Texas Again: Which Rick Does More Harm?
That Rick Perry is a clueless candidate and skilled campaigner is something for Barack Obama’s minions to suffer.* That Perry’s curiosity goes no further than “Where’s My Next Corndog?” cannot be held against him; he only became what they made him, just as his predecessor did, though with a poorer transcript and lack of his father’s Rolodex. A real Horatio Alger story.
So we need to pay attention to who tells him things. And that appears to be people such as Richard Fisher, who recently went to W’s “home town” and bragged about the local economy. He starts by making any sane human being worry:
I, along with the 11 other Federal Reserve Bank presidents, operate the business of the Federal Reserve as efficiently as any bank in the private sector.
I’m certain that is true. Then he spreads the Usual Lie:
[W]e make money for the U.S. taxpayer: We returned over $125 billion to the U.S. Treasury in 2009 and 2010. You are looking at one of the few public servants that make money from its operations, rather than just spending taxpayer money.
English translation: We took money from the Treasury, and our Accounting looks nice because we don’t count the overpaying for “assets” or the free money on “excess reserves” as part of our losses. We can even make a fool out of Allan Sloan.
Oh, and by the way, we don’t “just spend taxpayer money,” like those evil people who run police departments, fire departments, and schools; or make roads, or ensure food and water safety; or do fundamental scientific research, to name a few, do.
Then he tries to tell his constituents that Texas is great, and that he will put “a heavy focus on the data,” which is supposed to explain (“connect the dots”) on why he “dissented from the consensus at the last meeting of the Federal Open Market Committee (FOMC).”
So the data should, at least, show an “I got mine, Jack” aspect, no? Let’s see below the fold if it does.
First he presents a graphic showing non-Agricultural Employment Growth baselined at 1990. Now, I might consider this a bit of cheating: in 1990, Texas was in the midst of its self-created S&L crisis. If it didn’t recover from them compared to the rest of the United States, I would assume (contra Brad DeLong [link updated]) that people realised there was no water table and therefore no opportunity for long-term growth (as opposed to the already-well-developed Greater NYC area and the San Francisco Fed areas** to which he contrasts Dallas).
Suffice it to say, you don’t get quite so dominant a picture if you start in mid-1992.
But let’s ignore that it’s easier to build if there’s Nothing There, and easier to expand if there are natural resources even if the rest of the area is a Vast Wasteland or Lubbock (but I repeat myself***). And let’s just look at what good all those jobs have done, with a heavy focus on, well, FRB Dallas data (from the start of their data):
Hmmm, not exactly consistent manufacturing productivity, even before the (recent) recession. Indeed, I might suspect that Texas since around early 2006 has been dependent on moving Services jobs there, not growth in the local economy. But I’m not a Fed Governor:
Now, let’s look at job creation in Texas since June 2009, the date that the National Bureau of Economic Research (or NBER, the body that “officially” dates when a recession starts and ends) declared the recent economic recession to have ended….[I]t is reasonable to assume Texas has accounted for a significant amount of the nation’s employment growth both over the past 20 years and since the recession officially ended.
Let us give him credit for admitting that the 49.9% number is major b*llsh*t. And half-credit for admitting that, if you drop the states that are still heavily negative, the number is below 30%. So things must be looking up in Texas, right?
Hmmm, a nice recovery—rather similar to the 1991-1992 gain—followed by some drop-off, water-treading, and another peak early this year that suggests seasonality, even though the data is Seasonally Adjusted.**** Difficult to argue an upward trend (see most recent footnote), but maybe stable.
Then again, I’m still not a Fed Governor. But let’s give him some credit for admitting this self-inconsistent point:
The most jobs have been created in the educational and health services sector, which accounts for 13.5 percent of Texas’ employment.
The education sector? Really? Can you say “stimulus monies“? People in Dallas sure can. Who is “just spending taxpayer money” now?
And credit Fisher for being fair enough to note the elephant in the Texas room:
I should point out that in 2010, 9.5 percent of hourly workers in Texas earned at or below the federal minimum wage, a share that exceeds the national average of 6 percent. California’s share was 2 percent and New York’s was 6.5 percent.
And for not thinking that the Fed’s dual mandate needs to prioritize nonexistent “inflation threats.”
It might be noted by the press here today that although I am constantly preoccupied with price stability―in the aviary of central bankers, I am known as a “hawk” on inflation―I did not voice concern for the prospect of inflationary pressures in the foreseeable future….My concern is not with immediate inflationary pressures.
Well, that’s good. And since the other half of the dual mandate is full employment, you’ll be expecting something positive from businesses, then, eh?
Importantly, from a business operator’s perspective, nothing was clarified, except that there will be undefined change in taxes, spending and subsidies and other fiscal incentives or disincentives. The message was simply that some combination of revenue enhancement and spending growth cutbacks will take place. The particulars are left to one’s imagination and the outcome of deliberations among 12 members of the Legislature.
Ma nishta ha-laili ha-zeh? But Fisher digs deeper:
On the revenue side, you have yet to see a robust recovery in demand; growing your top-line revenue is vexing. You have been driving profits or just maintaining your margins through cost reduction and achieving maximum operating efficiency. You have money in your pocket or a banker increasingly willing to give you credit if and when you decide to expand. But you have no idea where the government will be cutting back on spending, what measures will be taken on the taxation front and how all this will affect your cost structure or customer base.
Huh? I thought government was mean and evil and just spends taxpayer money. Shows what I know; I listened to a Fed Governor, one who tells me that businesses “have been driving profits or just maintaining your margins through cost reduction and achieving maximum operating efficiency.” Really should see some nice Production numbers in the past six months, then, no?
No. So when Richard Fisher later says:
[The business owner] might now say to yourself, “I understand from the Federal Reserve that I don’t have to worry about the cost of borrowing for another two years. Given that I don’t know how I am going to be hit by whatever new initiatives the Congress will come up with, but I do know that credit will remain cheap through the next election, what incentive do I have to invest and expand now? Why shouldn’t I wait until the sky is clear?”
There are two answers. The first is the obvious: the Fed only controls short-term rates for risk-free investment. They don’t control lending rates, and they don’t control long-term rates, which are what I’m interested in if I’m “going to hire new workers or build a new plant.” Now, QE2 made it marginally easier for me to borrow in the long-term, but that’s gone now. So unless I’m stupid enough to pretend I’m a bank—if I borrow short-term and create long-term liabilities, I better be damned sure someone will refinance me until the project is finished—the Fed guaranteeing that the short-term Government borrowing rate is going to stay low for a while doesn’t mean much to me.
The second is more interesting: if I believe in competitive advantage, I want my new products on the shelf before my competitor has hers there. I cannot sell what you cannot see. So I want my plant started now—while I can still get the best available workers before my competitor does, while I can still pick a prime location (less of an issue in a Vast Wasteland, but not insignificant if you’re Dallas- or Houston-area), and while I can negotiate a deal with someone who needs me in their space more than I need to be there.
But that is only true if Richard Fisher has been telling the truth about how well I’m running my Texas-based business. And that, not to put too fine a point on it, appears to be—to coin a Texas phrase—bullshit.
I know the reality of Rick Pery: it’s a hermetic, incurious one in which women are property, you read what they tell you, and you get to take credit for a win, even if it’s your handlers doing all the work, including telling you what to do later. It’s not a world of which I approve, but my lack of approval doesn’t mean I believe it doesn’t exist.
I don’t know what reality Richard Fisher inhabits; it is certainly not one in which there is “a heavy focus on the data.” At least not data that is related to the Fed’s dual mandate, or how nonfinancial businesses make long-term decisions, or how to attain a competitive advantage.
Rick Perry speaks to his true believers. Richard Fisher expects you to believe him. Currently, only one of them is trying to do national harm to the economy, and it’s not the (soon-to-be) 45th President of the United States.
*And the rest of the United States when Bachmann-Perry Overdrive starts on 20 January 2013, but that’s tangential.
**Fairness requires me to note that much of the state of California is a desert, though not so bad a one as most of West Texas. Accordingly, growth in those areas would, pari passu be similar to that of Texas, save that there is no not enough***** oil in Central California. But never let it be said that we would expect an FRB official to understand geography.
***And let us always remember that Lubbock gave us the greatest white rock musician of all time.
****Good thing I left out the pre-2006 data, so we don’t have to note that the peaks post-Great Recession are close to the ca. 2006 troughs.
*****Correction by dilbert dogbert in comments noted.
“save that there is no oil in Central California.” Just being picky picky but there is a great deal of oil in Central California if you say Kern Co. is in the Central area. Teapot dome anyone? There is oil all up and down the California coast line. Not a lot for sure but when one creek is called Tarwater that is a hint. Also down in the Sargent Ranch south of Gilroy there is a huge tar landslide as well as one of the largest rocking pump oil wells I have ever seen. Too bad all those old wells are not gushing.
QE II isn’t over. It will end when the Fed sells off the $600,000,000,000 in 7 year notes (or when they mature). The stock of assets held by the Fed should, in theory, determine required returns on those assets.
You know I disagree with you about Fed profits. Overpaying for assets has a clear meaning if assets have the same value to all owners (would sortof put you out of job if true). It is not necessarily true that if the Fed pays more for assets than any private entity would then it should report a loss. I have not heard of such a rule being used for any part of the federal government except TARP. Note that the estimates of the cost of TARP were nonsense being lowered as time passed, because valuing government owned assets at their value to the private sector is crazy insane and absurd.
If you are prepared to predict that the Fed will lose huge amounts of money on its trillioni (and change) of mortgage based securities, then you can say those losses should have been reported. If you just know that it would lose huge amounts if it sold them to the private sector, then you can’t.
I think that, when all is said and done, the Fed’s huge rescue efforts will have reduced US federal government total debt (not counting any effect on the economy, tax receipts or safety net spending just the profit or loss when the uncertainty is resolved). Sure it is easy to make money if you can borrow at 0% (or even if you chose to pay 0.25% for no good reason) and bear huge amounts of risk.
The problem is that the Fed didn’t do that before 2008 not that it has done it since.
Yes, as of course you know, I am saying that the Federal government should buy huge amounts of risky assets, not to rescue anything but just to rake in the high returns *and* to hide risk for investor/consumers who are subject to irrational exuberance and panic.
It seems to me to be a more than trillion dollar better than sure thing. Do you disagree ? If so why ?
“QE II isn’t over. It will end when the Fed sells off the $600,000,000,000 in 7 year notes (or when they mature).”
You do realize that life will be over when we die as well?
Robert, you’re about as thick as three blocks binded to three bricks.
Ken,
You do know that Perry is far more qualified to be President than Obama was in 2008? Yet you guys voted Obama into office with no executive experience at all….
Lastly, these oerv-the-top misleading hit pieces coming out of the blue about Texas (which has outperformed those Blue states over the last decade), shows the real fear that Perry could unseat are current incompetant, incurious President.
The Dems controlled Congress since the 2006 election (just, BTW, as the the wheels started coming off the economy), held the entire legislative branch in un-fillibuster proof majorities for two of those years, plus the Presidency for the last 3. And yet you couldn’t pass legislation that would make this a walk-in-the-park like Clinton’s re-election in 1996?
You do realize that the DFW area alone grew more in the last decade than the two big union states of Michigan and Ohio combined? Texas is picking up seats in Congress at the expense of those blue states. California is not adding congressmen for the first time in what, a century? People are voting with their feet.
Call me when Obama’s own state of Illinois does as well…
Islam will change