Actual for May: an increase of 2.5 million jobs and unemployment falling to 13.3%. Same for Canada too.
Economists and their computer models were off in space.
Since much of the country had not yet “re-opened” after public health sociopaths flattened the economy, this is a good number. By June, many more areas are re-opening – will be interesting to see the unemployment figures for June.
Update – I see one financial analyst thinks “It’s different this time” and there is little risk of inflation. So there is that view too. Deflation is certainly likely in the shorter term due to suppressed demand (retail sales and services fell by over 16% in April).
Why the stock market rise? Probably because of future inflation. The U.S. government is printing money like crazy – calling it an “economic stimulus”.
Chart of the U.S. Money Supply from U.S. Federal Reserve:
How will these trillions in spending be paid for? Inflation.
Inflation devalues the dollar making today’s debt’s cheaper to pay off in the future. Governments have always done this. Will this be what happens this time? Who knows for sure?
Inflation taxes everyone simultaneously by lowering the purchasing power of the dollars they hold.
Mandatory physical distancing measures, temperature checks and filling out medical history questionnaires prior to airplane flights, possible Covid-19 testing before boarding, limited or non-existent meal and beverage service on airlines, no more free hot breakfasts at hotels, restaurants allowed to use only 25-50% of their seats, mandatory face mask wearing at all times … and higher prices. Airlines can not keep flying idled seats – someone has to pay for it.. Hotels, restaurants and car rental agencies will have to charge more to fewer customers in order to cover their fixed costs.
What does this mean for travel? It means recreational travel will be limited until a vaccine is widely distributed and people have confidence in its effectiveness. Many will choose to avoid the “new normal” hassles of travel during this time.
This is a though provoking video: Economics theory is based on the idea that wants (demand) exceeds supply. Stated another way, we tend to want more than we can afford – we do not have the resources to acquire everything we may desire. But today we are, for a great many, and for many of life’s necessities, living in a post scarcity world. Once we have fulfilled our basic “wants” we have the luxury of being tricked by marketing into wanting even more (basically, a fake want designed to increase demand).
Maslov’s Hierarchy of Needs tries to explain human motivation in terms of fulfilling the basics, like food and water, first, at the bottom of his pyramid. Above that we seek shelter and safety, then peer support, self esteem and finally self actualization.
The reality of life today is that life is actually quite good – compared to the past. (Poverty is at a global low point, for example. Literacy is at a historical high point, and so on, in spite of the daily dose of fear mongering news media.) In effect, for most people, the goods and services of daily life are not scarce. We enter a world of post-scarcity economics for much of our daily needs.
Most people (yes, there are definitely exceptions) in modern economies have fulfilled the bottom 3 tiers of the Hierarchy of Needs. At this point, our wants become warped. Few people need digital watches (to quote Douglas Adam’s comments about the 1970s) – or for that matter smart phones or any number of other goods and services.
Since we do not really need a lot of “stuff”, marketing tricks us in to wanting things we don’t need. So we acquire more.[1] Because many of our basic wants are satisfied, we create new “wants”. Some “wants” are not goods or services – we have the luxury of time so we build ourselves up (top of the pyramid) by running marathons and ultramarathons or spending time at the gym or the hair salon to look good.
At some point, many people are persuaded to want things they cannot afford today – so lenders step into loan money to acquire stuff (you probably don’t really need). This can be loans for cars, homes, or consumer loans for vacations and home improvement, or accumulation of credit card debt to acquire “stuff” we believe improves our self-esteem (catching up or exceeding those in our peer group). As satirist JP Sears says, “Tesla – pretend to save the environment while looking rich” 🙂
Eventually, our loan payments cause us to cut back on spending on other things. As collective debt loads become too high, economic activity slows down and we enter a recession.
Post scarcity economics means we have the means to be persuaded (by marketing) to acquire stuff we probably don’t need and a ready supply of lenders to enable us to buy it today (versus saving our money).
A small observation: When we choose to purchase an item X, it is not so much a decision to buy X as it is a decision that we are not going to buy Y (and A, B and C too!) Few people think of purchase decisions this way though. But we should be asking ourselves, if I buy X, what product Y am I choosing not to buy? If we did this, we’d balance our spending – and wants – a lot better.
We see this effect at work in government spending. Legislators are constantly asked to spend more money on government programs (let’s call them X). But seldom is anyone simultaneously suggesting what projects (call them Y) we should not be funding in order to fund X. The solution is to buy X – and Y – and just borrow more money.
Keep this in mind the next time you “want” something (X) and ask yourself, what will I give up (Y) to buy X? Most people never ask this question and buy stuff they probably cannot afford. Spending decisions are about choosing between things X and Y, but most people view spending decisions as deciding whether to buy X1, X2 and X3.
[1] Getting tricked in to wanting and buying more is made possible by intense surveillance of our lives both on and offline. As Walmart says
“[W]e have a lot of data and we can gather even more data. [I]f you win their most frequently purchased items, you get the opportunity to serve impulse items online and in-store, and our focus is in driving that sweet spot,” he said.
While working out the gym this week, I heard several ads on the local radio station urging consumers to take on more debt. One was for an airline promoting that you can now get a loan to pay for your vacation trip – this is not a wise idea.
This was followed by an ad for a local car dealer encouraging you to trade in your car, even if you owe more on a car loan than the car is worth. In the hyper rapid voice over at the end of the ad they mention this means taking on negative equity. In other words, going further into debt!
You take out a loan to buy a car for $25,000. Three years later the car is worth $15,000 but you still owe $20,000 on the car. You trade it in to buy a newer $30,000 car and roll over the $15,000 value of the used car to pay off $15,000 of the $20,000 remaining. Since you come up $5,000 short on the old car loan, you roll this over to the new car loan. Congratulations, you now owe $35,000 on your $30,000 car. That’s called negative equity.
When I heard the ad, I could not believe consumers could be this naive.
Borrowers are responsible for paying their remaining debt even after they get rid of the vehicle tied to it. When subsequently buying another car, they can roll this old debt into a new loan. The lender that originates the new loan typically pays off the old lender, and the consumer then owes the balance from both cars to the new lender. The transactions are often encouraged by dealerships, which now make more money on arranging financing than on selling cars.
The lead anecdote in this story replaced his car 4 times in two years, each time taking out a larger loan (saying he had to do this due such things as a divorce, mechanical problems, and then wanting a larger vehicle). The article says 1/3d of those trading in a car took on negative equity loans.
As a general rule, its better to borrow money for items that deliver long term value. For example, home prices appreciate over time because multiple industries have persuaded government for police that make this happen. Taking out a loan for a high level education and degree may make sense for jobs that generate future high incomes, particularly professional degrees in health care, engineering, business and potentially law. It does not make sense to take out a loan so that you get a minimum wage job without benefits at Great Clips.
How can you buy “stuff” if you do not take out a loan? You work hard, avoid spending like crazy including buying less than you can afford at the time, and save your money.
Wealth = Assets – Debt
Many people prefer to look wealthy and do so by spending and borrowing, under the misconception that
Wealth = Assets + Debt
During The Great Recession, the local paper ran a story about the business of automotive repossessions (when debts were not paid). All of those interviewed had similar stories – the typical auto repossession was at a large, new house, with two newer SUVs, a $35,000 boat and an RV (trailer or mobile home) – all paid for using debt. These people all looked wealthy to the outside world but only because they confused the definition of wealth.
“Other nations have responded with smart, well-funded innovation policies like better R&D tax incentives, more government funding for research, more funding for technology commercialization initiatives.”
There are downsides to blockchain technologies and processes (blockchain algorithms power Bitcoin and other cryptocurrencies):
Each purported use case — from payments to legal documents, from escrow to voting systems — amounts to a set of contortions to add a distributed, encrypted, anonymous ledger where none was needed. What if there isn’t actually any use for a distributed ledger at all? What if, 10 years after it was invented, the reason nobody has adopted a distributed ledger at scale is because nobody wants it?
I suspect there are good uses for blockchain, however, the point is well taken. In the 1980s, I worked at a company that built a spreadsheet product that was so simplified that people who did not know algebra could use it. This seemed like a great break through. What was the problem? People who did not know basic algebra concepts did not have problems in life requiring a spreadsheet!
In other words, the technology was great but completely missed the target audience.
The linked article identifies many disconnects between proposed blockchain use cases – and the real world. A very interesting read.
The largest union representing grocery-store workers has come out strongly against Amazon.com’s launch of a store sans cashiers, a sign of how a recent generation of futuristic technology comes with a dose of angst for big parts of the workforce.
When workers cost $20/hour ($15 minimum wage + $4 to $5 for benefits), while technology costs are falling, numerous businesses are moving from variable cost labor to fixed cost automation.
The feature photo I attached to this post is a photo of a self order kiosk I took inside a McDonald’s in St. George, Utah. Starbucks has a mobile app that let’s customers place their own order ahead of time. Another coffee shop I visit has, at times, flipped their order entry app (its just an iPod on a stand) around and let customers place their own orders and pay with a credit card, when they are short staffed.
The market (meaning the public) will determine if this is what people want or not.
Now the 5G, or fifth generation, wireless revolution is near, promising data speeds 50 to 100 times faster than 4G LTE networks. Sure it’ll improve smartphones, but that’s not the point. Analysts say 5G’s biggest impact will be to drive the proliferation of the Internet of Things — billions of connected devices.
The business case for 5G is all about IoT, an evolution, or maybe revolution, that will take the internet era into new territories.
From a business perspective, #IoT applications will drive demand for 5G high capacity data networks, which in turn, drives demand for more antenna sites (smaller cells), fiber optic networking to link more, smaller cells, new RF chip devices (article mentions Qorvo, which is funny, since I am sitting in a building next to Qorvo as I write this:) ), more revenue to cellular service providers, and more data centers.
In this context, #IoT may drive a cycle of enormous investments and economic growth.
Business, Tech, Energy, Transporation, Thinking
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