PeakTrader.com

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PeakTrader:

This deep depression is completely unnecessary. There are excessive federal, state, and local taxes, fees, fines, fares, tolls, etc., both progressive and regressive, particularly for high-income workers, who tend to start businesses.

There are more burdensome and expensive regulations on top of excessive regulations, which are generally regressive and the economy has been unable to absorb, slowing growth. Federal regulations alone cost $2 trillion a year, resulting in higher prices and lower real wages, along with more unemployment.

Moreover, Dodd-Frank, in response to the financial crisis, has caused banks to hoard cash and keep it out of circulation.

Disincentives to work, including endless unemployment benefits, and disincentives to take risks, e.g. starting a business, to expand the economy.

For example, federal income taxes have become more progressive under the rigid ideologues in Washington, over the past few years, which created disincentives to expand the economy:

CBO: Top 40% Paid 106.2% of Income Taxes; Bottom 40% Paid -9.1%, Got Average of $18,950 in ‘Transfers’
December 9, 2013

“The top 40 percent of households by before-tax income actually paid 106.2 percent of the nation’s net income taxes in 2010, according to a new study by the Congressional Budget Office.

At the same time, households in the bottom 40 percent took in an average of $18,950 in what the CBO called “government transfers” in 2010.

The households in the top 20 percent by income paid 92.9 percent of net income tax revenues taken in by the federal government in 2010, said CBO.”

The way the CBO calculates taxes paid is if I pay $2 in taxes and someone else pays negative $1 in taxes, then the government collected $1 in taxes and I paid 200%.

A $5,000 tax cut per worker in 2009, or $700 billion for the 140 million workers at the time, along with reducing and removing $1 trillion of the $2 trillion of regulations would've resulted in a real recovery and really helped the poor indirectly, e.g. through much higher tax revenues and employment.

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And, I stated before, if the labor force decline was caused demographically, it would’ve taken place slowly, not suddenly. The Baby-Boomers, born between 1946-64, would’ve retired over time (the last of the Baby-Boomers will reach 65 in 2029).

Moreover, it should be noted, many of those Baby-Boomers would’ve worked longer and harder to pay-down debt and build-up saving, which would’ve added to future economic growth, including over the past few years.

Instead, they were forced into retirement, because of the lack of jobs. Many older workers, who didn’t lose their jobs, are working longer, which is why many younger workers are unemployed.

The federal government spent and squandered too much money, didn't reduce taxes enough, piled on more regulations, on top of excessive regulations, and created massive uncertainty, resulting in $5 trillion of additional federal debt for this on going deep depression.

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Over 800,000 people dropped out of the labor force last month.

Thanks to Obamanomics, the U.S. economy has shrunk substantially over the past few years, as potential output continues to be destroyed (that's one way to close the output gap).

Income inequality has worsened over the past few years.

With per capita GDP over $6,000 a year below a long-run trend, since 1960, everyone is poorer.

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Without accommodative monetary policy, there'd be more unemployed and more poor.

And, I guess, you never heard of the Keynesian liquidity trap.

Accommodative monetary policy raised income = GDP = output.

Income = consumption + saving.

So, the Fed raised both consumption and saving.

Also, it should be noted, U.S. consumers bought foreign goods and foreigners bought U.S. Treasury bonds. Your government rather than "refunding" those dollars back to U.S. consumers, in the form of a substantial tax cut, e.g. $5,000 per worker (you only got small and slow tax cuts, for a while, not enough to jolt the economy into a real recovery), spent those dollars to create a mountain of federal debt to add to the mountain of household debt.

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End of oil boom threatens Norway's welfare model

(Reuters) - Norway's energy boom is tailing off years ahead of expectations, exposing an economy unprepared for life after oil and threatening the long-term viability of the world's most generous welfare model.

High spending within the sector has pushed up wages and other costs to unsustainable levels, not just for the oil and gas industry but for all sectors, and that is now acting as a drag on further energy investment. Norwegian firms outside oil have struggled to pick up the slack in what has been, for at least a decade, almost a single-track economy.

How Norway handles this "curse of oil" - huge wealth that bring unhealthy dependency in its train - may hold lessons across the North Sea in Scotland, which votes on independence from the United Kingdom later this year, relying at least in part on what it sees as its oil revenues.

Norway had the foresight to put aside a massive $860 billion rainy-day cash pile, or $170,000 per man, woman and child. It also has huge budget surpluses, a top-notch AAA credit rating and low unemployment, so tangible decline is not imminent.

But costs have soared, non-oil exporters are struggling, the government is spending $20 billion more oil money this year than in 2007 and the generous welfare model, which depends on a steady flow of oil tax revenue may not be preparing Norwegians for tougher times.

"In Norway, job security seems to be taken for granted, almost like it's a human right to have a job," says Hans Petter Havdal, CEO of car-parts maker Kongsberg Automotive.

Kongsberg Automotive has only 5 percent of its workers left in Norway, having moved jobs to places like Mexico, China and the United States, and keeping only high-tech, automated functions at home. It says it is struggling with high labor costs and even problems such as excessive sick leave.

"It's a bit discouraging that the sick leave in Norway is twice the level of other plants," Havdal said. "That is to me an indication that something is not as it should be."

With per capita GDP around $100,000, the Norwegian lifestyle has become such that the work week averages less than 33 hours, one of the lowest in the world, and while unemployment is low, there is large underemployment, made possible by benefits.

In 2012, a new word entered the Norwegian lexicon - to "nave", or live off benefits from welfare agency NAV.

"Approximately 600,000 Norwegians ... who should be part of the labor force are outside the labor force, because of welfare, pension issues," says Siv Jensen, the finance minister.

Company executives and some government officials say Norway needs to limit wage increases to productivity, limit oil cost growth, cut taxes like neighbors have done and spend less of the oil money. Some say it should even depreciate its currency.

The Scottish National Party's argument in favor of independence has centered on the promise that Scotland can replicate the success of Norway's oil economy, creating a sovereign wealth fund for future generations, while public coffers would be only half as dependent on oil and gas.

Unfortunately for Scotland, the glory days of British hydrocarbon production are already in the past, with North Sea output down around two thirds since its peak.

A net oil and gas exporter until the turn of the century, Britain will import almost half of its hydrocarbon needs this year, mostly from Norway, rising to two-thirds by 2026, the government has said.

TURN FOR BIG OIL

The fortunes of the oil industry, which accounts for a fifth of Norway's economy, have shifted abruptly as the global oil sector slammed on the brakes.

Costs are spiking and capital spending has been so high that energy firms are selling assets to pay dividends. With oil prices seen falling this year and next, appetite for capital expenditure is low.

Investments, which tripled over the past decade, are now seen declining in the years ahead, confounding earlier expectations for a steady increase, while oil production remains flat, despite years of heavy spending.

Energy companies are cutting some of their most innovative projects, a big worry as the sector has relied on cutting edge innovation to offset its high costs.

The government puts the best face on this, but admits times are changing.

"The boom is probably over. But we're not looking at a steep decline in investment or production," says oil minister Tord Lien. "The costs are rising too high and too fast. The Norwegian costs have risen a little bit more than elsewhere."

Shell has called off a multi-billion dollar gas project that was seen as a step towards platform-free offshore production after costs on the pilot project hit seven times the initial estimate. It would have placed all equipment on the seabed, including compression, and would have powered it from the shore, a huge technological step.

Statoil, the state-owned national champion, has slashed spending, eliminating advanced projects like an Arctic rig that would have been able to operate in two-meter thick ice.

"Cutting back on capital spending is hurting innovation," says government oil regulator chief Bente Nyland. "When you're cutting back, you're focusing on your production (and) your income ... This will have a long-term impact because you have to make decisions on projects now."

Norway is the world's seventh biggest oil exporter, and it supplies a fifth of the European Union's gas, a critical position as tensions with Moscow over Ukraine raise concerns about Russian supplies.

It also boasts the world's highest GDP per hour worked, according to the OECD, but labor productivity has declined since 2007, and since 2000 its unit labor cost has risen around six times faster than in Germany.

NO GOING BACK

Handelsbanken economist Knut Anton Mork said Norway must act if it is to avoid decline.

"The oil boom has ended," Mork said. "Norway needs to rebalance to a more sustainable level, which can be done either through a nominal depreciation or through an internal devaluation of wages.

"Absent necessary adjustments, Norway after oil may face a structural crisis similar to that in Finland after Nokia."

Industry-leading mobile handset maker used to account for nearly a fifth of Finland's exports and a quarter of its corporation tax before its rapid decline as rivals cornered the market in smartphones.

Neighbor Sweden, meanwhile, cut sickness and unemployment benefits and lowered income, wealth and corporate taxes. Its tax burden has fallen by four percentage points of gross domestic product, now making it lower than France.

But such wage adjustment in Norway is unlikely in the near term, and unions dispute that the country has a competitiveness problem. Industrial workers nearly went on strike in April until last-minute concessions.

"We haven't been in a situation since the second world war that we had any cutbacks on rights we have negotiated," said Stein-Ragnar Noreng, CEO for consultancy KPMG's Norwegian unit.

"There is no sign of willingness from unions or the government to go into any kind of discussion. This could be very dangerous because investments will go down."

Knut Sunde, director of employer interest group Area Trade and Industrial Policy, also sees little chance of much change:

"It's a high-cost country and will always be, so there's no dreaming about ever coming back to the good old days when Sweden was expensive and Norway was cheap. We'll never go back."

http://www.reuters.com/article/2014/05/08/us-norway-economy-insight-idUSBREA4703Z20140508?feedType=RSS&feedName=topNews

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