« December 2009 | Main | February 2010 »

January 29, 2010

The Worldwide Service Economy

U.S. jobs have been moving away from manufacturing to services for several decades. Is this trend unique to our country?

Dr. Mike Walden, an agricultural economist with North Carolina Cooperative Extension, responds:

"Absolutely not. I think this is a misnomer that some how the U.S. is losing all these manufacturing jobs and they are going somewhere else and no one else is in the same trend. Actually every country in the world has seen a movement away from manufacturing to services. Even in China and India we have seen that trend. And there are two big reasons.

"One is we have seen an explosion in manufacturing productivity everywhere; that is, a manufacturing worker today can do so much more, can be responsible for producing so much more compared to his or her counterpart decades ago -- that to produce the same amount of manufacturing output or indeed to produce more, you don't need as many people. And again, that is a trend that is going on all over the world.

"The second trend is a little more subtle. As we have seen standards of living rise, consumer income -- we've seen it in this country, but we see it in every other country -- consumers actually shift where they spend their money away from manufactured products to services. So we have seen the demand in economics lingo for things like health care services, and education services, and personal care services rise. And that creates jobs in those areas.

"So we are certainly not alone in this big employment shift from manufacturing to services."

Posted by deeshore at 12:22 PM | Comments (0)

January 27, 2010

Losing Jobs to Overseas

One of the most frequent questions economists get is about losing jobs to overseas competitors. Some people are pessimistic about our country's ability to keep good paying jobs. Is this a legitimate concern?

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

"Well, it is a legitimate concern. I mean, what has happened over the last really 25 years is changes in technology -- and particularly communications -- have allowed foreign workers to effectively compete with domestic workers.

"When, for example, a software person in Bulgaria can work on a program and ship that overnight or actually within seconds via the Internet to a client in America, you can see where software workers here in the U.S. would feel threatened by that.

"So it is a legitimate concern, and it affects not just manufacturing but also many professional jobs. Indeed, some economists have estimated that as much as 25 percent -- 25 percent! -- of all U.S. jobs are now open to foreign competition.

"Now does this mean we are going to eventually lose that 25 percent? Well, other economists say no. They say that that won't happen for a couple of reasons.

"One, there is a reason to keep some jobs, and many of those jobs in the U.S., to be close to clients -- that if you are working on something very standard, yes, you can do it overseas and ship it here, but if you are working on something that requires a great deal of interaction with a client, it is good to be here on site.

"Others say that outsourcing some jobs actually makes domestic firms more profitable and that will cause them to actually add more jobs here in the U.S.

"And then lastly, some say that we need to remember that the U.S. is the top innovative country. And don't just look at the jobs we have today and say those are the only jobs we are going to have -- we are very good at innovation, creating new industries, new jobs, and that is really going to be our salvation down the road."

Posted by deeshore at 04:39 PM | Comments (0)

Reducing the national debt

The problem of the national debt seems to be getting worse. Many say that we must address the debt in some meaningful way -- and soon. Are there any new ideas about how this might be done?

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

"Now, of course ... there are really two dimensions to solving the debt issue: One is economic -- that is, what policies will actually lead to that? The other is political -- getting the political support for those policies.

"There are lots of economic ideas, (but) I think probably the political is the more important.

"And one approach that some people have floated and said that we may see down the road is to set up a BRAC-like debt reduction commission. Now BRAC stood for Base Relocation and Closure Commission. It was the old commission that actually was set up to close some military bases around the country. And that was very controversial because military bases pump a lot of money into local communities.

"And the way this commission was set up differently is it said that, yes, we are going to have a group of high-level bipartisan folks working on the commission. They are going to set up or come up with a number on recommendations. These recommendations, however, will have to be supported that is voted up en masse (in total) by Congress or voted down in total -- that is, Congress can't pick and choose which proposals they want, and they can't go in and alter those proposals.

"So some have said that this is the approach that we need for dealing with the national debt: a high-level commission that will make recommendations but Congress can only vote all of them up or all of them down. And many say this will ease the political skids, if you will, of getting something done."

Posted by deeshore at 07:59 AM | Comments (0)

January 26, 2010

Are we working less?

Each generation seems to believe it works harder than previous ones, but today there appear to be more ways for people to use their leisure time. Does this mean that people have more free time? Is it safe to assume we are working less today than our predecessors?

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

"Actually, not a safe assumption ... . A very new detailed study looked at this. It calculated the amount of leisure -- free time -- that people have. And it calculated that over the last 100 years free time, leisure time has increased. For the average person, it has gone up about 10 percent, which amounts to about 4 to 5 hours a week. But, but the study found some big differences.

"First of all, they found that the leisure time for men has gone up much more than the leisure time for women. And I think the reason for this is women, quite frankly, are doing a lot more today. They are not only in many cases maintaining a household and putting in the most time with raising kids, but they are also working outside the household.

"So actually, the data show that women are working more, have less free time, (and) men actually have a little more free time.

"And then one group -- and this is for both males and females -- one group of people, young adults, the study shows they are working less at jobs, but they are working more at school. That is, they are spending more of their time in school. So really they don't have more free time, because it is just the nature of their work; school work has gone up while paid work has gone down."

Posted by deeshore at 07:42 AM | Comments (0)

January 25, 2010

Holding Our Debt

Foreign countries hold a large percentage of our national debt, and there are two common worries about this: first, that the countries will someday say they want their money back and, second, that they will sell our debt and stop buying more. How real are these worries?

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

"On the first one ... , I don't think there is much likelihood that all of a sudden a foreign country, let's say China -- that's the one most frequently mentioned -- would say, 'Hey, we don't like having all this debt. We're just going to sell it. We want our money back,' because that would hurt them as well as hurt other people if they were to so-called dump that debt on the marketplace. That would reduce the market value of that debt, and they would get less back. Also China can't just come to the U.S. and knock on our door and say, 'Hey, we want our money back.' So I don't think that there is a high probability that will occur.

"Now on your second issue, that probably has more credence. And in fact there has been some indication that many countries like China have been -- although they have not stopped buying our debt, they have perhaps reduced the proportion of our debt in their portfolio.

"But actually the U.S. government has not had a problem selling debt over the last couple of years. The U.S. debt is still considered very high in terms of quality (and) in terms of safety, and the U.S. government is actually having more ability to sell debt to our own folks -- citizens here in the country -- because the saving rate has gone up. It has gone up from about zero a couple of years ago to 5 percent. Americans are actually saving more money and over the last couple of years; a fairly substantial part of that saving has gone into buying U.S. government debt."

Posted by deeshore at 07:30 AM | Comments (0)

January 22, 2010

The Military's Weight in North Carolina

When we think of economic industries in North Carolina, we think of traditional industries like tobacco and textiles and new ones such as technology and banking. But if we were thinking of industries, wouldn't the military also be high on the list?

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

"Yes, it would ... . In fact, based on what we call value added, that is the income generated in North Carolina due to a particular industry, it is a concept like gross domestic product, GDP, the military in North Carolina contributes $11 billion dollars to the North Carolina economy. And indeed that number is twice that size if you were to account for the indirect spending -- that is the spending on suppliers, etc.

"So the military is a vast industry so to speak in North Carolina. And of course it is due to the large military installations that we have in the state. Many of which fortunately we have seen expand over the last couple of years as there has been base realignment.

"Now you can see another influence of the military in North Carolina during this past recession. If you look at all the metropolitan areas in the state during the last recession, the metropolitan area that has actually been able to weather this recession the best in terms of having the least decline in employment has been the Fayetteville metropolitan area.

"And you think Fayetteville, what do you think? Well, you think Fort Bragg. And so the stability there provided by the military has actually helped that metropolitan area go through this recession fairly well."

Posted by deeshore at 07:53 AM | Comments (0)

January 21, 2010

Deficits and Inflation

The Federal Government has been running enormous budget deficits during the recession. Some worry that these deficits will lead to much higher price inflation. Is this worry well-founded?

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

"Well, actually ... if you took a poll of people, most people would say, well, sure that the higher the budget deficit, the more likelihood that we will have higher inflation. But actually within economics, economists would say no, there is no necessary link between budget deficits and inflation.

"Inflation fundamentally results when the government prints too much money when the money supply is growing faster than the production of our farms and factories and offices. And that results in higher prices.

"A budget deficit means the government is going into the money markets and borrowing money. Now if the amount of money is the same, if the Federal Reserve, for example, hasn't increased the amount of money -- the amount of money is the same -- what a budget deficit simply means is the government is going in there and borrowing money and using it rather than the private sector -- rather than consumers and businesses. So there is no direct link there.

"Now, there can be link if when the government does run big budget deficits, the Federal Reserve then on the other hand says, well, we have got to print more money. And that can spark higher inflation. This is called monetizing the debt.

"The good news is although that has happened in the past, it is actually fairly rare. And Fed Chairman Bernanke, for example, has signaled that he is not going to do that -- that he is not going to print extra money just to fund the higher budget deficits. So there could be a link there, but it is not a necessary link."

Posted by deeshore at 08:14 AM | Comments (0)

January 20, 2010

Person of the Year

Time magazine recently named Fed Chairman Ben Bernanke as their person of the year for 2009. What do you think of this choice?

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

"I think it certainly meets the standard that Time magazine has used to choose a person of the year. This is supposed to be a person who has had the most influence on events, whether that influence has been good or bad. And I do think that Bernanke over the last year -- probably more than any other person -- has had such an influence. Obviously in the last year, the economy has been issue Number One.

"Mitigating the effects of the recession, preventing the recession perhaps going into a depression, hastening the end of the recession -- all have been goals. And I think probably again, more than any other person, Bernanke has been at the point in doing that. He has enacted policies designed to deal with the recession. He has obviously also spanned two administrations, the Bush administration and now the Obama administration. Things like cutting interest rates, pumping up the money supply, developing loan programs: Bernanke has really taken the fed to places where it has never been before. And his actions have not only affected the broad economy, they have really affected virtually everyone in the country.

"So yes, I would agree with that choice. I think he meets the standard. Now Bernanke's future reputation I think is going to depend in part on how he winds these programs down because one of the concerns economists and others have if left in place, these programs could spark other negative aspects in the economy, particularly higher inflation."

Posted by deeshore at 07:50 AM | Comments (0)

January 19, 2010

Tax cuts versus spending

There seems to have been two competing viewpoints over how best to revive the economy: On one side are those who said tax cuts were the best remedy. In the other corner are those advocating more government spending. Is there any evidence to suggest which side is correct?

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

"This has been a long-running controversy, both in public policy circles and even in the economics profession. We just have a new study published out of Harvard which looked at all the recessions not only in this country but around the world from 1970 to 2007. And they assessed the impact of different kinds of government policies to fight recessions. Specifically, do you get out of the recession faster if the government cuts taxes? Or do you get out of the recession faster if the government has a spending program?

"Now this is controversial -- I'll say this up front -- but the study concluded that tax cuts actually were the better approach to ending recessions quickly. But that said, I think it is important to point out ... this may not be the only goal of a government during a recession: to get out of a recession fast. They may want, for example, to also cushion the impact of the recession on maybe state budgets or on particular households like low-income households. Both of those goals would require additional spending.

"So even if you could say that, yes, tax cuts are the best way to hasten a recession's end, you still may want to have a government spending program to accomplish these alternative goals."

Posted by deeshore at 07:44 AM | Comments (0)

January 18, 2010

Where Will the Jobs Be?

Many economists think the recession is finally coming to an end and jobs will start to come back next year. But if true, this raises other questions such as "What kinds of jobs will be available?" and "What will they pay?" Can you give us any ideas?

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

"Well. I can give you some long-run ideas here ... because we just have a new report from the U.S. Department of Labor that projects job growth for the next decade. They update this report about every two years, and the new one is just fresh off the printing press.

"The good news is the U.S. Department of Labor says over the next decade 15 million new jobs will be created nationwide. That translates to about 400,000 to 450,000 here in North Carolina.

"Leading industries for job growth will be professional and business services, education, health care and, very interesting, construction. And specific occupations like nurses, health technicians, sales persons and, interestingly, college professors will be among the ... occupations with the biggest job openings.

"Now about one-third of these new jobs will require college degrees. One-third will need extensive on-the-job training beyond high school. And ... one-third will require little training; they will also get the lowest pay.

"So you are going to have a variety of jobs with a variety of pay scales. Again ... the message is, 'If you want to get a good-paying job, you have got to go and get some training beyond high school.'"

Posted by deeshore at 08:00 AM | Comments (0)

January 15, 2010

The Rebound in Wealth

Wealth is an important part of the household's economic status. Typically wealth declines during recessions, and it has big time during our current downturn. But is there any good news to report about household wealth changes recently?

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

Actually there is. The Federal Reserve is the agency that collects these data, and they just released their data on household wealth for the third quarter, essentially the fall of this year. The good news is they showed that household wealth actually went up during the third quarter by $2 trillion

Now many people would say, "Well the stock market has been going up, so that is to be expected." And indeed it did. But also property wealth -- for most people, the value in their homes -- also went up. And that is very, very good news because it has been property wealth and declines in property wealth that have really been devastating during this recession.

Now, wealth is very important for a couple of reasons. One, it directly affects consumer spending. For every dollar increase in wealth, on average, consumer spending goes up by 7 to 9 cents. And it also affects consumer confidence. If people are wealthier, they are more likely to go out and buy big ticket items. And we need both that to happen as well as consumer spending to go up.

Still, though, since the beginning of the recession (which is now 2-years-old), household wealth is down $11 trillion. So we still have a long way to go in recovering that wealth. But the fact that wealth did go up in the last reporting period is, indeed, very good news.

Posted by deeshore at 08:09 AM

January 14, 2010

Who owns stocks?

The stock market has been on a roller coaster for the last year. However, many investment experts still say stocks should be a part of any comprehensive investment portfolio. Have people taken this advice? That is, do a higher percentage of households today own stocks than in the past?

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

"Well, it appears that they have taken that advice. Fifty-one percent of households in 2007 owned stock in any form; that is, directly or through a retirement fund. That's compared to 41 percent in 1995 and 32 percent in 1989. Now, if we exclude retirement funds and similar accounts, the trend is still up, 27 percent today versus 23 percent in 1995 and 21 percent in 1989. So stock ownership has gone up. We also see that stock ownership rises with income. In fact, the percentage of middle-income households owning stock is twice that for low-income households. And the percentage of very high-income households owning stocks is five times that of low-income households. So, yes, stocks have become more pervasive across income levels, but clearly there is a trend for higher income people having more stocks in their portfolios."

Posted by Dave at 07:56 AM

January 13, 2010

The Fed's twin jobs

The Federal Reserve has been under fire from many angles. Some have criticized the Fed for being too lax with the economy, while others think the Fed didn't do enough to contain last year's financial problems. Does the criticism the Fed is receiving have anything to do with its role in the economy?

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

"It does, and the Fed has been given, really, two mandates. It's been given these mandates by Congress. One is price stability. In fact, that was the Fed's original mandate, to simply focus on making sure that we have low inflation. But about 30 years ago Congress gave the Fed a second mandate, and said you need to work toward full employment. The problem is those two goals aren't necessarily compatible. For example, right now the Fed is receiving a lot of criticism for keeping interest rates very low and pumping a lot of money into the system. They say they're doing this because this is responding to their mandate to promote full employment. But on the other hand, critics say this could actually go against their first goal - price stability - because if you pump a lot of money into the system over a long period of time, you do run the risk of higher inflation. So the Fed's kind of between a rock and a hard place. Now one conclusion that some legislators have come to is that they need to review these dual mandates for the Fed, maybe go back and reconsider, do they really want the Fed to be pursing both of these things. Maybe take away the full employment mandate and say, hey, Fed, your job is simple: simply keep prices stable."

Posted by Dave at 08:00 AM

January 12, 2010

Creating jobs

Although there was some progress made recently in reducing the unemployment rate, it still remains stubbornly high. Disappointment has been expressed with the federal stimulus plan's success - or lack of success - in reducing unemployment. Consequently, ideas are being floated about what more the government could do to stimulate job creation. Any ideas?

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, it's important to remember that the stimulus plan actually had a number of goals, one being to help low-income households survive during the recession, another to help states balance their budgets. Neither of those goals really focused on creating jobs. Now, there is a component on infrastructure spending - roads, bridges, grid projects, energy - that will create jobs. The problem there is that most of that spending hasn't kicked in yet. In fact, recent estimates are that only about 26 percent of that money has been spent. Now, if the government does want to do more to create jobs there are two ways they could go. They could directly hire people. The government could go out there and hire people to do things. This is essentially what we did in the 1930s. Opponents say that would create make-work projects. The other way is that the government could increase incentives for businesses to hire workers by doing things like reducing the payroll tax, a tax credit for hiring new workers or a direct reduction in the corporate income tax. So there are some ideas. It will be interesting to see what direction, if any, Washington moves in."

Posted by Dave at 08:00 AM

January 11, 2010

Travel and tourism take a hit

When recessions appear, consumers become more frugal. They particularly reduce so-called discretionary spending, that is, spending they don't have to do to survive. Does this mean that an industry like travel and tourism has really had a hard time during the recession?

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

"That industry has. In fact, that's a perfect example of discretionary spending, and the travel and tourism industry has been hit big time during this recession. Spending on travel and tourism is down 12 percent from pre-recessionary levels, really exceeding the drop in recent recessions. The biggest drop we've seen has been spending on air travel, down 24 percent. Spending on hotels is down 15 percent. However, leisure-related shopping is down only 3 percent, and spending at recreational entertainment sites is off only 1 percent. So I think what this is suggesting is that people are not taking long trips; they're not staying at fancy hotels; and for their vacation, what they're doing is substituting going to - let's say - the local park or local recreational site, and they're also going shopping."

Posted by Dave at 08:00 AM

January 08, 2010

Shrinking debt

Households went into this recession with record high debt levels. With the recession now in its second year, have households taken action to reduce their debt exposure?

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. In fact, since 2008 consumers have paid down a whopping $126 billion on their debt. That's a 5 percent reduction. We have never before seen that kind of action by consumers. So consumers have certainly become frugal. And really, they've been forced to. What the recession did was really reduce asset values. People have seen their stock values go down. They've seen their home values go down. Their debts, though, were still there. Their debts didn't go down. So they have these high debt levels that have been exposed, and they've had to take action. They simply had to take action to what's called re-balance their financial sheet. Secondly, many banks have become very iffy about consumers. So if a consumer is going to get a loan now, they have to have a better financial balance sheet. So these forces have combined to really motivate consumers to pay down their debt. And they really have, for the first time in 50 years - I can't emphasize this enough - we've seen a net reduction in consumer debt."

Posted by Dave at 08:00 AM

January 07, 2010

Christmas buying trends

The Christmas buying season is still the most important to retailers. What do we see that may be suggestive of new trends?

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

"We've seen several things. One is that "black Friday," which is the day after Thanksgiving, traditionally one of the biggest if not the biggest spending days for Christmas, may be losing some of its strength. There's some evidence that consumers are spreading out their spending more, and indeed, stores are promoting that. So that's one thing we're seeing. Secondly, discounts - at least this year - are smaller. The average discount so far this year is about 40 percent compared to 75 percent last year. I think that's because businesses anticipated a slow Christmas buying season so they didn't stock as much, therefore, they didn't have as much merchandise to move. That results in lower discounts. And then thirdly, there is some evidence that some consumers may be getting tired of being frugal. It's called frugal fatigue. We have been under the gun with the economy now for two years, and there may be some buyers out there just ready to break out. In fact, a recent survey found that almost two-thirds of consumers said they were simply going to buy something for themselves. They weren't going to necessarily worry about putting themselves last. They were going buy something for themselves. So we may see that have an impact this Christmas buying season."

Posted by Dave at 08:00 AM

January 06, 2010

Innovation and prosperity

There are many people who are pessimistic about the long-run prospects for jobs in our country. They point to foreign competition and the use of technology to allow foreign workers to do even some service jobs. What will be the source of jobs - especially good-paying jobs - in our country in the future?

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

"First of all, that foreign edge may not always be there because as countries like China and India see an increase in their income that may translate to higher wages for their workers, so that will give them less of an edge. Secondly, there's always going to be some need for companies to be close to their customers. I think that will keep a lot of jobs here in the U.S. But I think the real ace in the hole for the American economy is the fact that we are a very innovative economy. In fact, studies for many years have shown that the U.S. is the most innovation-friendly country compared to other countries. For example, it's much easier for businesses to change their work force, to move on to different products, and we have a very open and flexible educational system. So I think the bottom-line answer to the question - Where will the jobs come from? - is they're actually going to come from innovation, from our companies and our entrepreneurs discovering new products, and new jobs coming from those discoveries."

Posted by Dave at 08:00 AM

January 05, 2010

The good jobs report

There was elation after the last national employment report showed the country lost only 11,000 jobs during November. But why should we be happy with losing jobs, whatever the level? And couldn't some of the good news been accounted for by seasonal hiring?

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

"Well, let me quickly answer the second question first. The government does do what we call seasonal adjustment, so they take into account the fact that there's going to be additional hiring during the Christmas buying season, so that's not an issue. But whenever we lose jobs, that's a problem. But the fact that we lost only 11,000 jobs - and we have a base right now of about 131 million jobs in the country - that's actually relatively minor, relatively small. We had been losing during the worst of this recession over 600,000 jobs a month. And the good news is those losses, although they continue, they've been getting smaller. Indeed, we really have two jobs reports that come each month; one that surveys employers; one that surveys households. And here in North Carolina, what we found is in each of the last three months, one of those two reports has actually recorded a job gain. So this is giving economists optimism that we may soon see a turnaround in the job market."

Posted by Dave at 08:00 AM

January 04, 2010

Money in the vault

Having access to enough money to pay your bills is an obvious requirement for financial well-being, but how does this principle operate at the level of a bank or other financial firm? Could such firms ever not have enough money in the vault?

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

"Well, traditionally banks have found they could keep a lot less than 100 percent of their deposits in the vault. And in fact, what they would do is loan out the rest. And the reason for this is that all a bank's customers are not going to come in at the same time and withdraw their money. Now, indeed, the government sets regulations - they're called reserve requirements - on what percent of deposits have to be kept back in the vault. And these requirements work most of the time. Most of the time, we don't hear about banks having problems. We don't hear about so-called runs on banks. There can be an individual bank here and there, but it's another matter when we have a widespread financial crisis like we had last year. Now, these regulations on required reserves can differ for different types of assets. And one item that has come to the surface is that these requirements weren't as stiff for residential mortgages due to their lower risk. What happened, therefore, over the last four or five years is this motivated banks to really load up on residential mortgages, really push residential mortgages. And some say this helped set the stage for the financial crisis."

Posted by Dave at 08:07 AM

January 01, 2010

Measuring wealth

When most of us think of wealth, we think of stocks, mutual funds, homes for households and machinery and equipment for companies. Maybe at a national level, we think of natural resources like energy, water and farmland. Is this an accurate view of wealth in the modern economy?

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

"Well, maybe 100 years ago or even 50 years ago, it was an accurate view, but no longer. Today actually most of our wealth is what's inside people. It's their skills and intellectual capabilities. Economists call this intangible wealth to contrast with tangible wealth, which is what we've described, things like machinery and equipment and natural resources. Now, indeed, there have been estimates made of wealth, and the share of each of these categories of wealth - total wealth - in countries. The current estimate for the U.S. shows that we have about 3 percent of our wealth in natural resources. We have about 16 percent of our wealth in things like equipment and technology. But a whopping 81 percent of our wealth is intangible wealth. It is in our skills and in our brains."

Posted by Dave at 08:00 AM