October 27, 2008

Small US businesses

Ok, it's bad for my health, but I can't stop following the news. So I just watched McCain speak. Pretty good stuff, for a Republican. But eventually he throws out a number (Republicans tend to avoid hard facts), and my analytical mind goes nuts.

He said that more than 80% of Americans are employed by small businesses. It made his speech make a lot of sense. But that number sounds very high. So how many Americans are actually working for small businesses?

Short search throws up the following stat - about 50% of non-government employees work for small businesses. Hmmm. How many work for government, then? Well, state and local governments employed 15.4 million Americans in 2002 (http://factfinder.census.gov/jsp/saff/SAFFInfo.jsp?_pageId=tp16_government)
The federal government employs 1.8 million civilians (http://www.bls.gov/oco/cg/cgs041.htm) plus the 600,000 postal workers and 1.4 million soldiers. That's roughly 3.8 million. In total, we're talking something like 20 million people. This is direct employment only.

Ok, I digress. This is the money shot:
50 % of Americans work for a business that has 500 employees or more. That's NOT small. More than 60% work for a business with at least 100 employees. That's still at least medium sized.

The census number totals 116 million workers in private business. With a labor force of 153 million (https://www.cia.gov/library/publications/the-world-factbook/geos/us.html), that means 37 million people are working for the government or are unemployed. Assuming the previous estimate for the government workforce - about 20 million - there are about 17 million unemployed.

Ok, so clearly McCain was full of it. Again. Small businesses with less than 20 employees (which surely covers almost all plumbers) employ less than 20% of the non-government workforce - a little over 20 million people. That's not much more than the size of the government workforce, if you take the conservative numbers for the size of the government. If you believe the official unemployment rate, there's only 6.1% unemployment. That would mean that more than 27 million Americans work for the government - many more than work for those revered small businesses.

It's okay for Americans to identify with small businessmen. They represent a part of history and perhaps personify a crucial part of the national spirit, just as French farmers and German Mittelstand do in their countries. But you have to put away this nostalgic image when you discuss real policies. The US economy may be strengthened by small businesses and innovative upstarts. But the overwhelming majority of Americans work for large companies.

October 11, 2008

Credit crunch musings

I'm happy to reread some of my long-dormant blog. I was worried I had left little proof that I'ld been warning about the bad credit in the US...

The US started living on credit under Reagan. Things got out of control in the early nineties, because there was a feeling that there was no competition for the US system anymore. By 1996, 1997 the economy was well on its way to the stratosphere, with nothing holding it up but faith. This time it's different....

I think that most of what happened after 1996 was a zero sum game for the US, at best. The internet brought new jobs, and high paying ones, but it removed others. Globalisation increased profits in the US, but moved labour costs (income to others) out of the US.

Because of inflation, I figure that the US is 40% ahead of 1996. That means a GDP in the order of a little over 11 trillion. If that is correct, GDP will have to drop by about 3 trillion to get back to realistic values. A 20% drop in the calculated size of the economy is no longer an abnormal prediction. The DJIA would end up in the mid-8000.

So. Time to buy stocks? Not quite. the irrational exuberance that kicked off in the mid nineties ran more than 10 years. Betting on the economy going back to realistic valuations was a fool's game during that time. There's no reason to assume that the irrational pessimism will dissapate faster.

So I expect the market to be undervalued for years. Unfortunately, that brings us to the point where the boomers start to retire. At that point, increasing numbers of investors will structurally move out of growth stocks, to safer stocks, bonds and even more conservative income instruments. This extended and persistent money reallocation will start to weaken markets. As more boomers retire, it will become another selling pressure that will depress the markets.

Time to move into bonds? Well, if you're anywhere near retirement, duh. If you're not near retirement, it probably isn't worth the trouble. Just start allocating a lot of your new savings (you do save, do you?) to your bond funds...

Negotiating without precondition

North Korea stopped cooperating with the IAEA. It put rockets in place, threatening more long-range testing, or an actual attack.

Are these the preconditions under which Bush is willing to negotiate?

Nah. Under these preconditions, Bush doesn't negotiate. He just gives the North Koreans what they want.

Fortunate son

Some folks are born made to wave the flag,
Ooh, theyre red, white and blue.
And when the band plays hail to the chief,
Ooh, they point the cannon at you, lord,

It aint me, it aint me, I aint no senators son, son.
It aint me, it aint me; I aint no fortunate one, no,

Some folks are born silver spoon in hand,
Lord, dont they help themselves, oh.
But when the taxman comes to the door,
Lord, the house looks like a rummage sale, yes,

It aint me, it aint me, I aint no millionaires son, no.
It aint me, it aint me; I aint no fortunate one, no.

Some folks inherit star spangled eyes,
Ooh, they send you down to war, lord,
And when you ask them, how much should we give?
Ooh, they only answer more! more! more! yoh,

It aint me, it aint me, I aint no military son, son.
It aint me, it aint me; I aint no fortunate one, one.

It aint me, it aint me, I aint no fortunate one, no no no,
It aint me, it aint me, I aint no fortunate son, no no no,

Creedence Clearwater Revival, folks. 40 years ago, and still right on the money.

I think it's almost appropriate that Ayers has become an issue in this election - for the right wing nutters at least. When it really gets down to it, the ideals of the sixties were never realized in the US. At least not to the extent they were in most western countries. The loss of the US's lead in social progress was a bitter pill to swallow for many like Bill Ayers, and clearly they went way overboard in their attempt to stop this. Rejecting progress made the seventies so aimless. Embracing deficits and brainless nationalism in the eighties set the stage for a fake rebound. The nineties were an honest, serious and almost succesful attemp to get the nation back on track without a revolution. But it was flawed, and in 2000 whatever hopes were left, burned.

But perhaps.... perhaps. It's scary to even mention it. Perhaps this is the time to revisit the basics. Perhaps this is the time that the US finally joins the rest of the modern western democracies. Maybe there will be real freedom of religion - even for muslims. Maybe everyone will have a shot at greatness - and not just the fortunate ones. Maybe free speech will really exist - or rather, people will be willing to hear speech they don't like.

Honestly, until about a month or two ago, I believed that having McCain as president would be better. He's a deficit hawk, a dare-devil that likes to take risks he doesn't understand, and someone who is desperate to make a mark on history. I figured that, with a thoroughly democratic congress, he'ld be willing to undertake fairly big reforms that would get the US in line with modern society, and get it into a healthier financial situation.

Okay, fine. I wasn't wild about it. But I did think that Obama would overreach and the popular backlash would stop anything real getting done. Think Clinton before Newt.

But now... perhaps now is the time to reengineer the US's economy and society for the twenty-first century. Not along the socialist lines that the Republicans are advocating right now (or at least Bush and McCain), but along progressive, democratic lines that are well-trodden in western Europe.

Here's hoping...