April 28, 2006
Gains in income and spending
N.C. State University economist Mike Walden says that two of the most important factors in the economy -- consumer income and consumer spending -– are holding up well.
“These are two numbers ... that economists track from month to month. They both have been increasing each month although the increases recently have gotten smaller,” says Dr. Walden, a professor and extension specialist in the College of Agriculture and Life Sciences.
“Now one very important indicator that economists focus on is whether spending gains outstrip income gains. This has actually been typical recently,” he adds. “It’s the cause for the very low savings rates, and it sends up kind of red flags among economists that [if] people are spending more than they are earning [then] perhaps they are living beyond their means.
“The good news is in the most recent month that we have data for income rose faster than spending, so consumers actually saved some money.
“Many economists ... think this is because of the cool down in the housing market. Consumers are realizing they can’t really rely on their home to generate their savings. They now have to do some of it out of their paycheck.”
April 27, 2006
Would you like to have $10,000 given to you every year?
N.C. State University’s Mike Walden says a proposal to give every person in the country a cash grant of $10,000 every year is likely to get a lot of attention in coming months.
“The person making this proposal is a well-respected scholar. His name is Charles Murray. He has been around for a number of years, written a number of books and talked about social and economic issues,” explains Dr. Walden, an economics professor in the College of Agriculture and Life Sciences.
“The money in his proposal would come from the federal government, and what he would do is take all the federal programs that, in essence, transfer resources from one group to another (programs like Social Security, Medicare, Medicaid, Food Stamps, farm programs, earned income tax credit) take all those monies and put them in the one pot and simply from those monies give every person -- not just poor people – ... $10,000 a year.
“Now the reason he would do it for everyone: he said it would eliminate the problems of deciding who’s worthy. It would also dramatically cut down on administrative costs.
“He argues that if we started that program now we would be need maybe $300 billion more in revenues for it to work. But he says within 10 years, this kind of program would actually cost the federal government less than all the current programs that they have.
“He also does some calculations in the book he’s published on this matter that argue that people who are at the lower end of the income spectrum they would actually do better with this program than with things like Social Security or with Medicaid.
“This is an idea that’s probably very controversial, number one. It’s probably going to get a lot of attention in the coming months.”
April 26, 2006
Shakeups in utilities
There have been some big mergers (and rumors of mergers) in phone service and electric power generation -- industries that used to be called utilities. N.C. State University's Mike Walden explains what's going on.
"These industries share a very important characteristic: They are very costly to build, but once they are built it is very cheap to add new customers. In fact, this was the reason that they were originally regulated," says Dr. Walden, an economist in the College of Agriculture and Life Sciences.
"But now we have full or partial deregulation and we have competition, and this is presenting some challenges. These industries typically are able to attract new customers through one of two methods: either
price wars (trying to underprice their competitors) or, if they find that doesn't work, they can combine forces through mergers.
"And recently apparently what we are seeing is the price war tactic has not worked so we are seeing more mergers in these two important industries."
April 25, 2006
Manufacturing in our country and around the world has undergone massive changes in recent decades, and it was particularly hard hit by the recession in the early part of this decade. But it's making a comeback, says N.C. State University economist Mike Walden.
"Factories are really humming again. In fact, the index of factory utilization shows that nationwide it is now back to pre-recessionary levels," says Walden, an economist with the North Carolina Cooperative Extension Service.
"Now manufacturing always takes a big hit during recessions because manufactured products are storable. So if a store is not selling sofas, they can simply put those in storage. And, of course, the sofa factories are going to shut down and not produce any more. So manufacturing is always hard hit during a recession.
"But the good news is that, for all of manufacturing, it is back. ... The news is even better for North Carolina. Factory output is up 12 percent as to compared to before the recession and is now at an all-time high."
April 24, 2006
What could re-ignite inflation
The overall numbers on inflation continue to be good: Producer prices last month fell, and it doesn't look like higher energy prices are translating into higher prices for other products and services. So if energy costs won't spark higher inflation, what could?
N.C. State University economist Mike Walden says, "The two things that worry economists right now ... are the double whammy, if you will, that we could get on inflation from lower worker productivity and higher labor costs.
"Labor costs are still a very important factor in the economy," says Walden, a specialist with the North Carolina Cooperative Extension Service. "They account for 57% of all costs of production, in comparison, gasoline accounts for only 10 percent of costs.
"And the labor market is getting tighter. So that's going to put upward pressure probably on labor costs," he adds. "At the same time we see the growth in output per worker, productivity, [is] still going up, but it's going up at a slower pace. In fact, recently in went up at the slowest pace in three years.
"So if you combine these two things together that could certainly put upward pressure on prices, and that I think is what most economists are watching rather than energy prices."
April 21, 2006
Giving and receiving from the feds
The nonprofit Tax Foundation recently released information on how much states they paid to the federal government in taxes in 2004 compared to how much they receive from various federal programs. N.C. State University's Mike Walden says North Carolina did pretty good.
"Now this is a comprehensive look at all kinds of taxes paid in as well as all kinds of monies received back from the federal government, including things like Medicare, Medicaid and Social Security. And the 2004 numbers show that North Carolina's getting back $1.10 cents in federal government programs for every $1 in federal taxes we pay," says Walden, a professor with the College of Agriculture and Life Sciences.
"So are actually getting more back than we pay in. Ten years ago we were much worse. We only got back $.93 for every $1 we paid to the feds. So things have turned around.
"Now in terms of the top state getting back much more than they pay to the federal government: that honor goes to New Mexico. They get back $2 in federal spending for every $1 they spend in taxes. And state at the bottom of the list is New Jersey. They get back only $.55 in federal spending for every $1 of federal taxes that they pay."
April 20, 2006
Where do we invest?
There are scores of financial investment opportunities for people. N.C. State University's Mike Walden explains which are the most popular.
"By far the most common ... are those that most people have at their bank, their credit union or savings and loan. We broadly call these transactions accounts," explains Dr. Walden, a professor and extension specialist in the College of Agriculture and Life Sciences. "They would be things like passbook savings accounts, maybe interest on your checking accounts. Over 90 percent of people have these kinds of investment -- by far the most common kind of investment.
"Second on the list would be retirement accounts. About half the people have some kind of retirement account outside Social Security. Third would be life insurance. Many people don't realize that you can save money through certain kinds of life insurance policies. About 24 percent of people do that.
"Then comes stocks. Stocks [are] actually fairly down on the list. About 20 percent of people are investing in saving in stocks. Savings bonds, 18 percent. CDs round out the list at 13 percent."
April 19, 2006
Income and savings
There are many ways that a family's income level affects how they live, and one of the biggest is in the ability to save money. N.C. State University economist Mike Walden considers how savings rates relate to income.
"There is a big correlation there, and what we find is the ability to save as you say dramatically increases with income," says Dr. Walden, a North Carolina Cooperative Extension specialist in the College of Agriculture and Life Sciences.
"Let me just give you some numbers here: For those people earning less than $20,000 a year, only about a third of them are able to save money. On the other hand, if you move up the income ladder, people making between $40,000 and $60,000 a year -- about half of those folks are able to save money in any given year," he says. "And people making more -- above $60,000 -- over 80 percent of those are able to save in any given year.
"Now the big reason for this is spending on necessities like food, clothing, housing, transportation and medical care, they do tend to increase with income but not certainly at the same rate. That is, someone who is earning twice as much as another person likely isn't going to spend twice as much on food, clothing and transportation.
"So as your income goes up you are much better able to cover your necessities. That gives you a lot more room to save."
April 18, 2006
Income and wealth
Two standard measures of a person’s prosperity are income and wealth. Mike Walden explains the difference -– and a concern that arises when a person's wealth grows faster than income.
“Sometimes people use them interchangeably. But obviously ‘income’ translated usually means annual earnings -– that is, the money that you earn, usually for most people, from their jobs,” says Walden, an economist at N.C. State University. “Wealth, on the other hand, is the value of your investments, your assets.
“Now, people certainly are happy when both of those or either one of those go up. But there is one issue that is in the tax area that can cause a concern -- and that is if you have a tax that is levied on your wealth and yet your wealth has gone up faster than your income. … What you will find is that tax is taking more out of your income.
“A very good example of that is property taxes. Property taxes, of course, are a tax on the wealth that most people have in their home. And the fact of the matter is that home values -- residential values -- have been going up a lot -- much faster than income. In fact, here in central North Carolina, I estimate they have gone up twice as fast as income in the last seven years.
“That means that when local county commissioners revaluate property and apply a tax rate to that now higher wealth, that may end up taking a lot more out of your income.”
April 17, 2006
Who do we owe it to?
Recent headlines have focused on U.S. borrowing from China and other foreign countries. But China isn’t the leading buyer of U.S. debt, says N.C. State University economist Mike Walden.
“If you look at who owns U.S. Treasury securities, which is what we are talking about here, Japan still continues to be the biggest owner by far in terms of the country. Japan owns $700 billion right now of U.S. Treasury securities,” says Dr. Walden, a North Carolina Cooperative Extension specialist.
"Now China is second on the list, but they are far down on the list. They are at $165 billion. Not too far behind them is the United Kingdom at $128 billion. And then several countries in East Asia like South Korea, Taiwan, Hong Kong: Together they own about $150 billion of treasury securities.
"Sometimes people ask, ‘What about those countries in OPEC -- those oil producing countries? Do they have a lot of our debt?’ Actually not. Collectively they own only about $43 billion worth of treasury securities."
April 14, 2006
Why are gas prices up again?
Just as the weather has warmed up, gas prices have moved even higher. NC State University’s Mike Walden says that several factors are to blame.
“First of all it’s warm weather. Any time we have warmer weather, people are going to drive more -- and that means more demand for gas. And since supplies are still very tight, that’s going to push the price up,” says Dr. Walden, a North Carolina Cooperative Extension economist.
“Second, we are in a period of time where the refineries are converting from using oil for heating oil to using it for gasoline. Sometimes they will use that time period to do maintenance of the refineries, so some refineries have been shut down. Obviously that increases prices.
“A third element is something new. Last year Congress passed a new antipollution law … changing the additives that have to be put into gasoline. And there’s some shortage of those new additives. And so that’s also adversely affecting the price of gasoline.
“But I think all this means is that we should probably get used to these higher prices, and I think if anything they’ll move higher as we move into the summer.”
April 13, 2006
In today’s nationalized and globalized economy having a competitively priced labor is important. But Mike Walden says this doesn’t always mean having the cheapest labor.
“The way a business looks at labor costs is they look at what they are getting out from that labor -- the output produced -- compared to what they have to pay that worker,” says Dr. Walden, a North Carolina Cooperative Extension economist.
“So for example, if a worker is twice as expensive but produces three times more, that worker is actually a bargain.
“And when we look at this productivity compared to cost for our workers, North Carolina actually looks very good compared to the nation. Our average worker is about 10 percent more productive than the national worker.
“In the last 25 years, output per dollar of pay has increased 19 percent for North Carolina workers compared to 8 percent for national workers.”
April 12, 2006
Potential costs of a pandemic
N.C. State University economist Mike Walden says that a widespread outbreak of avian influence, or bird flu, could have a “massive” effect on the U.S. economy.
“The Congressional Budget Office looked at two scenarios: They looked at a mild outbreak, which they said would affect 75 million people and cause 100,000 deaths in the U.S.,” Dr. Walden says. “And it would have a negative impact on the economy of $180 billion.
“They also looked at a severe outbreak: They said that would affect 90 million people, cause 2 million deaths and cost the economy $600 billion.
“Now there’s some difference in terms of what sectors most affected: Anything where there’s a large human contact like the entertainment business, the food service business, the travel business -- they would be the most adversely affected. In fact, the CBO says their business would go down by perhaps as much as 80 percent.
“So we are not talking about something that would be very mild here. We are talking about a major, major impact on the economy.”
April 11, 2006
Tax payment and tax incidence
Economists often say there’s a difference between who pays a tax and who ultimately bears the cost of that tax. Two examples, says N.C. State University’s Mike Walden, are Social Security and impact fees.
“Tax payment is simply who writes the check, but tax incidence is who ultimately bears the cost if the entity paying that tax can shift that burden,” he says.
“Let me give you two examples:
“Social Security. Half of social security is paid by the employer your boss. But studies show that the worker actually bears the full cost of that Social Security because the employer simply reduces the workers wages buy an amount equal to what the employer has to pay in Social Security. So the employer has shifted the burden to the worker.
“Another example is impact fees paid by builders. The builder may write the check for the impact fee and send it to the local government. But, again, studies show that builders are able to pass on a large amount of that to the homeowner or back to the land owner.”
April 10, 2006
State business tax climate
An organization called the Tax Foundation recently released a study of the tax climate for businesses in each of the 50 states. North Carolina Cooperative Extension’s Mike Walden explores how North Carolina ranks.
“It’s a comprehensive look at the major taxes in the state, including what is taxed, the kinds of tax rates, the highest tax rates and whether there are any exclusions. So they go through a very comprehensive process in doing this,” says Dr. Walden, an economics professor at N.C. State University.
“On a ranking where number one means the lowest tax state and the number 50 means the highest taxed state, North Carolina -- according to this organization -- current ranks 37th. Wyoming is number one: They are the least taxed state. And New York is number 50; they are the highest taxed state.
“Now North Carolina, in terms of specific taxes, looks best compared to other states on business taxes. We look worst on the individual income tax.”
April 07, 2006
Who’s getting richer
Newly released government data allow us to see trends in family net worth during this decade. Dr. Mike Walden, an economist with N.C. State University, explains who got richer -- and who didn’t.
“People in the middle of the income spectrum actually did the best. People earning incomes between, say, $40,000 and $90,000 saw increases in their wealth or family net worth ranging from 6 to 11 percent,” says Walden, a specialist with North Carolina Cooperative Extension.
“People at the very top of the income spectrum curiously got … much smaller gains -- 4 percent,” he adds. “And unfortunately people at the bottom end of the income spectrum, under $40,000, actually saw their net worth go down during this time period.
“I think perhaps a lot of the reason for the big gains in middle income households was due to home ownership.”
April 06, 2006
A level playing field for health insurance
Most people get their health insurance as a benefit from their employers. And those who don't often end up paying higher rates. N.C. State University's Mike Walden explains why.
"Actually this goes back to World War II when companies were constrained in passing along salary increases, and they were allowed, however, to give benefits like health insurance," says Dr. Walden, a North Carolina Cooperative Extension economist. "The problem this creates is that it makes it much more expensive for someone to buy health insurance apart from their employer.
"Those health insurance policies are much more expensive again when you consider this tax break that employees are able to get via employer-provided health insurance.
"So one proposal that people have bandied around is we ought to have a level playing field here, because there are a lot of people who can’t get insurance through a company. So what we ought to do is allow the same tax benefits for individually purchased health insurance policies that companies now get when they provide those policies."
April 05, 2006
More than costs
When most people consider business costs, they think of labor and material expenses and conclude that those businesses with the lowest costs on these components will be the most effective competitors. But Mike Walden, an economist with N.C. State University, says this isn't always true.
“Well, it is often the case. I mean, I think WalMart is the probably the best example there,” says Dr. Walden, a specialist with North Carolina Cooperative Extension. “But it’s not always the case because there are other factors that people consider and may be willing to pay for.
“Service after the sale: That’s very important for many durable goods, so a company with an excellent service record may be able to actually charge more and consumers are willing to pay that. Other important considerations are things like time of delivery -- people may be willing to pay more to get that product faster; product quality; the availability of replacement parts; take-back policy; the level of personalized service.
“So there are a lot of things here that really go into a consumer’s evaluation of how good a product is, and not just whether it is cheap because of cheap labor and cheap material.”
April 04, 2006
Mergers and gas prices
With gas prices well over $2 per gallon, some have blamed oil company mergers for the relatively high cost of fuel. But N.C. State University economist Mike Walden says that research shows that there are other factors.
“There have been a lot of mergers in the oil business, and there have been some really key ones between some big players,” says Dr. Walden, a North Carolina Cooperative Extension specialist. “The concern is that such mergers would reduce competition in the oil market and potentially result in higher oil and gas prices.
“So actually the government has gone out and studied this: The Government Accounting Office, which is sort of a watchdog government agency filled with very competent people, ... went out and studied this issue.
“Their major finding was that mergers, yes, have resulted in some increases in wholesale gas prices, but they’ve been relatively small -- maybe 2 cents per gallon.
"And, instead, the big culprit behind rising and high oil and gas prices has simply been rising world demand, particularly from developing countries.”
April 03, 2006
Who doesn’t have health insurance
About 40 million people in the United States don’t have health insurance, and N.C. State University’s Mike Walden says they fall into three groups.
“The reason behind each is different. One-third of the people are low income people who are actually eligible for government health insurance programs but they have just not signed up for them,” explains Walden, an economist with North Carolina Cooperative Extension.
“Another third are also low-income persons who aren’t eligible for government programs because they are uninsured for a relatively short period of time. And then the final one third are higher income people generally making over $50,000 a year who are not eligible for government programs and who choose not to purchase health insurance probably because of its costs.”