« April 2008 | Main | June 2008 »

May 30, 2008

Is North Carolina doing better?

Traditionally, North Carolina has suffered more during economic slowdowns or recessions. For example, in the last recession of 2001, the state's jobless rate was the fourth highest among all states. Will North Carolina's unfortunate ranking be repeated in today’s slowdown or recession? Listen

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

"Well, so far we would say no because so far the statistics indicate North Carolina is actually doing better. Now we are suffering, we are seeing an economic slowdown, but, for example, the housing market is down, but it's down only two-thirds as much as the nation. Home prices in North Carolina are holding up much better than in the nation. Foreclosures are up, but the rate is 30 percent lower than in the country. In terms of jobs, yes, our unemployment rate is up, but the rise has been slightly slower than the national increase. One reason for this relatively good news is that manufacturing has actually been on a boom in North Carolina. Manufacturing output over the latest period has been rising 50 percent faster here in North Carolina than in the nation. And although we are still seeing jobs being dropped from our traditional manufacturing sector, the rate of decrease has slowed. So yes, we are seeing a downturn, a slowdown if you will, in the North Carolina economy, but it is less steep so far than in the nation, and we certainly hope it stays that way."

Posted by Dave at 08:00 AM

May 29, 2008

A new economic superpower

When we talk about leading economic powers in the world, we're used to mentioning the U.S., Germany, France, the U.K, Japan, and now China and India, but another country may be on the verge of becoming part of the economic elite. Listen

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

"It's one of our neighbors to the south named Brazil. Now, Brazil is a big, big country in terms of land area - in fact, almost as big as the U.S. just in terms of geographics. But it's also now a big country in terms of people. It's approaching 200 million people. In comparison, the U.S. has 300 million people. And it's also growing at a very rapid pace economically. In fact, its growth rate has averaged in the last couple of years 5 percent a year. In contrast, the U.S. economy right now is growing at about .5 percent a year. And then I think a recent change or really discovery has really brought attention to Brazil, and that is that a major new reserve of oil has been discovered off the coast of Brazil. And many say this is going to be a major production facility for oil that not immediately, but down the years, down the road, is going to push Brazil into being one of the major oil producers in the world. And that also will contribute to it being an economic superpower."

Posted by Dave at 08:43 AM

May 28, 2008

Job turnover

It seems that people who work for the same employer for most of their careers are unusual these days. Are workers really changing jobs more frequently today than in the past? Listen

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

"They really are. In just the past five years, what's called the job turnover rate has increased almost 20 percent, and I think there are several reasons for this. First of all - and this is obvious - there have been big changes in the economy. People know, especially here in North Carolina, whole industries have downsized or almost disappeared, while new ones have become more prominent. So people have been forced, in many cases, to change jobs simply because where they're working no longer exists. Secondly, there's much more competition today in the economy than in the past. We've had deregulation. We've had globalization. So more companies are coming and going, expanding and contracting, and obviously that creates more opportunities for job change. And thirdly, workers today are acquiring more education, sometimes even in the middle of their work life as industries and companies change. And that also allows them to change careers. So you're absolutely right, the average person's going to change jobs several times over their work career."

Posted by Dave at 08:00 AM

May 27, 2008

Energy use

There's a national focus now on being more energy efficient. It seems as if we Americans have a reputation for being energy gluttons, and our consumption has gotten greater over time, but is this a well-deserved reputation? Listen

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

"You know, I think many people would say 'yes' but actually the statistics say 'no.' If you look at how much energy in our country each person uses, that number has not changed in the last 35 years, despite the fact that we are using more electronics, computers, gadgets, cell phones, etc. And the reason is we have become much more efficient users of energy. Let me give you one statistic. In 1970 the average car was driven 10,000 miles each year, and that used 737 gallons of gasoline. Today the average car is driven over 12,000 miles a year but uses only 554 gallons of gas during that time period. And you find the same thing with most household appliances. So we're actually getting more out of each unit of energy that we use. And I think this is where many economists say we have to go in the future. If we don't see some special new form of energy that's going to cause us to reduce our use of oil, etc., the only way we're going to accommodate more total energy use is by becoming more energy efficient. But the good news is that is exactly what we've been doing."

Posted by Dave at 08:00 AM

May 26, 2008

Stockpiling food

People are beginning to do something that hasn't been done widely since the 1970s. They're stockpiling food. Certainly a big reason behind this has to be the faster rising prices for food, but is this always a good idea? What are the pluses and the minuses of stockpiling food. 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 obvious plus is that if you do expect food prices to rise very rapidly in the future, then buying today means you get a much lower price. Although I should caution people in saying although there is a lot of headline inflation related to specific items like meat and eggs and bread, overall food inflation is actually not that bad. It's about 4.5 percent. But never the less, if you think the items you are interested in are rising rapidly, then buying earlier makes sense. But there are costs to this. Number one, you have got to store the food somewhere. So you've got - unless you have excess space in your home - you've got to find places to put that food. Another cost recognized is that you've got your money tied up in this food that you've stockpiled. Think of it, what you're really doing is investing in food because you're worried that it's going to rise in price. So for example, if you think food is going up, let's say at 4 percent a year, and you're buying that food - more food than you need right now - stockpiling it, it's like earning a 4 percent interest rate. But the way you should look at that is say, Well could I invest my money somewhere else and earn more than a 4 percent interest rate? So you need to recognize these costs and benefits. And then I guess the final thing I would say is that many economists are thinking that we've actually seen the worst in food price inflation, and actually, as we move through the year, food prices will begin rising closer to maybe 3 or 3 and a half percent. So you have to ask yourself the question, Are you just going with the flow here or are you just caught up in the moment? And is this not really something good for the long run?"

Posted by Dave at 08:00 AM

May 23, 2008

Is it still a recession?

The government recently said the economy grew in the first three months of the year, although at a very slow pace. How can the economy be growing if we're in a recession? Listen

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

"Indeed, the broad measure of growth in the economy, something we economists call Gross Domestic Product, did expand in the first three months of this year by .6 percent. That's the same rate as it expanded in the last three months of 2007. So this indicates that we are growing - the economy is expanding - but at a very slow rate. Now there used to be a definition of a recession that said that you had to have two consecutive quarters - that is, six months - of negative growth in GDP, Gross Domestic Product, that is, that number should be negative. Obviously, it has not been negative, yet many people say we are in a recession. So how can you reconcile these two things? Well, the way you do it is that there is a new or modern definition of a recession. The modern definition of a recession is actually somewhat vague, but it says that there has to be a broad slowdown in the economy, and the people that make the call as to whether there is a recession look not only at the measure we're talking about, but they look at the employment market, they look at how sales are doing in many sectors of the economy. And so that requirement that Gross Domestic Product be negative for six months is no longer valid. And in fact, if you go back to the recession of 2001, we did not have two consecutive quarters of negative growth, and yet we obviously did have a recession. So stay tuned, we really won't know if we're in a recession probably until about six months into the future. But right now, it has all the signs of a broad-based slowdown."

Posted by Dave at 08:10 AM

May 22, 2008

Taxes and growth

There's a long-running debate about the impact of tax levels on the speed of economic growth. Economists have been interested in whether higher relative tax payments slow down economic and income gains. What does the latest research say about this? Listen

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

"There has been a long history of research on this very important topic. And we have a new study, just came out from the very prestigious National Bureau of Economic Research. How they measure taxes was taxes paid by households and businesses as a percent of total income. So for example, do you pay 20 percent of your income in taxes, 30 percent of your income in taxes, and then they looked at that for the entire economy. And what they did find in their analysis was that if that percentage increased - that is, if you went from paying 20 percent of you income in taxes to 30 percent of your income in taxes - there was a correlation of that increase with slower economic growth. So higher relative tax payments - and this is all done at the national level - does seem to be related to slower economic growth. However, they also found that the adverse effects of those higher relative tax payments on growth are reduced if the increase in taxes was used to reduce the budget deficit and to reduce the national debt. And I think these findings are sort of in line at least with what I perceive people think about. They understand that they don't like to pay higher taxes and, indeed, if there are higher taxes, they may work less, and that may slow the economy down. On the other hand, they know we have a national debt and they think, well, if those higher taxes are going to go for reducing that debt, I'm willing to do that. I won't change my behavior. And it's kind of nice to have a piece of research that dovetails quite nicely with what people in general think."

Posted by Dave at 08:00 AM

May 21, 2008

Is the world really flat?

Several years ago, the term "a flat world" was popularized as a description of a globalized economy. What does it mean to say the world is flat, and is the analogy accurate? 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 hear this term now all the time, and what it means is that modern communication and technology now allow anyplace in the world virtually to compete with any other place. So for example, now factories in the U.S. and North Carolina are competing with factories in Europe and South America and Asia. So the term "flat world" means there is no advantage to location. Work is going to go wherever the costs are lowest. But not everyone agrees. Some economists say there is still an advantage of being in a particular location. And they say there are two advantages. One is the advantage of being close to your customers. For example, let's take furniture. We all know a lot of furniture building has gone to China, but there is a market in the U.S. for customized furniture, for people who want a particular kind of furniture. And there is also a market for servicing that furniture after the sale. So, therefore, for that market actually there is an advantage to have the company here in the U.S. The second advantage of location might have to do with being close to creative people. People are different around the world. One of our benefits here in the U.S. is that we have a lot of creative people. So folks are saying that yes, for some things the world is flat, but for other things the world is spiky because of creative people and because of the advantage of being close to your market."

Posted by Dave at 08:00 AM

May 20, 2008

The highway fund transfer

There's an ongoing debate about money in the state's highway fund not being used for roads but being transferred to another government fund for other uses. Can you enlighten us on the details of this debate? Listen

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

"And this is a debate, and you hear it being mentioned now, and let me try to set the record straight. A couple of years ago, there was a new highway fund established that in part was going to be funded by a special sales tax on vehicles. Now up until that time, vehicle sales had been subject to the regular sales tax, and those sales taxes generated from people buying vehicles were sent to the what's called the general fund, which is the money that the legislature spends on everything outside of highways. Now, when the legislature established this special highway fund, and they said, 'Ok, in the future, now this special sales tax on vehicles, those moneys are going to go into this new highway fund.' the general fund was left lacking. In other words, it had been receiving money from sales of vehicles, and now it wasn't. And so what the general assembly did to make sure that the general fund was not disadvantaged, they said, 'Ok, we're going to figure out how much this new highway fund and this new sales tax on vehicles - where the money goes to the highway fund - how much money is the general fund losing as a consequence of that, and we're going to make this transfer from the new highway fund to the general fund.' So the transfer was simply to pay for the losses to the general fund caused by this new special sales tax on vehicles. Now this has caused all kinds of controversy, which you have mentioned. And last year the general assembly said, 'Ok look, what we're going to do is, we're going to vote to try to - within a few years - stop this transfer.' But there was a logic, my point here is there was a logic to the transfers going on."

Posted by Dave at 08:00 AM

May 19, 2008

The stock market as a predictor

During a recent week, the stock market rose while both the inflation rate and the unemployment rate went up. It would seem the stock market would go down in the face of more joblessness and faster rising prices. Does this mean Wall Street is sometimes out of touch with Main Street? Listen

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

"No, not at all. I think there are two reasons for why it's not. One is that the stock market will always look at what is expected. That is, they factor in facts and statistics that they think are going to occur. And so, for example, when the news came out recently about the unemployment rate going up and faster inflation, the stock market already expected that. So in street lingo - Wall Street street lingo - they had already priced those changes into stocks. So it wasn't a surprise. The second thing is that the stock market is always looking ahead. Again, we're in a slowdown if not an outright recession. The unemployment rate goes up. It's always happened. We know that. So the stock market is really not looking at the unemployment rate. They're trying to look ahead. Where is the economy going to be three months from now, six months from now? And, indeed, on the week that you mentioned, when we had the bad news about jobs and inflation, there was actually some good news that came out about corporate earnings. So this actually caused the stock market to think, hey, maybe the bottom's been reached on the economy and we're going to be much better off down the road. So keep these two things in mind about the stock market. One is that the stock market reacts to the unexpected, not to what is expected. And secondly, the stock market is always looking forward."

Posted by Dave at 08:00 AM

May 16, 2008

Population, inflation and government speding

Government spending tends to increase over time. Is this just because government is always getting bigger or are there other reasons? 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 are certainly other reasons, and I think if people thought about this, they would think this makes sense. One, of course, is population growth. As a state like North Carolina grows in population, we would expect government at all levels to spend more, and it does. Another reason is inflation. Inflation means that the price of everything is going up, not just to consumers but to government. So for government to provide the same level of services when prices are higher, they need to spend more money, and in fact, you see a correlation between government spending and inflation. But there can be a third factor, and sometimes this is missed. And that is that over time the average person sometimes is using more government services even beyond what is dictated by higher population and higher inflation. Two good examples of this would be higher education and transportation. We all know that the economy has changed; education is more important than ever before, therefore, more people are going to college, and so we have seen, for example, in North Carolina that money appropriated by the state to the university system has been going up faster than inflation and population. And that's due to the fact that people are using more higher education and services. The same with transportation. Certainly, you expect spending on roads to go up with population and inflation, but it's actually gone up more, and that's because motorists are driving more. Everyone is using the roads more. That means more spending on highways."

Posted by Dave at 08:00 AM

May 15, 2008

Gas taxes and property taxes

North Carolina has high gas taxes compared to other states but low property taxes. Is there a connection? Listen

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

"There is, and you hear this from people newly arrived in North Carolina. On the one hand, they say, 'Gosh, I don't like it here because you have such high gas taxes,' but on the other hand they say, 'Oh whoa, we like these nice low property taxes.' And, indeed, there is a connection, and the connection is this: In North Carolina we have chosen to build most of our roads from state funds. And the state funds are generated primarily from the gas tax, the statewide gas tax. In fact, 86 percent of road building in the state is done from state sources, and the gas tax is the biggest part of those state sources. In contrast, the average for other states is that only 60 percent of road building is funded at the state level, and 40 percent at the local county level. Now when they fund roads in other states at the county level, what revenue source do they use? They don't use the gas tax, they don't use a sales tax, they use the property tax as their major funding source. So this is one reason why other states that have low gas taxes - because they are funding more of the roads with local sources - those states tend to have higher property taxes. It's also one reason why when you are looking at the tax burden - so called - in different states, it's very deceptive to just pick out one tax. You really need to look at all taxes combined. And, indeed, when we do this for North Carolina, we are really about in the middle of the pack of all states in terms of the percentage of income taken in state and local taxes."

Posted by Dave at 08:00 AM

May 14, 2008

Unemployment update

The latest job market numbers for North Carolina were just released, and they're not good. Employment fell, and the unemployment rate rose. Will we see more of the same in the future? 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 will. This is a pattern that we have seen now since the second part of 2007. We are in a slowing economy - probably recession - and that means a slowing job market. And I think now it is actually meaning a declining job market. And we're going to see the job market not producing as many jobs, and we're going to see the unemployment rate go up. It's part of the pattern, unfortunately, part of the pattern of an economic slowdown or a recession. And I think we will see this pattern continue for several more months. I think in our state the unemployment rate, which is now in the low 5s, could reach near 6 percent. The good news, though, is that many economists expect the unemployment rate during this recession, especially in North Carolina, not to get to the high peak that we saw, for example, in the last recession. If we top out close to 6 percent, I think that will be good. The other fact to remember is that the employment market is a lagging indicator. We will likely see signs of an improving economy elsewhere in the market before we see it in the employment market. So don't be despondent if you continue to see the unemployment rate rise even though you see, for example, maybe the stock market going up."

Posted by Dave at 08:00 AM

May 13, 2008

Why North Carolina is doing better?

Many national observers of the housing market have noted that North Carolina's residential sector has held up better than housing markets in many other states. In particular, sales and prices haven't dropped as much. What accounts for our good fortune? Luck? 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 don't think it's luck. I'll say economics obviously. And you're right, our markets have not suffered as much. In fact, the markets that have suffered the most, in areas like California, Washington, D.C., Florida, typically have something in common. And that is that there is limited supply of land due to some natural barriers or due to some amenities that people want to be nearby, like water, or due to regulations. And the good thing about North Carolina is for the greatest part of our state, there are no natural barriers for building, and regulations are milder than many other states. So as we went through this housing boom in the early part of this decade, and residential building increased in our big metropolitan areas especially, builders could simply expand easily by moving out further and further into the suburbs. And you didn't have those big run ups in prices as you did, for example, in a coastal community where there were no suburbs to move out of because you wanted to be near water. Now that means that there is one area of our state that has suffered perhaps on par with the rest of the nation and that is those segments of our state where there are natural barriers, particularly some coastal communities and some mountain communities. And we have seen big declines there is prices. But this, I think, says that there is something to be said good about not being in a boom economy. We're benefiting from the fact that we didn't have that big booming housing market earlier this decade."

Posted by Dave at 08:00 AM

May 12, 2008

Is there an end in sight to rising oil prices?

First, it was $19 a barrel, then $100 a barrel, and now $115 a barrel. There seems to be no end in sight to the rising oil prices. It's hard to believe oil prices have risen so far, so fast just because more people in the world are driving cars. What's going on with these crazy oil prices? Listen

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

"Well, of course, oil prices have been rising all this decade, and the main reason is greater demand, greater usage by people in the world, particularly in developing countries. But you're absolutely right, recently in the last 3, 4 or 5 months, they seem to have taken a big zip upward. And something else has to be going on, and I think that something else is really our government's effort to fight the recession. And let me explain. One of the things that has been done to reduce the adverse consequences of a recession is that the Federal Reserve, the central bank of the U.S., has been lowering interest rates. Now, this has done two things. First of all, it has reduced the interest rates that people earn on safe investments like Treasury Securities and CDs. Also, it has sparked fear of future inflation. And so many investors have been looking for relatively safe - in their minds - and inflation-proof investments, and of course land and housing are out because those markets are in disarray, so they've been turning to commodities. It's one reason why you see gold prices going up - metals prices going up - and also oil. So it's really the investors who have been pouring money into oil prices - oil commodities - that have been pushing up those prices. Now, one perhaps light at the end of the tunnel is that when the Fed is finished lowering interest rates - and many economists think that will come soon - we may see a big drop in oil prices as investors then move out of those commodities, perhaps, back to the stock market, back to CDs and back to Treasury Securities. So I do think there is an end in sight. It's not next week, but it may be in 6 months."

Posted by Dave at 08:00 AM

May 09, 2008

Food price inflation

Food prices have been rising rapidly. Have we just become spoiled to low food prices or has something triggered the big jumps we're seeing at the grocery store? Listen

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

"Well, your perception is absolutely correct. Through most of this decade, food prices were going up an average of between 2 and 2 1/2 percent each year. Then in 2007, they went up 3.3 percent, and this year they are going up at an annual rate of close to 5 percent. So food prices have taken a jump. And I think two things have happened to cause this. One is that - and it's a good thing - is that the world's standard of living is rising, and more people in more countries are eating better. They are eating different kinds of foods, particularly more protein, and that is pulling up prices of basic commodities including food. Second, though is a policy choice. And we in this country have chosen to try to develop ethanol. Ethanol is a corn-based fuel. And so we are diverting a lot of our corn crop to ethanol. For example, 10 years ago only 2 percent of our corn crop was used for ethanol. Now it's up to 20 percent, and in a couple of years it will be on track to be at 30 percent. And what this does, it takes out corn from the food system, and corn is a basic feed into livestock, for example, and to dairy cows. And if you're taking that out, you're increasing the price of that feed, and those feed price increases are going to be passed on to the consumer. Now the good news out of all of this is that food is still a relatively small part of the average family's budget, taking about 15 percent of income."

Posted by Dave at 08:32 AM

May 08, 2008

Cap and trade

"Cap and trade" is a new phrase we're hearing with regard to controlling pollution. It may be more complicated than an outright ban on pollutants. Can you give us a tutorial? Listen

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

"And we're considering this in the U.S. It's actually in practice in Europe, and it's based on a couple of notions; first, the notion that it's really too costly and really not needed to eliminate all pollution. The environment can handle some levels, and we look to scientists to tell us what's some acceptable level of pollution, say of carbon emitted to the atmosphere each year. So we set that level and then we in essence say, ok, we're going to sell permits, pollution permits to businesses and others, where the sum of those permits will equal that aggregate level of pollution that's acceptable. And then, furthermore, businesses, if, for example, they find a new technology over time that will allow them to significantly reduce pollution, a business may say, well, I don't need all these permits, and they can sell them back on the open market. So the idea here is that you are selling these permits ultimately to the businesses and others to whom reducing pollution is the most expensive. So you are creating an efficient market, if you will, in pollution. Now, as I said Europe is already doing some version of this, and the U.S. is debating this, and I think we likely will see some type of cap and trade system in the U.S. That's my prediction down the road."

Posted by Dave at 09:14 AM

May 07, 2008

The future of tech jobs

A recent report said jobs in the technology fields increased at a relatively slow rate last year, surprising many analysts. So what's happening with the industry? 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 technology sector and it's jobs are still growing, but I think your point is that, yes, we did have a slow year last year, and I think there are a couple of things going on. First of all, the tech sector is very much remembering what happened in the late 1990s, when they expanded very rapidly and then got caught in the tech bubble, and the bursting of that bubble in the late 1990s and early 2000. And many tech companies had to slash employment. So I think companies today are being more cautious, more careful about how many folks they are increasing, they are adding, particularly when they see signs of a slowing economy. The second issue is that the domestic tech industry is changing. There is more consolidation as the industry matures. Also there is a focus on jobs in innovation and on service and away from manufacturing. The manufacturing component is in many cases going to foreign factories, where labor is cheaper. I think we will still call this the century of technology, but it is not going to be the booming century of technology in terms of jobs that many thought we would have at the close of the last century."

Posted by Dave at 08:14 AM

May 06, 2008

A forgotten price of hybrids

Many people see hybrid cars, which are partially fueled by electricity, as a way to reduce our dependency on foreign oil and help the environment. But economists are famous for recommending that we look beyond the obvious at second and third stage implications of an action. So what might this mean for hybrid vehicles? 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 issue here is, of course, that as the use of hybrid cars increases, you are going to have an increased use of electricity. And so you are going to have to ask, Where does that electricity come from? Now, electricity is not - contrary to what some people think - a basic fuel. It is a derived fuel from basic fuels like oil, coal, hydropower, nuclear, solar or wind power. So the more hybrids we have, the more electricity is going to have to be generated from some combination of those basic fuels. And one estimate suggests that if hybrids eventually make up 20 percent of new car sales, we could potentially need about 160 new power plants built somewhere in the country, depending on when people plug in to recharge their hybrid power. The question then becomes, Where will they be built? A lot of people don't like to live near power plants. And perhaps most importantly what kind of fuel they will use?"

Posted by Dave at 08:03 AM

May 05, 2008

Is higher inflation a sure thing?

The news on inflation appears to be bad and getting worse. Prices for gas and food, certainly necessities for most people, have been sprinting upward. Some talk about the country moving into a period of stagflation or a nasty combination of recession and high inflation. Is there any good news to suggest that our inflation worries may be overstated? Listen

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

"Well, let me give you three reasons why some economists are more optimistic about the inflation outlook. Reason number one: If we are in a recession or at least a slow growth period, usually we see those periods resulting in moderating inflation, maybe not immediately but down the road for the simple reason that people are not buying as much and that takes the pressure of prices. Secondly, we tend to see the prices of raw materials, basic inputs if you will - lumber, metals, etcetera - actually fall during times of a down economy. And then thirdly, and this is somewhat unique to where we are today, everyone knows that the housing market has been struggling, and housing prices have either been going up more slowly, or in some markets, have actually been coming down, and housing costs are actually the largest component of the inflation index. So for all three of these reasons, some economists see inflation actually moderating lower this year and into 2009, and that would obviously help the economic situation of most households."

Posted by Dave at 07:50 AM

May 02, 2008

The financial panic of '07 - 1907

Some say a financial crisis has been ongoing in the country for the last two years. A similar crisis happened 100 years ago, and it set the stage for some of the institutions we have today to deal with these situations. Give us a history lesson. Listen

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

"Well, we're talking about what's called the financial panic of 1907. It was sparked by some problems in mining, mining investments that went bad and sparked a run on the banks. A run on the banks simply means that people get scared that they are going to lose their money in the banks so they all go to the bank and draw out their money. And of course, no bank keeps 100 percent of their deposits, most of that money is loaned out. So that can create a problem. And there was such a problem that occurred in 1907. And it almost led to a decline and collapse of the entire financial system. In fact, the stock market reacted very negatively, going down about 50 percent. And it really took the efforts of one rich businessman, J.P. Morgan, to organize a rescue of the banks and bring back banker confidence. Now, the implication of where we are today is that that financial panic of 1907 brought people to the realization that they needed some kind of public backstop, some kind of institution that would come to the rescue of banks, restore confidence so the system wouldn't collapse. They couldn't rely on rich people to do it, and it really led to the establishment of the Federal Reserve System in 1913. And of course, that Federal Reserve System again came to the rescue of banks in 2008."

Posted by Dave at 04:34 PM

May 01, 2008

Are gas prices at an all-time high?

Gas prices just seem to keep going up and up and up. Surely we're at record levels for pump prices, but for an economist, there may be more to judging the level of gas prices than what we see. So go ahead, convince us we're not paying record prices. Listen

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

"Well, one of the first things we teach in beginning economics class is that you can't compare dollars today to dollars in the past. And I think most people know this, that is, the purchasing power of a dollar changes, simply because most things tend to go up in price over time. So to judge the level of an individual price like gas, you have to ask, has it risen faster than the average of all other prices? And when we look at this and look at gas and make this adjustment, we certainly see that gas prices have risen since 2000, although they actually rose less than other prices, so effectively they were going down from the early 1980s to about 2000. So anyway, when we make the adjustments to say, have gas prices risen faster that all other prices and, therefore, are we at a record, the bottom line is that today's gas price would have to be about $3.40 a gallon to set an all-time record high, which was set in 1981. And we're just about there. So I think you can fundamentally and economically correctly say, yes we are close to if not at an all-time gas price high."

Posted by Dave at 07:57 AM