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Economic Mirages: House Prices, Unemployment, Stimulus Spending and Sequesteria
Confounded Interest ^ | 03/10/2013 | Anthony B. Sanders

Posted on 03/10/2013 10:13:57 AM PDT by whitedog57

The sequesteria (irrational fear of sequestration) continues. For example, Newark Mayor Cory Booker claims that the sequester “is brunt, brutal and blind.” The Obama Administration suspended tours of the White House “because of sequestration.” George Mason University City and Regional Planning Professor Stephen Fuller claims that 2.14 million jobs could be lost because of the sequester.

Now, take a deep breath.

* Sequestration reduces the rate of increase in federal spending. It does not cut a penny of actual spending.

* Under the sequester, total federal spending goes up, just by less than it would have gone up without sequestration. HOW is this a “cut” in spending?

* Total federal spending in 2012 was $3.53 trillion. The President’s budget request for 2013 was $3.59 trillion, an increase of $68 billion (about 2%). Under sequestration, total federal spending in 2013 will be $3.55 trillion, an increase of only $25 billion (a little less than 1%).

The only way that the sequester is a “cut” in spending is if corporations and the government PLANNED on increased spending and it does not happen. Moral to the story: do not count your chickens until they hatch.

Well, the government has made erroneous predictions before (or oversold the impact of spending). Take for example Chrissie Romer and Jared Bernstein’s prediction of unemployment with and without the economic “stimulus.”

As Don Adams from Get Smart once said: “Missed it by that much.”

To make matters worse, the U3 unemployment is actually above 10% if we hold labor force participation rate constant. Our employment recovery is really about people dropping out of the labor force (and more part-time jobs being created rather than full-time jobs).

This brings me to another mirage: the Consumer Price Index for housing (aka, the Consumer Price Index for All Urban Consumers: Owners’ equivalent rent of residences). According to this measure of inflation, house prices in terms of equivalent rent have been steady. But if we compare the Case-Shiller 20 City house price index, we see the mirage: house prices are far more volatile than what the Consumer Price Index leads us to believe.

The bottom line is that employment numbers, the benefits from stimulus, the Bureau of Labor Statistics measure of housing inflation and sequestration impacts are largely a mirage.

TOPICS: Business/Economy; Government; Politics
KEYWORDS: budget; housing; sequester; spending
Mirages and bubbles everywhere!!!!!!
1 posted on 03/10/2013 10:13:57 AM PDT by whitedog57
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