Category Archives: Economics in Brief

August Jobs Report is Discouraging

H. Nejat Seyhun, contributing writer to The BusinessThinker magazine, is the Jerome B. & Eilene M. York Professor of Business Administration and professor of finance, Ross School of Business, University of Michigan. He is an internationally recognized authority on financial issues and Derivatives.

The Bureau of Labor Statistics announced last Friday that on a seasonally adjusted basis, total private employment increased by 154,000 while the overall total nonfarm employment increased by 117,000 in July (expectations were for an increase of 75,000).   Similarly, the overall unemployment rate went down to 9.1% from 9.2%.  Expectations were for no change from June.  Since both figures were better than expected, the stock market increased by about 150 points inreaction prior to the opening bell.

On closer inspection, however, there is a lot not to like in the August report.  First, the civilian non-institutional population increased by 182,000 from June to July, while the overall number of employed actually went down by 38,000.  Since the overall working-age population growth has been about 1.8 million over the past year, the economy on average needs to add about 140,000 new jobs to prevent the unemployment rate from increasing.  The net additional payroll figure of 117,000 increase is certainly not satisfactory from this perspective.

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THE GREEK ECONOMY AND THE GREEK UNIVERSITIES

Without effective higher education that includes significant R&D, it is very difficult for Greece to achieve economic development and social progress at rates that will accelerate her convergence with the other European Union partners.

The picture at Greek universities is very disappointing. Universities in Greece do not have the necessary autonomy. They hardly conduct any R%D. They have no continuous “dialogue” between universities and society. The universities produce graduates without the education / training required to work for the country’s progress. Graduates are not absorbed by the labor market while the country is losing ground in both educational level and competitiveness, holding down its growth rates and undermining convergence with the other EU countries. The universities should continuously search for the trends and requirements in society and economic life with a view to their graduates’ integration.

Progress and development should not only be measured by whether Greece has, for instance, more roads or cars than in the 1970’s, but also by its present situation in relation to other countries. Greece’s position on this comparison is not at all flattering, but what is worse is the inability of the system to adapt and keep abreast with present requirements.

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The U.S. Budget Problem

H. Nejat Seyhun, contributing writer to The BusinessThinker magazine, is the Jerome B. & Eilene M. York Professor of Business Administration and professor of finance, Ross School of Business, University of Michigan. He is an internationally recognized authority on financial issues and Derivatives.

The current U.S. Budget deficit and the projected growth rate of the deficit, if it remains at the same level, is clearly not sustainable.  According to the Congressional Budget Office, the U.S. is currently spending about $3.7 trillion while taking in about $2.2 trillion a year a difference of $1.5 trillion or almost 50% of spending.  The four big budget items are healthcare ($820 billion); social security ($720 billion); defense and wars ($700 billion) and income security, interest, and federal pensions (totaling $840 billion).  The sum of these four items already equals about $3.1 trillion – representing 141% of revenues.  Simply speaking everything else adds up to about $600 billion meaning that even if we were to literally cut these “miscellaneous” expenditures to zero, we only get a 16% reduction in spending and the U.S. will still face huge and unsustainable budget deficits of $900 billion a year or about 6.5% of GDP.

At current projections, budget deficit in 2015 is estimated to be about $2.3 trillion (or 13.5% of the estimated $17 trillion GDP in 2015), while the U.S. debt is on track to reach $23 trillion.  We currently are pointing a finger at Greece and accusing them of irresponsible fiscal policy, yet this deficit level would surpass that of Greece, and is therefore not sensible.  The debt level in 2015 would equal 135% of the GDP.  Any loss of confidence and associated increase in U.S. interest rates on $23 trillion of debt would truly present a serious risk to the U.S. Budget and the economy.

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