Explaining Southern California's economy

Wine Report: Red wine may prevent cancer in women

KPCC's Stephanie O'Neill reported today in a new study that suggests moderate red wine consumption may reduce the risk of breat cancer for women. This finding contests previous research that indicated alcohol raised women's cancer risk.

I've actually been watching the back-and-forth over the health benefits of moderate wine consumption for more than decade now. I'm very glad to see that real science is being focused on the issue. But I also strongly (and unscientifically) believe that one of the best things about drinking wine is that it creates a context for reduced stress.

Yes, there may be compounds in wine that lead to better health. But wine also compels people to stop, relax, sip, mellow out, spend time with friends. This gets even better when wine is consumed with food at meals. The idea is that you unplug for a while and concentrate on the human-ness of being human.


California's 'structural deficit': What does it mean?

California Gov. Jerry Brown released his 2012 budget plan yesterday. It contains a lot of numbers, but one set of them is especially important: the size of the "structural deficit." The 2011-12 fiscal year is projected to end up $4.1 million the red. If there are no new taxes or cuts to spending in 2012-13, as Brown has proposed, the shortfall is expected to be $5.1 million. That makes the total deficit for 2012-13 $9.2 billion. 

The chart above shows what this looks like over time. 

So what exactly is a structural deficit? Basically, it's the deficit you can't escape. Here's a snappy defintion, from DaveManuel.com:

In a structural deficit, things are so out of balance that a country (or state, or municipality, etc.) will post a deficit regardless of how well the economy is doing. In a strong economy, revenues (tax receipts, etc) rise due to increased economic activity (more jobs, more spending, etc). With a structural deficit, the strength of the economy is irrelevant - a deficit will be posted regardless.. 

How do countries get rid of structural deficits? 

1. Cut spending. 

2. Raise revenues (usually through tax increases). 

Neither of these options are too appealing for politicians, which is why many structural deficits continue to linger. 


Unemployment falls to 8.5 percent on good December jobs report

A jobs sign hangs above the entrance to


The Bureau of Labor Statistics released its December 2011 employment report this morning. The economy added 200,000 jobs last month and the unemployment rate fell to 8.5 percent from 8.6 percent.

This wasn't the blockbuster 325,000 jobs-added number that the ADP report predicted yesterday. But it was much higher than the 125-150,000-ish consensus among various economists. 

On the (slight) downside, the November jobs total was revised down to 100,000 from 120,000. That meant that the earlier 8.6 unemployment rate had to be revised to 8.7 for the period. Still, it's 8.5 now. 

The big question is whether this momentum can be sustained — whether the jobless rate will keep edging down or inch back up. But it does start off 2012 on a positive note. So far, the markets have responded tepidly, suggesting that an improving employment situation is "priced in" — already accounted for — and that traders are more worried about Europe and its ongoing currency crisis than they are about jobs in the U.S.


Brown budget makes case for California tax increases

Jerry Brown Introduces January California Budget

Justin Sullivan/Getty Images

California Gov. Jerry Brown revealed his 2012 budget today — earlier than his office had planned, due to an error or technical glitch that caused the budget to be posted prematurely on the Department of Finance's website.

The budget doesn't really sugar-coat the challenges that the state faces, although as the L.A. Times points out, the deficit situation has improved greatly:

[The budget] paints a better fiscal picture than just a year ago, when the state faced a $26-billion deficit. Brown's budget anticipates closing the current gap through a combination of spending cuts and the tax increases, which would kick in at year's end, providing $4.4 billion in revenue.

Ah, the tax increases. Brown laid them out back in December, when he published an open letter on the governor's website. I posted on the plan at the time:


Cracking down on payday lenders

Obama Nominates Richard Cordray To Head Consumer Financial Protection Bureau

Mark Wilson/Getty Images

WASHINGTON, DC - JULY 18: U.S. President Barack Obama (C) shakes hands with former Ohio Attorney General Richard Cordray during a presser to announce the nomination of Cordray as head of the in the Consumer Financial Protection Bureau as Special Advisor on the Consumer Financial Protection Bureau Elizabeth Warren (L) watches in the Rose Garden at the White House on July 18, 2011 in Washington, DC. The new bureau was created under a reform bill last year and intends to make basic financial practices such as taking out a mortgage or loan more clear and transparent to consumers while weeding out unfair lending practices. (Photo by Mark Wilson/Getty Images)

If you want to see what loan sharking looks like in modern America, look no farther than the payday lending industry. As this blog from the White House (yes, 1600 Pennsylvania Ave. blogs) points out, 20 million Americans use payday loans — and the average interest rate charged on a two-week loan is 400 percent!

The White House used a $100 loan as its basis. From a payday lender, a Benjamin winds up costing the borrower $16. If you accept that 20 million figure, this means that on $100 loans, the payday lending racket is bringing in $320 million every two weeks. OK, that's simple math and may not represent reality. But perhaps not that far off, as some borrowers will borrow more, some less.

Just for context, 20 million Americans equals 6.5 percent of the population. That's an alarmingly high number of people who are exposed to a horrifically high level of short-term interest. But it also explains why the payday lending business has taken off.