Thursday, October 27, 2016

Post Brexit

So, did Britain collapse after Brexit?  According to Paul Krugman and all of his left wing buddies like Barrack Obama, Britain's economy would suffer dramatically from Brexit.  Maybe.  But, so far the results are the exact opposite of the predictions of the doomsayers.

"The economy has continued to expand at a rate broadly similar to that seen since 2015 and there is little evidence of a pronounced effect in the immediate aftermath of the vote," said Joe Grice, Britain's chief economist of the Office of National Statistics, according to the Associated Press today.

Growth wasn't huge -- 2 percent at an annualized rate -- but a lot better than the growth rate of the US and the Eurozone during the same period, where all the naysayers hold sway.

Facts can be inconvenient to the true believers.

Monday, October 24, 2016

The "We Can't Grow" Chorus

Economists and liberal business types are now united in the view that America no longer has the potential to grow at the rates, that until the last two decades, it has historically grown. Once the mightiest economic engine in the world, US economic growth is now a pitiful shell of its former self and more and more left-wing pundits say that's the new normal.

Well, possibly.  Imagine that a $ 15 minimum wage becomes law.  Do the numbers.  $ 15/hr translates into $ 32,000 per year.  Now tack on employer-provided health care, social security, unemployment compensation, implied litigation costs and on and on.  You quickly get to $ 50,000 per year.  So, in the brave new world that left-wingers are leading us to, it will cost $ 50,000 to hire an entry level employee with no apparent skill set.

How do folks with high school educations or less ever get hired if the entry level compensation implies $ 50,000 in costs to employers?  More than half of American potential employees fit into this category, so that, in effect, the $ 15 minimum wage law makes it a crime to have a job if your skill set at day one is less than $ 50,000.

How do you get a skill set?  Historically, folks learn on the job. That will be against the law in the brave new world of $ 15/hr minimum wage laws.  No longer will anyone but the economically elite have access to the job market in the world being prepared by the left.

Well, in that case, yes!  Economic growth will be over.  In fact, economic growth will most likely be negative if we get to a $ 15/hr minimum wage.

Add in the unbelievable proliferation of new regulations that hamstring banking and new business formation and economic growth will likely be impossible.

So, the left is correct.  There is no economic growth in our future.  The left has seen to that.

The left says that the absence of economic growth is caused by a decline in productivity.  'Productivity" is measured by output per worker (not by any measures that you and I might think of as technological growth).

Productivity can go down by the simple expedient of forcing businesses to hire and employ employees that they don't need or who are unproductive.  Hiring "compliance" employees to deal with a mass of new regulations reduces productivity by definition, since compliance officers don't produce anything and mainly serve to retard production.

Jamie Dimon recently noted that the new regulations since 2009 have forced JP Morgan to hire 30,000 new "compliance" officers.  Guess what?  The productivity at JP Morgan has collapsed.

Across America businesses are reeling from the autocratic, unpredictable rash of new regulations that occur hourly in the new America. Not much time is left to produce more goods and services.  The fear of ever more regulations is enough to prevent anyone from thinking out of the box.

New ideas, like Uber or Airbnb, immediately attract the attention of luddites like Elizabeth Warren, who never met a capitalist idea that she approved of.  Warren is the main cheerleader of the modern Congressional witch-hunt that hounds corporate leadership, who have the temerity to do things for shareholders, as opposed to doing things that fit the agenda of the left.

Fascism is defined as the intertwining of government and big business.  Warren is the leading proponent of fascism, if we define it properly.  The idea that a company should be free to pursue profits in every lawful manner is opposed by Warren, who thinks companies should mainly do her bidding as she sees it, which admittedly changes from moment to moment.

So, I guess all these left-wing economists and their "business" pals like George Soros and Warren Buffet are right. Economic growth probably is no longer possible in the brave new world toward which their policies are leading us.

Friday, October 21, 2016

Elitism Fractures the European Union

The idea of a common currency and a broad reduction of barriers to trade was a marvelous idea.  But European Union bureaucrats could not leave well enough alone.

Instead, the EU bureaucracy hammered down an enormous number of new restriction on the daily lives of citizens in EU countries.  (For example, it is against the law for a child under eight years of age to blow up a balloon in the EU).  The straw that broke the camel's back was the unlimited immigration into the EU of refugees that has been ongoing for the last three years.

In an article in today's NYTimes, James Kanter and Stephen Castle provided the following absurd viewpoint:

"the European Union's ability to plot a united and ambitious path forward is losing out to parochial concerns."

The above quote is ridiculous.  "Parochial concerns" are, in truth, legitimate objections by ordinary Europeans to the overbearing rules and elitism of the unelected bureaucracy that runs the EU today. 

The "plot" described above as a "united and ambitious path" is based on the whims of a handfull of elitists, constantly making rules without any citizen input.  The public in Europe is sick and tired of this and are rebelling against the elitism of the EU bureaucracy.

The Brits were right to leave the EU.  In time, most of the citizens of the EU will push to follow the lead of the British and escape this small band of elitists that are ruling their day to day life.

Friday, October 14, 2016

Raising Rates as the Economy Slips Into Recession

It is always a paradox why government policy tends to be so uniformly pernicious.  We are about to see another example of that.

Third quarter data shows that bank commercial lending fell for the first time in six years.  Given other data, there is a very strong likelihood that the sluggish economy is about to weaken into recession territory.  Perfect time for a rate hike?  Club the economy on the way down?  Is that the idea?

But, that is exactly what is about to happen.  And the reason?  The Fed does not want to appear irrelevant.  All other interest rates have been rising over the past couple of months.  Only the repo rate and the funds rate have not been rising.  Those are the only two rates that the Fed has any possibility of controlling (and, frankly, only by completely artificial methods).

Gone are the days when anybody believes that the Fed can loosen or tighten.  Having a $ 4 trillion balance sheet does not leave much room for flexibility.

So, we are about to see an interesting spectacle.  The Fed will act to "raise rates," while the economy weakens.  Good combination.  Is that what they teach in Macroeconomics these days?  Raise rates just as the economy weakens?

The absurdity of Fed policy as well as the bankruptcy of modern academic Macroeconomics is just about to be put on sharp display.

No rational person believes that a policy of raising rates coincident with a falling economy is sensible policy.  Only Janet Yellen and other "political" economists can defend what they are about to do.

But, if they don't do it, the Fed will be exposed as irrelevant.  The Fed is irrelevant, but they desperately do not want that fact revealed to the public.

Thus, look for the Fed to "raise rates" while the data shows the economy is weakening.  Interesting and ridiculous policy, but perfectly predictable.

Goodbye stock market.

You might wonder:  why other rates are rising?  Because the long dormant inflation is beginning to rear its head. That will move all rates higher regardless of whether or not there is a Fed or what it may or may not be doing.

Yes, inflation can pick up exactly at the time the economy is faltering.  Does anyone remember the 1970s and "stagflation." That's where we are headed.

Thursday, October 13, 2016

Fed Rate Hike Imminent - More Fed Irrelevance

Now that interest rates have increased everywhere except in the overnight repo market and the federal funds market, the Fed will boldly announce a 25 basis point hike in repo and funds. What choice do they have?

If the Fed does nothing, it exposes the fact that their policy has no influence over interest rates.  The ten year yield has now pushed through the 1.8 percent level and is headed higher.  So are all other rates.  How stupid is the Fed going to look in a higher rate environment if they don't move their two (largely irrelevant) rates higher?

It will happen soon.

Monday, October 10, 2016

Our Future -- Loyalton, California

Andrew Ross Sorkin has an article in today's NYTimes that gives a glimpse into the future for retirees expecting pensions under CALPERS -- the largest public pension defined benefit plan in America.

To cut to the chase: Patsy Jardin, who is now 71 years old, worked for the city of Loyalton for 29 years.  She retired in 2004 with an annual pension of $ 48,000.  Now, CALPERS is telling Ms. Jardin that her pension will be cut to $ 19,000.  She has been a member of the CALPERS employee pension fund all these years.  Now, in retirement, comes her surprise.  It's mostly not there.

What is CALPERS doing about it?  Nothing.  So, tough luck Ms. Jardin.  That's what the big government folks do for you.  They promise big pensions and then, when the time comes, tough luck.

This article is a worth a read.  It is the future for most average Americans.  Ms. Jardin's fate is just the beginning.  More to come.

Saturday, October 8, 2016

Colleges and Free Speech

Colleges have rarely been defenders of free speech and they are not today.  Colleges only permit free speech if that speech is consistent with the current views of the college administration.

When I was an undergraduate, the editor of the Rice Thresher, Hugh Rice Kelly, was removed (in 1964) as editor by the school's administration because he wrote an editorial condemning US policy in Vietnam.  He was never reinstated.  The far right was in control and they enforced that control.  No faculty supported Kelly.

In the late 1940s, Woodrow Seals, editor of the student newspaper at the University of Alabama, wrote an editorial that appeared to support integrating the all-white student body at the University of Alabama.  Seals was removed from the student body and only allowed to graduate after writing a letter of apology for his errant views.  No faculty spoke up for Seals at the time.  (Seals would later be a leader in the movement for integrating southern public schools while serving as a Federal District attorney in the Kennedy Administration and was later appointed a Federal Judge by Lyndon Johnson).

Today, the far left runs almost every college in the US.  Any statement that doesn't agree with the views of those running these schools carries the potential for dismissal.  If you criticize the Black Lives Matter movement, you run the risk of losing your employment.

There is no free speech on most college campuses.  If you have the political point of view of the current administration, then you are free to parrot the views of the current administration.  Otherwise, forget free speech.  It isn't available on college campuses and never has been.  Academics are no fans of free and independent thought and they never have been.