Wednesday, December 31, 2014

Greece is Back in the News

The patchwork of loan guarantees provided by the EU is falling apart. Greece will be the first to go, but ultimately even mighty Germany will be unable to avoid drowning in sovereign debt.  None of the countries in Europe are growing GDP, but all are growing sovereign debt.  What was a crisis five years ago is something far, far worse today.

A default (full or partial) would have solved Greece's problems five years ago and insulated the Euro from trouble.  But, the constant refrain that the Euro cannot survive a Greek default has led to the current debacle.  When there is no way to pay debts, it is time for a "workout."  That time has long since passed for Greece.  Now, there is only political theater.

The interesting question is what will happen to Germany.  (Isn't that always the interesting question for Europe?).  German fiscal situation is now hopelessly intertwined with that of the European Union, which is not good.  The Germans have underwritten a massive amount of sovereign debt of its Euro brothers and sisters.  This won't end well -- for Germany, or for anyone else.

It is still possible, were there the political will, to begin a partial default of all of the Eurozone sovereign debt.  This would permit the Eurozone a restart and provide a strong motivation for economic reform.  It is unlikely that this will happen.  So, the future for Europe is economic stagnation, possibly for generations.  The pain from this economic stagnation afflicts mostly young folks and the economically disadvantaged, so don't expect the European elite to complain (or to reform bad policy).

Wednesday, December 24, 2014

Economic Growth Breaking Out?

The revised GDP number for third quarter 2014 in the US surged to 5.1 percent in the announcement from the Commerce Department on Monday.  That is the best number in a very long time.  The year as a whole is still expected to finish closer to 2 percent than 3 percent, but good news is good news.

Is this the beginning of a growth break out?  It could be.  The most encouraging part of Monday's report was the boost in business investment spending.

For consumers, the fall in gas prices at the pump and the coming fall in home heating costs are big, big positives.  The negatives are the continuing sluggishness in housing, the damage done to the domestic oil industry from the collapse in the price of crude oil, and the continued strangulation of the banking system by regulators.

Economic growth solves lots of problems.  Something good could be in the offing.

Monday, December 22, 2014

What About Education?

Almost all of the news about US colleges and universities these days is about non-educational activities -- and the report card is not good.

For the past month, we have been treated to a news barrage on the internal criminal justice systems that have become implanted in the elite colleges in the past decade intended to deal with various bad, even criminal, behavior.  It should come as no surprise that these internal criminal justice systems are doing little more than providing selective enforcement and political posturing.  Alleged felonies are treated with unbelievable leniency, while politically incorrect speech is treated with maximum severity.   Meanwhile the police and court system are effectively excluded from the process, guaranteeing that bad behavior, including felonious behavior, will continue, perhaps even increase.

It is not uncommon to see $ 100 million athletic budgets administered by former coaches and athletic administrators with almost no business background at all.  These administrators, mostly former athletes, assume that winning is the only available business model, creating an atmosphere and an ethos that runs counter to the goals and aspirations of the education side of the college or university.  Such a plan also produces massive financial losses.  Football and basketball coaches, with contracts that some hedge fund owners would envy, are now among the highest paid workers in America.  For left wing faculty decrying income inequality, they need look no further than their own place of employment.

Meanwhile, education takes a back seat.  Increasingly the school week has been shortened to four days, leaving three full days every single week for students to party and for faculty to do whatever it is they do when not teaching.  Employers note the lack of writing skills and limited mathematics backgrounds of today's college graduates.  How does that change, when the college administrators are devoted to so many other pursuits, completely unrelated to their fundamental mission?

There are no real goals for the modern American universities.  So, these places invent their own.  Education, inevitably, takes a back seat to other goals -- mostly politics and entertainment.  Perfectly predictable.

Economic Growth in the US

The US has always benefitted from the relative stupidity of the rest of the world.  If the choice is between investing in America or investing in Venezuela or Russia, the choice is pretty easy.

So, America has always attracted foreign investment because the alternatives are often unappetizing.  They are today.

Where would you put your money today?  In the Eurozone?  In Brazil, Russia, India, or China (the BRIC countries)?  The US is undoubtedly a country in relative decline, but even in decline, it looks like a safer haven for investment money that the available alternatives. 

The combination of very slow growth and zero interest rates is perfectly consistent with a world that prefers to "park" it's money into the "relatively" safest spots on the planet.  But, without investment ("animal spirits," Keynes would have said), economic growth will remain paltry.

Sooner or later, the realization will dawn that the prospects over the next century are much brighter in Asia than in the West and money flows will begin to head that way.  That will require some changes in Asian laws and treatment of foreign capital and foreign ownership.  But, that will come, in time.

In the meantime, the US will appear the least bad of some very bad alternatives.

Sunday, December 21, 2014

Health Insurance Without Health Care

The absurdity of Obamacare is becoming increasingly apparent as folks with health insurance are avoiding using the nation's health care system.  Why?

The cheapest policies on the exchanges are those with very high deductibles.  This means that the insured must pay very large amounts of money out of pocket before the insurance kicks in.  In order to avoid large out of pocket payments, large numbers of the insured are simply doing without health care.

A recent article by Associated Press reporters Ricardo Alonso-Zaldivar and Jennifer Aglesta detailed the experiences of many who find that their new plan, replacing the one they had before Obamacare, makes even routine health care unaffordable.

The outcome -- these folks are insured, but do not get healthcare.
Supporters of Obamacare are not interested in outcomes and are not likely to care if increasing numbers of Americans go without health care, so long as the Obamacare narrative of expanding insurance coverage can be touted.  Who cares if the actual provision of health care declines?  It was never about health care anyway.

Saturday, December 20, 2014

The Defined Benefit Hoax

There has been a long standing debate about which pension plan is best for workers -- "defined benefit" or "defined contribution." 

A db (defined benefit) plan is like the US social security plan.  It simply promises to pay specific amounts of money defined by worker income history and other data.  The issue of where the money comes from to fund the promises is left hanging.

A dc (defined contribution) plan is like an IRA plan.  It receives contributions during working years.  Those contributions are invested.  Ultimately, the contributions plus their accumulated earnings become available for retirement or for any other purpose (such as bequests to the next generation).

The real difference between these systems is that a db plan can become "unfunded," while a dc plan cannot become "unfunded" (by definition).

Supporters of db systems have always claimed that such plans (most public employee systems such as those for public school teachers and state and local government employees are db plans) are "guaranteed."

Detroit public employees recently found that the "guarantee" is nonsense.  All db plans can have the benefits revised or eliminated, contrary to what supporters of db plans claim.  As everyone knows, social security will never be able to pay the benefits currently written into law for future beneficiaries.  Huge, largely unexpected, benefit cuts await most future social security recipients.

In today's Washington Post, Michele Singletary, an outstanding financial advice columnist, notes that Congress last week formally opened the way to cutting db benefits for multi-employer db plans: "Tucked into the federal spending bill were provisions that allow certain struggling multi-employer pension plans to reduce benefits already being received by retirees."

Read that last sentence again.  For folks already retired, this new law allows the plan to cut payments.

So much for the main argument for db plans.  When the money they are supposed to provide is needed for retirees, they, like Lucy, can simply pull the football away and let Charlie Brown kick the air.

Db plans were built on a foundation of hope, optimism and misrepresentation.  Only dc plans will be fully funded.  Those who expect to survive on db plans will be disappointed (and impoverished).

Friday, December 19, 2014

The Cuba Opening

President Obama has moved to "normalize" relations with Cuba.  This is a good idea.

But, in a bold admission, the Obama administration admitted frankly that sanctions have done no good in Cuba.  They have not only done no good in Cuba, but are doing no good in Iran or Russia as well.  Sanctions are a poor substitute for a serious foreign policy.  Sanctions are easy to violate and usually constitute a very loud admission of weakness by those imposing the sanctions.  So let's end sanctions -- in Cuba, Iran and Russia.

Trade with Cuba, a tiny country with less than 12 million inhabitants and a pygmy per capita income (variously estimated between $ 7,000 and $ 18,000 per capita), is not going to move anyone's needle.  But trade is almost by definition a win for everyone.  So, we should not only deal diplomatically with Cuba, we should trade freely with this small island nation.

Trade restrictions always have unintended consequences. We should have no trade restrictions, excepting products that are directly related to national security concerns.  Letting Coca Cola and McDonalds operate in Cuba, Iran and Russia makes good sense and should not be prohibited.

Monday, December 1, 2014

What The Drop in Oil Prices Mean

Oil prices are collapsing and that will change things.

Countries like Russia, Iran and Venezuela are finding out that fortune quickly turns to misfortune, when your economy depends overwhelmingly on a single natural resource.  Similarly, areas of US economic growth -- Houston, for example -- may be in for a time of anxiety.

Decisions made at $ 110/bbl look problematic when oil falls below $ 70/bbl.  It is not all good news.

The main recipients of good news are oil consumers -- which includes most folks.

But decisions made that depend upon incorrect future information destroy resources.  Think about investments in "alternative energy." Are these investments worth anything at the current barrel price of oil? Wind and solar energy look even more ridiculous now than they did just a few months ago.  How about "energy efficient" transportation?  The government's subsidies of "alternative energy" can now be characterized as money poured down the drain.

For an economy as weak as the current US economy, the struggles of the oil industry could put a huge damper on the economy.  The only bright spot -- technology -- could be threatened by the demonic regulatory agenda of the Obama administration.

Meanwhile, Europe is weakening and the emerging markets are getting crushed.  Not a pretty picture.

Wednesday, November 26, 2014

Liquor and Drugs on Campus

Without doubt, heavy use of alcohol and drugs have contributed to the overall culture of the modern elite University.  Most students (and often parents as well) think alcohol and drug laws are meant for someone else.  This is the problem with such laws.  Everyone thinks that they and their children should be exempt from enforcement.

It is well known that drinking and drug use are widespread in the modern college culture (as well as widespread in many high school settings).  The world would probably be better off without these laws, since they tend to be selectively enforced.  This contributes to the "elite" atmosphere.  Laws are meant for others, but not for us.

If law breaking is the norm, then why stop at alcohol and drugs.  Why not break other laws as well.  We the elite, students often think, should pick and choose which laws should apply to us.  After all, we are the elite.

Perhaps law enforcement should give some thought to enforcing laws regardless of where that might lead -- including to fraternity houses at elite colleges.  It is not as if there is anyone who thinks drinking and drug use are hidden activities on today's campuses.  This stuff is very much out in the open.

Is there any student, who is unaware of the existence of "fake ids?"  What percentage of students have or have had fake id's.  It is pretty easy to solve this problem.  Criminally prosecute those who have fake ids (forget about those who make them, because other makers will replace them).

More and more schools compete for admissions by extolling the "club-med" aspects of university life.  Perhaps an increasing focus on education and simple enforcement of the law on college campuses would go a long way toward improving the "culture" of the modern elite universities.

Monday, November 24, 2014

Re-examine the "Privacy" Laws

While we are on the subject of higher education, it is worth rethinking the so-called "privacy" laws that prevent universities, so they say, from alerting parents when students face serious, even life-threatening, problems. 

This past week, to add to other woes, the University of Virginia suffered one more suicide among its undergraduates.  Suicides can be prevented by the proper intervention.  But, privacy laws often leave parents completely uninformed.  Parents learn, often only after the fact, that their child had been thinking about suicide for many months.  The authorities at the schools were aware that the child was suicidal, but were prevented, so they say, from alerting the parents because of "privacy" laws.

If alerting parents could save a child's life even though violating privacy laws, then, by all means, violate the privacy laws.  How is this decision even close?  Parents should be informed when their undergraduate child is in trouble, especially when the trouble is serious enough to threaten the child's life. 

If modern privacy laws are threatening the interests of our undergraduates, then change the laws.  If such laws could lead to the death of a child, then violate the laws and inform the parents that their children are at risk.

Friday, November 21, 2014

Confusing the Mission

The Rolling Stones article, that appeared this week focused on allegations of criminal violence at the University of Virginia, shows what can happen when institutions depart from their main mission.

At the first hint of criminal activities occurring in the University environment, the police should have been alerted.  Had this happened on each occasion that criminal allegations were alleged, it is very likely that the types of things described in the Rolling Stones article would, by now, be a thing of the past.  Nothing gets the point across better than seeing the perpetrators draw long jail terms for their criminal activity.  No amount of moralizing can make up for simply turning the problem over to the proper authorities.

The publicity that would result from police investigations of criminal activity -- perp walks and all -- would provide solid and useful information for undergraduates about the real dangers that may exist for them in raucous party environments.  Every parent of every college student and every college student should read the Rolling Stones article.  This information should not be suppressed or ignored.

Imagine that the young people involved in the events described in the RS article had not been students, but instead been working members of the community.  No doubt, the likelihood of police involvement at an early stage would have been much more likely.  Would University staff dealing with the situation respond in the same way, if the assailants were non-students? 

Universities don't belong in the criminal justice system.  That's what we have police and courts for.  If it's an allegation of a crime, turn the information over to the police.  Period.

The prime mission of a university is education -- not criminal justice.  

Monday, November 17, 2014

What Japan's Problems Foretell

The Japanese economy continued its downward path according to data released yesterday.  This surprised pundits who believe in QEs -- central bank purchases of government debt.  The QE's seem to have had no impact in the US other than balooning the Federal Reserve balance sheet.  Looks like a similar outcome has emerged in Japan.

What is important in the Japanese story is the enormous level of Japanese government debt, moving toward 2 1/2 times GDP at a rapid rate.  Japan is running out of room.  So is the rest of the developed world.

At some point, enormous debt levels proscribe policy alternatives and that is precisely what has happened in Japan.  Higher and higher debt levels eventually will reach a tipping point and further sustained economic progress becomes impossible. Europe is probably there already.  Japan is showing, with the recent data, that it is there as well.

So, what about the US?  We seem to purring along while the rest of the developed world stagnates. Can this continue?  Our national debt has doubled in the last six years while GDP has moved sluggishly forward.  We can't be far behind Japan and Europe.

Saturday, November 15, 2014

Bending the Cost Curve

As the New York Times notes in today's edition, health insurance costs under Obamacare-approved plans are set to rise more than 20 percent in the new year.  At that rate, health costs will, in time, consume the entire household budget of the average American family.  So much for "bending the cost curve."

Meanwhile, More Americans are without health insurance today than on the day before Obama signed the "Affordable Health Care Act' into law.  And that trend will continue.

So, what do we have:  higher costs, more uninsured, fewer doctors, fewer hospitals, and decreasing quality of health care.  The Veterans Administration has already shown where the US system is headed.  The main function of many health care officials in the VA is to fudge the numbers so that the plight of veterans never makes the light of day.  Expect more of that from Obamacare.

From the finest health care system in the world to one of the worst.  It won't take long.  Our health care system is simply following the same route that has already been pursued by our public education system.

To the wealthy elites, like Jonathan Gruber, this is all okay. They don't get their education or health care in the same way or place that they are forcing upon the average American family.  They live comfortably in their private schools and cloistered universities, while deliberately misleading the American public, who they openly refer to as "stupid."

Friday, November 14, 2014

The Jonathan Gruber Flap

Sadly, the revelations that surfaced this past week concerning MIT Professor Jonathan Gruber came as no surprise to many of us in academe.  Numerous videos of Gruber, the architect of both RomneyCare and ObamaCare, laid bare the duplicity and hypocricy of the machinations that led to Congressional passage of both RomneyCare and ObamaCare.  While Gruber has made it clear he wishes that these videos had never seen the light of day, he has yet to dispute the central theme of the videos-- that Gruber and others deliberately mislead the "stupid" American people regarding almost every aspect of ObamaCare.

It is clear that Gruber would prefer not to have to deal with messy things like democracy and transparency.  Gruber, like Krugman, are so convinced that they are right and that the average American is stupid, that there is really no need for Americans to be properly informed.  Indeed, Gruber's admissions of duplicity were put forward with pride.  Gruber thought that his views would never become public because his contempt for the average American was displayed in talks to fellow academics, most of whom share his contempt for the average American and for democracy itself.

This is what happens in the world of the elite, that Tom Sowell has so eloquently described on many occasions.  Debate and process are irrelevant when you have all the answers. No need for transparency or honesty, when your view of the greater good is at stake.

This attitude explains why most academics are opposed to letting Americans choose for themselves -- whether in education, health care, or in the workplace.  They know best.  Gruber deserves thanks for exposing his view of the world for all of us to see.

Sunday, November 2, 2014

What Should BeThe Republican Agenda?

It seems increasingly likely that the Republicans will control both the House and the Senate after the voting is over on November 4th (though likely runoffs could take place in Georgia and Louisiana).  If the Republicans win, what should they do?

There are basically two directions they can pursue: 1) The gimmickry approach; 2) The free market approach. 

The gimmickry approach is to propose a variety of tax and spend "gimmicks" designed to boost economic growth.  This would simply replace Democratic gimickry with Republican gimickry.  The Democrats have been using the taxpayer to reward their friends; now it's our time, say Republicans.  If the gimmickry approach is taken, then you can forget about any real sustainable economic growth.  It won't happen.

The free market approach will be mostly about undoing the most damaging new regulations, new taxes, new government bureaucracies that have been put in place the last five decades.  Repeal of Dodd-Frank and Sarbanes-Oxley would be a good beginning.  Returning the Justice Department to the enforcement of law as opposed to the policies of extortion that dominate current Justice Department policy.

Passing a simple law that says that every citizen has the right to buy or not to buy whatever health insurance plan they want and that no law can restrict the right of insurance companies to sell insurance plans that people want.  There are other ways to deal with "pre-existing" conditions and lapses in coverage than destroying the rights of ordinary Americans to pursue health care services in whatever way they wish.

Eliminate the tort-crazy litigation that dominates American commerce.  The old "buyer beware" doesn't solve all problems, but it is time to rethink the current litigation overkill of modern day America.  Not just in health care, but in all areas of commerce.  The abuse of "class action" suits has simply served to further damage the economic standing of the average American, who owns the stocks that end up footing the bills for this madness.

A simple return to free markets should be the agenda of the Republicans.  Only such an agenda can further the economic interests of the average American.

Saturday, November 1, 2014

Japan's Monetary Stimulus -- Good News?

World stock markets surged last week on the news that Japan was putting in place it's own version of the Bernanke QE (quantitative easing) policy.  What is QE?

QE is a central banking policy that involves creating (out of nothing) currency and then using that (digitally created) currency to purchase bonds (usually, mostly government bonds or government-backed bonds).  On the face of it, this policy seems pointless, other than possibly reducing the value of one's currency and expanding the amount of government debt by providing the government itself as a buyer.

So, what is the point, according to those who believe in QE?  To true believers, QE provides needed liquidity to a weak economy and keeps interest rates much lower than they would be. In other words, QE is seen as a stimulus to the economy by QE supporters, through there is no empirical evidence whatsoever that QE does what it supporters claim.

Interest rates during the 10 years of the Great Depression (1929-1939) were rock bottom, with treasury rates never exceeding 1/4 of one percent for the entire decade.  Where was QE when this was going on?  The answer is that there was no QE at all during this period.  Rates were low for reasons unrelated to Fed policy, which is probably also the case today.

QE basically enables higher levels of government debt that sets the stage for massive inflation once private lending takes off, dramatically expanding the money supply.  It works like a toxic and fatal drug that, for a while, eases the pain.

So, what's the deal with Japan.  Japan is the world's third largest economy after China and the US with a per capita income of almost $ 50,000.  But Japan has two major problems: (i) too much sovereign (government) debt -- over $ 10 trillion and more than twice its GDP; (ii) moribund economic growth.

So, what to do?  QE simply expands the ability of Japan to raise its debt levels, while doing absolutely nothing about Japan's moribund economic growth.   In other words, the answer to the problem of too much debt is to increase the amount of debt.  That's the answer that the Eurozone has stumbled upon.

When the momentary euphoria fades, reality will set in.  QE policies only make things worse.

Wednesday, October 29, 2014

Riding the Stagecoach

Increasingly, the US is divided into two groups: those riding atop the stagecoach and those running along beside, trying desperately to climb aboard.  Government employees of all stripes, including public school teachers and university professors, are happily on top of the stagecoach driving the horses forward.  "Higher pay, more benefits," they cry as they look with contempt upon those trying to muscle their way on board. 

Listen to Elizabeth Warren, Harvard University's version of a "Native American," as she exhorts her followers to pour more and more money into the privileged folks that ride in the comfortable seats on top of the stagecoach. (Warren had noted early in life that a possible ticket to the top of the stagecoach was to pretend to be something that she was not -- a Native American.  With that pretense, she launched her Harvard and then, later, her political career.  She's not stupid.  At least Ms. Warren had the good grace, years later, to own up to the falsehood, but only after riding atop the stagecoach for a number of years).

Those in the private sector, running alongside the stagecoach, trying to provide for themselves and their families by competing in the what is left of the free market, are increasingly falling further and further behind.  This is the real inequality story.  Those on the stagecoach have the political muscle to extract rents from the rest of the population and they do so. Earning between two and five times as much as the average income in the US, government employees clamor for more -- and get it.

Meanwhile by promoting increases in minimum wage laws, which will never affect those riding atop the stagecoach, the elite effectively toss obstacles in the way of those running alongside.  Too bad if your skill set isn't sufficient to make the minimum that we, the elite, think you should be paid.  There is no place on this stagecoach for you.

As the free market plays a decreasing role in the US, more and more goods and services are allocated by government decree, often without any consideration by the Congress.  The executive branch increasing feels that it is its right to decide who gets what.  This is a far cry from a free and independent people.  Instead it becomes who you know and who you lobby.  Stand in line for your benefits.  Wait in line for your health care.  The government will take care of you.

In a free market, all would have the opportunity to climb aboard the stagecoach, but in the brave new world, it's who you know and how much political muscle you can bring to bear.

Monday, October 27, 2014

Global Trouble Ahead

Almost anywhere you look, economies are weakening and anti-capitalism rhetoric is increasing.  The election results in Brazil are one clear example of both.  Even the American elections are dominated by issues that are unrelated to economic growth and more focused on government competence issues.  Regardless of who wins on November 4th, the steady march away from free market capitalism in the US is likely to continue, even if the big government gas pedal is not completely pressed to the floor.

Asia is weaker, Europe is moribund and the BRIC nations are much, much weaker than a year ago.  Global sovereign debt is, if anything, more out of control than ever, expecially in the US, Europe and Japan.  The perennial optimist Larry Kudlow pointed out that a mere 12 1/2 percent of American exports go to Europe.  True.  But, 30 percent of corporate profits of US corporations are generated outside of the US.  A weaker world means weaker corporate profits.  Earnings announcement this quarter featured gloomy guidance for the future, confirming the weaker outlook.

In almost every case, government is strangling economic growth -- in the US, in Europe, and across the globe.  Capitalism had a renaissance in the 1980s and 1990s, but the 2008 financial crisis destroyed the consensus that promoted capitalism and has led to strangling government intervention pretty much across the globe.  The world is now paying the price for that strangling government intervention.

As is always the case, stagnant economic growth hits the poorest among us the hardest.  In the US, the poor, the minorities are losing ground.  This feeds the "inequality" battle cry, that only serves to make matters worse.  Only the rich and protected prosper when government becomes more active.  We can see that now in the US and in Europe.  While breathing heavily about their support of the middle class, the big government advocates have put in place policies that protect their own privileged status and reduce the economic opportunities of the poor and the middle class.

The stagnant economic climate will only grow worse as long as growth in the power of government continues apace.

Friday, October 24, 2014

Nudging Toward Chaos

Increasingly, the elite Universities in America are becoming known for drunken and loutish behavior, that is not necessarily confined to any one demographic.  Both female and male students, in growing numbers, devote more hours to sex, drugs and alcohol than to more traditional academic pursuits.  The results of this type of behavior are making the headlines across the country in a manner that is becoming commonplace, if not shocking.


One culprit is the imposition of laws forbidding "minors'" access to alcohol.  These laws are no more effective than laws banning drug use.  They simply make alcohol more attractive to young folks, determined to show their elders that they are free and independent.  Abolishing alcohol and drug prohibitions would be a good first step toward removing the "rebellion" motive from the equation.  But, these laws have been in place for a long time and surely cannot account for the dramatic trends that we see today on most college campuses.

More important are changes at "academic" institutions that almost guarantee the pursuit of bad behavior.  High on the list would be the modern academic calendar, which no longer lists any courses that meet on Saturdays and, increasingly, finds few, if any, courses that meet on Fridays as well.

This means that most college students, looking around at 4 PM on a Thursday afternoon, realize that they are not required to be in a classroom at any time over the next three days.  So, what to do, with three available days off every single week?  Well, guess what.  They are finding things to do and it is no surprise that sex, alcohol, and drugs are rapidly becoming the main attractions.

Merely shifting the calendar back to require classes on Fridays would eliminate the automatic three day weekend, that for most students at elite schools, now begins on Thursday afternoon.  It is not clear why Saturdays should not be used as well.  Empty classrooms can be found at every elite school in the country for the vast majority of time that most folks would normally count as the "workday," a word that increasingly is losing any meaning in the academic world.

Both faculty and students have a vested personal interest in reducing the hours and the days which they must set aside for classroom activity.  But, this means that these hours can and will be filled by other pursuits, not all of which serve to advance the educational goals of these institutions.

Simply changing the academic calendar to once more include Friday classes could promote more responsible behavior on today's campuses.

Saturday, October 18, 2014

Solving Inequality the Venezuela Way

The constant drumbeat about inequality coming from the Obama Administration and, more recently, echoed by Hillary Clinton and Janet Yellen will produce more calls for direct government intervention to redistribute income and wealth.  They have a blueprint to follow -- Venezuela.

To see how that's working out, just stayed glued to your armchair.  Venezuela is self destructing as an economy. Once the pride of South America, helped by a booming oil industry, Venezuela is now degenerating into economic chaos.

Venezuela's Hugo Chavez was "democratically" elected to deal with inequality.  His message was, in most respects, the same message that we hear from Obama, Clinton, Yellen and others who find capitalism and free markets unseemly.  Chavez followed the earlier examples of Cuba, the Soviet Union and other enemies of "inequality."  The leaders of these countries lived in luxury while the average citizen descended into a political prison and a life of economic deprivation.

Under Chavez, Venezuela embarked upon an expanded version of the Obama agenda -- increasing government control of the economy, massive subsidies to large (politically friendly) sections of the population and an unceasing, unrelenting war of words (and arbitrary new rules) against the business community.  The rule of law became a thing of the past and civil liberties disappeared in the interest of reducing economic inequality (as always happens).

In some measure, Chavez succeeded.  If you ignore the extreme wealth of the political class in Venezuela, the rest of the country is showing less and less inequality, as gradually the entire populace moves in the direction of poverty.  This follows both the Soviet model and the Cuban model closely.

The big government approach to reducing inequality always and in every case leads to reducing the vast bulk of the citizenry to penury, while the political leaders bask in their palaces and pat themselves on the back for their anti-inequality accomplishments.

Meanwhile, what does capitalism do for you.  Check out modern China to see.  Today, the only place on the globe that shows economic growth is China and its periphery.  Capitalism is the order of the day along the eastern seaboard in China and result is over 300 million people have moved from dire poverty to middle class economic status.  Not bad.

There are no examples in the history of the globe where waging war on inequality and abandoning capitalism has succeeded in improving the lives of the average person. But, there are plenty of examples of the Hugo Chavez experiment in Venezuela.  Obama, Clinton and Yellen would like to bring the Venezuela experiment to the US.

Wednesday, October 15, 2014

The Return of the Luddites

William Galston's editorial in the Wall Street Journal exhibits ever-more confusion about why the middle class has lost so much ground in the US in the last five decades.  Galston, like the Luddites of 19th century fame, blames the plight of the middle class on technology.  Here is the ultimate statement of Galston's confusion:

"It is easy to conclude total compensation has been rising briskly even if wages have stalled.  But the facts don't bear out this conjecture.

Between 1981 aand 2014, according to calculations based on the Bureau of Labor Statistics, wages corrected for inflation rose at the anemic rate of 0.3% a year.  But total compensation -- wages plus benefits - hasn't done much better, rising at only 0.6 % a year."

First, it is worth noting that the "total compensation" that Galston cites is rising twice as fast as wages, even if both growth rates are small.  The absolute difference between wages and total compensation over time is huge, given these growth rates.

Second, the issue is not "total compensation," but the price of labor.  It's what employers have to pay, not what employees get that determines the price of labor.  The price of labor has gone through the roof, even if total compensation has risen more slowly (albeit twice as fast as the employee wage).

Why?  There are so many reasons, it's hard to know where to begin.  Think about lawsuits concerning workplace issues -- discrimination, pay equity, family leave, safety issues (real and imagined) and on and on.  These things cost and they cost a lot.  Unfortunately, the brunt of these costs often fall most heavily on those who these kinds of lawsuits are intended to help.  Regardless, such things all raise the cost of labor, but do not show up in "total compensation."

If you passed a law saying that an employer must throw $ 50,000 per year in the ocean for every employee they have, that would be an addition to the price of labor, but it would not show up in Galston's "total compensation."

It is surprising that the idea that increases in the price of labor lower the demand for labor is so hard for economists to fathom.  Equally surprising is the failure to understand that so-called "benefits" and mandates inevitably fall back on employees and serve to directly reduce wages for any given level of the price of labor. 

How can the middle class improve their lot in this situation?  Banning technological growth is not the answer.  How about letting free markets work and eliminate all the government-imposed costs that are added to the price of labor.

Saturday, October 11, 2014

The Alternative to Big Government

The only environment that has ever produced real economic growth is an environment of free markets.  The most recent historical example is that taking place in China in their easternmost provinces.  True, China is far from a free market economy overall, but in the few spots where free markets have been permitted to do their thing, an economic revolution has occurred.  While there have been a growing number of billionaires sprouting up during the economic boom, the real change is the movement of hundreds of millions of Chinese from dire poverty into the middle class.  Government cannot accomplish a change like this, but free markets can and have.

During the heyday of the old Soviet Union, Americans were constantly regaled by stories of successful five year economic plans in the Soviet Union, while economic growth in the US, then about 3 percent, was seen as pitifully low.  That was then, this is now.  Now, we know that over more than six decades of Soviet rule, there was no economic growth at all in the Soviet Union and agricultural output, in particular, declined for the first five decades of Soviet rule.  So much for the glories of centrally planned economies.  Meanwhile, 3 percent growth seems an elusive goal in modern America, beset by central planner dominance of government.

The difference between government planning and free markets lies in the unleashing of human initiative and effort.  Academic equations cannot capture this.  Academic economics assumes a robotic world that only government policy can impact.  But, the real world is not like that.  Ideas and human beings, left free to do their thing, do their thing and the world is a better place for it.  Idealistic reformers pave the way for the Stalins, the Hugo Chavez's, the Fidel Castro's and, yes, the Ayatollah's. 

When has a radical reform movement, centering upon the concept of improving the lot of poor people, ever led to an outcome that is anything but abhorrent?  There are no historical examples.  All of these movements end up with a Hitler or a Stalin or a Hugo Chavez, no matter how well meaning the activists that began this trail to disaster. (Note that the American revolution was not a radical reform movement centered upon improving the lot of the poor, though the revolution certainly had that effect; ditto for the British and their Glorious Revolution).

If you want to help poor people, give them economic freedom.  Then they can help themselves.  Government policies simply create an ever strangling prison that the poor, eventually, can never escape.

If you really want to help poor people, then give them the right to choose where their children go to school, the right to work whereever they want to work and for whatever wage or other arrangement they choose.  Let people provide the health care they need in whatever way they wish. Allow people to provide for their own retirement, assuming they have any interest in retiring.  In short, break the chains that bind poor people to an economic life with little promise or hope.

It's worth noting that "activist" leaders that promote big government are almost, without exception, individuals that are drawn from the wealthiest economic backgrounds of society.  Folks like George Clooney, Sean Penn, Warren Buffett, George Soros, Mark Warner, Bill Gates, and, yes Gwyneth Paltrow have no ties whatever to the poor. These wealthy elitists are in the Vanguard of strangling the hopes and dreams of the folks at the bottom of the economic pile and thereby promote their own sense of personal nobility.  They can smile knowingly and check themselves out in the mirror, while the poor struggle in the prison that these folks continue to promote.

Friday, October 10, 2014

So How is Draghi Doing So Far?

Mario Draghi, who heads up the European Central Bank(ECB), has been following the Bernanke lead and expanding, dramatically, the role of the ECB.  Over the mild and muted objections of German finance officials, Draghi has gradually but ominously pushed Germany increasingly into the role of backstopping the profligate economies of Greece, Spain, Italy, and, yes, France.

The Ukraine sanctions are probably the trigger that has turned the once-strong German economy in a downward direction.

Europe is an economic basket case because of taxes and regulations. That's not changing.

Today's WSJ article by Giada Zampona and Marcus Walker had this to say about what ails the Eurozone:

"Rigid market regulations, onerous taxes on jobs, and other long-standing labor practices have contributed to a long-term decline in economic dynamism in many parts of Europe, a trend exacerbated by the long financial crisis.

A lack of demand in Europe's economy, which shows up in stubbornly high unemployment and very weak inflation, is compounding the region's supply-side problems.

A feeble economic recovery since 2013 is at risk of petering out, economic data in recent weeks have shown, putting increasing pressure on euro-zone governments to act."

Note that commentators always look to government to lead the way out.  Perhaps a less active government with fewer regulations, lower taxes, and more reliance on free markets might help.  After all, the highest economic growth in the history of Europe and the US occurred when governments were relatively small and unobtrusive.

In the current political environment, governments are involved in every nook and cranny of American and European life.  No wonder there is a declining role for individual initiative and economic dynamism.  Europe and the US continue to move toward the old Soviet model.  That means, increasingly, stagnant economies that pit rich against poor, since the poor have few opportunities in a stagnant economic environment. 

Thursday, October 9, 2014

Russia is an Economic Mess

It is interesting that the Western countries have blinked in the face of Russian policy toward the Ukraine.  Fearing a shutdown of oil and gas from Russia to both the Ukraine and to Western Europe, the NATO alliance essentially backed down in the face of Russia's aggressive actions toward the Ukraine.

What would Russia do without it's oil and gas exports?  They have to sell it.  If not to Western Europe, then they would have to scramble to sell it elsewhere.  If that happens, since oil and gas is pretty much fungible globally, there would be plenty of oil and gas for Western Europe and for the Ukraine in time.  The "in time" is simply a reflection that temporarily oil and gas might have to be brought in from other sources.  These sources are available in abundance at the present time.  The world is overflowing with available oil and gas and the global market prices for oil and gas have been plunging for quite a while, reflective of that relative surplus.

Russia actually is an economic pigmy.  Capital imports into Russia have ground to a halt as Putin has, more or less, annihilated what little free-market activity occurs in Russia. Russia is gradually headed back to the old Soviet model -- the government dictates and the people suffer.   The winners are those in power and the oligarchs that Putin favors.  This is not a recipe for economic strength.  It is a recipe for weakness.

Anytime you see folks claiming to be fighting for the working classes, watch out.  The end result is, in every case, a pure dictatorship where the spoils are dished out to family and friends.  Think about that when you hear the current cries about inequality in the US.  Those who shout the loudest are likely hopeful that they and their allies will be able to decide who gets what.  Once you replace the free market, then it just becomes a power game and the winner puts his family and his friends in the drivers seat.  Putin probably laughs at our current concerns with inequality.  He knows where that is headed.

Wednesday, October 8, 2014

Europe Slips Into The Abyss

The data released on German manufacturing just adds to the gloom in the Eurozone.  No growth looks like it is turning into negative growth.  So much for aggressive actions by the European Central Bank over the past six years.

The answer to the horrendous debt problems of Greece, Italy, Spain, and France was more debt.  The politicians resisted dealing with the root cause of the problem -- the absurd, anti-free market regulatory and labor law environment prevalent almost everywhere in Europe.

Instead, the politicians, including conservative Angela Merkel, looked for big government solutions with dramatically higher levels of sovereign debt.  It's not working.  The US can't be far behind.

The Real Pricetag for Obamacare

Now the employer mandate kicks in.

Massive increases in health insurance are now hitting companies and employees thanks to Obamacare.  The Wall Street Journal story on WalMart lays out the truth as opposed to the Obama Administration fictions.  30,000 part time employees lost their health care coverage this week at WalMart and the remaining employees faced a 20 percent increase in premiums.

It will get worse, much worse.

Not only will Obamacare cost the vast majority of working Americans massive amounts of increased costs in increased health care insurance premiums and dramatically higher deductibles, but, for almost everyone (who is not wealthy), there will be very few doctors and hospitals available, especially for the millions of Americans pushed onto the exchanges as Obamacare implementation unfolds.

The result: dramatically higher costs for the average American and declining availability of actual health care.  Same old story -- now you have insurance, but you no longer have health care.

The worst part is: employees are footing the bill, not employers, even though employers appear to be the payers.  They aren't.  The employees pay in fewer jobs and lower wages.

Meanwhile, Warren Buffett has it made.  He will never be forced onto the exchanges, nor will Obama, Hillary, George Soros, Mark Warner, Bill deBlasio, Harry Reid, Nancy Pelosi, etc., etc.  These folks are wealthy and will never be forced to face the indignities that are being forced upon lower and middle income Americans by the implementation of Obamacare.

The wealthy liberals really don't care about the disaster that is Obamacare because they personally will never: (1) pay for it; (2) be subject to it.  They are destroying the finest health care system in the world, but preserving their little ocean of prosperity and excellent health care for themselves.  Meanwhile, they condemn the poor and the middle class to the nightmare that is Obamacare.

Sunday, October 5, 2014

The Wage Growth Puzzle --What Puzzle?

The NY Times is a great source for articles about economic facts that seem to be written by folks who don't have any real understanding of economics. Today's article by Justin Wolfers, "Jobs Report Highlights the Wage Growth Puzzle" is only the latest illustration of these bizarre articles.

The "puzzle," according to Wolfers, is why wages are not growing even though the demand for labor seems to be growing.  The confusion is that Wolfers doesn't seem to understand that the price of labor is not the wage rate.  The price of labor is the wage rate plus all the other costs associated with hiring an additional employee.

The price of labor has, in fact, skyrocketed.  But wages are, increasingly, only a fraction of the price of labor.

The economics is simple: as the demand for labor goes up, it's price rises.  What could be simpler than that?  And that is true.  Look at the data.

If you require mandates on employers, those become part of the price of labor whether the employee receives any benefit or not.  Things as simple as "family leave" mandates raise the price of labor, but they do not raise wages.  In fact, all things the same, they lower wages.

No session of Congress goes by without a proposal to impose additional mandates on employers who have employees.  Many of these pass -- unnoticed, by and large, by folks who write newspaper articles about the lack of wage growth.

Big enchiladas, like mandated health care coverage, directly impact the price of labor and substantially reduce wage rates.  Employers aren't really paying for these mandates.  Employees pay for these mandates with wages becoming a decreasing fraction of the price of labor.

Why is this hard to understand?  An employer could care less what the wage rate is.  It is the price of labor that matters to an employer.  Mandates raise that price.  Absent a growth in labor productivity, then wages have to be lowered to maintain the same price of labor.

Surprise! Surprise.  The price of labor is rising, but wages are going nowhere.  That's not going to get any better in the future, because mandates like health care costs are going to become increasingly more expensive.

Puzzle resolved.

Saturday, October 4, 2014

Unemployment at 5.9 Percent

Hip Hip Hooray!  Six years later, the economy has achieved permanent mediocrity.  These are exactly the pitiful kinds of numbers that propelled Bill Clinton into the White House against the first George Bush.  Remember James Carville's line: "it's the economy stupid."

Now, the Obama folks cheer economic numbers that the Clinton folks derided as inadequate, which tells you how low are the expectations of the Obama advisors.

When economic growth muddles along, the folks at the bottom of the economic pile suffer the most.  This was the only correct assertion made in Piketty's book, "Capitalism in the Twenty First Century." 

If you want poor people to gain some traction, get economic growth up.  The poor gain the most when the economy is super strong.  A weak economy doesn't really hurt the rich, but it can be devastating to the prospects of the poor.

Free markets provide opportunities.  Big government closes down opportunities, perpetuates inequities and enables rich folks to keep their thumb on the scales.  This is why the Buffetts and Warners and Gateses and Soros's of the world support big government.  It keeps them in the driver's seat, closing the door to the aspirations of the folks with little income or wealth.

An unemployment rate of 5.9 percent is pitiful.  Job growth of 250,000 per month is mediocre.  It's better than Europe, but no match for Asian economies, who seem to understand the value of economic growth.  That Obama acolytes can celebrate this kind of economic performance is telling.

Friday, October 3, 2014

The Fed and Low Rates

Everyone seems to agree that the Federal Reserve is responsible for our very low interest rates.  Maybe they're not.

In the 1930s, the yield on 3 month treasury bills never exceeded 1/4 of one percent....ever for the ten year period starting in 1929.

What was the Fed doing then?  Random stuff.  From 1929-1933, the money supply fell and then later rose and fell with no particular pattern.  Yet, rates stayed on the floor.  So, what role did the Fed play then?

Maybe, it's not the Fed.  True, the Fed balance sheet is out of control, but rates may be low for the usual supply and demand reasons.

Thursday, October 2, 2014

The Unwinding of CALPERS

CALPERS, shorthand for California Public Employee Retirement System, is fighting in Federal bankruptcy court to demand that payments to the fund be protected against the bankruptcy of the city of Stockton, California.  CALPERS wants to be treated differently than all other creditors of Stockton.  They want full repayment, not some haircut, of the future moneys to be paid into the fund to provide for the retirement of future Stockton retirees.

A Federal judge on Wednesday opined that it wasn't even clear that CALPERS was owed anything by the city of Stockton, since the amount of future payments is not currently known, even if Stockton were solvent.  In any event, the judge ruled that CALPERS had no right to be treated separately in bankruptcy.  Given the looming bankruptcy of numerous cities in California, not to mention the state itself, CALPERS is in deep, deep trouble.  This threatens the future pension payments for state employees in California.

An article in today's NY Times by Mary Williams Walsh  lays out the court's opinion on the plight of CALPERS.

Quoting the judge: " bankruptcy, Stockton could legally refuse to pay the bill because it arose from the city's contract with CALPERS, and contracts are broken routinely in bankruptcy.  The bankruptcy code provides that the lien can be avoided and be treated as an unsecured claim," Judge Klein said.

This is the beginning of the end for CALPERS, long the most underfunded public pension fund in the United States.  Not far behing CALPERS is CALSTERS, which is California's pension fund for public school teachers.  That one is a mess as well.

For years, politicians and board trustees of public pension funds, have buried their heads in the sand while their pension funds' unfunded liabilities have soared into the stratosphere.  Now the day of reckoning is here.  The pensions that public employees and public school teachers expect to be waiting for them are not going to be there.

Meanwhile, the largest pension fund in America, TIAA-CREF is fully funded and then some.  This is the pension fund that applies to academics.  It is a defined contribution fund, which, by definition cannot be underfunded.  These same academics, who have a comfortable retirement future ahead of them, have been part of the problem with the unfunded nature of public pension funds.  They have been in the vanguard of resisting reform in the public pension world.

The looming disaster in California that will spread to almost every state in the US has been a bi-partisan affair.  Republicans and Democrats alike have swept the growing problems of public pension funds under the rug for generations.  The grandaddy of them all -- social security -- has the same problems ahead for the same reasons.

Wednesday, October 1, 2014

The Poor Take Another Punch in New York City

Mayor de Blasio of New York City has issued an executive order raising the minimum wage in the city from $ 11.90 to $ 13.13.  This will not effect many New Yorkers. The upper middle incomes and the affluent will hardly be affected at all, which is probably why they support the increase.

I am reminded of Marie Antoinette's comment: "Let Them Eat Cake."

The people that will be affected are mainly people at the bottom of the economic pile.  For many of them, the minimum wage law is a "prohibition law."  It prohibts the low-skilled person from being employed.  Minimum wage laws make it a crime to have a job unless your skill set reaches a particular minimum.  New York City's deBlasio just raised that minimum.

To be fair to all, deBlasio ought to raise the minimum wage to $ 200 per hour so that well-off New Yorkers can be prohibited by law from working as well.  Why are just the folks at the bottom of the pile deemed criminals for taking a job.  Why not apply the same reasoning to everyone?

Why are laws criminalizing employment thought by the left to be good ideas?  I think the only way to get the left to appreciate the harmful impact of such laws is to raise the minimum wage to $ 200, so that such laws will affect the affluent left, like deBlasio, as well.

Monday, September 29, 2014

So, How Goes Europe?

"Businesses and consumers across the 18 countries that share the euro were more downbeat about their prospects in September than at any time since the end of 2013, likely reflecting disappointment with the pace of the eurozone's economic recovery and the conflict in Ukraine."

This cheery comment was the lead sentence in this morning's Wall Street Journal report on Europe by Paul Hannon.

We are in to year six of the non-existent European recovery.  Is growth simply over for Europe?

The massive debt problems that exploded in the Greek crisis of three years ago are now much, much worse.  The solution to massive debt problems was to add even more debt to the pile.

That isn't working and it has no hope of working.

The US should be watching this ongoing disaster in Europe.  Big government solutions ultimately lead to what is happening today in Europe.

And who are the losers?  Folks at the bottom of the economic pile.  When you destroy free markets you destroy the hopes and dreams of the poor and the middle class.  The rich continue to live like George Clooney and Warren Buffett.

Sunday, September 28, 2014

Medicaid Without Health Care

It is typical of the Obama Administration to tout form over substance.  Even the sympathetic voice of the New York Times cannot avoid the obvious.  While millions have been added to Medicaid rolls in the last twelve months, it is becoming increasingly impossible to find doctors that will treat Medicaid patients.  This will only get worse, much worse.

There was never any real intention to expend health care services.  Instead, the idea was to extend Medicaid and Medicare.  The fact that, increasingly, doctors refuse to take on Medicaid and Medicare participants was of no matter to supporters of Obamacare, Medicaid, and Medicare. 

Why does it really matter if these folks don't have access to health care? At least that they have access to a government program, regardless of whether any real health care comes with it.

Today's New York Times article in the business section by Robert Pear entitled "For Many New Medicaid Enrollees, Care is Hard to Find, Report Says."  The article comments that "...Obama Adminstration and state officials have done little to ensure that new beneficiaries have access to doctors after they get their Medicaid cards, federal investigators say in a new report."

This outcome, Medicaid without health care, is completely predictable.  It is the future of Obamacare that is being displayed.  Forcing everyone into a government program and then reducing the amount available for the program means that the amount of health care will prove inadequate.  As usual, those at the bottom of the economic pile, will find that they will bear the brunt of this "bait and switch" policy.  Government promises, but does not deliver.

Meanwhile, the Warren Buffetts of the world will do fine.  The one-percenters like Buffett put health care in a strangle-hold so that average and low income Americans get the short end of the stick.  Buffett isn't going to depend upon Obamacare, so what does it matter to him.  But, it will matter to the average American, who is giving up the best health care system in the world for an uncaring and undelivering government bureaucracy.

There is no sign that the Adminstration has any plans to deal with current doctor shortage for folks that have been forced into Medicaid.  But, they can point to lower costs.  One way of reducing costs is to not provide health care for the poor.  That seems to be the favored track of the Obama Administration.

Saturday, September 20, 2014

The Holder Transfer Payments

Increasingly the US government is a transfer machine that takes money from one group of citizens and gives it to others.

The Eric Holder lawsuits against the financial service industry is a great example of wealth transfer from average Americans to the friends of Eric Holder.

When a financial service company settles a lawsuit brought by the Attorney General's office, who pays?  Bad guys?  Think again.  The owners of the financial service companies are the payers -- not the bad guys.  And, who owns the financial service companies?  You do.

Long ago, whatever bad guys worked for these companies left for greener pastures.  Very few folks who may have played a role in parlaying misleading mortgages are involved today with financial service companies.  Even the owners of these companies are different.

It is, as if, someone who lived in a particular house on your block committed a crime, and the police arrested the person who bought the house from the criminal and who had absolutely no knowledge or participation in the crime.  The real bad guy could be miles away, relaxing and enjoying the fruits of his/her crime.  So, now the police come arrest an innocent person who just happens to be today's owner of the same house.

That's what Holder is doing.  He is extorting money from today's owners by alleging a crime by yesterday's employees.

Note what is not happening.  There are absolutely no charges or lawsuits against any individuals that perpetrated these so-called frauds.  No, indeed.  They will never be made to pay for these alleged crimes.  Instead, innocent shareholders, many of whom may have bought the stock long after the alleged misdeeds occurred, will pay the Holder transfer tax.

So, who wins -- friends of Eric Holder -- mostly various political interest groups like Moveon.Org receive much of the money that Holder is able to extort from the average, innocent taxpayer.

Retirement funds bear the biggest brunt of the Holder transfer tax, since more than 60 percent of financial service companies are owned by the retirement funds of average Americans.  Wonder what crime they committed?

So, large numbers of Americans will retire on a smaller pension fund thanks to the Holder transfer tax, while Holder's buddies live large.

Tuesday, September 16, 2014

Millennials' Malaise

An interesting article in today's Washington Post by Catherine Rampell mulls over the frustrating plight of America's 18-35 age group. The main points are: dwindling marriage rates, dwindling home ownership rates, dwindling job opportunities. These are all the predictable outcomes of the growth of big government solutions imposed on the economy over the last quarter of a century and the significant shifts in emphasis in our education system.

Ultimately skill development and work ethic determine economic outcomes.  When a society no longer thinks these things are important, the society loses its economic momentum.  The contrast between Asia and the western economies could not be more stark.  Asian youth find opportunities for jobs, housing and family development that were unheard of forty years ago.  The exact opposite is taking place in the western world.

Talk to American employers or visit the modern American university. 

American employers will tell you that, even with large levels of unemployment and record numbers of people leaving the work force, the pool of talented people with strong work ethic has been declining for more than a generation in the US. 

Any brief perusal of a college newspaper today will show what is emphasized on campus -- political correctness mainly.  Skill development including reading, mathematics, science and history are increasingly afterthoughts in the modern American university.  Instead, there is a constant focus on social issues and the "correct" political attitudes.

College graduates in modern America often view the job market that they are plunging into as a reward for their years of meandering through an increasingly dysfunctional education system. Instead of starting out and beginning the process of "paying their dues," many college graduates expect to move right into a lifestyle that matches the free flowing life of booze, sex and drugs that were the main components of their college days.  To many graduates, they have already paid their dues.  Now is reward time.

Meanwhile, politicians encourage a lack of interest in skill development and work ethic by beating the drums of inequality and promoting poverty-encouraging measures like increasing levels of the minimum wage.  All of this reinforces the idea that we are all "entitled" to, more or less, everything -- medical care, housing, old age income security and on and on.

The reality is that no one is really entitled to anything that their skill set and their efforts can't justify.  For a while, the political process can distort the workings of the economy, so that it seems like government can provide everything.  But, it can't.

Sooner or later the economic vitality and the cultural vitality of a country begins to wither away.  We can see that in modern America and the millennials are the first generation to feel the full brunt of the changing America.  European youth have been experiencing this phenomenon for decades, but for Americans, this is new.

Fortunately, there is positive change in other parts of the world.  This is likely to be the Asian century, as Asians, for whom skill development and work ethic take center stage, the future looks bright, especially for the young.  In some ways, this is a good outcome.  Good results should accrue to those who work to improve themselves and bad results should accrue to those who complacently think they are entitled to the fruits of other people's labor.

reward t

Sunday, September 14, 2014

If Profits Are Evil, Then So is Economic Progress

Back in the good old days -- before the beginning of the seventeenth century -- the way to get rich was to get an army and then steal and extort from and enslave your neighbors.  That pretty much sums up world history until industrialization and free markets broke through on a grand scale in the seventeenth century.

Prior to the breakthrough of industrialization the plight of the vast bulk of mankind was to live relatively short lives with little to eat and no hopes of economic betterment.  That's just the way it was -- everywhere.

The critics of free markets think somehow that market outcomes are worse than government outcomes.  History suggests the opposite.  When free markets had little or nothing to do with outcomes, goods and services were allocated more or less by brute force and those with military muscle did well and the vast majority of humans lived in constant hunger and deprivation.

By the twentieth century free markets had created the wealthy societies of Western Europe and the US, while the rest of the world languished in hopeless retardation (as much of the world still does).  The poorest of the poor in Western Europe and the US lived far, far better than the top quartile of the population in any and every country outside of Western Europe and the US.  Free markets delivered prosperity for the folks at the bottom of the economic pile.

There have always been rich folks -- long before there were markets.  But, until free markets came along poor folks always remained poor folks with no hope of economic improvement.

In every society in the history of the world, there has been inequality of economic outcomes.  The interesting question is not whether there is inequality -- there is always inequality -- even in the "workers paradise" of the old Soviet Union.  The interesting question is what system best promotes the interests of those at the bottom of the economic pile.  To this question, there is only one answer that history will support.  Free markets are the best hope for those at the bottom of the economic pile.

It wasn't the institution of the minimum wage or government health care that lifted the economic hopes of the poor in the US and Western Europe.  In fact, the case can be made that these institutions and similar institutions designed to have government aid the poor have been total failures.  Left free to pursue their own fortune the vast bulk of poor people in Western Europe and the US became the middle class throughout the western world from the early seventeenth century to the beginnings of the twentieth century.  That's why poverty is now defined on a relative basis.  An American deemed by the bureaucracy to be in poverty would be considered wealthy in all but a few countries in today's world.

When you have few resources and few advantages in life, it helps if there are no government bureaucrats creating and enforcing laws that effectively prohibit you from learning a skill or working.  It also helps if the government doesn't dictate how you receive your income (through employer mandates).  All of these restrictions on free labor contracting really only hurt poor people, as the wealthy are rarely effected by this stuff.

Government poverty programs are notoriously ineffective.  Their main point seems to solidify an economic base for politicians.  You can look at modern America as a great example.  Sustainable economic growth is based upon building the skill sets required to produce things that other people want.  There are no historical examples that run counter to this simple proposition.  Nor, will there ever be.

Friday, September 12, 2014

Jason Furman is Embarrassing

Jason Furman, the chairman of the President's Economic Council, is presumably the principal advisor to the White House on economic policy.  Today, he appeared on CNBC to give his views.

Furman would have been a perfect policy advisor to the old Soviet Union.  He views businessmen as automatons, who have (and should have) no interest in profit maximization (pity their poor shareholders).  For Furman, everything is a political agenda.

Furman's number one idea for boosting economic growth in the US is to raise the minimum wage.  So much for being an economist.  His number two idea is to punish corporations who have moved some of their business operations out of the US to avoid the absurd levels of US corporate income tax.  If Furman gets his way, no rational corporation would ever headquarter themselves in the US, with chimerical and arbitrary policies, such as Furman advocates.

There must be something in the water around the White House that turns previously rational people into economic morons.  This would explain Administration economic policy and the resulting feeble economic growth of the US economy.  It is hard to stifle the US economy, but policy folks like Furman have succeeded with their proposals that serve only to convince rational business folks in America to sit this out until a rational Administration replaces these folks.

Monday, September 8, 2014

Chuck Schumer on Making America Less Competitive

As if the very highest corporate income tax rates weren't sufficient, Senator Chuck Schumer is fashioning some new legislation that punishes American corporations even more.

At the rate Schumer is going, having your corporate headquarters in the US is going to be a losing proposition for virtually any corporation.

Schumer, who never saw a tax hike that he didn't favor, has a long list of ways to spend taxpayer money and is hoping to get as much from corporate America as he can.

Ever hear the story of the goose who laid the golden egg.  Schumer is out to kill it.

Sunday, August 17, 2014

Lehman Creditors Recover Another $ 4.6 Billion

Thus far, unsecured creditors of failed Lehman Brothers have recovered $ 57.1 billion according to today's Wall Street Journal.  This doesn't include more than $ 105 billion that was returned to customers in the immediate aftermath of the Lehman Bankruptcy.

What this suggests is that, had Lehman had a path to Chapter 11 bankruptcy, it may well have managed its way through and returned as a new Lehman Brothers, rather than go through liquidation.  In the 1930's, nearly a third of the banks that failed turned out to have positive net worth after liquidation, suggesting that the bank runs that put them under were purely psychological.

Similarly, it is looking more and more like what put Lehman under was psychology not economics.  The collapse of Lehman's access to the repo market in October of 2008 was the precipitate cause of Lehman's bankruptcy.  That is the modern form of a "run on the bank."

Normally, when companies can't pay their bills, there are two alternatives available to them (or, more accurately, to their creditors): 1) Chapter 7 bankruptcy (liquidation); or 2) Chapter 11 bankruptcy (recapitalization of the balance sheet reducing overall debt and ultimately emerging as a new company with a clean(er) balance sheet).  This latter process is not available to financial service companies, mainly because no one will do business with a bankrupt financial service company.

Strangely, travelers have no hesitation flying on bankrupt airlines or shopping at bankrupt stores or gaining health care at a bankrupt hospital.  But, partly by law, partly by custom, financial services entities cannot, in practice, utilize Chapter 11.

That should be changed.

There is no reason to liquidate an ongoing concern if a reorganization of the balance sheet can keep the business alive.

The current government strategy is to strangle financial service companies with regulations so that they cannot fail.  That is a sure fire way to guarantee that they will fail.

Better is to provide through legislation a Chapter 11 path, so that the Lehman Brothers of the world can operate like United Airlines -- go bankrupt but emerge healthier and wiser after bankruptcy.  Chapter 11 puts the onus on equity holders (who normally lose everything) and bond holders (who lose a lot but become partly bond holders and partly equity holders in the new company).  The taxpayers and customers are normally spared in Chapter 11.  That's the way it should be.

Thursday, August 14, 2014

Eurozone Does a Faceplant

Once again, the real story in Europe is the exact opposite of the rosy predictions made by the politicians.  Even the German economy has ground to a halt.  Numbers released yesterday tell the same sad story that has characterized the Eurozone for the past five years -- no economic growth -- at all.

Meanwhile debt levels in the Eurozone continue to escalate without bound.  If the debt/gdp ratio was a racehorse, it would own the Triple Crown. 

Mario Draghi notwithstanding, postponing the debt problems of Europe is not a solution to their problems.  "Extend and pretend" does not work and has never worked.   Sooner or later someone is not going to get paid.

Efforts to blame this on rich people, on Wall Street, or on the hapless George Bush are completely irrelevant.  When you can't pay your bills, there will be big losers. 

Besides massive debt problems, the Eurozone is plagued with non-competitive regulatory and tax environments, which the US is desperately trying to imitate.  The health care solutions in Europe are now beginning to bear the expected fruit -- long lines, inadequate care, and VA style cover ups.  Add health care woes and pension funding woes to the massive sovereign debt issues, how would anyone expect the Eurozone to have an economic future?

The legendary Texan, Senator Ralph Yarborough once described a political action as akin to "rats swimming toward a sinking ship."  That pretty much sums up current American economic policy as the Obama Administration continues its efforts to "Europeanize" America.  The predictable outcome is available for all to see -- the current Eurozone economy.

Sunday, August 10, 2014

Give Poor People a Chance

For nearly half a century, there has been a steady drumbeat of government support aimed, in theory, at helping the poor.  The result -- the poor have lost ground and their chances of becoming non-poor have gotten worse.  Why?

The century that preceded all the government help saw constant improvement in the economic status of the poorest fourth of the American population. Then, along came help.

The erosion of the economic position of the middle class has been mostly the result, since the 1960s, of attempts by government to aid middle income workers.  Providing benefits to workers raises employer costs and is ultimately completely born by the workers themselves -- not the employers. 

The right to sue is a costly right and lowers wage income.  The same is true of health care costs, unemployment compensation. OSHA rules, and on and on.  It's surprising workers have any money income left after government mandates have directed most of worker income in ways that workers themselves would likely not choose. 

To an employer, there is a single dollar cost of an employee.  Government mandates simply dictate how that cost is borne and cannot affect the total.  Increasing mandates reduce workers' disposable income, pretty much dollar for dollar.

So, now comes the "inequality" debate.  It is no longer about opportunity and rising incomes, the debate has now shifted to spotlighting rich people.  No wonder, since government programs have been completely ineffectual in improving opportunities and real incomes for the bottom quartile of the income distribution.

Helping poor people, whether in America or anywhere else, means removing the barriers that block their chances of improving their economic position.  In education, people should be free to choose the schools they wish to attend.   People should be free to pursue employment on whatever basis they wish to, including working for free or even paying an employer for the right to work -- if that's what they want to do.  The government should butt out.

There is no evidence that, long run, anyone, except the legal profession, is helped by all the "rights" and "protections" afforded employees under government largesse.

The poor need the freedom to pursue their own way. They should be able to choose where to send their children to school instead of having that decision dictated by an unfeeling and unaccountable bureaucracy.  The poor should be able to make whatever employment decisions they choose and start businesses without having to fight the ever-growing bureaucracy that thwarts small businesses in America at every turn.  The poor need police protection and the rule of law in their neighborhoods, not political correctness that appeals mainly to wealthy elites.

In short, the poor need what everyone needs -- a chance.  But, the government is too busy helping them to give them that chance.

Saturday, August 2, 2014

Get Rid of the Export-Import Bank

You often hear Republicans say that they prefer a smaller and less intrusive government.  So why does their leadership support the reauthorization of the Export-Import bank?  It is possible that the reauthorization bill will fail, but there is no shortage of Republican sponsors.

The Export-Import bank is crony capitalism at its worst.  There is absolutely no reason to subsidize exports, even if other governments subsidize their exports. Because someone else does something foolish does not mean you have to do something foolish as well.  Free markets, left alone, will provide whatever financing is required and deserved for our export sector.

Most of the subsidies from the Export-Import bank go to very large companies and are little more than a transfer of money from the average working family to large corporations.  Why is that a good idea?

I hope those who are trying to block authorization of the Export-Import bank will then turn their attention to the IMF and the World Bank, two other burdens on the American taxpayer with little or no benefit to anyone other than the bureaucrats employed by these embarrassingly inept organizations.

Sunday, July 13, 2014

The Portugal Flap

Stock markets took a breather this past week because of troublesome news from a Portuguese bank.  This is how it all begins.

American banks are healthy.  In fact, too healthy.  The slowdown in the US reflects the lack of risk taking in the financial sector.  Those who have an antipathy to capitalism welcome this lack of risk taking.  Most Americans, listening to the press and the current US government, believe that if you lose money, there must be something criminal lurking around -- especially if you are in the financial services industry.  Slow or non-existent economic growth is the price America is paying for nonsensical economic policies and a virulent anti-capitalist orientation of its government.

Europe is a different story, leading to a similar, if possibly worse, result.  Europe is trying to patch up a Eurozone that is an economic and fiscal disaster.  Instead of trying a free market solution, Europe is trying to jawbone it's way to prosperity by greatly expanding its indebtedness.  There is no good ending for Europe.  Sooner or later, Europe will default on its debts. 

Germany, once in reasonably good shape, has now underwritten almost the entire Eurozone.  Even Germany will be forced, eventually, into a default of some type.  No economy in the world has ever grown as fast as European debt has grown, so what hope is there for Europe.  None.  So Mario Draghi can drone on and on about how he is saving Europe, much as Neville Chamberlain returned from Munich in 1938 saying that he had saved world peace.

Bad economic policies usually result from ignorance, but it is hard to make that argument in the modern world.  We know enough to avoid the economic stagnation that plagues the western world.  But, politicians have agendas.  Trying to solve every problem, real or imagined, leads to government without limit.  When news media discuss the economy of the US or Europe, invariably they discuss the views of politicians or economists who have established themselves as opponents of free markets.

It's not about economics anymore, it's about politics -- who gets what.  Inevitably, the average citizen loses out.  Free markets are the only real hope for the average citizen, but the politicians and the rich and powerful don't need free markets, when they can direct taxpayer money to themselves without producing much of anything.

Europe and the US won't have economic growth until free markets are restored.  That seems to be a long way off.

Wednesday, July 9, 2014

Darlena Cunha's Mercedes

A story in today's NYTimes recounts Darlena Cunha's descent into the food stamp world.  What is interesting about the story is the attitude of Ms. Cunha, as she drove her fully-paid-for Mercedes to the food stamp office.  She saw no problem taking money from taxpayers to fund herself while driving a car that the average taxpayer cannot afford.

This is so typical of folks that, one way or another, live off the anonymous taxpayer.   In Ms. Cunha's account, she and her husband had a family income twice that of the average American and then they lost their jobs.  Rather than unload her Mercedes, the clear implication was that taxpayers should unload their Chevies to fund Ms. Cunha during her times of travail.

The sense of entitlement that reeks from this article is another example of the dramatic change in culture that has swept the American landscape.  There was a time where folks tried to dig their way out of their own financial hole.  But, not in the modern world.  There is always the government -- the anonymous taxpayer or the unborn child who gets to pay back the debt accumulated by the current generation.  Meanwhile, drive on in your Mercedes.

Monday, July 7, 2014

The Predictable Outcome of Francois Hollande

The French elected a socialist president a few years back -- Francois Hollande.  His main message was an Obama theme -- raise taxes on the rich.  The predictable results: 1) the rich moved; 2) the economy went from bad to worse. 

France is now on a race to join Italy and Spain as permanently stagnant European economies.  None of this has anything to do with the Euro, as the media relentlessly argues. 

When you outlaw free markets -- pretty much the situation in France -- you get economic stagnation.  The US has rediscovered this same pattern in producing the worst recovery from a recession in US history.  Even the recovery from the "Great Depression" of the1930s showed more spark than this one until the effects of Roosevelt's National Recovery Act created a 1930s style stagnation.

Nowhere in the history of the world have poor and middle income families fared well when free markets were suppressed. We are, once again, demonstrating this on a global stage.  Only free markets produce vibrant economies.  Big government benefits the rich and powerful, but leaves the average citizen defenseless.

Wednesday, June 25, 2014

First Quarter 2014 Worse Than Fourth Quarter 2008

Revised GDP in the 1st quarter was down 2.9 percent, worse than the fourth quarter of 2008.  Is this still George Bush's fault?

Is there anyone left out there who thinks America's economic policies make any sense?  The President and the Congress have managed the impossible.  They have shut down the great American economic engine.

And what does Obama have to say?  Mandate more paid leaves for American employees.  Translation: raise the costs to employers that have the temerity to hire anyone.  More of the same from the President.

A free market economy would solve our ills, but Obama, Yellen and company have no interest in the free market and what we have is a direct consequence of their policies.

Saturday, June 21, 2014

Abolish the IMF

The IMF has now weighed in on the minimum wage issue.  They are now "instructing" the US to raise its minimum wage.  If anyone was short of compelling evidence that the IMF is a waste of US taxpayer money, this most recent pronouncement seals the deal.

This is a typical elitist policy call reflecting disdain for the truly poor of the world, who need the right to work for a minimal amount cash income in order to learn a skill.  The world's poor aren't rich college kids, like the staffers and bosses at the IMF.  The world consists mostly of poor people who would love to have the chance to improve their situation.

What is the IMF saying?  Make it against the law to work for skill development pay.  Instead, unless you have a certain skill level to begin with, you should just go on welfare or give up.  Thanks IMF.

Defund the IMF.  Is there anyone out there that thinks that this organization has served a useful purpose, while draining the American taxpayer.

Wednesday, June 18, 2014

A Clueless Federal Reserve

There is a silly discussion going on now between the Janet Yellen folks and the Alan Krueger folks.  It's worth noting that both Fed Chairman Yellen and former head of the Council of Economic Advisors Alan Krueger are Obama acolytes.  The debate between Yellen and Krueger is whether or not the 6 million workers who have bailed out of the work force in the Obama era are lost for good or can be coaxed back into the labor force.  Krueger thinks they may be gone for good while Yellen thinks they are lurking nearby and may return to the work force.

You might wonder why this discussion is going on.  It reflects the idea that if the long term unemployed are leaving the work force for good, then wage pressures may hit the economy sooner than expected and inflation could tick up.  While both Yellen and Krueger are doves (meaning that they are not too worried about inflation),  Yellen is clearly the more dovish of the two.

The problem with this discussion is that it is largely irrelevant.  Inflation is not caused by tightness in the labor market.  Recall the 1970s?  Both inflation and unemployment rose over the decade substantially.  So much for the idea that tightness in the labor market causes inflation.  Facts overwhelm naive theories in this case.

The issue of solving the unemployment problem has nothing to do with Fed policy.  Fed policy is most likely going to lead to an unstoppable rise in inflation at some point.  The fact that it hasn't happened yet will not prove to be much comfort when it does happen. 

Solving unemployment is relatively straight forward.  Eliminate the roadblocks government has put up that makes hiring an employee an irrational decision for many businesses.  Until these roadblocks are removed, job creation will remain a twentieth century phenomenon.  The Obama era will continue to be the new "jobless" economy, regardless of what Yellen and Krueger think.

Sunday, June 8, 2014

The Student Loan Fiasco

Government policy seems designed to impoverish young people.  One big nail in the coffin of the hopes of the 18-35 age group is the government's policy on student loans.  Loans should be left to the free market.  The government should have no role.  Unfortunately, the government sees things differently.

The result is that loans are automatically granted to teenagers who are contemplating attending college.  Colleges lobby hard to get the government to expand such loan programs and they have been successful.  As usual, government loan programs are expanded in a bi-partisan manner.  There are precious few defenders of free market economics, when it comes to student loan programs.

These same prospective students, desperate for job training, are forbidden by law from receiving that training on the job (think minimum wage laws), so they turn to community colleges and vocational training schools.  Enter the government. 

The government provides the loans, colleges then jack up tuition and embark on absurd expenditures having nothing to do with education.  Have you visited a college campus lately?  It is ridiculous where the money goes.  Since government makes money available through government loans to impoverished students, the colleges find a way to spend it and jack up tuition ever higher.

So, then what?  Students either drop out or graduate, but the loans remain, a blot on their future.  In today's NYTimes Natalie Kitroeff chronicles in detail what happens to some of these students in "Young and In Debt in NY City."  This is an American tragedy and millions of young Americans are caught in this government-created trap.

As usual, government policies like this mainly affect youngsters in the bottom half of the country's wealth and income profile.  This is part of an apparently determined government effort to eliminate opportunity for those who are born in modest circumstances.  That's why folks like Warren Buffett support this.  It doesn't affect him or anyone that he is ever likely to meet.

Saturday, June 7, 2014

The Retirement Question

The global surprise, no surprise at all, is that public retirement systems will not provide the retirements that workers are expecting.  In the US, social security is the most obvious example.  Anyone under the age of 45 in the US will get a reduced social security benefit or, perhaps, no benefit at all.  State and local government employees are in for a rude shock as well.  Almost all of the state and local government employee pension plans that fall in the "defined benefit" category are woefully underfunded.  So, when "covered" workers, globally, reach their retirement ages in the next generation they are in for a big, big surprise.  No money.

All of this is well known and thoroughly documented.  There isn't really a debate going on here, except for those who simply want to hide from the truth.  Numbers are numbers.

Defined benefit retirement systems are based upon two incorrect premises: 1) Everyone needs to retire; 2) The sponsor (government, whatever) will properly fund these systems.  Both of these premises are false.  Retirement is a modern concept.  No one retired in the 17th century, unless forced by disability.  In the modern western countries, most folks of independent means do not retire.  Is Warren Buffett retired?

Politicians dreamed up the idea of retirement so they could put in place defined benefit systems and garner votes.  Of course, as usual, these same politicians opposed proper funding for these systems, so that the notion of paid retirement was a dream but not a reality.  This was bi-partisan cynicism.  In the US, politicians of every stripe still defend defined benefit systems without owning up to the fact that they are a dream for everyone, but a reality only for the lucky few who get their money before the system runs out of money, which the system is guaranteed to do.

What people really need, as they grow older, is security.  But the "social" part is a cruel hoax.  The way to get security is to grow assets.  "Defined contribution" systems grow assets.  Defined benefit systems consume assets.  The largest pension system in America is 100 percent funded - TIAA-CREF.  This is the "defined contribution" system that academics use to fund their retirement.  These same academics who support social security and publicly funded pension systems, are not in the system that they defend.  By definition, a "defined contribution" system cannot be underfunded.  So academics are safe.  Their retirements are assured, though most do not really retire.

The cruelest hoax of all is that these "defined benefit" plans, even when funded, provide zero (other than spousal or minor children) benefits at death.  There is nothing to leave to the next generation.  Whereas, defined contribution plans can be preserved for future generations.

But, why is retirement a good plan?  Retirees get herded into communities of other retirees and hidden away from the rest of society.  Why is this a good idea?  People with means rarely do this.  They keep right on working.  Some folks cannot work indefinitely for health reasons, but aside from health issues, why should anyone retire?  People should do what they want to do and defined contribution plans, by building wealth, provide older folks with options -- to retire or not to retire as they choose.

Friday, June 6, 2014

Draghi Dreams While the US Fiddles

The European Central Bank (the ECB) announced yesterday a policy that essentially loans money to banks at a negative interest rate.  That's right!  They pay banks to take their money.  Why would they do this? (A better question is, perhaps, why is there an ECB?   There is not a shred of evidence that the ECB, or any other central bank since the Bank of England, has had a favorable impact upon their own domestic economy).

What the ECB is up to, of course, is one more bureaucratic effort to get an economy going in a land where free markets are almost illegal.  So many completely voluntary economic transactions in Europe are either illegal, absurdly regulated, or taxed beyond reason, that the free market struggles for its very existence.  So, now, borrowing rates are lower.  So what?  Borrowing rates are not the problem, so Mario Draghi of the ECB is just puffing smoke....once again.

In the US, the Michigan Republican Party has seen fit to pass an increase in the minimum wage and index it to inflation.  Michigan's Republican Governor Rick Snyder signed this atrocious legislation and praised it.  That simply adds to the list of voluntary transactions that are now illegal in Michigan.  Does this give you a hint as to why the Republican party is always and forever the minority party in the US. 

The national Republicans brought us ruinous social security and medicare expansions in the 1970s (remember Dick Nixon!), the ADA in the 1990s (remember Bob Dole) and the prescription drug bill in the early 2000s (remember George Bush).   In the US, it is a race to see which party can add more regulations, more income and wealth transfers, more taxes, and more restrictions on voluntary transactions.  I'm not sure who's winning.

Free markets currently have no defenders -- none in Europe and few in the US.  This means no economic growth.  The absence of incentives translates into stagnant economies. The stock market will figure this out in time.