Thursday, December 31, 2015

A Preliminary Fed Report Card

A grade of F would seem generous.  Aside from the funds rate and the repo rate, for which the Fed has become a perfectly elastic demander and supplier, all other market rates in the American economy are lower today than they were before the "Fed raised rates."

What does "raising rates" mean these days?  Obviously it doesn't mean raising rates determined in the free market, as those rates were now lower since the Fed took its actions two weeks ago.

So, an F would seem generous.  Maybe an I for irrelevant would be more appropriate.

Banking and Free Markets

American financial institutions were once the envy of the world.  Average returns over the past 120 years in American stock markets have exceed 10 percent per annum, meaning that the average person with a diversified buy and hold strategy could have expected to double their money every eight years.  Private commercial banking fueled the enormous economic growth of the United States, despite the Great Depression and the Second World War.  The American middle class thrived and real wages in America soared past others in the developed and undeveloped world.

This is a record of unassailable success.  It was no surprise that the rest of the world began to emulate the American model. The Soviet empire crumbled, mostly because their economy was worthless.  Big government couldn't create a "workers' paradise" after all.

Europe rode the wave of the powerful American economic engine, in spite of its politicians.

Finally, Asian economies began their liftoff in the last two decades of the twentieth century and, as the new millennium approached, it appeared that peace and prosperity were permanent features of the American landscape.

That was then.  In scarcely a decade and a half, all of that promise of economic growth and economic freedom has given way to government overreach and economic stagnation.

Banking is probably the most interesting example of how big government can kill off free enterprise.  Banking once was a private business, but in the 1930s when more than one-third of all US commercial banks failed, the government initiated a deposit guarantee program and ushered in a regulatory regime that, at first, seemed almost benign.  Many banks weren't federally regulated at all, even after the 1930s.  The result: an enormous economic recovery that, by the mid 1960s, made America the economic envy of the world.

Gradually, over time, banking regulations increased, mostly from political motivation.  The Community Reinvestment Act is the poster child of government interference in banking.  This act has been used mainly to extort funds from banks to fund pet projects of politicians.  This seemed to be the signal that banking was no longer considered to be a private sector entity.  The sweeping Dodd-Frank legislation and the regulatory environment initiated by the Obama Administration all but eliminated lending decisions by bankers.  Regulators took over.

In China, the state controls the flow of bank loans.  The same is now true in the US.  Banks are no longer free to lend to who they want to lend.  They lend to who they are told to lend to.

As a result, commercial banking in America is now simply one more arm of a growing and grasping government distributing spoils to its friends and punishing its enemies.

What is replacing this now stagnant and politically polluted American (and European) commercial banking system is the rise of shadow banking -- lenders who aren't told who to lend to and how much to lend.  This started with hedge funds, but is growing to a variety of non-bank lenders who have moved heavily into mortgage lending both residential and commercial and are making major inroads into traditional commercial lending.

In time the market will move to shadow banking as traditional banking is seen as nothing more than an arm of the US government.

The same pattern shows up in investment banking as traditional market making activities  have been largely outlawed by Dodd-Frank, These are the market making activities that accompanied the extraordinary stock market returns of the past 120 years. Regulators could care less if the American stock market performance is now poised to mirror American economic performance -- pitiful at best.

It almost seems as if the Obama Administration was angry at the extraordinarily positive results of American economic growth -- historically 4 percent even after accounting for the 1930s and the 2007-2008 slump.  The Obama Administration now cheers an Obama record of 2 percent economic growth -- a growth rate that implies a declining real income for most Americans. Maybe if the Obama folks can get growth down to zero, they would really have something to celebrate! 

Economic stagnation and government run banking is the new normal in America.  You can hike the minimum wage to whatever level you desire and it will not improve this situation -- in fact, it will make the situation far, far worse (and has already done so).  Taxing the rich won't matter either.  As you transform your economy to the old Soviet and old China models, you will get the same results they got -- economic stagnation and declining living standards.

As for the stock market, forget it.  S&P earnings declined in 2015 as compared to 2014 and look for a similar pattern in the New Year.  S&P earnings ultimately have to fall in line with economic growth.  That does not spell a good future for the American stock market or the American middle class.

Now that both major political parties have given up on free markets and economic growth, the new agenda will increasingly be: how to divide up a dwindling pie.  That means politics will get more divisive and free markets will continue to be under attack from politicians.

That said, let's hope that entrepreneurs find a way around the shackles that now bind the American economy.  Technology and energy forestalled a complete economic stall since 2009. Technology and energy seem to be in trouble now, just as the most deleterious effects of ObamaCare are set to deal another body blow to the American economy.

Forget the Fed. What the US needs is the return of free markets.  Absent that, the future looks dim.

Thursday, December 24, 2015

Why Do Economies Prosper?

You would think that economists would provide a good answer to the question as to why one economy does better than another.  A simple enough question.

Is it really that one country has a better Fed policy than another?

Does monetary policy really matter at all?

Prior to the twentieth century, there wasn't much serious "monetary policy."  Yet, some countries managed very high rates of economic growth while others remained stuck in the mire.  The US, as it surged to world prominence in the latter half of the nineteenth century didn't have a central bank, much less any kind of monetary policy.  Yet, the US grew far faster than Germany and the UK, in spite of no monetary (or fiscal) policy.

So, economies can grow at differing rates, without regard to monetary or fiscal policy -- certainly they did so in time periods when there was no real monetary or fiscal policy to speak of.

The pitiful economic results of the developed world since 2009 are often discussed  in terms of monetary and fiscal policy.  Why?  Could different monetary and fiscal policies have made any real difference?

If it takes three years to get the various levels of approvals to open a new business and get appropriate zoning and licensing accomplished, what difference does it make what the target federal funds rate happens to be? 

If a young ghetto resident in Baltimore wanted to open a "legal" lemonade stand in West Baltimore, how many months would it take to get the appropriate approvals in Baltimore, assuming it could be done at all?  If that same ghetto resident approached a business asking to trade hours of labor for job training, how long before the federal and state officials would put both in jail for violating the minimum wage laws.  Where, in this discussion, does monetary and fiscal policy come into play?

If regulators intervene to prohibit certain transactions because they don't fit their imposed guidelines (think mortgages, consumer credit), then who cares what monetary and fiscal policy is doing.

Economists seem to think that if government prohibits all economic transactions of any kind, that the economy can hum right along anyway so long as monetary and fiscal policy are tuned to the right dials.

In short, according to modern economists, real world conditions of laws, regulations or the lack of the rule of law, just don't make any difference.  If banks are prohibited from lending, somehow commercial loans should expand anyway, so long as the funds rate is set appropriately.  If workers are forbidden by law to take a job that pays less than some politician thinks it should, then who cares as long as the target funds rate is sufficiently low.  If punitive restrictions on certain industries (coal comes to mind) creates massive pockets of unemployment and hardship, what difference does it make so long as the Fed is accomodative.

Why some countries prospered in the 17th, 18th, and 19th century, while others didn't, must be a great unfathomable mystery to the modern economist who lives or dies by monetary and fiscal policy, since monetary and fiscal policy were non-existent way back them.  Nevertheless, in the real world, some countries prospered while others stagnated long before economists invented monetary and fiscal policy.  Not much has changed.

Wednesday, December 23, 2015

So Much for Climate Change

The politics of climate change has been dealt a severe blow by the abundance of fossil-fuel energy that appears not to be going away anytime soon.  If gas and oil are cheap, then people will use more of them...and they are.  The alternative energy businesses have been savaged by the declining prices of fossil-fuel energy.

What kind of cars are people buying?  The big, old gas guzzlers!

By painting climate change as apocalyptic and letting the developing world do whatever it wants, it is very clear that the developed world is not going to make the sacrifices that the Paris agreement wishes for. 

The failure to provide a reasoned, bi-partisan approach to the issue of climate change has made climate change a hot-button partisan shouting match.  Arbitrary actions by the EPA and by the Obama Administration will be reversed by the next Administration, regardless of which party occupies the White House.  The public will not be willing to return to stone age economics while the rest of the world passes it by.

Europe has already abandoned almost all of its green initiatives.  The US will follow suit within 24 months when saner and less partisan folks occupy the White House.

Only then, perhaps, can we have a serious discussion about climate change.  Hysterics and arbitrary decrees won't get anything done. The public must be convinced with reasoned argument and legitimate science that there is a real problem before the political will can be mustered to sacrifice economic growth for what might be nothing more than an academic illusion.

What Fed Rate Hike?

You and I don't borrow federal funds.  Federal funds are cash reserves traded only between commercial banks.  So, does it really matter what the federal funds rate is?

The answer is: normally yes.  But, not now.

Normally, the rate of interest on federal funds is increased by reducing the amount of federal funds in the system so that banks have to scramble to meet their legal cash reserve requirements. That's not what happened ten days ago when the "Fed raised the target federal funds rate."  No, indeed.

There are $ 2.5 trillion in excess cash reserves sloshing around in the commercial banking system, thanks to QE1, QE2, and QE3.  No bank needs to borrow reserves from anyone.  So, the Fed now pays 50 basis points (1/2 of one percent) on commercial bank cash reserves.  Thus, no rational bank would loan its reserves to another bank for less than 50 basis points.  Voila.  The target funds rate is raise by this strategem.

The problem:  no other rates get raised, because there is no "tightness" in the credit markets induced in this artificial manner.  Other than non-market rates, like prime rates, all other rates are lower today than they were before the "Fed raised rates."

This is like me going into a closet and announcing that I am raising the rate that I will charge my children to borrow money from me.  How does this affect the rate my neighbor is going to pay on a car loan or a home mortgage?  Answer: it won't.

The Fed has made itself irrelevant.  That doesn't mean the financial media won't remain obsessed with fed watching as opposed to checking out supply and demand to figure out the future direction of interest rates.  The Fed no longer matters in the real world (except that they have $ 3 trillion in securities hanging over the market).

Sunday, December 20, 2015

Limping Into the New Year

After seven years of an absurdly slow-walked economic recovery, the economy looks ready to slide backward.  In prior recoveries, it took two years to accomplish what this recovery has not yet accomplished in seven years.  And, now it appears to be over.

The Obama Administration, surprisingly, is taking a bow for this pitiful showing and Hillary Clinton changes the subject.  The usual excuse for this poor economic performance is the severity of the 2008 financial collapse.  A better explanation is the incredibly stifling government response to the 2008 crisis that culminated in the passage of the infamous Dodd-Frank legislation. 

Dodd-Frank guaranteed that commercial lending would never be adequate to fund a decent recovery and its passage inspired an out-of-control Justice Department to extort billions of dollars from financial institutions to dish out to Obama-Clinton political allies.  Why, no recovery?  The real surprise is that the American economy was able to show a pulse at all with the hammering given it by the Obama Administration and their allies.

Both Republicans and Democrats alike seem to have given up on the idea of an American economy regaining its footing.  The Paul Ryan spending compromise that recently passed Congress is a concrete example of the capitulation of Republicans to the stifling policies of the Obama crowd.

So, what does 2016 portend?  Consider first that S&P earnings in 2015 were below the level of 2014 and things could get worse in 2016.  The one thing that has gone up (besides the number of people who have given up trying to find a job) is the stock market, which has nearly tripled in value since March of 2009.  But, in 2016, the stock market appears to be a loser -- not a big loser, but a loser nonetheless.

And what has 2 percent growth done for us?  Middle income disposable income has consistently lost ground since 2008.  Corrected for labor force participation rates, the employment market remains moribund.  There is no wage pressure, regardless of what Janet Yellen may think.  Poverty is higher and growing.  2 percent growth hasn't hurt the wealthy (Obama, Clinton, Buffett, Gore, etc.) but it has savaged the rest of the country.

So, what should economic growth be?  Historically, economic growth, leaving out the Johnson-Nixon 1970s, has been north of 4 percent.  But, given the pace of technological change and paradigm shifts (think Uber, AirBnb), there is no reasons that private sector economic growth could not exceed 8 percent on a sustained basis.  But, this cannot happen with Obamacare, Dodd-Frank, Sarbanes-Oxley, the EPA, the Department of Education, higher minimum wage laws, over-regulated economy and a lawless executive branch of government.

The poor, the disenfranchised have no hope in a growthless economy.  There is zero empirical evidence that government programs help poor people when the economy experiences limited or no growth.  The only thing that helps the poor, the disadvantaged, the middle class is robust economic growth, creating opportunities for individual advancement.  Slow growth merely shifts the deck chairs around.

No wonder the rich support slow economic growth policies.  The rich can maintain their position of hegemony over the masses.   This is George Soros' and Warren Buffett's dream -- pretend to help poor people but focus on policies that maintain their own personal economic power.  If Soros and Buffett think the tax system is unfair (as they claim), nothing prevents either of them from paying higher taxes voluntarily.  What conceivable reason, other than personal greed, prevents Soros and Buffett from doing exactly that?  Hypocricy abounds.

Meanwhile, the economy limps into the New Year with little prospect for improvement and a foreboding sense of coming danger.

Friday, December 18, 2015

Fed Raises Target Funds Rate But Little Else

Well, it is finally done.  Federal funds traded yesterday at 0.35 percent, up from 0.11 to 0.13 where it had been prior to this week.   How did this happen?  The Fed now pays 0.50 % on excess reserves deposited (by commercial banks) at the Fed.  It makes you wonder why anyone lends reserves to anyone else at less than 0.50 %.

In the good old days, the textbooks say, the Fed would raise the target on the funds rates by making reserves scarce (open market sales of treasuries were cited as the appropriate mechanism).  Scarcity in the funds market would then spill over into money markets and all rates would rise accordingly.  That was in the good old days.

This week's raise seems to have affected no other rates in the money market arena -- cd rates are unchanged, bill rates, treasury note issues all seem to have lower yields at the end of the week than earlier in the week.  So, besides funds and temporarily repo rates, of what significance is the Fed's raising its target funds rates.  Answer: apparently, zero.

Prime rates all jumped, but the prime rate is not a market determined rate and is often completely unrelated to the actual lending rates paid by prime customers.  This is probably just backdoor gouging by the commercial banks of their smaller customers.  No serious large lender would be impacted by a change, of any kind, in the announced prime rate.

Listening to Janet Yellen explain what the Fed was up to was interesting.  She thinks 2 percent growth is a sign of a good economy.  She did reference, indirectly, the strangling impact of Dodd-Frank on commercial lending.  She sees inflation as a major problem down the road.  Has no plans to reduce Fed's $ 3 trillion balance sheet.

So much for the Fed.  They have made the federal funds rate irrelevant.  Who cares what their target rate is?

Monday, December 14, 2015

The Fed Makes Itself Irrelevant

Apparently, the Fed intends to announce a policy of paying interest on excess reserve balances held at the Fed.  Since any bank thinking of lending its excess reserves to another bank will do so only if it could earn more than what the Fed is paying, then, almost by definition, the Fed can raise its target on the funds rate.  Whew!

But, so what?

Why would any other rates follow suit?  Most likely they won't.

But, what about repos?  Traditionally funds and repos have been joined at the hip, but paying interest on excess reserves may unhinge that relationship (or lead to a massive amount of excess reserves parked at the Fed as commercial banks arbitrage repos against funds).

But, regardless of what happens in funds/repo land, it is questionable whether other money market rates will be much impacted.  After all the banking system is awash in liquidity, even if the junk bond market is imploding for a lack of liquidity.  The over-kill of Dodd-Frank and the accompanying regulatory straight-jackets have all but eliminated the liquidity safety valves of the investment banks, as is all too apparent in the junk market.

Meanwhile, why is this of interest?  Nothing the Fed can do can get the American economy humming again.  Is there anyone out there who believes that it's inflation-fighting season?

Janet Yellen and the Fed are irrelevant and so also will be their activity on the rate front this week.  Other than the completely irrelevant fed funds rate, no other rates are headed higher, no matter how hard the Fed huffs and puffs.

Saturday, December 12, 2015

The Paris Climate Change Pact

The Paris Climate Change Pact brings the curtain down on what will be remembered as the last hurrah for the climate change crowd.  The Pact requires nothing of anyone.  But, the Pact pretends to reduce carbon emissions with a heavy dose of wishful thinking.

None of the signatories can currently afford their own national debt levels and domestic welfare burdens, much less commit themselves to an heroic belt tightening, that would be required to reduce CO2 emissions. In fact, the current lower trajectory of fossil-fuel energy pricing will increase CO2 emissions well beyond anything currently projected.  (But don't be surprised if temperatures fail to rise).

This is mainly a bunch of rich, disconnected and empty-headed politicians who have long since lost any grip on the economics of the real world.  In the real world, overly obtrusive government has shut down all of the major world economies. Only parts of China and Asia are still hopefully looking to the future.

In the US, minimal growth is now the accepted norm.  In Europe, zero growth is the accepted norm.  Frankly, there isn't a lot of difference anymore between the US and Europe -- neither has much of an economic future.

Batten down the hatches, because almost all of the developed nations in Paris will soon be paring back on their promises of retirement security and publicly provided health care.  Not a single developed country in the world can afford their current promises.  There is certainly no room to deal with climate change -- real or imagined.

Actual facts on the ground don't seem to matter to the wealthy activists who tout the climate change agenda.  That the poor would be ground into the dust if they got their way doesn't matter to these activists, who mainly focus on the pose they strike preening in front of the world's adulating press.

So, Al Gore can step back into his fancy jet and continue polluting the atmosphere more in a couple of hours than most people do in a lifetime.  Then, Gore can return to his palatial estate in the US and sit back, Scrooge-like, in his bathtub of billions.  That's the life of the modern day environmental activist.

Saturday, December 5, 2015

Climate Change Politics

Ever since industrialization began more than three centuries ago, there are always those who say:  "Whoa, lets stop all of this."

Invariably those who advocate stopping all of this are already quite wealthy themselves and are perched on top of the economic pile.  As Europe and the US went to Paris as the wealthiest countries in the world, they looked down their noses at China and India as Johnny-come-latelies.  "Lets stop all of this, but let us keep ours," say the US and Europe.

No one knows if the globe is really warming or not.  The globe is always either warming or cooling.  I guess that's why the left has adopted the notion of climate change, since it is nothing more than a truism -- the climate is always changing.  Who can argue with that?

But, what to do?

According to the climate change crowd, nothing will really do the trick unless all carbon emissions are halted permanently.  For China and India, that means mass famine.  For the US, that means major increases in poverty and a dramatic fall in standard of living of average Americans, except for the chosen few (those already wealthy).  This seem like a pretty high price to pay for something that, as yet, is little more than speculation.

If it is that big an issue, why don't those who believe it stop polluting the atmostphere with their personal jets and limousines?  Are they exempt?

Environmental activists tend to be very wealthy as a group.  They tend to be major polluters themselves.  Yet, somehow, environmental activists feel that as long as they say the right things, that the reality of what they are doing is irrelevant.

But, for the rest of us, reality matters.

Read "Green Gone Wrong" to get a true taste of what havoc on the environment is directly caused by environmental activists and the implementation of their policies.  It's pretty clear from author Heather Ross, an environmental activist herself, that thus far, environmental activism has mainly served to damage the environment, no matter high-minded the motives of such activists might be.

As in many other things, activism itself is usually mainly an exercise in egotism, not a cure for what ails the planet.

Friday, December 4, 2015

Draghi and the Economic Mess in the Eurozone

You would think that politicians can conjure up economic growth by waving magic wands.  Look at the Eurozone.

Mario Draghi, the head of the European Central Bank (ECB) announced a further drop in the central bank's lending rate from minus -0.3% to -0.4%.  They now pay banks even more to borrow their money.  But, guess what, no takers.

Commercial lending in the Eurozone remains mired below levels achieved in 2008.  Economic growth in the Eurozone is non-existent and several Eurozone economies are imploding (Greece is not the only one).

Why no growth?  Why no commercial lending?

Read Keynes again.  Keynes spoke of "animal spirits" that animate entrepreneurs to embark on starting new businesses and expanding existing businesses.  For the Eurozone, "animal spirits" are a thing of ancient history.  Most of the GDP in a typical Eurozone country is government or government-satellite businesses.  Such businesses only grow by increased taxpayer funding. 

No one working for government has any incentive whatsoever to improve productivity.  Often, as a recent study of US government employees demonstrated, large numbers of government employees don't even have the incentive to show up for work. 

So where is the economic growth going to come from -- lowering ECB lending rates? 

The bankruptcy of modern macroeconomics is that there is an underlying assumption that the rule of law and the regulatory environment don't matter.  In the US and the Eurozone, a large part of government activity is devoted to shutting down private economic activity. In this endeavor, the government has achieved its greatest success. 

Modern US and Europe no longer have economic growth of any substance.  Government bureaucrats have killed off economic growth.  The Climate Change crowd actually proposes substantial negative economic growth as the cure to, what they say, ails the planet. 

So, don't expect the return of normal, say 4 percent, economic growth any time soon.  The great uplifting effect of economic growth is gone.  Those in poverty will remain there. Those at the top of the stagecoach -- Clintons, the Al Gores, the George Soros's, the Michael Moores --will remain atop the stagecoach cavorting around in their sleek jets and limousines, while loudly decrying the evils of the rich (all, except themselves, of course).

These folks don't need economic growth.  They already have their huge share of the pie and they are not about to put their hegemony at risk by permitting economic growth, so that the poor and middle income can prosper.

It is worth noting that, as a matter of history, government economic policy has never, ever produced any economic growth of substance.  Economic growth in the US was its highest in the period from the end of the civil war to the beginning of World War I -- a period in which the US middle class became the economic envy of the world.  There was no government policy at all during this period of dramatic economic growth and no central bank at all.

Only when government decided it knew how to "fine tune" the economy to produce economic growth did American economic growth rates begin to collapse.  We have now learned to accept little or no economic growth without even asking questions.

So, Draghi and Yellen can do whatever they want.  It won't matter.  As Keynes noted, without "animal spirits," there can be no economic growth.

Wednesday, December 2, 2015

A Toothless Fed

For four years, the Fed has been suggesting a forthcoming rate rise.  Once again, a rate rise is expected in the next two weeks by 70 percent of prognosticators.  Will it happen? Not likely.

The massive excess reserves in the commercial banking system, put in place by the various QE's, makes it unlikely that the Fed can do much of anything but hope and pray that rates, on their own, will drift higher. 

The Fed has been waiting for this to happen for years.  The market is unlikely to accommodate the Fed in the next two weeks, so don't expect a Fed rate rise in December.

Monday, November 30, 2015

Climate Change Posturing in Paris

Oren Cass in the Europe Edition of Politico has a clear headed analysis of the absurdity of the Paris Climate Change conference taking place this week.  As he notes, "the developing world, projected to account for four-fifths of all carbon-dioxide emissions this century, will earn applause for what amounts to a promise to stay on their pre-existing trajectory of emissions-intensive growth." 

So four-fifths of all carbon-dioxide emissions are not even under discussion -- at all.

Cass goes on: "After all this, the final submissions are not enforceable and carry no consequences beyond shame for noncompliance -- a fact bizarrely taken for granted by all involved."

Meanwhile, Obama and other "world leaders" are taking a bow, while the Pope gazes on, approvingly.  The conference itself is producing 300,000 tons of carbon-dioxide, so, in that sense, the conference is having an impact on carbon-dioxide emissions.

This is a huge hoax and should fool no one.  American taxpayers should not pony up to fund Obama's promised gifts to the developing world for doing nothing whatsoever.  We need the money, after seven years of Obama, more than they do.

Washington Post and Housing Tax Breaks

Not to be outdone by the NY Times, the Washington Post has come out for limiting the mortgage interest deduction. 

I would go a step or two further.  There is no good reason for the mortgage interest deduction at all.  It should be totally eliminated, not capped, as suggested in the WP article. The tax free capital gains up to $ 500,000 for married, $ 250,000 for single for home sales should also be scrapped.

A much fairer and more straightforward tax system would see the total elimination of the two big housing tax breaks -- mortgage interest deduction and (capped) tax free home sales.  Add to that the total elimination of the charitable deduction and you can begin to see the emergence of sanity in the personal income tax code.

Eliminating these unnecessary tax breaks, mostly of benefit to those with extreme levels of income and wealth,  would permit a move toward a flat tax with very low rates (20 percent or less) and a system that is much more transparent and much fairer than what we have now.

Saturday, November 28, 2015

Accountability Problems of Higher Education

It should be no surprise that higher education institutions are among the poorest run institutions on the planet.  How should they be run?

No one knows?  It is not obvious who the true owners are.  The result is the exact opposite of the famous Coase theorem:  when their is no true owner, the result is, eventually, total chaos.

Inevitably, the administrators take over and their main goal is to fatten their own personal economic pie.  The end result: bloated, drifting institutions looking for a purpose.  It is no surprise that such administrators eventually find politics to their liking.  The politics that become most attractive to administrators is the politics that provides more and more taxpayer funding to fatten the economic pie that they consume.

Unfortunately, for today's administrators, the big government political views of today's administrators inspire revolution, demonstrations, and shouting down of opposing views.  So, what is surprising about all of this.  Nothing.

The big government gang consumes its own.

Monday, November 23, 2015

What the French Economy Needs? Free Markets

As reported in today's WSJ, the French economy is, at minimum, 57 percent government.  But that is a gross, gross understatement.  In reality, the true number is more likely 75 percent, because there are so many "private" businesses that exist only to satisfy the needs and demands of the government.  The private sector is, then, likely a meagre one-fourth of the economy.  How much economic growth can anyone anticipate from that?  None

The plight of the French Muslim minority is that their youth have an unemployment rate exceeding 40 percent. Not finding work, they find other things to do.

Absence of free markets breeds problems.  France's future is bleak under socialism.  Only the return of free markets offers hope for the future.

Sunday, November 22, 2015

Its Time to Eliminate the Charitable Deduction

Permitting taxpayers to take a tax deduction for charitable contributions is another reverse Robin Hood exercise.  Almost all of the benefits of this deduction go to extremely wealthy Americans, none at all to poor people.

Worse, average Americans are required to poney up the missing tax dollars that would otherwise be paid by the wealthy.  These deductions have been used to finance phoney charities like the Clinton Foundation, which is mainly a source of funding for Clinton political operatives.

If people want to support a worthy cause, let them do it with their own dollars, not the dollars that other unsuspecting taxpayers will have to put up to make up for the tax breaks for a handful of absurdly rich people.

This should apply to both right wing and left wing not-for-profits.  The phrase "not-for-profits" usually means that average Americans are getting hosed by being unwittingly forced to underwrite things they know nothing about, while the wealthy get massive tax breaks and are able to set the political agenda for the country through their foundations, endowments and not-for-profits.

Let these foundation, endowments and not-for-profits survive without gouging the average American.  Make wealthy folks pay their taxes, then make their contributions.  Why should average Americans be on the hook for this?

Saturday, November 21, 2015

Britain Bails on Green Energy

It is a truism that only free markets can provide for environmental improvement.  If there are any doubts, check out the environmental record of the US and Canada and compare those results to the environmental record of China or the old USSR (or modern Russia).

So, when Britain and Europe began subsidizing green energy businesses and announced its commitment to fight climate change, you knew what the outcome would be.   All of these efforts had the effect of increasing the cost of energy to the average citizen, who might put up with that for a while, but not for long.

In a detailed article in today's Washington Post, Griff Witte discusses Britain's retreat from it's clean energy initiatives.  Having literally wasted billions of pounds subsidizing failing clean energy businesses, the Brits have now thrown in the towel, eliminating 90 percent of the subsidies to clean energy initiatives and walking away from numerous failed clean energy projects.  They didn't work, they cost a lot of money, and the public grew tired of paying for nothing.

Read the article.

The climate change advocates might win an occasional battle, but, in the end, taking the world back to stone age economics will not prove a winning strategy for the environmental crowd.

True environmental progress can only be funded by the economic growth that free markets provide, as history shows.  The idea that stagnant, over-bloated, government-run economies can fight climate change is absurd on the face of it.  So, Britain retreats, as they all will, in time.

Europe is Toothless

The idea that Europe can confront ISIS is a joke.  Europe cannot afford the resources to mount an effort to defeat ISIS and is bound to sit back and endure future terror attacks with little but body bags to show for it.


European economies no longer grow.  Worse, their Muslim minorities have never been assimilated and never will be.  France and Germany face internal and external threats of violence that they do not have the resources to defend against.  Where will Europe get the troops and resources necessary to take the fight to ISIS?  The answer:  nowhere.

Europe long ago adopted socialism as the economy of choice.  Socialist economies don't grow.  They simply divide a constant pie among an ever bickering population of special interests.  Worse, they accumulate unpayable debts that loom over their economies and darken their economic future.  Economies like this can't fight anything.  All they can do is provide a limited defense at great personal costs to their population.  France will get used to constant domestic violence in time.  There is nothing they can do about it.

Only free markets can provide the resources for the economic growth necessary to defend the developed world.  Unfortunately, the developed world is heading in the opposite direction by increasing the role of government and reducing the role of the free market.

Thursday, November 19, 2015

2016 Sticker Shock - Unaffordable Care is Here

A detailed article in the Wall Street Journal today by Louise Radnofsky, Paul Overberg, and Stephanie Armour describes the disaster that awaits average Americans in 2016: double digit health insurance premium increases and huge increases in deductibles.  The idea, all along, was that average Americans with good health would pay through the nose to provide the money for poor people to gain insurance.  That's what's happening.

Here's just one example of many:

"Eric Elmquist, 37, of Franklin, Tenn., felt he was paying too much in 2014 for his Blue Cross Blue Shield plan at $878 a month for two adults and three children, with an annual deductible of $5,000. A year later, he had a plan with a premium of $1,089 and deductible of $7,000. Now, he is eyeing a premium of more than $1,416 to keep that plan."

The broad conclusion:
"Many people signing up for 2016 health policies under the Affordable Care Act face higher premiums, fewer doctors and skimpier coverage, which threatens the appeal of the program for the healthy customers it needs.
Insurers have raised premiums steeply for the most popular plans at the same time they have boosted out-of-pocket costs such as deductibles, copays and coinsurance in many of their offerings. The companies attribute the moves in part to the high cost of some customers they are gaining under the law, which doesn’t allow them to bar clients with existing health conditions."

The reality has arrived.  Under the guise of the "Affordable Care Act," health care in America is becoming increasing unaffordable and unavailable.  This trend is not going to be reversed and things will continue to deteriorate until America's health care system begins to resemble the worst public schools in Chicago with a similar funding status.

Not to be outdone, the NY Times today has two articles of its own detailing the disastrous results of Obamacare.  Stacy Cowley's article discusses the problems that small business faces having to choose between compliance with Obamacare and their own growth or even their own survival.  Abby Goodnough describes one of life's new stresses, the annual search to find some health insurance that meets their needs.  This, of course, is something new that has been added to life by Obamacare -- fear, panic and anxiety as average Americans desperately try to find new coverage in the Obama world, most of whom were satisfied by the coverage they already had before the brave new world of Obama began.

Here's an apt quote from Goodnough's article: "I don't have a regular doctor anymore, so I avoid going."  Ah, health insurance without health care -- the Obama dream come true.

It is hard to imagine a worse health care regime than Obamacare.  Almost anything would be better than this.  For a country that grew up with free markets delivering the best quality of health care in the world, it is remarkable that this could all be destroyed in less than a decade by overzealous, inexperienced, dogmatic politicians, who, themselves, will never be subject to this terrible law.

Sunday, November 15, 2015

The Pernicious Role of Government in Higher Ed

Higher Education is less and less about education these days and more and more about social protest.  This, in the wealthiest society in the world.  Poor people in America live by a standard that the vast majority of the people of the world have no hope to ever achieve.  But, it isn't the poor that are protesting.

The protests are coming from the wealthiest strata of society.   The wealthy and privileged, apparently, are the new victims of oppression, or, at the very least, the newly self-appointed spokesmen for the oppressed.  Colleges and universities all over America have turned into hotbeds of unhappiness.  Many college students seem unable to weather the slings and arrows of events both near and far away.  They are suffering, they say, leaving little time to pursue an education.

Instead, the demand is to convert the university itself, more and more, into an institution devoted to political agitation.  Those who might question such a move are no longer considered worthy of the right of free speech.  They need to move on or be run over.

This is the natural result of deep federal government involvement in education, mostly driven by using taxpayer money to fund political activities and politically-motivated research at America's universities.  The usual response when one questions why university administrators tolerate illegal, sometimes violent, activities by 19 and 20 year olds, is that government funding might be threatened if they took any action other than surrender.

Thus, universities are more and more devoted to "centers" that separate students into various categories, categories which are multiplying every year.  Integration has given way to enforced and institutionally encouraged separation, one race from another, one gender from another, one ethnic group from another, one nationality from another -- unending and confusing multiplicities of identities, most of whom feel victimized, they say,  by the universities and colleges they attend.

How to divide the university financial pie among all of these competing victim groups?  That is the modern question facing the modern university.  Education has become an after thought, no longer relevant to the modern higher ed establishment.  It's all about identity, not about building strength or character through education.

The folks that lead these institutions now make whopping salaries (seven figure salaries are rampant at the elite schools), typically with accompanying entourages that would make the ghost of Louis the XIV blush.  Faculty parking lots are full of mercedes, bmws and the occasional ferrari.  Times have changed.

The real victim is the education process itself, no longer of much concern to folks out raising money to perpetuate these institutions.  Taxpayers, either through direct government grants or tax deductions provided to wealthy donors, provide the funding for institutions that have long since lost their moorings and are constantly casting about for a new champion or cause that might stir up students, many of whom no longer see education of much value anyway.

Ultimately, there will be no financing to support all of this, since no real product is created or even envisioned by the increasingly politicized modern education model.  Tuitions are continuing to escalate skyward and that process will not abate.  Eventually, however, the tide will turn and many, if not most of these no-longer-functional monstrosities will collapse of their own weight.

Education, as such, is, after all, pretty cheap and not in any way political.  That simple and obvious fact will spell doom for the higher education system that big government has spawned.

Insurance Without Health Care

As Obama trumpets the meagre spread of health insurance occasioned by the fourth year anniversary of the passage of the bizarrely-named Affordable Care Act, it is becoming increasing clear to many Americans that having Obamacare insurance is not the same as having access to health care.

"We have insurance, but can't afford to use it." So says, David R. Reines of New Jersey, quoted in today's NYTimes article, penned by Robert Pear.

In order to make Obamacare work, the deductibles -- that means what you pay before the insurance kicks in-- were raised to "sky-high" (that's the description in the article) levels.

Kevin Fanning of North Texas was quoted in the article saying:  "We could not afford the deductible.  Basically I was paying for insurance I could not afford to use."  He dropped his policy, according to the article.

Wendy Kaplan pays $ 1,200 per month for her Obamacare health insurance, according to  the article, for coverage with an annual deductible of $ 12,700.  Only Obama and his allies would call this "affordable."

An on and on.

The best quote of all in Pear's article is from Anne Cornwell of Chattanooga (whose annual deductible is $ 10,000): "When they said affordable, I thought they really meant affordable."

The insurance is affordable so long as you don't plan to use it.  Insurance without access to health care -- the Obama dream.   Form without substance.

Friday, November 13, 2015

A World of Low Expectations

"The slowdown underlines the tepid nature of the eurozone’s economic recovery, which began in mid-2013 but has now eased for the second straight quarter. Weak growth has left the economy still 0.5% smaller than it was at its largest in the first three months of 2008."

The above quotation, taken from this morning's Wall Street Journal, is the latest report on economic progress in the Eurozone.  No growth is now the norm for the Eurozone.  Greek results were cheered.  Here's how things are going in Greece:

"The Greek economy contracted by 0.5%, but that was a better outcome than economists had feared, having expected a drop of 3% after capital controls were introduced in June as the leftist government scrambled to prevent a collapse of the financial system amid doubts over the country’s future in the eurozone."

Meanwhile, Mario Draghi promised more quantitative easing, a policy that has consistently failed everywhere in the western world to produce results.

So, essentially zero growth in the Eurozone and no expectations for improvement. 2 percent growth in the US, less than half of the normal recovery rates following a severe contraction.  Not only is economic growth over for the West, but expectations have been lowered to match the reality.

Having demolished free markets for the past decade, Europe and the US are reaping the rewards of an absurd economic policy.  Patterning your economy after the old Soviet Union is not a ticket to prosperity.  But, Europe and the US no longer expect prosperity, mired in economic stagnation for the foreseeable future.

Wednesday, November 11, 2015

The VA Should Not Be a Surprise

From public education to public health care, the results are terrible and getting worse.  So, why is anyone surprised that the Veterans Administration is letting veterans die waiting for care and then covering the facts up.  That is precisely the ultimate outcome of all government run operations.

Our public schools suffer from the same problem.  The teachers' unions try their best to cover up the pitiful jobs our public schools are doing as they campaign for more and more money.  But, the results are there for all to see.  We have the worst public education system in the developed world.  Our health care will soon arrive at a similar state.

So, the VA woes should come as no surprise.

Misleading Fact Checking

There is an Associated Press story today supposedly "fact checking" the Republican debate. 

Here's an example:  Ben Carson was accused of "wrong facts" when he pointed out that "Every time we raise the minimum wage, the number of jobless people increases."  Then as proof that Carson was wrong they noted that: "When the minimum wage was increased in 1996 and 1997, the unemployment rate fell afterward.'  This is proof of nothing. 

Other factors can lower the unemployment rate -- economic boom, e.g., that overpowers the adverse effects of higher minimum wage laws.  But, more specifically, if massive numbers of folks give up looking for work because of the increase in the minimum wage, that will guarantee that the unemployment rate will fall, even though Carson is 100 percent correct.  The unemployment rate only counts those actively looking for work, not those who have thrown in the towel thanks to misguided policies like minimum wage laws.

Another AP incredulity was Jeb Bush's comment that "We could get to 4 percent growth."  Here's what the AP said to that: "THE FACTS: That's a highly improbable target because of forces in the economy that are beyond the control of the president."  Nonsense.  Even 4 percent is minimalist thinking. The only reason 4 percent seems aggressive is that the Obama Administration can't do better than 2 percent.

Indeed, 6-8 percent growth is achievable, given the technological revolution that we are currently undergoing.  Only a regulatory clampdown can produce the pitiful results that America achieves today.

The AP is a joke.  They are nothing more than an arm of the Democratic Party and their fact checking is nonsense.  The Republican candidates' comments were spot on.  The AP should learn some economics.

Sunday, November 8, 2015

The Ultimate Elitist Argument by Ezekiel Emanuel

One of the originators of the ideas behind Obamacare is Ezekiel Emanuel, brother of Chicago Mayor and former Obama Chief of Staff, Rahm Emaneul.  Emanuel has written an editorial in today's NYTimes (otherwise known as the Democratic Party Times) with the headline: "I am paying for your expensive medicine."

Emanuel is now concerned that drug price increases make "affordable care" unaffordable, especially for low income Americans.  Everything about the ACA (the "Affordable Care Act") makes health care unaffordable, not just for low income Americans, but especially for middle income Americans.

Emanuel's solution?  Make drug prices equal to the value that they create.  Who decides value?  He does.

This is the ultimate destination for those who are destroying our health care system -- impose the system that existed in Soviet Russia.  An unelected bureaucracy decides who gets what and at what price.

This means that folks like Emanuel and his brother will always gets great health care, but that the average American will increasingly be exposed to a third world health care system.

The elite always wants to substitute their judgment for that of ordinary individuals.  The elite assume that the average person is an idiot and his/her views don't count.

Once you require that everyone buy only what Emanuel and his ilk want them to buy (aka Obamacare), regardless of what people want or need, it is a short step to raising the price and reducing the quality of what the public is buying.  That is where Emanuel and his cohorts in the Obama-Clinton world are taking us.

Saturday, November 7, 2015

The Keystone Rejection is Ridiculous

By rejecting the Keystone pipeline, the Obama Administration has exposed North America to more environmental damage, not less.  The product that would have been shipped by an environmentally friendly pipeline will now be moved by rail, environmentally much more threatening.

Typical environmentalist policy -- destroy the environment while claiming to help the environment.  Even Heather Ross, an extreme environmental activist, made exactly this point in her book "Green Gone Wrong," in which she thoroughly documents how environmental activists have, on balance, damaged the environment by their activist policies.

Results don't matter to environmentalists.  The only thing that matters to these folks and to Obama is the narrative, even if that narrative is a false narrative.

"Affordable Care" Costs Spiral Out of Control

The "Affordable Care Act" is turning into a bad joke.  There has been zero material reductions in the number of uninsured, the main goal of the act, while health insurance costs as well as basic health care costs are spiraling out of control.

For most American families, health care costs, if you add in the rise of deductibles, are now nearly double what they were before the ACA come into existence, little more than five years ago.  Meanwhile the quality of health care available to the insured has dramatically fallen, as bureaucrats replace doctors as the decision makers. 

There are no incentives for government bureaucrats to produce quality health care at a reasonable price -- so they don't -- why should they?  Only rich and powerful liberals like Obamacare, as the ACA is known, mainly because they don't have to experience it.   Only the poor and middle class have to fight their way through life with Obamacare -- Obama and Hillary have other ways of getting their health care.

The public has always been right on this issue.  Obamacare has never been popular in any polls with the average American, who saw through the fabrications and misrepresentation of the Obama Administration and their allies in a Democratically-controlled Congress.

But the truth is now there for all to see.  An article in today's Wall Street Journal by Evelyn Everton and Chris Hudson notes the disastrous impact on state budgets of the "free-money" medicaid expansion.  States already reeling from misrepresentations by politicians of the costs of public retirement systems are now overwhelmed by the dramatic and apparently unexpected costs of "free-money" medicaid expansion. 

The staggering costs of medicaid expansion should sink the almost non-existent presidential hopes of Ohio Governor John Kasich, whose misrepresentations of the facts regarding medicaid expansion are embarrassing to his candidacy.

The idea that government could provide a health insurance scheme that could maintain health care quality and reign in costs was a ridiculous proposition in the first place, something a majority of Americans have known from the very beginning.  Only an autocratic, undemocratic elite could impose something as horrible as Obamacare on the American public, who will, in time, overturn this nightmare.

Only free market health care and free market health insurance can deliver quality health care at a reasonable cost.  Europe learned that long ago; Americans are learning it now.

Friday, November 6, 2015

Good, Not Great, Employment Number

Up 275,000 -- jobs created in October.  That's a good number.  But, hardly a great number.  62.5 % labor participation rate is a terrible number.  Americans are still leaving the work force in record numbers, having given up any hope of getting a job. 

The reported unemployment rate is 5.0 percent, which is only comforting to the confused.  If Americans continue to avoid work, because the economy is so poor, an unemployment rate of zero isn't going to mean much. Corrected for folks who have quit looking, the "real" unemployment rate is closer to 10 percent - typical of recession levels.

Free markets, not government bureaucrats, are what we need.  Don't expect much from the economy until free markets gain a little visibility -- not likely any time soon.

Thursday, November 5, 2015

More Fed Nonsense from Janet Yellen

Yellen's statements yesterday were ridiculous.  She said that the decision as to whether or not to raise rates would depend upon "further improvements in the labor market."  What exactly does that mean?  Employment creation is anemic and has been since the Fall of 2008.  That's seven years.  So, what does she mean?

If given a healthy dose of truth serum, here's what I think she really means:  "I have no idea why rates haven't gone up.  We've been hoping and praying for years that rates would rise, but they never seem to.  We plan to keep hoping and praying.  Obviously, we have no ready mechanism to raise rates.  Just saying "go up rates" doesn't make it so and, as everyone knows, open market sales to reduce reserves could easily be destabilizing."  Okay, I got that.

The Fed has the power to add to and subtract from the monetary base.  Outside of that, the only other power the Fed has is to badger big banks to bend to their will when they feel in the mood to badger.  But, one power the Fed does not have is the power to precisely control interest rates.  That they cannot do.  The past five years is pretty demonstrative evidence.

Paul Volcker, the greatest Fed Chairman in history in my view, always said that "we are just following the market," at the time the Fed announced a new target range for the Federal Funds rate.  Volcker understood what was going on and, I suspect, Yellen does as well.

But, it is so much easier to believe that the Wizard behind the curtain controls all of this than to accept the reality that markets control rates, not the Wizard.  So, look for more Fed speak nonsense.  Rates will rise when markets make them rise....not before.

Wednesday, November 4, 2015

Another Clueless Economist

Left wing economists tend to park their economics on another planet when they opine about political issues.  It takes pretty crazy distortions to end up concluding that the minimum wage doesn't cost jobs, but liberal economists seem to have no difficulty getting there.

In today's NYTimes, economist Eduardo Porter has managed to embarass himself while discussing America's failing education system.  To skip to the chase, here is Porter's conclusion: "Teachers are paid poorly compared to those working in other occupations.  And the best of them are not deployed to the most challenging schools."  And that's that, according to Porter.

Some economist!

What about the role of the teachers' union?  What about the fact that anything that government takes over is run poorly and never in the interests of poor people?  Watch as Obamacare rolls out. The rich will still do fine, but poor and middle class Americans will be treated to third world health care, similar to the pattern of public education.

What is the answer?  Competition!

Vouchers.  Let families decide for themselves where to send their children to school.  The only hope for poor people and the middle class is to bring free market principles to education.  To continue to argue that raising teacher salaries is the answer is embarrassing. 

Porter should know better.  Wonder why Porter and his ilk don't apply the same argument to health care -- raise doctor salaries.  They don't seem to like that idea.

By not favoring a voucher system, economists are not only turning their back on their main field of study, but as a practical matter they are part of a system that condemns the poor to perpetual poverty.  Even the middle class are now sending their children to failing schools thanks to the advice of "economists" like Porter.

If big government actually worked, the old Soviet Union would not have failed. 

Sunday, November 1, 2015

Economic Growth Is No Longer a Topic

Notice how economic growth no longer interests anyone.  Wonder why?  Maybe because growth is such a distant memory, we no longer really expect economic growth anymore. As we load on more and more regulations, we are way past the point point where regulations slow the economy. At this point, the economy barely has a pulse.  That pulse can get weaker, but most of the real damage is already done.

We are becoming a totally stratified society, where division of a stagnant pie is becoming the political debate, but growing the pie is no longer even a topic of discussion. If economic growth were a topic of discussion, it would become apparent that the US economy has undergone a fundamental change.

Good times used to be 4.6 percent economic growth (the average of the 1950s) or 4 percent economic growth (the average of the 1960s).  Today, economists and media pundits cheer 2 percent economic growth (when we are lucky enough to experience that number, which we didn't in the most recent quarter). 

Given the pace of technological change, there is no reason why 8 to 10 percent growth is not feasible for the US economy, but the burden of regulation suggests that anything above zero is becoming increasingly less likely.  Moreover, no one seems to care.  There is no longer much discussion about increasing our economic growth rate.

Even with a slowdown, China is moving along at a 7 percent pace and will return to higher numbers in time, as the center of world economic power shifts to Asia and the US and Europe continue their decline into long run economic stagnation.

Once you lose interest in growing your economy, you enter a period of economic and political decline.  That's the trajectory of the US and Europe, but that is not the trajectory of many other parts of the world.  Asians want to grow their economies and they will do just that, while we watch and grumble.

Friday, October 30, 2015

Weak Economic Numbers Are Getting Weaker

Earlier this week, GDP for third quarter was announced by the Commerce Department as 1.5 percent, versus 3.9 percent in the second quarter.  Not much doubt about the trend here.

Today's personal income growth for the month of September checked in at barely positive.

For the average America, this data says more sluggish income, no chance of rising living standards, and continued demagoguery from the very folks that have created this nightmare -- the folks in the White House.

Until free markets are permitted to breathe again, there is no likelihood of improvement for the average American.  The only winners of the Obama-Clinton economic gameplan are those on top of the stagecoach, riding around in their limousines and jet planes, piously decrying inequality.  They should know. 

Thursday, October 29, 2015

CNBC Embarasses Itself

In last night's Republican debate, the CNBC questioners appeared to have little or no interest in economics or finance, which is supposedly their specialty.  Instead, the questioners seemed more like tabloid reporters, looking to drum up irrelevant side points mostly to make hay for their personal political point of view.

Not surprisingly, a number of the candidates called Harwood and Quintanilla out for their absurd questions.  Harwood and Quintanilla have long been shills for Obama and have now switched their allegiance to Hillary Clinton.  Both of these Democrats have used their platform at CNBC to promote the political agenda of Obama and Clinton, often by shading the truth or deliberately misleading their viewers.

Wednesday night, Harwood and Quintanilla apparently had no interest in economic or financial matters, but focused almost exclusively on trying to bring out negative campaigning to discredit the candidates personally.  How this serves the public's interest in unclear.  Both Harwood and Quintanilla should be ashamed of themselves. They certainly have zero credibility as financial reporters, as their true interests clearly lie elsewhere.

Becky Quick was not as obvious as Harwood and Quintanilla, but she, nonetheless, did serious damage to her credibility.  We have always known that Harwood and Quintanilla make no pretense at objectivity, but Quick's performance was shocking.  It will be difficult, in the future, to see Quick as a serious financial commentator. She made no effort to ask economic or financial questions on Wednesday, but instead asked questions that seemed to be prepared by Democratic operatives.

CNBC had an opportunity to put real economic issues on the table on Wednesday night and get the candidates to respond.  They chose instead to push their personal political agendas, for all of the country to see.

Sunday, October 25, 2015

The Budget Debate and Shutting Down The Government

According to the US Constitution, Congress makes the laws, including those governing the spending of money, and the President is the executive, enforcing the laws made by Congress.  So, how does a budget get enacted and implemented, according to the Constitution?

The House originates the budget, passes it and then the Senate acts.  Suppose the House and Senate have acted, then the budget goes to the White House for signature.

What happens if the White House says:  "I will veto this unless it includes massive monetary payments and bribes for me and my friends."  Then, suppose the White House proceeds to a veto.

Who is responsible for shutting down the government in this scenario?  Yep.  The White House.

So, the House and Senate should pass the budget resolution and the debt limit ceiling with whatever provisions they want.   Then, if the President chooses to shut down the government by demanding that he alone can enact legislation through veto threats, then let the President shut down the government by using his veto.

Forget the media's interpretation.  The true interpretation is that Congress is responsible for making the laws and if the President is willing to shut down the government to thwart Congressional intent, then let him.

It is way past time for the Congress to play the role that the Constitution intended and challenge the assertions of an over-reaching White House.  The President is shutting down the government whenever he vetoes a spending bill or a debt-limit bill. It is as simple as that.

Congressional leaders should stop saying: "We will not shutdown the government."  Congress is not shutting down the government by passing a budget and passing or refusing to pass a debt limit extension.  Congress is simply performing its function as provided for in the US Constitution.  Only the President can shut down the government if Congress does the job that it is supposed to do.

More Rubbish From Academia

One Stanford "scientist" and his two Berkeley colleagues have penned a study recently asserting that average income in Mexico will plunge 73 % due to "global warming."  US per capita income will fall 36 percent by 2100, according to "research" published by this trio.  This insightful nonsense will emerge into daylight in the November 30th issue of Nature magazine.

What is the basis for this "scientific" result?  You're right! Nothing.

What the authors have done is compare periods of high temperature with periods of low temperature and then check out the economic growth rates in the periods.  As an undergraduate essay, this absurd "research" would struggle to get a passing grade.  But, in the highly politicized climate of today's higher education "research" world, this nonsense now rates a way station on the way to fame and fortune for extreme left wing academics.

All you need, according to these folks, is a cold spell for the South Sahara to roar past Europe and the US in per capita GDP.  No need for free markets, education, natural resources.   This makes the study of economic development fairly simple.  We should focus on building efficient air conditioners -- that will quickly, according to these folks, provide all the economic growth that these poverty ridden countries will ever need.

Sadly, this kind of "research" is not unusual in the modern American elite university. It is typical.  Serious thinking is increasingly being replaced with stuff like this.

Friday, October 23, 2015

The Real Divide

Bureaucrats with protected job security don't worry about economic growth.   Why should they?  From their point of view, private sector job creation is a nuisance issue.  Bureaucrats and others who live off taxpayers are far more interested in social issues and climate change.  Mundane, routine issues like getting a job are not of much interest to someone basking under the "tenure" positions in public education and higher education.

The private sector is full of folks concerned about profits and about jobs.  How crass?  The bureaucrats, protected from the vagaries of free markets, are able to mull over the big issues of the day like creating safe spaces for transgenders and climate change.  These issues are very appealing discussion topics for people who don't have to worry about how to support their family.  Protected, as they are by taxpayer-provided funds, they are free to mock ordinary citizens who fend for their life in the private sector.

This is the real American divide -- between taxpayers funding all of this and those "five-percenters" sitting loftily in government, non-profit, or education industry luxury.  They can talk all they want about the issues they like, which are mostly irrelevant to poor folks and low income folks, who need jobs and hope.  These "five-percenters" are busy finding ways to impose higher and higher barriers to the hopes of those less fortunate.

So, if your living room is dominated by discussions of climate change, it is likely that the bread winners in your house are bureaucrats or taxpayer-funded clericals who don't face a market test - ever.  If your living room is dominated by discussions of how to find next month's rent or a job, you are likely a participant in the private sector. 

This is the true American divide.  That's why the media and their friends in the bureaucracy are interested in climate change.  They don't need to worry about economic growth and the standard of living of the average family, as long their personal economics is unaffected by any of that.

Monday, October 19, 2015

Avoiding Reality By Focusing on Inequality

All of the discussion about inequality enables people to ignore real issues of poverty.  There can be a lot of inequality and no poverty, at least in principle.  If so, what of it?  But, more realistically, there can be very little inequality and massive, ubiquitous poverty.  Is this what the "inequality" crowd really wants -- everyone to be "equally" poor?

Sometimes you wonder.

The usual policy proposal from the "inequality" crowd is to raise taxes and give money to bureaucrats and allow for no accountability for the funds so dispensed.  What will that do?

It certainly won't eliminate poverty.

In fact, that doesn't even seem to be the point.  The point seems to be to "get even."  Bureaucrats, and here I include most employees in the educational establishment, want more money.  That is their number one thing.  They resent the incomes made possible by people in other professions and they want theirs.  Eliminating poverty is never the point.  In fact, their proposals usually logically imply more poverty and, in particular, more long-lasting poverty.

They are okay with that.

So long as bureaucrats gain relative to the one-percenters.  But, of course, many of the bureaucrats are one-percenters.  So the plan is to catch up with the other, wealthier one-percenters.

This is all about envy by bureaucrats.  The inequality game has nothing to do with helping poor people improve their standard of living.

That's why the inequality crowd is not concerned that their proposals reduce economic growth, limit opportunities in the poorest neighborhoods and enrich bureaucrats and eliminate accountability for the spending of public money.

The reality of the plight of the poor is not something that is of any real interest to the inequality crowd.  Their focus is elsewhere.

Sunday, October 18, 2015

America's Future - On Display in Venezuela

Take a look at the political program of Hugo Chavez, the late popularly elected leader of Venezuela.  Then compare that program to the political program of Obama/Clinton.  Both programs claim that the issue of the day is wealth and income inequality.  Both propose major taxes on "the rich."  Both demonize the business community.  Both argue that retail stores overcharge for their products and underpay their workers.  Both propose dramatic increases in the minimum wage.

Neither program ever references economic growth -- ever!  Both programs see capitalism as an essentially evil institution.  Both see American foreign policy history as essentially predatory.  Both see the Castro regime in Cuba as benign and see American history as a history of evil and exploitation.  Both have little or no respect for the rule of law and are prone to arbitrary "executive actions," put forward by unelected bureaucrats, ignoring the duly elected representatives of actual voters.

Similar programs tend to produce similar results.  So, now that the Chavez program has been thoroughly implemented in Venezuela and Chavez is dead and gone, how is Venezuela doing?

Check out today's NYTimes.  An article by William Neuman and Particia Torres describes the now-desperate plight of the average Venezuelan.  What few goods and services are left in Venezuela are funneled to government workers and political supporters of the regime, reminiscent of the old Soviet regime and the modern day economies of North Korea and Cuba.

Venezuelans now resort to black market activities to provide even the most basic goods and services while the political elite bask in luxury.  Credit cards are now being replaced with barter as the economy increasingly backs up toward stone-age economics.  Except for government employees and the political leadership of this disastrous country, everyone else is broke, starving, lacking health care and basic education and bereft of hope.

In that sense, inequality of wealth and income has been eliminated in today's Venezuela, but that is mainly because wealth and income have collapsed to poverty levels.  This is the end game of the "inequality" gambit.  Meanwhile, the political leaders of Venezuela live high off the hog in a style that even Obama and Clinton would envy.

The "inequality" cause is a political ploy promoted by folks, like the Clintons and Obamas, who possess extreme wealth, unearned by any free market activities.  The end game is political domination and reduced living standards for the masses.  Cuba and Venezuela are the icons for this "inequality" dream.

No country in the history of the world has improved living standards by adopting the Chavez-Obama-Clinton program.  Only free markets can deliver higher living standards.  Every time free markets have been abandoned for political sloganeering, the average citizen's life style collapses.  There are no exceptions throughout history.

Notice that in the recent nationally televised debate featuring Ms. Clinton and others, no one bothered to mention economic growth at all.  Growing the economy no longer matters to these folks. Instead the focus is on dividing a dwindling economic pie.  The average American should check out the NYTimes article on today's Venezuela to get a glimpse into their future, if the Obama-Clinton regimes get their programs fully implemented.

Monday, October 12, 2015

The IMF and the Fed

The IMF is meeting in Lima, Peru this week.  At this meeting, central bankers around the world are calling on the US to raise short term interest rates.  How are they supposed to do that?  The Fed has been wondering about that for a while.  What neat, simple mechanism, that won't start a panic, can the Fed use to raise short rates.  Certainly, the Fed discount rate is not powerful enough to do the trick.  So, how, in reality, can the Fed accomplish a higher rate regime?

Before tackling that never-asked question, what about the question of why rates are so low in the first place and why they have been low ever since the 2008 financial collapse?  Is it really the Fed?  Why are rates so low in Germany, there is no Fed in Germany? Is the Fed really the key to short term rates?  Not likely.

Since 2008, securities that were thought to be relatively riskless have all but disappeared because of arbitrary US government actions, breaking bond covenants and otherwise adding unknown and uncertain risks to other instruments that used to be substitutes for treasuries -- short term corporate obligations, for example.  You never know where the Obama Justice Department will strike next overturning long standing precedent and arbitrarily fining their political enemies.  Henry the eighth had nothing on the Obama Administration.

With the enormous uncertainty about arbitrary government seizures and fines -- commonplace today, virtually non-existent in the past, only US treasuries and overnight repos seem to offer, for now, a safe harbor from the caprices of the Obama Administration.  To big to fail is now enshrined policy, but those protected are now subject to arbitrary government action, partially offsetting the apparent guarantees in place.

So, what can the Fed do?  They can begin to unload their enormous balance sheet onto the market, suggesting an unprecedented upward explosion in financing rates.  This is a delicate operation, because the market cannot aborb that much debt in a short time without severe dislocation. If the liquidation of the Fed balance sheet occurs over a longer period of time, it will crowd out marginal borrowers and keep downward pressure on an already moribund economy.  So, what to do?

Meanwhile the IMF, which is now broke itself, is offering advice, which is pretty amazing if you think about it.  The original mission of the IMF was to smooth currency imbalances.   Now, they fund Greece.  So, is it any wonder they are out of chips and full of advice.

The Fed, the IMF are not instruments that can provide economic growth, though they can certainly create a lot of mischief, which they have.  Economic growth is a result of individuals, acting in their own limited sphere, creating economic progress, broadly defined, that leads to a surge in GDP per capita and dramatic increases in the standard of living of the average person.  The rule of law, rudimentary education and free markets are all that are needed.  Unfortunately, those three items are not on the US agenda, not on the Fed agenda, and not on the IMF agenda.

Somehow, it is always the wizard behind the curtain that is expected to pull a rabbit from the hat.  But, the reality is that real economic growth comes from the efforts of individuals trying to better their condition and a government that gets out of the way and lets them do that.

Sunday, October 11, 2015

The Taxpayers as Bad Guys

There is a remarkably block-headed article by Gretchen Morgenson in today's NY Times about the student loan crisis.  Morgenson, who sometimes makes sense, makes no sense in today's article.  Her article is about the repayment, or lack of it, process that takes place when it is time for the borrower to repay.


You would think that these college students were totally incompetent to read a loan document.  You would probably be right.  It is highly likely that very few of these borrowers should have gone to college in the first place, much less had a convenient, taxpayer-backed, way of borrowing.

There was no discussion in the article about whether or not any of these students worked during their college years -- a phenomenon that is all too infrequent these days.

There is no concern in this article for the interest of the lenders, who are out the money.  They turn out to be the villains in Morgenson's article.  This is the usual NYTimes narrative -- those lending money are villains.  This theme was the usual tale of 2008, where mortgage lenders were villified while those who lived high on the hog -- way above what they themselves could reasonably support -- were portrayed as the victims.

Why do you think students need so much loan money today?  Could it be that all of those administrators pulling down high six figure incomes, while working a six month year, are costly to support?  Take a look at the pay rate of deans, provosts, university presidents, sexual assault specialists, gender studies directors and on and on. These folks make a fortune and they have dramatically added to the cost of education.

Those who, unwisely, expanded student loan access to prop up the current over-bloated, wasteful colleges and universities, are the real villains.

Rather than blame lenders and innocent taxpayers, Ms. Morgenson should look into the root causes of the absurd costs involved in obtaining a college education today.  While she's at it, take a look at the absurd courses of study that these borrowers are pursuing.  No wonder they can't pay these loans off.

This problem results from an unholy alliance of university administrators and folks like Elizabeth Warren and Bernie Sanders who think that the average American should pony up for every cause that those motoring around in limousines and fancy jets can dream up.

Saturday, October 10, 2015

Jack Lew is Clueless

Thursday, speaking in Lima, Peru, US Treasury Secretary Jack Lew said:  "When you look around the world, the question is the still the same.  Policy makers have the capacity to help boost growth, but it's a test for all our political systems to determine we have the political will." 

How could you disagree with that?

The US, for example, has spent the last decade enacting endless suffocating regulations that have effectively prevented a strong economic recovery from the 2008 financial collapse.  These regulations and arbitrary government actions, mostly executive actions by the Obama Administration, now prevent any return to economic growth for the US.  The Obama's Administration certainly has the political will to kill off economic growth.  But, can growth be revived?

So, what is Lew's prescription for the US?  More government spending, restoring the funding for the Export-Import Bank and other goodies for special interest friends of the Obama Administration.  Is he kidding?

For Lew, economic growth means taking taxpayer money and giving it to people he likes.  That about sums it up.  So, he decries the fact that a freely elected Congress won't get on board with give-aways to his buddies.

This tells you a lot about our future as long as Lew and other Obama acolytes remain in power.  It's all about lining their personal pockets and giving the back of the their hand to the average American.

Now, Lew wishes that other countries will adopt similar policies to reward friends of his in their countries.  The Eurozone already has such policies in place, so Lew is obviously hoping to tap down the economic growth in Asia and the other few pockets of economic strength in the world.

Misery likes company.

Thursday, October 8, 2015

Tough Call on TPT, But "No" Is the Right Answer

The president received the authority to negotiate the Trans Pacific Trade agreement with several Asian countries -- the biggest is Japan -- from the Congress.  Now, the Obama-negotiated trade agreement is headed to Congress for approval.  For reasons apparently known to no one, some of the agreement details are "classified" and even Congressmen, expected to vote on the measure, are not permitted to read it in detail.  If that sounds absurd, it is.

So, do you vote yes or no?

The first question is: can you vote on something that you are barred from reading?

The second question is will approval of this deal further the expansion of free trade or make free trade more difficult to implement in the future.  Why?  The president has loaded this deal with concessions to big labor and to environmentalists that gut most of the "free" in "free trade." If this deal becomes a pattern for future deals, then it should be rejected for that reason alone.

If you can't read the details in the agreement, then it should be rejected for that reason alone.

Is there much left to say?  This deal should be rejected.

Sunday, October 4, 2015

Oil and the Monopoly Myth

Those who oppose free markets often cite monopolies and large corporations as needing to be tamed by a bureaucratic apparatus designed to "protect the public."

The energy "crisis," as it used to be known, was a clash between growing energy demands and limited supplies.  The Club of Rome, remember them, argued in the 1960s and1970s that the world was going to soon run out of fossil fuel energy and therefore economic growth should be shut down before the lack of energy supplies shut it down.  This argument persisted well into the twenty-first century until it was overwhelmed by massive increases in fossil fuel energy. Another Malthusian specter vanished as if by magic.

Think of all the newsprint and talk media wasted decrying the world's output outrunning it's energy supplies.

So, the ground shifted.  The "global warming" story replaced the Club of Rome argument, but led to the same conclusion: shut down economic growth.  As the "warming" story ran up against contrary facts on the ground, the "climate change" story began.  But, the conclusions are always the same: shut down economic growth.

Thus who push this line believe that there is a knowledgeable elite -- usually, themselves -- who can rescue us from all of this, if only we abandon free markets and let them decide who gets what and what goods and services can be produced in their vision of the brave new world.

It  is amazing that so many folks think their views should supplant the views of ordinary folks regarding what to produce and consume.  The great virtue of free markets is that, acting only with local information, average citizens in their personal efforts to improve their standard of living, provide benefits for everyone in increased production and increased consumption through economic growth.  No elite bureacrats are needed.

So, myths are created, that require elites to come to the rescue.  Is it time to reign in big steel, big oil, big autos, big old IBM.....?  It is obvious that the view that these monopolies controlled our very existence turned out to be ridiculous.  These so-called monopolies couldn't find a way to provide for their own survival, much less control the rest of us.  Monopolies carry the seeds of their own destruction as new products and new ideas push the monopolies out of the way.  Free markets win out, even over monopolies.

There is no bureaucracy that can protect us.  Bureaucrats can only enslave us.  Only free markets and human initiative can protect us and permit us to improve our lives.

Friday, October 2, 2015

Job Numbers Show Economic Stagnation

Job creation in the US is grinding to a halt.  That is the clear direction of the job numbers released today showing 142,000 jobs created last month and reduced earlier numbers by 58,000.  Net-net, the figures show 84,000 new jobs created for the month of September.  It doesn't get much worse than that for an economy, not yet in recession.

These pitiful economic numbers are the natural outcome of the economic policies of the Obama Administration that focus upon increases in taxes and regulations.  Cheerleaders for the Obama Administration in the media were expecting 200.000 or more new jobs.  The actual reported number, after corrections, was 40 percent lower than media expectations.  That tells you how accurate Obama cheerleaders are at forecasting economic numbers.

Sadly, the situation is not temporary.  This is the new world order.  Europe killed off economic growth decades ago; the US is a late comer to the party.  But now, both Europe and the US have bought into the constant economic pie plan and numbers show it.

Those on the stagecoach have nothing to fear.  Bureaucrats will continue to see their income rise and the wealthy will do fine in the stagnant economy.  The middle income and below will struggle and find their standard of living declining.  Big government is the winner -- the average American will be the loser.

No surprises here.

Thursday, October 1, 2015

Why So Much Regulation?

America is strangling under policies of excess regulation. These regulations are coming from several levels of federal, state and local government.  Is there any company without a large and growing "compliance" effort.  What consumer good is produced by the compliance department.

There are many ways to kill off the free market and stifle economic progress.  Excessive regulation is one of the more subtle.  An excess of regulation guarantees the power position of folks at the top of the pile and provides jobs for lawyers and clerks, who produce no products of value that any consumer would ever willingly consume.  These regulations kill off business formation and make criminals out of the poor who have the courage to step forward with their own entreprenurial efforts.

You don't need to deal with paperwork if you are a drug dealer, but if you do anything legitimate in our poorest communities, your are forced to endure an enormous amount of paperwork to satsify bureaucrats at all levels of government.  Otherwise you may be subject to civil and criminal penalties.

Selling lemonade at a lemonade stand would take more than 12 months to get the necessary approvals from various levels of government in most American cities.  So much for the lemonade stand.

No wonder, drug trafficking has such an appeal in the poorest communities.  If all forms of entrepreneurship are illegal (because as a practical matter compliance is impossible), then why not enter drug trafficking where the profits may be worth the risks.

But regulations serves the interest of rent-seekers.  A rent-seeker is someone who has no intention of providing a product or service that anyone would voluntarily purchase.  Instead a rent-seeker seeks to make their money by latching onto the regulatory world and punishing those who are trying to provide a product or service that folks would actually like to buy.  Rent-seeing activities are like leeches.  They suck out the blood of a vigorous economy and provide nothing in return.

America has become the land of the regulator.  In my state of Virginia, any home built with a single room that doesn't have electrical outlets cannot get an "occupancy" permit.  What conceivable reason can there be for this regulation?  If the homeowner wants to have a room without electrical outlets to protect small children, he/she cannot do it.  How did that become an issue to be determined by the state?  A family is forbidden to protect their children thanks to regulation.  There are so many examples where regulations make folks less safe and reduce their standard of living.

Who wins?  Lawyers and folks at the top of the pyramid.  These regulations don't bother them.  In some cases, Senators like Elizabeth Warren, exempt themselves from regulations that terrorize the average citizen.  After all, Elizabeth Warren, perched on top of the stage coach, need not bother to play by the same rules that she foists on every other American.

So, regulatory overkill continues to punish those at the bottom of the economic pile with little or no benefit to anyone but the bureaucrats (and their ever-present media fan club).

Wednesday, September 30, 2015

Economic Success -- How and Why?

The new movements on American campuses focus around the idea that economic success is based upon "western ideals."  Instead economic success, they argue, should be based upon something else.  What is that something else?

Egalitarianism -- except where they are personally concerned.  The arrogance and elitism of this point of view is breathtaking.  Those sitting atop the stagecoach of life peering down upon the masses get to decide the rules.  Capitalism, which favors hard work, personal initiative, thrifty and honesty is seen as representing "western values."  Instead such values should be replaced by distributing the goods of society as these new thinkers see fit -- a view that Hitler, Stalin, Castro, Hugo Chavez and the various folks running North Korea certainly would agree with.

Merit, it turns out, is a western value.  That someone can emerge from poverty to become economically successful is an abhorrent idea to the leaders of the modern university.  Instead, these leaders argue, they should personally decide who gets what.  Hillary Clinton has glommed on to this idea to parlay political influence into hundreds of millions of dollars of wealth.  Is there a left wing spokesman for the poor, who isn't personally worth hundreds of millions of dollars?

The war on poor people is alive and well on today's college campuses as concepts of truth, merit, hard work are struggling to find defenders.

Tuesday, September 29, 2015

Academic Absurdities

Increasingly, a university education in an elite school is little more than an indoctrination program.  Large numbers of faculty are no longer engaged in activities that most folks would describe as either research or teaching.  Instead, point of view is what matters.  The result: more and more students spend four years tacking on the political perspective of their "mentors," while gaining little in skills useful to compete in a modern economy.

If you want to see this in action, go online to any top 25 school and read the student newspaper.  You will be amazed.  The new codeword is "privilege," usually preceeded by the obvious racial adjective.  As if anyone at an elite school is anything but privileged.  Most of this is an exercise in self-flagellation, since it is rare to see anyone in an elite school anymore who is not comfortably among the one-percenters.

Throughout history, the most radical folks tend to come from "privileged" backgrounds, yet rail against privilege.  Capitalism, on the other hand, draws its winners from all backgrounds and the one-percenters usually phase out within a generation or two.  There is a reason for this.

The level of energy and work ethic necessary to succeed in capitalism usually blots out the accident of birth advantages of a wealthy family.  Accident of birth is the ticket in socialist societies and was a dominant fact of power in Soviet Russia and modern day China, Venezuela, Cuba, North Korea.  That's where real "privilege" holds sway.

Free market capitalism is the only institution in the modern world that rewards merit.  Those rewards can be blunted by big government programs that preserve the position of the rich and powerful.  Minimum wage laws, for example, help to keep the poorest among us from having the opportunity to escape poverty.  The wealthy tend to like minimum wage laws.  Note campus activity on the "living wage" -- a great example of how to keep poor people from the possibility of economic progress by substituting one class of workers for another.

Those who claim to represent those in poverty usually oppose anything that could help lift folks out of poverty -- vouchers, repealing minimum wage laws, reducing regulations on small businesses and ending onerous licensing requirements for the poorest entrepreneurs.  I guess it helps to have a large group of poor people if your main vocation is speaking up for the poor -- an activity very different from actually helping the poor get out of poverty.

Meanwhile academics, whose pay corrected for hours worked rivals that of baseball players, continue to drone on about "privilege."  They should know.

Monday, September 28, 2015

Trump Economics

Donald Trump, like President Obama, hasn't spent much time thinking about economics and, as a result, the Trump-Obama economic game plans are amateurish at best.  Neither seems to understand capitalism, except how to exploit capitalism for their own personal benefit.  Grand, over-arching principles are completely absent in the worldview of Donald Trump or President Obama. 

Trump has begun to demonize the rich, a persistent theme of almost all politicians these days, without noting that most Trump (and Obama) policies would permanently enshrine wealth and power of the rich.  Trump, like Obama, seems to have no understanding of why America became a great economic power in the first place. One is suspicious that neither really cares.  Neither Trump or Obama offers any policies that would help the poorest Americans climb out of poverty nor any policies that would improve the prospects of average Americans.  Just the opposite.

Trump's idea of capitalism is to get a bunch of rich folks together and decide how to run things.  That about sums it up.  Trump, himself, has never produced a product for a market place, but has instead weazled his way through the bankruptcy laws and peddled his personal fame to extort his way to whatever money he has.  How much, we will never really know.  But, does anyone really care.