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October 31, 2008

How has North Carolina changed in the 'connected age'?

Dr. Mike Walden just published a new book, titled North Carolina in the Connected Age. What is the connected age, and what has the era meant for our state?

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

"It's a term I use to describe really the last 30 years of our economy, and it describes the interconnectedness of our modern economy brought about by advanced changes in communications and transportation. And it has had profound effects on the North Carolina economy. For example, throughout most of the 20th Century, North Carolina really was able to attract businesses by saying, 'Hey, we've got a lot of low-wage labor here. Come here because labor is cheap.' Well, we can't do that anymore. If a business is looking for cheap labor, they will go to a foreign country. So this has led, for example, to very dramatic downsizing in many of our traditional industries that really carried the state in the 20th Century, industries like tobacco, textiles and furniture. In the case of textiles and furniture, many of those jobs literally have gone overseas. And what North Carolina has had to do is to grow and attract new industries in areas like technology, health care, financial services and food processing, to name a few. And really, we successfully made this transition. We have been one of the fastest growing states in the country over the last 30 years. But this transition has not helped everyone in every region. So in this book, I describe all these changes. I describe the impacts on people, places and policies. I also speculate on what's ahead for the North Carolina economy."

Posted by Dave at 08:00 AM

October 30, 2008

Are we now in a recession?

For many people who have recently lost their jobs, the answer to our question is obvious, but a recession in defined by general economic conditions and not the situation of any individual household or person. But as job losses mount and financial problems grow are economists coming around to their own answer?

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

"I think they are, and I think they're saying, 'Yes, it does appear as if the economy is in a recession.' And let me defend economists and their reluctance, perhaps, to just say, 'Yes, we're in a recession.' Because it is a big deal; it is a big deal in the economy. Recessions only come about once every seven or eight years. There's a lot of psychological implication, I think, of saying that we're in a recession. And economists are careful and cautious, and also we want to wait until we have all the information, the data at hand, to be able to say, 'Yes, indeed, the economy is falling into a recession.' Well, I think we do have enough data now, and although the official word has not been put out - there is a group of economists who are charged officially with saying, yes, a recession started here and ended there - but I think there's enough indication with the job market declining and with manufacturing production going down, with problems in the financial services sector, that when all this information is put through the economic hopper and sifted through that the result will be that, yes, we're in a recession. My guess is the recession will be dated as starting sometime late in 2007 - maybe October, November - which means that we're now a year into the recession. How long will it last? No one knows for sure, but I wouldn't be surprised to see another nine or 12 months of a recession. If that's the case, if this recession turns out to be almost 2 years, it will be one of the longest post World War II recessions on record."

Posted by Dave at 08:11 AM

October 29, 2008

Couldn't the banking sector correct itself?

The federal rescue of Wall Street is now a done deal, so this discussion is largely academic. Nevertheless, many people are still asking if the $700 billion plan was really needed. And a point made by some is that the banking sector would have eventually corrected itself and recovered. Is this a valid point and would self correction have been a logical alternative?

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

"Well, actually it was the alternative that we used in this country up through the 19th century and actually into the first part, maybe the first third, of the 20th century. The notion was that banking is like any other sector and that is, that if it has problems and there are some losses and some banks go belly up, well, let them do it, let them take their lumps. Let them take their losses, and they'll come back stronger. And that's exactly what we did, as I said, in the 19th and early 20th century. I think the problem with that approach is that banking is special. It is the central core, if you will, of our economic system because it's where money flows into from lenders; it flows out from borrowers, and we need that flow of money - kind of like blood in a person's body - to make the entire economy function. So when the banking sector goes down, it can cause a very long and deep recession, and indeed, we learned that in the 19th and early 20th century. It was one of the reasons why the Federal Reserve was created. One of the reasons why in the 1930s, we decided and realized that we had to have federal intervention when you have these banking crises. So this isn't really new. It may be new in terms of the size and scope of the problem, but it's not really new. It's really the approach that we've taken for the last 70 years. That is, when the banking sector has a problem, the federal government views its role is to go in and try to prop up the banks in order to keep the economy rolling and prevent an even deeper recession."

Posted by Dave at 08:00 AM

October 28, 2008

The battle for Wachovia

Wachovia Bank, one of the oldest names in business in North Carolina, is up for sale, and two out-of-state banks are battling for control of it. What happened to Wachovia to make it a target for merger, and what are the implications for shareholders and for North Carolina?

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

"Well, you are absolutely right. As we speak, Citi Corp and Wells Fargo are both battling and, in fact, some of the battles have gone into court over their respective bids to buy Wachovia. Now where this has all stemmed, of course, is that Wachovia, which is, as you said, is an institution, really, in North Carolina - founded in North Carolina - has grown to be one of the biggest national banks. But they made a decision a few years ago to buy a west coast company, a mortgage company that had a lot of mortgages. They thought it was a good move at the time. It turned out - of course, with the housing bust - to be a disastrous move. And those mortgages and the fact that they are not performing have weighed down on the value of Wachovia, pushed the stock value down to where now these out-of-state suitors are looking at Wachovia as a great buy. They are looking ahead and saying, 'Well, if we can buy Wachovia cheaply, we've got a great company, and we can make money with it in the future.' So we have had these two deals that were worked out, competing deals. Wachovia is trying to decide, the courts are involved, the federal government is involved. Why this is important, of course, to North Carolina is because banking is now our largest economic sector. So if something happens to Wachovia to perhaps diminish its role in the state economy that could have massive effects on not only Charlotte, but the wider North Carolina economy."

Posted by Dave at 08:00 AM

October 27, 2008

Mark to market

A term that is being used in regard to the banking crisis is "mark to market." Some say this concept is at the heart of the bad loans many banks are carrying and, therefore, it should be changed. So what exactly is this mysterious mark to market, and why could it be so powerful?

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

"It's a concept that relates to how investments are valued at any point in time. And what mark to market says is investments must be valued at their current worth or their current sales value instead of their original value. Let me give you an example. Let's say a bank makes a $100,000 mortgage loan. Now if it works out, the bank will get back its $100,000 plus interest. But due to the poor housing market today and due to the fact that perhaps the house on which that loan was made has actually now fallen in value, if the bank tried to sell that loan at this moment, it perhaps could not get back the $100,000. It could get back something less, maybe $60,000. Well, that $60,000 is the mark to market value. And this is a relatively new rule, but critics have said that is has resulted in the big drops that we have seen in the investment value of bank's portfolios, which has led to the credit crisis, led to the $700 billion rescue, etc, etc. Now supporters say, no it doesn't matter. Mark to market does give you a true value, and that is what you want to see. So this is going to be an ongoing debate, but clearly mark to market has moved to the head of the financial discussion."

Posted by Dave at 08:00 AM

October 24, 2008

What's a credit crunch?

One of the reasons given for Congress recently passing the $700 billion bank rescue bill is that without it, the current credit crunch would continue and possibly worsen. But what exactly is meant by a credit crunch?

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

"This is something that always occurs during a recession. And during a recession, when the economy and investments are performing poorly, lenders become more cautious. Stands to reason. This means they are going to lend money but only if they lend to what they consider to be very credit-worthy borrowers. So what lenders do is they increase the standards for lending. For example, for consumers that means you might have to have a higher credit score, you might have to have a better asset-debt ratio, and you might, for example, if you are buying a house, have to put down a bigger down payment. Now what are the banks doing with the money they are not lending out? Well they are essentially putting it in a mattress. They are actually investing it in safe investments like treasury securities. Now by paying banks for their bad loans, the idea is that this credit rescue is going to give banks a motivation to lighten up on their standards, which will lead to more loans, more spending and hopefully a shorter recession. We'll see if it works."

Posted by Dave at 08:21 AM

October 23, 2008

Extending Social Security taxes

There's a proposal to change the Social Security tax, which would result in increases in those taxes for higher income workers. Explain the proposal and the issues it raises.

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

"For Social Security, currently a worker is taxed at the rate of 6.2 percent on the first $102,000 of earnings that they make. Now this number is adjusted for inflation each year. Now, of course, most people don't make more than $102,000 income in a year, so most are going to pay the full 6.2 percent on all of their earnings. However, there are obviously people who make more than $102,000, and so once they get to $102,000, what they pay for Social Security is over, and they don't pay on any dollars above $102,000. Now, some say that's unfair, that we should extend the 6.2 percent to all earnings. But this actually raises another issue, because when you get money back from Social Security, typically what you get back does rise with the income you earn when you work. But there's a cutoff. And that cutoff is exactly the same as the cutoff on the pay-in side. In other words, someone retiring and earning more than $102,000 while they work, they're going to get the same Social Security benefits as someone earning right at $102,000. They don't get any more. So, the point is, if you're worried about fairness, if you do extend the 6.2 percent to all incomes, you likely need to extend the payback that people get when they retire so that what you get back goes up beyond $102,000. No one's proposed that, so that's what makes this a little more messy of an issue here. You want to tax people more but not give them anything in return."

Posted by Dave at 08:23 AM

October 22, 2008

The bouncing inflation ball

The latest inflation report revealed some good news for consumers. Average prices actually dropped. Should we all be jumping up and down with glee because the inflation problem is solved?

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

"What you're referring to is the August inflation report, and we saw, actually, that prices were down on average in August for consumers. That was certainly good news; however, if you go beyond the headlines, you find this is totally due - totally due - to the fact that oil and gas prices fell during that month. And, indeed, if you take out energy prices and also take out food prices, you see inflation was up - prices were up - and it's still running about 2.5 percent annually. Now, I think this really shows us the benefit of monitoring two inflation rates. The overall inflation rate, which, of course, was down in August, but for previous months, it had been up, is much more volatile. It is going to move around, particularly as very volatile elements like energy and food prices move up and down. On the other hand, the so-called core inflation rate, which excludes energy and food prices, tends to be much more stable. And I think in this example, most people would say, 'Hey, in August, I still felt inflationary pressure.' Well, if you look at the overall inflation rate, you'd say, 'Well, no you didn't, prices were down.' But if you look at that core rate, then you say, 'Yes, we see a steady issue with inflation where it's running about 2.5 to 3 percent a year.'"

Posted by Dave at 08:00 AM

October 21, 2008

Linking taxes and spending

There's a lot of talk today in various political campaigns about both taxes and government spending. Is it useful to look at those two parts separately or is it better to combine them?

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

"Although they're often talked about separately, you really have to link them together to see the impact on the economy. For example, if the government were to raise taxes and just take that money and not do anything with it, just burn it, for example, clearly that would be bad for the economy because you would be taking spending power away from consumers and not doing anything with it. On the other hand, if the government could just create out of the sky money and spend it on some program without having to take those resources from the private sector, again, that would be, in this case, beneficial. But obviously, those are two fantasy worlds. We, really, when we talk about government, we know that government ultimately gets its resources from the public, from the private sector, from people. So you really have to say, 'Alright, if you're going to raise taxes, the next question is, Well, what are you going to spend it on, and what's the economic impact when the other two combine?' And there are many things, obviously, that we need in the economy where we clearly have to have government doing it; roads would be a good example, police, fire, national defense. And so if you look at raising taxes, increasing taxes for those functions and say, 'Well, what's the benefit of spending on those items?' then the two probably create a net benefit. So my bottom line here is that you really have to consider those two ends, if you will, of the public sector together. You have to talk about what's the impact of raising taxes and also link that to where that tax money is going to be used."

Posted by Dave at 08:34 AM

October 20, 2008

Caution on job creation

Perhaps the most important economic measure to most people is jobs. As a result, candidates for public office from any party affiliation often promote plans for job creation. What should we make of such plans?

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

"Well, one thing that we should recognize here is that at any point in time the economy has only limited resources, a limited amount of money. So let's say that someone proposes a new government program to create jobs, and that program is going to be funded with new taxes. So what you're doing is you're taking those funds from the private sector - you're collecting them in taxes - and you're going to transfer them to the government, and the government is going to use those funds to create jobs. Now even if that program were successful, and the jobs were created, there is what economists call an opportunity cost. That is to say, if those tax monies had been left in private hands instead, clearly those expenditures would have created some jobs. So you have to balance the two. You have to say, 'Alright, if we have a government program that's going to create jobs, Will that program create more jobs than if the monies had been left in private hands and spent, thereby creating jobs.' And so you have to balance those two, compare those two, but do always remember, there is this opportunity cost. Money spent by the government could have been spent somewhere else."

Posted by Dave at 08:00 AM

October 17, 2008

Short selling

Recently, the government banned short selling for financial firms, at least temporarily. What is this activity and why was it banned?

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

"It's a common technique that I'll say advanced traders in the stock market use. And what you're doing with short selling is you're purchasing the right to buy a stock in the future. You don't buy it now. You buy it in the future. But you, therefore, expect and hope that its price will go down. So in essence, you're betting on falling stock values. Now, of course, in the context of today's situation, what we've seen happen with many of the big financial firms, which have been having problems, is they have been seeing their stock values plunge. And so the government in saying, 'Well, wait a minute. Let's maybe give a breather to these financial stocks. Let's temporarily ban short selling of financial stocks.' And the concern, I think here, is that perhaps this short selling - with, again, the expectation that when you do it, the price of the stock you're buying will fall in the future - that that was sort of adding fuel to the fire, that was causing, perhaps, some of these stock values to fall further. Now that's very controversial, but that at least is the view. And so I think the government is saying, 'Let's ban short selling for a little bit for financial stocks in order to give those stocks some support, at least temporarily.'"

Posted by Dave at 08:00 AM

October 16, 2008

The Great Depression as a benchmark

With today's financial turmoil on Wall Street and the resulting fears on Main Street, many comparisons are being made of today's situation with the Great Depression. Give us a short summary of the Great Depression and whether you think it applies to today.

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

"The so-called Great Depression happened in the 1930s. It was really two back-to-back recessions separated by a very slow-growth period. There's controversy even today about what sparked it. Some say it was excessive borrowing during the 1920s. Some say it was trade restrictions. Others say it was inept Federal Reserve policy. But we can certainly say that the economic pain during the Great Depression was much, much greater than what we're seeing today. For example, the unemployment rate during the Great Depression was 25 percent. Today, we're a little over 6 percent. Now, many of the backstops, many of the institutions in the financial sector that we have today to prevent a great depression, were, indeed, created during the Great Depression, like federal deposit insurance at banks. And I think also the Federal Reserve, which did exist at that time, learned much of what it should be doing during these crises, and they're applying it today. Interestingly, the head of the Federal Reserve today, Ben Bernanke, has been an expert on the Great Depression as an academic."

Posted by Dave at 08:00 AM

October 15, 2008

A silver lining

It's hard to see anything good coming out of the recent turmoil on Wall Street and among banks. But sometimes, it's good to look. In the middle of all the monetary trials and turmoil, you have found something good, at least for North Carolina. What is it?

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

"Well, many people, I think, realize that North Carolina has become a center for the financial services industry, particularly in Charlotte. We have two major nationwide banks headquartered in Charlotte. Those banks were among the first to expand when nationwide banking was allowed. And really, Charlotte is now the second largest financial center in the country, second only to New York. It's the 10th largest in the world. And what happened - one of the things that happened that people know about amongst all this financial turmoil - is that the Bank of America, which is one of those large banks headquartered in Charlotte, purchased Merrill-Lynch, a large brokerage firm. And so I think what this is going to do is further solidify and, indeed, enhance Charlotte's reputation and status as a financial services center. And I think this will not only add to Charlotte's prominence, I think it will also help North Carolina as a state. North Carolina business recruiters can now go out and say that even more so than in the past, North Carolina is a financial services state. And really you can think of financial services in the North Carolina economy today and say that it's like tobacco was for the North Carolina economy in the 20th century. So the fact that our state was able to gain something out of this mess I think could be viewed as a silver lining."

Posted by Dave at 08:00 AM

October 14, 2008

The lender of last resort

The Federal Reserve has been in the news a lot recently with its efforts to rescue banks and prop up the financial services system. Why is the Fed doing this? Is it part of its job?

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

"It really is. The Federal Reserve was created a little less than 100 years ago. Before that time, we really did have a free for all in the banking and financial system, and when we did periodically have a systematic failure among banks, the market just had to absorb that, and we had horrendous recessions that followed those and big spikes in unemployment. So in the early part of the 20th century, the view was that we needed some backstop. We needed an institution that stood behind the banks, stood behind the financial services sector, that could step in when there was a systematic problem across the entire spectrum of banks. And that, indeed, was the Federal Reserve. And among other things, it is the lender of last resort. So what we're seeing today really does follow from the purpose of the Federal Reserve. I think what is different today is number one, the scope - how much money the Federal Reserve has had to put out there - and also the fact that we've got a different financial services sector system today. We don't have just commercial banks. We have these investment banks. We have these conglomerates. And the Federal Reserve has expanded its scope to enclose those institutions. But really, this is following from the charter, the whole purpose of the Federal Reserve, established in the early part of the 19th century."

Posted by Dave at 08:44 AM

October 13, 2008

Who's to blame?

It seems like the big New York banks have been failing right and left, and the government has had to step in with emergency money. What's behind all these financial failures? Can we point our collective finger at something or someone?

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

"With the benefit of hindsight, we can say that we've had an overinvestment in residential housing over the past couple of years. This led to a buildup - a bubble, if you will - in housing prices, which finally burst. And that's led in many markets to falling housing prices, much slower buying of homes, in many cases foreclosures on people's homes and their mortgages. And this has caused troubles to many of those banks that have loaned money out to people to buy homes. Now, what's really behind this? I think that's what people are searching for. Were people being greedy? Were people making bad investment decisions? Well, I think you can point several fingers. I think, one, you can point to the Federal Reserve, which does have a lot of say over interest rates and the amount of credit in our economy, and the Federal Reserve was very lenient earlier this decade, pumped a lot of money into the economy, kept interest rates very low. So that sort of set the table for this investment in residential housing. Then we had different kinds of mortgages in the sense that we had a mortgage market that evolved where the institution that originated the mortgage was eventually separated from who actually owned that mortgage, so there was probably less attention to risk in that case, and that motivated, perhaps, lenders to take more risk. We had the role of those big government mortgage agencies, Fannie and Freddie, who, with implicit government backing, were out there encouraging an expansion of home ownership, which often meant lowering the levels of credit worthiness for borrowers. And then lastly, we had globalization. And globalization allowed foreign money to come pouring into the U.S., which also stoked the fires of this overinvestment in housing. So I think there are many players. We have many lesson to learn from this obviously so that we hopefully don't repeat it in the future."

Posted by Dave at 09:15 AM

October 10, 2008

Why did gas prices spike?

For the past several weeks, drivers have been enjoying falling gas prices, and then, bam, Hurricane Ike hit, and prices jumped to levels we've never seen. What happened?

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

"Actually, this is fairly simple to explain. The hurricane hit some of the platforms and refineries in the Gulf of Mexico. We in the Southeast get a lot of our gas from that area. There's a pipeline that comes up from the Gulf of Mexico to the Southeast. So the supply of gas was disrupted, supplies were down. Now nothing changed the demand for gas, how much gas we wanted to buy. So the problem you had was, you had a much smaller amount of gas to be sold to a much larger demand, and in that situation, Economics 101 would say the price has to go up. If the price could not go up, what would have happened is those limited supplies would have been used up in a matter of days, perhaps hours. If nothing else, people would have said, 'Hey, supplies are disrupted, we may not have any gas for a couple of days. Let's go buy gas even if we don't need it.' So this is an area where I think most people don't understand the function of price. People look at price and say, 'Well, that gives the producer profits.' Yes, that's true. But in this case the higher price allowed us to preserve that limited amount of gas over a longer period of time because it caused drivers, you and me, to reduce what we wanted to buy."

Posted by Dave at 08:00 AM

October 09, 2008

Recent income changes

Economists get excited about things that wouldn't get a second glance from most of us. One of these sources of excitement is the release each year from the U.S. census of a report on household income changes. With that report now in hand, did we gain or lose income last year?

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 all sorts of sources of excitement, and this is something that economists do get all excited about. The good news is that if you look at median household income and you take out inflation, we actually see that the average household saw an increase in their income from 2006 to 2007, from a little over $49,000 to about $50,000. Perhaps more interesting though is how incomes of households at different income levels changed. And here we had a break in the trend. What we saw from 2006 to 2007 was those households at the lowest end of the income ladder saw slight declines in their household income as did - and this is the interesting part - households at the highest end of the income ladder. It was households in the middle part of the income spectrum - so-called middle-income households - that actually saw the biggest increases in household income. And this is totally different than what we've seen over the last 25 years. So we don't know if this is a break in that trend, but certainly what happened in the last year with household income has been very different than what's happened in previous years."

Posted by Dave at 08:00 AM

October 08, 2008

Women's pay

The average salary earned by women is less than that earned by men. Bring us up to date on what women earn relative to men and whether the job market for women is any better here in North Carolina.

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

"Well, we just have the latest numbers for 2007 released and it shows that the average woman who is working earns about 78 percent of what a working man earns, and that number has been going up over time. Now interestingly, if you look at states, that ratio in North Carolina right now is almost 81 percent for women. And actually, North Carolina ranks seventh among all states in that rate. That is to say, there are only six states above North Carolina where women's pay as a percentage of men's pay is higher. The state with the highest rate is Vermont. The state with the lowest rate is Wyoming. Now, being very careful here, of course, these are simply averages; all we're doing is taking all jobs and all pay and averaging them together. They don't adjust for differences in the types of jobs that many women might have and differences in educational levels, experience, etc. And when those differences are accounted for, actually you see the pay - the adjusted pay, I should say - of men and women much, much closer."

Posted by Dave at 08:00 AM

October 07, 2008

The changing marriage market

Economists like to study the economic implications of marriage. When marriage is looked at from a market perspective, what recent changes are discovered?

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

"We do look at other dimensions of things like marriage, and what some economists are saying is you can look at marriage as either being based on a productive relationship or a consumption relationship. And the argument is that we've gone more from the former to the latter. That is to say, if you go back 50 years, economists argue that marriage was really based on a productive relationship. You had a division of labor, usually between the male and the female where the male worked in the marketplace for pay. The female stayed at home, managed the household, raised the children. So that was a productive relationship in the sense that each was looking for something else in terms of traits. The woman was looking for a man who could be producing and who could earn money. The male was looking for women would could be productive in terms of running the household and managing the children. Now, where it's more likely that a woman will work also - in fact, the majority of women, even those with young children, are working - economists argue that marriage is more of a consumption relationship, where you look not for these productive relationships but you look for a mate with similar likes and dislikes, similar hobbies, similar interests. You like to do the same things for fun. You're not looking for a division of labor. So the bounds, here, of marriage have changed, and I'm going to leave it to our listeners to decide if this is better or worse."

Posted by Dave at 08:37 AM

October 06, 2008

Trends in health care coverage

Every year the government comes out with a report detailing the health care coverage of Americans. The latest report was just released, and it contains some good news. What is that news?

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

"It does. It's for 2007, so it concerns what happened with health care insurance from 2006 to 2007. The good news is that both the number and percentage of people without health insurance declined from 2006 to 2007. In fact, the number of unemployed dropped from 47 million to 45.7 million, and the percentage with health insurance fell from 16.8 to 16.2 percent. Now, the big question is, Why? And interestingly, actually the number and percentage of folks with private health insurance fell slightly. What went up was the number and percentage of folks with government insurance, that is, both the number and percentage of folks with insurance from the government such as Medicare, Medicaid or military health care all rose. Furthermore, the good news happened for all racial and ethnic groups except one, and that is Asians. Asian people were the only group where we did not see improvements in the number of uninsured."

Posted by Dave at 08:33 AM

October 03, 2008

Job market outlook

The national unemployment rate for August was just released, and it showed the unemployment rate rising to 6.1 percent, the highest in 5 years. Look into your crystal ball. Will we continue to see jumps in the unemployment rate? Will it get worse before it gets better?

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

"Unfortunately, I think it will get worse before it gets better. Unemployment is what economists call a lagging indicator. That means that it continues to deteriorate even when the overall economy improves. For example, if you look at the last recession in 2001, that recession officially ended we now know in November of 2001, yet the employment market really didn't improve until 2003. And the reason, of course, is that employers want to make absolutely sure the economy is back before they start hiring additional people. So that said, if we look at today's economy and we take sort of a consensus forecast that the economy will not really pick up steam until next year, 2009, it will likely be late 2010 at the earliest before, unfortunately, we see a big improvement in the job market."

Posted by Dave at 08:00 AM

October 02, 2008

Will we follow Japan?

Every time the economy turns sour, people worry it's the beginning of a long-term trend. Comparisons are frequently made to the Great Depression of the 1930s. But today's economy may be more aptly compared to Japan. Why?

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's highly unlikely that our economy would ever repeat the experience of the Great Depression, when the economy shrank at double-digit rates, and the unemployment rate soared to near 30 percent. Actually, today the economy has yet to shrink for an extended period of time, and the unemployment rate will likely top out still in the single digits. But we could repeat the experience of Japan in the late 1980s and early 1990s. They went through then a multi-year slump. They had problems in the housing market. They had problems in their financial markets, and many are pointing to Japan as perhaps an unfortunate model of what we may be in. Now, other economists disagree. They don't think that we will repeat the experience of Japan. They say that Japan made some key mistakes. For example, they raised interest rates; we've actually seen them cut, and they say that our banking system is much more flexible. Japan had a very cozy relationship between their banking system and the government that resulted in some of the cuts that were necessary not being made. So I think if you are worried about the economy, the proper comparison may be to Japan, but again, many think that that will be an overstated comparison."

Posted by Dave at 08:00 AM

October 01, 2008

What we earn and why

What different people earn in their jobs is a topic of widespread interest and concern. This seems like a very difficult topic. Are economists able to simplify it and give logical reasons for why some workers ear millions and others earn only a few bucks a day?

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

"Of course, everyone has their own opinion about what they should be paid and what others should be paid, but in the marketplace, in the kind of economy that we operate under, pay is going to be determined by those old standbys economic demand and supply. On the demand side, workers who bring in more money for the business are going to be more valuable to that business and therefore offered higher salaries. On the supply side, workers who are unique, who are among the few who can do that job, will also be able to command higher salaries. And in fact if you put those two characteristics together - that is, workers who bring in a lot of money for their businesses and where there are few people who can do that job - that's when you get the really, really big salaries. That can easily explain why entertainers at the national level, professional sports players and CEOs get millions a year, because they operate in an area where they can touch a lot of money, and there are few people who can do what they do. So this is the economic rationale for why people get paid different amounts of money. Many people won't like that, but it's the system that we operate under."

Posted by Dave at 08:00 AM