May 31, 2006
Electronic trading in the stock market
Online stock trading is now common and easy. N.C. State University economist Mike Walden explores how computers and technology have affected the stock market.
"Some say that it’s impacted it negatively because it has made the stock market more volatile. With more trading [and] people being able to act on information more quickly, that can cause bigger ups and downs in the stock market," says Dr. Walden, an economist with the North Carolina Cooperative Extension Service.
"On the other hand, some economists say, 'Well, that may be true, but it is actually making the market more efficient' because for the stock market to be efficient -– and by 'efficient' we mean that information about stocks and companies gets out quickly to buyers and people interacting with the stock market.
"By making that market more efficient you do allow people to have more power. They don’t, for example, have to rely on professional brokers. They can get that information right there on the desktop and act on it.
"And also this efficiency decreases the likelihood of a small group of investors being able to corner the market because only they have the information.
"So this may be another example where technology has created power for individuals."
May 30, 2006
Insurance for big losses
Hurricane season is almost here, and with it comes memories of catastrophic destruction. Typically with unexpected losses we use insurance for protection. N.C. State University's Mike Walden discusses whether some losses are just too big for the private insurance market.
"... We have seen some major catastrophes, weather-related, with the hurricanes, for example, flooding -- even tornados this year. And a big question that economists debate is whether you can have an insurance market –- a private insurance market -- that functions when you have these relatively infrequent yet very catastrophic losses," says Dr. Walden, an agricultural and resource economics professor with the College of Agriculture and Life Sciences.
"I mean, typically the way an insurance market works is you are able to predict your losses. You may not be able to predict who suffers a loss, but you would be able to predict the dollar amount of losses each year. Therefore, you can structure your premiums to cover that.
"With these big catastrophic losses where a particular area -- for example, North Carolina -- may not be hit by a major flood such as the ones we suffered with the hurricanes in a hundred years, it is very hard to predict those losses and figure those into your premiums.
"So if a private company can, for example, be willing to wait long enough to recover their costs, then I think a private insurance market can work.
"Otherwise some economists say this is one area where the government may have to step in."
May 29, 2006
Coping with high energy prices
One of the great things about our economy is the ability of consumers and producers to adjust. N.C. State University economist Mike Walden cites several examples of ways that industries are adjusting to high energy prices.
"Let me take a number of examples here:
"Airlines: Airlines of course use a lot of fuel, and that’s a big cost to them. Airlines are reducing their weight on planes. They are adding devices, for example, to wings to reduce wind drag, and they are modifying routes to take advantage of wind currents. All those things are being done to try to save on fuel.
"Truckers –- truckers, again, use a lot of fuel. ... A lot of trucking lines are using fatter tires in order to get better gas mileage.
"Railroads – again, transportation, a lot of fuel used. A lot of railroad companies are shutting engines down if they are idling too long. If they are waiting in the yard, not moving, just shut the engine down to save fuel.
"And here’s a very interesting one: Glacier runoff is being used in some countries as a means of generating hydropower.
"... All these ideas all these methods are very good illustrations of how people do try to cope with something that changes -- in this case higher energy prices," Walden concludes.
May 26, 2006
High gas prices have been a bonus for ethanol sales. N.C. State University economist Mike Walden considers whether this means investors will flock to production of this gasoline alternative.
“Ethanol, of course, is big talk around the country, especially in the big Midwestern states where they grown corn,” says Dr. Walden, a professor of agricultural and resource economics. “And, of course, corn growers are benefiting tremendously because ethanol does use corn.
“But we shouldn’t necessary expect that ethanol plants, the refinery plants, are going to be a good investment down the road,” he adds. “I think ... one reason is that you are going to see corn prices, which again are the raw material of ethanol, jump significantly as ethanol becomes more widely used as a fuel. And so when that happens that’s going to increase the cost of producing ethanol.
“At the same time we are probably going to see more ethanol producers out there -- more refineries built -- so there’s more competition,” Walden continues. “All of this is going to put a squeeze not necessarily on the farmer producing the corn but on the ethanol refinery.
“And so I think down the road what you could see is that squeeze actually lead to less production and ethanol being less productive and less profitable. I think that is a few years off, however.”
May 25, 2006
Boycotting gas retailers
Everyone is trying to cope with high gas prices, and some people have recommended that motorists boycott certain gas retailers to force them to reduce their price. But N.C. State University economist Mike Walden says such a tactic won’t work.
“It sounds simple enough, but it won’t work. It would only work if not only did motorists boycott one kind of retailer but all retailers,” says Dr. Walden, a specialist with the North Carolina Cooperative Extension Service. “That is, it’s only going to work if motorists significantly reduce gas consumption in total. But if what’s going to happen is simply that you don’t buy at station A but you go over and buy at station B, that’s not going to change total consumption. And so there’s going to be no impact on price.
“The real way in the short run to get gas prices at least to level off, maybe even go down, is to get people to become more frugal in their gas usage -- that is to drive less, use less gas [and] when they do have an opportunity to buy a car, buy a car that has better fuel efficiency,” he adds.
“Thus far, though, we have not seen enough of that happening. That’s why, I think -- part of the reason why -- gas prices are where they are.”
May 24, 2006
Meaning of a slowing housing market
Several indicators suggest that the housing market has slowed. In particular, price increases have peaked and in some regions prices have even come down. N.C. State University's Mike Walden explores what this means for buyers, sellers, homeowners and the labor market.
"There are a lot of ramifications, both good and bad, depending on whether you are a buyer or a seller," says Dr. Walden, an economist with the College of Agriculture and Life Sciences.
"Clearly if you are trying to sell your home and you had been in a hot market and now you are not, you are going to have a tougher time. So you are probably going to have to lower your price more, you are going to have to do some innovative things in order to get a buyer.
"On the other hand if you are a buyer it’s a buyer’s market. You are going to see a greater supply of homes out there, and you are probably going to see sellers willing to negotiate more on price.
"Now for people who already have homes, a slower housing market means a slower buildup in their equity, so they are probably going to have to save more out of their paychecks.
"And then, finally, we must not forget the impact on employment in an area. The housing marketing in most areas is a very large user of labor. So if you have a slowdown in housing, particularly a slowdown in new homes built, that’s going to have an adverse effect on employment."
May 23, 2006
Labor market effects of immigrants
One of the most important elements in the debate over immigration pertains to immigrants’ impact on labor markets. N.C. State University economist Mike Walden discusses what research has found on this issue.
“The research shows ... that immigrants have largely migrated in this country to regions where the demand for labor has been very strong. So the evidence seems to indicate that immigrants have filled a gap in the labor market,” says Dr. Walden, an economist with the North Carolina Cooperative Extension Service. “They have gone to fast-growing regions where there has been a big demand for workers in, say, the service industry and the construction industry. So from that point of view, they have helped. They have helped meet the supply of labor, and they have helped supply meet demand.
“Now, on the other hand, clearly if you take those fast-growing labor markets [and] you did not have the influx of immigrants, pressure on wages would have been upward, so that people who are already in those industry probably would have seen higher rates of pay.
“That is to say that immigrants have probably had an impact of putting downward pressure on wages,” he concludes.
May 22, 2006
Is China the culprit?
Many people point their fingers at China as the reason for the large U.S. trade deficit. But N.C. State University economist Mike Walden says it's not that simple.
"Many analysts say that ... Chinese products have simply substituted for products from other countries," explains Dr. Walden, a professor with the Department of Agricultural and Resource Economics.
"That is to say if China wasn’t there perhaps making apparel products we’d be buying those apparel products from other countries in South Asia.
"Also some economists say that even if China increased the value of its currency against our currency, which many lawmakers have been calling for, that would not reduce the trade deficit we have with China very much," he adds.
"Ultimately we may have to wait until the Chinese start buying many more products from us to see that trade deficit fall."
May 19, 2006
People keep coming
The latest U.S. Census data confirms that people are moving to North Carolina in large numbers. N.C. State University's Mike Walden reviews finding from the report on migration between states from 2000 to 2004.
"Over that time period North Carolina has averaged 39,000 new people moving here from other places. And that ranks us sixth fastest in terms of in-migration in the country behind states like Florida, Arizona, Nevada and Georgia," says Dr. Walden, an economist with the North Carolina Cooperative Extension Service.
"In contrast, states in the Midwest and Northeast, plus California, are losing people. Just to give you one example, New York State is losing an average of 182,000 people each year."
May 18, 2006
Most people think China is on top of the world with their gains in manufacturing and their large trade surplus. But N.C. State University economist Mike Walden says there are underlying issues that are cause for concern.
“I think if you understand (the issues) then maybe it will help [you] understand why China behaves the way it does. They have a big issue with what’s called rural to urban migration," explains Dr. Walden, a professor of agricultural and resource economics.
"That is, there are a lot of people in rural China who are leaving the rural areas. They are moving to the cities, and they need jobs.
"So China has a big concern about creating jobs for all those new people who are moving into the cities. And to do that they are trying to spur manufacturing sector to create those jobs.
"One of the ways they do that is to sell their products overseas. To do that, they try to keep their currency value low. And to do that they print a lot of money.
"They have been printing money right and left.
"Now so far this has been working for them, but this does run the risk of internal inflation. That is, if they print too much money too rapidly, they can cause a lot of inflation.
"And we have had experience in our country of what that can do to you. And in fact in many countries, high inflation can lead to economic collapse.
"So China does have a little tightrope to walk here, and we do need to watch them because if China falls, since they are now a big part of the world economy, it could have worldwide ramifications."
May 17, 2006
Two manufacturing industries
Most people have the opinion that manufacturing is a dying industry in our country. But N.C. State University's Mike Walden says that's not a fair evaluation.
"We really have two different manufacturing industries in our country and, indeed, here in North Carolina," says Dr. Walden, an economist with the North Carolina Cooperative Extension Service. "On the one hand, we have what’s called the nondurable manufacturing sector. These are companies that make things that last only a very short period of time.
"Here in North Carolina, very important components of the nondurable manufacturing sector would be apparel, textiles, tobacco products. That sector has been having big-time problems.
"In fact a lot of those companies have moved overseas or moved production overseas.
"On the other hand we have a durable manufacturing sector -- for example, companies that make equipment and technological components. And in the last decade that sector has actually been growing and doing quite well.
"So really when you talk about manufacturing and whether it’s doing goodly or badly you have to ask what kind of manufacturing are you indeed talking about."
May 16, 2006
Why gas prices are not crippling us
With prices at the pump approaching $3 a gallon, you might think the economy will soon be grinding to a halt. N.C. State University's Mike Walden explains why the economy seems to be rolling on.
"Consumers are still buying gasoline. They are changing their car-buying habits a little bit, but not overwhelmingly. So despite, of course, our concern and criticism of gas prices things do seem to be continuing," says Dr. Walden, an economics professor in the College of Agriculture and Life Sciences. "The big question ... is, 'Why?'
"And I think one reason why is that despite our outrage over gas prices they are still a relatively minor part of most household budgets. That is, even with today’s high prices, the average household spends less than 7 percent of their after-tax income on gasoline and oil.
"Now that is going to vary by level of income: For lower income households it’s higher, up around 13 percent; middle income, about 6 percent; higher income households, about 3 percent.
"But overall gasoline is just not that big a deal yet in our family budgets."
May 15, 2006
Attracting good paying jobs
The number one objective of most economic developers is to get jobs with good salaries to come to a community. Dr. Mike Walden examines what economists have to say about the topic.
"This has been a subject of many, many studies a lot of head scratching and number crunching by economists, and I think we can come up with three summary ways to attract good paying jobs," says Walden, an N.C. State University economist.
"One, if you live in an area where there are a lot of educated people, an area where there are colleges and universities, those areas seem to ... have the easiest time attracting good paying jobs. That is, good paying jobs are still attracted to areas where there are highly educated people.
“Secondly, studies find that businesses in today’s very competitive world ... like to have flexibility. They like to have the ability to change the work schedule, to change the composition of the workforce, and so unions oftentimes impede that. So although this may sound controversial, it is nevertheless born out by the data, that businesses are attracted to areas where unions are not very strong.
"And then thirdly, areas with amenities -- and we are talking not just about commercial amenities and other businesses but natural amenities capitalizing on the area’s natural beauty. Those areas seem to have a better chance at attracting good paying jobs."
May 12, 2006
Are consumers out?
While many are predicting that consumer spending will slow this year, N.C. State University economist Mike Walden says economists aren't yet ready to agree.
"I think consumers can continue to really hold up the economy for two reasons:
"Number one, the job market. The job market remains strong, and if you have a strong job market that means more people are getting jobs, wages tend to increase more, that pumps more income into consumers pockets.
"Secondly, there has been a record increase in household wealth during the past three years. This has gone somewhat unnoticed. It’s not all due to the stock market. It’s due to many things. And studies show that more consumer wealth translates into increased consumer spending. In fact, it translates about 7 cents in more in consumer spending for every dollar increase in wealth.
"So for those two reasons we think that the consumer will continue to spend, and it’s really doing to take a slow down in those two factors, I think, to send the consumer down on the mat."
May 11, 2006
It wasn't that long ago that the world’s population hit 5 billion. But demographers say we could reach a world population of 10 billion by the year 2050. Dr. Mike Walden explains why -- and what it means for the economy.
"Now that’s, of course, a big number, and many people are scared of it," says Walden, an economist with N.C. State University's College of Agriculture and Life Sciences. "But it’s actually interesting to know why world population is increasing.
"It’s actually not because households are having more children. In fact, fertility rates are falling worldwide. That is, households are having fewer children.
"But population is going up really for two reasons: One, people are living longer, and number two simply because we have so many households (that) even if each household has fewer children than they did in the past that’s going to swell the population.
"One big implication of this ... is that what’s called the age pyramid -- think of the age pyramid as you have a lot of young people, and then you have fewer middle age people and then very few old people –- that’s going to sort of flatten.
"That is, the projections are that you will have perhaps ... almost just as many older people by the year 2050 as younger people. That’s going to have big implications for many things, like the work force."
May 10, 2006
Softening the impact of impact fees
Many communities in North Carolina have impact fees, which are fees levied on new home construction to pay for some of the public infrastructure costs associated with the new homes. Studies show a major part of those fees are ultimately paid by the home buyer. But N.C. State University's Mike Walden says that there is a way to make them more acceptable.
"Impact fees are a very controversial item ... in many communities. In fact here in Wake County, we just had a debate about those. But ... there is a way to sort of soften the blow of impact fees," says Dr. Walden, a professor in the Department of Agricultural and Resource Economics.
"And that is, if the local government that is charging the impact fees doesn’t take the money and simply put it in the general fund so it can be spent anywhere, but instead takes those impact fee revenues and puts them in a special fund that is spent for things that homebuyers can directly see -- like road improvements, sidewalk improvements, in some cases perhaps building new schools.
"Then, actually studies show that, number one, homeowners are much more accepting of impact fees, and, number two, they can actually have positive effects on the local economy.
"That is to say that normally if you impose an impact fee that increases the cost of housing, you may see housing activity slow down in that local county or community. If, however, homeowners can see where impact fees are being spent, and they are being spent on something they value, then again those same studies show that the housing market is not adversely affected."
May 09, 2006
What is a tax increase?
Taxes are always a controversial subject, especially when they increase. But just because we are paying more in taxes doesn't necessarily mean we've had a tax increase. N.C. State University's Mike Walden explains.
“Here’s the deal: Taxes that people pay are really a function of two things: that which is taxed, called your tax base (it could be your income, it could be spending, it could be the value of your house) and the tax rate that’s applied to that base," explains Dr. Walden, an economist with the North Carolina Cooperative Extension Service.
“Now many economists would argue that only if the tax rate goes up should you consider that to be a tax increase. For example, if your income goes up and the income tax rate ... does remain the same, you are, of course, going to pay more in taxes. Likewise if your property value goes up and the property tax rate remains the same, you’ll pay more in taxes.
“Now where this gets a little sticky I think is with the property tax because we have these long periods – in many counties, eight years -- between valuations of property. So over that time hopefully the value of your house has gone up. Even if commissioners keep the tax rate the same, that means you will pay a big, big additional bill. That causes people to have a lot of issues.”
May 08, 2006
More on housing bubbles
With the housing market apparently slowing, the talk about housing bubbles, or declines in housing prices, continues. N.C. State University’s Mike Walden discusses a new research report and what it implies.
“We have a new report from the very prestigious National Bureau of Economic Research. They make a number of important points about this concern over housing bubbles,” says Dr. Walden, an economist with the North Carolina Cooperative Extension Service.
“First, they say that you cannot compare housing markets in different parts of the country, because it’s really a local market. So if people hear about, for example, housing prices plunging in San Diego, [they] should not automatically think that’s going to happen in their local area.
“Secondly, in studying national housing markets, this study concludes that in most areas of the country houses are not overvalued -- and especially they point out here in the South. So they would not expect a general decline in prices.
“However, that said, their third point, I think, is very important: They say that unexpected events like a big jump in interest rates or a severe recession could prompt housing price declines.
“But for most homeowners, I think they can sleep well at night.”
May 05, 2006
The crazy dollar
With the U.S. running a large trade deficit with the rest of the world, experts have expected the dollar to drop in value against other currencies. But N.C. State University's Mike Walden says that just hasn't happened -- at least not through 2005.
"Contrary to all the experts, the dollar actually got stronger against foreign currencies, and this really has economists scratching their collective heads," says Dr. Walden, an economist with the North Carolina Cooperative Extension Service.
"A couple of possible explanations: One is that foreign countries want a strong dollar -- particularly China -- so that their imports can continue to be sold to a big U.S. market. ... As a consequence they are purchasing U.S. investments in order to keep the dollar from falling. That’s one theory.
"Another theory is that the trade deficit is really improperly measured -- that it misses our surpluses and intellectual property and returns from foreign investments, and when you include those we don’t have a trade deficit. And that would be one explanation for why the dollar hasn’t fallen.
"But whoever is right we certainly want to watch the dollar and what it does this year."
May 04, 2006
The good and bad of higher education
Whenever anyone talks about the economy, they ultimately mention education because it truly is the driver of the economy. But what's the status of higher education today? N.C. State University's Mike Walden outlines the good and bad sides.
"On the good side, clearly education is still very valuable. One estimate recently ... put the value of a college degree at over a third of a million dollars lifetime -- even accounting for tuition, tuition being higher and lost wages while the student is in school," says Dr. Walden, an agricultural and resource economics professor in the College of Agriculture and Life Sciences.
"So clearly education’s beneficial financially. But the negative side of ... higher education today is, number one, tuitions are rising. In fact they have been rising significantly faster than inflation. And consequently, colleges are getting a little pickier in their admissions.
"And because of the rising tuitions, because more people want to go to college, one recent study indicated that 400,000 students nationwide who are qualified for college can’t go because of finances.
"So clearly we have work to do to make a college education be in the grasp of those who are eligible."
May 03, 2006
Are the trends changing?
North Carolina’s economy goes through ups and downs, much like the national economy. N.C. State University's Mike Walden addresses the question, "Has anything changed recently in how we move compared to the nation?"
"Traditionally North Carolina’s economy has been more volatile –- we’ve had bigger ups but also bigger downs. Manufacturing," Walden says, "is one reason. Manufacturing helps us during economic expansions, but it has tended to hurt us in recessions.
"But one thing that’s changed recently is that although we still improve in our state economically when the nation improves, in the past our improvement has been much, much greater than the nation’s," says Dr. Walden, a professor of agricultural and resource economics. "Recently we have gained a little bit more than the nation. So the gap between our improvement during the expansions between North Carolina and the nation has gotten smaller.
"Some say that’s because of the massive restructuring in our economy, the downsizing of our traditional industries, the upsizing of new industries."
May 02, 2006
Has the global economy has hurt North Carolina? N.C. State University economist Mike Walden says the answer depends.
"It really depends on the industry that you are looking at ... Clearly the evidence shows that reduced tariff rates, the entry of China into the world trading market: those two events have hurt North Carolina’s traditional industries like textiles, tobacco and furniture. And you can see the effects in terms of less production and fewer employees in these industries," says Dr. Walden, an economist with the North Carolina Cooperative Extension Service.
"But the state’s newer industries -- areas like technology, vehicle parts, even banking –- the evidence shows that those industries have either not been hurt by globalization or they have actually been helped by the opening of world trade markets.
"So it’s really a difference between sort of the traditional or old North Carolina economy and the new North Carolina economy. And I think really what globalization is doing is hastening the transition from the old to the new."
May 01, 2006
Has the Internet been tapped out?
There is evidence that subscription growth for the Internet has slowed. N.C. State University's Mike Walden considers the reasons why and what they mean for the industry.
"I ... think the Internet certainly is not going to go away, and it is certainly going to get bigger. But people in the industry are worried ... that growth has slowed down," says Dr. Walden, an economics specialist with the North Carolina Cooperative Extension Service.
"I think there are a number of factors here. I think one is the aging population. Statistics show that 60 percent of people over age 65 still don't use the internet. Probably it's because they did not grow up with it, and they are not used to using the computer
But that's the major issue with the industry.
"Five percent say that they will not subscribe to Internet service at all at any price. They simply don't want to have anything to do with it. And 31 percent of nonusers say that they don't have home Internet service because they can get all the Internet service they want at work.
"I think another issue for the industry is the fear of fraud and scams. I think they may be turning off some Internet users. These are all challenges that I think the industry will have to address if it wants to expand."