Real Estate, The Economy, and News: Article

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Tuesday, May 19, 2015

Maintenance Issues at California's Refineries Lead to Gasoline Price Increase

5/1/15 - Drivers throughout California have been noticing gas prices climbing swiftly over the past few weeks, and they don't like it. In the last week by itself, prices have gone up by almost 34 cents, 6 cents of which happened over the course of a single day. Is this due to the state of the economy, or to supply-and-demand, or due to something much harder to control? Samantha Masunaga and Andrew Khouri, in their L.A. Times article, conclude that the increasing prices are mainly due to mechanical issues in gasoline refineries around the state.

California's refineries produce most of the gasoline used within the state, since production and delivery of California's “cleaner-burning blend” can be too expensive for out-of-state refineries to consider it economically viable. Furthermore, since the refineries produce as much gasoline as possible, any break in the production chain can cause massive issues throughout the system. Even if one factory would have to close down for repairs, the amount of gasoline in California would fall, making the available gasoline that much more expensive. The system leaves very little room for delays.

Unfortunately, refineries have been forced to stop or lessen production in order to perform maintenance work, whether planned or otherwise. After a February explosion at Exxon Mobil Corp.'s refinery in Torrance as well as some other, minor, issues elsewhere, the supply of gasoline is running low, thus forcing up the prices. Although the oil-refining companies are producing less, they still have contracts that obligate them to provide a certain amount of gasoline to customers, such as gas stations. In order to do this, they are forced to pad their supplies with purchases of gasoline from other refineries.

Many are upset about the price increases mainly due to the shock of it. When the price of a tank of gas increases by $20 to $30 in a month, it is hard to see it coming. To make matters worse, companies that purchase gasoline from other refineries during a time of low production try to keep such transactions secret, so as to not case a “pop” in the market. On the other side of the argument are the average Californians, who use gasoline and want some way to be able to predict when prices will go up. When a company has to purchase gasoline from another refinery, it is pretty obvious that they are having some issue with production.

The average person has had to cut down on certain “unnecessary” expenditures in order to put more money toward filling up the tank. Some have been forced to cut items when grocery shopping, and others have stopped eating out at restaurants. While gasoline prices are still, on average, below what they were this time last year, some areas are feeling far worse effects. A big cause of this, as Khouri and Masunaga point out, is that the market full of secrecy. If people know when companies are planning to purchase large amounts of gasoline from other sources, they will be able to more easily predict fluctuations and therefore plan out their gasoline purchases in a more beneficial manner. Gasoline has almost become like stocks, constantly changing and difficult to predict successfully. That could all change if refineries develop some transparency and give customers a fighting chance.

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California Employment Rates Rising, Mainly Due to Temporary Jobs

4/24/15 - While California's Inland Empire suffered many of the harsh consequences that came with the housing market crash, its economy has been coming back over the past few years. The Inland Empire currently contains one of the fastest-growing job markets in the state, aided mainly by growth in the logistics sector, which involves transportation and storage of goods. While jobs have indeed been added, and unemployment rates thereby lowered, Chris Kirkham's L.A. Times article points out that this growth may not actually be the significant shift it appears to be.

As the ports have gained more use in previous years, Riverside and San Bernardino counties have joined the supply chain of international trade. Strategic locations in these counties have become “inland ports” for goods traveling throughout California and to the rest of the country. The Inland Empire, on the other hand, has plenty of affordable land, which has made it the place for warehouses, in which goods are stored until they get shipped out.

Inventory, transportation, and warehouse jobs accounted for 1 in 5 new positions created in the Inland Empire last year. Job growth is great, but these are not of the ideal type to help the average worker and the economy. Positions in this industry usually pay minimum wage, do not include health benefits, and provide no guarantee as to the number of hours an employee might expect to work in any given week. So, while employees are provided with some source of income, they lack job security and can never be fully prepared to adjust to the ever-changing demand for workers.

Temporary jobs like those in this sector have increased by 35% over the span of 5 years, growing faster than almost any other industry. While such jobs are difficult to keep, Kirkham shows that some who work quickly and efficiently are able to climb the corporate ladder and move from positions of warehouse laborer to inventory manager or sales representative. In the aftermath of the Great Recession, companies care more about precision and speed in order to cut inventory costs. This has caused warehouses to be more like short stops between the factory and the customer, rather than long-term storage spaces for goods.

The logistics industry is a necessary part of international and domestic trade. Goods need to be transported, sorted, and kept track of. The industry needs support, but so do the workers. Kirkham concludes the article with the following claim: the workforce is struggling. What changes might be made to keep the industry thriving while also helping laborers to gain some semblance of structure and continuity, rather than uncertainty and worry?

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Longshore Unions Provide Rich Benefits for Members

3/20/15 - If you were asked to list some types of people with jobs that pay over $100,000 per year, you might mention doctors, lawyers, and software engineers. Would you think to name dock workers? While many transit employees throughout the West Coast have been laid off or have seen their wages cut due to a recent increase in global trade, longshoremen (the laborers who move goods from the ship to the shore) have generally been able to protect their wages. In their article, Chris Kirkham and Andrew Khouri investigate the ways by which half of longshoremen on the West Coast make over $100,000 per year.

Not only do these many of these longshoremen make about $20 per hour on the low end, they earn even more on overtime and night shifts. It all comes down to the power of the International Longshore and Warehouse Union. As witnessed during last month's shutdowns up and down the West Coast, those who control the ports seem to control international trade. Even now that contract negotiations have been completed and the ports are open once again, it is predicted that the docks won't be back to normal for up to three months, and many businesses may never get back the money they lost during the port closure.

Although many members of the longshoremen union make well over $100,000 and all members receive free healthcare benefits, union spokesman Craig Merrilees claims that there are thousands of “casual workers” who are unable to get full-time work and don't get the benefits provided for union members. Merrilees states that these workers often spend years, without such benefits, trying to become a member of the union. Unfortunately, the Pacific Maritime Association, through which the wage statistics for union longshoremen were received, refused Kirkham's and Khouri's requests for the wage statistics of non-members, so Merrilees' assertions could be neither confirmed nor denied.

Longshoremen and the ILWU have a kind of monopoly on the ports. Not only did the port union leaders successfully create a contract in 1930 that linked most of the West Coast ports together, the unions have over the years been able to negotiate for better pay and benefits in the midst of technological improvements. Even the advent of such innovations as shipping containers, which require far fewer workers to transport, have led to better pensions and richer buyouts for those workers who are laid off due to the new technology.

The ILWU knows how to work the system. That appears to be how longshoremen are making so much money in a field where most workers make $10 - $11 per hour. When billions of dollars worth of goods pass through a set of ports each year, those people working the ports control the goods. The unions seem to be able to negotiate whatever contract they want, because companies need the ports in order to have any kind of international trade.

Slowly but surely, the unions may be losing their control. As computers systems and machines come in and replace employees, especially those doing clerical work, the unions may have trouble keeping benefits and high wages. While goods can be produced in other countries, and manufacturing can be easily outsourced, ports are a constant, unable to be moved somewhere with lower wages. Despite this, Kirkham's and Khouri's sources are confident that the high wages in the current low-wage transportation industry will not last. It's only a matter of time before technology and innovation force a change.

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Decreased Chinese Demand Harmful to American Exporters

3/6/15 - Labor strikes at ports on the West Coast and the current strength of the American dollar are both contributing greatly to exporters and other businesses that rely on exports. However, Don Lee claims in his Los Angeles Time article that China's slowing economy is causing even more damage to the American market. The strong dollar is not a good thing for most exporters because it makes their products more expensive overseas, in their target market.

While the U.S. economy as a whole seems to be pretty steady, many worry about the effects of significant Chinese withdrawal from American imports. Last year, American exports to China grew only 1.6% while American imports from China grew 5.7%. This trade deficit is bad news for scrap-metal exporters in California, Midwestern manufacturers, and cotton farmers in the Mississippi Delta.

As China's economic growth slows, amid increasing production around the world, China is forced to reduce foreign imports and focus instead on domestic businesses. Even American companies with locations in China are finding it difficult to compete with private Chinese contractors. Fortunately for America, the decrease in trade with China is being somewhat balanced out by increased exports to other countries, including Mexico and Canada. Trade, which has been involved in about one-third of America's economy in recent years, has started to become less-viable as an economic practice.

China is switching from a majorly goods-based economy to more service-based, and according to some of Lee's sources, this may not be a bad thing. Yes, it will have negative effects on businesses and companies reliant on imports and exports, but as a whole, the American economy does better off with services, like finance, accounting, and entertainment. Such service-based businesses are affected to a much lesser extent by the strength of the dollar, which is beneficial for everyone involved.

Besides the slowdown of China's economy, the Chinese president has been cracking down on corruption, forcing government officials to cut back on gifts and parties. Because of this, exporters of such products as fine wines and premium fruits have lost a sizable number of their usual customers. A combination of the new strength of the dollar and an increase in productivity by many countries has driven the prices of commodities down, which could hurt goods-based economies.

According to Lee, the export of agricultural products by California fell 9% last year, due greatly to China's changing economy. Farm shipments on their own plunged by 30%, and other products like grapes and nuts felt dramatic drops in price. The economy as a whole seems to be holding up, but it looks like it is just a matter of time before we are forced to make changes to our economy, or face devastating consequences.

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Costco - American Express, Partnership to End in 2016

2/20/15 - For years, American Express was the exclusive credit card of Costco shopping centers throughout North America. Costco's most recent contract with American Express is set to expire in March 2016, and the companies have been unable to come to a mutually beneficial agreement for renewal of that contract. Costco Wholesale Corporation has since announced the upcoming split, and according to an article by E. Scott Reckard and Dean Starkman, of the L.A Times, Costco is close to finding a replacement as their sole credit card provider.

Since Costco only accepts one type of credit card, customers are forced to either pay via cash/check or use that type of credit card. This gives that credit card company a huge amount of business, since shoppers at Costco generally buy products in bulk and don't usually carry enough cash to pay for such a large quantity of goods. One of the big reasons for Costco's break with American Express, according to Reckard and Starkman, is a desire for lower swipe fees. If Costco, or any other company for that matter, is able to get cheaper rates from one credit card company versus another, they will almost always choose the one with lower prices.

Even though the partnership with Costco accounted for about $94 billion in revenue for AmEx, analysts state that based on Costco's new terms, the economics did not make a renewal the sensible move. Some of that money comes from interest on pending credit card balances, but the vast majority comes from actual spending by credit card holders.

Over the years, in an attempt to keep up with other companies, AmEx has offered rewards, special deals, and even lower fees, which has kept it relatively competitive. Unfortunately, AmEx's stock has been on a decline recently, a trend which has not been helped by the upcoming break with Costco. On the plus side, American Express claims that it has plans to reinvest in other companies, as well as to focus on its current partnerships.

The split is having a far worse effect on American Express than it is on Costco. Costco pretty much has the ability to choose its own rates, since the company that gets the partnership will be gaining much more business. A year ago, Costco switched to the Capital One Master Card in its Canadian branches, and has felt little ill effect from it. The only issue seems to be customers' reactions. How difficult will it be to change cards? Would it become easier for shoppers to simply pay in cash, which might reduce the benefit to the new credit card company? Only time will tell.

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IRS to Undergo Changes Regarding "Structuring"

2/13/15 - The Internal Revenue Service (IRS) is responsible for making sure people pay their taxes. As such, the IRS has many procedures they follow to uphold federal laws. Unfortunately, some of these procedures are flawed in that they can lead to unfair treatment of law-abiding taxpayers. In a recent Los Angeles Times article, the process by which the IRS deals with a practice called “structuring” is addressed.

Under federal law, all bank transactions over $10,000 have to be reported to the IRS. This law is meant to help federal officials catch drug dealers and money launderers. However, it is possible to avoid reporting all transactions to the IRS through “structuring,” by which large deposits are split up in such a way that less than $10,000 is deposited at any given time. The reason structuring is illegal is the assumption that the only people who would need to hide their income from the IRS are those earning money through illegal avenues. It is this practice on which the IRS has been cracking down in past years.

If a trend in your financial history shows many such deposits, which seemingly correspond to a structuring scheme, the IRS has the authority to seize your accounts, with no charges filed, for years on end in some situations. It hardly seems fair.

According to IRS Commissioner, John Koskinen, 60% of the 200 or so cases per year are not pursued by the owners of the seized accounts. This leads many to conclude that those individuals were in fact involved in illegal money practices, which could show that the practice is successful in some respects. But, what about the other 40%?

The problem with the current system is that the IRS doesn't need any proof. They don't have to know that the account holder is doing anything illegal. They just have to see that many deposits of less than $10,000 have been made in any given account. In many cases, there is very little for the law-abiding account-holder to do in response, to try to get their money back.

Some deposit smaller amounts into their accounts so as to not carry around large amounts of money between their place of business and the bank. Others simply make deposits at given times, and happen to deposit less than $10,000 at any given time. No matter what the reason, under current IRS practice, accounts can be seized under mere suspicions of possible wrongdoing. Some victims of the system eventually get their money back, but not after plenty of wasted time, stress, and legal fees.

Although the current way in which structuring is addressed has its major flaws, Koskinen assures the public that changes will be made. Congress and the IRS are working together to make sure that taxpayers are treated fairly, and to make sure that accounts will no longer be seized as long as the money in those accounts was earned legally. Although the changes may take some time to fully come to bear, it appears that when these changes are complete, the IRS will have lost some of its ability to seize money without reasonable cause.

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Hackers Gain Access To Anthem Database

2/6/15 - Over the past year, several major retailers, including Target, Home Depot, and Michael's have been victim to the cyber-attacks of hackers. The most recent target on a lengthy list of such data breaches was Anthem Blue Cross, a major health insurance provider. Chad Terhune discusses the consequences of this hack in his article in the Los Angeles Times.

While Anthem states that hackers did not gain access to credit card information and health records, they were able to access much more. From name to date of birth to Social Security number, it appears that these hackers now know most of the personal information belonging to up to 80 million individuals who have health insurance through Blue Cross.

The sheer amount of personal information gathered by the hackers is enough to be quite certain that identity theft is a likely outcome. The personal information could be used by the hackers or others to open new lines of credit, or possibly even to access and empty existing accounts. Anthem warns any who have had coverage in the past and any who are currently covered by Blue Cross to keep a watchful eye on their financial accounts, in case identity theft is the main goal of these hackers.

One of the more upsetting parts of this situation for many is the fact that the stolen information wasn't even encrypted. It's bad enough that the databases got broken into, but a lack of encryption on the stored information means that cyber-criminals have easy access to the data within those databases. In fact, Anthem was even forced to pay a fine of $1.7 million in connection to allegations by the federal government that a weakness in their security left clients' personal information open to attack. Why hasn't Anthem learned its lesson?

Anthem, along with many other companies, need to develop better safeguards and protection mechanisms to make sure that only authorized parties are able to access personal information. For a company as large as Anthem to have left data unprotected multiple times in less than two years is just irresponsible. Sure, there are hackers that can make their way past any defenses, but better protections will at least slow them down, maybe even enough to stop some of them altogether.

This is a crucial time for Anthem, due to the thousands of people trying to enroll in coverage under the Affordable Care Act. They will have to be very careful dealing with this issue, in order to convince their clients not to look elsewhere for a health insurance provider. While Anthem has dealt with the attack through the proper channels, by contacting the FBI immediately, most people would still be more comfortable trusting the large company with their information if Anthem underwent a massive overhaul of their security systems. Such a project could prevent future breaches and make all involved parties much happier.

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Plunging Gas Prices May Not Last Long

1/30/15 - Drivers throughout the state and the country have noticed the recent decline in gasoline prices and are hoping that this trend continues for as long as possible. While gasoline was over $3 in most areas a year ago, the cost of gasoline is now at $2 or even less, a nice change for everyone filling up at the pump. Unfortunately, says Don Lee, in his article in the Los Angeles Times, these low prices are unlikely to last long. In fact, he predicts that they will begin to climb within the next few months.

Lee first addresses the main question: why did the oil prices fall in the first place? One of the main answers involves development and usage of new technologies. A somewhat new process called hydraulic fracturing, also known as “fracking,” has become increasingly prevalent in the industry for use in forcing extra oil out of otherwise dry wells. Furthermore, the development of shale oil techniques, which allow for the conversion of organic matter within rocks into synthetic fuels, helps to increase supply.

Following the laws of supply and demand, the increased supply will likely lead to increased demand. This increased demand can give producers of gasoline a reason to increase their prices, which is why Lee expects the price of crude oil to be back on the rise before the year is half-over. Lee does admit, however, that it is possible for prices to stay low, if oil production continues to increase. Otherwise, waning supplies would force prices higher, just as they have done in previous years.

Reduced gasoline prices could have dramatic effects on economies around the world. Countries that produce and export oil, like Iran, Russia, Venezuela, and Nigeria, are likely to suffer because reduced prices mean less income. On the other hand, countries that don't rely on the export of crude oil, like the United States, Japan, South Korea, and China, are predicted to benefit because they pay less for the crude oil they import. Also, their citizens will pay less for gasoline, and will have more money to contribute to the economy in other ways.

Some states in the U.S. Will benefit more than others. Similarly to the situation in the global setting, oil-producing states like North Dakota and Texas will be harmed by low prices, while other states, and the companies within those states, will be unhurt. In fact, the low prices could even lead to an boost in job growth. Even with increases in employment, lowered gas prices could be disastrous in the long run. A lowered price of gas could lower prices for all commodities, which could force the Federal Reserve to increase interest rates. Inflation is a huge risk when dealing with drastic price decreases.

Lee concludes that the huge quantities of oil being produced in Saudi Arabia, which is another factor in the price decrease, may be an attempt by the Organization of Petroleum Exporting Countries (OPEC) to force the United States out of the picture. If Saudi oil prices stay low enough for long enough, it could become economically illogical for the United States to continue producing via shale and fracking. Whatever the true reason for the decline in prices, people are enjoying it for however long it may last.

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Each Year, Thousands Mistakenly Declared Dead

1/23/15 - How would you feel if the Social Security Administration and the world's top credit reporting companies proclaim you dead? Well, about 1,000 people per month are mistakenly declared dead by such organizations, leading to a great amount of stress and wasted time in order to reverse such decisions. In his L.A. Times article, David Lazarus describes the tale of George Sledge, a 58-year-old man who has been forced to file a lawsuit in an attempt to force the credit reporting companies to bring him back to life.

While many of the mistakenly listed individuals on Social Security Administration's “Death Master File” are there due to typographical mistakes and other such human errors, a sizable number could be avoided by simple fact-checking on the part of the credit reporting companies. Besides the amount of time you might spend convincing and arguing that you're is still alive, there are much worse consequences.

One such consequence is in regards to your credit score. When anyone is marked as dead, their credit score is automatically set to zero. While this helps to prevent identity theft, it also makes it impossible for a someone like Sledge to get a loan or sign up for a credit card, or even, in some cases, get a job. Furthermore, credit reporting companies have databases full of information that they sell or share with other companies. When someone has been declared dead in one database, it is almost as if they have been simultaneously declared dead in all other databases.

So, even if a person like Sledge were able to get a single company to take him off of the “Death Master File,” all of the other companies would still have him marked as dead. To go through the same rigorous process with every possible company would be straining, if not completely impossible. So, what could an individual in Sledge's position do?

Lazarus suggests that everyone should keep a close eye on their credit information. There are ways to report incorrect information, and if such information is found, you should take care of it sooner rather than later. Most of all, though, Lazarus states that these errors would happen much less often if companies would do their due diligence. A simple phone call might be enough to prevent a living person from being mistakenly marked as deceased, and that could make all the difference.

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Where Have All the Workers Gone?

1/16/15 - Unemployment rates have been found to be decreasing throughout the country. The labor force participation rate, on the other hand, which shows the number of people working or not working, rather than just those classified as “unemployed,” has also been shown to be on a downward slope. So, what causes the seeming paradox between these two measurements. According to Michael Hiltzik, in his Los Angeles Times article, this discrepancy is due to a significant number of “missing” workers: those workers who are not working, and at the same time are not considered “unemployed.” Where have these so-called “missing workers” really gone?

How is it possible for both participation rates and unemployment rates to go down? Some economists believe that this phenomenon is due to a lack of effectiveness in current governmental policies meant to create and fill necessary jobs. Such economists theorize that the extreme difficulty many people are having in finding work has led them to stop searching altogether, to drop out of the labor force completely. Hiltzik, on the other hand, disagrees with this conclusion, preferring an alternative explanation.

Hiltzik presents sources in the article that seem to show that up to three-quarters of the perceived decline in participation rate is actually due to such factors as the retirement of baby boomers and the enrollment of workers in universities and other institutions of higher learning, both of which have little to do with the state of the economy. Over the past few decades, participation rates have been steadily declining, for both men and women. Statistics show that as the economy improves, the participation rate should improve as well.

Whatever the reason for the current employment trends, it is evident that the economy needs to get better. Hiltzik concludes his article as such: while the participation rate is declining, there is still room for it to recover. Workers may be out of the labor force due to the Great Recession, or lowering wages, or a variety of other possible reasons, but as the economy improves, workers should return.

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Holiday Shioppers Spending Confidently

1/2/15 - According to a retail analytics firm called ShopperTrak, the biggest shopping day of the year is the Saturday before Christmas. But, what is the second-biggest shopping day? Statistics show, at least for 2014, that the second-biggest shopping day of the year is not Black Friday, as some might expect, but rather the Friday following Christmas. As stated in an article by Tiffany Hsu, Andrew Khouri, and Ronald D. White, of the Los Angeles Times, a combination of post-Christmas sales, optimism regarding the slowly-recovering economy, and even the calendar's placement of Christmas on a Thursday, come together to make the day after Christmas the perfect time to shop.

Christmas falling on a Thursday can have quite an impact on retail sales. For many, this turns into a four-day weekend, which could give consumers a full three days to shop. Such a “blockbuster” weekend could end the year with a bang, ensuring the National Retail Federation's prediction that this season's revenue would pull in approximately $616.9 billion.

Even more effective than the holiday's placement on the calendar, though, is the slowly-returning faith of the general population in our local and national economies. With a lowering of gas prices and a slow increase in employment, people find that they have more money to spend on those items they want, not just what they need. Consumers are beginning to have more faith in the continuity of their employment; they feel a good degree of job security. With that sense of job security comes increased spending, as consumers are more willing to make purchases when they feel sure of a steady income.

Retail stores have done well in predicting the amount of inventory they need this year. Instead of purchasing too little inventory and running out, or purchasing too much and having to cut into their bottom lines, it appears that the retailers have done well with their inventory, thus maximizing revenue. Online retailers have improved their on-time deliveries, compared with previous years, thus giving consumers more confidence in ordering gifts through the internet.

The days following Christmas are great for gift card redemption. Knowing this, retailers provide extra discounts, hoping that such gift cards will be used to purchase excess inventory. Store prices are down after Christmas, and wallets tend to be fatter, both of which prod consumers to spend. People seem to be happier with the current direction of the economy, and that is helping the economy even more.

While current discounts will certainly bleed over to the next year, retailers are accepting it as a positive trade-off. The first quarter of the coming year may not bring in as much money as retailers would like, but sources show that the second and third quarters are quite likely to bring great improvement for the economy in the coming year.

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Labor Force Participation Rates Declining

12/19/14 - To the average observer, it would appear that California’s economy is steadily recovering. Unemployment rates are down, and new jobs are being introduced at a constant pace. Yet, in Tiffany Hsu’s L.A. Times article, it is revealed that the labor force is much smaller than it may seem.

Unemployment rates are measured based on the number of people receiving unemployment benefits from the government, not necessarily based on the number of people actually without work. Once someone has given up and stopped looking for work altogether, they are no longer considered “unemployed,” since they no longer qualify for unemployment benefits. So, “unemployment rates” tend to be quite misleading.

According to Hsu’s sources, the more accurate measurement of the labor force’s stability is the “labor force participation rate” – the number of people working or actively looking for work in proportion to the number of working-age individuals in the population. This, compared to the “unemployment rate” is more accurate in that it takes into account individuals who have given up on finding employment. The currently falling labor force participation rate has dramatic implications on the state of the economy.

A drop in the participation rate could mean that the jobs available are not the jobs people need. For many with college degrees and experience in well-paying fields, a plethora of jobs in the fast food industry means very little. Even for those who are willing to “lower their standards” and accept jobs for which they are “overqualified,” like a barista or salesperson, such positions have so much competition that the odds of gaining employment are slight. In the end, many individuals simply prefer to stay unemployed rather than risk losing such government benefits as Supplemental Security Income or Social Security Disability Insurance.

No matter what the reason, a decrease in the participation rate can’t be a good thing. With more seniors continuing to work well into their sixties and seventies, and new graduates looking for work straight out of school, only so many positions are available to recently laid-off workers. If higher-paying positions are unavailable in California, job-seekers will look elsewhere for employment, and that can have consequences.

While a decline in unemployment rates may seem like a positive sign, Hsu shows why this positive impact is limited. Statistics are misleading, but the bottom line is this: we need to get people back into the labor force. The state has been creating new jobs, but mainly in lower-paying fields. Workers, especially those with college degrees, want to work in jobs “worthy” of their skills. Thus, to bring the workers back in, the creation of better jobs must be a priority.

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Home Equity Used For Long-Term Investments

12/12/14 - A decade ago, before the Great Recession hit in full effect, it was common for people to take out a line of credit on the equity of their homes. This “quick cash” was spent non-productively, used to buy groceries or spent on vacations, rather than being used as an investment. Over time, people began to cease such “wasteful” ventures and have slowly been learning to use Home Equity Lines of Credit (HELOCs) in a smarter manner. In his article in the Los Angeles Times, Kenneth Harney describes how a recent increase in the use of such lines of credit is a good thing for the economy.

Although such HELOCs were once a way for people to pull money out of their homes for regular expenses, people have generally learned not to jeopardize the equity of their homes unless investing in something safe. For example, most of those who took money through a HELOC used it to make improvements on their homes, or to pay off higher-interest debts, such as those on credit cards. Both of these provide long-term benefits for the home-owner. Thus, it is shown that tapping into home equity is not always a bad thing. For those who make smart investments using the line of credit, home equity can be used and quickly earned back.

Until recently, most home-owners were wary of HELOCs, remembering the negative consequences that had arisen from the use of such funds for day-to-day expenses. Now, though, equity lines are up 21%, which, according to Harney's sources, could mean that people are starting to become more confident in the economy's stability. With less fear of economic collapse and an improvement in equity and interest rates, more home-owners consider a line of equity to be a “safe investment.”

Besides a stabilizing economy, HELOCs have become safer because of a crackdown by lenders. Lenders have become more careful as to who they lend to, making sure that credit scores and financial reserves are up to par. As Harney concludes, now is the time to look into home equity lines of credit. Such money, if used right, could have a dramatic economic impact, both personally and nationally.

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Low-Paying Jobs Filling the Southland

12/5/14 - According to recent data, job creation in the Southland has steadily been making its way back to higher levels. However, this data can be misleading. While new jobs are being created, thus allowing more unemployed workers back into the labor force, most of these jobs are in food service and retail sales. Such low-paying jobs, while better than nothing, don't provide the kind of increased domestic productivity that our economy so desperately needs. In his L.A. Times article, Chris Kirkham looks into the effects that this trend may have on the ongoing economic recovery.

Kirkham's sources point to two possibilities for this trend: 1) a decrease in the availability of jobs in higher-paying industries; or the more likely option 2) a lack of individuals with advanced education forces such industries to look elsewhere for employees. As Kirkham points out, many of the industries that once provided the opportunity to advance, manufacturing and construction in particular, have gone through changes that allow for a decrease in the amount of necessary employees. New technology, while helpful to society as a whole, removes the necessity of several positions in the industries, thus lessening the availability of such industrial jobs.

More than just the influx of new technology, though, is the fact that most higher-paying jobs require that those holding the jobs have some form of higher education. The bare minimum for these positions is usually a bachelor's degree, but some require further knowledge as gained in graduate school or beyond. The main problem, it seems, is that only 30% of workers in the Southland, compared to over 40% in the Bay Area, have a bachelor's degree, and that just isn't enough to fill the growing need for skilled employees. Without workers to fill these positions, many companies are forced to move elsewhere to find employees.

With a trend toward lower-paying jobs comes a marked decrease in median household income. Just as the Southland has more individuals lacking college degrees, nearly 18% of families in Southern California fall below the poverty line, a dramatic difference from the Bay Area's 11%. According to experts, the way to boost income levels in the Southland is to get more of the population into post-secondary schooling options.

A variety of high-paying jobs are indeed available in Southern California. From healthcare to construction, and everything in between, there are plenty of job opportunities for those with the necessary skills. All we need now is for people to gain those skills.

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G-20 Leaders Present Ideas For Economic Reform

11/28/14 - A group composed of the leaders of twenty of the world's largest economies, also called the G-20, held a meeting in Brisbane, Australia, recently, to discuss ways in which each country could contribute to a future restoration of the global economy. An article, by Don Lee of the L.A. Times, summarizes each of the issues addressed by the members of this group, and their plans for change around the world.

The leaders of the G-20 have long been criticized for being slow and ineffective; but, their newest proposition, including over 800 projects designed to add new jobs, may actually cause some positive stimulation to the currently sluggish economies found in most major countries. Sure, these projects may not be perfect, and they will require political support in their respective countries to be enacted, but some plan is better than nothing. The G-20's current plan aims to increase global output by 2% - over $2 trillion and millions of jobs – over the next five years, a hefty goal in and of itself.

While the main focus of this year's G-20 summit was the aforementioned 2% increase in global productivity, several other topics were broached that are usually viewed as less important to the economy, such as anti-corruption legislation, health issues, and climate change. This year's summit in particular made sure to address the fact that there is more to the economy than just jobs and productivity.

The leaders agreed to work on limiting greenhouse gases and other such pollution, while also making commitments to help contain the current Ebola outbreak, both of which have devastating effects on various economies around the world. Tensions at the G-20 summit were stretched thin, as leaders verbally butted heads based on their differing viewpoints regarding such “unrelated” economic principles.

Altogether, though, the G-20 summit seemed to be successful, to a point. No, most of the proposals will not have a dramatic effect on the global economy immediately, but such projects as those suggested at the meeting will definitely have a major effect on the economy of the future. Only these countries and their political leaders can really determine how far away that future lies.

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Credit Unions Providing Home Loans

11/21/14 - While home loans were once the responsibility of major financial institutions like banks, the post-recession mortgage loans have slowly but surely been making their way into the realm of the credit unions. Such credit unions have been amassing members, and currently own over 8% of all mortgages, three times as much as were owned before the Great Recession. Lew Sichelman's L.A. Times article goes into how these credit union loans can actually be preferable to those provided by “standard” institutions.

Credit unions, which are member-controlled, provide an alternative to common loan institutions that commonly increase the cost of a loan through miscellaneous fees. Anyone can join a credit union, and their non-profit standing keeps people interested in their loans, especially with our currently troubled housing market. During the recession, while many lenders pulled back and restricted the loans they were willing to grant, credit unions stayed open, making their loans available to those whom they deemed a worthwhile risk.

These lenders are different; they are run by the people. Every member has a say in how the union should be run, and this is a big part of why credit unions have been increasing in success. While mortgage loans were once a minimal area of focus for credit unions, new interest has led to mortgage loans encompassing over 40% of all loans provided by such institutions. The interest rates on credit union loans may be the same as those from other lenders, but a more personal touch of a credit union appears to be one of the factors drawing in new customers. Borrowers, of late, tend to have more faith in them, rather than in the banks and other lenders that once held the vast majority of mortgages and other such loans.

Although they are still relatively new to most, credit unions are gaining ground as they accomplish various goals. The common mortgage loan from a credit union is the normal, 30-year fixed rate, but many of these institutions have been applying innovative new techniques to make these loans more manageable. From ways of scheduling your mortgage so that you finish at a specific time, to loans that reset their interest rates to market level every five years, credit unions have developed ways to make their loans as consumer-friendly as possible. All in all, a standard banking institution may be great, but credit unions might be an option for many potential borrowers to seriously consider.

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FHA Set To Re-institute Quick-Flip Restrictions

11/14/14 - The Federal Housing Administration, a federal agency involved in providing mortgage loans to real estate investors, is set to reinforce restrictions that were lowered in 2010 in an effort to help the weak housing market. These restrictions set a minimum of 90 days for investors who wish to buy a home and “flip” it, by fixing it up and reselling it. The 90 day period between buying and selling is meant to prevent the selling of poorly-fixed houses for “hyper-inflated” prices. On the other hand, forcing flippers to hold onto a house for 90 days raises their costs, which they then have to incorporate into their selling price. An article by Kenneth Harney of the L.A. Times investigates the positive and negative aspects of the FHA's restrictive 90-day flipping period.

By waiving the 90-day flip period in 2010, the FHA enabled investors to buy, fix, and sell houses quickly and at lower cost, thus allowing first-time home-buyers to more easily find homes in a lower price range. These quick-flips benefited both investors and buyers, lowering prices across the board. Because of the decreased restriction, over 100,000 homes were revitalized and sold, thus improving the housing market.

This improvement is the reason for the FHA's reinstitution of the 90-day flip period. The waiver program has done what it was meant to do: it stimulated home sales, thus stabilizing the market and allowing newcomers the chance to become home-owners. The program has worked relatively well so far, but such a program always has its possible dangers.

In the past, before the 90-day period existed, investors would commonly resell seemingly well-maintained houses, which were nothing more than run-down homes with a fresh coat of paint. This would lead to buyers defaulting on their mortgages, and the FHA would be forced to cover the losses. By forcing investors to take at least 90 days in fixing the houses for resale, the sellers are encouraged to actually do a decent job on the construction.

Whether the restrictive 90-day period is a good or bad thing is a matter of opinion. Yes, forcing flippers to hold onto a property for longer than they need to would raise sale prices, but allowing quick-flippers to sell dilapidated properties at synthetically-high price would also hurt the housing market. The main point addressed in Harney's article is this: whether you like it or not, the FHA has made its decision. The waiver program will stop at the end of December, and the 90-day resale period will come back into practice at the beginning of 2015.

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Hands-Free Phone Systems Pose Distractions

11/7/14 - A hands-free phone system for use while driving became a required accessory under California state law, in the hope that a lack of physical distraction would reduce the general distraction of a driver and thus prevent accidents from occurring as frequently. While such hands-free systems do, for the most part, prevent drivers from needing to take their hands off of the steering wheel, a recent study performed by the American Automobile Association and the University of Utah provides compelling evidence that the complicated and error-prone systems may actually cause more distraction than they prevent. Jerry Hirsch, in his L.A. Times article, summarizes the results of this study and theorizes as to how such systems could be made more safe.

The study tested cognitive distraction, focusing on the mental strain of such systems as compared to simply the physical or visual distraction that any phone system could bring about. If one is thinking about too much, one tends to block out seemingly “irrelevant” stimuli, which can slow down one's reaction time and thus lead to a car accident. In much the same way, frustration at a voice-controlled system's mistakes or confusion related to the many features of such systems can lead to more distraction than even taking one's eyes off of the road. This, of course, does not imply that one should be using hand-held phone systems while driving either.

As the study concludes, no matter what kind of hands-free phone system one's car may have, the only real way to avoid distraction and be safe while driving is to avoid cell phone use entirely. To reduce distractions caused by hands-free phone systems, one should make sure that they fully understand how to use the system before trying to use it while actually driving. While Hirsch does quote sources that claim that the study shows little about the relationship between phone systems and distracted driving, most of his data shows that distracted driving is dangerous driving. Any distraction, no matter how slight, can have a drastic impact.

From errors in voice recognition to overly-complex programs, hands-free phone systems can be quite distracting. However, research shows that this doesn't have to be so. Manufacturers could, in future years, develop simpler, and thus safer, hands-free systems to prevent distractions while driving. Any form of distraction, whether physical, visual, or mental, reduces general safety, and due to this, it is always safer to just ignore one's phone while driving.

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Low Supply + High Demand = Price Increase

10/31/14 - Southern California rental costs are on the rise, and there's nothing we can do about it. According to a recent study cited in Tim Logan's L.A. Times article, rent prices throughout the Southland are poised to rise over 8% in the next two years. This is due partially to a surge in job growth as well as a shift from home ownership to rental.

While Southern California has long had issues in providing enough rental housing, the recent rise in demand is far surpassing the rate of new construction. The study shows that vacancies remain roughly the same, since the higher rent prices, combined with roughly unchanged income, make for a situation in which renters can't afford the cost of renting.

This trend, predicts the study, will lead to the mass exit of industrial jobs from Southern California. Without affordable housing, businesses can't afford to remain open or open new factories in the Southland. Logan's source even compares California's current stance to that of Detroit in its heyday: a strong housing market, which could fail as soon as industrial jobs move elsewhere.

As Logan discusses in the article, this future failure could be prevented with the right policy initiatives. From lowering restrictive and costly requirements on new construction to speeding up the approval of building permits, Logan presents evidence that shows how policy-makers could make housing more affordable and, at the same time, keep jobs close at hand.

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Using Economic Principles to Reduce Water Shortages

10/15/14 - Economics is all about supply and demand, cost and benefit analysis. Yet, when it comes to water, one of the world's most necessary goods, government subsidies and and reduced costs lead to people treating this resource as if it has an unlimited supply. In his article in the New York Times, Eduardo Porter discusses how treating water as a commodity could reduce the effects of the drought nationwide.

As with any product in a healthy economy, as price goes up, demand goes down, and as price goes down, demand goes up. Across the United States, water prices are very low. These low costs, combined with a high personal benefit, lead people to purchase more water, and thus consume more. It's one thing to ask nicely for people to reduce their water consumption, but a higher cost would be a more successful deterrent for many consumers.

The scarcity of water is not going to change. No matter how many icebergs are towed to land for human consumption, no matter how many desalination plants are built, we have a limited amount of water in the world. Water costs around the country are commonly reduced to a point at which water companies would be losing money if the government wasn't providing subsidy funds. But that isn't how it should be. If water cost more, people would be more careful about leaving a faucet running while doing dishes, or would think twice before deciding to drain and refill a swimming pool.

While many homes, even in the middle of a drought, pay a flat fee for their water usage each month, there are a few places, Irvine Ranch for example, that charge more money per unit of water as the number of units increases. Some states require the purchase of already-existing water rights from an owner of such rights before beginning a new building construction. In that way, only a specific number of people can own water rights at any given time.

According to Porter, farmers are the worst cause of water shortage in America, accounting for about 80% of the total national consumption at a fraction of the price of most consumers. Due the government's reduction of water prices for farmers, such farmers commonly perform “flood irrigation,” a process by which the entire field is flooded with water, in which much of the water goes to waste. While the actual, unsubsidized cost of an acre-foot of water might be $2000 and the sale price of an acre-foot of alfalfa that uses this water would be $920, which makes no sense economically, this is the way water is being used currently. If farmers were to be charged the actual cost of the water, they would realize that the benefit doesn't outweigh the cost.

Water is a necessity, but it is also a good. If prices are raised, if water is is treated economically, then people will be forced to reduce water use. In general, people understand cost-benefit analysis; we perform it on a daily basis. If wasteful usage of water were to lead to higher costs, then people would stop wasting it. While everyone likes low water costs and would likely be upset if those were to end, increased prices and reduced subsidies may be the only way for us to scale down the negative effects of this drought and any others in our future.

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