Welcome to our regularly scheduled Friday, January 23, 2010 edition of On the Moneyed Midways, the one place where you'll find the best posts contributed to the best of the past week's money or business-related blog carnivals!

Do you want a raise? What does it take to get out from having to pay a parking ticket? Do older workers rack up more expensive workers' compensation claims? And what do you need to know to set up a side business buying and selling textbooks while you're still in college?

The answers to these questions, and the rest of the best posts of the week that was, await you below....

OMM's Running Index for 2010

Presented in reverse chronological order....

• On the Moneyed Midways - January 29, 2010
• On the Moneyed Midways - January 23, 2010
• On the Moneyed Midways - January 15, 2010

Older Editions

• OMM: The Best Posts of 2009 and our full index for the year!
• OMM's Running Index for 2008
• OMM's Running Index for 2007
• The Best Blogs Found in 2006 (and our full 2006 index)!

Labels: carnival

- posted by Ironman at 12:31 PM | Permalink | Home |

Having already established that the "stimulus bill," as President Barack Obama described the American Relief and Recovery Act of 2009 in his first State of the Union address, actually failed to stimulate the economy as the administration's finest economic minds anticipated it would, we thought we'd turn our attention today to why the stimulus bill failed to work as planned.

Let's begin by outlining three scenarios for why the stimulus failed to deliver on its backers' best thinking, based upon the potential effectiveness of the stimulus bill's ability to stimulate the economy:

1. The stimulus had a positive effect, but the economy performed much worse than was forecast. In this case, the economy performed much better than it would have without the stimulus.
2. The stimulus had little or no effect, so the economy performed just as it would have if the stimulus bill had never been passed, which turned out to be worse than was forecast.
3. The stimulus had a negative effect, making the economy perform worse than had been forecast. In this case, the economy would have performed much better without the stimulus.

Before we go any further, let's make something very clear. Regardless of which of these possible scenarios might actually apply, the stimulus failed because of a lack of effective leadership by President Obama.

Here's how we know. Each of these scenarios has one thing in common - the economy performed worse than expected. The hard evidence of that fact, perhaps most easily measured by the government's tax collections, but to a lesser degree by the nation's employment situation, piled up month after month after month.

And yet, there was absolutely no follow through on the part of the President or his administration to adapt to the worse-than-expected situation. Other than to blame the worse-than-expected economy, which much surely have been the fault of the previous administration, or to proclaim the success of jobs having been "created or saved" through the stimulus, a measure so open to interpretation to its meaning to actually have none.

You see the problem. No follow through. And without the follow through to make sure that things are going as they should be, and the response to set things back on track if things are not, the failure of the stimulus bill to work as intended was ensured.

That's not effective management. That's an absence of effective leadership. Specifically, it's the absence of the most crucial aspect of effective leadership: the ability and commitment to act to set things back on track when they don't go as needed.

To see why, let's turn to the work of Walter Shewhart, the father of modern statistical quality control. Shewhart identified four crucial steps that repeat in a never-ending cycle to achieving success after setting a goal to improve quality in an industrial process, which we'll adapt to simply achieving success after setting a goal: the Plan-Do-Check-Act cycle.

1. Plan: Establish a goal and define the steps needed to achieve it within a given time frame, including how to effectively measure progress.
2. Do: Systematically work through the steps needed to achieve the goal.
3. Check: Systematically measure the progress being made toward achieving the goal.
4. Act: If the results are significantly off-target from where they should be to achieve success within the given time frame, adapt the plan to put them back on target.

Applied to the President's stimulus bill, we see problems beginning almost immediately in the planning phase, in that "jobs saved or created" was clearly not an effective measure. However, that's not a show-stopper, since there were other, more effective measures that clearly communicated things weren't going as planned.

Instead, we observe that at no time in the past year did the President or his economic team act to adjust to an economic situation that was worse than they expected, as the situation was developing. It was only in last night's State of the Union address that the President finally began to adapt to a situation that he and his advisers sat by and watched grow worse than they expected for each of the last ten months with his call for a new "jobs" (aka "stimulus") bill.

Only now, the President will have a much more difficult task in gaining approval for the new measure, given his demonstrated inability to deliver promised results. It's a lot harder to get a hit when you take your eye off the ball.

Image Credit: Wikipedia

Labels: management, politics, quality

- posted by Ironman at 11:23 AM | Permalink | Home |

With President Barack Obama's first official State of the Union address scheduled for this evening and as it happens, nearly a year after President Obama's first address to a joint session of the U.S. Congress, we thought we'd take a look back at the biggest single achievement of the first year of his administration and a principal reason for his first major address as President: the American Recovery and Reinvestment Act of 2009. Or as most people have come to call it, "the stimulus package." Namely, how well did it work in stimulating the U.S. economy?

Let's revisit what the President said and then we said on the topic back on 10 February 2009:

In his response above, President Obama named three things he would use to determine if the economic spending plan he's currently promoting will have been effective:

1. Creating or "saving" four million jobs.
2. The credit markets making loans to people and to businesses.
3. The stabilization of housing prices.

Now ask yourself: Would any of these things not happen anyway? Even without such a massive spending package? And if these things would happen anyway, how is their happening proof, in any way, that the government's proposed nearly trillion dollar spending spree is what worked to make them happen?

No, President Obama just doesn't understand money. Otherwise, he would know that he would have a very easy way to demonstrate that the "investing" he wants to have happen via the so-called "stimulus package" is producing positive returns for the taxpayers of the United States. He would see the benefit of the proposed spending in the form of higher tax collections stemming from increased economic activity.

We then went on to create a tool to run the numbers for what kind of tax collections it would take for the President to be able to claim that the stimulus package really worked. Here was our conclusion:

Doing the math, we find that in order for the spending of the stimulus package to be judged to be successful, it will need to increase federal tax collections over what they would be otherwise by at least $15,888,600,000 (just a bit under 16 billion USD).

See? Not so hard! Of course, if President Obama were smarter about money, we're sure he would have worked this out on his own! And now that he only has to have federal government tax collects rise over what they would be otherwise by just $16 billion, surely the President will be able to trumpet his grand achievement!

So how did those tax collections work out for President Obama? Let's answer that today by comparing what the White House's Office of Management and Budget projected would be the total of tax receipts in the United States for Fiscal Year 2009 against what the U.S. Treasury reports to have been the actual total of tax receipts over the period:

Noting that U.S. fiscal year 2009 ran from 1 October 2008 through 30 September 2009, we find that total tax collections fell some 43.3 billion dollars below where they were projected to be for the year. It would seem then that the stimulus was ineffective.

But before we draw that conclusion, let's look to see the quarter-by-quarter breakdown of the federal government's tax collections and match that against the timing of the expenditures for which it provides. After all, the stimulus bill didn't pass until the end of February 2009, with much of the associated spending not scheduled to take place until much later. Here's our chart showing the quarter-by-quarter tax collections from the first quarter of Fiscal Year 2009 through the available figures of Fiscal Year 2010:

Using the federal government's tax collections as a proxy for the performance of the U.S. economy, we see that the second quarter of Fiscal Year 2009 (January through March 2009) was the worst, followed by a strong increase in the third fiscal quarter (April through June 2009), but has fallen back since. Looking at a year-over year comparison between Fiscal Year 2009's first quarter and Fiscal Year 2010's first quarter, we confirm a significant decline has occurred during President Obama's first year in office, despite the President's stimulus spending initiatives. Could most of the benefit of the stimulus spending have occurred from April through June 2009?

Here's how Keith Hennessey described the timing of the stimulus' package spending initiatives, which perhaps explains why that's not the case (emphasis ours):

Fortunately, CBO Director Doug Elmendorf just gave a presentation titled "Implementation Lags of Fiscal Policy" to the IMF's conference on fiscal policy. All of the following data are from his presentation.

The final 2009 stimulus law broke down like this:

	10-yr total	% of total
Discretionary spending (highways, mass transit, energy efficiency, broadband, education, state aid)	$308 B	39%
Entitlements (food stamps, unemployment, Medicaid, refundable tax credits)	$267 B	34%
Tax cuts	$212 B	27%
Total	$787 B	100%

The problem is that only 11% of the first line (discretionary spending) will be spent by October 1 of this year. In contrast, 31-32% of the entitlement and tax cuts lines will be out the door by that time. (I have questions about the speed of the entitlement part. The bulk of that is Medicaid spending, and it's not clear to me that a Federal payment to a State means the cash is immediately flowing into the private economy.)

If we extend our window to October 1, 2010, then less than half the discretionary spending will be out the door, while almost 3/4 of the entitlement spending and all of the tax cuts will be out the door and affecting the economy. The largest part of the stimulus law is therefore also the slowest spending part. This is fine if you’re trying to increase GDP growth over the next 2-4 years. If you're going for short-term GDP growth, it makes no sense.

We find then that the President's signature economic achievement to date has failed to achieve its stated purpose of stimulating the U.S. economy.

Image Source: Wikipedia

Previously on Political Calculations

• Stimulus Package: Our Entry for Worst Idea Competition
• Always Behind the Curve
• Better Ideas for Fiscal Stimulus Packages
• Where the Stimulus Money Is Going
• How to know If the "Stimulus" Worked
• Sports Stadium Stimuli?
• Pouring Taxpayer Money Down the Drain
• Simulating Stimuli
• The Porkulator

Labels: economics, politics, taxes

- posted by Ironman at 11:36 AM | Permalink | Home |

What if you combined a color sensor, similar to those that are used in the color matching devices at paint stores, with color inkjet technology? And then made the whole package fit within the space envelope of a magic marker?

What you might get is Jinsun Park's concept for a single magic marker that draws all colors, the Color Picker! (HT: Core77)

We would suggest that a multi-colored pen box to provide a basic palette for the Color Picker would be an essential accessory to include with the product. Keeping with the theme, it would be really cool to incorporate a color LCD screen and sufficient memory to store all the colors the Color Picker samples in the pen box!

Labels: none really, technology

- posted by Ironman at 8:46 AM | Permalink | Home |

We've been doing some economic detective work and we believe we found the exact trigger behind the stock market's sell-off last week. Along the way, we found out just how long it takes for the stock market to react to news it wasn't expecting.

Let's start by examining the forensic evidence, the 5-day chart of the S&P 500's action from Friday, 15 January 2009 through Friday, 22 January 2010:

In examining the chart, we find two potential trigger points:

1. The 9.08 point gap down on Wednesday, 20 January 2010 from the S&P 500's closing value of 1050.23 on Tuesday, 19 January 2010, a drop of 0.8%.
2. The 14.59 intraday drop on Wednesday, January 2010, during which the S&P 500 lost 1.3% of its value in the fourteen minutes from 10:20 AM to 10:34 AM.

Now let's line up our mostly likely suspects, which we've identified by scanning the market commentary of the past week, starting with our own favorite usual suspect:

1. A fundamental change in market outlook, as measured by a change in the value of expected future dividends per share.
2. President Barack Obama's announcement of proposed new restrictions on banking and financial companies.
3. Speculation on the status of Federal Reserve Chairman's Ben Bernanke reconfirmation.
4. Constraints being placed on new home loans in China that spooked investors, first in China's stock markets, then internationally.

Let's now see where our suspects were on the two days in question:

Change in Market Fundamentals: The table below shows what the S&P 500's dividend futures expected for each of the five days in our data sample.

In the table above, we see a contradiction on 19 January 2010. Here, the day's projected dividend futures suggest that stock prices would push lower, but instead, the S&P 500 rose on the day. Applying our analytical methods, this outcome suggests the influence of noise, where a non-dividend related news event drove the level of stock prices. And as it happens, that's exactly what we find: stock prices, particularly those related to health companies, pulled the entire S&P 500 index upward on the day with the election of Scott Brown to the U.S. Senate from Massachusetts, greatly diminishing the chances of the Democratic Party's health care reforms passing through the U.S. Congress in their current form.

And since these kinds of news-driven noise events are short-term events, this also explains for the gap down on the following day, as the principal signal driving stock prices would not be denied!

But after that point, we see that the direction of dividend futures bear little pressure on stock prices. This observation eliminates the fundamental force that drives the stock market from being a contributing factor to the change in stock prices for the rest of the week.

Obama's Proposed Restrictions on Banks: Here, we find from a cached version of The Political Schedule that President Obama delivered his remarks on financial reform at 11:40 AM on Thursday, 21 January 2010, too late to have triggered the sudden sell-off that began at 10:20 AM and ended by 10:34 AM.

We should also recognize that by the time President Obama delivered his remarks, they were old news. The New York Times had posted the story at 2:26 AM, some eight hours in advance of the market's reaction.

While it may be possible that President Obama's proposed banking restrictions are contributing to a negative sentiment among investors, which may have contributed to lower stock prices, we find they had no role in triggering the sharp decline on 21 January 2010 at 10:20 AM and only a slight impact, if any, for the rest of the day or the days that followed.

The Renomination of Ben Bernanke: Given the influence of the Fed Chairman over the U.S. banking and financial industries, as well as the U.S. economy, there's little question that even a hiccup in the renomination of Ben Bernanke to fill this role would greatly affect investor sentiments, which Warren Buffett confirmed in a CNBC interview that morning. The question though is what news about Bernanke's renomination possibly hitting a snag might have occurred to knock stock prices off their perch?

As it happens, we found what appears to have been the specific trigger for the otherwise unexplained sudden sell-off on Thursday, 21 January 2010. Using Google's cache, we found a Reuters news flash that hit its mobile network at 10:18 AM on 21 January 2010 (Reuters has since removed the headline from the mobile network - Update 1 February 2010: Here's the original news headline flash, which was posted on Reuters' network at 10:17 AM), with the headline "Senate won’t vote on Bernanke this week: aide". The rest of the story wasn't fleshed in until 12:44 PM, however, we believe this headline flash directly sparked the sell-off at 10:20 AM, just two minutes after the headline broke. That two minutes then is all the time it takes for the stock market to react to significant news breaking that it wasn't previously expecting! (Update 1 February 2010: Make that three minutes - we found the original headline that posted at 10:17 AM on 21 January 2010.)

On a side note, reading the transcript of Warren Buffett's interview, we can't help but feel sorry that he didn't get his day's worth of notice that Bernanke's reconfirmation was running into some trouble!

We also note that the continuing decline in stock prices observed on Friday, 22 January 2010 would also appear to be largely influenced by news of political obstructions to the Fed Chairman's renomination, as several U.S. Senators indicated they would not support Bernanke's continuation in the role during the day. The effect of this news is very evident in Intrade's prediction market for Chairman Bernanke's renomination.

Building Trouble in China: Although we've previous found an instance where trouble in China's stock markets influenced U.S. stock prices, here, we don't find the news of restrictions on China's bank lending to be a significant contributing factor influencing U.S. stock prices from 15 January 2010 through 22 January 2010.

Scanning the world's news, we see that this news from China certainly does appear to have affected stock prices in Australia, the story for which was posted by the Wall Street Journal at 6:04 AM, as this cached version of Global Fundwire's headlines indicates. With such an early headline, before the U.S. stock market opened at 9:00 AM on 21 January 2010, this news would have affected the level of stock prices at the opening. Instead, we see that U.S. stocks gapped slightly up from where they closed on Wednesday, 20 January 2010, and were largely flat until they plummeted at 10:20 AM. The news from China simply wasn't a factor in the sell-off of U.S. stocks on Thursday, 21 January 2010.

Conclusions

And there you have it! We find that the change in stock prices on Wednesday 20 January 2010 to be a delayed reaction to a small change in the fundamental driver of stock prices, which was put off from occurring sooner by the outcome of the special election for the U.S. Senate in Massachusetts, while the more dramatic plunge in stock prices on Thursday, 21 January 2010 was sparked by the reaction by investors to the unexpected news that Federal Reserve Chairman's renomination to the post was going to be delayed.

We also find that the stock market reacted efficiently to the news, with the Reuters headline providing just a two-minute warning to investors to sell stocks.

As a noise-driven event however, we believe that this drop in stock prices represents a short-term buying opportunity, as we find that all such news-driven noise events in the stock markets have expiration dates.

Labels: chaos, stock market

- posted by Ironman at 10:51 AM | Permalink | Home |

Welcome to this special Saturday, Janaury 23, 2009 edition of On the Moneyed Midways, where each week, we present the best posts we found in our review of the past week's business and money-related blog carnivals!

As our long-time readers know, we define the word "special" to actually mean "late!"

So let's just get right to it, shall we? The best posts of the week that was, including The Best Post of the Week, Anywhere! await you below....

Previous Editions

• OMM: The Best Posts of 2009 and our full index for the year!
• OMM's Running Index for 2008
• OMM's Running Index for 2007
• The Best Blogs Found in 2006 (and our full 2006 index)!

Labels: carnival

- posted by Ironman at 10:26 AM | Permalink | Home |

Since January 2008, we've now offered some 55 posts in which we've made 63 distinct predictions, mostly having to do with the stock market but also covering the direction of the U.S. economy. But are we really any good at making predictions?

Since April 2009, we've been measuring our ability to predict the future by using the plus-minus statistic from hockey and basketball, where we gain a point if we're right and lose a point if we're wrong, and score a zero for when the outcome of a prediction cannot yet be determined, or when we make multiple predictions that cancel each other out.

The cool thing about this approach is that if our predictive ability is no better than the random outcome determined by a coin toss, our plus-minus score will drift toward a value of zero over time. If we're better at making predictions than simple randomness would suggest, then our plus-minus score will grow higher in value over time. If we're wrong, then our plus-minus score will fall in value. If we're really bad, then our plus-minus score will plunge into deep negative territory!

So how did we do in the last three months since our last update?

Our plus-minus score for predictions has risen to +20! The table below details how our score rose from our previous score of +18:

Previously on Political Calculations

• Plus-Minus for Predictions - 16 April 2009
• Our Plus-Minus Is Now Seventeen! - 16 July 2009
• Predictions Plus-Minus Update - 15 October 2009
• Predictions Plus-Minus Update - 21 January 2010

Labels: forecasting, track record

- posted by Ironman at 11:21 AM | Permalink | Home |

Just for fun, we took the data from the dynamic table of the individual states of the United States versus European Union nations that we posted yesterday, uploaded it to ManyEyes, then used the visualization tools at that site to create maps showing the relative size of the Gross Domestic Product per capita of each, adjusted for Purchasing Power Parity, for each region.

We next scaled the map of the E.U. to be in the same scale with respect to that measure of the map we produced for the United States, plus or minus a pixel or so, to produce the combined side-by-side map below. (And before anyone says anything, yes, it's not to geographic scale - think of it instead as being kind of a cartogram....)

All just to better visualize the relative level of living standards between individual U.S. states and E.U. nations!

Since we posted the data publicly on ManyEyes, it's available for you to create your own visualizations. If you do, please drop us a line and we'll be happy to feature your work here!

Update: 22 January 2010

Paul Kamp at dqydj.net (aka "don't quit your day job".net) adds unemployment numbers to the cross-country comparison!

Follow this link for more information.

Labels: data visualization, gdp

- posted by Ironman at 7:52 AM | Permalink | Home |

It's on! Again! Only now, instead of just pitting the nations of the European Union against the individual states of the United States, the ongoing battle for the title of being the world's top GDP generator per capita has erupted on a new front with two heavyweights from the econoblogosphere pitted against each other: Paul Krugman vs Mark Perry!

It seems that Krugman launched the first salvo by praising the economies of Europe:

The real lesson from Europe is actually the opposite of what conservatives claim: Europe is an economic success, and that success shows that social democracy works.

Since 1980 — when our politics took a sharp turn to the right, while Europe’s didn’t — America’s real G.D.P. has grown, on average, 3 percent per year. Meanwhile, the E.U. 15 — the bloc of 15 countries that were members of the European Union before it was enlarged to include a number of former Communist nations — has grown only 2.2 percent a year. America rules!

Or maybe not. All this really says is that we’ve had faster population growth. Since 1980, per capita real G.D.P. — which is what matters for living standards — has risen at about the same rate in America and in the E.U. 15: 1.95 percent a year here; 1.83 percent there.

[...]

The point isn’t that Europe is utopia. Like the United States, it’s having trouble grappling with the current financial crisis. Like the United States, Europe’s big nations face serious long-run fiscal issues — and like some individual U.S. states, some European countries are teetering on the edge of fiscal crisis. (Sacramento is now the Athens of America — in a bad way.) But taking the longer view, the European economy works; it grows; it’s as dynamic, all in all, as our own.

But is it really? Mark Perry takes a different view, arguing that Europe's socialist policies have noticeably depressed Europe's living standards, even in physical terms. So much so, that on Krugman's preferred measure of real per capita GDP, European nations compare only to the poorest of U.S. states.

And that's where we come in. We've updated our ranking of individual European nations with respect to individual U.S. states and constructed a dynamic table in which all the players can be ranked according to their Gross Domestic Product (GDP) adjusted for Purchasing Power Parity (PPP), population and their GDP-PPP per Capita for 2008.

We've put this data into the dynamic table you see below, which will allow you to sort the data in the table by clicking on the various column headings. Doing so will almost instantaneously sort the data in the table from low to high value or from high to low (by clicking a column heading a second time.) To restore the original order, you'll need to refresh this page in your web browser.

How do real living standards in Europe's socialist democratic economic powerhouses rank with respect to individual U.S. states? Scroll down and click the column heading for "GDP-PPP per Capita" to find out!

Sources and Acknowledgements:

• 2008 US State GDP Data: Bureau of Economic Analysis, U.S. Department of Commerce, All Industry Total
• 2008 US State Population Estimates (July 1, 2008): US Census [Excel spreadsheet]
• 2008 EU Nation GDP-PPP Data: The World Factbook, 2008
• 2008 EU Nation Population Estimates (July 1, 2008): The World Factbook, 2008
• Dynamic Table Sorting Function: The Daily Kryogenix.

The GDP and population data for the United States as a whole, as well as for the European Union as a whole, was obtained by adding up the state and national values we found for each. GDP-PPP per capita was found by dividing each region's 2007 GDP figure by its population estimate as of July 1, 2007.

Previously on Political Calculations

2007 Economic and Population Data

• 2007 US vs EU GDP-PPP Cage Match Contest

2006 Economic and Population Data

• 2006 GDP-PPP EU vs US Smackdown!
• Africa GDP Rankings for 2006
• Asia GDP Rankings for 2006
• 2006 GDP Rankings for the Americas
• 2006 GDP Rankings for Europe

2004 Economic and Population Data

• Pacific Rim: 2004 GDP Rankings
• GDP Rankings in Muslim Nations
• 2004 GDP Rankings for Asia
• European Union 2004 GDP Rankings
• GDP in Africa: 2004
• GDP Rankings of the Americas: 2004 Edition
• EU vs US: Two Years of Economic Data Later....

2002 Economic and Population Data

• EU vs USA
• Cool Tools and GSP
• GDP of the Americas
• GDP in the Muslim World
• GDP in Europe
• GDP: Africa
• GDP Along the Pacific Rim
• GDP in Asia
• GDP: And the rest...

Labels: gdp

- posted by Ironman at 9:35 AM | Permalink | Home |