The Market Speaks

Markets, like small children have a way of being brutally honest. And the market is saying that the US government is borrowing too much money to be considered the best credit risk out there.

The bond market is saying that it’s safer to lend to Warren Buffett than Barack Obama.

Two-year notes sold by the billionaire’s Berkshire Hathaway Inc. in February yield 3.5 basis points less than Treasuries of similar maturity, according to data compiled by Bloomberg. Procter & Gamble Co., Johnson & Johnson and Lowe’s Cos. debt also traded at lower yields in recent weeks...

Apparently this is what happens when the government runs too big a deficit.

A One Handed Economic Argument

Harry Truman famously said that he wanted a one handed economist. The economists he had were always saying things like, "on the other hand..." However, not having a one handed economist doesn't stop an advocacy group from making the one handed argument. Case in point:

An Arizona State University study estimates that cuts to the Arizona Health Care Cost Containment System would result in the elimination of about 42,000 jobs in 2011, cutting more than $1.7 billion in disposable income among all Arizonans.

The actual study was done for the Arizona Hospital and Healthcare Association by Dr. Matt Croucher and Dr. Tim James at the L. William Seidman Research Institute, W. P. Carey School of Business at ASU. As best I can tell, what they did was run a model of the Arizona regional economy with and without the AHCCCS spending cuts. They then reported the differences which the AzHHA then highlights in their media release.

...the proposed budget cuts will result in a loss of 42,000 jobs, dramatically increasing an already soaring 9.1 percent state unemployment rate. This significant reduction in employment would spread across all sectors, resulting in a reduced level of economic activity throughout the state.

What all of this leaves out is where does the money come from to provide the additional funds for AHCCCS? If it come from taxes or borrowing or another part of the state budget, then someone else is left with less money to do something with. That reduces their economic activity and hence jobs. So it's not clear that this funding would be a net gain or a net loss for the Arizona economy.

In the appendix (A.3) to the report, Croucher and James make it clear that this analysis was left out.

It was assumed that no other change in public policy would occur. Thus, no account of the economic impact associated with reductions in expenditure and/or increases in revenue collection, elsewhere in the economy to solve the state's budget problem instead of reducing AHCCCS funding were included. Thus, we do not include in the discussion any measures of the benefits that invariably would accrue to other government sectors or to Arizona taxpayers of not spending approximately $1 billion in general fund money on healthcare.

Note that doing this sort of analysis would be next to impossible since there are far too many alternatives to contemplate. So AzHHA used two handed economists, but they made the one handed argument.

For a copy of the actual report, go to the AzHHA web page and hit the click here link under Proposed Fiscal Year 2011 Budget: Healthcare Cuts Hurt State's Economy. It will download a zip file that includes the study and the media release among other things.

SRP Background

Here in the Phoenix area electric power is provided by one of two entities - APS, a publicly owned for profit corporation and SRP, essentially a cooperative. APS is regulated by the Arizona Corporation Commission (our version of a PUC) but SRP is not. For some background on how SRP was formed and is currently governed, have a look at the article. It's very interesting.

Note that the SRP board election is coming up. If you're an SRP customer, you can vote by mail.

The Price of the Substitute is Increasing

The Board of Regents has raised tuition at the state universities again. We expect an increase in demand for classes at Mesa Community College. Sign up early or you won't get what you want when you want it. Registration is open now.

Bad Weather Employment Numbers

The most recent employment report from the BLS for February came out on Friday. There has been some concerns that it was worse than expected because of the bad weather during the month. One of those concerned about the effect on the numbers was Larry Summers, the President's Economic Advisor.

"In past blizzards, [employment] statistics have been distorted by 100,000 to 200,000 jobs," Mr. Summers said on financial news network CNBC. "So it's going to be very important to ... look past whatever the next figures are to gauge the underlying trends. I think those underlying trends are going to show job growth soon ... several thousand new projects are coming onstream: building roads, repairing bridges and the like across the country."

While there may be a blip in the data, it is important to note that just because you missed work due to the bad weather, you are not counted as unemployed. From the BLS Q&A:

Persons also are counted as employed if they have a job at which they did not work during the survey week, whether they were paid or not, because they were:

* On vacation
* Ill
* Experiencing child-care problems
* Taking care of some other family or personal obligation
* On maternity or paternity leave
* Involved in an industrial dispute
* Prevented from working by bad weather

These persons are counted among the employed and tabulated separately as "with a job but not at work," because they have a specific job to which they will return.

In case you were wondering, the survey week is the week that includes the 12th of the month.