Startup America -- Real Tools and Resources to Help Your Business Thrive

Nobody will argue too hard with the commonly held belief that small businesses make up the lifeblood of our economy. Or that government should either encourage their growth or at least eliminate the annoying obstacles that tend to stifle it. But the sticky question is how can government make itself most effective in seeing to it that fledgling startups are able to make that crucial leap to becoming successful companies---or that small businesses can transform themselves into thriving businesses? Traditional thinking might go something like this: target certain entrepreneurs and then use taxpayer dollars to provide direct assistance in the form of subsidies, grants, benefits, or the like. But this approach very often proves as ineffective as it is costly. The Startup America Partnership, sponsored by the Small Business Administration (SBA), is taking a different approach, and the early results look promising. Instead of targeting the entrepreneurs themselves, the program is identifying the resources these entrepreneurs will need and the obstacles they will face. And then instead of solving the problem with taxpayer dollars, the program brings together an alliance of the country's most successful private corporations, universities, and other entities, which can contribute many of these resources and/or reduce many of the obstacles.

So what are some of the details of this program and how can an everyman business owner take advantage of it? Well, first let's see if you qualify. If your company has at least two founders or employees and has been around since 2006, you qualify. Or if your company has been around since 2001 and has at least six founders or employees, you also qualify. So the first thing you will want to do is use this link to apply for your free membership. Once you become a registered member, you get free advertising right away. Your company name, description, logo, and website will immediately be displayed in the organization website's Startup Directory. Your company name and contact information will then be sent to Startup Region leaders in your state, so that they can get in contact with you about local assistance available in your area.

But the most significant benefit you will see is your immediate access to thousands of resources that suddenly become available right at your fingertips. And the list keeps growing all the time. These resources can provide help to your business in any of several areas. And you can discover them and categorize them simply by searching and sorting on the organization website's Resources Section. Here are just a few examples of the types of free or discounted resources you will find available to you:

• Talent recruiting: Need to find the best and the brightest to work for your company? If so, you can get:
  
  
  • Free or discounted recruiting software;
  • Free training seminars, either online or on-site;
  • On-demand access to advisors or library resources
• Planning and accounting: Every business, no matter how small, needs good business planning and accurate accounting. Among the offering in this area are:
  
  
  • Free business planning advice and consultation from experts;
  • Free or discounted payroll management software;
  • Free analytics tools
• Materials:
  
  
  • Big discounts on computers and peripherals;
  • Free computer office software;
  • Free online web conferencing/meeting software;
  • Big discounts on office furniture
• Legal assistance:
  
  
  • Discounted legal counsel services;
  • Free incorporation packages;
  • Free patent or trademark consultation

And this is only the tip of the iceberg. Would you like more free publicity for your company? The Partnership will promote guest blog posts and will provide materials for your website and give you help in managing and promoting your social media accounts. It can also get you free or discounted advertising for your company's website. Do you want to tap the experience and knowledge base of people in your business area? The Partnership's community of high-growth startups will connect you with other entrepreneurs so that you can share experiences and collaborate with them. In addition, the Partnership is continually working with top experts to provide free webinars and training sessions. The schedule of these sessions is continuously being updated. The Partnership also provides a continually-updated list of contests, events, and conferences aimed at helping small companies like yours scale their businesses successfully.

The Startup America Partnership is still fairly young. It was launched in January of 2011 and is still growing. New corporate partners are being added all the time. Is it succeeding? In terms of interest and enthusiasm, the answer is a resounding yes. But in terms of success as measured by how robustly startup companies are growing and how many jobs they are creating, it's still too early to tell. The impact of the program will be more easily measured as the SBA tracks member companies over longer periods of time.  As they do this, they are also tracking which tools and resources are being used the most and which are working the best. In this way, the program itself will continuously improve and so will the member companies.

But to a qualified small or startup business owner, the decision to join seems like a no-brainer. When you consider the cost (zero), the effort to sign up (negligible), and the resources you will gain access to (plenty), it's not hard to see why joining the Startup America Partnership can be the boost that gives your young business the vital growth injection it needs.

Christopher Wallace, Vice President of Sales and Marketing for Amsterdam Printing, has more than 20 years experience in sales and marketing. At Amsterdam Printing, a leading provider of href="http://www.amsterdamprinting.com/Category/Pens-Pencils/3/Default.aspx">custom pens and other promotional items such as imprinted apparel and customized calendars, Christopher is focused on providing quality marketing materials to small, mid-size and large businesses. He regularly contributes to Promo & Marketing Wall blog.

Americans View Taxes as Immoral, Experts Say

Although Americans are not taxed nearly as much as people in other Western countries, particularly Canadians and the British, there is nothing that vexes U.S. citizens more than more taxes. Experts say this is because middle-class Americans view taxes as more of a moral issue than other cultures, and one that is always tinged with a hint of exploitation. A recent survey showed that the middle class feels it is stuck paying for handouts to a lazy welfare class while the class above them manipulates tax laws in their favor. In the end, Americans view taxes as a matter of right and wrong, and the current tax structure appears immoral. For more on this continue reading the following article from Economist’s View.

This reinforces points I (and others) have made about why people oppose taxes:

 Why are some people morally against tax?, EurekAlert: ...Americans are famously hostile to taxes even though they are not heavily taxed in comparison to Canadians and the British. ...Dr Jeff Kidder and Dr Isaac Martin, from Northern Illinois University and the University of California-San Diego, explore how middle class feelings of exploitation lie behind this hostility.

"Everyday tax talk among the middle class is not simply part of a wider ideological view about economics or free markets," said Kidder. "Tax talk is morally charged and resonates with how Americans see themselves and their place in society."

The researchers conducted 24 semi-structured, open-ended interviews with taxpayers in the Southern states who owned or managed small businesses to discover how they talk about taxes in everyday life. Entrepreneurs are a demographic group which is typically strongly anti-tax, while the Southern States provide many supporters for the radical Tea Party.

Respondents saw themselves as morally deserving and hard-working people, sandwiched between an economically more powerful group that manipulates the rules for its own benefit and a subordinate group that benefits from government spending but escapes taxation.

"We found that people associate income tax with a violation of the moral principle that hard work should be rewarded," said Kidder. "Our research shows that when Americans lash out at 'takeovers,' 'massive taxes' and 'bailouts,' they are looking at these issues from the perspective of a hard-working middle class besieged on all sides. Tax talk is about dollars, but it is also about a moral sense of what is right."

It is typically believed that those who are anti-tax will also be hostile to government aid for the poor and minorities. However, rich recipients of bailouts were also disparaged as people who did not deserve money because they did not work for it.

"A lot of the tax talk you will hear from politicians this election season makes no sense as arithmetic," Martin said. "But it makes sense as an appeal to the moral sensibilities of small business."

"Our research shows that tax talk is not actually about individual self-interest, but about our respondents' sense of the proper relations among groups," concluded Kidder.

Here's how I put it a bit over a year ago:

...People believe they paid for programs such as Social Security and Medicare. They put in contributions each month, the government saves that money somewhere, somehow, and when they use these programs they aren't consuming from "government," they are consuming their own contributions. ...

So it's true that people want the budget cut, but only the parts where people are forced to pay for "underserving" recipients of these government services. The feeling is that they get up every day and do what's needed to support themselves and their families. They go each day to jobs they hate, hate, hate, hate with a passion because that's how life is, and they don't appreciate seeing their hard-earned money taken away and given to people who don't even try, people who could work if they wanted to, but rely on the system instead.

Now, I happen to think that is a very wrong view of the circumstances of the typical aid recipient, but true or not I do think it is the source of the opposition to many social programs. People don't object to Social Security and Medicare because they believe they paid for these programs in full, or close to it. Same for disability, food stamps, and other programs. They paid into these programs for years, just like medical insurance, and now it's their turn to consume some of the funds they put in... It's the people who consume without contributing that raise their ire and cause objections to these programs. It's the "handouts" that are the problem. ...

And as noted above, the same applies to handouts to the wealthy. (Which reminds me of my mom criticizing my uncle as I was growing up -- a very well off and very Republican farmer -- for complaining about welfare recipients while taking crop subsidy payments himself. She used to tell me he was on welfare too, except he didn't need it. I'll just add that financial executives in too big to fail banks didn't need it either.)

This blog post was republished with permission from Economist's View.

Greece EU Future Doomed, Says Economist

While many economists attempt to affect a balanced approach to speculating on Greece’s future in the European Union (EU), Tim Duy believes the country’s economic future a fait accompli. Its pace of deterioration is too fast and key players in the EU and the European Central Bank have waited too long to take the action necessary to save it, and may even have waited too long to save the euro. It is known that Greece will have difficulty meeting its cash obligations in June and will be near-leaderless until elections are held in the middle of the month. By then, it will surely be too far gone to save with a bailout that any lender would find reasonable. For more on this continue reading the following article from Economist’s View. 

Tim Duy:

Greece is Running Out of Time, by Tim Duy: I have repeatedly described myself as a Euroskeptic. The current combination of politics and economics looks likely to at worst doom the Euro to failure, at best to commit the Continent to a deep and long-lasting recession. Moreover, the pace of deterioration in Greece, combined with an economic structure that seems completely at odds with much of the rest of Europe, seems to make a Grexit all but impossible.
That said, I am horrified at the ongoing willingness of European policymakers to still be playing chicken at this point. I assumed that my skepticism would ultimately be proved wrong as the European Central Bank would ultimately cave and effectively monetize national debt across the Eurozone, and that Germany would come to this conclusion as necessary to save the single currency that they have long-championed. That ultimately, the Eurozone would step up and take greater responsibility for this mess, understanding that while the Greeks have mismanaged their economy, they should never have been admitted to the Eurozone in the first place.
Instead, Europe situation is now akin to two or three trains running full-speed at one another, and by the time someone finally pulls on the brakes, it will be too late. By the time key actors step into action, irreparable damage will have been done
Consider that one of those trains, Greece, has no driver, nor will it until June 17 when fresh elections are held. Combine that with a deteriorating fiscal situation - believe it or not, it actually continues to get worse. From Bloomberg:

The level of funds in Greece’s state coffers has fallen below 1.5 billion euros ($1.9 billion), Imerisia reported, citing “reliable information.”
If the state doesn’t receive predicted revenue for the rest of this month, it will find it difficult to pay for social services, pensions and public-sector wages, the newspaper said.

This was confirmed by the outgoing leader:

Greece's outgoing Prime Minister Lucas Papademos has warned the country's political leaders the government may have difficulty in meeting its cash obligations as of the start of June, a Greek newspaper reported Monday.
In a note Papademos sent to Greek President Karolos Papoulias and discussed in Sunday's meetings between the president and party leaders on forming a coalition government, the prime minister said it is likely Greece will have significant difficulties in covering its cash payments in June, according to newspaper Ta Nea, citing unnamed sources from Papoulias' office

Now, further consider one of the proximate causes of the new fiscal shortfall:

Greece' s budget revenues have reportedly dropped by 10.2% in April compared to the same month in 2011, as daily Kathimerini reports quoting provisional figures the Finance Ministry is studying. The election period did nothing to help state receipts as the tax collection and monitoring mechanism traditionally relaxes ahead of polls, and did so again this year despite the crisis.

It has been said before, but is worth saying again - how did this economy pass the bar to Euro membership in the first place? If officially sanctioned tax avoidance remains in effect, and we have another month until the new elections, I can't imagine that the fiscal picture is going to do anything but go from bad to worse. Or from worse to as worse as it can get.
Given the deteriorating fiscal position, Greece will eventually need a larger bailout if it is to stay in the Euro. Simply put, if they can't pay their bills with Euros, they will need to issue their own currency. Deep in a piece on the failed efforts to collect property taxes via electricity bills, the FT brings us this from a "friendly trader":

When we talk about Greece “running out of money” in coming weeks/months, the combination of dire recession, plus non compliance in Revenue collection will speed the day that Civil Servants and suppliers are paid in IOU’s or “New Drachma” in the absence of any funding from the EU/IMF…

Once IOU's start circulating, the clock will start ticking. Either they get replaced soon with actual Euros, or they start trading as currency. In other words, time is growing very, very short to find a solution that keeps Greece in the Eurozone.
Meanwhile, is the final run on Greece's banks underway? From the Wall Street Journal:

Greek depositors withdrew €700 million ($898 million) from local banks Monday, the country's president said, as he warned that the situation facing Greece's lenders was very difficult.
In a transcript of remarks by President Karolos Papoulias to Greek political leaders that was released Tuesday, Mr. Papoulias said that withdrawals plus buy orders received by Greek banks for German bunds totalled some 800 million.

A bank run in the absence of a functioning government. Is there anyone ready to push the button on a bank holiday with capital controls? Or is this about to devolve into a free-for-all flight of capital?
Meanwhile, Germany and France are holding to the official line. From the FT:

“We want Greece to stay in the euro,” Ms Merkel said. “We know that the majority of people in Greece see that.”
The Greek government had also agreed on a rescue programme with the IMF and the EU after lengthy negotiations, she said. “I believe that memorandum must be respected.”

This ignores the small point that the last bailout was certain to fail from the start. The message remains that no one but Greece is making the decision to leave the Euro:

“We have to respect that there will be new elections in Greece,” she added. “We will make it clear that we want Greece to remain in the eurozone, and that is what the citizens are voting on.”

But out comes the unspecified carrot:

That meant fulfilling the commitments in the EU and IMF programme, she said, but added: “We will also give proposals to Greece to encourage growth.”
Mr Hollande went further, saying that “I hope that we can say to the Greeks that Europe is ready to add measures to help growth and support economic activity, so that there is a return to growth in Greece.”More carrot with stick would have been helpful two years ago. Now it is looking like too little, too late. And what kind of measures are these? Direct bilateral transfers from Germany, which would be helpful? Or more loans to add to those that Greece can not already afford?

In other news, in the wake of its two LTRO operations, the ECB is back to neglecting its role as lender of last resort. As a consequence, Spanish yields are now solidly back above 6%, with Italian yields in close pursuit. Apparently, investors are not convinced that the supposed firewalls are sufficient to control contagion. European policymakers have fallen short of the mark. Again.
Bottom Line: I don't see how European policymakers can be anything but terrified that this whole experiment is unraveling at a frightening pace. Yet they keep barreling ahead on this disastrous path, ensuring that things continue to get worse before they get better.

Update: Three more from Tim Duy:

Central Bank FAIL - ECB Edition: From the Wall Street Journal:

The steady outflow of deposits from Greek banks hasn't yet turned into a full-blown bank run, and the European Central Bank has nearly limitless capacity to provide banks with additional liquidity. But economists have long warned that a run on banks could develop if the population fears Greece's departure from the euro is imminent and that their savings would evaporate. A bank run could trigger the euro exit if it reaches a scale that forces Greek authorities to freeze bank accounts and print their own currency to keep the financial system alive.
What is more, if Greece fails to comply with the conditions of its bailouts, the ECB would likely cut off the liquidity support for its banks, a move that could cause the banking system's collapse.

It is simply unbelievable that at this point in history, more than 100 years after Bagehot's Lomberd Street, that we could consider that the European Central Bank will not only fail in its role as lender of last resort for the fiscal authority, but also fail in its role as lender of last resort to the banking system.  Yet here we are.
Failure to Communicate: Yet another amazing quote from the same Wall Street Journal article:

Greece's renewed turmoil is putting Europe's leaders in a difficult position. Many hoped that the Greek election would result in a national consensus to push forward with the deep spending cuts Greece's previous governments committed to as a condition of the rescues. Instead, voters used the ballot to express deep dissatisfaction with the measures.

Really?  Did European policymakers really believe that the Greek people would never grow tired of the endless austerity?  If so, this is simply sad, because virtually everyone else in the rest of world saw that the Greek people were being pushed over the edge.
Questionable Assumptions: From the Financial Times:

Ms Merkel defended her belief that the common currency was "not just a monetary project, but a political project". It meant that the member states of the eurozone shared a common responsibility. "People who have a common currency will never fight a war against each other," she said.

Isn't this just plain wrong?  When people with a common currency fight a war, we call it a civil war.  Not exactly without historical precedent.

 This article was republished with permission from Economist's View.

Inflation May Help Economy, Expert Says

At least one economist argues that allowing inflation to occur “naturally” could actually help the struggling U.S. economy. Mark Thoma notes the Federal Reserve is expected to implement controls if inflation approaches 2% and unemployment remains high by raising interest rates in an effort to retain “inflation credibility,” rather than keeping them low through 2014 as it had previously announced it would do. Thoma argues, however, that exerting control to hit a particular inflation target absent consideration of the other factors is unwise, and that inflation during a recession can encourage more activity in the market rather than restrain it. For more on this continue reading the following article from Economist’s View. 

If inflation begins to increase before the economy has fully recovered, the Fed shouldn't panic:

Federal Reserve Policy: Exceptions Improve the Rule: At some point during the recovery, the Fed may face an important decision. If the inflation rate begins to rise above the Fed’s 2% target and the unemployment rate is still relatively high, will the Fed be willing to leave interest rates low and tolerate a temporary increase in the inflation rate?

Probably not. Even though higher inflation can help to stimulate a depressed economy, Ben Bernanke, Chairman of the Federal Reserve, is not in favor of allowing higher inflation because it could undermine the Fed’s “hard-won inflation credibility.” And recent Fed communications seem to be setting the stage for the Fed to abandon its commitment to keep interest rates low through the end of 2014. This adds to the likelihood that the Fed will raise interest rates quickly if inflation begins increasing above the 2% target even if the economy has not yet fully recovered.

As I’ll explain in a moment, that’s the wrong thing to do. But first, why does the Fed put so much value on its credibility? ...[continue reading]...

 This blog post was republished with permission from Economist's View.

Krugman Criticizes Ron Paul

Economist Paul Krugman, no lightweight when it comes to fiscal knowledge, recently debated sometime Republican presidential candidate Ron Paul on the issue of his Paul’s prediction of runaway inflation, and criticized the politician’s vague references to ancient history by way of response. Krugman contends that it is no accident that politician’s cite murky historical anecdotes as a way to establish credibility for positions on current affairs, despite having a century’s worth of well-documented knowledge from which to draw – if only it supported the desired conclusion. For more on this continue reading the following article from Economist’s View.

Paul Krugman comments:

Don’t Know Much About (Ancient) History: The things I do for book sales. I debated, sort of, Ron Paul on Bloomberg.Video here. I thought we might have a discussion of why the runaway inflation he and his allies keep predicting keeps not happening. But no, he insisted (if I understood him correctly) that currency debasement and price controls destroyed the Roman Empire. I responded that I am not a defender of the economic policies of the Emperor Diocletian.

Actually, though, appeals to what supposedly happened somewhere in the distant past are quite common on the goldbug side of economics. And it’s kind of telling.

I mean, history is essential to economic analysis. You really do want to know, say, about the failure of Argentina’s convertibility law, of the effects of Chancellor Brüning’s dedication to the gold standard, and many other episodes.

Somehow, though, people like Ron Paul don’t like to talk about events of the past century, for which we have reasonably good data; they like to talk about events in the dim mists of history, where we don’t really know what happened. And I think that’s no accident. Partly it’s the attempt of the autodidact to show off his esoteric knowledge; but it’s also the fact that because we don’t really know what happened — what really did go down during the Diocletian era? — you can project what you think should have happened onto the sketchy record, then claim vindication for whatever you want to believe.

It’s funny, in a way — except that this sort of thinking dominates one of our two main political parties.

This blog post was republished with permission from Economist's View.

Are Higher Tax Rates Really That Bad?

The Laffer Curve is an economic theory that pinpoints a revenue-maximizing percentage for taxation; in other words, it prescribes a certain tax percentage beyond which tax revenues actually start to decrease due to tax avoidance, evasion and nonpayment. Economists Peter Diamond and Emmanuel Saez believe the percentage for those in the top 1% of U.S. earners hovers somewhere between 50%-70%, meaning the government could raise their tax rate up to at least 50% before seeing a drop in revenue. The wealthy heartily disagree, but there is no way to tell other than to look at historical data, which indicates the hike would not change behavior. For more on this continue reading the following article from Economist’s View. 

Peter Diamond and Emmanuel Saez:

High Tax Rates Won't Slow Growth, by Peter Diamond and Emmanuel Saez, Commentary, WSJ: The share of pre-tax income accruing to the top 1% of earners in the U.S. has more than doubled to about 20% in 2010 from less than 10% in the 1970s. At the same time, the average federal income tax rate on top earners has declined significantly. Given the large current and projected deficits, should the top 1% be taxed more? ...

But will taxable incomes of the top 1% respond to a tax increase by declining so much that revenue rises very little or even drops? In other words, are we already near or beyond the peak of the famous Laffer Curve, the revenue-maximizing tax rate? ...

According to our analysis..., the revenue-maximizing top federal marginal income tax rate would be in or near the range of 50%-70%... Thus we conclude that raising the top tax rate is very likely to result in revenue increases at least until we reach the 50% rate that held during the first Reagan administration, and possibly until the 70% rate of the 1970s. ...

But will raising top tax rates significantly lower economic growth? In the postwar U.S., higher top tax rates tend to go with higher economic growth—not lower. ... Neither does international evidence support a case for lower growth from higher top taxes. ...

By itself, a suitable increase in the taxation of top earners will not solve our unsustainable long-term fiscal trajectory. But that is no reason not to use this tool to contribute to addressing this problem.

With the "taxes harm growth" and Laffer curve arguments undercut by research such as this, Republicans have fallen back on the argument that it's unfair to take income away from those who earn it. But that presumes that the system allocates income fairly, a claim that is hard to swallow given how much financial executives are paid relative to their contribution to the productive process (to name just one example). There's nothing unfair about using taxes to "clawback" misdirected income, and it won't harm growth to send income where it should have gone in the first place.

This article was republished with permission from Economist's View.

Election Year Spurs Small Business Giveaways

The struggling U.S. economy during an election year means many politicians are crafting policy aimed at small businesses in the hopes of scoring points with voters; however, statistics from the Joint Committee on Taxation and the Tax Policy Center reveal these measures really don’t help. The estimated cost to government for the Small Business Tax Cut proposal is $46 billion, and experts say most benefits will go to those earning $1 million or more and will not help create any jobs. Economist Bruce Bartlett argues that money would be better spent on infrastructure, and politicians can spin it by saying infrastructure helps small businesses, too. For more on this continue reading the following article from Economist’s View.

Bruce Bartlett:

Do Small Businesses Create Jobs?, by Bruce Bartlett, Commentary, NY Times: ... Congress is, of course, always keen to find ways of aiding small businesses, which are akin to mom and apple pie in its eyes. Just recently, it approved the JOBS Act, which is intended to ease access to credit by “emerging growth” companies. Congressional Republicans are anxious to enact a new tax cut for small businesses, as well. The Small Business Tax Cut Act, which was reported out by the House Ways and Means Committee on April 10, would give a one-year, 20 percent tax cut to every business with 500 or fewer employees.

The Joint Committee on Taxation estimates that it will reduce federal revenues by $46 billion. The committee report offered virtually no rationale for the legislation other than that small businesses are good and deserve a tax cut, period. The linkage between a small business’s tax burden and job creation, however, is tenuous at best. ...

The Tax Policy Center estimates that the benefits would accrue overwhelming to the wealthy, with 49 percent of the total tax cut going to those making more than $1 million.

There may be policies that would increase the number of business start-ups and aid employment this way. But an across-the-board tax cut for every small business, defined only in terms of employment, is nothing but an election-year giveaway unlikely to create any jobs whatsoever.

Instead, let's use the $46 billion this would cost (and mostly waste in terms of job creation) to build infrastructure. If it helps to sell it, make it infrastructure that would be useful to small businesses -- it can probably be argued that most infrastructure projects would help small businesses in one way or the other. This way, even apart from the better prospects for job creation from infrastructure spending, at least we'll have something to show for the money when all is said and done.

This blog post was republished with permission from Economist's View.

Examining Employment Recovery Cycles

Economist Tim Duy examines compares recent job growth and losses with historical data to explain what is happening in the U.S. economy now and what can be expected in the future. He demonstrates a parallel between post-1990 employment recovery failures and manufacturing job recovery, which prompts him to consider whether job losses are structural or cyclical based on losses in supply jobs vs. demand jobs. Duy then ties capital and currency manipulation to job growth, and wonders how much Chinese financial policy and a global demand shortfall impacted U.S. employment in the ‘90s, and whether a similar explanation could explain the current employment fluctuation. For more on this continue reading the following article from Economist’s View.

Tim Duy:

Behind the "Trend is the Cycle", by Tim Duy: Via Mark Thoma, David Andolfatto finds evidence of a permanent component to recent job losses. Reviewing a recent paper (which I enjoyed) by Nir Jaimovich (Duke University) and Henry Siu (University of British Columbia), Andolfatto notes:

The conclusion is that jobless recoveries are due entirely to jobless recoveries in routine occupations. In this group, employment never recovers beyond its trough level, nor does it come anywhere near its pre-recession peak. This is in stark contrast to earlier recessions.

He further sees a smoking gun in this chart:

And again notes:

This last figure is quite dramatic. It shows how, prior to 1990, routine employment rebounded strongly following a recession. But since 1990, it appears not to rebound at all. Indeed, the pattern appears to be one of a precipitous decline in recession, followed by a period of relative stability in the subsequent expansion.

I have to admit that I was perplexed by Andolfatto's surprise with this result - the basic patterns of this chart should be easily recognizable as simply the path of manufacturing employment in the US:

That employment in this sector has not rebounded after the past two recessions is not exactly a secret (there is likely some construction element in the first chart as well, but I am putting that aside for the moment). That said, I think there is an interesting question here - should we define these job losses as primarily structural (supply) or cyclical (demand)? To be honest, I admit that I have gone back and forth on this topic.

If I am in a mercantilist frame of mind (see here), I would say this becomes an issue in the mid-1990's when China devalues and fixes the renminbi. This act of currency manipulation to gain a competitive advantage is ignored by the Clinton Administration, and the offshoring craze goes into hyperdrive. Non-durable goods manufacturing begins to slide immediately, and durable goods employment contracts during the 2001 recession and never rebounds as firms choose to restart production in China rather than the US. I anticipated the same after the 2007-2009 recession, a prediction that has not been entirely true.

Somewhere in here is also a construction story, in which the flow of capital into the US finds its way into the housing market, which in turn boosts construction jobs which are subsequently lost. The construction jobs would fall into the routine manual worker category that appears to have suffered from permanent dislocation.

Is this a structural story, or rather just an outcome of a global savings glut/demand shortfall? If domestic demand in China had been higher, wouldn't the Chinese current account surplus have been smaller? And shouldn't the same be true of Japan and Germany? And if this was the case, would the US current account deficit also been smaller, suggesting external factors were less of a drag on demand? And if that were the case, would job losses in manufacturing have been so severe? Would the housing bubble have erupted as it did? And would other sectors have grown more quickly to compensate for job losses in manufacturing?

What I am thinking is that in a world with a global demand shortfall combined with currency manipulation, international trade can become a zero-sum game that leads to dislocations that appear to be structural but are in fact largely cyclical or more broadly demand related.

Alternatively, rather than rely on the global imbalances story, you can argue that the drop in manufacturing is entirely the result of productivity increases. I really don't think this helps, as it doesn't explain why the displaced workers have not been entirely reabsorbed elsewhere in the economy. Remember, we used to argue that all those displaced workers would simply find jobs in the rapidly growing sectors of the economy. Apparently, this has yet to happen. It is kind of hard to argue that the problem is retraining or skills. Perhaps this is true in the short-run, but we are talking about trends that are nearly two-decades or more old. Surely a greater degree of adjustment should have happened by now. It is just as easy to believe that the demand is lacking to absorb the released resources (a euphemism, by the way, for fired workers), which fits with a global savings glut/demand shortfall story as well.

Moreover, a structural story doesn't answer the problem of sticky wages. If in fact the jobless recovery was simply an artifact of job losses for employees with routine skills, why is wage growth for remaining workers so muted? Why such a high proportion of zero wage gains?

Finally, I would add that if you believed that fundamentally a global demand shortfall and related imbalance story was at play, some rebalancing, due, for example, to a mixture of higher foreign wages and a weaker dollar, would have predictable impacts in stimulating export and import competing industries. Some evidence for this can be found in the upswing in durable goods manufacturing:

This is where I was wrong; it is more of increase than I would have expected given my mood in 2010. See also recent stories about the re-shoring phenomenon. For example, from the FT:

Jeff Immelt, General Electric’s chief executive, says the decision to put $1bn into the group’s domestic appliances business is “as risky an investment as we have ever made”.

He may well be right. The decision to bring back to Louisville, Kentucky, hundreds of jobs that had been outsourced to Mexico and China is emblematic of his strategy for GE. If it fails, it will be hung around his neck forever.

“Reshoring” production is a strategy being tried by many American manufacturers, as rapid wage growth in emerging economies and sluggish pay in the US erodes the labour cost advantage of offshore plants.

The US has added 429,000 factory jobs in the past two years, replacing almost a fifth of the losses during the recession.

Trend or fad? Too early to tell.

Bottom Line: I don't think the results Andolfatto cites should come as much of a surprise. If you were looking for a jobless recovery two years ago, the "routine" task sectors of construction and manufacturing were cause for concern. But I think the dynamics in those sectors can be explained in the context of a global demand shortfall rather than entirely structural phenomena.

This blog post was republished with permission from Economist's View.

So What Will Be The Next Financial Bubble To Pop?

Now that it appears the real estate bubble has just about run its course, it is time to look for that next big bubble. Some financial analysts are pointing to Europe, and even the Euro currency, as the source of pending financial doom, but one analyst from Money Morning has another idea. He is pointing at student loan debt. With the costs of education rising, and wages not even remotely keeping pace, it seems to me that he has some valid points. For more on this, continue reading the following article from Money Morning.

Don't look now but there's another giant bubble out there. It's so big it rivals subprime.

I'm talking about the student loan bubble.

Recently, the outstanding volume of student loans passed $1 trillion. What's more bothersome is that the average individual amount owed by new college graduates has passed $25,000.

With college costs zooming upwards faster than inflation, this is rapidly becoming another subprime mortgage-like sinkhole.

Just like subprime, the problem is that people of modest means are being suckered by high-pressure salesmen into taking on too much debt.

The difference is that since student loans are government guaranteed and can't be released in bankruptcy, the burdens will be paid by the unfortunate ex-students and the U.S. taxpayer.

The standard justification for soaring higher education costs is a simple one.

The United States needs to maintain an educational lead in order for its wage levels to remain above those of its competitors.

I'm talking largely about emerging markets, which have been helped enormously by modern communications, making global sourcing much easier than it was.

There are two problems with this view.

First, the more esteemed colleges take great pride in not providing vocational training, and graduate large numbers of students with degrees that don't obviously qualify them for anything.

In what way is the U.S. being made more competitive by graduating students in (insert your favorite useless college major here)?

Second, even as the demand for a college education is increasing, the efficiency of providing it is declining. Both the Ivy League and state university systems increase tuition rates far more rapidly than overall inflation.

The Student Loan Bubble Drives Up Costs

In fact, there is considerable evidence that finance availability is itself pushing up college costs.

As college funding has become more readily available to the general population, it has reduced the financial pressure on colleges, since few of their students are today paying their way from part-time jobs and parent cash flow.

Huge endowments in the Ivy League, which allow those elite colleges to provide full scholarships for students, focus the competition between colleges ever more closely on league table "prestige" rather than costs.

The ranks of college administrators have also exploded since they are effectively insulated from market forces - not unlike those in medical professions.

So have their earnings - according to The New York Times, in the decade between the 1999-2000 and 2009-10 college years, the average college president's pay at the 50 wealthiest universities increased by 75%, to $876,792, while their average professorial pay increased by only 14%, to $179,970.

Meanwhile, the cost of tuition has increased by 65% while prices generally rose by 31% during the same decade.

That's precisely the opposite of what you'd want to happen, if you were concerned about college productivity and cost.

Buried in Debt by Student Loans

There are two factors pushing the escalation in student loan volume.

One is the nationalization of most student loan programs in 2009, providing government guarantees on most student loans.

That has altogether removed the risks of student loan provision from banks, as well as encouraging low-quality degree scams by for-profit colleges. For-profit colleges are a good idea, but not when combined with government-guaranteed student loans.

The other factor pushing up student loans is the Bankruptcy Act of 2005, which allowed consumers to relieve themselves of all debts in bankruptcy except student loans.

This special privilege for the student loan market has caused great hardship.

The Washington Post reported this week that Americans 60 and older still owe $36 billion on student loans, and gave one sad example of a 58-year old woman who had borrowed $21,000 to fund a graduate degree in clinical psychology in the late 1980s (which one would think was at least moderately useful), had never been able to earn more than $25,000 per annum and was now left with student loan debt of $54,000.

If government guarantees and bankruptcy exemption remain in place, the volume of student loans will continue soaring, as unscrupulous lenders provide them to naive students.

That will cause the cost of college to continue rising in real terms as college administrators pad their sinecures.

As with the subprime mortgage industry, an eventual crash is inevitable. But unlike subprime mortgage borrowers, student loan borrowers will be unable to start afresh after bankruptcy.

The solution is to eliminate the two unwarranted subsidies to the student loan industry. Student loans must no longer be guaranteed by the government.

And in bankruptcy, they must be treated like any other debt. The banks will scream, and student loans will be much more difficult to get.

For most students, that will return them to choosing a cheaper institution and working their way through college, in the traditional way - some of them might choose more marketable degree courses, too.

For the poor but brilliant, the Ivy League can continue providing full scholarships and the government can continue providing Pell grants - with their cost fully accounted for on-budget.

College costs will drop back to 1970s levels in real terms, as overstuffed bureaucracies are eliminated.

And for college administrators and student lending banks, life will get considerably harder - which is no bad thing.

All bubbles eventually burst. This one will be no different.

This article was republished with permission from Money Morning.

Stocks Up, Consumer Sentiment Down

Rising gas prices are having a negative impact on U.S. consumer sentiment, although projections suggest the feeling is temporary according to the Reuters/University of Michigan consumer sentiment index. The Energy Department noted prices edged up another $0.04 in the past week, keeping more money in the pump and leaving consumers with less to spend elsewhere. Meanwhile, improvements in the stock market have some wondering about inflation, including Federal Reserve chairman Ben Bernanke, despite gains being propped up by a strengthening labor market. For more on this continue reading the following article from Tim Iacono.

The Reuters/University of Michigan consumer sentiment index dipped from 75.3 in February to 74.3 in the first of two readings for March in a sign that rising gas prices may now be having in an impact on the mood of the consumer.

Based in large part on a recently improving labor market, the current conditions component remains firm, up from 83.0 to 84.2, however, the expectations component more than offset that gain, down from 70.3 to 68.0.

It’s a good think that equity markets don’t have a gas tank to fill every week or they too might think about pulling back but, so far, they show little sign of doing so, though that could soon change given that inflation expectations show signs of stirring to life.

Survey respondents ratcheted up their one-year outlook on consumer prices from an increase of 3.3 percent to 4.0 percent in a delayed reaction to rising pump prices that the Energy Department said gained another 4 cents over the last week, rising to a national average of $3.83 per gallon.

Five-year inflation expectations (the measure watched more closely by Fed economists) rose just one-tenth to 3.0 percent, indicating that, like Fed Chief Ben Bernanke, most Americans see rising gas prices as being temporary, a belief that, unlike Bernanke’s, could prove to be temporary itself.

This blog post was republished with permission from Tim Iacono.