Monday, December 07, 2009

Podcast: The Folly Of Economic Forecasts

Can economists really predict the future? (Bob Jagendorf/Flickr)

On today's Planet Money:

As the old joke goes, an economist and two dollars will get you a nice cup of coffee. Russ Roberts, George Mason University economist and host of EconTalk, explains why he thinks is economics is an imperfect science.

Roberts says he has come to believe it's impossible to predict future economic conditions because good data is so hard to come by and even harder to compare. So what about all his fellow economists who seem to have an opinion on almost any topic? Roberts says they should come out and tell the truth -- that their policy recommendations are based on philosophy and ideology, not on empirical data.

BONUS LISTENING: Adam explains why the administration changed its cost estimate for the TARP.

Download the podcast; or subscribe. Music: Crooked Fingers' "Your Control." Find us: Twitter/ Facebook/ Flickr.

» Comments     » E-Mail This

Monday, December 07, 2009

Consumer Debt Falls Again

By Daniel Costello

U.S. consumers' outstanding credit debt fell for the ninth month in a row in October, but the decline was lower than it has been in most previous periods this year, the Federal Reserve said Monday.

Outstanding balances of consumer credit fell by $3.51 billion, or 1.7% annualized, in October to $2.482 trillion. Revolving credit - mostly credit cards - fell by $6.95 billion, or 9.3% annualized, to $888.1 billion. Nonrevolving credit, such as auto loans or student loans, rose by $3.44 billion, or 2.6%, to $1.595 trillion.

» Comments     » E-Mail This

Monday, December 07, 2009

Tighter Restrictions Proposed For Store Credit Cards

New rules may make it tougher to get cards like these. (zen/Flickr)

By Caitlin Kenney

The Federal Reserve is considering new rules that could make it harder for you to get that Target or Macy's card at the register. The proposed restrictions call for retailers to get more financial information from customers about their incomes before handing over a card. The Wall Street Journal (subs req'd) reports:

Macy's Inc., Saks Inc., Best Buy Co. and other retailers are fighting the proposed rules, claiming customers wouldn't be comfortable handing over a pay stub or tax document to a cashier in order to show they can pay their bills.

"Instant credit is important because it is another service that we can offer the customer that the customer considers to be valuable," said Jim Sluzewski, a spokesman for Macy's, which like the other retailers has lodged gripes with the Fed. In the third quarter, more than half of Macy's sales were rung up on store-brand credit cards. Macy's operates more than 850 department stores in 45 U.S. states.

Stores usually grant credit at checkout counters by tapping databases for a customer's credit score. Credit scores don't include income information. Instead, they are based on payment history, which retailers contend is a better indicator of whether someone will pay their bills than how much they earn.

The proposed restrictions are tied to new credit-card legislation signed by the President last spring. The Federal Reserve hasn't set a deadline for finishing the rules but says that going forward -- evaluations of credit-worthiness "must include a review of the consumer's income or assets as well as the consumer's current obligations."

» Comments     » E-Mail This

Monday, December 07, 2009

Casting Call: 'Your Money Story'

Want to be on camera? (T. Scott Carlisle/Flickr)

By David Kestenbaum

Hey friends, we love hearing your stories of living through these wild economic times.

And my colleague Molly Knight Raskin would love to hear them too. Molly used to work at the Lehrer News Hour and is now part of a team putting together short films. They want to document the financial stories of young people (which apparently means ages 18-35).

She writes:

"We're seeking interview subjects who can candidly share their stories - the good, the bad, the humorous. Created by an award-winning production company (with an Oscar and several Emmys to its name), these films will feature issues like college debt, real estate regrets, career shifts - even marriage & money."

Find out more at the project's website.

» Comments     » E-Mail This

Monday, December 07, 2009

Morning Report: TARP Costs Down; Dubai Stocks Fall Again

By Daniel Costello

The Obama administration expects the long term cost of the Troubled Asset Relief Program to be $200 billion less than projected, a development that could reduce the size of the budget deficit and open up funds for a new jobs program, a Treasury Department report concluded Monday.

The Treasury now estimates that over the next the next decade TARP will cost $141 billion at most, down from the $341 billion the White House projected in August. The reduction stems in large part because the larger figure anticipated more financial troubles requiring intervention.

Overall, the Treasury Department now expects to recover all but $42 billion of the $370 billion it has lent to ailing companies since the crisis began last year, with the portion lent to banks actually showing a slight profit, according to the Treasury report.

Meanwhile, the stock market in Dubai fell sharply on Monday, led by a 10% drop in shares of Emaar, the property developer behind Burj Dubai, the world's tallest tower, which is scheduled to open next month.

The DFM index, the benchmark for the Dubai Financial Market, closed 5.84% lower at 1,744.83.

Markets in the Arab states have been roiled in the past two weeks since Dubai World, the emirate-controlled conglomerate, said it was seeking a six-month standstill on payments under $60 billion of debt. The company is currently trying to restructure $26 billion of debt.

On Monday, Dubai World executives said the company might sell some of its foreign assets to meet its obligations, but that the Dubai government won't sell any assets for that purpose.

Other Middle-East investors reported much better financial news over the weekend. On Sunday, Kuwait's sovereign wealth fund said it has sold a $4.1 billion stake in Citigroup.

The Kuwait Investment Authority said it made a profit of $1.1 billion from the sale, or a 36.7% return on the investment, the firm said.

The KIA invested $3 billion in Citibank and another $2 billion in Merrill Lynch at the beginning of 2008. The fund's investment the banks was criticized domestically as some U.S. lawmakers worried about such a large Kuwaiti investment in American banks.

» Comments     » E-Mail This

Friday, December 04, 2009

Podcast: The 'Nine Fingered Economy'

Jake Adelstein, a former daily crime reporter in Japan, holds up manga magazines based on the yakuza and a business management book written by a former crime boss. (Frank Zeller/AFP/Getty Images)

On today's Planet Money:

An American journalist in Japan, Jake Adelstein, has spent a decade covering the world of organized crime. He talks about how the business of the yakuza groups has changed over time and how tighter government restrictions have pushed the Japanese mob into more "traditional" investments.

BONUS EXCERPT: 'Tokyo Vice: An American Reporter on the Police Beat in Japan'

Download the podcast; or subscribe. Music: Jay-Z , Rhianna & Kayne West's "Run This Town." Find us: Twitter/ Facebook/ Flickr.

» Comments     » E-Mail This

Friday, December 04, 2009

Letter: He Used Every Connection He Had

Katie B. writes:

Before WAMU went under they laid off my father, before it was cool to get laid off. They also gave him his severance as a lump sum and leaving my mother as the bread winner. He spent 11 months looking for work. He used every connection that almost 30 years in the bay area banking scene had gotten him and he finally got a job making $17.50 an hour in a customer service phone center.

He is making $2 more an hour than I am as a sales associate. This is a job he did when my parents were first married and I was young. We are glad he has work, but my family still isn't out of the woods.

» Comments     » E-Mail This

Friday, December 04, 2009

NYT Pink Slips

By Daniel Costello

In October, the New York Times announced it would need to trim as many as 100 newsroom jobs by the end of the year and has sought most of the cuts through voluntary layoffs. Unfortunately, it appears not enough staffers have raised their hand so the paper is expected to hand out pink slips as early as next week.

It's a sad situation. I spent a dozen years at the Los Angeles Times and Wall Street Journal and have concluded, unfortunately, that most newspapers won't be standing in their current form in another decade, if they can make it that long. Sure, some may keep themselves going in name only. But I don't see how they will have the money to keep even a good share of their reporters or afford to do the kind of intensive reporting, especially investigative reporting, they do so well.

I hope other media organizations, independent reporters and bloggers -- who do a great job, in my opinion, of sparking debate and discussion today but comparatively little independent reporting - make up the slack.

What do you all think?

» Comments     » E-Mail This

Friday, December 04, 2009

Letter: 'This Jobless Recovery Sure Is Something'

Jason R. from New Jersey writes:

My brother in law, my cousin and I all just lost our jobs. I saw this coming from miles away so laid the groundwork for my own business, but I was surprised to find that even if you aren't selling anything yet, you cannot collect unemployment if you just started your own company

The company that I work for has been in the video business for a decade, and the founders were in another business for another decade before that. The landscape is changing very quickly, and video distributors (the companies that sell our products) are failing (or hurting) everywhere. A major international distributor filed for administration (the UK equivalent of bankruptcy), and it just piled on what what already an ugly situation. The industry is small enough that I still hope to work with them in other ways, but I also need to focus on my career and the financial security of my family.

So in regards to my business, my lack of distribution is almost more of an asset than a curse in this environment -- but I don't expect it to always be this way. My plan is to sell directly into most of the major web channels, and perhaps work with a small group of independent sales representatives. When the dust settles, I plan to look at who is left standing, what they might have compromised in order to still be standing, and build relationships from there. It's actually very consistent with what I did with my 401K. The situation looks grim, so lay low, find a calm port in a storm and try to build something new.

I think that, especially in a jobless recovery, the government should be willing to extend unemployment insurance, or something under a different name, to people who determine that they might be more successful starting their own business. Otherwise, there's this math that you do in your head (I do, anyway) where you say, "ok, I'm launching a business, and it might take X months before I start to see a steady stream of sales, so why don't I just wait 9 months and launch next year, during the busy Christmas season." It seems that since a lot of jobs are not coming back quickly enough, a great way to stimulate the economy would be to focus on people who decide to start their own businesses

We're collecting your stories about unemployment today. If you have one to share, email us at planetmoney@npr.org.

» Comments     » E-Mail This

Friday, December 04, 2009

Jobs Not Improving Everywhere

By Daniel Costello

It's certainly good news to hear the unemployment rate unexpectedly dropped last month. But the Labor Department data released this morning included a few things that raise concern for me.

According to the Labor report, the manufacturing sector lost 41,000 jobs; the "trade, transportation, and utilities" sector lost 34,000 positions and construction jobs were down 27,000. Retail employment also fell by 14,500 - a potentially worrying sign for an economic recovery pinned on consumer spending and a strong holiday spending season.

Another weak area: the number of people who are eating out -- often an early harbinger of economic recoveries. According to the labor data, 4,000 food services workers lost their jobs in November.

Many economists continue to predict the jobless rate will rise again in the coming months. It's hard to know who is right but warning signs that we aren't out of the woods just yet remain.

» Comments     » E-Mail This

Friday, December 04, 2009

Why Rich Consumers Matter More

By Daniel Costello

Here's an interesting post from U.S. News & World Report on the seeming paradox that consumer spending is rising while unemployment remains at its highest level in nearly three decades. The latest data shows that consumer spending rose 0.7 percent in October, while incomes rose just 0.2 percent

That raises the question: how are unemployed consumers getting the money to buy all this stuff? The article concludes it's the rich that are pulling us out of our economic doldrums.

Thoughts?

Here's the argument. With so many consumers out of work, the money has to be coming from somewhere.

One possibility is that a wide swath of Americans are drawing down on savings to snap up cash-for-clunker car discounts and sales at the mall. But that's unlikely: the saving rate only recently dipped according to the latest data and it's been rising all year.

Are people taking on more debt? Fat chance as credit card companies continue to pull back on credit limits and lenders remain skittish to sign new auto or home loans for anyone without diamond-worthy credit.

That leaves assets. While home values are still falling, the stock market is up this year, nearly 23%. While the middle-class have a lot of their savings in the stock market, much of it is in pensions and retirement accounts so it's not likely being used to buy new flat-screens. That leaves the only other group who could spend extra cash from savings or this year's stock gains: the rich.

The usual economic data doesn't break down spending by income category. But wealthy consumers buy a disproportionate share of stuff, so it makes sense that any rise in spending could be attributed largely or entirely to them. The top 10 percent of earners account for 22 percent of all spending, for instance, according to Moody's Economy.com. The top 25 percent of all earners account for 45 percent of spending. The bottom 50 percent of earners, by contrast, spend just 29 percent of all the money in the consumer economy.

» Comments     » E-Mail This

Friday, December 04, 2009

Morning Report: Jobless Rate Falls; Estate Tax Might Stick Around

Click to enlarge. (Source: Bureau of Labor Statistics)

By Daniel Costello

In a bit of early holiday cheer, the nation's unemployment rate unexpectedly eased to 10 percent in November from 10.2 percent in October, the Labor Department said today.

The report said employers shed a net 11,000 jobs last month. In the prior 3 months, payroll job losses had averaged 135,000 a month. The U.S. economy started this year with a loss of 741,000 jobs in January, but the pace of job declines has been moderating steadily.

Still, the labor survey indicated that the number of long-term unemployed workers (those not working for 27 weeks or more) rose to 5.9 million and many analysts expect the unemployment rate to climb again in the coming months.

This morning's numbers come as President Obama heads to Allentown, Pa., his first stop in a multi-city tour of regions hit hard by the recession.

The dollar extended recent gains on Friday, hitting a three-week high against the yen, after today's unemployment news as traders appear to be betting U.S. interest rates may rise sooner rather than later.

And with a year-end deadline approaching, Congress moved to prevent a repeal of the estate tax from taking place next year, voting instead to approve a permanent extension of the current levy. It's unclear if the legislation will make it through the Senate.

The House bill exempts the first $3.5 million of an estate, or $7 million for married couples, and taxes inherited wealth above that at 45 percent, the same as the 2009 rate. It passed by a vote of 225 to 200, largely along party lines, with most Democrats in favor and Republicans in opposition. If it fails in the Senate, the Bush-era tax will phase out.

» Comments     » E-Mail This

Thursday, December 03, 2009

Sen. Bunning Calls Bernanke's Fed 'The Creature From Jekyll Island'

By Caitlin Kenney

Adam and Chana will have a fun play-by-play of Federal Reserve Chairman Ben Bernanke's confirmation hearing on Friday's Morning Edition. In the meantime, here's one of our favorite exchanges.

» Comments     » E-Mail This

Thursday, December 03, 2009

Eminent Domain Backlash?

By Daniel Costello

A New York Appelate court struck down the state's controversial 2008 use of eminent domain allowing Columbia University to buy a 17-acre site in West Harlem it wants for expansion.

In a 3-2 decision, the Appelate Division of the State Supreme Court called the state's controversial 2008 decision to take the property on behalf of Columbia "unconstitutional." Columbia wants to expand north of its upper Manhattan campus and has bought most of the land it needs. But a warehouse and gas station owner challenged the state's finding that the neighborhood is blighted and able to be condemned for sale.

The topic of eminent domain, and its use to clear blighted areas for economic development, is increasingly playing out in courts.

Four years ago, the U.S. Supreme Court decided 5-4 in Kelo v. New London that New London, Connecticut could condemn and acquire 26 acres of a neighborhood to build hotels, condos, and a Pfizer research center.

Soon after the ruling, New London spent nearly $80 million preparing the land but the redevelopment never got off the ground

Last month, Pfizer dealt a final blow to the project and the struggling seaport city by announcing that 1,400 jobs would leave the area as the pharmaceutical giant scales back amid tepid sales and a lack of new drugs in its pipeline. The move will vacate a 750,000 square foot complex built in 2001 and nothing is planned in its place.

» Comments     » E-Mail This

Thursday, December 03, 2009

What We Shouldn't Expect From The White House Jobs Summit

By Caitlin Kenney

We spoke to economist Russ Roberts today about how his views on economics have changed over time. Roberts told us he longer believes that we can find policy answers in empirical data and offered today's jobs summit as an example:

We have to be honest we don't really have a good idea of what creates jobs in this particular set of circumstances we're in. We have some past experiences, but even those which are inevitably what we use to base our studies on, those may not apply in this situation. This particular recession may be unusual it may have assets and aspects that don't replicate what happened before and therefore the policy answers are not likely to repeat themselves. So I think the whole idea of suggesting that we can a la physics or a la engineering, figure out the solution to the job creation problem, it's not just we're going to be off -- it's that whole enterprise is intellectually bankrupt.

It is the difference between economics and biology. In biology, a biologist doesn't pretend to know how many frogs there are at a particular point in time in the rain forest. He may have an estimate but if you ask him well "how many will there be in six months?", he can't give an honest answer about that. He can't even give you an honest answer and he won't pretend to give you an honest answer if you ask him well "what will happen in six months if something changes in the rain forest to the frog population?" That's what we expect of economists and that's wrong. We're not good at that.

We'll have our full interview with Russ Roberts on an upcoming podcast.

» Comments     » E-Mail This