Friday, October 13, 2017

It Will Be John Taylor

John Taylor will be the next Fed Chairman. Taylor is the founder of the famous "Taylor Rule," which dictates that the Fed raise rates when inflation is above target and lower rates when unemployment is above target.

Appointing Taylor means the "Rules" vs "Authority" debate may well be settled with a clear victory for rules.  If so, this means real transparency will finally come to the Fed.

In recent years, the Fed has increasingly abused its "authority," by acting without providing any reasoning based upon available data.  Instead, the Fed announcements talk about things they expect to happen in the future.  As we know, the future never quite turns out the way the Fed thinks.  The Fed, since 2008, has consistently over-estimated future economic growth and future inflation.

So, it's time to replace the "rule of the incompetent many" (the Federal Reserve Board) by the rule of "Taylor's Rule."  This will help provide stability to the economy and take politics, finally, out of Fed deliberations.

Tuesday, October 10, 2017

NFL Players Union Doubles Down on Anthem and Flag Disrespect

As if plunging audiences were not enough, the NFL Players Association has formally declared war on its own audience.  Pretty amazing.

It is not all that unusual to see individuals do self-destructive things -- even occupants of the White House.

But, the actions of NFL players are truly without precedent.  The message is clear: we don't like you or this country.  We all get that.  And they have a perfect right to hate Americans, American police and the American military.  That is definitely their right.  No one questions that.

But, the majority of Americans also have the right to no longer watch NFL football and to turn their interests to something else.

The NFL is destroying its own market, its own business and its own future.  And that is their Constitutional right.  Enjoy.

After all, everyone has the right to hate including the news media, Hollywood, late night talk show hosts, etc.  Lets all celebrate everyone's Constitutional right to hate.  The NFL Players Association is simply joining the party.

Saturday, October 7, 2017

Stagnant Wages -- The New Conundrum?

Why are wage increases almost non-existent in the developed world?  This question is asked, not only by Fed Chairperson Janet Yellen, but today's NYTimes has a detailed article that wonders aloud about why workers have done so poorly for decades.

This question has three very, very simple answers:

1) Growing federal, state, and local mandates on employers cost money.  Since the mandates relate to employees, these costs are "employee costs."  An employer views all costs of an employee, not simply the employee's wages.  Imagine that government taxes the employer $ 10,000 for each employee on the payroll.  The employer has to take that $ 10,000 into account when assessing the appropriate wage rate.  Generally, an employer will offer a significantly lower wage to an employee if there is an extra tax, say $ 10,000, per employer.  In the extreme, it is highly possible that the full $ 10,000 will come out of the employee's pay and show up as reduction in the employee's pay to make up for the tax.
The mandates imposed by various levels of government are enacted all the time.  Each year there are more mandates.  These 'labor costs" have to be paid by someone.  Mostly, they are paid by reducing the wages of employees.  For example, if you mandate paid sick leave for each employee, that will reduce the wage that can be offered that employee.  Not necessarily immediately, of course.  But, in time, such mandates reduce the potential for any wage increases and likely will reduce real wages over time, even in a growing economy.

2) Stagnant economic growth (less than 2 percent, for example), provides no real incentives to boost employee pay.  Employers are willing to add employees only if they are optimistic about the future (what Keynes referred to as "animal spirits").  The low levels of economic growth in the large developed economies in the last few decades, do not inspire businesses to boost wages in their hunt for employees. 

3.) Low unemployment rates mask the growing numbers of workers leaving the work force.  Every age demographic, except the 65-and-over demographic, show declining labor force participation.  This means that the welfare system is more attractive than working for a living.  Chalk that effect up to an over-generous welfare system.

My advice to Janet Yellen and other economists who are "puzzled" by the absence of wage increases is to go back to their undergraduate days and retake the introductory microeconomics course.

It is, after all, simple economics that explains wage stagnation in the US and the other developed nations.  It's not rocket science.

Friday, September 29, 2017

Fed Silliness

Even the Fed governors are now split on what to do. 

The economic data seems to be improving ever so slightly, though there seems to be clear problems with commercial lending that could presage problems.  Bank regulators continue to strangle the ability of the banks to make sound commercial loans.  (Dodd-Frank continues to wreak its vengeance).

So, why is the Fed embarking on (repo) rate hikes?  Why has the Fed chosen the present time to announce and begin the process of gradually reducing the Fed balance sheet?

Are there reasons for Fed actions?  Does the modern Fed just do things to show that they have things to do?  Is the Fed flexing its muscle just to stay in shape?

Yellen's comments seem more and more incomprehensible and seem to have little to do with economics.

This suggest that politics is the main driver for Fed actions.  Raising rates and reducing the Fed balance sheet, not considered prudent when Obama was president, immediately become front burner issues when Trump became president.

Is that what this is all about?  The independent Fed is not so independent after all?

Thursday, September 28, 2017

Who Cares About Pro Football Anyway?

I have found it difficult to watch pro football in recent years, though I would watch the Super Bowl and an occasional game.  There was just something about the game that gave me pause -- the violence, the huge compensation packages, the rampant commercialism?  Who knows?

But, fortunately, the recent "kneeling" controversy sealed the deal for me.  It gave me some very specific reasons to change the channel whenever pro football appears on the screen.  It gave me a good reason to avoid dining establishments that have pro football on giant screens.

I personally hope that I never see another pro football game and that the "sport" dies the death it so well deserves.  I could say the same about LaBron James' sport.  But, since I have not watched any pro basketball since Bill Russell was a player, there isn't much to say.

It could be that we are witnessing the beginning of the end of professional sports.  Who knows?  But, it is clear that much of it is no longer intended for the entertainment of the audience, but instead is simply a bunch of rich, pampered athletes lecturing others on politics.  Who needs it?

Trump Administration Tax Proposal is a Good One

It's not perfect, that's for sure, but the tax proposal released yesterday by the Trump Administration is a huge, huge improvement over the current tax regime.  It might not end up that way if amendments rob it of it's essential feature, but so far, it's a winner.

Goodbye to death taxes, goodbye to state and local income and property tax deductions and goodbye to the extraordinary complexity related to these two items.  Hooray!

Let's hope there is no fourth tax bracket to "punish the rich."  We don't need to punish anyone.  We need to get back to 3 1/2 percent to 4 percent growth where the US economy has historically been -- except for the last two decades.

Economic growth reduces inequality, provides pathways for folks at the bottom to survive and prosper.  Rich folks always prosper.  This plan will mainly benefit folks in the bottom half of the income and wealth statistics, because it will boost economic growth. 

A growing economy solves lots of problems.

Monday, September 25, 2017

This is Entertainment?

Television is supposed to bring entertainment to the masses.  But, now, things are different.  Today, "entertainment" involves a constant dose of "political indoctrination."

Who needs it?

It is not entertaining for many, myself included.  So, why watch it?

Sunday afternoons could certainly be better spent, at least for me, doing pretty much anything other than watching professional football.

Any company who chooses to advertise and support these non-entertainment spectacles should be a company whose products likely have competitors with products that come without the political message

I would prefer to be entertained, not insulted, by sports.  So much for professional football and any other sport that decides to take a political stance -- regardless of what that stance happens to be.

Entertainment should be entertaining.  Professional football is an affront to all of those who have lost their lives in the service of their country..