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January 31, 2008

Country size

A lot has changed in the world in recent years. Bring us up to date on what the leading countries are in terms of size, both by population and economy. Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, first looking at population, the top 10 are China, India, the U.S., Indonesia, Brazil, Pakistan, Russia, Bangladesh, Nigeria and Japan. Now, I think may people would be surprised to see the absence of any western European country and also the fact that Russia has dropped way down the list after the breakup of the Soviet Union. Some people may also be surprised to know that the U.S. is now the number three country in terms of population.

"But when we look at size of the economy, we get a different perception altogether. In all measures of economic size - and there are several - the U.S. is clearly number one. And then, depending upon what measure you use, you either have Japan number two, then Germany, China and the United Kingdom, or a different measure has China number two followed by Japan, India and Germany. So a lot has changed in recent years."

Posted by Dave at 08:00 AM

January 30, 2008

Impact fees

Several North Carolina cities will be considering impact fees in 2008. These are fees that are typically charged to new residential construction for the purpose of paying for new public services required for those homes. What are the economic impacts of impact fees? Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"There are two economic issues here. First, there's the issue of whether impact fees are needed. Do you need to have new homes pay more above what they would normally pay in property taxes and other taxes for the services they require? There's a debate over this, quite frankly. Different studies come to different conclusions. It depends on the types of taxes that you're considering, the size of the new costs, etc. So that's really an unsettled debate.

"The second issue is if you do have impact fees, what's going to be the impact of those fees on the housing market? Now, clearly these fees are going to increase the cost to someone buying a home. Typically, at least part of that fee, even if it's paid by the developer, is going to be passed on to the buyer. So then the question is: What does the buyer get for that fee? If the funds go to, say, general spending, if they don't actually see where the money gets spent, then I think what you'll see is that purchases of homes will drop because people will see a higher price for a house - they don't get anything for that higher price - so we'll see some reduction in home buying. On the other hand, if the money from the fees goes to a public service that the buyers can easily see, like widening a road next to their new subdivision, then - and if they value that - then you can actually find that impact fees don't adversely affect purchases because people are saying, 'Alright, I'm paying this fee but I'm getting something back that I value.' Therefore, they're not going to change their perception on whether to buy that house or not."

Posted by Dave at 08:00 AM

January 29, 2008

Should you really want a tax refund?

One of the things that people think about at the start of the year is their tax refund. People eagerly await a check from the IRS and plan how to use the money. But does getting a tax refund really make economic sense? Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"It really doesn't. I know that's going to surprise many people, but it really doesn't make sense to get a tax refund because, think about what you're doing, you've actually given the government free use of your money. Over the period of time that the government has had your money, they're not going to pay you interest on that money. If you give money to a bank or savings and loan or credit union or buy a CD, you're going to get interest on that while that institution is using your money. The government's not going to do that with your taxes. So if you have too much withheld from your check, you're giving the government an interest-free loan. It's better to try to gauge your withholding to hit as close as possible to a zero refund.

"Now some people use overpayment and their refund as a method of forcing themselves to save money. There are other ways to do that. You can set up accounts where there will be money automatically withdrawn from your paycheck and put into a savings account, where you get interest. So you shouldn't really celebrate if you get a big tax refund. What you should do is look at your withholding and, again, try to hit as close as possible to that zero mark."

Posted by Dave at 08:09 AM

January 28, 2008

Oligopolies

Economists argue that competition between businesses is important to markets, working to the benefit of consumers, but what happens when there aren't many businesses doing the competing? Does the economic model fall apart? Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, the competitive part of the model can fall apart. And we actually have a name for industries where you have only a handful of businesses competing, and we call that as you mentioned "oligopoly." Two good examples, the U.S. auto industry in the 1950s, where you had essentially three or four companies selling all the cars to Americans, and also here more closer to home would be the tobacco companies, the cigarette companies.

"Now, firms in an oligopoly can compete, but the worry is they won't. Instead of competing, they will cooperate. And that cooperation can lead to higher prices for consumers. Now, actually there are laws on the books against cooperation between firms instead of competition. Those laws are strictly enforced. But oligopolies have actually become less of a power today because of technology and globalization. Again, think of our auto companies. Now they have to compete with auto companies around the world. And that's good news for consumers because more competition generally means lower prices. But it's sort of bad news if you are one of those old companies, because today I think it's much harder to successfully run a business."

Posted by Dave at 08:00 AM

January 25, 2008

Starting a business

The new year is always a time to set plans and goals. One economic goal that many people have is to be their own boss by starting their own business. What advice do you have for these folks? Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, I would certainly encourage people to pursue this dream or goal, but I would also encourage them to be realistic. The number one question you have to ask and hopefully answer if you want to start a business is: Why would anyone come and buy from you, buy what you have instead of going to a competitor?

"Now, one reason may be no one else has what you have to sell, but then you are creating a new market, so you still have to worry about getting buyers. How are you going to attract them? Are you going to attract them with a new or better product, better service, better location, better price? You have to fundamentally answer that question.

"The next thing you have to do is draw up a business plan. This is going to include projections for your cost, for your sales, for your profits and very importantly, when you are sketching out your profits, remember to include as a cost your time.

"And then lastly, something that people don't want to think about, but is absolutely necessary you do, is have an exit strategy. If things don't work out, have a plan for when are you going to shut down, how are you going to pay off losses if you have them and think about that. Hopefully, that day will never come, but you do have to consider that as part of the goal of going into a new business."

Posted by Dave at 08:00 AM

January 24, 2008

Wealth and spending

One of the concerns about the struggling housing market is that as prices potentially drop, so too will consumer spending. And since spending by consumers accounts for 70 percent of total economic activity, if consumers sneeze, the economy can catch cold, something you economists call a recession. What about this worry? Is it legitimate? Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"It is, but we need to look at the numbers to see how much of a worry this is. Now, the growth and wealth in people's homes has actually slowed to virtually nothing in the most recent data. But the good news is that wealth from other sources, like the stock market and other kinds of investments, has been rising enough to cause total household wealth to still go up.

"So we've not actually seen a decline in total household wealth, although the housing market has stalled. Now, another good piece of news is that studies show that any decline, if we did have a decline in household wealth, actually takes a while to effect consumer spending, maybe up to two or three years. So if we do have a decline, say in 2008, in household wealth, which could potentially affect consumer spending, that adverse affect on consumer spending probably won't show up until 2010 or 2011. So the bottom line is that household wealth is important to consumer spending, but I think a much bigger and more important factor behind consumer spending is jobs."

Posted by Dave at 08:03 AM

January 23, 2008

Income and spending inequality

It's commonly observed today that income inequality has increased, simply meaning that the amount of income various household categories have is more different today than in the past, but has this led to an increase in spending inequality among households? Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Actually it's not. And just to elaborate a little bit. We have seen income inequality grow larger. That is, higher income people have actually seen bigger increases in their income over the last couple of decades than lower income people have. And what some have questioned is whether this has led to bigger differences in spending. And the answer is actually, "no." Now clearly higher income people are able to spend more than lower income people. But that gap in spending has actually not increased as the income gap has gotten bigger.

"Now, why? Well, one reason is that higher income people tend to save more money. They don't spend it all. And another reason is that we have seen a large increase in the amount of income that we, through various programs, transfer effectively from higher income people to lower income people. And then I think a third big reason is that we have actually seen price declines for so-called necessities as well as for some luxuries, and that has sort of leveled the spending field for both the rich and the poor."

Posted by Dave at 08:00 AM

January 22, 2008

The fair tax

Something called the "fair tax" is being discussed in the presidential campaigns. The term sounds appealing. How can anyone not be for a tax that is labeled "fair?" What does this fair tax involve? Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, what it boils down to is to have a national sales tax that would replace the federal income tax as well as the payroll tax. Of course, the payroll tax funds Social Security and Medicare. So you would get rid of those two taxes and you would have a national sales tax. And that national sales tax would be used to fund the entire federal government.

"Supporters say, number one, that the rate would not be very high. It would be around 23 percent, but again you have to remember that it is replacing those two taxes that I mentioned. Supporters also say that the tax could be progressive, meaning that higher income people would actually pay a relatively higher percentage, because what you would do is you would have rebates that would be sent back to people, rebates of some of their tax based on their income level. Lower income people would get more of a rebate than higher income people. And supporters also say that the fair tax would promote savings and investments in the country. And it would just be a simple tax, because it would end all preferences that you currently have, for example, in the income tax.

"Now there are skeptics. Skeptics, I think number one, question whether the rate could be only 23 percent. There are some estimates that it would have to be in the 30 percent range. And also skeptics question whether you really want to finance the federal government solely on spending - consumer spending - rather than a broader base like income. But I think we will hear more and more about the fair tax as the presidential campaign moves along."

Posted by Dave at 08:00 AM

January 21, 2008

North Carolina passes a milestone

North Carolina's population now tops 9 million, but perhaps just as significantly, while the population growth rate in some of the nation's fastest growing states has recently slowed, North Carolina's has actually speeded up. What's going on here? Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, if you look at this decade, states like Texas, Florida, Georgia and Arizona, they have all been the states that have grown most rapidly in population. But what's very interesting over the last year, looking at 2006 to 2007, is the rate of increase in population in all those states has slowed dramatically.

"In contrast, North Carolina, which has been among the top five fastest growing states, actually saw its population grow faster in 2006 and 2007. So we sort of catapulted ahead of fast-growing states, where as these other top growing states slowed down.

"So, of course, the next question is why? And I think a couple of things here. I think one is the good job market relatively in North Carolina. Our job base has been growing faster than the job base in other states. And secondly, the housing crunch. There's a lot of headlines about the housing crunch. The housing crunch simply hasn't hit our state as hard as it has other states. Therefore, I think more people have been attracted to come here."

Posted by Dave at 08:00 AM

January 18, 2008

Why counties will be building roads

A new law in North Carolina allows county governments to build roads, something they've not been allowed to do since the 1930s. The state and federal governments now finance all road work in the state. Will this new law gradually shift road-building responsibility to counties? Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"I think it will because when you combine it with the fact that the state now caps the state gas tax at around 30 cents a gallon, what this will mean is that as inflation continues, which it will, and road costs go up, that 30 cents a gallon the state collects will buy less and less material to build roads. Therefore, the state simply won't have as much money in purchasing power terms to build and maintain roads down the line.

"So the counties will be left holding the bag, so to speak. They will be left with facing the responsibility of increasingly building more roads. And then I think the big question is, How are they going to finance that? We could, for example, have a county gas tax. That would take legislative authority, but that would be just as unpopular as the state gas tax. We could have the counties get additional authority for a new sales tax, and again that needs legislative authority. The only tax that counties have total power over is the property tax. So my forecast is that as we move along you will see more and more counties asking voters and citizens in their county to allow them to tax property more in order to finance roads in their area."

Posted by Dave at 08:00 AM

January 17, 2008

Health care and education

Health care and education have much in common. They are two of the fastest growing industries in the country, especially in employment. And health care and education costs are rising faster than the general economy. What's behind these trends for health care and education? Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"That's a very interesting question. There are a couple of factors here. First, as our country's standard of living has risen over time, health care and education are two sectors that people want more of, what economists call luxury goods. Use rises rapidly as income rises. Secondly, these are sectors where both supply and demand pressures are pushing prices up. On the supply side, both health care and education are sectors that are regulated, either through rules or accreditation, which means that supply increases relatively slowly. But on the demand side, you have the government involved very heavily in terms of subsidies if not outright payment for the sector, so you've got rising demand, you've got supply that's not going up as fast. That's a perfect recipe for increasing prices.

"So I think as these sectors grow further in the future, we may want to look at issues related to pricing and costs. I think you have to, therefore, look at these fundamental supply and demand questions."

Posted by Dave at 08:00 AM

January 16, 2008

Two parts to your pay

A new year is a time to review our financial situation, and for most people, the biggest component is their paycheck. But does your pay stub tell the whole story about what a person is paid? Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, there really are two parts to most people's pay. There is, of course, the part that we see and focus on in our check. That's our wage or salary, and this, of course, is the money we use to buy groceries, pay the rent or mortgage and handle other bills. But there's another part that sometimes I think is invisible to the employee, but it's very visible to the employer, and this is the cost of benefits. This is what the employer is paying to provide such things as health insurance, if it's provided, vacation and sick leave and maybe even disability and injury insurance. And importantly for employers who do pay these kinds of benefits, they can add up to 30 percent of the total cost of hiring people. These are very, very important. The bottom line, of course, is employees often don't recognize them and they don't really see them directly in their paycheck.

"Now some employers are smart, and I've seen this, where at the end of the year they will provide to their employees a summary that lists both the wages and salaries they've paid in cash to their employees and also it will note how much the benefits they have contributed for the employee, how much those have cost. And another very practical point here is that when you're comparing jobs, clearly, you want to include the cost of benefits in your comparisons."

Posted by Dave at 08:00 AM

January 15, 2008

What are sub-prime loans?

We're hearing the term sub-prime loans used in connection with the turmoil in the housing and credit markets? Is there a precise definition of such loans, and just when did they become a major part of the mortgage market? Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, this is one of those terms that is thrown around a lot. We hear it in the media all the time, but people may not know exactly what is meant. And unfortunately we don't have a formal definition of sub-prime loans. But in the lending industry it typically refers to a borrower that has very low credit score number one - who also may have become delinquent on some form of debt repayment in the past year or two, and who may actually have filed for bankruptcy.

"So traditionally these folks were not good credit risks, and they were actually shut out of the mortgage market. And they couldn't obtain a traditional home loan, and, therefore, most of them couldn't buy homes.

"But there were changes, first of all in regulations, then in credit instruments, and then with the expansion of credit availability such that the sub-prime mortgage market began to expand first in the mid 1990s and then even more so this decade. And importantly it has expanded to include borrowers who are making, for example, no down payments and who are providing little financial documentation.

"So this was all good at the time in the sense that this allowed more people, people who were considered very poor credit risks traditionally, to get into the home market and buy a home. But now as credit standards have tightened - interest rates have gone up - obviously many of those folks are finding that they are in financial trouble."

Posted by Dave at 08:00 AM

January 14, 2008

Is inflation back?

The latest inflation numbers were ugly. Both wholesale and retail inflation were up at rates not seen in many years. Importantly, at the retail level, inflation was up even after stripping out energy and food prices. Are we headed for the worst of all worlds, slower economic growth and faster inflation? Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"We have a word for that; we call that 'stagflation.' That's when the economy is growing very slowly and unemployment goes up, but you also have rising prices. The worst stagflationary period we've had was in the late 1970s, when we had both double-digit unemployment and double-digit inflation. Now, economists don't think we're going to get back to that level. The worst-case scenario, I think, would be that we maybe see 5 percent unemployment in 2008 and maybe 4 percent inflation. But that would be the worst combination in several years. Now, the Federal Reserve is watching this. I think this is one reason why they've been fairly timid in lowering interest rates because if you worry about inflation, you don't lower interest rates. You keep interest rates high to try to keep a lid on economic growth. One bright spot in all this news is that the Fed's favorite inflationary measure is not one that you mentioned, it's something called the personal consumption deflator. That has still been very well behaved. That's been hovering around 1.5 to 2 percent, so I think the jury's still out on whether we do have an inflation problem, but it certainly bears watching."

Posted by Dave at 08:00 AM

January 11, 2008

The tumble in profits

Most of us work for private companies. To do well and hire more workers, private companies have to earn profits. What's been the trend in company profits and what's the outlook? Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"This is actually one of the most important indicators in the economy, one that people can keep track of, I think, to get a pretty good take on where the economy is going to go. Corporate profit growth was very, very strong in recent years. In 2004 and 2005, for example, corporate profits grew near 30 percent, and that's after taking out taxes and after adjusting for inflation. I think that's one reason why the stock market has done very well in recent years. But in 2006, corporate profits grew at only a 10 percent rate, and this year (2007) it looks like they won't grow at all (0 percent). The outlook for 2008 is slightly better, maybe corporate profits will be up 3 percent. Now, besides this affecting shareholders and investors in the stock market, as you say, this will affect hiring. The bottom line is, companies need to make profits. The more profits they make, the more they're going to expand. The more people they're going to hire, so I think the somewhat glum look and outlook for corporate profits for '08 is one reason forecasters are looking for a very modest hiring trend next year."

Posted by Dave at 08:00 AM

January 10, 2008

Why haven't gas prices crippled us?

Gas prices are up almost 200 percent this decade. Today, gas costs nearly $3 a gallon, but 10 years ago, gas cost only $1 a gallon, and in the early '70s, it was 50 cents a gallon. You'd think this would put our economy into a recession if not depression, but many economists say, "no." Why? Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"I think there are three reasons. First of all, with any price - gas, the price of bread, the price of eggs, it doesn't matter - when you're comparing that price over time, you need to adjust for general inflation. Economists call that converting from nominal dollars to real dollars. When you do that for gasoline, yes, gas prices have certainly gone up in the last 10 years, but they are about at the same level in inflation-adjusted terms today as they were in the early 1980s, so - bottom line - gas prices have not gone up as much when you take into account general inflation.

"The second major reason is efficiency. I think this has really been a fact that people have not seen really emphasized enough, and that is that our economy has become a much more efficient user of energy. In fact, our overall efficiency rating has improved 50 percent since 1970, so when the price of energy like gasoline goes up, yes, that does affect us, but it doesn't affect us as much because we're spreading that cost over more income than in the past.

"And then thirdly - and this is a compilation of the first two things - is that if you take a simple measure: how much of total spending, particularly by consumers in the economy, is taken up by expenditures on gas and oil and how that has changed, today that number comes to 3.5 percent - 3.5 percent of all consumer spending is on gasoline and oil. It's higher than it has been in the recent past, but in 1990, it actually stood at 3 percent. So, yes, things have gotten more expensive energy-wise, but in terms of the take from our total spending perhaps not as much as many people think."

Posted by Dave at 08:00 AM

January 09, 2008

What's the LIBOR?

One of the reasons the Federal Reserve has been lowering interest rates is to help homeowners who have adjustable rate mortgages. Lower interest rates can mean those borrowers will still have affordable payments, but some adjustable rate holders aren't seeing their rates fall because they are tied to LIBOR. What is LIBOR? Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, LIBOR stands for London Inter Bank Offered Rate. Translated, this is the interest rate that banks that are located in London - which is one of the major financial capitals of the world - charge each other for loans.

"Now you might say, 'Well, so what?' Well, the 'so what' is that many U.S. adjustable rate mortgages have their interest rates tied to the LIBOR. And the LIBOR is not controlled by the Federal Reserve here in the U.S.

"So, the bottom line here is that you are absolutely right, the Federal Reserve has been pushing rates down. They've been, in part, doing that to try to help borrowers with adjustable rate mortgages. But if you have an adjustable rate mortgage tied to the LIBOR, you may not have seen your interest rate go down.

"And so this presents an issue obviously for policy makers who are trying to contain the housing credit crunch because we have a key interest rate here that's really outside of U.S. public control."

Posted by Dave at 08:00 AM

January 08, 2008

Costs now and costs later

In making the purchase of something that will last a long time, economists recommend that buyers consider not only the purchase price but also the annual operating costs. For one very popular durable purchase, the annual operating costs may be significant, but few people are aware of this. Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, the product we are talking about is flat screen TVs. And recent analysis shows that the annual operating costs in terms of electricity you need to run them can be four to five times higher than for a conventional TV. And some energy experts worry that as the public changes en mass to these new TVs, there is going to be a significant uptake, up tick, I should say, in total energy use in the household and, of course, in the nation. However, I should point out that these higher energy costs for flat screen TVs could be offset by lower energy costs elsewhere. For example, if people with flat screen TVs don't go to movies as much due to the TV's quality, then they are going to save money and energy on travel, and theaters are not going to operate as much. So - bottom line here, of course - is we are not telling people not to buy flat screen TVs but to try to make their decisions with full information. Try to get data not only on the cost of the TV - the installation cost, etc. - but also on the energy expenditures. And make your decision based on that full knowledge."

Posted by Dave at 08:00 AM

January 07, 2008

The Fed and interest rates

The Federal Reserve's actions are often confusing. The Fed has substantial influence over interest rates, but it seems like one year they push rates down, then another they go up, then it's back down again. What's up - an down - with the Fed's interest rate policy? Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, you're not alone, I think, with being confused sometimes with government policy in general, but, in particular, the Federal Reserve. I think the way to explain this is that the interest rate policy that the Federal Reserve follows is sort of like your gas pedal in your car.

"When the Fed thinks the economy needs a little more gas, they are going to push interest rates down. And when they feel like the economy perhaps is going too fast and may veer off the road, they will pull interest rates back and push them up.

"And so, for example, if we go back to the period of 2001 to 2003, the Fed was pushing interest rates down because we had, among other things, a recession earlier in that period. Then we got faster growth in 2004 to 2006, so the Fed was pushing interest rates back up. And now, with the economy being slower again, the Fed has gone the other way, and they are pushing interest rates down.

"So there is a constant balancing act here that the Fed follows. And their policy is not without criticism. There are some very imminent economist over time who have said that this kind of back and forth in Federal Reserve interest rate policy may actually contribute to more economic booms and busts than it solves, and they would rather see the Federal Reserve have a much more stable interest rate policy."

Posted by Dave at 08:00 AM

January 04, 2008

Origins of the housing crunch

The housing slowdown has come to North Carolina, with new construction off almost 15 percent in 2007 and price appreciation down. Can economists point to a reason why we had first a boom in the housing market and now a bust? Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"I think we can, and what we say is there is a relationship between the ups and downs of the housing market and the level of interest rates as well as credit availability.

"The Federal Reserve in particular made money very easy to get in the early part of this decade as a reaction to Y2K, 911 and then the recession. And a lot of this money went into the housing market. And I think demographics also helped.

"Then, once the Federal Reserve viewed that the economy was back on its feet - they do not ever want to leave interest rates at the low levels that they had pushed them to. For example, one of their key rates was down as low as 1 percent, so they began raising interest rates in 2003 and restricting credit.

"So the conditions that had pushed the housing market to very high levels were now reversed. And, for example, people who had taken out adjustable rate mortgages, as those rates went up, they found perhaps they couldn't afford them. Higher interest rates also made new buyers not as available. And so we got this total reversal in the housing market. And I think what this shows is the perils of fighting one problem - that is, all those three problems, Y2K, 911 and the recession - at one point in time may create problems, other types of problems, down the road."

Posted by Dave at 08:00 AM

January 03, 2008

Are we better off than our parents?

One of the great achievements of the American economy was that children always did better than their parents. Children typically earned more than their parents and were able to have a higher standard of living. But some question whether this pattern is still occurring. Is it? Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, this may be the big economic question of our age. And as you might expect there has been a lot of research done by economists to try to answer the question. And as you look at the research and the research results, I think three major conclusions are reached.

"Number one, if you look at the income of the current generation, and you compare their income to that of the previous generation, and of course, you adjust for inflation, you see that current incomes are higher. In fact, they are significantly higher. But in most cases you are going to see a difference based on where you are on the income ladder. The biggest gains have been for the highest-income households.

"The second conclusion, however, as you look behind those averages, you see that - and again directly answering your question - about two-thirds of Americans have higher real incomes than their parents. But one-third have lower incomes.

"And then the third major conclusion is that in terms of a person's position on the income ladder, the biggest percentage of people remain at the same relative position in their lifetime as did their parents."

Posted by Dave at 08:00 AM

January 02, 2008

Are we losing scientists?

There's a widespread concern that not enough students are pursuing degrees in science and engineering in the U.S., and that this situation will adversely impact our country's competitiveness in the future. Is this concern overstated or is it real? Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, as with many of these issues, there is truth on both sides. On the good news side, the fact is that the number of science and engineering workers in the U.S. has actually been rising almost 3 percent a year, rising faster than the workforce. And the supply of PhDs in these fields is also increasing. So we do have people working in these areas, and more and more of them are working in these areas. I think what's changed is that it used to be the U.S. was very dominant in the world in science and engineering, and that is no longer the case.

"Developing countries in Asia, particularly China and India, are rapidly increasing number one, the amount of money that they are spending on scientific fields, and they are increasing the number of scientists very dramatically. So I think the day is not far off where we'll be at parity. And we may even see the day where the scientists in China and India will dominate our scientists and engineers just in raw numbers. Now the concern is whether that will cause us to slide back or not. Some worry that the big increase in scientists in Asia will mean that all the scientific work will go there. Others say, 'No, no, there will be enough increased work to go around, Asians will do their scientific work and the U.S. will do their scientific work. And there will be more for everyone.' So we'll obviously have to wait to see what happens."

Posted by Dave at 08:00 AM

January 01, 2008

Do drivers respond to gas prices?

Gas prices continue to go up, but it seems as if drivers just keep driving more and spending more on gas. We know economists claim that as the price of something goes up, people are motivated to use less of it, but is this economic idea not working for gas? Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, as in many areas in economics, many factors influence what we do, and it's often hard to ascertain or pinpoint the influence of one factor. But regarding gasoline, careful studies show that people do respond to increases in prices. They do reduce their driving. Rule of thumb is that every 10 percent increase in the price of gas results in a 1 to 3 percent drop in driving. But there are other things that may motivate us to do the opposite, use more gas - for example, increase in income.

"The same studies show that every 10 percent increase in income results in as much as a 3 percent increase in driving. So you have to be careful when you're looking at the net result and not confuse that by singling out one factor. And I think what's been going on recently is that, yes, higher prices have actually motivated people to cut back somewhat on their driving. In the sense that you look at miles driven, they've been going up, but going up slower than in previous years. But you have to recognize that as people earn more money, and on average, people are, that's actually motivating us to drive more. So again you really have to be careful assigning cause and effect here."

Posted by Dave at 08:00 AM