8] during the worst days of the old Soviet Union.

The evening of the report’s release, CBS was the only one [9] of the three broadcast networks with early evening news shows which even acknowledged the existence of the GDP decline.

At CNN, Christine Romans went on and on [10] about the ”terrible weather, terrible weather … remember how horrible that winter was?” for 30 seconds before telling viewers that “all the economists … think it bounced back in the second quarter,” and that “some economists (predict) even up to 4 percent for economic growth in the second quarter.” Her bottom line: “Don’t freak out.”

The weather excuse is beyond pathetic. If it was the reason for April’s original disappointing estimate of 0.1 percent growth, something else has to explain why the second estimate went to a 1.0 percent contraction. It’s a complete insult to news consumers that these clowns are pretending that the weather had any relevance whatsoever to June’s disastrous final number. As I have noted [11] several times elsewhere, all but one of the economy’s other winter contractions in the past 50 years occurred partially or entirely during officially declared recessions. The sole exception was 2011′s first quarter, during President Barack Obama’s reign. Besides, this past winter [12], as “the 34th coldest such period for the contiguous 48 states as a whole since modern records began in 1895,” didn’t even make the top quartile of cold snaps.

Following the theme set by Romans, CNNMoney.com’s Annalyn Kurtz put up a post [13] titled “3 reasons not to freak out about -2.9% GDP.” She took the propaganda line a step further [13] when she wrote: “This recovery is underway, but it’s still very slow.” Setting aside such a foolish reaction to news of a contraction — the strongest contention one could conceivably make is that “growth has returned” — it’s also an inadvertent admission that the policies of the now-perceived worst president since World War II [14] have failed to get the economy past the “recovery underway” stage for nearly five years.

Very few press reports have acknowledged that health care spending, originally thought to have increased during the quarter at an annual rate of over 9 percent, instead decreased by about 1.5 percent in last week’s third estimate. Almost none identified the probable culprit: O-, O-, … Obamacare.

Consumers herded into Obamacare, many of them belatedly recognizing the obscenely high deductibles their new policies contain, are likely putting off doctor visits and other medical services — a situation the Affordable Care Act’s insufferable promoters promised would end. Many of those with no immediate medical needs understand how their Obamacare policies will hang them out to dry if anything serious does happen, and — assuming they have any money left after paying their premiums — are restricting their spending on other items. Many of the newly uninsured who either can’t afford their premiums, or who have been added to the de facto uninsured ranks after getting lost in the Obamacare maze [15], also realize that they need to keep a lid on their other spending. Meanwhile, Americans with employer-based insurance are also playing it close to the vest, trembling at the thought of the premium increases and policy restrictions they’ll face during their next open enrollment period.

Naturally, consumer spending has cratered, declining in real terms in both April and May [16]. Obamacare’s deliberately chaotic rollout prevented much of the fourth-quarter spending meltdown I thought might occur [17] from taking place, but it couldn’t defer the inevitable forever. Since personal consumption expenditures make up about 70 percent of reported GDP, those who are predicting the return of good times in the second quarter need to identify other sources for their predicted stellar growth.

Inventories? While this element may come in positive in the second quarter after the first quarter’s big drawdown, has anyone noticed how awful retail traffic has been this quarter? There has been no post-winter rebound [18]. Does anyone really think that stores aren’t being extremely careful about their purchases and stock levels?

Net exports? C’mon. Worse than expected deterioration here is the other major reason [19] for June’s large downward GDP revision. April’s trade imbalance was worse than March’s [20]. May will apparently be almost as weak as April [21], and still worse than March.

A turnaround in non-inventory business investment? There may be a bit of an improvement from a currently depressed level, but it’s hard to see how it will provide a major contribution. Three reasons to cool the enthusiasm: Shipments of durable goods barely budged [22] in April and May, factory orders fell in May [23], and May construction spending was flat [24].

The anomaly which would seem to refute the idea that the economy may really be contracting is job growth, which, seasonally adjusted, has averaged about 214,000 per month so far this year and was predicted to come in at about the same level [25] in June when this column was submitted. The problem is that job gains are not sufficiently translating into production income growth.

First-quarter productivity fell by an annualized 3.5 percent [26]. If workers collectively produce less, it doesn’t matter how many of them there are. GDP will still decline. Additionally, Sentier Research reported [27] this week that median household income in May 2014 ”was ony 1.3 percent higher than in May 2013.”

Thus, if growth returned at all in the second quarter, it’s overwhelmingly likely that it won’t impress anyone. Given that last-week’s GDP writedown was the largest in a third revision in 38 years, we’ll probably have to wait until late September for a (we hope) somewhat reliable final word. The default assumption for the time being has to be that the BEA has lost its handle on timely, accurate data collection.

Also looming is the impact of the bureau’s comprehensive five-year revision at the end of July. Barring major changes it might retroactively make to the first quarter, it seems virtually certain that any reported second-quarter growth won’t offset the first quarter’s contraction, which would mean that the economy really shrank during this year’s first six months.

The day after June’s GDP report, economists and analysts, who just days earlier were predicting up to 4 percent annualized second-quarter growth, began wearing out their erasers. Most of them revised their formerly rosy forecasts down to 3 percent or less [28]. An Associated Press report projected only 2.5 percent [29].

Here’s a prediction I’ll confidently make: These ”experts,” who have been so wrong for so long that it’s amazing they still have any clients, are nowhere near done backtracking.

(Artwork based on a modified Shutterstock.com [30] image.)


Article printed from PJ Media: http://pjmedia.com

URL to article: http://pjmedia.com/blog/economy-in-another-recession/

URLs in this post:

[1] of 2.9 percent: http://bea.gov/newsreleases/national/gdp/2014/txt/gdp1q14_3rd.txt

[2] since the fourth quarter of 1981: http://bizzyblog.com/wp-images/MajorDownwardGDPswings1947to1Q2014.png

[3] has never fallen: http://www.zerohedge.com/news/2014-06-25/gdp-disaster-final-q1-gdp-crashes-29-worst-2009-far-below-worst-expectations

[4] is warning: http://www.businessinsider.com/german-inflation-ticks-up-implications-for-emu-and-ecb-2014-6

[5] notes that: http://www.zerohedge.com/news/2014-06-26/has-never-happened-without-us-falling-recession

[6] the POR (Pelosi-Obama Reid) economy: http://www.bizzyblog.com/2008/07/03/the-pelosi-obama-reid-recession-porr-may-have-begun/

[7] as normally defined: http://www.investorwords.com/4086/recession.html

[8] Izvestia: http://en.wikipedia.org/wiki/Izvestia#1917.E2.80.931991

[9] was the only one: http://www.nationalreview.com/corner/381416/network-news-shows-snore-gdp-shrivels-deroy-murdock

[10] Christine Romans went on and on: http://newsbusters.org/blogs/pj-gladnick/2014/06/25/carol-costello-trying-not-freak-out-over-poor-economic-news

[11] I have noted: http://www.bizzyblog.com/2014/05/30/low-info-voter-outreach-usats-tweets-about-gdp-on-its-weather-feed/

[12] this past winter: http://www.weather.com/news/winter-ncdc-state-climate-report-2013-2014-20140313

[13] put up a post: http://money.cnn.com/2014/06/25/news/economy/gdp-negative/index.html

[14] worst president since World War II: http://hotair.com/archives/2014/07/02/q-poll-obama-worst-president-since-wwii/

[15] lost in the Obamacare maze: http://www.foxnews.com/politics/2014/07/01/report-obamacare-data-problems-affecting-millions/

[16] in both April and May: http://www.bizzyblog.com/2014/06/26/consumer-spending-0-2-vs-0-4-expectations-disappoints/#comment-189198

[17] I thought might occur: http://pjmedia.com/blog/a-no-growth-obamacare-christmas/

[18] no post-winter rebound: http://marketrealist.com/analysis/stock-analysis/consumer/clothing/charts/?featured_post=62158&featured_chart=62160

[19] the other major reason: http://bizzyblog.com/wp-images/1Q14GDP3rdRevChanges.png

[20] was worse than March’s: http://www.bizzyblog.com/2014/06/04/trifecta-1q-productivity-decline-worsens-in-revision-april-trade-deficit-expands-adp-disappoints/

[21] be almost as weak as April: http://www.efxnews.com/story/24960/us-week-ahead-payrolls-ism-factory-orders-trade-balance-housing

[22] barely budged: http://bizzyblog.com/wp-images/DurableGoodsOrdersAndShipmentsMay2014.png

[23] fell in May: http://www.cnbc.com/id/101807316

[24] was flat: http://wallstcheatsheet.com/business/why-was-construction-spending-so-weak-in-may.html/?a=viewall

[25] at about the same level: http://news.yahoo.com/us-private-job-growth-jumps-june-134714082.html

[26] an annualized 3.5 percent: http://www.bls.gov/news.release/prod2.t01.htm

[27] Sentier Research reported: http://www.sentierresearch.com/reports/Sentier_Household_Income_Trends_Report_May2014_07_02_14.pdf

[28] down to 3 percent or less: http://www.zerohedge.com/news/2014-06-26/avalanche-q2-gdp-downgrades-begins

[29] only 2.5 percent: http://newsbusters.org/blogs/tom-blumer/2014/06/27/disappearing-growth-watch-ap-knocks-down-expected-second-quarter-growth-

[30] Shutterstock.com: http://www.shutterstock.com