Saturday, February 25, 2017

The Lament of a Harvard "Economist"

Today's NY Times has an article written by Harvard Professor Sendhil Mullainathan lamenting the fact the Council of Economic Advisors is no longer represented in the cabinet.  The Trump Administration has booted the CEA down a notch.  This disturbs Mullainathan because he thinks the economics profession needs to be represented at the cabinet level.

It is easy to see why "academic economics" has so little respect in the world of practical people these days, leading to this cabinet rebuff.

Every small child can tell you that if a price goes up, you will buy less of the product.  No surprise here.  But, what do academic economists have to say when asked if minimum wage increases lead to employers hiring less labor?  At least half of these academics say that increasing the minimum wage either has no effect on hiring or actually increases hiring!

Is it any wonder that this type of nonsense loses credibility in the real world.  But, that is the state of modern "academic economics."  It is mostly political and mostly nonsense.

President Trump did the right thing in excluding these absurdities from the cabinet.

Friday, February 24, 2017

Not Since 1973

The US economy posted the lowest initial jobless claims number since 1973.  This doesn't mean that much, since there are no specific Trump policy enactments that could have done anything yet.  But, the atmosphere has definitely changed since Trump was elected and a new spirit of business optimism may have been a factor.  No one really knows.

The big debate will be whether economic growth can be increased above and beyond the 3 percent level.  Many, mostly Keynesian, economists don't think so.  But, other economists disagree.  Do free markets matter?  That really is the penultimate issue.

The attitude since the inauguration of the first George Bush has been that free markets really don't matter and government intrusion is irrelevant to the performance of the economy.  That view is about to be put to the test.

Forecasts of economic disaster and stock market collapses that were routinely made prior to the Brexit vote and prior to Trump's election proved to be among the worst forecasts in history.  Those who thought that the government was the route to prosperity predicted that free markets would torpedo economic growth.  Folks with that view do not have history on their side.

The state of academic macroeconomics is so pitiful that is unlikely that economists have much to say about economic performance any longer.  Witness Bernancke's soothing statements in 2008 just prior to the collapse of the economy.  Yellen's forecasts have been no better.  Economists can't seem to be able to out-do a straight-edge in predicting the future of the economy.  That doesn't keep them from trying.  Mostly they simply put forward their political views based upon not much economic science.

But, the economy is beginning to feel pretty good.  Potential repeal of Obamacare, rollback of excessive regulation of the financial sector and the energy industry, lower and simplified taxes all point to a potential rebirth of the historically powerful American economic engine.

Sunday, February 19, 2017

The Ground Is Shifting

There is a new energy in the American economy.  It hasn't shown up in the statistical data, yet, but it can be felt by those in the private sector.  The bureaucratic left, of course, can't sense it.  But, the average American worker and/or businessman can feel a new, fresh breeze in the air.

The negativity of the news media and the political antics of the anti-Trump factions (both within the Democratic Party and within a small, disgruntled section of the Republican Party) cannot overshadow the strengthening of economic activity that seems to be taking place.

The current administration constantly praises business success and has brought into key positions folks that have been successful in the business world.  These things are game changers.

No doubt, those who hide in the bureaucracy or carp from their protected havens in academia are terrified by the idea that free speech and economic freedom now have supporters at the highest level of government.  The Obama holdovers in government will continue to leak top secret information to their pals in the news media, but, in time, even they will be neutered by the strong winds of freedom that are sweeping the country.

Hatred, ad-hominem attacks and the silencing of free expression have been the hallmark of those controlling the bureaucracy and the academic community for nearly a generation.  These folks are now starting to lose their hold. They are fighting back with personal attacks, violence, whatever it takes.  They feel that only they have the right to speak and hold opinions.  Their contempt for average Americans is everywhere on display.

But, there is change on the way.  Free expression and free markets have their defenders and they now have the upper hand at the White House.  No wonder the opposition is going ballistic.

Saturday, February 18, 2017

Breaking Up the Family?

In a nation of laws, if someone breaks the law, presumably they should be prosecuted and the full force of the law should be applied.  What if incarcerating someone, who has clearly broken the law, would mean a hardship for their family?  Would that be an excuse for not enforcing the law?

Maybe that should be the new defense for those accused of a crime -- "I have a family.  You can't break up my family."  That seems to be a growing battle cry for those who prefer to pick and choose which laws to enforce and which not to enforce.  Taken at face value, this would mean a free pass for any lawbreaker with a family.

A country with "selective" law enforcement is, by definition, a lawless country.  If you don't like the laws, change them.  But, don't ignore the ones that you don't agree with, using the flimsy excuse that the lawbreaker has a family.

Thursday, February 16, 2017

Fed Chair is Not Independent

The Federal Reserve is supposed to be an independent agency.  But, it is not.

Yesterday, Janet Yellen, the current Fed Chairman, was openly partisan in describing her total opposition to rolling back the oppressive Dodd-Frank regulatory regime.  Her views are not much different than her political compatriot Elizabeth Warren.  None of this, of course, had anything at all to do with monetary policy.

The Fed is supposed to be about fighting inflation, but that isn't what the Fed does these days.  The Fed should be replaced by a simple monetary rule which would make the Fed truly independent and far less destabilizing on the American economy.

Monday, February 13, 2017

Flouting the Rules at the EU

The European Union, a union that is mostly known for not paying it bills, has a rule that all member nations must keep their deficits below 3 percent of GDP.  How's that rule doing?

Like most laws in the EU, the 3 percent rule is mostly violated.  France, according to today's Financial Times, last had a fiscal deficit that obeyed the rule in 2007 and is expected to violate the rule this year as well as next.

Does anyone care?

No, no one cares.

So, what is the point of having rules if they are observed mainly in the breach, while Angela Merkel winks and nods her tacit approval.

There is simply no reason for the 3 percent rule.  No one really pays any attention to it and sovereign debt is racing to the moon in the European Union.  Meanwhile the bailout artists are readying their bailouts.  This will only end with the dissolution of the European Union.

There is no reason for the coming EU breakup and the collapse of the Eurozone.  Simply let countries go bankrupt without bailouts.  That way, countries who behave badly will pay the price and learn from their mistakes. 

The insanity of the current EU rules is a typical outcome of the arrogance of elitist European politicians who lack the most basic sense of honor and truthfulness.  Compared to these Euro politicians, the Trump Administration looks like a pillar of virtue.

Saturday, February 11, 2017

Mandating Worker Benefits -- The European Experience

A recent article in the NY Times entitled "Feeling Pressure All The Time on Europe's Treadmill of Temporary Work," February 9, 2017, spells out in detail what happens when generous worker benefits are encoded in law.

Higher minimum wages, expanded family leave benefits, guaranteed health care, mandated flexible hours and work locations, and various job security mandates all sound great to voters.  That is, until reality sets in.

As the article notes: "...more than half of all new jobs created in the European Union since 2010 have been through temporary contracts."  The article goes on: "Under European labor laws, permanent workers are usually more difficult to lay off and require more costly benefit packages, making temporary contracts appealing for all manner of industries, from low-wage warehouse workers to professional white collar jobs.  For those stuck in this employment netherworld, life is a cycle of constant job searches.  Young people talk of delaying marriage and families indefinitely."

This is just simple economics.  If you mandate costs on employers for permanent employees, employers will provide fewer jobs for permanent employees. No big surprise here.

Hence massive job insecurity and hopelessness for the vast majority of young folks looking for work in the European Union.  Elizabeth Warren and Chuck Schumer would like to bring this insecurity and hopelessness to America's shores.

If you want employers to hire workers and raise their pay, then government needs to butt out so that it is financially attractive to employers to provide good paying jobs for workers.  Drafting punitive laws on employers simply makes businesses reluctant to make permanent hires.  That's the lesson to be learned from the well-documented European Union experience.