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.

Wow!

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).