Economy

French youths and workers protests against the new Employment Law

Link: ZAMAN DAILY NEWSPAPER (2006032031112).

In France, the new labor law French Prime Minister Dominique de Villepin refuses to repeal has led many French university students and workers to take their protests to the streets.

De Villepin, aiming at reducing the rate of unemployment after coming to office, told French youth magazine Citato that the act should be given a chance as it can be modified in time.

With a 10 percent unemployment rate, of which 25 percent is comprised of the French youths, France tops European countries.

The new law eases the unemployment for those under-26, but it also gives employers the right to dismiss the workers in the first two years without justification.

I understand if workers protests this law as it is against their vested interests. But why would university students protests against this law?

Are these students so sure that they will get employment inspite of such a rampant unemployment for youths? If they are why are they so worried about getting fired within the first two years? Just doesn't make any sense to me. For university students this law is a really good deal as it will atleast give them a chance for getting a real job instead of being dependent on public welfare. Maybe, that's what is irritating these students! Now they have to work instead of living on the public dole.

 


Free Trade pact with Japan and China

Link: India plans free trade pact with Japan, China- The Economic Times.

MUMBAI: Prime minister Manmohan Singh said Saturday that his government was working on free trade agreements with Asian countries like Japan and China to open up new growth avenues for economy.

Addressing a business conference here, the prime minister also said the country was moving towards full capital account convertibility on the back of a robust economic expansion.

If this government manages to do the above, inspite of sharing the power with the Communists, then that will be a real achievement. Economic reforms will have an unstoppable momentum then. Let's hope this happens real soon ... More like this please!


Link: Stumbling and Mumbling: Anti-capitalism: good for equities.
The French stock market outperformed the US stock market despite the latter being more market friendly:

Had you bought French rather than US stocks at pretty much any time in the last 30 years - barring the late 80s - you'd have made money.
France's out-performance has been especially marked over the last 10 years - the period when the US's productivity surge has excited Anglo-Saxon triumphalism. During this time a sterling-based investor would have made 11.7% a year in French stocks against only 7.9% in US ones.
...

I take two messages from this. First, anti-capitalists are, in Lenin's phrase, useful idiots - they actually help stock markets. Second, a healthy economy and a health stock market are two different things.


Bogus Resumes

Link: Businesspundit: Half of All Resumes Are Bogus.

RésuméDoctor.com, a South Burlington, Vt.-based résumé-counseling company, spent six months verifying dates of employment, job titles, and educational background on more than 1,000 résumés, and found that 42.7% had one or more significant errors. The study, which was the company’s first, looked a résumés for positions ranging from entry level to executive.

My wife, who is looking for a job as a software engineer, received calls from many "consultants" who offered to find her a job. After some questioning, they admitted that resume will have to be spied-up a little bit and they will arrange for appropriate people to act as references for her. I guess these people must have been the previous beneficiaries of the "consultancy"!


Buy vs Rent House in the Bay Area

Here is a Excel spreadsheet I created to help me with the Buy vs Rent decision in the Bay Area. It takes care of inflation (for rent payments, property taxes, maint. costs, utilities, home insurance, etc.), tax savings from mortgage interest payment, and opportunity costs of the downpayment, closing costs and the monthly payments towards the mortgage. I cut and pasted the table only for the first 6 years but the rest of the figures are for 30 years. I was not able to fit all the 30 years data from Excel here. Let me know if anyone is interested in getting the Excel spreadsheet itself and I will mail it. Please let me know if my calculations are wrong or if any adjustments are necessary.

The calculations show that buying an house for $650000 is equiv. to paying $2100 in monthly rent. Various assumptions are 6.25 mortgage rate (30 term), inflation rate of 2.85%, 1.25% property tax rate, combined tax rate (state + federal) of 34.3%, after tax return on investment of 6.73% (based in current rates offered by the I-bonds) and a 20% downpayment.

                                               
Monthly   Rent25507.10178Inflation Rate2.850%Downpayment20%
Mortgage   rate6.200%After tax return on investment6.730%Purchase Price650000
Mortgage Term30Initial investment150020Mortgage Amount520000

           
Property   tax rate1.250%
Combined tax rate34.30%
Closing costs20020


                                                                                                                                                                                                                               
Year0123456
Rent25507.1017826234.0541826981.7247227750.7038828541.5989429355.0345130191.65299
Principal Payment($6,349.40)($6,743.06)($7,161.13)($7,605.12)($8,076.64)($8,577.39)
Interest Payment($32,240.00)($31,846.34)($31,428.27)($30,984.28)($30,512.76)($30,012.01)
Total Mortgage($38,589.40)($38,589.40)($38,589.40)($38,589.40)($38,589.40)($38,589.40)
Property Taxes8356.56258594.7245318839.674189091.6048959350.7156349617.21103
Insurance800822.8846.2498870.3679193895.173405920.685847946.9253937
Maintainence costs12001234.21269.37471305.5518791342.7601081381.0287711420.388091
Utilities12001234.21269.37471305.5518791342.7601081381.0287711420.388091
Tax Deductions($43,064.96)($42,979.81)($42,879.05)($42,761.40)($42,625.53)($42,470.00)
TaxSavings($14,771.28)($14,742.08)($14,707.51)($14,667.16)($14,620.56)($14,567.21)
After Tax Owner's exp($35,465.88)($35,827.05)($36,203.03)($36,594.53)($37,002.30)($37,427.10)
Renter's savings$9,231.82   $8,845.32   $8,452.33   $8,052.94   $7,647.26   $7,235.45  
Future value1058630.602$61,037.43 $54,794.36 $49,058.25 $43,792.88 $38,964.47 $34,541.54

                             
Total   Future Value$1,510,227.03 $451,596.42
Inflation adjed FV$650,000.00
Breakeven monthly rent2125.591815
Approximate breakeven rent -   $2100.00

What would we do without the government?

An article titled, India's killing fields, by Tavleen Singh in the Indian Express, contains this gem:

To expect farmers to produce crops without irrigation is like expecting Infosys to produce software without computers. Yet we spend less than half per cent of GDP on irrigation. What is wrong with our planners and policy makers?

So, InfoSys is not so great after all! They couldn't have produced software without free computers from our government, could they have? And I am sure the Tavleen Singh would not have been able to write her articles without getting free newsprint from our government. Now, which government department do I apply for free web hosting so that I can become a great blogger?

I am sure government will be able to find money to pay for all these free stuff. Right, Tavleen Singh? Oh! wait a second. She has a plan for this.

  ...  

Our farmers are so mired in desperate poverty that in supposedly rich states like Punjab and Maharashtra we hear of farmers routinely killing themselves as the only escape. Nothing will change until we see massive investment in agriculture. Governments need to find the money to do this and one way would be privatisation, ...

Isn't that the reason government plans to privatize the government owned PSUs, banks, insurance companies? Yes, that's right! Government is going to "privatize" the public sector business and use the proceed to, guess what, supply raw material, capital goods, land and lest I forget, education freely to everybody. I mean, how else, can one succeed in our chosen businesses?


Govt policies are the main cause of suicide of farmers in the Vidharbha

Link: The Indian Economy Blog.

Sonia Faleiro writes in her superb article on Vidarbha’s farmers of something an activist there said to her:

    Women tell me that each evening, they stand at the door terrified that their husband may not return.

Read the full thing.

Would any of the readers or fellow contributors of this blog like to offer a diagnosis and a prescription for the situation in Vidarbha?

I hail from the Vidharbha region and we used to own agri land in the same region not very long ago. I read a lot of editorials in the local press blaming "illegal" moneylenders for "harassing" farmers and forcing them to commit suicide. To have a reality check I talked with one of the farmers in our native village. The feedback I received was that government is exploiting the farmers through its monopoly procurement of cotton scheme. Govt. is paying the farmers below the market price. Not only that, payment is not immediate and govt is also taking out previous years loan payments before paying the farmers. Moneylenders actually help farmers by lending money during their need. The land that is pledged against the loan is sold off at the market rate to recover the money and rest paid to the farmer. Therefore, there is no exploitation there. By restricting the entry of moneylenders through licensing and prosecuting "illegal" moneylenders govt is raising the interest rates and reducing the supply of the credit. The best solution is to allow anybody to lend money to the farmers and thus increase the supply of credit to the farmers and also reduce the interest rates. Coupling that with free market in the farm produce (by abolishing the monopoly procurement scheme) will solve most of the problems.

By prosecuting "illegal" moneylenders govt is ensuring that next time farmers won't even get whatever credit/loans they were getting. Thus, next time around farmers will commit suicide for the lack of access to the credit/loans.