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December 31, 2009

Helping the unemployed

The unemployment situation isn't getting better. As a result, Congress has extended unemployment compensation payments for the third time. Is this the best way to help those without jobs?

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

"This has actually been a source of debate in economic circles, particularly among labor economists, for many decades. I remember when I came to N.C. State over 30 years ago, one of my colleagues then was studying this issue. And the current system we have in essence says that if you're unemployed and you qualify, the government will pay you. It's a modest amount, but the government will pay you hopefully enough to live on for a certain number of weeks. As the recession has gone on, the number of weeks has been expanded. Some economists - like my colleague over 30 years ago - have said, you know, maybe there's a better way. Maybe what we ought to do is provide folks who are unemployed a very large, one-time up-front payment. This would be several thousand dollars that they would get when they qualify, and they could use this not only to live on but hopefully also to perhaps relocate to an area where there are better jobs, more plentiful jobs, or to go back to school to get retrained so the likelihood of their being rehired is greater. So I think this is something we want to consider once the recession goes away. Are we handling helping the unemployed in the most efficient way?"

Posted by Dave at 08:00 AM

December 30, 2009

Macro mix up

It appears many people are questioning the functioning of our economy, given the bad recession we've been through. Some say we need a new theory or structure for our national economy. Is this causing much debate within economic circles?

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

"It is, and we've seen this historically whenever we've had a major economic crisis. If we look at the 1930s - the Great Depression - that sparked what economists call a Keynesian revolution, a very activist role for the government in trying to reduce recessions. We also saw this in the 1970s. That was a decade where there were many economic challenges. That really sparked what's now called supply side economics, which became very popular, especially in the 1980s. So I think we do typically have this kind of debate, particularly about the role of government in dealing with recessions and the macro economy. And of course, as always we're going to have many different sides. On one side, we're going to have those who say what we need is more activist government. We need perhaps more regulation of the macro economy to prevent the kind of downturns we've seen in the last couple of years. At the other end of the spectrum, we see people who say - and very learned people on both sides - people who say no, we need actually less government intervention. We need to have the market decide. If the market decides, perhaps that will head off some of these economic catastrophes. This debate really goes to the core of how our economy operates, and for a professional economist like me, it's going to be very interesting to see how the current version of this debate unfolds in the coming years."

Posted by Dave at 08:00 AM

December 29, 2009

Tradeoffs in energy efficiency

We all want to use energy more wisely and frugally, but ironically, sometimes this can seem more expensive. For example, energy efficient light bulbs often cost more than normal light bulbs. Could this be a deterrent to people cutting back on energy use?

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

"It certainly can be, and what you describe is a standard tradeoff that we often see in economics, where you actually pay more now to save money later. So, for example, some of the high energy efficiency light bulbs may cost a lot more now than standard light bulbs, but the point is they're going to save money down the road. The same with something like a hybrid car. Typically, hybrid cars cost more upfront than a comparable non-hybrid car, but you're going to save money down the road in terms of lower gas costs. And what you need to do in making a decision here is to compare what are called lifetime costs that account for not only the upfront costs - the purchase of the light bulb or the vehicle - but also the cost of operating or using that particular product over its projected lifetime. And of course, people need to make a decision about whether they can afford those higher upfront costs. I think one thing, however, we're going to see in the future that's going to make this a little easier is that we're going to see as we move more into energy efficient products those upfront costs, which are now higher for many of those products, actually I think will decline and make these decisions a lot easier."

Posted by Dave at 08:00 AM

December 28, 2009

Could it all change?

We are a very mobile society. We rely on our vehicles to get to work and school. People are able to live far away from their work places. This mobility now extends to the world, with more people using air transportation, and goods being shipped to consumers all over the globe. Could anything reverse this way we live?

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

"Yes, it could, and what could change would be a big jump in energy prices. We're talking about a major jump, something beyond anything we've seen before. There is evidence that we do change our behavior when we see a major increase in energy prices. For example, look at how people changed their driving behavior and the kinds of cars they bought when gas prices hit $4 a gallon. Some people have speculated that it's just a matter of time before, for example, we see gas not at $4, not at $10, but maybe at $20 a gallon, and we see all other energy costs go up at the same rate. And these people argue that if that were to happen, we would see profound changes in how we live, particularly with reductions in our mobility. We'd see, for example, people living closer together, more people living in cities, so the suburbs and exurbs may go down, and people may squeeze together in high-density areas. Obviously, mass transit would become much more popular. People would rely more on local farmers, for example, where transportation costs weren't as great. And international trade would dramatically drop, and U.S. manufacturing would revive. These are all possible changes that could come about if we saw a tremendous increase in energy costs, and some are predicting just that."

Posted by Dave at 08:00 AM

December 25, 2009

Value-added taxes

There's talk in Washington about new taxes to be used to reduce the national debt. One tax being discussed is something called a value-added tax. What exactly is this tax?

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

"A value-added tax taxes the difference between a company's receipts - what it gets from selling its product - and its non-labor costs. And we call this value-added because this monetary amount represents the economic value created by that company. For example, let's take a lumber yard that's making and manufacturing and selling two by fours. In applying the value-added tax, the company would take its receipts that it earned by selling two by fours. They would then subtract the cost of the raw wood that was brought in from which they made the two by fours. And they would also subtract the cost of things like electricity, machinery, other things, all their other costs except for labor. And that difference then, what they earned by selling the two by fours and their non-labor costs in producing the two by fours, that would be the value added, and that would be what would be taxed. And this is a very common tax in places like Canada and Europe, and this has been floated - no one has made a decision - but this has been floated as maybe a tax that we may adopt in this country, at least discussed as a way to potentially reduce some of the debt that we've built up over the last decade."

Posted by Dave at 08:00 AM

December 24, 2009

Will jobs return slowly?

Some positive signs in the economy are giving people hope the recession will end next year. However, the job market remains relatively weak. Should we expect a fast or slow pickup in jobs?

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

Unfortunately, the betting right now is on a slow pickup in jobs. And I think there are a couple of reasons for that. First of all, if you look at the last two recessions that we've experienced - in the early '90s and the early part of this decade - the rebound in jobs was very slow. So it looks like there's a precedent for that with recent recessions. Secondly, historical investigation shows that recessions in our country as well as other countries that included a banking crisis - and our recession included a banking crisis - those kinds of recessions are different, and they have also had very, very slow recoveries in jobs. I think this is due to the fact that if you have a banking crisis, the timing for banks to get back to normal, to have a rebound in their lending, is extended. And if we don't have bank lending, we don't have new projects, and we don't have job creation. So unfortunately, despite the fact we're all very anxious - the administration is anxious, people who are unemployed are very anxious for new jobs to be created and created fast - everything right now is pointing toward a very slow rebound in jobs."

Posted by Dave at 08:00 AM

December 23, 2009

Adopting new technology

It seems like new technology is being introduced all the time. Not long ago, cells phones didn't exist, and now almost everyone has one. How fast do we adapt to these new gadgets?

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

"Very fast, and it's getting faster. It took only 10 years between the introduction of the first cell phone for cell phone usage to reach 90 percent of the population, which is where it is today. It took only 10 years for that to happen. It took twice as long for color TV to reach that same level - that is, between the introduction of color TV and where 90 percent of households had color TV. So we are adopting new technology much faster. I think there are several reasons for this. Number one, we're a richer country. More people can afford the new technology. Number two, developers of new technology, I think, have a much easier time of reaching more customers. In fact, using the modern technology, consumers can be reached in so many different ways. And then lastly, I think as we get used to new technology being introduced, we're more willing to try new technology. So the adoption rate, I think, increases because of that simple fact."

Posted by Dave at 08:00 AM

December 22, 2009

Fight over the Fed

Several bills have been introduced in Congress to increase oversight of the Federal Reserve. These bills are being opposed by both current and previous leaders of the Federal Reserve system. What's the debate about?

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

"The Federal Reserve, of course, has been front and center during this recession, fighting the recession. They have exercised an enormous amount of power. And I think it's natural that after you have some agency in the federal government do that there's going to be some second guessing. So there are a number of people in Congress who want to rein the Fed in in the sense they want more oversight. They want to know what the Fed's doing, and they want to have perhaps a little more say in what the Fed's doing. So there are several bills in Congress that have been introduced that would provide this increased oversight in terms of requiring, for example, that certain kinds of documents and certain kinds of decisions that the Fed makes be made available to the Congress. Now, the current Fed chairman, Mr. Bernanke, as well as the two previous Fed chairmen, Greenspan and Volker, have opposed this. They've been very blunt about opposing it. They argue that actually the Fed needs its independence and needs its secrecy. They say that Federal Reserve economic policy - monetary policy, specifically - will not be as potent if they don't have this kind of secrecy. So we do have a debate going on, and this is a very important debate because the Federal Reserve is a very important agency. So this is something that we all should watch."

Posted by Dave at 07:56 AM

December 21, 2009

College rocks

One apparent impact of the ongoing recession has been a sharp increase in college enrollments. How have the numbers changed, and is the recession the only reason?

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

"Of college kids - and we usually define college kids as those people between the ages of 18 and 24; I know other people of other ages are in college, but this is the major group - of that group, 40 percent of them are now in college. And 10 years ago, it was only 35 percent. And two years ago, right before the recession, is was 37 percent. So what we're seeing is more people of college age actually in college. Now clearly, one reason is the recession. In fact, the unemployment rate among 16- to 24-year-olds is 20 percent. So if you're unemployed, if you have an option to go to college, of course, people look at this and say, well, I'm not going to lose that much money, and I might as well get some additional training. So we see college enrollments going up. But there are some other factors at work here. First of all, there are actually more kids available for college because the high school dropout rate has been cut by about 40 percent in the last 25 years. But I think the big reason right now, apart from all this, is that kids realize that to get a good-paying job in the kind of economy that we have now and the kind of economy that we're going to have in the future, increasingly, you simply need a college education."

Posted by Dave at 08:00 AM

December 18, 2009

Good news in a bad report

The latest unemployment rate for North Carolina showed the jobless rate rising to 11 percent, up from 10.8 percent in the previous month. This doesn't sound good. Was there anything in the report that makes you somewhat optimistic about the state's economy?

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

"In these kinds of reports it's always good to go into the details and see if the details give us some optimism. And fortunately, if you look behind the headlines, these details do give us some reason for hope. For example, jobs at existing businesses in the last month in North Carolina actually increased by about 12,000. Factory jobs were also up. This is the first time in months and months that factory jobs were up. We added about 2,000 people working in our state's factories. And professional and business jobs, which have really been hammered by this recession, were up also by about 2,500. So this is good news, particularly I think the factory jobs, because typically manufacturing is a leading indicator of an economic turnaround. And we've already had some information to suggest that our factories are actually producing more output. Now we find that our factories have actually been hiring more people. This is really good news, and I think it's pointing to a turnaround in the state economy and the job market in the state early next year."

Posted by Dave at 08:00 AM

December 17, 2009

The dollar and the stock market

Everyone tries to figure out the stock market by looking for predictors of how the market might move. Recently, some people have pointed to a relationship between the dollar's value and the stock market. What is the theory?

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 very interesting. In fact, you can see it almost daily if you do watch the stock market. On days in which the dollar is down - that is, in which the dollar has become weaker against other currencies - frequently we have seen the stock market go up. And conversely, on days when the dollar is up - on which the dollar has become stronger - we've actually seen the stock market go down. Now the question is, does this make sense? A lot of people would think, well, strong dollar, that should mean good things for the U.S. economy and good things for the stock market, and the opposite with a weak dollar. Well, here's what economist think is going on. When the dollar has dropped in value, investors look for other things to invest in than the dollar. So they're looking at things like gold and commodities and stocks. Conversely, when the dollar gets stronger, investors say, well, we can invest in the dollar, the dollar's stronger. So you will see investments in things like treasury securities, which are denominated in U.S. dollars. Those investments go up, and investments in stocks and commodities go down. The big question is whether this relationship - which has been pretty tight over the last few months - will continue to hold as our economy evolves."

Posted by Dave at 08:00 AM

December 16, 2009

Christmas outlook

The Christmas buying season is upon us. It's well known Christmas spending is crucial to many retailers. How are things shaping up for buying during this holiday season? (An audio version of this Economic Perspective program is not available.)

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

"Well, in a sentence, better than last year, but still not great. A recent poll showed the average consumer is expected to spend this season about $750 on holiday gifts. Now that's up from the $600 in 2008, but it's down from the $850 in 2007. So it looks like (fingers crossed) that we hit a bottom last year, and we're beginning to work our way up in terms of Christmas spending. But we're certainly not back to where we were. And of course, the reasons people would still be cautious about Christmas spending are the obvious reasons. High unemployment, low consumer confidence, depreciation in consumer assets, all these things are hampering consumer spending. If there is a silver lining here, it is that retailers are prepared. Retailers in some sense were shocked last year at the big decline in Christmas spending. This year, they're ready. They've become much more cautious in stocking their shelves. They're ready for much more moderate Christmas spending this season."

Posted by Dave at 10:44 AM

December 15, 2009

Have we overspent?

It's commonly claimed that U.S. consumers went on a spending binge during the last several decades, spending more and saving less. Some see the recession we're in as a reaction to that seemingly carefree spending. How accurate is this claim?

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

"Well, the numbers would simply and straightforwardly go along with the claim. Consumer spending as a percent of income rose from 62 percent in 1980 to 70 percent this decade. And the saving rate fell from 10 percent virtually down to 0 percent. So you can certainly make the argument that consumers have been on a spending binge, and that's one reason we've been in economic trouble. But if you look at the details behind where we spent this additional money, actually spending on health care and on education account for almost all of the increase, all the change. So the question really comes down to, do you want to consider education spending and health care spending what economists call consumption, or is it really saving? And you can make the argument that education and health care are really like an investment in yourself. With education, you're making yourself better, you're making yourself more marketable, more productive in the future. The same way with health care, you're keeping yourself healthy so you can be more productive. So another way of looking at what's happened over the last couple of decades is, no, we did not change course. We did not become carefree spenders. We were actually saving the same amount we've always done. We were just saving in a different way. Importantly, we were saving in terms of education and health care."

Posted by Dave at 08:00 AM

December 14, 2009

Revenue pains

The state Department of Revenue recently revealed that state sales tax collections were down substantially over the year. This has happened even though the General Assembly increased the sales tax rate during this year's session. Why are sales tax revenues down if the tax rate is up?

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

"The simple answer is that higher tax rate is being applied to a much smaller amount of retail sales. In fact, retail sales in North Carolina are running at a rate of 12 percent under what they were last year. And so even with the higher tax rate - because people simply aren't buying like they used to - retail sales tax collections are down enormously in the state. And of course, the reason people aren't buying is because of the high unemployment rate, the reductions in wealth, just the sour state of the economy. The outlet is mildly encouraging. Most economists think that retail sales will be better next year in 2010 than they are this year, but still I think that's going to make the tax revenue situation in North Carolina rather tenuous, and it's going to remain even more challenging because the federal stimulus money that the state was able to use this fiscal year to help out the budget may not be available - at least in the same size - next year."

Posted by Dave at 08:00 AM

December 11, 2009

The question about incentives

Incentives used by the state are in the news again. The computer manufacturer Dell received a large incentives package a few years ago, but recently announced they are closing down their plant. Still, the state has announced several new incentive awards. What are the major issues with this program?

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

"The state will only make tax incentive awards if the state estimates that the benefits in terms of additional tax revenues to the state exceed the cost. Now, granted, this is an estimate, and if a company leaves - like Dell did - oftentimes the company will have to pay back some of those incentives. Also, you have to remember that the package of incentives, which often is announced in the millions of dollars, those funds are not received, if you will, by the company all in one fell swoop. They're received over time, and most of those incentives are not paid to the company but received as a reduction in taxes that the company owes. The big question for incentives - and it's one that we really can't answer - is if a company comes and if a company is going to be beneficial to North Carolina, even if the company is going to pay additional taxes in North Carolina over and above the incentive, would that company have come without the incentive package? That's really where I think the battle line is drawn, because many who are opposed to incentives will say, well, we shouldn't pay companies to come. They would have come anyway. We really don't know that, and you can find studies on both sides of that case. So that's really what it comes down to, and the state has to take a gamble, because the state doesn't know either. So I think looking at incentives in a careful way, trying to estimate if we use these incentives, will the state still come out ahead, is probably the path that we want to pursue."

Posted by Dave at 08:00 AM

December 10, 2009

The surge in productivity

The government recently reported we had a large increase in worker productivity during the summer. Translated, this means workers are able to produce more in a given time period. Is this a good or bad indicator for the economy?

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

"Well, you can look at this in the long run and the short run. In the long run, it's very good, because improved worker productivity is how we achieve higher standards of living. But in recessions, it can take on other meanings. Typically during recessions, you do see productivity rise as businesses are trying to become more efficient. They're cutting back on what they view as waste. They're cutting down on the number of employees. And, quite frankly, they're making those remaining employees work more, work more and work harder. So that is why you see productivity go up. In the latest numbers from the government, we had an unprecedented rise in worker productivity. Many economists think this cannot be sustained. And what many economists are thinking is that this is actually a good sign as a forerunner to a turnaround in the job market in that businesses are not going to be able to sustain this high productivity. So if they want to continue to produce more, they're ultimately going to have to hire more workers. So again, this is another piece of the puzzle that suggests we may be getting to the end of the decline in employment, and we may in maybe four or five or six months start to see jobs come back."

Posted by Dave at 08:00 AM

December 09, 2009

The next bubble

The federal government and particularly the Federal Reserve has poured trillions of dollars into the economy during the last year to contain the recession. Some observers are now expressing concern that all this money will spark another investment bubble. If so, the bubble could then burst and push us into yet another recession. Where might this next bubble occur?

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

"People are more and more talking about this, because as there are signs the recession is ending and we're moving toward some path of economic growth, people are becoming more concerned about these Federal Reserve policies that, in essence, have pushed a lot of money into the economy. There are several possibilities for the next bubble. Probably the one that most people are talking about is the commodity market, commodities like copper and oil even, and gold. Gold is probably the perfect example. Gold values have been run up in part because of all this money trying to find a place to be invested in. And when the Federal Reserve pulls this money out, we'll see a crash in these commodities. At least, that's one theory. Some others are worried about the stock market. Some people are worried about investments called treasury securities, whose value would fall when interest rates rise. Housing . . . I've seen housing mentioned as a concern, although I think that's low on the list. And then you also have to look at potential bubbles in foreign markets. And the market where we hear this most discussed is China. So this is something for folks who are putting their money in these various markets to be concerned with. Are those markets heading for a big dip sometime in the future?"

Posted by Dave at 08:00 AM

December 08, 2009

The next step

There's something that investors and others who watch the economy are keenly interested in. They are already watching for clues for when it might happen. What is it, and when it happens, what will it mean?

"The 'it' is the raising of interest rates by the Federal Reserve. Every day, every time the Federal Reserve chairman speaks, every time the Federal Reserve board meets, observers are looking for clues in the statements by both as to when that 'it' will occur, when will the Federal Reserve increase interest rates? And most economists and others think it will happen sometime next year. Now, recently the Federal Reserve Chairman Ben Bernanke gave a speech in which he said for the foreseeable future the Federal Reserve will not raise interest rates. And actually on that day, the stock market went up very big, because you can look at this anticipated increase in interest rates really positively or negatively. On the negative side, what it would mean is higher borrowing costs, which make it harder for people to take out loans and spend money. And of course, that's just what we want to have happen. We want people being able to get loans and spend money. So if the Federal Reserve raises interest rates too rapidly that may spook the market, spook people and actually send the stock market, for example, into decline. But on the other hand, you could look at when that day happens, when the Federal Reserve raises interest rates in a positive way, because that means the Federal Reserve thinks the economy is strong enough to withstand these negatives. But it will happen. We will see higher interest rates sometime in the future. The question is, simply, when?"

Posted by Dave at 08:00 AM

December 07, 2009

Measuring debt

Here's a disturbing statistic. If the national debt were divided equally among every person, we would all owe about $30,000. Does this mean that someone is going to appear at our front doors one day demanding to be paid?

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

"Well, it won't be the government, maybe it will be someone else, but it won't be the government. No, no one is going to come to people's doors and say, hey, you know what, we've got to pay off the national debt all at once. That's not going to happen. And indeed, taking the national debt, which is big, and dividing it by the number of people and saying that everyone owes this amount really isn't the right way to look at the relative size of the national debt. A much better way is to simply divide that national debt by income - our aggregate national income - and if you do that, nationally we own about 60 percent of our annual aggregate income to the national debt. But even here, we're never going to pay it off all in one year. We can carry that debt over into future generations, and in fact, that's likely what will happen. I think the best way to look at the relative size or the expense, if you will, of the national debt is to say, what's the carrying charge? What are we having to pay each year in service - finance service charges - to carry that national debt? And if you do that, it costs us about 3 cents out of each dollar of our collective income."

Posted by Dave at 08:00 AM

December 04, 2009

North Carolina economic outlook

You've just updated your economic forecast for the state economy for the next two years. Give us the highlights. Should we be smiling?

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

"Well, I think we should have slight grins. We've seen some positive numbers in North Carolina. We see marketing of manufacturing products up. We see the housing market picking up slightly. The job market is not getting there yet. We do see job declines getting smaller, and if we keep to that same path, I think we should start to see job gains sometime in the early spring of next year (2010). Traditionally, North Carolina does recover from recessions faster than the nation. I think we will see that this time. I think we'll grow at about a percentage point faster than the U.S. economy. In terms of the unemployment rate, we see the unemployment rate in North Carolina peaking at around 11.5 percent in early 2010, then it will begin a slow fall, and it will be under 10 percent by the end of 2010 and under 9 percent by the end of 2011."

Posted by Dave at 08:00 AM

December 03, 2009

How long to deleverage?

The recession has exposed households' high debt levels. Many economists think households have already begun to reduce those levels by limiting their spending and borrowing and increasing their saving. How long will this process take?

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

"Well, first of all, many economists think this is going to be actually the defining component of our economy in the next few years, that this recession, which has done so much to reduce the net worth of households, has really exposed how much debt we have. And households are going to have to work to pay down on that debt, and they're going to do it by spending less and saving more - deleverage is the term used. So the big question is how long is this going to take? How long are we potentially looking at a much slower growing economy as consumers work down that debt? Well, there have been some estimates done, and one estimate says that if we save at the rate of 2 to 3 percent per year, this deleveraging process will take five to six years. However, if we save at a much higher rate of 7 to 8 percent per year, it will take only two or three years. But even at that high rate, notice that's two to three years of much slower economic growth than we've been used to in the past. And again, this is probably the biggest unknown, the biggest moving force in the economy right now."

Posted by Dave at 08:00 AM

December 02, 2009

Why limit choice?

We pride ourselves in our country and our economy on letting people make their own choices about what to study, where to work and what to buy. But there are some legal limitations on this economic freedom. What's the rationale behind these limits?

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

"It's really important to have rationales that people understand and embrace, because our country really does pride itself on choice, letting people do their own thing. But there are, I think, three major areas where we do put restrictions. One is we will restrict choices of individuals in our society who aren't capable, we think, of making those choices. I think the best examples are children. We obviously put limits on what children can buy. Secondly, we limit choice when a choice may harm others. So, for example, we don't let people drink excessively and then drive. We have laws against that, because by doing so, that person not only puts themselves at risk, they put others at risk, other innocent people. So there are limits on how much you can drink and then drive. And then thirdly, and perhaps the most interesting one, is we put restrictions on choice when there's imbalanced information, when one side of the buyer-seller equation has more information than the other. And particularly this is with respect to the seller, when the seller knows a lot more about the product, and the buyer has no way of being able to gain that same knowledge, we put restrictions. A real good example of this is years ago something called the APR, annualized percentage rate, was imposed on sellers who were charging interest rates. And what it did is it made sellers all calculate the interest rate in the same way. And that keeps them from getting an edge, for example, over the buyer. So these are very, very important areas of discussion, and people need to realize that, yes, we do have some limits that do make sense."

Posted by Dave at 08:00 AM

December 01, 2009

New retail realities

Many observers of the economic scene say we're in a new economy, one where buying everything we want when we want it is over. How will this new economic world show up in retailing?

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

"Retailers are really struggling with this right now, because they do think that a new era in consumer spending is coming upon them, and it's not necessarily going to be a good one. Some of the things we think retailers are going to embrace are, for example, having less stock available. They're going to want to keep their inventories very, very lean. So you may have to wait longer in the future for some things, because the shelves aren't going to be overflowing. Retailers are going to emphasize lower prices, but they're going to discount less. And when they do discount, those discounts are going to be much more targeted. Retailers are also going to promote one-stop shopping. They know that consumers with tight budgets aren't going to drive around and shop as much, so retailers are going to want to do as much as they can to say to the consumer, hey, you can get everything you want right here. I think that's going to change the composition of products in many stores. And finally, retailers - and of course, they've always done this, but they're going to try even harder now - they're going to try to stand out, to stand out from the crowd. And some retailers interestingly right now are focusing on higher prices. They argue that we actually have the higher quality product and the higher prices to make them stand out from all the lower prices that I think we're going to see more of."

Posted by Dave at 08:00 AM