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July 31, 2009

The challenge of health care reform

Congress is seriously considering changes in the nation's health care system that may bring the biggest modifications in 40 years. What are the goals of these changes and are those goals compatible?

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

"There are three goals that advocates of change cite. First, they want to make the system more accessible, that is, have more people covered. Secondly, they want to improve the quality of care. And thirdly, they want to reduce costs. The problem is it's going to be a challenge to do all three. For example, if you increase access and improve quality, especially if consumers are shielded from price, simple economics says that you're going to see usage go up. And of course, with increased usage, that implies higher not lower costs. The one wild card here is what some claim to be massive waste in the system. If you're able to find this waste and eliminate it, then you potentially could meet all three objectives. The big problem, though, is identifying what kinds of health care costs are wastes. Many doctors will order tests and procedures simply to help them with a diagnosis. It may not show up as improving the quality of care, but that helps the doctor eliminate perhaps some other explanations for the problem. So changing health care to meet all three of these objectives is going to be a very, very tall order."

Posted by Dave at 08:00 AM

July 30, 2009

The potential costs of going long

People who invest in CDs - that is, certificates of deposit - are facing a tough decision. If you're willing to invest your money for five years, you can double the interest rate earned compared to investing for six months. So is this a no-brainer, the higher rate for the longer time is the way to go?

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 a no-brainer, but it's certainly a head-scratcher. Obviously, you do want to earn the highest interest rate you can on your money. What you have to worry about with CDs and tying up your money is whether that interest rate that looks good today is going to look good in a couple of years. For example, what if you did invest your money right now in a CD that's, say, paying you 2 ½ or 3 percent but you have to commit your money for five years. Well, what if in a couple of years, we have runaway inflation and new CDs are offering people 6 percent or 7 percent. Well, then obviously you would have made a mistake, because the rate that you're getting, that you're locking into now is low compared to what you could get. Now the problem is that yes, you could say, ok, I'm going to sell my existing CD, but you're going to have to pay a penalty for that because CDs do want you to lock up the money. And if you don't lock up the money, they're going to say, hey, you broke a contract, we're going to assess a cost. So this is a head-scratcher, and those people who think we're going to have significantly higher interest rates in the future probably want to go short. They want to go with six months or one month or one year CD. Those people who say, no, all this stuff about higher inflation, high interest rates down the road, that's all just hype. They don't see rates going higher. Well, then they would want to look at, say, a five year CD. People who say, well, I don't know, probably the best decision is to go in the middle, go with something like a two- or three-year CD."

Posted by Dave at 08:00 AM

July 29, 2009

Is education cheaper during a recession?

Ask any college administrator, and they'll tell you, college applications are up. In fact, this usually happens during recessions. Is it simply because with the job market down, there are fewer opportunities for folks?

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

"Actually, yes, that's the answer, but I'm going to expand a little bit. When someone looks at the cost of going to college, of course part of the cost is going to be what you have to pay for tuition, for books and for fees. But there's a second cost. And economists call this the opportunity cost. For example, what if you were earning $30,000 a year working full time, and let's say you're thinking of going to college full time, so you're not going to be able to work. Well, if you do go to college and give up your job - quit your job - that's a foregone return of $30,000. So you can think of the income you give up each year that you're in college in this example as at least partially based on that $30,000. Now, if there's a poor job market, and let's say you were fired or laid off at your job because of the recession, then that $30,000 cost doesn't exist. So economists think this is another reason why we do see college applications go up' simply because the alternative cost of giving up work is not as great because the unemployment rate is so high."

Posted by Dave at 08:00 AM

July 28, 2009

Do health insurance providers compete?

One of the goals of many proposals to change our health care system is to get health insurance providers to compete more for consumers' business. That leads to the question: Do they compete now? What does the research show?

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

"This is timely because in the president's proposal - at least, we think in the president's proposal on health care reform - he wants to offer a public insurance option. One reason is that this will increase competition among insurance providers, so the question is very timely. And the answer is, it really depends. As in most industries, competition is based on how many competitors are there. And the research that's been done seems to indicate that the dividing line is about 10; that is, markets where there are fewer than 10 competing health insurance carriers are much less competitive than markets where there are more than 10. Another issue is the reluctance of many employers - and we have to remember that most insurance is now provided through employers - the reluctance of employers and employees to change insurance carriers. We get used to using a particular insurance carrier. There are costs to switching carriers, costs related to transferring records, getting used to a new reimbursement system, etc. That seems to be an impediment in competition, so I think we need to look at these elements when looking at the desire to spur competition. We need to look at how many carriers there are in a market. If there are fewer than 10, what can we do to increase that number, and also look at reducing the cost to consumers and to employers of switching carriers."

Posted by Dave at 08:00 AM

July 27, 2009

A good ranking for North Carolina

It seems like every week we have another ranking of some kind released, and now here comes one for the economic performance of states. With the recession, this is very timely. What factors determined this ranking, and how did North Carolina do?

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 called the State's Economic Competitiveness Index, and it's from the American Legislative Exchange Council. So this is very important. This is an important group, and businesses will look at this in terms, for example, of deciding whether North Carolina is a good place to locate. And what this ranking does is specifically look at the attractiveness of states for business location. It considers factors like taxes, labor costs and the relative size of government. Now, for 2009, North Carolina ranked 23rd among the 50 states. So we were in the upper echelon. We received high marks for our labor costs, our low public debt and our relatively low property and sales taxes. However, working against us in the ranking was our relatively high income tax rate and worker's compensation costs. This ranking, I should say, is consistent with many others that do put North Carolina in the top 25 of most states on being economically attractive."

Posted by Dave at 08:00 AM

July 24, 2009

Who creates value?

There are some basic or essential questions in every discipline, and in economics one of them is who or what creates value. Is there a settled answer?

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

"This question has been debated for centuries, absolutely centuries, among economists. You can really take two broad approaches. One, you can take the cost side. You can say that the value of something, some product or service out there, is related to the cost of it. And in fact, what many economists have done over the years is say labor cost is the biggest contributor. So one view says that the value of something, some product or service, is the amount of labor that goes into producing it. In fact, we call that the labor theory of value. There's another side, though, that says, look, it doesn't really how much it cost to make something and produce it and bring it to market if no one wants to buy it. And so this side says that the value of something really is based on demand, what someone is willing to pay for that. So, for example, if it costs $300,000 to build a house, and let's say most of that is labor, but the builder can only sell it for $200,000, then this approach would say, hey, the value is not $300,000; it's $200,000. And, indeed, if you look at how economics has changed over time, the demand side of value really has won out. And that's the approach that most economists now take."

Posted by Dave at 08:00 AM

July 23, 2009

North Carolina's clean economy

A report was recently released from the Pew Charitable Trust that tallied what the report called clean energy jobs for each state. What are these jobs, and where did North Carolina rank?

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

"Well, the Pew Trust had to create this category because it doesn't exist in official statistics. You can't go on line from a government site and say, hey, let's see how many jobs exist in the clean energy area. So that was one contribution they made. And they included jobs that have to do with energy efficiency, jobs that manage and remove polluting and hazardous materials and occupations that train others for these kinds of jobs. In 2007, they estimated that North Carolina has 17,000 of these clean energy jobs, and indeed, that was a 15 percent increase over the same kinds of jobs in 1998. That 15 percent increase in North Carolina was the 15th fastest growth in clean energy jobs among all states. However, these jobs are still relatively small . . . 17,000 out of over 4 million jobs in North Carolina comes to less than one half of one percent. So we have seen growth, according to the Pew Charitable Trust, in clean energy jobs, but it's still a very small part of the total."

Posted by Dave at 08:00 AM

July 22, 2009

The inflation debate

Economists don't shy away from arguing, and today there's an active debate among your colleagues about inflation. Some say that with all the money the government has created, higher inflation is inevitable. Others disagree. Line up the two sides for us.

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

"Well, the more inflation side, I think, is easy to see. Those economists say, look, the government's created a lot of money, particularly the Federal Reserve. We know from past experience, past history, that when the Federal Reserve creates more money than the economy can absorb with additional products being produced, that leads to higher inflation. And so they say higher inflation is inevitable. The other side says, yes, if the federal government, if the Federal Reserve did leave all that money in the system, we could see higher inflation. But they think two things will prevent that. One, right now, consumers aren't spending that additional money. A lot of it is parked in banks and savings accounts and credit unions, so it's not being spent, not being used to generate higher inflation. And secondly, they say when consumers begin to spend, the Federal Reserve does have the power to pull that excess money back. In fact, Fed chairman Ben Bernanke has said on several occasions that's exactly what he intends to do. So we'll have to obviously wait and see. I will say that pulling that money back will be a very tricky proposition for the Federal Reserve. If they do it too soon, we could have a double-dip recession, like we had in the 1930s. If they do it too late, we could have higher inflation anyway."

Posted by Dave at 08:00 AM

July 21, 2009

Heading off another financial implosion

Recently, the president unveiled his proposals for new financial market regulations. The ideas are designed to correct what many say have been gaps in financial rules, which led to many of the losses we've seen in the last two years. Will these new regulations do the job?

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

"That's, of course, open to debate, but these are sweeping new proposals. Of course, they're going to ultimately have to be written and approved by Congress, so we're not there yet. This is just the start of the debate. But the president's proposals fall into three broad areas. First, he wants to give more power to the Federal Reserve to regulate some of the financial institutions that really fell through the gaps, institutions like Lehman Brothers, which the Federal Reserve really worked tirelessly to save. Secondly, he wants to require lenders originating loans, particularly home loans, mortgages, to retain some ownership in them. That has been a point of controversy, where a lender, a bank, could originate a loan, then simply sell it in the secondary market, not have any ownership part of that. And some think that led to more risky loans being let. The president says he wants those lenders to at least retain 5 percent. That, of course, will be debated, whether that's too much or too little. Thirdly, he wants to create a new agency, a new consumer agency with broad powers to regulate consumer financial products, including mortgages. I think this is the most controversial part of his proposal. This is just the starting point, but I think clearly, we're going to have some new regulations in the financial area. One point that the columnists make, though, is that the next recession, the next downturn, probably won't be in the financial area. It will be in another area, so this is not meant to be viewed as some way of preventing recessions in the future. We will have future recessions."

Posted by Dave at 08:00 AM

July 20, 2009

Cash for clunkers

There's now a new government program designed to both help the economy and the environment. It's the Consumer Assistance to Recycle and Save Program, better known as Cash for Clunkers. Briefly describe for us how it will work.

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

"You must buy a new vehicle between July 1 and Nov. 1 of this year, and depending upon the improved gas mileage between the new vehicle you purchased and your old vehicle, you can get either a $3,500 or $4,500 voucher from the government to help offset the increased price. Now when you combine that perhaps with incentives provided directly by the dealer, you're talking about potentially a large amount of money being reduced off the sticker price. In terms of comparing the fuel efficiency, what you would use is the miles per gallon posted on the sticker of the new vehicle, then you would go to a Web site to get the miles per gallon for your existing vehicle. That Web site is run by the Energy Department. Here, however, is a big, big factor you need to be aware of. You're not going to get any trade-in value for your existing car. In fact, what's going to happen under this program, your old car's going to be taken and destroyed. So what you have to do clearly is compare that $3,500 or $4,500 voucher to what you could get by just simply trading in your vehicle to see if this is a good program for you."

Posted by Dave at 08:00 AM

July 17, 2009

Containing the recession

It's already been said that the current recession is the worst economic downturn since the Great Depression of the '30s. Once policy makers recognized the seriousness of the situation, did they take action to prevent the recession from turning into a depression?

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

"The scary thing is that two economists recently looked at the Great Depression - the first couple of years of the Great Depression - and compared the trends in the economy then to trends in the economy over the last two years. They found an eerie comparison. Their conclusion is if proper policy measures weren't taken, we were on track to have another Great Depression. They said, however, in their opinion, proper policy measures were taken, and they really credit those to averting another Great Depression. Specifically, the Federal Reserve has really taken dramatic action. They expanded credit availability over 100 percent in the last six months. In comparison, during the Great Depression, credit actually shrunk. Also, we had a greater increase in government spending . . . on a relative scale almost twice as much additional government spending in the last two years compared to the early 1930s. So in terms of this recession comparing to the Great Depression, it looks like the worst-case scenario was averted. We've not, for example, had the drop in banks - the bank failures. Fifty percent of banks failed in the Great Depression. Today, less than 1 percent have failed. And the unemployment rate is nowhere near the 25 percent that we saw during the 1930s. Now we still have challenges. In fact, a big challenge will be how to contain some of the costs related to what the government has done. But it does look like we have averted the worst case, with the worst case being another Great Depression."

Posted by Dave at 08:00 AM

July 16, 2009

Bumps in the recovery

There's growing agreement among economists that an economic recovery will start toward the end of the year. Yet recently two changes have occurred that could stall this turnaround. What are they?

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

"Well, they are two factors that oftentimes we do see as impediments to economic growth. They are rising interest rates and, of course, rising energy costs. And both of them have surged in recent weeks. For example, long-term interest rates have increased almost one full percentage point, from about 3 percent up to close to 4 percent. And oil prices have actually doubled. If sustained, both of these could add significantly to consumer costs, and really hit consumers when they're still down on the mat and really put a damper on further improvements in consumer spending. However, many economists say, hey, these increases in costs in interest rates and energy are premature. They think they're based on overly optimistic expectations about the future economy, and when reality sets in - reality being, yes, the economy may recover, but it's going to be very hard going - they do see pull backs in both energy costs and interest rates. Obviously, the future will tell the tale."

Posted by Dave at 08:00 AM

July 15, 2009

Lee of an edge for China?

By some measures, China is now the second largest economy in the world, and many now call China the manufacturing factory for the world. Yet China's edge in attracting companies may be slipping. Give us the scoop.

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

"Of course, for a long time, China's been able to compete and really gain this reputation of being the manufacturing factory of the world based on lower costs, particularly lower labor costs. But there have been some recent changes. Their cost edge is actually eroding. Their labor costs are actually going up, in part due to the price of their currency. They have some new environmental regulations. I think the Chinese are taking seriously some environmental issues. So the Chinese cost advantage has shrunk from double digits to single digits for many products. Distance is also increasingly becoming an issue. It takes about 45 days on average to ship a product from China, for example, to the United States. But now companies in the U.S., retailers, want to keep inventories low, which means they want fast access to suppliers when they do have a sale. So that also puts China at a disadvantage. And the bottom line here is we don't always want to take what's happened in the past - a situation in the past - and say that's always going to happen in the future. The economic world can certainly change on a dime."

Posted by Dave at 08:17 AM

July 14, 2009

Sinking the bets

This recession has intruded on virtually every industry and individual business. Even one long-time recession-proof sector, the gambling industry, seems to have been adversely impacted by today's economy. Give us the details. 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 details are not good for the so-calling gambling or gaming industry. In fact, their revenues are down 5 percent in 2008 after adjusting for inflation. This is after coming off a string of years where their revenues were going up about 2 to 3 percent per year. Even during the last recession in 2001, we didn't see the gambling or gaming industry lose revenue. In fact, during that year, they still saw their revenues go up 3 percent. I think this indicates two things. I think certainly it indicates the strength of this recession. It has really intruded everywhere. Virtually no part of our economy has escaped. And then secondly, I think it really is indicative of the fact that consumers are dramatically cutting back. They're looking at their discretionary spending, and they're saying, hey, if this is not something I have to spend money on, I'm going to cut back because I've got to rebuild my investments. I've got to cut down on debt. And unfortunately for those working in the gaming industry, they have suffered the consequences."

Posted by Dave at 08:00 AM

July 13, 2009

Price trends

One way to cope through trying times is to find silver linings, good things that are happening amidst all the bad news. When we talk about the struggling economy, can we find any glimmerings of silver linings?

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

"Well, we can, and one such lining is in consumer prices. The rate at which consumer prices have risen has slowed considerably during this recession. For example, if we look at the last year that we have data for, which is April 2008 to April 2009, average consumer prices actually fell. That's very, very unusual. That's much better than the 3 to 4 percent rate of increase that we had been seeing. However, a lot of this good news is due to the fact that gasoline prices were falling. When you take out gasoline, which is very volatile, and also food prices, we see that average prices went up about 1.8 percent last year. So the news is not quite as good as you might expect, but at least we do tend to see consumer prices moderate during economic recessions. I think you can look at that at least as a partial silver lining."

Posted by Dave at 08:00 AM

July 10, 2009

Keeping jobs

Jobs are the number one priority in today's difficult economy, but unfortunately 6 million of them have been cut since the current recession began. But those job losses could have been worse if it wasn't for something many businesses have been doing. What is it?

"Well, what is it is that businesses are reducing salaries. That is, unlike past recessions, where it was typical for businesses to lay off workers, what many businesses are now doing is keeping their workers, but they're reducing their salaries. They're cutting salaries in order to trim costs, and I think what businesses have figured out is that this is actually turning into a win-win for them. On one side, they're able to keep good workers, and they're expecting - hopefully, they're right - that the economy will turn around. And so when that does happen, they won't have to go out and hire new people. On the other hand, workers I think - many - are looking at this in a positive way. You might way, well, how so? Well, I think workers understand, this has been a bad recession. They understand that businesses are under the gun. And what many people have observed is that worker morale can suffer when they see empty chairs, when they see empty places where people used to work. And so they are more likely to actually look at this in a positive light, and say, I know I'm getting a little bit less, but at least people are staying here. That's giving me confidence in this business. So in a somewhat odd way, cutting salaries seems to be actually helping both the business and workers."

Posted by Dave at 08:00 AM

July 09, 2009

Does experience affect investing?

Many people are up in the air today about their investments. They don't know whether to go back in the stock market, stay with safe, low interest rate investments or maybe just put everything under a mattress. Do your investment and life experiences in the past impact how you make these decisions?

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

"I think common sense would say, yes, they do. And this is where research and common sense actually come together because economists who have studied this say, yes, certainly your experience in investing does affect how you approach investments. For example, studies have shown that people who lived through the Great Depression - maybe came of age during the Great Depression and remember that tumultuous economic time when people lost money in banks right and left, when we didn't have federal insurance on bank deposits - that still stays with folks today. And they tend to be a little more cautious in investing their money. On the other hand, people who have not known anything like the Great Depression or even the Great Recession we're going through now - they've lived through times when the stock market has boomed in the 80s and 90s, and that's their investment experience - and they tend to be much more likely to get back into the stock market and to put their money there. I think one conclusion of course is everyone alive now is living through what we're going through now, and many economists think because of that - because the investment markets have been so heavily hammered by this recession - that this is going to turn everyone - even people who only lived through the 80s and 90s - turn everyone to be more cautious in investing."

Posted by Dave at 08:00 AM

July 08, 2009

The importance of inventories

Let's face it. The topic of inventories sounds pretty boring. But many economists say inventories are a key component to the future path of our economy. Why so? What's so earthshaking about inventories?

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

"I have to chuckle when I think of inventory. I think of the furniture store that I worked in when I was in college, and I hated twice a year when we had to go around and actually count every piece of furniture, down to knobs, in our inventory. So I don't have a good relationship with inventories, but they are very important to our economy and actually to the business cycle because during a recession when sales are down, what businesses do is they sell off inventory. And, therefore, they don't order new supplies from factories, so factories, therefore, lay off workers and in some cases shut down. And so what it really takes to get the economy coming back is to have inventories depleted because then when businesses don't have the inventories to sell out of, they have to go order new things from the factory, and that causes a rebound in manufacturing. So we do track inventories, and inventories are down. That's the good news. In fact, they're down 7 percent over the last year. But the bad news is that relative to sales, inventories are still relatively high. So I think the bottom line here is that we're headed in the right direction for inventories, but like so many other economic statistics, we still need to see improvement before we get a rebound in our economic growth rate."

Posted by Dave at 08:00 AM

July 07, 2009

Unequal unemployment

Although the unemployment rate has risen in virtually every community and occupation, it has not done so equally. Describe the geographic pattern of unemployment across 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, it really is quite striking. If you look at a map - and I'll ask our listeners to visualize a map of North Carolina - first of all, what you see is that the unemployment rate is lowest in most of our urban counties. These are counties that are in areas like the Triangle, down around Wilmington, counties around Asheville and even the counties around Charlotte. Of course, Charlotte has been hard it by the downturn of the financial sector. Unemployment is also low in the very far northeast, in counties including Elizabeth City. On the other hand, unemployment is highest in three broad geographic areas in North Carolina - the foothills counties just as you're moving west before you get to the mountains; the south central counties bordering South Carolina and a group of northeast counties around Rocky Mount and Roanoke Rapids. And I think what all these counties with a high unemployment rates have in common is these are our traditional manufacturing counties. These are the counties where we used to have a lot of textile employment, a lot of furniture factory employment, even tobacco employment. And now we don't have those, so those counties actually have very high unemployment rates even in the best of times. They get higher during recessions."

Posted by Dave at 08:00 AM

July 06, 2009

Have we changed our ways?

Consumers were on a spending binge for much of the last two decades, but this has come to a sudden halt with the recession. Have consumers seen the financial light and begun to put their financial house in order?

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

"Yes they have. Since this recession began not only have consumers curtailed their spending, but they've also paid down on debt. For example, they have paid off $300 billion of debt since early 2008. Virtually every kind of debt - consumer debt, mortgage debt - is down. So consumers have been trying to rebuild their balance sheets, and this is certainly good for many consumers and many households. But there's a flip side. The flip side is that it's bad for business. To the extent that we're paying down our debt, we're not buying things. So this is one reason economists expect the economic recovery, when it does come, to be very modest."

Posted by Dave at 08:17 AM

July 03, 2009

Slipping wealth

As another sign of the economic times, the Federal Reserve recently reported that household wealth fell again in the first three months of 2009. How much wealth have we lost, and what does this mean?

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

"This has really been unprecedented. It has been one of the ways this recession sets itself apart from previous recessions . . . it's the gigantic reduction in wealth. And of course, wealth is the value of your assets minus the value of your liabilities, or another way of saying, what you own minus what you owe. And in the first three months of 2009, household wealth dropped $1.4 trillion. And since the recession began, household wealth is down $14 trillion. That's over 20 percent. We still have substantial wealth left. Households today have about $50 trillion of wealth. But one result of this drop in wealth is that it is has motivated households to save. Our saving rate now is up to almost 5 percent. A few years ago, it was down to 0 percent. This 5 percent is still less than the typical 10 percent saving rate we saw for most of the post-war period."

Posted by Dave at 08:00 AM

July 02, 2009

Creating jobs by cutting hours

There's a proposal to create jobs without spending any more money. The idea is to reduce the work week, say, from 40 hours to 35 hours. Then, the thinking goes, companies will have to hire more workers. Is this a viable suggestion?

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

"Well, this actually is an idea that has floated over from Europe, and it really depends on how it's implemented. If you say that you're going to cut work hours, and you're also, however, going to cut the pay of workers, then yes, I think it could either create jobs or at least it would cause those existing jobs not to go away. And in some sense, this is the idea that we've been tossing around in North Carolina of unpaid furloughs, where everyone works less. They're paid less, but they get to keep their jobs. On the other hand, if the proposal is to cut work hours but keep everyone's pay the same, then what this simply does is increase labor costs to businesses. And actually businesses would have an incentive to cut back on the number of workers rather than hiring more."

Posted by Dave at 08:00 AM

July 01, 2009

The 'Great Recession'

There's a new term going around to describe the economic situation we've been in now for over a year, and it's the "Great Recession." Is this characterization of our economic situation just hype, or is there a real reason to call this economic downturn the Great Recession.

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 we are a society that likes to hype things, but I think there is a real reason to call this the Great Recession. I think it aptly fits what's been going on. First of all, this has been a long recession. It's probably going to last at least two years. That's, for example, over twice the length of the last recession we had. Secondly, this has been a deep recession. We're probably going to lose, potentially, up to 4 or maybe 5 percent of our collective income. Consumers have seen 20 percent of their wealth taken away. And then lastly, this has been a recession . . . it's been the first economic downturn since the 1930s when the financial sector has been so adversely affected. I think that's really what made this recession very, very austere. So I think, yes, just like it's counterpart, the Great Depression of the 1930s, I think it's very apt to call our situation now the Great Recession."

Posted by Dave at 08:00 AM