Friday, July 31, 2015

More Bad News for the Average American

This morning the Labor Department announced the lowest average wage rate increase since they began collecting the data.  Another outcome of the Obama-Clinton-Warren assault on the middle class.

Maybe someday these folks will figure out why no one wants to hire anyone anymore and why no one wants to offer higher wages.  A small amount of time spent in the private sector would do the trick, but don't expect anything like that from the Krugmans and Obamas of the world.

Head in the Sand Analysis

Once more, the NY Times amazes.  Noam Scheiber's article, penned on July 12th but still available online, muses aloud, quoting Clinton surrogates and supporters, as to why the US economy no longer seems to produce good jobs. The decline of the economic position of the middle class is front and center in this article.

Guess what reasons Scheiber and close Clinton pals cite as reasons for America's economic malaise.  Dig this: "investors and management gurus," "outsourcing," "Uber," etc.  Easy targets for the left.

Scheiber, I suppose, has failed to notice the sweeping government intervention in the US economy that has pared economic growth to barely a pulse.  The health care sector, banking sector, coal, etc., have all been taken over or demolished by the Obama/Clinton crew.  The national debt has doubled over the past seven years, while economic growth is moribund.  We are now Europe, whose economic stagnation is a fixture of the modern world.

Ignoring what ails you means you will not recover.  Maybe Scheiber should try the private sector for a week or two and quickly discover the problem -- strangling regulation and strangling taxation.  Until these things are rolled back, the US is doomed to economic stagnation, while the Obamas and Clintons glide effortlessly from resorts to limousines to fancy jet planes to resorts once more, never noticing the destruction that they have wrought on average Americans.

Wednesday, July 29, 2015

More Nonsense on the Minimum Wage

City after city in the US is in the process of passing laws to keep the poor in the modern big government prison.  Forcing the minimum wage to $ 15 will effectively eliminate any ladder of escape for millions of Americans currently trapped in poverty.  Those pushing this are probably pleased to have an increased constituency for all the welfare programs that they have foisted on the country. 

After all, if there weren't an increasing number of poor people, it would weaken the big government rationale.  Steadily increasing the minimum wage and indexing it will guarantee an ever growing number of poor Americans, denied by law the ability to gain the skills needed to escape poverty.  I guess the Clintons, Obamas and Warrens of the world see this as a good thing as they move from their limousines to their jet planes and back decrying their personal concern for the unseen poor.

Even more embarassing are the economists who argue that increasing the minimum wage has no or little effect on employment.  I suppose they think that raising a price has no effect on demand.  Is this what they teach in the classroom?  Are demand curves flat, after all, and unrelated to price?  Is this what modern academic economics has to to offer?

These are the same folks who argue that sciences are settled.  That no further discussion is required.  We know all we will ever know about things such as climate change.  Don't debate it.  Down with "deniers."  I suppose pretty soon we will hear that increasing the minimum wage's lack of impact on employment is a settled issue as well.  End the debate.

More and more academics have joined the political left in trying to silence discussion on matters that are really matters open to rational discourse and empiricism.  But, if you have already made up your mind, not to be confused by facts, then I guess you can get to the point where endless increases in a price has no effect on demand.  Great thinking.

Tuesday, July 28, 2015

Is It Really the Fed?

The constant focus on the Fed is misleading.  The broad course of interest rates are not determined by the Fed, but instead by supply and demand.  The Fed controls only its own lending rate.  It can supplement that control with open markets purchases and sales, but, even there, the power of the Fed is limited.  By purchasing government debt, the Fed is simply printing money digitally, a process which could either raise or lower medium term to long term rates.

Constantly increasing money growth through open market purchases in the 1970s actually raised rates -- to record post-war levels, while economic growth stagnated.  Thus was born the term "stagflation."

One very clear piece of evidence that the Fed does not move rates -- at least the rates that matter -- is the lack of correlation between the Fed's lending rate (which is a repo rate, not, as popularly believed, the federal funds rate) and the two year, ten year and thirty year treasury rates.

The Fed is a follower, not a leader, in the rate business, as was often noted by Paul Volcker, probably the greatest Fed Chairman in history.  Where the Fed can get in trouble is expanding its balance sheet.  The Fed is in serious trouble now, because of an over-bloated balance sheet.

So why all the focus on the Fed?  It is always easier to believe the wizard behind the screen is determining everything and the wizard is relatively easy to keep tabs on.  Hard analysis forecasting future supply and demand is a much harder endeavor and not subject to simple sound bites.

The Fed's balance sheet tells you all you need to know.  If the economy ever shows any real sign of life -- not simply life propped up by the tech and energy sectors -- then dramatic increases in the price level will push rates far higher than the bureaucrats occupying seats at the Fed ever anticipated.

Friday, July 24, 2015

Clinton Proposes More Government, Lower Returns for Investors

Somehow Wall Street is the enemy, if you listen to Hillary Clinton.  Therefore, let's substitute a partisan bureaucracy and government mandates for free markets and free people.  That is what Clinton proposed this week in South Carolina, pushing for new rules on stock buybacks, executive compensation, corporate governance rules, and for higher taxes.

I guess 10 percent per year returns over the past century is a bad idea.  Why not let Clinton force that return down to 3 percent or zero with a new set of crushing regulations and taxes?

The stock market is the sole avenue for average citizens to get high, unlevered returns with almost no long term risk (there is plenty of short term risk).  Home ownership generates wealth only when levered.  Unlevered home ownership is only rarely a big winner. 

So, Clinton, once more, intends to crush the hopes of American savers and investors.  She and Warren Buffett can play the foundation games and other devices available only to rich people, but the average Joe should take a hike, implies Clinton. 

Is there any avenue for self improvement and improved economic status for the average American that the Clintons and their ilk don't intend to destroy by over-reaching government?  Perhaps, if Clinton departed from her limousines and fancy jets long enough to see how the average American lives, she might not be so determined to destroy their future.

Wednesday, July 22, 2015

Uber and DeBlasio

Welcome to the 21st century.  The forces of reaction, led by DeBlasio and other left wing "reactionaries" are battling to roll back the dramatic changes that the internet is bringing.  Front and center is the "ride-sharing" business called Uber that is revolutionizing the way ordinary citizens are moving around.

The taxicab monopolies, worldwide, are fighting back.  Especially in New York City, where, not long ago a taxi medallion cost over $ 1 million. Now with Uber in play, medallions -- which are licenses to monopolize -- have fallen in price to $ 700 K and headed lower.  Once again, those riding on top of the stagecoach -- NYC taxidrivers -- are asking government to pass punitive regulations to prevent ordinary citizens including citizens in the bottom twenty percentile of income and wealth in NYC from improving their economic condition.

Uber, in a free market environment, is a win-win for everyone except a handful of taxi drivers, currently benefitting from a government-granted monopoly.  In order to keep that monopoly, taxi-drivers have donated large amounts of cash to DeBlasio's campaign coffers.

This is liberalism at its best -- thwarting the prospects of low income and middle income Americans in order to protect a government-granted monopoly to the more affluent.

Saturday, July 18, 2015

Punishments and Rewards

If someone comes to America illegally, they are increasingly provided with various government benefits.  These benefits, in many cases, are substantially better than those provided to ordinary American citizens.  Meanwhile, someone who wishes to come to America legally pays a substantial penalty to do so.  In fact, most who would like to come to America legally are denied that opportunity while money and benefits are showered on those who come illegally.

This strategy is in keeping with that used by US fiscal policy which rewards those who make little or no productive effort in society and heavily penalizes those who work hard, save and try to provide for their families.

Incentives matter.

If you want increased illegal immigration, then follow the current policies.  Many of those coming to the US illegally are coming for the sole purpose of blowing up Americans and blowing up American institutions.  Current policies guarantee that there will be many, many more of these folks and fewer and fewer of those with education, values of hard work and thrift and a desire to do things legally as opposed to illegally.

Similarly, as fiscal policy rewards those who don't make mortgage payments and penalizes those who do, there will be increased numbers of Americans who see no reason to make mortgage payments, pay off student loan debt or otherwise live up to obligations incurred when taking other people's money.

Similarly, those who do pay off mortgages and student debt will be penalized by higher tax rates and much more severe regulation -- as well as personal villification for arriving at "one-percenter" status.  It's perfectly okay to arrive at one-percenter status by selling political influence funded unknowingly by American taxpayers, as the Clintons and Gores have done, but it borders on criminal to produce a product or a service that benefits millions of Americans for which Americans are voluntarily willing to pay. Wallmart comes to mind.

Incentives matter and gradually the age-old incentive structure that produced economic prosperity is being dismantled plank by plank.  This process has been going on in Europe since early in the twentieth century.  In America, this process came later.  The Nixon, Clinton, Obama presidencies have dramatically accelerated the process of eliminating incentives that produce prosperity and replacing them with incentives to stop producing and start complaining.

Some wonder why economic growth has vanished in the western economies and why the middle class is losing ground.  There are a lot of reasons, but likely the most important are policies that encourage everyone to participate in a decline in economic prosperity by directing the incentives in ways that discourage innovation, work effort and thrift and encourage victim mentalities and litigation.