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February 1, 2010 Volume 6, Number 2
John Dunham and Associates Monthly Manifesto - The Winning Side of Economics
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Guerrilla Economics
Just last week PETA called on the good people of Punxsutawney to replace their venerable groundhog (actually there are three) with a machine. Did they not hear the President’s impassioned call for more jobs? Replacing the labor of a groundhog with a robot (capital) would reduce the number of prognostication jobs in the country, putting dozens of marmots onto the unemployment rolls. At the same time, by replacing labor with capital, the PETA proposal would lead to increased prognostic-cation productivity- and perversely, more economic growth (at least in the groundhog world). This dichotomy between the desire to create “jobs” and the need to grow the economy is what politicians are facing today as we limp out of recession. JDA’s Monthly Manifesto will look at the play between “creating jobs,” and growing the economy, and how this impacts state and federal budgets. The Monthly Manifesto is one way John Dunham & Associates assists our clients and friends to better communicate and manage issues using sound economic and fiscal research; what we call Guerrilla Economics. For more information on how we can help on your legislative issues, please contact us at 212-239-2105.  John Dunham, President |
On the Web Please be sure to click on our clients’ websites to see just how JDA can help you. Our analysis can be seen at:
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On the Economy - Its a Mistake
After watching President Obama make a minor mea culpa during the State of The Union Address, we too should admit when we have been wrong.For the past few months, we have been suggesting that the US employment market is due for a significant recovery – and soon. Recent data from the Bureau of Labor statistics shows that this recovery is likely not going to be as fast as we had expected. Employment closely tracks economic growth and may not even fall during recessions. Overall (private sector) employment in the US has fallen on a year/year basis in only 11 of the past 63 years (including in both 2008 and 2009). In the years following a decrease, jobs have grown by about 19% until the next period of decline; however, this weakened following the 2001/02 recession, with jobs only growing by 5 percent until the current slump. In fact, overall employment levels in the US today are about the same as they were prior to 9/11 – even though the population has grown.
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| Remember to look at our regular blog postings and economic information feeds at: www.guerrillaeconomics.com |
In The Journals Food Processing: Geylani, Pinar Celikkol, Policy reforms and productivity differences in US food manufacturing: The case of meat, dairy, and sugar plants, Food Economics, April 2009: According to the author, technical innovation in meat processing plants has grown faster rate than at sugar or dairy facilities. The author suggests that these differences come about because prices for the principle inputs for both the dairy and sugar industries have government policy protection. Public Affairs Practice: Connolly-Ahern, Colleen, et. al., The Effects of Attribution of VNRs and Risk on News Viewers' Assessments of Credibility, Journal of Public Relations Research, January 2010: According to the authors, the effects of attribution on Video News Release viewers are not fully understood. They conducted and experiment and found that attribution in the VNR influenced the perceived credibility of the message. Activists: Stokes, Ashli Q., and Donald Rubin, Activism and the Limits of Symmetry: The Public Relations Battle Between Colorado GASP and Philip Morris , Journal of Public Relations Research, January 2010: According to the authors, despite vigorous industry efforts to thwart them, anti-tobacco activists capitalized on economic benefits arguments to persuade publics. The authors suggest that the traditional public relations model that stresses compromise does not account for groups that refuse to accommodate opponents. Personal Finance: Ekici, Tufan & Lucia Dunn, Credit card debt and consumption: evidence from household-level data, Applied Economics, February 2010: This paper examines the relationship between credit card debt and consumption. The authors we find a negative relationship between debt and consumption, with a $1000 increase in credit card debt results in a decrease in quarterly consumption growth of almost 2%. Retail: Shultz, Clifford J., et. al., Grocery Store Attributes in Recovering Economies: An Empirical Investigation of Their Importance, Using Three-Component Contour Plotting, Journal of International Food & Agribusiness Marketing, January 2010: The authors measured the factors of grocery stores that are the most important for consumers in areas recovering from war and transitioning to a market economy. They found that services and location, rather than price, are the key factors affecting store choice. Tobacco: Kasteridis, Panagiotis P., et. al, Demand for cigarettes: a mixed binary-ordered probit approach, Applied Economics, February 2010: According to the authors cigarette demand is strongly influenced by race and gender differences in consumption patterns. |
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Insights: Watch the Flowers Grow
Politicians are loath to increase broad-based tax rates (as such, state and local level total taxes as a percent of income have been pretty consistent, revolving around a mean of 9.8%) and have used deficit financing as a way to pay the bill for increased government spending.  Job and income growth following the 2009 recession has been slow, and without more growth, tax revenues in dollar terms will continue to be flat or fall. Spending by State and local governments will likely continue to rise causing an unsustainable disparity between revenue and expenditures. Economist Herbert Stein famously stated, "If something cannot go on forever, it will stop." If legislators continue to keep a lid on taxes (or even cut them) while continuing to increase spending they will have to find another way to grow revenues. Fortunately, there is a potential solution. Governments do two things that negatively impact economic growth: tax and regulate. Taxes are an obvious impediment to growth, hiring, spending, etc. Regulations can also be an impediment to job creation and economic growth. Laws restricting trade, restricting personal choices, zoning restrictions, even complicated tax codes all reduce overall economic activity in a state. One recent study found that the cost of regulation in California is $493 billion which is equal to a third of the State’s gross product. Were California to reduce this cost by just 10 percent, it would result in an increase of nearly $50 billion in economic activity and about $5.7 billion in new tax revenues |
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| The Monthly Manifesto is published by John Dunham and Associates as a service to our clients and friends. For more in-formation on the content or for a free consultation on how we can assist your company or organization with your issues please contact us at 212-239-2105, or at This e-mail address is being protected from spambots. You need JavaScript enabled to view it . |