Explaining Southern California's economy

Vivkek Ranadive says replace the Federal Reseve with a computer

Forget PhD economists with beards who make oracular pronouncements about the economy. How about a computer program that can adjust interest rates in real time, rather than humans who are basing their judgments on outdated information?

As you'll see from the video, this is the modest proposal of Vivek Ranadive, a software entrepreneur. I first heard this idea a week or so back, when I saw Ranadive speak at a Drucker Business Forum/KPCC event where I also interviewed Mike Rossi, whom California Gov. Jerry Brown has asked to provide advice on the state's unemployment crisis.

It's a radical notion. But not that radical. A modern economy could benefit from interest rate changes that aren't kept too high, or too low, for too long. Ranadive agues that the Fed has consistenly failed to deliver a "soft landing" with its interest rate policies: cooling down the economy by rasing rates so that inflation is kept under control, yet a recession is avoided.

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Gov. Brown's pension-reform plan: Painful but necessary

Jerry Brown

Max Whittaker/Getty Images

California Governor Jerry Brown announces his public employee pension reform plan October 27, 2011 at the State Capitol in Sacramento, California.

Jerry Brown rolled out his pension reform plan yesterday. The Patt Morrison Show did an entire segment on it. The upshot? it's a humdinger. The New York Times sums it up:

Mr. Brown called for raising the retirement age of new employees who do not work in public safety to 67 from 55. He said employees should pay up to 50 percent of their annual pension costs. To reduce the financial exposure of the state, he said future pensions should be a hybrid of the traditional pension model and a 401(k).

To deal with what have been widely seen as abuses of the retirement system, Mr. Brown said the pensions of all new employees should be based solely on their regular salaries, not taking into account any overtime or bonuses. For existing employees, he said the retirement benefits should be based on an average of the last three years’ salary.

He also said that state employees should be barred from double-dipping: retiring, taking pensions and then taking on another state job.

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Reportings: Grocery strike; Netflix screw-up; Jerry's veto

Still no grocery strike in Southern California. But you have to wonder why the union and the big chain stores — Albertsons, Ralphs, and Vons — couldn't figure out how to resolve the problems with a jointly administered health care fund before now. VoiceofOC.org provided a blow-by-blow back in June, explaining how the fund was allowed to rapidly move from surplus to looming deficit. (VoiceofOC.org)

 

Speaking of which, the LA Times thinks a strike now would be a very bad move for the chains: "Today, Ralphs, Vons and Albertsons have fewer stores in Southern California, and fewer employees. Albertsons has closed 67 locations since the 2003-04 strike and worker lockout. Ralphs has closed 48 stores, and Vons and Pavilions are down 47." (LAT)

 

Netflix CEO Reed Hastings' solution to the epic screw-up of raising prices on subscriptions: The smaller DVD-by-mail business will now be spun off into a new company, Qwikster, presumably allowing Netflix to restore its brand. How long did it take to think up that new name? (NYT)

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Is Jerry Brown's tax deal a win for small business?

At Fox & Hounds Daily, John Katabeck of the National Federation of Independent Business thinks so:

California's tax policy currently rewards out-of-state corporations for selling their goods in California but keeping their manufacturing and employee bases elsewhere. These companies can play games with their taxes year after year robbing the state of critically-needed funds and denying hard-working families of good-paying jobs.

Small business desperately needs all the help it can get during these tough economic times to ensure they can keep their doors open and operate in their communities. This measure puts California on a level playing field with other states like Texas and New Jersey where similar policy was put in to place by Chris Christie and Rick Perry.

There is however a legitimate question about whether small businesses are actually going to become the engines of job creation that everyone seems to think they can be. This post from Business Insider is fairly mean-spirited, but it makes some solid financial points:

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Actually, the economy will self-correct, but we don't have time to wait. So should we start investing?

An interesting comment came out of Gov. Jerry Brown's biotech mini-summit in San Diego yesterday, where he predicted that he'd be able to win over enough Republicans in the next three days to pass his "jobs-and-taxes proposal." This is from the LA Times PolitiCal blog:

"We all know this economy is not going to self-correct," said David Gollaher, president and chief executive of the California Healthcare Institute, a trade group for the biomedical industry. "San Diego and the U.S., we have the talent ... but it's going to take creativity on the part of our political leaders."

Actually, given enough time, the economy — nationally and regionally — will self-correct. The problem is that the nature of the financial crisis and its aftermath would drag out the process so much that the American Way of Life would be completely changed. We've endured what economists call a "balance sheet recession," in which businesses and consumers have to reorganize, renegotiate and rid themselves of debt. That's why we have such high unemployment. That's why why the stock market is so unstable. That why the yield on 10-year treasuries is below 2 percent. Everyone is too busy dealing with the debt orgy of the past 30 years to be able to concentrate on reviving demand.

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