State of the Economy–Feb 2012

It has been a while that I’ve addressed the state of the economy. This morning I read the breaking news that the U.S. economy gained 243k jobs in January, far above expectations. The unemployment rate respectively dropped to 8.3%. The old norm was in the 5% range. It may be that the new norm for a generation will be closer to 7%, but slowly we are reaching more reasonable levels.

Unemployment is key to recovery, as it puts money in the consumer pockets and creates demand across the market. Housing stability is also key, as it is still the main driver accumulation of wealth for majority of Americans. I’ve read articles claiming that taxing corporations less will enable them to hire more and grow. I am more of a believer that demand drives growth and demand is created with when money is put in consumer pockets. Growth does NOT precede demand. Growth without demand only serves to create a bubble that will lead to yet another painful market correction.

As the wars are closed down and hundreds of thousands of troops flood back into the domestic job market, the nation needs to have a plan in place. President Obama’s proposed bill to provide grants to employers of post 9/11 veterans is a an election year political move. Rather than increasing debt to place vets in companies artificially, when demand doesn’t exist, we should be focused on spending resources at increasing demand. Blocking the Keystone XL oil pipeline is a terrible decision. The project has environmental risks, but it is also key to national security and economic prosperity through energy independence. The Savannah harbor expansion to accommodate super tankers is vital to economic development in southern states and should be fast tracked to completion.

I’ve written many times that we need to invest into infrastructure that will create jobs and opportunity for decades. Wealth transfer to corporations through grants and tax breaks is a band aid fix and only serves appease lobbyists in a election year. We need bold moves and national projects of significance.

Providing funds to alternative energy industries theoretically speeds up technology development, adoption and drives prices down faster. I believe in free market economy. As gas prices again climb over $4 per gallon, as they are sure to do, alternative energy sources will become cost effective on their own without government intervention. Massive adoption will drive down unit costs and fund further development and competition. I’d love to install solar power to cut my electric bills. In Georgia solar power is something that we have plenty of. As long as breakeven is 15 years plus for that investment, I personally think it is ridiculous. Returns need to be within 5 years and then every house would heat water using solar power. Paying a premium for a hybrid car is also not that interesting, until a gallon costs $4 plus and stays at that level.

On the long term it is all about education, education and education. Without education there is no innovations and without innovation there is no competitiveness. Without the ability to compete and dominate the American dream is lost. The same way that demand needs national infrastructure projects, innovation needs national investment into science and space exploration. Without the arms race and NASA program, where would we be today in terms of technological advances? Building a lunar base or going to Mars seem frivolous, but the journey to those goals is an investment to innovation and future competitiveness. I am not saying that we should make a moon base, just to because, but we do need a lofty national scientific goal that the nation can understand, get behind and take pride in.

As a species we are reaching the limits of what our home planet will sustain. As a species we need to explore our own planetary system and beyond in order to grow. With technology today it takes on average 2.1 hectors of biologically productive land to sustain a single person. The planet has $13.5b hectors of biologically productive land. The world population has already surpassed 7 billion. My daughter, with her third grade math skills, could tell you that just doesn’t add up.


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