News Cut Category Archive: Economy

How does the country turn around the housing market? Start bulldozing some of them, according to one expert.

David Rosenberg, chief North American economist at Merrill Lynch, says the country is "attacking the symptoms" instead of the problem.

"It's pretty foolhardy to believe anything is going to reach any sustainable low until we put in a firm bottom on residential real estate prices," he said today, which is economist-speak for create a supply problem to create a demand.

If the Treasury Secretary can tell bank officials, "you're going to take this bailout money no matter what," then maybe municipalities need to stop issuing building permits.

He made a similar suggestion this week in the Financial Times:

What we probably need is a supply-side resolution, either creating regional land banks to ring-fence the inventory or a moratorium on new housing starts to prevent further corrosion in residential real estate values. Supply-demand divergences are likely to persist through 2009, in our view, and will require even further contraction in construction activity before balance is restored in the real estate market.

It is a frugal future, indeed, but we believe the US economy will endure nonetheless and will inevitably emerge all the stronger.

The negative wealth effect will subside and, along with that, the savings rate should start to level off - likely near its pre-bubble normalised level of 8 per cent.

"I'm flabbergasted we're seeing housing starts at all," he said today.

What would the effect be of a moratorium on housing starts around here? Probably property tax increases. Look at Woodbury, one of the fastest-growing communities in Minnesota over the last decade. It financed city operations largely on the strength of the money it made from housing permits. It issued only 14 permits in December, and is now trying to slash its budget to account for the lost income. The city doesn't take local government aid from the state.

And therein lies a significant part of the economic problem: One hand doesn't know what the other hand is doing. Some cities are depending on money from a policy -- if you believe Rosenberg -- that is only making the economic situation worse. In this regard, efforts to boost the housing sector are only making matters worse.

In the -- entirely appropriate -- focus on people who are losing their jobs, one area that's being ignored are the people who aren't.

In many cases, companies are cutting people, but not production, leaving the people still employed to pick up the slack. Is that happening to you? Tell me about it, making it clear if you want your name to be withheld.

Macy's announced today that it will close 11 stores, including one in Brooklyn Center at the Brookdale Mall, which is fast becoming an economic basket case.

The store, of course, is a former Dayton's, a store that every company once wanted in their mall -- the name was that magical. The magic is gone.

Is it too early to start thinking about what St. Paul will do when Macy's closes its downtown St. Paul store?

Taxpayers guaranteed a $6.3 million loan for renovations to the store in 2001. The loan would be forgiven if the store stays open until December 2012. One gets the impression that Macy's executives fall asleep at night to dreams that it's almost January 2013.

Julio Ojeda-Zapata's excellent story in the Pioneer Press noting that the government has run out of coupons for digital TV converters could hit the Twin Cities area particularly hard.

Minnesota is among the lowest participating areas of the country, according to the agency that was handling -- and apparently botching -- the coupon program. Many people who received coupons, aren't aware that they have expiration dates, and may now be worthless. (Note: Some places will accept an expired coupon at a fraction of their value.)

Last month, the agency had a conference call with reporters, and mentioned nothing about running out of money and coupons, noting only that people should order their coupons by December 31 to get them in time for the February switchover from analog to digital TV transmission.

Meredith Baker, acting administrator at the National Telecommunications and Information Administration (NTIA), an office of the U.S. Department of Commerce, said the agency had issued 41 million coupons to 24 million households. But only 29 million of the coupons are still good (either already redeemed or still "active").

Baker is asking for $250 million to $325 million more in government money to provide 2.5 million more coupons.

What's happening to the analog broadcast spectrum being vacated by TV broadcasters? The government auctioned it off for an estimated $4.8 billion. The money was supposed to be used to ease the federal deficit, although that plan was in dispute.

(This post has been corrected. The original math showed a per household cost to the government rather than a per-coupon cost).

Starting next Wednesday and continuing every Wednesday into March, I'll be visiting a campus of the Minnesota State Colleges and University System to talk to students about their outlook. The economy certainly paints a bleak picture, but young people usually tend to have hope. Is hope still alive? And what journeys have brought people to their particular campus?

I'll have multiple postings each Wednesday evening on what I find.

Here's the schedule. If you're on one of these campuses, I look forward to talking to you. You can find me at the campus cafeteria or student center.

January 14 - Century College. White Bear Lake
January 21 - Vermilion Community College. Ely
January 28 - Minneapolis Community and Technical College. Minneapolis.
February 4 - Winona State University. Winona.
February 11 - Minnesota West Community and Technical College. Duluth.
February 18 - Lake Superior College. Duluth
February 25 - Minnesota State University. Moorhead
March 4 - Hennepin Technical College. Eden Prairie.

I'll be in each location from about 10:30 a.m. to noon.

Meanwhile, posting will be a little light today. I'm on my way to Winona to talk to a school official about the Feb. 4 visit.

This isn't the day we notice a turnaround in the housing market.

The Case-Schiller housing index for October was released today. It measures home prices based on what homes sold for the last time they changed hands vs. the most recent transaction.

Housing prices fell by a record 18 percent from October last year, the largest drop since the survey's inception in 2000. The 10-city index tumbled 19.1 percent, its biggest decline in its 21-year history.

But enough about 10 other cities. What about Minneapolis? It's not good. The prices fell 3.4% from a year ago. There was only one other time when the drop was this steep -- February 2008. It's the lowest home price benchmark since September 2002.

Measured by one-month declines, we're more Detroit than New York.

Meanwhile, local expert Teresa Boardman analyzes other local housing market numbers "designed to show the relationship between how many new listings are put on the market each week and how many homes get offers from buyers that are accepted by sellers each week."

She notes that prices have come down 30% on bank-owned homes, and 2% on non-bank-owned homes that are ready to move.

The true meaning of Christmas, the steady drumbeat of news stories suggests, is the bottom line for retailers. The writers are running out of adjectives to describe the 5-8% drop in seasonal sales.

"Gloomy," Marketwatch says today. "Rotten," says the Canadian Press. Huffington Post says retailers are "desperate" to salvage the season with post-Christmas sales. "Retailers get coal in their stockings," NPR says.

What if sales had equaled or exceeded last year's? Would analysts and retailers still be so down?

Let's hit the News Cut "Wayback Machine," and set the date for "any Christmas but this one."

So here we are in 2007, where the MPR story described things as "bleak."

But big sales will mean lots of red ink for retailers. Many retailers have gone out of business or closed stores already. Analysts warn that deep price cuts could kill even more retailers or drive them to close stores.

Even back in 2005, the stories warned of the danger of people spending less. In 2002, we told you things were "grim."

The end-is-near. Again.

We must delve into the causes of Metro Transit's problems as detailed this afternoon by MPR's Dan Olson.

Money for transit from the motor vehicle sales tax is down because of slumping auto sales. The latest numbers show Metro Transit is short $72 million over the next two and a half years, according to Dan.

I wrote a few weeks ago about the wisdom of financing things by taxing things you want to have less of -- cigarettes or gas taxes in that post. Ideally, a proper public transit model would have everyone riding it, and getting rid of cars. But if you're financed by the sale of automobiles, can you do both?

Ridership on Metro Transit has increased, but the system imposed a fare hike this year nonetheless. One solution for the current revenue shortfall? Another fare hike. At what point do you force people off mass transit?

More Twin Citians are riding public transit, getting squeezed in the wallet, and squished on the ride.

A friend told me the other day that Minnesota was so concerned about the stability of the economy during the Great Depression, that it printed its own money. I'd never heard such a claim, and for good reason. It isn't true.

But even wading into the subject revealed how different times were in the Great Depression than in the Great Recession.

I learned this from Shawn Hewitt, to whom I turned today to find out if what my friend said was true. Hewitt is the author of A History & Catalog of Minnesota Obsolete Bank Notes & Scrip .

The claim of your colleague is incorrectly stated. In the 1930s, there were two main types of notes issued by entities from Minnesota. One is National Currency, or National Bank Notes. These were issued since the 1860s by National Banks, bearing the name of the issuing bank on the face. An example is shown on my web site

They were introduced by the Union during the Civil War as a means to finance the war and to bring about a more uniform currency. They were discontinued in the 1935 at the close of the Great Depression as part of broader government efforts to shore up the financial system.

The other type is known as Depression Scrip. An example can be found here. The notes were not issued out of fear of government collapse, but due to the scarcity of money.

There were four main types of issuers of Depression Scrip from Minnesota:

1) Bank Scrip, in the form of denominated cashier's checks. These were issued by banks during the Banking Holiday of 1933 and served as a currency substitute until banks were permitted to resume the normal course of business.

2) Municipal Scrip, issued by towns to fund unemployment relief projects.

3) Company Scrip, issued by companies for payrolls and commodities, or by merchant associations.

4) Barter Scrip, issued by unemployment relief organizations.

Most notes were issued in 1932-1933 as a measure of necessity, not one of fear.

The Associated Press is out with a survey that says banks that are getting taxpayer bailouts gave their bosses $1.6 billion in salaries, bonuses, and other benefits last year. $1.6 billion. That was once considered a lot of money.

Even where banks cut back on pay, some executives were left with seven- or eight-figure compensation that most people can only dream about. Richard D. Fairbank, the chairman of Capital One Financial Corp., took a $1 million hit in compensation after his company had a disappointing year, but still got $17 million in stock options. The McLean, Va.-based company received $3.56 billion in bailout money on Nov. 14.

John A. Thain, chief executive officer of Merrill Lynch, topped all corporate bank bosses with $83 million in earnings last year. Thain, a former chief operating officer for Goldman Sachs, took the reins of the company in December 2007, avoiding the blame for a year in which Merrill lost $7.8 billion. Since he began work late in the year, he earned $57,692 in salary, a $15 million signing bonus and an additional $68 million in stock options.

Meanwhile, another AP story today says the banks won't say how they're spending the money.

2009 will likely be the year the Twin Cities becomes a one-newspaper town. The closest thing to us is, perhaps, Denver where the Rocky Mountain News and the Denver Post (owned by Dean Singleton, who also owns the St. Paul Pioneer Press) are slugging it out to be the last newspaper standing.

The Rocky isn't going down without a fight, and it's willing to shed its dignity in the process.

The newspaper has created iwantmyrocky.com to rally support for the newspaper. In the process, its employees get to publicly beg for their jobs.

CBS/CNET does a "reality check" on the auto industry, including the myth it says that Detroit was out of touch with the auto market by making trucks and SUVs.

Around the urban United States you find hostility toward Detroit because it makes so many trucks and large SUVs - 5.35 million in 2007. But they didn't just make that many, they sold that many. We snapped them up. Should we have bought all of those? Probably not, but these are Wall Street-driven companies and the margins on trucks & SUVs were great business. For the consumer populace to wash its hands of any involvement in Detroit's product plans is disingenuous.

I blogged about NPR dropping two shows because of budget cuts last week, so I can't very well ignore an MPR press release today.

American Public Media™ is cancelling weekly production and distribution of Weekend America® as a result of the current economy's impact on station carriage and sponsorships. The final broadcast will be January 31, 2009. Thirteen full- and part-time positions will be affected. Weekend America is carried on 134 stations with a weekly audience of about 657,000 listeners.

American Public Media is proud of the many accomplishments of Weekend America's talented staff. They have produced personal, thoughtful, funny and challenging journalism that you couldn't hear anywhere else. The program topics ranged from in-depth reporting on the fallout from the Iraqi war, multi-part series on foreclosure and immigration, and the lessons of racism. The hosts and reporters also engaged people all across America on their weekends, skydiving or dancing or giving concerts or celebrating the diverse cultures and festivals of our country.

MinnPosts's David Brauer reports more cuts are coming:

Margaret Ann Hennen, APM's VP of Corporate Communications, says, "Yes, there will be further reductions, but we don't know when or what. This is part of the alignment of revenues and expenses ... that has been going on for the last year. We continue to make very methodical decisions."

As Linda Ellerbee used to say, "and so it goes."

The White House caved in this morning when President Bush announced a plan to bail out the auto industry.

Chrysler, for one, turned up the heat on Mr. Bush by announcing all of its plants would close for a month.

In a statement a few minutes ago, Bush said in normal times "this is the price failed companies must pay." But he said allowing the auto industry to collapse "is not an appropriate course of action." He said bankruptcy is not an option because American consumers won't buy cars from a bankrupt automakers.

Under the plan, autoworker pay and wages must be "competitive" by the end of next year. The federal government will grant billions of dollars in "loans."

Automakers are getting 3 months to put reorganization plans into effect. If it can't be accomplished outside of bankruptcy, the federal money will give the companies more resources to organize bankruptcy proceedings. Retirement plans will also have to be cut back.

CNBC referred to the loan as the "bridge to Obama" loan. It also noted that the private company that owns Chrysler -- Cerberus Capital Management LP -- isn't putting any money into the deal.

Republicans who scuttled legislation in Congress on an auto bailout last week "shot themselves in the foot," says John Harwood, CNBC's chief Washington correspondent. "The situation that we're left with now is instead of having the force of law, the terms of these loans can immediately be changed by Barack Obama when he takes office." He says even the White House thought the Republicans were posturing last week.

I've noted here before that Cirrus Design up in Duluth, which makes airplanes, is one of the true Minnesota success stories. Alan Klapmeier -- its boss -- may be one of the most influential people in general aviation. Yet he's unknown to most Minnesotans.

Today, however, Klapmeier stepped down as the CEO of the company.

You never know in these announcements how much of the reasoning is true, and how much is just corporatespeak for something more dire. Klapmeier acknowledges times have been tough for the industry (is there an industry for which times haven't been tough?) but says he thinks Cirrus "has gotten a handle on that."

Perhaps a little good news won't kill us. Says a news release from the Department of Employment and Economic Development:

Manufactured exports set another record in the third quarter of 2008, growing 8.6 percent from the same period a year ago to $4.5 billion. It was the second straight quarter that state manufacturers broke the record for export sales.

So far this year, Minnesota exports have grown 9.5 percent to $13.1 billion. The state is on pace to break last year's export record of $16.2 billion

Computers and electronics are the #1 export. Canada is the state's biggest trade partner.

Just a few years ago, they were practically printing money at the Richfield headquarters of Best Buy.

Despite lower sales, MPR's Marty Moylan reports, Best Buy is poised to become even more dominant in the electronics field. Still, 4,000 employees at the company headquarters in Minnesota are being offered deals to become unemployed.

The Wall Street analysts generally love misery of working people, fairly gushing this morning that the company is "right-sizing." And the stock opened higher after the firm reported its earnings, prompting a wave of "half empty" vs "half full" news coverage.

"Best Buy tops profit forecasts" said CNN Money. "Best Buy 3Q Net Plunges 77%, To Slash New-Store Openings," the same Web site reported 10 minutes later. The bottom line? Best Buy made a profit; just not a big profit -- only $52 million.

So it was surprising to hear CNBC tease an interview with an analyst this morning by asking, "Can Best Buy survive?" A company makes $52 million in three months and it's on death's doorstep? It is, indeed, a "new" economy.

That analyst, Stacey Widlitz of Pali Research, said the good news is "it wasn't a total disaster." She also described the cuts in employees as "good news." Best Buy's problem, she said, is electronics are 10-percent cheaper at WalMart, a company analysts seemed to be burying a year ago.

The CNBC hosts tried mightily to do the same to Best Buy this morning, but Widlitz wasn't biting. "No, I'm not worried about their viability," she said. "With cost cutting in the organization... they have plenty of time before there's a real issue here."

The soon-to-be unemployed may not be able to say the same.

I watched It's a Wonderful Life the other night at the end of another bad week of worry about the economy, hoping for a reminder about perspective. It didn't work, but not for the reasons you might think.

I'd driven up to Ely and back on Friday and so I spent much of the day hearing about the economy. Have you heard? It stinks and it's only a matter of time before it swallows all of us, the narrative seems to suggest.

I couldn't get the day's bad news out of my head as I watched the movie. Here's why: In the course of one afternoon, Uncle Billy misplaced the credit union's receipts, Mr. Potter stole the envelope with the cash, the state banking investigator showed up to audit the books, a warrant was issued for George's arrest and the investigator and cops showed up at the Bailey household a few hours later. All in one afternoon!

Boy, those were the days.

Bernard Madoff ran a Ponzi scheme that ripped off $50 billion (including $100 million from Twin Cities investors) and nobody who was supposed to notice noticed. Bloomberg reports today that the Securities and Exchange Commission never inspected Madoff's books, even though it was required to:

Given what the SEC claims is the magnitude of the fraud, this is something you would hope an inspection would have uncovered," said Mercer Bullard, a University of Mississippi law professor and former mutual-fund attorney at the SEC. "It's hard to imagine a fraud of this alleged size not being accompanied by significant and pervasive compliance problems."

On National Public Radio today, Jim Zaroli reported that a securities industry official warned the SEC in 1999 that Madoff's returns were too good to be true.

Congress doesn't seem to be in too big of a hurry to find out what's going on at the SEC, according to the Wall St. Journal:

A spokesman for Rep. Barney Frank, the chairman of the House Financial Services Committee which will be the key in writing the new regulatory structure for the financial industry, said that "in due time" the committee would work with the SEC to see "what if any, failings of policy" were revealed from the alleged Madoff fraud. He said Frank hasn't been in touch with the agency.

On NPR's All Things Considered this afternoon, a former SEC official said there aren't enough people to keep up with the crooks (although he didn't use that word). It's a view shared by Columbia Law School professor John Coffee, who told the Journal that the agency is overworked and typically only examines 10% of the new funds that are registered.

The Madoff story, of course, is huge. Even the Dow's drop today is being pegged on it. But Matthew Goldstein, writing in BusinessWeek, suggests it's no bigger than Tom Petters' alleged scam in Minnesota:

Consider how little national coverage a similiar alleged Ponzi scam involving Minnesota businessman Tom Petters has generated. Sure, the alleged damages in the Petters affair are smaller--but a $3.5 billion loss isn't chump change. Some six-dozen hedge funds and their hundreds of individual investors suffered huge losses when federal prosecutors alleged that Petters was borrowing money for several companies that existed on paper only. At least a few of the victims include wealthly widows in their 90s, living in Florida, who invested in one of the hedge funds.

If there's anything to salt away from the Petters and Madoff cases (and the economic meltdown in general) it's this: If you're making money with an investment, find out why.

Not everyone is sweating the possible loss or reduction of local government aid in Minnesota. The League of Minnesota cities has released a city-by-city estimate of LGA payments due on December 26th. These cities don't accept the state aid:

Albertville
Andover
Arden Hills
Baxter
Blaine
Bloomington
Brooklyn Park
Burnsville
Champlin
Chanhassen
Circle Pines
Corcoran
Cottage Grove
Dayton
Eagan
East Bethel
Edina
Farmington
Forest Lake
Golden Valley
Ham Lake
Hugo
Inver Grove Heights
Lake Elmo
Lakeville
Lino Lakes
Mahtomedi
Maple Grove
Maplewood
Mendota Heights
Minnetonka
Minnestrista
Monticello
Mound
New Brighton
Oakdale
Orono
Otsego
Plymouth
Prior Lake
Ramsey
Rogers
Rosemount
Roseville
Sartell
Savage
Shakopee
Shoreview
Shorewood
Spring Lake Park
St. Anthony (JT)
St. Louis Park
St. Michael
Vadnais Heights
Victoria
Woodbury

Many cities, of course, depend on local government aid (St. Paul has $28 million riding on this issue. Ely has $777,000 to think about.), but others probably don't. Can Chickamaw Beach live without the $438 it's due to receive later this month? What about Funkley, Minnesota? It gets $73. The population of Funkley as of June 2007: 16.

Who needs police? Not Cook, Minnesota which has voted to get rid of the department in a wave of budget cutting.

The Cook News-Herald has the play-by-play of the decision, written in the no-nonsense ways of the Iron Range.

Council member Storm added, "It's nice to have police in town," but then said, "Is it a luxury?"

Pastor Reuben Rosnau, who is a member of the Cook Volunteer Fire Department and the Ambulance Squad, spoke of the need for law enforcement at fires and with the ambulance and how the local police usually were there.

Arlee Olson... He spoke of Highway 53 going through Cook and the 10 roads coming onto it with the potential for accidents. He spoke of Cook having a pharmacy and the hospital and the drugs they hold. He told the council they were making a mistake dropping the police department.

Council member Dan Manick spoke of speeding, dangerous intersections and added they should "take into fact the human factor."

Mayor Edblom said it was strictly "dollars and cents."

Police Officer Dan Nylund told the council they could not enforce city ordinances since they didn't have a badge and the county wouldn't do it. Mayor Edblom said they would have to live with that. The elimination of the police will take place March l, 2009, after Nylund is given 60 days' notice.

Until then, Cook will have one police officer, and six people who serve on the "police committee." A final decision will be made after Cook finds out more about possible cuts to local government aid (LGA). According to the League of Minnesota Cities, Cook would lose $5,300 if LGA and/or the homestead credit is cut by $25 million, $28,000 if the Legislature cuts the program by $100 million.

Sperling's Best Places lists crime in Cook as a "4" on a scale of 1 to 10.

Cook, MN, violent crime, on a scale from 1 (low crime) to 10, is 3. Violent crime is composed of four offenses: murder and nonnegligent manslaughter, forcible rape, robbery, and aggravated assault. The US average is 3.

Cook, MN, property crime, on a scale from 1 (low) to 10, is 4. Property crime includes the offenses of burglary, larceny-theft, motor vehicle theft, and arson. The object of the theft-type offenses is the taking of money or property, but there is no force or threat of force against the victims. The US average is 3.

When he unveils his plans for closing the projected $5.2 billion budget deficit, Gov. Tim Pawlenty will be hard-pressed to leave one of the state's sacred cows unscathed -- ethanol. And few of its backers will talk about the possibility today.

Ethanol, of course, has been hailed in Minnesota as the economic future for rural Minnesota farmers, and an answer to an evolving energy crisis. And the state has been among the leaders in supporting it, not only with a mandate for ethanol in gasoline sold in the state, and tax-free zones where ethanol plants are likely to be built, but also direct -- and somewhat controversial -- payments to ethanol producers.

In 2007, Minnesota paid over $15 million to ethanol plants as part of a per-gallon subsidy. Gov. Pawlenty has argued that it's a worthy investment with a large return. The state, however, cut the payments during the last budget crisis in the state (although it cut sizeable checks more than a year ago to make up for the cut), and seems likely to target the subsidy again. Nobody in the State Agriculture Department today, however, would speak to the possibility.

If the subsidy is targeted, it couldn't come at a worse time for rural Minnesota. Because the demand for gasoline is down, so is the demand for ethanol. Last month, one of the largest ethanol producers -- VeraSun -- declared bankruptcy after betting the price of corn would keep going up. The price of corn fell sharply, though, and VeraSun is out of cash. The producer payments can help secure private lending, but the tight credit markets remain in a deep freeze.

Last week, an ethanol plant in Iowa closed up. "We were still chewing through $6 corn (recently) and ethanol was around $1.50," Pine Lake Corn Processors president Larry Meints Meints said. "Hedging, that did not go well... It's very disappointing."

Two stories today remind us that these are not normal times, and not even normal downturns. In a normal economic "downturn," there are recession-proof jobs, jobs that are so critical, or fill a need of the times so perfectly, they can't possible be eliminated.

Health care is one such historical recession-proof job. But two large area health care organizations have announced cutbacks. Park Nicollet Health Services and North Memorial Health Care will trim 613 jobs.

"My colleagues thought health care was recession proof," Lawrence Massa, president of the Minnesota Hospital Association, told the Star Tribune. "We're seeing that's not the case."

Meanwhile, the New York Times reports today, another recession-proof gig is endangered -- prostitution.

Big Sister is not the only brothel suffering the effects of a battered global economy. While the world's oldest profession may also be one of its most recession-proof businesses, brothel owners in Europe and the United States say the global financial crisis is hurting a once lucrative industry.

Egbert Krumeich, the manager of Artemis, Berlin's largest brothel, said that in November, usually peak season for the sex trade, revenues were down by 20 percent. In Reno, Nev., the famed Mustang Ranch recently laid off 30 percent of its staff, citing a decline in high-spending clients.

An article on Yahoo Jobs earlier this year suggested education is a recession-proof job. Teaching? Have you seen the size of the state's projected budget deficit?

Forbes says there's always jobs for salespeople, although now they're called "business development specialists."

What about you? Are recession-proof? If so, I'd like to talk to you about your job for News Cut's "The Jobs We Do" category. Use this form or e-mail me.

(Posting here will be very light today. I'm driving to Worthington today to meet with officials at Minnesota West Community and Technical College. It will be on of the stops on the News Cut on Campus tour starting next month. Each Wednesday I'll be at a different college/university in Minnesota, talking to students about their journey and their outlook. Stops will include, White Bear Lake, Ely, Duluth, Worthington, Winona, and Moorhead. Everybody has an interesting story to tell and if you're in college, I'd like to tell yours. So stay tuned for more information.)

Weeks after the massive -- and so far unsuccessful -- bailout of some financial institutions and days after Congress took another whack at the auto industry, New York Times columnist David Carr today identified the boogieman behind the country's economic woes -- the media.

Every modern recession includes a media séance about how horrible things are and how much worse they will be, but there have never been so many ways for the fear to leak in. The same digital dynamics that drove the irrational exuberance -- and marketed the loans to help it happen -- are now driving the downside in unprecedented ways.

The recession was actually not officially declared until last week, but the psychology that drives it had already been e-mailed, blogged and broadcast for months. I used to worry that my TiVo thought I was gay -- doesn't everyone enjoy a little "Project Runway" at the end of a long, hard week? Now I worry that my browser knows I am about to lose my job.

"When everyone is talking about recession, we all feel like something has to change, even if nothing has changed for us," said Dan Ariely, author of "Predictably Irrational," a book that explains why people do things that defy explanation. "The media messages that are repeating doom and gloom affect every one, not just people who really have trouble and should make changes, but people who are fine. That has a devastating effect on the economy."

Carr's riff isn't all that different from a similar one in the '70s. Only then, the subject was the Vietnam War. We really weren't losing it, the media was just focusing on the bad news.

But increasingly, the message behind Carr's prose is being amplified. A Business and Media Institute writer said today:

The barrage of constant bad news can affect people who don't find themselves in financial trouble, Carr noted, citing Dan Ariely, the author of "Predictably Irrational."

"When everyone is talking about recession, we all feel like something has to change, even if nothing has changed for us," Ariely said. "The media messages that are repeating doom and gloom affect every one, not just people who really have trouble and should make changes, but people who are fine. That has a devastating effect on the economy."

It sounds plausible, but who are these people for whom "nothing has changed?" People still may have jobs, but their plans for retirement are in ruins. Not everyone is 30 with a lifetime to get back what's been lost.

And Carr doesn't say the media is making it up; only that the bad news these days can be collected and disseminated far more quickly than ever before. But what are we supposed to do about that? In fact, that's a question that media critics have specifically not answered.

Here's today's economic news: The Tribune company filed for bankruptcy, 3M cut its earnings outlook and announced more job cuts, many borrowers who have their mortgages restructured are defaulting a second time, and auto magnate Denny Hecker closed some more businesses.

In non-economic news, the Timberwolves fired a coach, the Fergus Falls band is going to march at an inauguration, and a truckload of reindeer slid off an icy road in Freeport. So it's not as if other stories aren't being reported.

"The media are only doing what they always do eventually: They get it right, way too late to make a difference," said the Center for Citizen Media's Dan Gillmor, who hasn't had a nice thing to say about mainstream media, it seems, since savings accounts paid 5 percent.

Gillmor said, however that "people who save their money today are not being irrational, even though this is exactly the time you hope that enough people will spend to keep the economy from an absolute crater."

So there we are. A gloomy economy, a gloomy media, and a handful of critics who don't know the solution to either problem.

The same technology that affords us the luxury of reading blogs and exchanging e-mails is creating a nightmare for business. It's easier for internal spies to steal corporate secrets.

Nowhere is that nightmare being played out more publicly now than in the battle between Airbus and Boeing. Boeing is trying to compete with Airbus' new A-380 jet with the Boeing 787 Dreamliner, a jet on which the American company has a share of its future based. It's also a jet that's behind schedule and over budget.

What popped up on the Internet this week was a 46-page critique of the Boeing project by Airbus, which has led to suggestions the European competitor got its information the old-fashioned way: it stole it.

Says the blog FlightBlogger:

Competitive intelligence is a standard practice in the aerospace industry, but the information revealed in the Airbus analysis reveals a scope and specificity of the data collected.

The document includes what appear to be seven slides labelled BOEING PROPRIETARY with a format style used in Boeing presentations, including two that appear to have been photocopied, raising questions about the methods and sources the European consortium utilizes to collect its data.

Airbus claims the presentation, as well as its competitive intelligence gathering methods, fully comply with all laws. Though when approached about how the information was gathered, Airbus declined to address it specifically, suggesting that a lot of data labelled BOEING PROPRIETARY is freely available online. Airbus added that not all documents labelled BOEING PROPRIETARY are in fact proprietary. A spokesman emphasized that Airbus closely watches the market to draw its own conclusions, as do its competitors.

Regardless of how Airbus got Boeing's secrets, its report details what surely is a mess for Boeing, and a continuation of a long assembly line of bad news for America's manufacturing base.

Economists are abuzz over the numbers behind the big number of the day. While non-farm labor employment fell by a staggering 533,000 jobs, ticking the national unemployment rate to 6.7% from 6.5%, the Times' Economix blog offers a much darker perspective.

According to the Labor Department, the number of unemployed workers rose by 251,000 in November. But the number of people who were outside of the labor force -- that is, neither working nor looking for work -- rose by much more: 637,000. These people aren't counted as unemployed in the government's statistics, because they are not looking for work. Many of them, presumably, have stopped looking for work because they didn't think they could find a good job.

That's roughly the equivalent of every man, woman and child in the cities of Minneapolis and St. Paul throwing up their hands and saying, "I give up."

The report from the Bureau of Labor Statistics has a few more interesting nuggets. The place to be appears to be in health care. It looks to be the only major sector to add a significant number of jobs over the last year.

Health care employment grew by 34,000 in November. Over the past 12 months, health care has added 369,000 jobs.

When the numbers show that 1 in 5 teenagers can't find work, it adds to sense that college is becoming unaffordable.

If you have a job, you're likely to be spending less time physically at work.

In November, the average workweek for production and nonsupervisory workers on private nonfarm payrolls fell by 0.1 hour to 33.5 hours, seasonally adjusted--the lowest in the history of the series, which began in 1964.

In other words, welcome to The Recession!

Update: Of course, Wall Street takes these numbers and runs up 3 to 4 percent.

So, elected officials of Minnesota, you've got come up with $5.2 billion in additional revenue and/or cuts to balance the state's budget. Where do you start?

Oh, and by the way, your 10 percent down payment on that deficit is due in June, by way of a $436 million shortfall in the current budget session.

If you're a budget nut, here's the PDF of the November financial report.

Inside the report, you'll find this nugget:

Spending projections for FY 2010-11 and FY 2012-13 do not include estimated inflation. Inflation, based on the CPI, is forecast to be 0.2 and 3.1 percent for FY 2010 and FY 2011 respectively. At these levels, the cost of inflation would be $650 million in the next biennium.

Inflation aside, the deficit works out to approximately $1,014 for every Minnesotan (based on 2007 population estimates) and $2,063 for every Minnesota taxpayer.

How do you plan to contribute? Higher health care costs? Higher local property taxes? Denser classrooms?

1:33 p.m.: It seems as though Californians and their $11.2 billion budget deficit have it easy. The Sacramento Bee says every adult in the Golden State needs to pony up $429 to cover the state's shortcomings.

Trivia: Total box office gross of movies in which California Gov. Arnold Schwarzenegger appears: $1,621,940,362
Minnesota Gov. Tim Pawlenty: Negligible

1:55 p.m.: The newsroom passes along this press release from the National Conference of State Legislatures.

States, which already have closed $40 billion in fiscal year (FY) 2009 budget gaps, face at least an additional $97 billion they must close over the next 18 to 24 months, according to a national report issued today by the National Conference of State Legislatures.

Fifteen states are forecasting double-digit gaps in FY 2010. The largest are in Arizona (24.2 percent), New York (20 percent), California (18 percent), Wisconsin (17.2 percent), Minnesota (14.7) and Kansas (14.5 percent).

2:10 p.m.: Pawlenty's plan is starting to take shape. Here's what won't be happening, according to the governor.

• - New taxes
• - A stadium for the Vikings
• - Raising revenue with gambling money
• - Using money from the voter-approved outdoors/arts sales tax amendment to help fill the gap

3:02 p.m.: Gov. Pawlenty is apparently Twittering the budget crisis.

4:02 p.m.: Gov. Pawlenty is apparently not Twittering the budget crisis anymore. More on this here...

It's been a whirlwind of a year for many folks on the Iron Range.

Yesterday, U.S. Steel announced it was laying off 400 people at its taconite plant in Keewatin. Just 10 months ago in February, the company announced a $300 million expansion at the plant.

A quick trip through the headlines shows how quickly things can change.

June
Range boom triggers housing concerns

July
Mining giant Cliffs gets bigger with merger - The proposed $2.7 billion merger was called of a few weeks ago.

September
Essar Steel breaks ground on Nashwauk plant

Renewable fuel plant would create jobs, coal alternative

October
Furnances at two taconite mines idled by downturn in steel market

November
Iron Range sees hope in Chinese stimulus plan

Cliff's (Hibbing Taconite and Eveleth's United Taconite) warns of possible layoffs

Of course, there are still plenty of projects silently moving forward and many city councils and economic development agencies working hard to create new jobs up north. But as the taconite industry goes, so goes prosperity for many people on the Range.

Could this nondescript piece of land be the answer to a moribund retail economy in downtown St. Paul? Maybe.

Lund's announced today it's going to build a supermarket here at the corner of 10th and Robert in downtown. It's on the site where the Penfield tower was going to be built -- a 30-story condo project that collapsed when the housing market did. Now, the Penfield is back. "The $88 million development also is expected to include an upscale apartment complex and a Hyatt Place Select Service hotel. Construction is slated to begin in the fall of 2009," according to a city news release today.

It's no secret that retail downtown has been a losing proposition, despite an increase in condo development.

"With a rising population and a lack of full-service supermarket options in downtown Saint Paul, we know there is a real need for a Lunds in this area," said Tres Lund, chairman and CEO of Lund Food Holdings. "We're eager to provide the residents and businesses in downtown Saint Paul with a selection of products and a level of service that will exceed their expectations."

Though the city has given its blessing, apparently there's no financing for the huge project yet. Construction is scheduled to begin next fall. But, huge signs still stand on the site announcing the Penfield opening in the fall of 2007.

State economist Tom Stinson is probably too nice of a guy to say "I told you so" to Gov. Pawlenty. Besides, he's got his hands full finishing up what's reported to be a bleak Minnesota revenue forecast, which he'll deliver later this week.

But last February, Stinson said, "We're in a recession."

"Tom Stinson tends to be a bit on the pessimistic side of things, to put it charitably...I don't think it's helpful - unless it's clearly justified by the data - for people to get overly pessimistic or overly scare people, either," Gov. Tim Pawlenty said at the time.

Today, nine months later, the National Bureau of Economic Research has reached a conclusion that Stinson figured out nine months ago. The U.S. has been in a recession since December 2007.

I'm in no position to hold my own in an economic discussion with Robert J. Samuelson, The Newsweek and Washington Post columnist was one of Kerri Miller's guests in the first hour of Midmorning on Minnesota Public Radio today. But something he said about taxes this morning didn't make sense to me.

Kerri prodded Samuelson for an answer about an obvious shortfall in Social Security benefits for now-retiring baby boomers. "The tax increase that is required will have to be massive," he said. He might've also used the word "inevitable." He said the retirement age would have to be raised and benefits cut for wealthy retirees. Nothing much you haven't heard before.

"But Barack Obama wants to provide a middle class tax cut," Kerri pointed out. Samuelson responded that an incoming president ought to be able to enact the main part of his platform but opined that what he would do is raise the gas tax a penny a gallon each month for the next three years to help raise necessary funds.

OK so far, if that's what he wants to do. But then he added this:

"Plus, it would send a message to automakers to start making, and consumers to start buying more fuel-efficient vehicles."

Can a tax -- any tax -- be both a way to raise revenue and an incentive to change behavior? How?

Gov. Pawlenty proposed his cigarette tax (I refuse to call it a health impact fee) during the lean budget years of his first term. And he noted it would be an incentive for people to quit smoking. What would happen if half of the cigarette tax's mission was fulfilled? It would be unable to fulfill the other half.

It's not as though the state isn't trying to squeeze as much as possible out of the sale of cigarettes. It quietly raised the sales tax on distributors by a penny in August.

Cigarette taxes are now "a lousy way to fund your government," David Brunori, said last year in an Associated Press story predicting a drop in revenue in Minnesota and other states. He teaches tax policy at George Washington University.

True, it's a small slice of the overall budget pie here. But the 2007 projected $449 million cigarette taxes raised in Minnesota isn't much to sneeze at. And according to the February budget forecast, tax revenues from tobacco products, which pulled in $407 million in fiscal year 2006, are projected to raise $36 million less this year, with another $8 million drop next year. A statewide smoking ban also is a factor, of course. This week's forecast, from all accounts, may make those numbers look robust. The cigarette taxes are doing one job so well, it can't do the job for which it was originally intended.

Why wouldn't the same thing happen with an increase in the gasoline tax? Samuelson's plan -- I figure -- would cost each driver about $120 a year. Getting 5 miles-per-gallon more would neutralize the tax. Sure, it'd be a great way to push more fuel-efficient vehicles, but can it do that (which obviously leads to lower consumption of gasoline) and still be a solution to the revenue ills of the U.S. government?

I'll hang up and listen.

(Photo by Getty Images)

By now, perhaps, you've seen the video of the embarrassing moment for auto company executives when they went before a Congressional panel, asking for a $25 billion bailout of their industry a few weeks ago. Members of Congress upbraided the officials for using company jets to fly to Washington.

"There's a delicious irony in seeing private luxury jets flying in to Washington, D.C., and people coming off of them with tin cups in their hands saying that they're going to be trimming down and streamlining their businesses," said Rep. Gary L. Ackerman (D-N.Y.) "There's a message there."

"Those type of symbolic things, they really matter, they set a tone," said Rep. Peter Roskam (R-Ill.).

"I'm going to ask you to raise your hand if you are planning to sell your jet in place now and fly back commercial. Let the record show, no hands went up," said Rep. Brad Sherman, D-California

True enough, and why would they? Who provided the incentive for businesses to make money via tax breaks for buying the jets in the first place?

Ackerman, Roskam, Sherman, and 382 other members of the House who voted for the Economic Stimulus Package of 2008, which carried this section:

(a) In General- Subsection (b) of section 179 of the Internal Revenue Code of 1986 (relating to limitations) is amended by adding at the end the following new paragraph: `(7) INCREASE IN LIMITATIONS FOR 2008- In the case of any taxable year beginning in 2008-- `(A) the dollar limitation under paragraph (1) shall be $250,000, `(B) the dollar limitation under paragraph (2) shall be $800,000, and `(C) the amounts described in subparagraphs (A) and (B) shall not be adjusted under paragraph (5).'. (b) Effective Date- The amendment made by this section shall apply to taxable years beginning after December 31, 2007.

Company officials, like the auto industry ones, can expense a new jet up to $250,000 and can also take a 50-percent bonus in depreciation in the first year of ownership. That's a big pile of cash.

At least in this case, the business practices members of Congress criticize are the ones they encouraged in the first place in the name of economic stimulation.

A study from the Federal Reserve says poverty in America is spreading to the suburbs.

"It shows that concentrated poverty is still very much with us, and that it can be found among a much more diverse set of communities and families than previous research has emphasized," Bruce Katz, a director Brookings Institution Metropolitan Policy Program, told Reuters. "Poverty is spreading and may be re-clustering in suburbs, where a majority of America's metropolitan poor now live."

The report was put together by all 12 Fed regions, including Minneapolis, and is posted on the Fed's San Francisco site. It's called "The Enduring Challenge of Concentrated Poverty in America: Case Studies from Communities Across the U.S."

The experts visited 16 communities around the country. The closest to the Twin Cities was Milwaukee, which falls under the Chicago Fed. In the Minneapolis district researchers looked at the Blackfeet Reservation in Montana.

Given a choice of who's words to hang on -- President-elect Obama or the State Canvassing Board -- I've chosen the president-elect.

He's underway with his third news conference and repeats -- for a third time -- that we face a historic economic challenge, something just about every working stiff in America knows. He's announcing the "President's Economic Recovery Board," which is a throwback to the Eisenhower administration.

9:47 - Mark. The Dow is down -62.85 at the start of the news conference.

9:40 a.m. - Obama says one of the reasons for the board is that in Washington, these sorts of things result in "group think" and there's little knowledge of whether policies are actually working on main street. He names Paul Volcker to head the board. The financial world seems to love this pick, but Volcker isn't exactly Mr. Main Street America. But Obama says he likes Volcker because he's not afraid to say what he thinks. Obama has clearly intended to surround himself with people who won't tell him simply what he wants to hear.

One interesting sidenote to how the economy ripples. Just a few days ago, Volcker gave Major League Baseball an update on the economy.

QUESTIONS

Does your saying you want a new way of thinking indicate a frustration with the way the crisis has been handled so far?

No. I think what it speaks to is a frustration to eight years in which middle-class income has gone down. And frustration of the incapacity of Washington to take bold steps to deal with our economic problems. (Isn't that actually a "yes" answer?)

We're two days away from the biggest shopping day of the year and retailers are worried it'll be a disaster. Any shopping advice and are you going to go shopping?

We're going to do some Christmas shopping and the daughters have put their list together. It's mostly for Santa but we may do some extra shopping. "I think families are understandably nervous about their economic situation. The economic statistics have been bad. There is no doubt that during tough economic times, family budgets are going to be pinched. It's important, though, for the American people to have confidence."

We have the best workers in the world, the most innovation in the world, we're in possession of extraordinary resources that if we harness properly, we'll get the economy moving over the next couple of years and decades. People should understand that help is on the way and as they think about this Thanksgiving shopping weekend and the Christmas season, I hope everyone understands we'll get through these difficult times but they're going to have to make good choices.

(Nice try, New York Daily News reporter, but he didn't take the obvious "just go shopping" bait. Things have changed in Washington.)

Are you worried about the latest Bush administration bailout and the continued printing of money. What federal programs would you cut to actually pay for your stimulus package. You talk about change but Paul Volcker has been around a long time. You talked about John McCain would come to Washington and put the same people in different chairs. You've got Tom Daschle, Hillary Clinton....

Obama interrupts and says "you hear that. First of all that's not the topic. We're not talking about my cabinet because I haven't made those appointments yet..."

"Sir, we're talking about Paul Volcker...he's been around a long time. He knows the way of Washington, but what do you say to your supporters who are looking for change?"

Actually, Paul Volcker hasn't been in Washington for quite some time and that's a reason he can provide a fresh perspective. (University of Chicago economist) Austan Goolsbee (he'll be the economic board's director), this is about as fresh a face as you can get.

With respect to the details of the economic plan, we'll work over the next few weeks to put the framework together. We'll have a strong stimulus/economic recovery plan to put people back to work. It'll be large enough to jump-start the economy. On Tuesday I talkd we'll have to pare back on programs that do not work. We can hardly be expected to provide you a detailed list right now. We'll identify programs that don't work and make sure they are eliminated and put the money into programs that do work, like health care modernization.

When it comes to the people we've pulled together -- I know there's been a conventional wisdom floating around Washington that there's been a recycling of people who were in the Clinton administration, the last Democratic administration that we had was the Clinton administration, so it would be surprising if I selected a treasury secretary who had no connection to the last Democratic administration because that would mean the person had no experience in Washington whatsoever. And I suspect you would be troubled -- and the American people would be troubled -- if I selected a treasury secretary... at one of the most critical economic times of our history who had no experience in government whatsoever.

We're going to combine experience and fresh thinking. Understand where the vision of change comes from. It comes from me.

Do you support the latest bailout?

What I've said is we have to do whatever is required to be sure our economic system can give credit to the markets. It's important for the federal government use the authority in a forceful fashion. The latest attempts by the Treasury to make sure we have a housing market in which credit is falling, that is a positive sign.

(That's all the questions he took, but he did a good job defining what "change" is. It's not different faces, it's efforts that work.)

10:02 a.m. - Mark. The Dow is down 12 points at the end of the news conference -- and falling -- after briefly going positive during Mr. Obama's news conference.

The rough economy took a toll on Tuesday on one of Minnesota's biggest economic success stories -- Cirrus Design in Duluth, a maker of light aircraft.

The company is going to furlough about 500 production workers in staggered segments for 30 days, according to AvWeb, an aviation news publication. The company is taking the action with a heart, however. It's using furloughs instead of layoffs and will top the unemployment benefits pool and continue health insurance benefits while it tries to clear excess inventory of airplanes. Cirrus has facilities in Minnesota and North Dakota. About 300 of the furloughs will come in Duluth.

The move comes as one of Cirrus' competitors in the light-jet business, Eclipse Aviation, has filed for bankruptcy.

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