Jobs plan may create 1 million jobs

This is an interesting article that explains President Obama's new economic stimulus plan which is targeted towards the labor market. The most interesting part about it is that it targets small businesses and less towards big businesses. It includes payroll tax breaks for small businesses that is supposed to improve aggregate demand. This rise in aggregate demand is the main catalyst that should create new jobs. Figures anticipated include from 600,000 new jobs to 1 million. If this is the case, I am very grateful because I will be entering the work force soon and any help with getting a good job, is appreciated.

Unemployment Issues

In an article in the New York Times the question of whether the Obama administration’s plans to spur company hiring was in question. The administration aims to institute a payroll tax cut for individuals as well as a $4ooo tax credit for companies willing to hire the long term unemployed. From our knowledge of economics we can see how this intends to aid in relieving the current unemployment crisis. With reduction in payroll tax should create more disposable income for consumers which would encourage more spending and thus prompt companies to employ more workers, due to increased revenue. As for the proposed tax credit to companies that hire long term unemployed, it is an incentive as it reduces costs of production by some degree. The question raised in this article however is, to what degree does this benefit companies and spur them to hire more workers?

The answer that seems to be prevalent throughout this article is that the proposed plans may not help that much. Many companies are reluctant to employ unemployed workers for a few reasons. One reason for this reluctance is that a $4000 tax credit to companies may not enough to cover the cost of hiring new workers. In agreement with a chief economist at the United States Chamber of Commerce, what really would be the benefit of gaining a $4000 credit to hire a worker that is paid $80,000? In addition to this there is a “growing stigma” that is attached to those who are considered unemployed. Companies don’t want to hire new workers who were recently unemployed for long terms because of a lack of confidence in these workers’ skill. I argue that these people should not be disregarded because there are many skilled workers who are no unemployed because of job cuts.

With the way these new proposals are designed and the way in which those hiring view the unemployed what will become of the economy?

"Mr. Banker, Can You Spare a Dime?"

In this New York Times article author Joe Nocera offers up his opinion on how to help with job creation in this country by highlighting the struggles of two small businesses who are trying to find a loan. Both of the businesses seem to have good track records and be trustworthy, yet they have consistently been rejected by banks when asking for loans to expand. Why? Because banks are still recovering from the shock of the recession and have become more wary about loaning out money. This, the author says, is what has caused the trend of banks becoming more particular about who they will loan to.

The banks, the author argues, may be the key to increased job creation. Obama said in his speech Thursday that “small businesses are where most new jobs begin”, which Obama used as a defense for his plan to cut taxes to such businesses. While Nocera agrees that tax cuts will likely help small businesses he believes the government would do better to look at how to convince banks to behave more like the Sterling Savings Bank in the article. If banks would relax their stringent standards for giving out loans the money supply would increase, businesses would then be able to expand, and new jobs would be created.

Budget Deficit Vs. Job Growth

Budget Deficit vs. Job Growth
This article was published pre Obama's speech Thursday so disregard the heavily affiliated political conclusion. The author, Paul Krugman,  discussed his distaste for what has taken place (what hasn't taken place) in Washington over the last couple of years.
It is most definitely a horrifying statistic seeing the federal debt, and even more so when you combine the increasing health care costs. However, the Unemployment rate remaining idle at 9.1% must be the main focus of everyone involved in stimulating the economy. All of the scare linked to the budget deficits have acted as blinders to Congress.
It is impossible to tell if Obama's newest stimulus is going to be effective in dealing with the mass unemployment. We should all be able to agree that in order to deal with the budget deficits we must first and foremost do whatever is necessary to create new jobs. The budget deficit talks are still going to be around in a couple years, hopefully the unemployment isn't!

The Impact of 9/11 on Business, Good and Bad

With the 10th anniversary of 9/11 just days away I found myself drawn to this article. The article is a compilation of first hand accounts from different firms about how 9/11 changed the way we do business. The most interesting parts of the article for me were places where 9/11 had positive benefits to business. For instance, increased regulations for inspecting containers coming into the country made exporting goods to America more costly, and subsequently benefiting domestic production.Entrepreneurship also was affected, as the tragedy spurred more and more people on to chase their dreams, sparking innovation.

The timing of this anniversary is quite unique. America is still recovering from a recession, and political divisiveness has severely impeded recovery. President Obama's speech Thursday night to congress stressed the need for unity among politicians now more than ever as he unveiled his new Jobs Act. The speech has put pressure on Congress to get something done, and with the added drama of 9/11, it will be interesting to see where this Jobs Act goes.

Mortgage Rates Plumb Lows, With the 30-Year at 4.12%

This article is from the Wall Street Journal and talks about the ever low mortgage rates.

Mortgage rates are historically low at 4.12% compared to almost 6% in 2008. One reason for this is the increased exposure of the US banks to the euro zone crisis. As investors are skeptical of the performance of the financial markets, they are turning to safe heavens such as investments in the treasury bonds. As demand for these bonds increase, their prices rise hence the interest rates they offer decreases. As the fixed mortgage rates are related to the yields on these bonds, they also go down.
This problem is exacerbated by the fact that the US unemployment rate is still high at almost 9.1% as the economy fails to add more jobs. This means that although the mortgage payments are very low, people just don't have the money to buy houses, hence depressing the level of fixed residential investments which ultimately slows the pace of recovery.
One interesting thing to note here is that although S&P recently downgraded the US credit rating, investors are still content on buying the treasury bonds rather then investing in the housing market which indicates how worse the housing market situation is even after all the attempts by the government.
If this situation continues who knows what is to follow? Will the US economy need another round of quantitative easing to spur growth or will the markets jump back themselves?

US falls to 5th in global competitiveness, survey shows

I thought it was very interesting to see how the United States economy has compared to others within these past few years where we have experienced many difficulties in our nation's economy. The U.S., which until recently held the title for the most competitive economy, has seen their ranking drop in the latest announcement through the World Economic Forum. Such factors that are used in determining the rankings include the innovation of companies, education, and population belief in the government. It was only in 2008 that United States was at the top of the board, however, in three months have fallen to fifth in the world. Meanwhile, Switzerland for the third year in a row has come in first while the leading economy in Europe, Germany, sits behind the United States at sixth.

Throughout my time in college I knew that our nation's economy has struggled but I did not realize it was falling drastically on a global scale. According to the forum, the U.S. received praise for their, "productivity, highly sophisticated and innovative companies, excellent universities and flexible labor market." But, they also noted that the United States had "a number of escalating weaknesses" which included a rise in the government debt and also "declining public faith in political faith in political leaders and business ethics." I was very shocked to see that many are in a sense, giving up on our government and lacking confidence for the leaders of this country. Hopefully Obama will be able to implement new programs to reduce government spending and find new ways to address the unemployment issues that have dampened a large number of citizens hopes of finding a job in the work force.

Greek banks: Dance of the dead

This article details a merger between the second and third largest banks in Greece, Eurobank EFG and Alphabank, which will create the largest bank in the country. This merger is said to be beneficial for two reasons. The first is the lowering of administrative costs, potentially increasing profitability. Second, the merger would allow the banks to merge their capital and secure more investments, including an already promised investment from Qatar. With more large-scale investment, the hope would be that personal saving would increase, encouraging a greater of quantity of loanable funds to be demanded by businesses, improving economic growth.

Unfortunately, these hopes are overly optimistic, and it appears that the merger will have little effect in reversing the falling economy. With increased numbers of bad loans from Greek banks, deposits have been leaving the country. As the economic downturn affects households, marginal propensity to consume in order to make ends meet, while savings has dwindled. The risk of default is a very real concern for Greece, and this bank merger will do little to avoid this outcome.

If you have the answers, tell me

This article by Gregory Mankiw, Professor of Economics at Harvard University, was recently published in the New York Times. Dr. Mankiw talks about three hot questions in the world of Economics today: How long will the economy take to heal, how long will inflation be controlled or "anchored" and how long will the bond market trust the United States?

The most interesting argument that Dr. Mankiw makes is of Milton Friedman's theory that inflation is driven by people's expectations for the most part. I find this fascinating because we crib about inflation all the time and ironically, it is probably caused by us! When people feel that prices in the economy might rise, they ask for better wages which results in prices actually going up (due to rising costs of production)! If this is the cause of inflation, I would wonder if it is really possible to ever control it because people speculate all the time. People can make predictions based on political observations, personal experience or merely forecasts based on events in the economy! Assuming this is true, to curb inflation in the economy, the foremost aim of the Fed should be to try and manipulate the expectations of people -- which is probably the most difficult and least result-yielding strategy!

I also like how Dr. Mankiw is skeptic of economists who answer the above questions without a hint of doubt. I agree with his critical perspective that it is impossible to be sure about how the economy will look in the future because the nature of macroeconomics is such that a prediction can never convincingly take into account all the factors that influence the state of an economy at any point in time.

College Degree and Financial Security

I found this article interesting as it is in a way related to each of us.

This article talks about a college degree and job opportunities. The article argues that in the past, a college graduate could earn much more over a lifetime than a person with a high-school degree, but now, "old patters are about to change."

It argues that in the past, there was a lesser number of college-graduates, and just that very exclusivity is what promised financial security. In today's age though, the supply of college-graduates has and is rapidly increasing, not only in the United States but also in the rest of the world. Competition for jobs is increasing, as the pool of talent is increasing. "The best and the brightest of the rich world must increasingly compete with the best and the brightest from poorer countries who are willing to work harder for less money." Then it continues to argue that the demand for educated labour is being reshaped by technology, just like the demand for agricultural labour was reshaped in the 19th century and that for factory labour in the 20th. Faster, more efficient computers and Technology is (and already has if you look at the past) taken over jobs usually held by humans, decreasing a demand for them.

It concludes by hinting that the future is now far less unpredictable for the university graduate as compared to the past. as it concludes with the statement "....But the reconfiguration of brain-work will also make life far less cosy and predictable for the next generation of graduates."