June 29, 2007
The four-day workweek
Americans are among the planet's most diligent workers. We work more hours and take less vacation days than most. Some experts have said that we need to slow down, and a way to do that would be to mandate a four-day workweek. But N.C. State University economist Mike Walden points out flaws with such a plan.
"I think it does sound good to a lot of people -- but, hey, an economist is here to show people the pitfalls in a lot of things that sound good. And I think there are a couple here," says Dr. Walden, a professor of agricultural and resource economics.
"On the one hand if you were to say, OK, you are going to work less hours a week. but you are still going to earn the same amount per hour, that means people's incomes would go down. So people wouldn't have as much money to spend on all the things they want to buy -- from food, clothing, houses to all those nice toys they want to have," he adds.
"On the other hand if you said ... as has been done in some countries in Europe that 'all right, people are going to work less, but they are going to get the same pay as they did when they worked more.' Well, that's what everyone dreams of doing," he says. "But from a business’ point of view, they are going to see that as an increase in the cost of labor, and they are not going to hire as many people. And in fact that's exactly what happened in many countries in Europe where they have these short workweeks but very high unemployment rates.
"The middle solution I think here is simply sort of the one that we already have. If you want to work less, find a job that allows you to do that with flexible hours," he concludes. "On the other hand, if maximizing income is your goal, then you are going to work more."
June 28, 2007
A long run budget battle
With the N.C. General Assembly now formulating the state budget, extension economist Mike Walden reflects on trends with significant implications for this year's and future state budgets.
He and other economists "see a clash between two parts of the state budget. On the one hand, everyone knows that education is becoming more and more important, and we have been spending relatively more, particularly on higher education. And we will probably want to expand that in the future," says Dr. Walden, a professor at N.C. State University and a Cooperative Extension economist.
"We also know that we have a backlog of spending needs on highway projects. So you have those two components of the state budget that are really needing and requiring more money in the future," he adds.
"On the other hand you have another part of the state budget -- we call [them] transfers -- where we are transferring resources to particular people, usually lower income people. That part has been growing very, very fast, particularly that part related to Medicaid or medical spending, and there is no slowdown in sight there.
"So what you have ... is a case where you have education spending, highway spending, Medicaid spending -- those three account for 75 percent of the state general fund. All of them are on track to need more," Walden concludes. "And I think that's going to be the clash: How are our decision makers at the public level going to decide what programs get what?"
June 27, 2007
Active vs passive economic development
One objective of North Carolina's government is to promote economic development, especially in distressed areas. But, as N.C. State University economist Mike Walden explains, two different philosophies or approaches can be followed in pursuing this goal.
"One approach is called the passive approach. This approach to economic development says that what you want to do is to promote the background characteristics that are conducive to development and growth, so you focus on things like education, highways, public safety," says Dr. Walden, a faculty member in the College of Agriculture and Life Sciences.
"The competing approach is called active economic development, and here what the government does is go out and actively recruit businesses, rather than waiting for those businesses to come, using incentives and other carrots.
"Each approach, of course, has pluses and minuses," he adds. "The passive approach, on the downside, can take a very long time to bear fruit, but it is investing in things that are obviously very crucial and basic.
"The active approach, on the other hand, can be very quick. But incentives, for example, are very unpopular with the public," Walden says.
"I think one compromise here, and I think North Carolina really does this is, is actually spend most of our time and efforts on the passive approach – education, highways, et cetera -- but in special cases the active approach where you use things like incentives," he concludes.
June 26, 2007
Can government be run like a business?
Some people say that if business principles were applied, taxes could be lower and just as much would get done. N.C. State University economist explores whether this is possible.
"The big difference between a business and government is that most businesses have a very, very simple objective, and that is to maximize profits. And everything they do is oriented around that goal," explains Dr. Walden, a professor of agricultural and resource economics. "In contrast, government has lots of objectives -- public safety, providing educational opportunities, helping the poor, et cetera.
"So you can argue that it's actually much easier to run a business, because you've got this one goal staring in your face, than it is to run a government and operate a government because there are so many competing goals," he adds.
"Now that said, what can be done, I think, in government is to employ something called performance accounting. That is, define whatever the objective is of the government program -- like criminals apprehended, students graduated -- and compare the cost and the inputs to those objectives. Sort of like do a constant cost-benefit analysis," Walden says. "So in this case you are substituting the objective of the government program for profits, and then you are seeing how close are you getting to that objective using your money and using your people."
June 25, 2007
Is simple sometimes better?
Life can get complicated, but sometimes the best solutions are the simplest ones. N.C. State University economist Mike Walden considers whether the simple-is-better approach can make us more thrifty.
"If we believe ... a new study from the very prestigious National Bureau of Economic Research, the answer is yes," says Dr. Walden, a North Carolina Cooperative Extension specialist.
"What this study did was compare two companies: Each company had a different savings plan for their employees. One company made their employees complete a lot of forms with a lot of information. The other company had a very quick enrollment plan for saving.
"I think to perhaps one's surprise, participation in the savings plan in the quick enrollment company, so to speak, was much higher than participation in the savings plan for the company that made you read a lot of stuff and fill out a lot of forms," he explains. "And what this suggests, of course, is [that] people are busy.
"Many people, perhaps, are unwilling to take the time that is required if you have to go through a lot of complicated reading and form filling out to set up, in this case, something like a savings plan.
"And so in this case simple is better," he concludes. "You can get the savings rate higher. One downside of the easier approach is that people, by not being forced to read information ... may overlook some crucial data."
June 22, 2007
Want to know what will happen to sales of a particular product or service when its price rises? A concept known as elasticity can help, says N.C. State University economist Mike Walden.
"We don't want to get technical here ... but this is actually a fairly useful economic concept," he says. "First of all, when the price of anything goes up, usually what we see is sales of that thing, that product, will go down. The question is how much. And here's where elasticity is helpful because what it tells us is the percentage drop in sales as a result of some percentage increase in price.
"So, for example, if we had an elasticity of 1, that means that sales will fall by the same percentage that price rises. So, for example, if you have the price of widgets go up 10 percent and there was an elasticity of 1, that means that sales would fall by 10 percent," Walden adds. "Now most elasticities are in the range of .5 to 2, usually less for necessities like gasoline and more for luxuries."
Posted by deeshore at 08:08 AM
June 21, 2007
The real estate transfer tax fight
The sides have lined up on either side of the proposal to allow counties to consider a real estate transfer tax, or what opponents call a home tax. N.C. State University economist Mike Walden explains what the tax is and why it's controversial.
"It's a fairly simple tax. It would be a tax when you sell your home, and so, for example, if we had a 1 percent real estate transfer tax that means 1 percent of the sales value when you sell your home would go to that tax," explains Dr. Walden, a professor of agricultural and resource economics. "You could sort of think of it as a sales tax when you sell your home.
"Now those in favor of the tax say it would give counties another option for raising money for local functions like school buildings and fire and police," he adds. "And indeed those proponents say that counties could use that perhaps in place of higher property taxes.
"Those opposed say that it is unfair to have such a tax that is focused on one particular sector -– real estate -– and those opponents would prefer that local taxes be broad based. Some opponents also question the need for more local revenues," Walden continues.
"Now one compromise that some have discussed is to have a real estate transfer tax but only have it on the gain in value at the time the house is sold."
Posted by deeshore at 08:21 AM
June 20, 2007
Are we in a recession?
The government recently said the economy grew at less than 1 percent pace for the first three months of this year. But N.C. State University economist Mike Walden says the slower growth rate doesn't mean we are in a recession.
"Technically it implies that we are not in a full-blown recession. That would actually take that number ... cited -- the 1 percent growth rate -- to be a negative number," explains Dr. Walden, a professor of agricultural and resource economics, "because a recession means the economy is actually retracting.
"Now that said, some economists would throw out a term called a growth recession: that is, we are growing, but we are growing at such a slow pace that it is hard for average people to see their standard of living go up.
"So whatever you want to call it, certainly in the first part of this year the economy has been moving ahead very, very slowly. But there is good news," he adds. "Most forecasters -– and of course people have to realize that forecasting is an inexact science -- but most forecasters see the economy improving substantially, especially in the second half of the year.
"So I think the conclusion is that we have gone through a slow patch, so to speak, in economic growth, but it looks like that slow patch will be over and we'll be moving ahead at a fuller head of steam."
June 19, 2007
North Carolina's public universities have always been known for having affordable tuitions, but in recent years they've gone up much faster than the average income. N.C. State University economist Mike Walden considers whether this is making college degress less affordable in our state.
"Just to give you a statistic ... the tuition and required fees in North Carolina's public colleges and universities are up over 100 percent in inflation-adjusted terms since 1970," explains Dr. Walden, a North Carolina Cooperative Extension specialist. "The good news is the state is still very affordable when you look at tuitions; we rank in the top 10 in terms of low tuition.
"And also the good news is even though we have had this increase in tuition, the state has been adding immensely to scholarship and loans," he adds. "And indeed those additions have helped keep the rising tuition still affordable for many students. In fact in the last 15 years, for example, the amount of money that the state of North Carolina has put into financial aid for students is up over 600 percent. And that's the sixth-fastest increase among all states.
"So the bottomline here is, yes, you want to monitor and look at tuition costs, but then you also want to look at it after you account for loans and scholarships and grants. And when you do that, the tuition situation looks much more affordable."
June 18, 2007
Could it be worse?
Whenever a downturn in the economy hits, as it did in 2001, North Carolina tends to lose jobs. This is has always been the case, and it always will. But N.C. State University economist Mike Walden says that a Federal Reserve study shows that these job losses are getting smaller over time.
"A new study from the Federal Reserve looks directly at your question and tries to answer it, and I think gives a very optimistic answer," says Dr. Walden, a professor of agricultural and resource economics. "And that is that job losses during recessions have actually gotten smaller. So the job market has actually performed better recently during recessions than previously.
"And this study looked at all states and found that job losses in all states, including those in North Carolina, follow that pattern. So that's the good news," he adds. "Now the bad news is that this moderation in job losses has been less in North Carolina than in the majority of other states -- so another way of saying that other states have seen a better improvement in the job situation during recessions in recent years than has North Carolina.
"And I think that's probably overwhelmingly due to our particular economic structure, [with] so much of our economic structure being related to industries like textiles, apparel and furniture that have been adversely affected by economic trends," he adds. "But the good news here is that, yes, it could have been worse we could have had more job losses in recessions than we actually did."
June 15, 2007
Education and health
Analysts have long recognized that people with more education tend to be healthier and live longer. N.C. State University economist Mike Walden considers whether it's because more educated people have more income to spend on staying healthy.
"That might be part of it, but I think another reason is related to income but in a different way, and that, simply, is that more educated people who have higher incomes have more to gain financially from living longer because they are earning more income," says Dr. Walden, a North Carolina Cooperative Extension specialist.
"Therefore, they are motivated to engage in behaviors that will lead them to live longer lives because this is going to give them more opportunity to earn those higher incomes either for themselves or for their children or grandchildren," he adds. "Now what this does beyond that issue is, I think, raise an important public policy question, and that is whether subsidizing and supporting education is maybe a back door -- but still a very important door -- to improving a healthy society."
June 14, 2007
Are higher prices being hidden?
Government policymakers sometimes focus on the so-called core rate of inflation, which doesn't include energy and food prices. Why would they do this, and is it a good idea? N.C. State University economist Mike Walden explains.
"People are suspicious. They say, 'Well, if you are going to exclude two key prices -- energy and food -– well, yes you can keep the inflation rate low, and isn't that a problem?'" says Dr. Walden, a professor of agricultural and resource economics. "Well, the reason ... that economists like to look at this core rate of inflation is because traditionally we have seen energy and food prices bounce around. One month they'll be up, another month they will be down and so you get this up-and-down movement in the inflation rate, and it doesn't sort of give you a good view of the trend. So that's why the core rate is used.
"But this assumes ... that we will have these counterbalancing price changes in things like energy and food, and actually if you look over the last five years as I think most people would simply know from their gut, energy prices have been trending upward," he adds. "They've gone down a few months, but they have gone up more than they've gone down. So I think this is causing some economists to rethink how much focus to put on the core rate of inflation.
"I think the bottomline here is ... you want to look at this core rate," Walden concludes, "but you also want to look at the overall inflation rate that does include food and energy."
June 13, 2007
Returns from high gas prices
Ten years ago gas prices were around $1 per gallon, and now they are three times that high. There's a good reason, says N.C. State University economist Mike Walden, and even a silver lining.
"There is a pretty simple reason for the jump, and that is that since really since 2000 we have had two countries in the world who really have emerged from not being very dominant or predominant in the world in terms of economics to being very predominant in the world. And those two countries, of course, are China and India, and they are increasing dramatically their use of energy and particularly oil," explains Dr. Walden, a North Carolina Cooperative Extension specialist. "For example, those two countries increased their oil usage two and a half times faster than the U.S. over that time period. And while the world oil supply is growing, it's simply not growing enough to keep up with that demand. So that's the fundamental reason why we have had higher prices.
"Now is there a silver lining?" Walden asks. "Well, actually you can say there is because as we've had countries like China and India move into the world economy and produce more, that has meant lower prices for some of the things that they produce.
"Let me give you two examples: Clothing prices are now off 10 percent; they are down 10 percent since 2000, meaning that all of us who buy clothes are benefiting from those lower clothing prices. And tech product prices –- everything from phones to iPods to computers -– tech product prices are down a whopping 50 percent since 2000," he explains.
"So, yes, you can say we have higher gas prices, but at the same time we have lower prices for some other things."
June 12, 2007
Better insurance rates
Property and casualty insurance rates zoomed up in recent years when several storms hit the country. But economist Mike Walden says that relief is in sight.
"These rates have been very volatile. For example, they rose 70 percent between 1999 and 2005. But the good news is over the last two years, that is since 2005, those rates are down 30 percent," says Dr. Walden, a North Carolina Cooperative Extension specialist at N.C. State University.
"I think the big reason is simple: a calm hurricane season last year. And the higher rates that the companies had let them recoup their losses," he adds. "And so with their losses recouped they can now get into a more competitive and actually decrease their rates to get more business.
"So what we have to watch -- again, as in so many areas -- ... [is] the storm season this year. If we have another mild season like we did last year, that will be good news for insurance rates, but if we have a season for example like 2005 you can bet that insurance rates will go up."
June 11, 2007
With gas prices up many people expect that the inflation rate will jump, too. But N.C. State University economist Mike Walden says the recently released April inflation figures aren't bad.
"Of course these numbers don't account for what's happened obviously in May and June, but the April numbers actually were not very bad. The overall annual inflation rate rose at an annualized rate of 5 percent," says Dr. Walden, a professor of agricultural and resource economics. "So in other words that's taking the increase in prices for just for April and saying, 'What if this continues for the rest of the year?'
"So 5 percent is a little on the up-side. It's certainly not double digits," he says. "Now if you look at the previous year -- that is April '06 to April '07, overall prices are up 2.6 percent. Not bad.
"Now if you look at the components of the inflation rate, no surprise. The biggest jump was in transportation expenses -- again, on an annualized basis in April, up over 12 percent and up 6 percent over the past year," Walden continues.
"But outside of transportation and also outside of food the inflation picture is actually pretty good. It's still mild. Inflation is running around 2.5 percent both for the month of April, again on an annualized basis, as well as over the past year."
June 08, 2007
Do retail sales give the whole picture?
The news media has been paying a great deal of attention to retail sales as a barometer of the economy. While growth in retail sales has been relatively weak,N.C. State University economist Mike Walden says we shouldn't necessarily take it as a sign that consumers are being more cautious with their spending.
"Certainly retail sales are an important factor, and it's one that economists track to get a sense of where the economy is going. But it is also important to recognize that retail sales don't give us the entire picture of consumer spending, and that's for one simple reason: Retail sales do not include spending on services, and service spending by consumers accounts for over half of total consumer spending," Walden explains.
"So it's important to track another measure that economists have in their toolbox called personal consumption spending. That includes retail spending, but it also includes spending on services. And when we look at that number recently, we actually get a much more optimistic picture of the consumer in the economy because we have had growth in personal consumption spending," he explains. "And indeed it's been growing and performing better than retail sales."
June 07, 2007
North Carolina gas tax
With gas prices going up, people are looking for ways to save on filling up their tanks. Some drivers point to the fact that North Carolina's gas tax per gallon, saying that because it's sixth highest in the nation and tops in the Southeast, it should be lowered. But N.C. State University economist Mike Walden says that may cause other taxes to rise.
"North Carolina's gas tax is high; there's no question about that," explains Dr. Walden, "but it is because other taxes in our state are low.
"Now let me explain: North Carolina, unlike most states, finances about 90 percent of its highway spending from the state level. Local governments are hardly involved at all. Therefore North Carolina relies on state level taxes to finance highways -- and primarily again this is the gas tax," he adds.
"In other states where local governments share in paying for the roads, they rely not on a local gas tax -- in fact, that's very unusual -- they rely on the property tax.
"So in a nutshell, the reason North Carolina's gas tax is high is because our local property taxes are lower than they would have been if local governments had gotten into the act of roads," he concludes. "And, indeed, our local property taxes are very low, both nationally and compared to other southeastern states."
June 06, 2007
What drew the immigrants here?
North Carolina has been a leading destination for immigrants, particularly from Mexico, in recent years. Economist Mike Walden explains why.
"It comes down to one word: jobs," says Dr. Walden, a professor of agricultural and resource economics at N.C. State University. "We see that the states where recent immigrants have settled in the U.S. are the states with the fastest job growth. And North Carolina has been one of them.
"And recent immigrants especially have taken jobs requiring lower skills or skills that can quickly be taught," he adds. "And this is really resulting from the fact that we have had a labor shortage for folks that typically take those lower paying, lower skilled jobs, usually young people.
"We have a labor shortage for two reasons: One, declining birth rates in this country. And, secondly, more people who are in that age bracket -- say 18 to 30 -- are going to college. So there has been a need to have new folks come in, and they have come in via the immigration route to take those entry level jobs.
"So you can really say ... simple economics is behind the new wave of immigration," he concludes.
June 05, 2007
Money and happiness
There's an old saying that money can't buy happiness. Yet most of us certainly like to get more money. So which is it? Can money buy happiness or not? N.C. State University's Mike Walden says yes, up to a point.
"Studies show that citizens in countries where average incomes are higher do respond to surveys saying that they are happier. Yet it is not a straight-line trend," says the economist. "Happiness does rise on average as income rises, but the rate of increase seems to slow down at higher levels of income.
"And actually there is an economic principle here that I think will explain this: Generally speaking the more we have of something economically the less valuable each additional unit of that is," he says. "Think about eating say hamburgers: Your fourth hamburger isn't going to mean as much to you as the first one you ate when you were very hungry. Well the same thing here: Certainly we can do more with money the more we have, but each additional unit the more we have probably gives us less happiness.
"So although I think you can generally say that there's a correlation between money and income and happiness," he concludes, "again it's not a straight line. And higher income people may very well at some point say they are going to defer some money in order, for example, to spend more time with their children or generally have more leisure time."
June 04, 2007
Is it a great time to be a homebuyer?
It's said that today there's a buyer's market in housing. And even though potential homeowners hear about rising interest rates, falling home prices and bankruptcies, N.C. State University economist Mike Walden says it is actually a good time to buy a home.
"It really is ... because these negatives that we hear about in the homeownership market really are not going to last. They are temporary," says Dr. Walden. "And really today is a pretty good time. I mean this is sort of taking a contrarian approach, when the news is kind of gloomy you want to buy.
"But let's look at the keys here:
"Interest rates -- interest rates are certainly higher than they were at their low back in 2003, but they are still much under their high earlier in this decade," he explains. "They are very affordable when you look at many decades of interest rates.
"Inventories -- housing inventories are high. That's bad for sellers, but it's good for buyers because that means those sellers are more likely to negotiate on the price," he adds.
"Likewise we hear about bankruptcies, and we hear about people getting bad mortgages. Well, this is a matter of education. You do need to look at the mortgage products, the alternate mortgage products," Walden continues. "If something sounds too good to be true it probably is. But there are a lot of very, very good mortgage products out there. Most lenders are very reputable. So again I wouldn't let all that bad news deter you from taking out a mortgage.
"So when you wrap all this together," he concludes, "I would argue that, yes, now is a very good time to buy a home."
June 01, 2007
Required savings rates
Everyone knows it's important to save for the future, especially for retirement. How much you need to save depends on how soon you get started, says N.C. State University's Mike Walden.
"So let me give our listener some guidelines: First of all, how much you need to save for your retirement is crucially -– crucially –- going to depend upon when you begin saving," says Dr. Walden, a extension economist. "For example, if you are a typical young worker, say age 30, and you plan on getting Social Security, in order to reach standard replacement income levels when you retire, you will need to save about 10 percent of your income. So figure on banking 10 percent of your income each year toward your retirement.
"But if you wait until you are age 40 to start ... saving, then you have to save 18 percent of your income. And if you wait until age 50, you are going to have to put away about a third -– 30 percent of your income -- in order again to meet those targets for retirement living," he says. "So with saving for retirement, it's not all about how much you save, but it's more important when you start saving. And here, earlier is better."