Monday, March 28, 2016

The Cynicism of the California Left

Imagine that you were out of work and looking for a job.  Imagine also that it was a tough environment to secure a job, because you lacked the job skills.  Suppose you are not a graduate of an elite college and not a young Silicon Valley whiz kid.  Instead, you are, at best, a high school graduate, a minority, and no job history.

Now, enter the State of California and the elitists who run that state.  Pass a law that says, starting tomorrow, folks at the bottom of the pile must be paid twice what they were paid yesterday.  You couldn't find a job at $ 8 per hour, but the now the law says you can't legally work unless you are paid $ 15 per hour.

This is simply California's way of eliminating poor people from the work force.  If you lack job skills, California gives you two choices: 1) go on welfare; 2) leave California.  There are no other options offered.

What's fair is fair.  Why not pass the same laws for folks who make more than $ 100,000 per year.  How about this:  starting tomorrow, if you currently make six figures, your employer will be required to double your pay or fire you.  Wonder if the elitists in California would back that law?  Not likely, because it affects them.

This hypocritical war on poor people is driven by entitled elitists, who have never faced the problems that California's poor face every day.

Friday, March 25, 2016

An Ignorant Administration

The President's recent statements equating the number of Americans dying in bathtub accidents with the number of American's dying from terrorist acts reveals how little this Adminstration understands about the world that we live in.

When someone dies in a bathroom accident, no fear is generated across the world.  There is no reduction in economic activity or tourism, no increase in wait times at airport security checkpoints. The President acts as if the public responds to accidents in a bathtub similarly to how the public reacts to the planned and successfully executed slaughter of innocent civilians in a theater or an airport.  How ignorant and disconnected can you get?

It is little wonder that the President doesn't understand the rise of polarized politics during his two terms in the White House.  He lives in a cocoon unrelated to the real world concerns and activities of ordinary citizens.

That's probably why the President thinks two percent economic growth is so great.  The President lives in a world of his dreams with little or no connection to real world problems that ordinary folks face every day.

Thursday, March 24, 2016

Thought Control at the SEC

Exxon's public disclosures are now required by the SEC to spout nonsense or else.  The SEC has demanded that Exxon disclose the "risks of climate change" to their business in their public filings.  In truth, the only risk to their business from "climate change" is that posed by on overbearing bureaucracy.  Climate change, itself, hasn't enough scientific underpinning to merit any comment.  Only a politicized agency with a political agenda would require this kind of nonsensical "disclosure."  Why not disclose the threat of a return of the Salem witchcraft trials, which is more or less what the current SEC policy would suggest.

This kind of thought control has no place in legitimate disclosures designed to inform investors of business risks.  To put in your filings complete nonsense with no basis in fact or reality obscures the real purpose of disclosures.  It makes public disclosures less useful, as if they aren't mostly ignored already.

What happened to free markets, free enterprise, and truthful public disclosures? The Obama Administration's efforts to stifle truthful disclosures to the public only serves to undermine the functioning of America's capital markets, historically the most lucrative financial markets in the world for small  investors.  The war on lower and middle income Americans by the Obama crowd proceeds unabated.

Friday, March 18, 2016

The Fed Takes a Pass

Earlier this week, Fed Chairman Janet Yellen, announced that the Fed was not going to raise their target funds rate this week.  Whoop-te-do!

Nothing could be more irrelevant than the Fed and its chairman.  Who cares whether the Fed raises its target funds rate or not?  Whatever they do has no impact on other interest rates or anything else for that matter.  So.....so what?

The Federal Reserve is a totally absurd agency and its policies are a joke.  They certainly have little or no impact on the American economy.

The Fed could do damage with its balance sheet, but it offers little hope of doing anything useful for the American economy, which has been slowed to a whimper by over-zealous regulators and and an over-bearing White House.

The Affordability of the Welfare State

The Detroit experience should have been an alarm bell.  Two or three years prior to the city of Detroit going bankrupt, there was no discussion in the press about the pension fund blowing up. Apparently folks thought the Detroit pension system was in good shape.  Too bad for those whose lives depended upon that pension plan.

It is now obvious that Chicago and most Illinois public employee pension funds are going belly up as well.  Why?

The disaster in Detroit, soon to be visited upon Chicago and Illinois, is the result of two facts:

1) no public employee pension system anywhere in the world that is a "defined benefit" system is properly funded.  Not a single one;

2) the folks that administer these funds never tell the truth about the funded status.

This combination of these two facts guarantees that all public pension funds will, sooner or later, go bust and that it will be a surprise to all when it happens.

Citigroup has now released a major study of public pension plans around the world including those in the most highly developed countries, meaning Japan and Western Europe.  Guess what?  They aren't funded properly either.  See today's NY Times are a report on the Citigroup study (which is also available for download from the NY Times website).

Citigroup estimates that the unfunded liabilities that developed countries are hiding from their unsuspecting citizens is three times their national debts.  Keep in mind that the national debts in these countries are unsustainable to start with.  Add on the pension liabilities and financial disaster lies ahead.

Meanwhile politicians are saying: "why can't America provide universal health care and universal old age benefits, when every other developed county in the world can do so?"  The answer: there is no other country in the world that can afford this.  The other countries are just hiding the looming disaster from their citizens.

No country can afford benefits that no one is setting aside funding for.  If none of the squirrels are gathering acorns for the coming winter, then there will be no acorns to consume, come winter.

The idea that somehow a handful of rich folks can be taxed to provide unlimited free things for everyone else is so ridiculous as to make one wonder about the sanity of those who suggest the idea.

Unless someone or some institution saves, this is all a house of cards that coming demographic changes will expose as the greatest hoax in history.  Once again, average folks will be the victims while the elite will find a way to live off of government largesse, even as public pension funds and other government promises of free stuff will implode (see today's Detroit to see this in action).

Tuesday, March 15, 2016

Bernstein Again -- This Time As A Protectionist

Jared Bernstein has now gone two for two.  In back to back New York Times articles, he has substituted politics for economics.  This time he has declared war on free trade, joining the luddites which include most of today's front running political candidates.  According to Bernstein, free trade is nothing more than a job killer.  Somehow, free trade only kills jobs in America -- never in other countries.

Keep in mind what free trade is.  Free trade means that you want to trade something with someone else, where both parties agree to the trade.  Bernstein wants to forbid that transaction.  Outlawing (or, what amounts to the same thing, raising tariffs so high as to prohibit the transaction) is an infringement on people's rights to trade with one another and is economically stupid.

If abolishing free trade was a good idea, why don't we erect tariffs between various states in the US.  Then we could accomplish in America what Bernstein wishes to accomplish globally.  Suppose we effectively forbid Texas to trade with New York.  Then gas prices in New York would quickly go to $ 10 per gallon, while in Texas, gas prices at the pump might stay at $ 1.50.  This, according to Bernstein, is a good outcome.

As most sane economists have always known, one of the key reasons why the American economy outgrew the rest of the world from the 1860's on is the free trade between its states, while Europe and the rest of the world struggled with the Bernstein plan -- high tariff walls and protectionism.  When the recession of 1929 led to the world economic collapse of the 1930's, the Smoot Hawley Tariffs were largely to blame.

Bernstein favors beggar-thy-neighbors autarky as opposed to letting people freely transact whenever they wish to, without interference of government.  Beernstein and the front running political candidates are wrong and the world and its people will suffer if Bernstein and these candidates get their way.

Sunday, March 13, 2016

Bernstein's Misleading Analysis

Jared Bernstein, a very pleasant but extremely partisan economist -- a friendly version of Paul Klugman if you like -- has penned an article in today's Washington Post that is so misleading as to be fatuous.

He is addressing, he thinks, the question of why non-college educated white men are losing ground in American's economy.  He has the wrong group in mind.  The demographic that is getting crushed is anyone -- male, female, white, black, whatever -- who had income below $ 50,000 per year twenty years ago.  This is the group that has been crushed by employer mandates, enacted in a bi-partisan manner, over the past forty years.

It is easy to come up with at least $ 20,000 in additional costs to employers of hiring an employee these days.  That means that a $ 50,000 wage and salary worker costs an employer more than $ 70,000 per year.  It means that a $ 30,000 wage and salary worker cost an employer more than $ 50,000 per year.   (Note that a $ 20,000 additional costs to employers of a $ 200,000 employee is much less significant).  It is the cost of labor, not the employee's take of that cost that matters to an employer.

As these non-wage costs, imposed by various levels of government, grow every year, unless wage and salary compensation declines, labor costs to employers must rise.  This reduces the demand for labor.  If the economy isn't growing, this implies that wage and salary compensation must, by simple arithmetic, decline.  All of this means dramatically reduced living standards for the Americans whose income is less than six figures annually.

That's the data that Bernstein is looking at, but has completely misinterpreted, in order to make a political point.  Bernstein has actively (and is actively) encouraging more mandates and restrictions that would speed the collapse in standard of living that average Americans face (and raise the income of folks like Bernstein, whose consulting fees would escalate).

The elite, like Jared Bernstein, thrive as they seek to plunge the average American further into an economic hole from which there is no escape.

Saturday, March 12, 2016

The Emporer Has No Clothes

For the umpteenth time, Mario Draghi, president of the European Central Bank (the ECB) has thrown more money at Europe's stagnation problems and pushed central bank lending rates further in the negative direction.  Here's the latest assessment in today's NYTimes:

"For years, new rounds of Q.E. and other moves have been the inevitable response to periods of market tumult and economic weakness. Now markets fear that the central banks just have nothing left to combat global deflationary forces that have seemed more powerful with every tick down in the price of oil."

The truth is the central banks are largely irrelevant to what ails Europe as the Fed is largely irrelevant to what ails the US.  The problems that beset Europe and the US have nothing to do with monetary policy and cannot be addressed by monetary policy.  Monetary policy has never, ever had the ability to overcome economic stagnation.  Even Lord Keynes admitted this, famously, in his reference to the "liquidity trap."

If you punish entrepreneurs and business enough, you can shut down economic growth.  That's what both Europe and the US have done and plan to do more of.  Forget central bank policy.  They are totally irrelevant as a growing number of pundits are beginning, grudgingly, to realize.

You will note in the quote above the reference to "deflationary forces."  Deflation can be a good thing, especially if it is anticipated and is more or less constant.  Deflation and/or inflation are only worrisome when they are not anticipated, which is not the case in the current environment.

Deflation is not the problem.  The problem is economic stagnation brought on by over-regulation of economic activity.

Friday, March 11, 2016

Economics and Politics

So, in all of the current political debate, who has solutions to our economic woes -- economic stagnation and declining living standards for most Americans.

Let's begin with the Democrats -- Clinton and Sanders.  Almost without exception, every policy proposal offered up by Clinton and Sanders would make the current economic stagnation far, far worse.

It is likely that if Sanders became President, the US would slip into third world status, following the path of Hugo Chavez's Venezuela.  Sanders basically offers to make everything free - education, health care, old age benefits, whatever you can think of.  Of course, no one is left to pay for any of that, so expropriation is the only answer -- that was the answer in Venezuela and would be the answer in the US in a Sanders administration.  Almost everything anyone ever knew about economic freedom would vanish in a Sanders administration.  As for inequality, it would be same old story repeated countless times in history -- bureacrats would fare well and average citizens would be plunged into darkness and economic misery.  You only to have look at the old Soviet Union, the Old China, modern day Venezuela to see the outcome to which Sanders' policies would lead.

What about Clinton?  The old Yugoslavia is probably the kind of future that the US would have under a Clinton presidency.  The rise of an overpowering bureaucracy and a stifling of dissent.  Note the current Attorney General's efforts to silence free speech by oil companies who have the temerity to question the absurd "science" behind climate change (there is none).  Political correctness would take over, while the true realities of what happens to the poor and minorities would be swept under the rug.  Expect more laws that freeze out any opportunities to get ahead, expect more benefits for the elite and their friends -- that's what the Clinton program essentially provides.  That's why Wall Street loves Clinton.  Wall Street has a monopoly that Hillary Clinton would go to great pains to protect.

How about the Republicans?  The Republicans rarely discuss economic issues and the few places they tread are not encouraging.

For example, bashing free trade is in.  Led by Donald Trump, but fed by all the others, free trade is no longer a staple of the Republican agenda.  Bill Clinton had it right (as did Hillary back then).  Today's Republicans have it wrong.  Free trade is good for America.  We should have no tariffs at all regardless of what other countries do.  A tariff hurts the country that it imposes it, as it denies trades that would make that country better off -- possibly much better off.  Only ignorance and bad economics fuels the protectionist nonsense spouted by Trump and the other Republican candidates.

Who among the Republicans speaks up for de-regulation of the economy.  Essentially no one, though once in a great while, Rubio and Cruz pay lip service to the idea, while they themselves engage in Wall Street bashing.  If Wall Street is the enemy, then economic growth is the enemy.

What about immigration?  America is an immigrant nation.  Immigration is in our blood and should remain the central most important characteristic of America.  But "illegal" immigration should not be a part of the fabric.  The laws should be enforced.  Period.  If you don't like the laws, change them, but as long as the law is the law, enforce them.  That is probably the number one appeal of folks like Trump, but is fed by policies of the Obama Administration, likely the most lawless administration in American history.

In short, none of the candidates out there offer up much hope for turning around the American economy -- no Ronald Reagans or Bill Clintons in sight.  Only more demagoguery and more political posturing.  No one really speaks up for or supports free market economics.  Most of the candidates are more interested in punishing the poor and exalting the elites.

Thursday, March 10, 2016

Europe -- What to Do? -- Draghi and Rattner

Europe is very much in the news today.  ECB head, Mario Draghi, is expected to announce a new set of measures to pick Europe off the floor economically.  LOL.  Europe's problems have very little to do with monetary policy and can't be solved by anything that the ECB does.  The current negative interest rate policy is more useful as a butt of jokes than as serious economic policy.

Steve Rattner, architect of Obama's GM bailout policy, has penned an article in today's NYTimes that is partly right, mostly wrong and mainly a political document for the Obama Administration.  Rattner does pay lip service to the idea that overburdening regulation, both in Europe and the US, has hamstrung economic progress.  That much is correct.  Rattner also takes a swipe indirectly at Dodd-Frank and overzealous financial regulation as inhibiting commercial loan growth in the US.  That, too, is on target.  The rest of the article is mostly myth or outright nonsense.

Draghi will fill the headlines, but like his cohort, Janet Yellen, nothing of importance will emerge.  The economy of the US and Europe will continue to stagnate until over-regulation is addressed.

Thursday, March 3, 2016

Oregon Declares War on Poor People

Yesterday, Oregon's Governor Brown signed a newly enacted punitive law banning jobs for their citizens who are at the bottom of the skills ladder.  The new law says that unless your job skills exceed $ 25 per hour within the next five years it will be illegal for you to have a job in any city in the state of Oregon.  In the rural communities, you will be required to have at least $ 20 per hour in skills to legally hold a job.  (The reason the numbers are $ 25 and $ 20 is that you have to factor in all of the other costs other than wages that the government requires, at a minimum, that employers pay).

Outlawing jobs for the poor is the new wave of left wing solutions to the problems of poor educational achievement in our failing schools.  This is part of a two part strategy: 1) Forbid any competition in the poorest public schools (by outlawing school choice), so that low income Americans do not receive much in the way of an education (the wealthy already have school choice); 2) Outlaw job training for the poorest Americans by requiring minimum cash payments by any firm having the temerity to consider hiring someone with minimal job skills and training them on the job in lieu of cash payments.

Elite and successful Oregonians cheered this attack on the poor as providing social justice.  An interesting new form of noblesse oblige.

Of course, the poor will have no choice but to move out of Oregon to find a more hospitable economic climate.  No doubt this is the real motive behind Oregon's most recent war on the poor.

Wednesday, March 2, 2016

Naive Media Pundits and Policy Makers

The pundits and "policy" folks still live in the 1930s.  But, the world has changed since then in ways that they cannot possibly understand.  These folks don't compete day-to-day in the free market.  They have no idea how different things are today for small businesses and ordinary folks.

We now live in a tangled web of an over-reaching government bureaucracy at all levels. That single fact is more important than the Fed, than tax rates, than international trade, than the stock market, than any other single fact.

If people are not free to pursue their own interests, which includes the right to make mistakes, then there is no possibility of real economic growth.  The kind of economy that we have experienced since early 2009 is as good as it gets.  This means the living standards of the average American are on a downward trajectory and no macro-economic maneuverings will matter.

What is needed is a major regulatory rollback.  Absent that, the US growth story is past history.  The Trump narrative of "making America great again" would require a painstaking unraveling of the regulatory monster that has been created by a plethora of well-intentioned laws and regulations that have shut down the American economic engine.

The implications for common stocks are stark.  It is not so much that the stock market is going to collapse, but more the likely the stock market will no longer continue its one hundred year pattern of double digit returns for the average investor.  An economy that can't grow, cannot produce profits for shareholders.  The future, then, for the stock market is for much, much lower annual returns than American investors have become accustomed to.

Not only will the middle class and the poor suffer in this new economy, but stagnation problems filter up as well.  While the political class -- the Clintons, Gores, Obamas and their allies -- the Buffetts, Gates and others -- will maintain their position at the top of the economic pile, even they will soon look in envy at the Chinese, where the wealth trajectory of the Chinese society will continue to power forward. 

China has what one might call the "optimal corruption" model.  Once you have paid off the local province leader, there are not many more palms to grease.  Not so in the modern USA. The corruption in America, defined by the perplexing levels of bureaucracy and regulatory bodies that businesses have to deal with on a daily basis, suggests that American businesses now spend at least as much time complying (think: paying off) with the bureaucracy than running their businesses.

The elite colleges now feed the personnel that staffs this new bureaucracy.  Former Treasury SecretaryTim Geithner and his successor Jack Lew are modern examples of the new bureaucracy.  With zero experience in the private sector, Lew and Geithner have very strong opinions about how business in the financial sector ought to proceed.  Their complete lack of experience or knowledge of the financial sector has not deterred them from issuing sweeping orders that have forced the financial sector to shrink back into a state of contraction.  Those with no knowledge or background can be overbearing and ambitious -- Geither and Lew are poster children for this type of modern bureaucrat.

The average American has less and less choice over everyday decisions as the Geithner-Lew mob take over.  The pundits and "policy" folks can't see this, because they don't experience it.  They still live in the simple world of the 1930s, where tweaking macro policies was the simple ticket to economic growth.  Such views are nothing more than an illusion, based upon ignorance.