2nd Qtr GDP - One More Look

Just to put in better perspective what really happened in our economy last quarter (and I won't bother you anymore about it, I promise):



Any good news was from more Obama bucks and a big drop in imports - the rest is rather grim*. I guess it's good that the government is picking up some slack, but these are hardly green shoots - more like blue shoots.

*The only positive is that of the $87 billion drop in investment, 31% of that came from a big reduction in inventories, so in theory production should start to pick up once inventories are exhausted.

2nd Qtr GDP - the Real Story

Not quite so many green shoots when you look under the covers:

GDP Total: -1.0%
Personal Consumption: -1.2%
Durable Goods: -7.1%
Investment: -20.4%
Nonresidential: -8.9%
Residential: -29.3%
Net Exports: +40.6%
Exports: -7%
Imports: -15%
Government: +5.6%
Federal: +10.9%
State and Local: +2.4%

Looking at how these items affected the overall GDP change, when we consider increased government spending and the reduction in imports those alone account for a +3.3% change in GDP. In contrast, all other productive activity experienced a drop of 4.5%.

Source: BEA

Calculations here.

Here's a comparison of the annualized % change in GDP 1Q to 2Q vs. the change 4Q08 to 1Q09:

Sector	2Q Chg	1Q Chg
Gross domestic product	-1.0%	-6.4%
Personal consumption expenditures	-1.2%	0.6%
Goods	-4.0%	2.5%
Durable goods	-7.1%	3.9%
Nondurable goods	-2.5%	1.9%
Services	0.1%	-0.3%
Gross private domestic investment	-20.4%	-50.5%
Fixed investment	-13.5%	-39.0%
Nonresidential	-8.9%	-39.2%
Structures	-8.8%	-43.6%
Equipment and software	-9.0%	-36.4%
Residential	-29.3%	-38.2%
Net exports of goods and services	-40.6%	-54.6%
Exports	-6.9%	-29.9%
Goods	-9.3%	-36.9%
Services	-2.3%	-13.6%
Imports	-15.1%	-36.4%
Goods	-15.9%	-41.0%
Services	-11.6%	-11.5%
Government consumption expenditures     and gross investment	5.6%	-2.6%
Federal	10.9%	-4.3%
National defense	13.3%	-5.1%
Nondefense	5.9%	-2.4%
State and local	2.4%	-1.6%

Dagnammit - I Missed It!

The Cash for Clunkers program is already out of money and is being suspended! And I was just getting around to thinking about maybe taking advantage of it. I have the perfect vehicle - a 1993 Nissan Quest (combined EPA mph 17 - which is about what I actually get) that will not die. Each year I pump in about $1000, which gets tiresome but what kind of car can you get for $85 a month? I drive it to Newark each day (which is brutal on the suspension with all the potholes but do you really want to drive a nice car through that hellhole?) and sometimes take it on trips down the shore when we need the space. But one of these days it's just going to stop running and won't be worth fixing.

I don't have a "nice" car right now. Unfortunately, my last lease ran out in June - it was a Mercury Mariner which I got for $325/mth, no money down for 39 months and 48k miles, which spoiled me. You can't get a decent vehicle for that price these days as the financing just isn't there. So the Cash for Clunkers would be a good deal, but I'd still have to pay a lot more than $325/mth and be down a car to boot.

The Amazing Stock Rally

I'd say the poster child for this amazing stock market rally of the past 3 weeks is Motorola. Motorola issued it's results yesterday, and the stock is up over 9% (and as high as 16% at one point yesterday) on the strength of a small profit which nevertheless significantly exceeded expectations. But its revenues - an actual measure of real business activity - dropped 32% from a year ago. But that has been the pattern this earnings round - stocks rising on unexpected profits realized via brutal cost cutting and the anticipation of greater profits when the economy recovers.

It seems each company has reported large revenue reductions from last year. The best cases seem to be revenue drops a bit less than 10% (Disney revenues dropped 7%) and many in the 20 - 30% range. But Obama pretty much leaked today's GDP report, saying the economy contracted but that there's a "significant slowing down of the contraction." I personally remain pessimistic as I keep hearing about increasing commercial real estate foreclosures, delayed domestic foreclosures, the Alt-A mess ahead, credit card defaults, etc. If you can, invest with caution.

The U.S. Health Care System

According to census data, 77% of Americans are covered by employer-provided health insurance or medicare. While all these people might not be thrilled with their coverage, it's a reasonable assumption that they would be disinclined to support health care reform that ends up costing them more money or threatens to limit their care. Thus, Obama's harping on reducing overall health care costs as critical to the survival of the nation is a pretty dumb strategy, as Mickey Kaus effectively documents.

By far the most common health insurance program is managed care. Managed care can be viewed as having two distinct funding arrangements: 1) a consumer union which negotiates lower fees among health care providers on behalf of its members and pools members' contributions to pay for routine care; and 2) health insurance to cover unexpected and expensive medical treatment, but also utilizing the negotiated-fee structure to hold down claim expense.

People seem to be relatively satisfied with managed care but have serious concerns. It's hard to find any good detailed surveys on health care - they may be out there but my googling is inadequate - so I'll propose some hypotheses here. My guesses are these:

• Following the arcane managed-care rules can be stressful
• Concern that in-network providers are sub-par
• Fear of being saddled with a large hospital bill due to failure to carefully follow the insurer's rules to a 'T'
• Concern that experimental treatments in desperate cases will not be allowed.

Now the question is how badly do we want to eliminate these issues? These hurdles are put there as a way of controlling costs (and preserving profit). Removing them it akin to telling people they can go to any doctor anytime they want for whatever reason - the kind of behavior that tends to push up health care costs. The only way around it is enforced - i.e., government mandated - rationing. That would allow for reduced administrative overhead and direct control of costs.

So the way I see it is either we keep the system pretty much the way it is now (sure we could tweak it a little) or we go to a federal government controlled system. If you've got decent coverage now the latter is probably not your preferred choice, and the vast majority of Americans have decent coverage. On the other hand, I never hear anyone (I mean real people I know) from Canada or Europe complaining about their single-payer system - they seem quite satisfied as well. But of course I hasten to add that the U.S. population does not consist entirely of Swedes or Germans or even Canadians.

Mr. President, You're Not in Chicago Anymore

Perhaps it was just the Chicago politician coming out. What to Chicago politicians do? Take care of your friends. So Obama's friend, the Professor Gates, got himself in a scrap with a local cop. What would a Chicago Alderman do? You intercede on behalf of your friend and put the hammer to the cop, with whatever tool might be lying around. In this case, Obama pulled the ol' reliable race-bludgeon out of the tool box. The thing with race is that, unlike other enforcement devices which can be used behind the scenes, you have to proclaim it from the rooftops otherwise (except in the very rare case when it's an actually valid complaint) there are sufficient defenses (as in union appeals) to stave it off. The result is that Obama ended up showing the whole world the true man behind the mask - the race hustler in post-racial clothing. How big of you to defend your wealthy friend against that bully cop, Barack. I'm sure all the police in the country are now well aware of who they're dealing with. Good job.

What Kind of Profiling Was This?

Dope profiling. I recall reading a couple years back about some dope who got himself arrested outside of a Circuit City because he decided he would make a stand for libertarian principles (or maybe has was just in a bad mood). The short of it is he refused to consent to his bag being checked by the security guy(nothing was stolen), who proceeded to block his exit and call the police, whereupon the dope refused to show his license to a cop, who proceeded to place him under arrest. As a result, every person involved, along with the dope's family, were enormously inconvenienced. Yes, I understand the principles he was arguing for - but he's a dope for trying to fight them out in the street and annoying people who have jobs to do which don't involve hearing out some Lockean theory. He might have gotten a mention from Instapundit, but his story went nowhere - who's interested in some white guy whining about being arrested for not wanting to show a police officer his ID? If you'd like the excruciatingly long version, here's the story from the horse's mouth. Unfortunately, Mr. Righi is not a particularly prolific blogger so we can't get his perspective on the current controversy.

That would be the situation involving Professor Gates. At least here, though, the professor stands to gain way more out of his shrill grandstanding than a blogpost. He's gotten the President of the United States to take his side in a nationally televised press conference. How it pains me to write those words - what a joke of a nation we have become, that this race-mongering, petulant horse's ass is our president. Particularly having come after another petty man in the job before him, and the sexual predator before him, and the impulsive, unstable geezer he ran against. At least there's one dignified man in all this, shaming the lot o' them.

What a Waste of a Tax Surcharge

Getting a tax surcharge passed is going to consume a great deal of political capital. I'm certainly not against the surcharge. I'd prefer a more passive/aggressive approach that would impose an additional 1/2% on each 100k, topping out at 20% at around $4.3m. Only a few years ago I'd have dismissed this as socialistic looniness, but it's become apparent that the wealthy in this county do little good with their money.

The idea behind low marginal tax rates is to encourage entrepreneurship by allowing the innovative geniuses lurking in our midsts to keep more of their hard-earned money. Well it hasn't worked - it's only encouraged them to keep more of our hard-earned money. These innovators haven't been developing full-sized cars that get 100 miles per gallon, or devices that sort and fold your laundry; they've been developing credit-default swaps and securitized debt instruments. So f-em.

But we're going to use this tax windfall for health-care reform? We're already spending massive amounts of money on health care - do we really need to spend more? There really isn't enough money already in the system to conjure up a way to provide some basic insurance for the "working poor" to get some decent medical care for emergencies, operations and chronic conditions? Let's use that surcharge to lower the deficit, not add more money into an already bloated sector.

Obama Lays it on the Line to the NAACP

Obama gave what the Times describes as a "fiery" speech last night to the NAACP where he apparently pulled no punches:

I'm working everyday for you - fighting it out to get you free health care, free education and guaranteed spots in colleges, keeping the cops off your back by cracking down on profiling, more subsidized housing, lots of government jobs, and my man Eric [Holder, U.S. Attorney General], you know he'll have his eyes focused on any Title VII violations, whatever shenanigans the Court pulled with those firemen.

But you've got to work with me - you can't make my job harder than it is already. So would it kill you to have the kids turn off the XBox once in a while? Maybe do a little more studying? Do our role models always have to LeBron or Lil' Wayne? I can get you those cool jobs - engineers, scientists, Supreme Court justice - you name it - but you gotta work with me a little. Actually, all you have to do is talk about doing it - at least just promise me that, you'll at least talk about "personal responsibility." Trust me, that's all it takes

Ok, so that might not be quite how the Times covered it (nor a verbatim transcript of Obama's speech), but you get good at reading between the lines of Times articles after awhile, which is the only way to figure out what's actually going on. I mean, how many of these "personal responsibility" speeches are we going to hear about, and how long are we going to be told it's some new development that's really going to make a difference? The Times reporter may not have heard the speech for what it was, but I'm pretty sure the assembled gathering understood completely.

Supreme Court Nominees

Samuel Alito at his hearing:

I am a very sensitive jurist who will use his life experiences in deciding cases. Should I hear a discrimination case, I will rely heavily on the fact that my ancestors were Italian and they faced the most brutal, dehumanizing prejudice anywhere ever and remember that when formulating my opinion.

Sonia Sotomayor:

I am a very conservative jurist who will base her decisions purely on the law and the facts. When I said that a "wise Latina" would render better decisions than a white male, I was clearly saying that a judge must ignore her own personal feelings and must use her life experiences to eliminate any lingering prejudices she may have.

It's a funny ritual - the President nominates someone who (he hopes) shares his vision of the judiciary's role, but when it comes time for the hearing that vision suddenly becomes so toxic the nominee is forced to disingenuously disavow any fidelity to that vision. But of course once on the court the justice may pursue any vision he or she sees fit.

Is Judith Warner Insane?

A couple months back, at the height of the collective Obamagasm, the Times's Judith Warner wrote a column, without a whiff of irony, discussing the widespread (she assured us) phenomenon of fully mature, responsible women having sex dreams about Obama.

But today's column* is Exhibit A in what's wrong with punditry today. Her thesis?

[T]he fact that our country’s resentment, and even hatred, of well-educated, apparently affluent women is spiraling out of control.

Note that she's not wondering if blah blah blah...no, she's stating it as a fact.

And her evidence? First, in June 2007, a (female) college professor left 3 young children (ages 3, 7 and 8) with two 12 year-olds at the mall.** The 12 year olds left the youngsters by themselves, the cops were called, and the woman was charged with child endangerment. The woman, you see, was well educated, and the overzealous prosecutor (gee, not many of those around) made some comments about not letting her get away with it just because she was a college professor with money.***

The rest of her argument? Well, what more proof do you need than: Sarah Palin! Of course, it's always about Palin. Because she's not all that well educated, and argues against the elites, and because people like her, she is proof positive of "the fact that our country’s resentment, and even hatred, of well-educated, apparently affluent women is spiraling out of control."

And that's it. Go ahead, read the article, if you must (it's pretty painful), or just trust me - that's it.

There's a very revealing correction notice at the bottom of the article:

An earlier version of this column misstated the date that Bridget Kevane had taken her children to the mall. It was in June 2007, not “a few weeks ago” as the column had originally stated.

You see what happened here? She came upon this story, perhaps emailed to her by one of her Obama-sex-dreaming acolytes, and thought it was a recent story and therefore topical. That explains why a story from 2 years ago is being presented as evidence that this alleged phenomenon is now reaching dangerous levels. So, armed with what she thought was a newsy item (and of course the always reliable Sarah Palin) she conjured up this fanciful tale about an anti-intellectual-woman pogrom sweeping the nation.****

If she wanted a real newsworthy item of controversial child endangerment charges, there was the case - which actually did occur three weeks ago - of the young mother breastfeeding her child while intoxicated (ironically one state over - in North Dakota). She did this in front of the police during a search of her home, and they arrested her. She was charged, pleaded guilty and her child wazs taken from her. She now faces up to 5 years in prison, despite there not being any scientific evidence that breastfeeding while intoxicated poses any real danger. But this woman is not well educated and certainly not affluent - she's low class - white trash is the usual epithet - and would not fit Warner's thesis. In fact, it directly contradicts it.

* Ok, the Times calls it a "blog" - but it looks and is presented just like a column. She does get hammered pretty hard in the comments, though.

** Only three of the children were hers - I'm presuming two of the younger ones and one of the 12-year olds. I agree that 12-year olds should be expected to be more responsible, but overzealous prosecution of child endangerment is nothing new.

*** One of the outcomes that apparently irks Warner is that the woman was compelled to attend a "parenting class." Ah, so all of a sudden "classes" are annoying and designed to humiliate, not educate? I wonder how Warner feels about those "sensitivity", "diversity" and "anger management" classes that people are sometimes compelled to take?

**** Some annoying reader no doubt pointed out it's rather creaky pedigree, pretty much nullifying her Exhibit A. Oh well. I've done that before myself - hit upon something I thought was new, started to blog about it, but then saw it was actually an old story, and so dropped the post. But that's just my little blog - we can't expect such responsible journalism from the Times.

A Federal Anti-Bullying Law

From Article I of the U.S. Constitution:

Section 8. The Congress shall have power to lay and collect taxes, duties, imposts and excises...

To coin money, regulate the value thereof, and of foreign coin, and fix the standard of weights and measures;

To provide for the punishment of counterfeiting the securities and current coin of the United States;

To monitor and discourage bullying in the public schools;

To establish post offices and post roads...

A congressional hearing today was the focus of a push to have congress somehow insure that children are nice to each other. The showcase was the testimony of a mother whose child hanged himself apparently over teasing at school - a tragedy, but in a country of 300 million people it should take lots of tragedies to spur congressional action.

At any rate, a principal in Pennsylvania seems to have hit on an effective strategy.

Educators at the hearing called for "character education initiatives" to be built into school curriculums so students can learn ethical decision-making, behavior skills and conflict resolution tactics. As principal of the Hannah Penn Middle School in York, Pa., Rona Kaufmann converted the in-school suspension room into a "character education room," where students were engaged in developing strategies to better manage their attitudes, anger and peer interactions. During the 2007-2008 school year, there was a 60 percent reduction in discipline referrals, down from 5,000 a year to less than 1,200.

No doubt it wouldn't take too many of these "character education" sessions to deter even the most determined bully from his favored pastime.

I Hate to Say It

I really don't have any major problems with Obama's foreign policy so far. I'm not thrilled about the escalation in Afghanistan - we really need to get the hell out of that quagmire and there's no sign that's going to happen any time soon. Unfortunately, to insulate himself from suspicions that he's an Ayers-esque peacenik* uninterested in defending America from her enemies, Axelrod had him campaign on ramping up our involvement in Afghanistan to counterbalance his call of a withdrawal from Iraq. Even Obama couldn't get away with blatantly going back on that campaign pledge.

But otherwise he pretty much seems to care very little about the rest of the world, and only wishes to do the minimum necessary to keep out of trouble. And given the financial mess we are in, it's just as well since we really can't afford the two messes we're in now, never mind having to take on the many foes others see in the world. He's quite content to let the pros (i.e., everyone in the State Department except Hillary) take care of business. However, should his foreign-policy attentions turn from blithe deference to Foggy Bottom wonks into active pursuit of Obama-esque visions, we could be in for some trouble.

* And for good reason - a naive article he wrote while at Columbia in support of the Trotsyite Nuclear Freeze movement surfaced after the election.

Bing's Obviously Got Some Kinks to Work Out

Some poor chap had a simple query to which he presumably wanted a serious answer, to wit: "which way do your eyes go when you are lying" - and where does Bing© send him?

America's Slow but Steady Decline

The American economy has changed over the last 60 years. We experience fewer recessions, true, but overall our rate of growth has slowed. This should be obvious - ignoring the exponential advances in solid-state electronics, are there any startling developments in our lives today that would shock anyone living in 1947 (the way, say, a B-47 would have shocked someone living in 1887)?

If we look at our GDP growth over the past 60 years, we can see the decline rather clearly:

The blue represents a 5 year moving average of annual GDP growth. You can see it's general decline over the past 60 years. The red bars represent the average annual growth during boom times, while the yellow are the averages during recessions (based on NBER peak-to-trough periods). The fifties were marked by several short, deep recessions, followed by strong spurts of growth before the extended boom of the sixties. In the 70's and 80's the good times are pretty good despite several tough years. But the much touted go-go 90's featured a rather mediocre rate of growth, while the growth between recessions this decade was rather anemic (and mostly fraudulent, as it turns out).

So given the rather pallid showing of late, it's not too encouraging that our exit from this recession will be accompanied by ever more massive levels of debt. I suppose if the private sector can manage to shed the bulk of its debt, and Obama's "green investments" actually pay off with some revolutionary technologies there might be a way out of this death spiral. Are you holding your breath?

Source: Bureau of Economic Research. Average growth rates are calculated as simple arithmetic averages of annualized quarterly changes in GDP over the specified period. For example, the average over a 5 quarter period would be the sum of [(Gq - Gq-1)^4 - 1] for each quarter (q) divided by 5.

What's Really Ailing the Economy

I too am getting a bit tired of Steve Sailer's endless harping on "diversity lending" as a cause of our economic troubles, when it's obvious the real culprit is health care.