Archive for the 'Economics & Finance' Category

Former FDCI head Sheila Bair says that low interest rates are hurting, not helping, the economy

Boring, narrow, think-alike apparatchiks.

Educational credentialism and the landed aristocracy.

The irreversible decline of Sears

Rita King is not impressed with Marissa Mayer’s ban on remote work at Yahoo

How volatility boosts career resilience

Seven characteristics of creative people

Stephen Hawking’s warped moral calculus

19 emotions for which English has no words

AT&T predicted the future in these 1993 ads…but how many of these possibilities-turned-actualities was it really able to convert into sources of revenue and profit?

The CEO of Siemens USA thinks young people should seriously consider careers in manufacturing. (When he talks about high-level executives at Siemens who started as apprentices on the shop floor, I have to wonder how many of these success stories are in Siemens USA versus Siemens in Germany)

Some vintage air travel photos

The 22 most beautifully secluded places in the world

This is very good:

There are opportunities, but they require a deep understanding of risk and security. A livelihood with day-to-day low-level insecurity and volatility is actually far more stable and secure than the cartel-state one that claims to be guaranteed.
 
The burdens of Fed manipulation and the cartel-state rentier arrangements will come home to roost between 2015-2017. Those who are willing to seek livelihoods in the non-cartel economy will likely have more security and satisfaction than those who believed that joining a rentier arrangement was a secure career.
 
There is a price to joining a parasitic rentier arrangement, a loss of integrity, agency and independence. Complicity in an unsustainable neofeudal society has a cost.

Read the whole thing.

(Via Lex and ZeroHedge.)

…[H]er longest-lasting impact has been neglected. Indeed, it is so long-lasting that it is yet to fully play out, even now.
 
Margaret Thatcher changed the Right from a reactionary movement into a revolutionary one … .

Mark Wallace

The Conservatives in Britain needed to become revolutionaries. American Conservatism was started by William F. Buckley, Jr. and was meant to be revolutionary, or at least counter-revolutionary, and many of its early thinkers were former Communists who thought of themselves as continuing a revolutionary struggle.

Mrs. Thatcher pointed out nicely against whom the revolution must be made: crony capitalism:

Too many people and industries preferred to rely on easy subsidies rather than apply the financial discipline necessary to cut their costs and become competitive. Others preferred the captive customers that a monopoly can command or the secure job in an overmanned industry, rather than the strenuous life of liberty and enterprise.

Margaret Thatcher: Rebuilding an Enterprise Society Through Privatisation.

Saying “the State” is the problem is only partly true. Millions benefit from the State as it currently operates, and most of them are not employees of the State. They are rationally self-interested in keeping things as they are.

Choosing “the strenuous life of liberty and enterprise” is a moral choice at least as much as it is a self-interested one.

“Greed is good” does not get you capitalism. Greed is more easily satisfied by turning state power to personal gain. Capitalism, or the better term, free enterprise, permits great personal gain, and improves the lives of many people over time. But it cannot rely on self-interest alone to keep it going. It is a way you have to decide to live, individually, and as a nation.

Once upon a time I read a book which showed me that the growth of the state and the slow extinguishing of freedom and enterprise were virtually inevitable. The beneficiaries of each incremental increase in state power, of each incremental loss of personal freedom, were acutely focused on gaining and keeping their advantages. The losers in this process were diffuse, unfocused, distracted by everything else in life.

The common good had no champion, as a practical matter. In terms of strictly material incentives, it never would.

Worse, in terms of non-material incentives, it is even worse. To go against the currently powerful, the currently well-connected and prestigious, will lead to scorn, insults and derision.

And I eventually came to understand that pushing back against this process is precisely what is meant by the word leadership, under current conditions.

There is always a “them” who are the current ruling group. They are the ones dealt into the existing game, its apologists and advocates. To take them on, to organize and lead an opposition movement, the leader must have extremely strong character. Such a leader must be self-assured, know how things really work, and have a very thick skin. The leader must have no regard for conventional wisdom and no respect for the often unstated limits of what can be done or, even more, what is “simply not done” or “simply not said.”

As a practical matter, such a leader must have the capacity to speak plainly and clearly to a majority of ordinary people who are quietly victimized in the existing game, to show them how certain changes will be good for them, and good generally. They do not lead by force or lies, they lead by telling hard truths and gaining assent to the hard path to better things.

Mrs. Thatcher was such a leader.

Mr. Reagan was such a leader.

We need more of them. But they are always scarce.

Fortunately, though scarce, there have always been a few of them.

And as things get worse, people turn to them, reluctantly, out of necessity.

May God grant us more such leaders in the troubled days ahead.

UPDATE

Michael Barone sent the following anecdote:

My one significant exchange of words with Mrs. Thatcher.
 
I asked, perhaps a bit obsequiously, whether it was a weakness of her philosophy that its success depended on having a strong leader like her or Ronald Reagan.
 
She responded in her booming voice: “But isn’t that always true?”
 
After a pause: “Isn’t that ALWAYS true?”
 
Your point, exactly.

Mrs. Thatcher was correct on this point.

The system does not go of itself.

There has to be leadership.

There is no alternative.

UPDATE II

I have been schlepping around for 20 years a copy of The Anatomy of Thatcherism by the late Shirley Robin Letwin. It is very good after about 50 pages.

Patty Murray is a United States Senator.

Speaking to a group of high school students in 2002, she explained the appeal of Osama bin Laden to his followers, thusly:

“He’s been out in these countries for decades, building schools, building roads, building infrastructure, building day-care facilities, building health-care facilities, and the people are extremely grateful. He’s made their lives better. We have not done that.”

Day-care facilities. Yeah, women in Taliban-controlled areas like the convenience of dropping the kids of at the day care center before they check themselves in for the whipping or the stoning.

Murray’s deficiencies of understanding are not limited to foreign policy matters. Michelle Malkin:

” I’ll never forget interviewing her many years ago when I worked for the Seattle Times editorial board. We were talking about federal entitlement spending. I asked her about FICA taxes. She didn’t know what I was talking about; when I said “payroll taxes,” she still had a frozen blank look on her face.”

Another example of Murray’s ignorance shows her also to be a nasty bigot. When lobbying against a contract award for an Air Force tanker plane to Northrop Grumman, she said:

“I have stood on the line in Everett, Wash., where we have thousands of workers who go to work every day to build these planes. I would challenge anybody to tell me that they’ve stood on a line in Alabama and seen anybody building anything.”

This blogger responds:

Perhaps Senator Murray has heard of “Hyundai.” They manufacture “automobiles.” She might be shocked to learn that Hyundai has a “manufacturing plant” in Montgomery, Alabama. She might also find it surprising to learn that Mercedes-Benz has a huge, state of the art manufacturing facility  just outside of Tuscaloosa. The last time I heard, manufacturing plants had “lines” where people “build things.” In fact, according to the Manufacture Alabama! website, Alabama has a strong manufacturing base.

Patty Murray is chairman of the  Senate Budget Committee. What do you think are the chances that this individual is able to understand the complexities of the Federal Government budget, or that she is willing to work seriously and objectively to analyze the issues involved?

Of course, not ALL the dumb politicians are on the Democratic side of the aisle…though they certainly do seem to have a lot of them…for example, the Congresswoman who thought Ben Bernanke had been CEO of Goldman Sachs, and the Senator who is unable to comprehend the difference between “carbon” and “carbon dioxide.” Of course, there are  some dumb politicians on the Republican side, too.

But it is especially the Democratic Party…and most especially the “progressive” wing that now dominates that party…that wishes to restructure American society in order to give ever-increasing power to the political class. Which means giving ever-increasing power to people like Patty Murray.

In the River North neighborhood of Chicago there are many affluent customers packed into a small physical area. The vast majority of these individuals shop online and receive physical packages as a result.

And yet the post office building that sits right smack dab in the midst of all these package-receiving citizens is not a hub of activity; many times it seems empty and forlorn.  Why is that?  It is due to the fact that the US mail system, which provides service across the United States, is not viewed as either a reliable or competitive delivery mechanism for e-commerce goods delivery, and the flood of packages that arrives is generally delivered by either UPS or Fed Ex.

The post office dutifully delivers all the stuff I don’t want – junk mail, catalogs, bill reminders, an occasional holiday card for those that are sent via snail mail, and notices from governmental entities that haven’t joined the internet era (to their credit some of them have moved much of their operations to the internet).

While the post office is crippled by liabilities, benefits, civil service protections for workers, and a mandate to serve every US address for first class mail, they would be in a much better situation if somehow they had been able to capture a significant share of the package delivery market that flourished right beneath their noses.  This article from Slate describes the situation as it exists today.

The loss of the package delivery opportunity is only the most obvious squandered one; think of what the post office COULD have done tied vai the internet (guaranteed, reliable domain names linked to addresses for bill paying or as a pre-cursor to social media) or with sales of goods since they have access throughout the entire USA.  However, given that they were set up as a monopoly to do one thing well (deliver first class mail), they didn’t have much pressure to innovate.

In the end the post office is mostly a machine to employ government workers, spread throughout the US and in every congressional district.  Per wikipedia (which has a solid write-up here) the US post office employs 574,000 workers, with government perks, pensions and benefits that most of you will never receive, in order to deliver that first class mail that you mostly throw into the recycling bin.  The proposals that they are floating show how tied their hands are; they want to cut Saturday mail delivery which will make them even less competitive vs. UPS and Fed Ex – they aren’t really talking about ways of outsourcing services and cutting expensive staff en mass which would be needed to move even close to breaking even.

The post office is probably just betting that their employees (through lobbying) and government protectors (the politicians) will be enough to stop significant cuts while their service (first class mail deliveries) becomes ever less essential.  Since we bailed out the banks and print enormous amounts of money to fund the US deficits, who will ever even notice tens of billions of dollars in losses on first class mail service to boot.

The sad part is, they are probably right.

Cross posted at LITGM.

In the US we have slowly debased our currency, the US dollar, and debt levels have risen at all levels of government. Since the US has extensive economic interests and huge reserves of oil, minerals, and agricultural capabilities, it will be a long time before the proverbial “wolf” shows up at our door.

In other countries, like Egypt, however, the wolf comes to the door right away. Egypt has an immense population concentrated along the Nile River and relatively few sources of income. Tourism has been badly damaged by the revolution against Mubarek and the rise of the Muslim Brotherhood hardly is something to put on a brochure at the pyramids, given that they have been known to slaughter their heathen guests in the past.

In order to feed their population, Egypt needs fuel, particularly diesel fuel. While Egypt does have some petroleum riches, they don’t have much refining capacity, so they must import diesel. In order to import diesel, you need “hard” currency, and the Egyptian dollar has been falling in value.

Finally, the Egyptian government distorts the local price of diesel so that it is subsidized, causing all sorts of negative impacts, including a huge black market, queueing, and all the other behaviors inevitably caused by hare-brained policies.
This situation was described in a recent NY Times article titled “Short of Money, Egypt Sees Crisis in Food and Fuel” which you can find here.

In a place like Egypt on the edge of starvation and social chaos, the safety net is thin, indeed, as they summarize in the last quote of the article:

At the empty Mobil gas station in town, attendants said profiteers, hoarders and desperate farmers were already threatening them with knives, clubs and shotguns. At harvest time, “People are going to kill each other,” said Hamdy Hassan, 37, a truck driver hanging out at the shuttered station.

Our understanding of economics in a theoretical basis and our casual acceptance of paper money has blinded most of us from understanding the practical, real-world economics that stands before us. People need goods or services, and they have to trade for it by providing alternatives that are acceptable to the seller.

If your currency is worthless, you need something else to trade, or your country will be bereft of necessary supplies. In this instance, Egypt needs refined petroleum products (diesel) or their entire economy will grind to a halt (and mass civil strife will immediately follow). As their currently depreciates relative to others in the region, their ability to purchase fuel is accordingly reduced.

This can be seen in medicines and fuel in Greece as well and likely soon to be Cyprus; it is assumed that these countries will be able to maintain first world status for their populace but it is difficult to see how that will happen while they have almost nothing to trade in return. One article about Cyprus ended with a quote from a local that if they don’t act as a banking haven “they will all just be selling ice cream and setting up deck chairs” to support any tourists that happen to visit.

With the implosion in Cyprus and likely deterioration of weakened countries like Egypt, Venezuela  Argentina with minor home currencies, we appear to be entering a new era where things we’ve taken for granted about smooth business transactions and friction-less international banking and trade are going to be put to a severe test.

Cross Posted at LITGM

Recently I saw this sign in River North, indicating the start of another large high rise project, with an optimistic start date of 2016. Apparently there is plenty of money sloshing around to fund the construction of large buildings, because cranes are up in the sky all over the downtown area. I don’t know if lessons have been learned from the last and most recent bust in 2008, where developers who put in only a bit of equity defaulted and handed the projects back to the creditors, who also took big losses. The most obvious lessons would be 1) require developers to put significant equity into the project 2) don’t fund too many projects competing for the same tenants. These projects don’t seem to be condominiums for the most part; I am only speculating but perhaps the failure of so many condominium projects rattled the banks (those that are still standing, at least).

I would consider it a victory if they finished a few of the half-built structures that have stood idle for five or more years without any progress. This hotel in River North is now restarting; I have been looking at this ugly mess for years so it is great to see some sort of actual effort to complete the hotel.

The real issue is whether or not the structures being built right now, at what is likely the apex of the boom, will be seen through to completion. I certainly hope so, because it is depressing to see half-built structures marring the skyline for years. The famous “Chicago Spire” didn’t get far (only a hole in the ground) which is a good thing because it would have been sad to see the “Stub” along the lake shore for years to come.

Cross posted at LITGM

…and was inspired to write this very interesting post.

If she gets well quickly, will we ever get to see the sequel?

…as Secretary of the Treasury?

Prior to joining the Obama administration (initially as a Deputy Secretary of State, later as White House Chief of Staff), Mr Lew worked at Citigroup, where his employment agreement contained an interesting provision…specifically, a provision protecting his accrued bonus money in the event that he left the bank to take “a full-time high level position with the United States government or regulatory body.”

Suppose you were running a business, the XYZ Company, and were considering hiring for a key position a person who was working for one of your customers or suppliers..and you found out that he had an employment agreement providing special bonus protection in the event that he takes “a full-time high-level position at the XYZ Company.” Would you hire him? Might you be just a little bit concerned that your customer/supplier was trying to implant in your company an individual who would steer the business decisions in favor of that customer or supplier, rather than focusing resolutely on the interests of XYZ Company itself?

Read the rest of this entry »

I have a new piece up at Pragati Magazine  this morning, which focuses on a book review of Makers by Chris Anderson:

The Re-industrial Revolution 

….If anything, Anderson has managed to understate the velocity with which the technology is advancing and the creative uses to which users are putting their machines. Since the publication ofMakers, a succession of news stories have revealed everything from Formlabs’ slickly designed Form 1 machine to users printing functional (if fragile) assault rifles, car bodies and biomedical surgical replacements for missing pieces of the human skull. One gets the sense that the genie is out of the bottle.

Anderson is not merely making a technologically oriented argument , but a profoundly cultural one. In his view, the existence of the Maker movement, operating on the collaborative, “open-source” ethos is an iterative, accelerative driver of economic change that complements the technology. Anderson writes: “…In short, the Maker Movement shares three characteristics, all of which are transformative:

Read the rest here.

Crossposted from zenpundit.com

Recently I was reading how a professor at the University of Illinois at Chicago was arrested for bringing an unloaded handgun to work, and that it made the news media. I reflected briefly on the fact that you can bring a loaded, concealed gun with you in most places in many states in the US and it wouldn’t be news, it would in fact be normal activity, for instance in the adjacent state of Indiana.

Meanwhile, in California, it is common for people to smoke marijuana openly as is discussed here. Needless to say, this behavior would get you immediately arrested in many states particularly in the south and midwest.

Taxation is also highly variable on a state and city basis. New York and California have some of the highest taxes, particularly on income beyond a particular level (progressive taxes). On the other hand, states like Florida and Texas have a much lower level of taxation and a much freer business climate in terms of regulation.

Without getting into the hottest of hot-button issues, clearly there are differences in the types of marriages and reproduction rights / right to life on a state by state basis. These differences are narrowing in some areas and getting wider in others.

Some states have “right to work” laws which massively limit union power, and have flourishing and expanding manufacturing economies as a result. Visit Alabama, South Carolina, and Texas to see where all the former manufacturing might in the midwest and Northeast and West Coast migrated to (if it didn’t go to China or overseas). The enacting of “right to work” laws obviously sends an important signal to business leaders whether or not a state is a friendly place to do business for incremental investment (along with taxation).

The “fracking” revolution has unleashed vast wealth in some states, and in other states it has been banned or severely curtailed. Meanwhile, California is going in on its own with carbon regulations and highly aggressive “green” energy targets, while other states are heavily reliant on traditional (and cost effective) technologies.

The differences on a state-by-state level on these different dimensions seem large and growing. They are much more subtle (though often correlated) with the Red / Blue analysis. An attempt to classify these vectors could be done as follows:
Energy Freedom – the ability to extract and use cost effective technologies (like natural gas, fracking, and coal) and a state’s willingness to invest more for reliability or the requirement to use expensive (green) technologies and curtail energy use even at the expense of industry competitiveness and reliability. California is likely on one end and Texas is on the other side, although many others have large freedom including Pennsylvania.
Safety Freedom – the right to defend yourself at home, in transit, at work and during study or whether that is assumed by the state. Sadly the most restrictive is Illinois and there are many candidates on the other side throughout the south and midwest (Indiana).
Personal Substance Freedom – the right to smoke, the right to drink, and the right to use various drugs or stimulants. Some odd states (like Colorado) are leading the way on this, it isn’t always the traditional Red / Blue divide.
Freedom to Work & Hire – the right to work and not be forced to join a union, and this is also tied with local laws and practices that limit the ability to hire and fire and direct hiring or limit firing in various dimensions.
Freedom to Build / Live / Rent – Houston is famous for having very limited zoning while other states and municipalities have highly restricted zoning practices. The New York co-op concept also severely limits new entrants along with rent control. These laws can also include whether you can work or have a business in your home. While subtle, these practices can have a large impact on prices and how the region functions.
Freedom From Excessive Taxation – Some level of taxation is necessary for government to function but high tax levels have severe intended and unintended consequences of under investment and evasion. Taxation includes state, local, city, sales, estate, property, and “sin” taxes. These vary significantly by area but are highest in California and the East Coast and likely the lowest in the South.
Freedom of Marriage Choice – A larger portion of states are recognizing marriages beyond the traditional marriage, and this varies by state
Freedom of Reproductive Rights – There are a wide variety of approaches and trends on a state level and then there are practical impacts, as well. This is highly variable by state in practice
Freedom on Medical Rights – an emerging model will be how each state approaches new medical practices and funding methodologies, along with the practical availability of doctors that subscribe to the state’s controls and funding methods. This area will grow exponentially in the near future

I believe that these sorts of analyses on a state by state level are much more useful than the traditional Red / Blue view (although they are often correlated) and when you start to dig in to the differences on a state and municipal level they are staggering, particularly when you view the extremes.

It would be interesting and useful to begin to put together the various data sets to analyze states and municipalities along these continuums, and others that I’ve likely missed.

Cross posted at LITGM

UPDATE: Here is one solution.

This week Europe blew up. The media haven’t caught up yet, because they are what they are. But the markets are catching up fast.

So European voters fled to the fascists to express their rage and despair. Imagine one out of four US voters going for Lincoln Rockwell, and you get the idea.

Read the rest, as they say.

Belmont Club has an unusually good post for yesterday. I could say that more than once a week, if truth be known. This one is quite to the point on Sequester Day.

The NHS, which its creators boasted would be the ‘envy of the world’, has been found to have been responsible for up to 40,000 preventable deaths under the helm of Sir David Nicholson, a former member of the Communist Party of Britain. “He was no ordinary revolutionary. He was on the hardline, so-called ‘Tankie’ wing of the party which backed the Kremlin using military action to crush dissident uprisings” — before he acquired a taste for young wives, first class travel and honors.

The NHS is dealing with the shortage of funds by pruning its tree of life, so to speak. He also does not tolerate anyone telling the truth about it.

it emerged he spent 15 million pounds in taxpayer money to gag and prosecute whistleblowers — often doctors and administrators who could not stomach his policies.

The public money spent on stopping NHS staff from speaking out is almost equivalent to the salaries of around 750 nurses.

It has recently been noted that NHS staff no longer recommend their own hospital for family members. Also one quarter report being harassed or bullied at work.

The other half of the equation involves the youth.

The European Youth will remain outside the Death Pathways for some time yet. But they will spend the time waiting for their turn at affordable, caring and passionate medicine in poverty and hopelessness. With the exception of Germany youth unemployment in Europe is over 20%. “A full 62% of young Greeks are out of work, 55% of young Spaniards don’t have jobs, and 38.7% of young Italians aren’t employed.”

Unemployment exceeds even our own Obama economy for failure. Read the rest of this entry »

It may be 1977 all over again.

Check out the Form 1 Kickstarter page 

The Formlabs home page and their blog.

I recently reviewed Chris Anderson’s book Makers. What 3 D printing needs is the affordable, user-friendly, versatile device to move 3 D printing from the arcane realm of  techno-hobbyist geeks to the general population’s “early adapters”, which will put the next “consumer model” generation on everyone’s office desk; eventually as ubiquitous as cell phones or microwaves.

Formlabs should send one of these to John Robb and Shloky for a product review.

Hat tip to Feral Jundi

Cross-posted from zenpundit.com

I know this is a cousin to stealing but you need to see this. I remember when those who warned of the danger were ignored or punished.

Seventeen years ago, Bernard Connolly foretold the misery that awaited the European Union. Given that he was an instrumental figure in the EU bureaucracy and publicly expressed his doubts in a book called “The Rotten Heart of Europe,” he was promptly fired. Mr. Connolly takes no pleasure now in having seen his prediction come true. And he takes no comfort in the view, prevalent in many quarters, that the EU has passed through the worst of its crisis and is on the cusp of revival.

Read the rest of this entry »

As we count down to March 1, we are hearing more and more about the dreaded sequester. The left is confused about its history.

How did this become Obama’s fault? It started with Mitt Romney, a once-influential Republican Party politician and its 2012 nominee for president. In the third debate with President Obama, Romney fretted that “a trillion dollars in cuts through sequestration and budget cuts to the military” would weaken America’s defenses. The president literally dismissed this with a wave of his hand. “The sequester is not something that I proposed,” he said. “It’s something that Congress has proposed. It will not happen.”

How did this get to be the story ?

The accidental Bible of Sequestration is The Price of Politics, Bob Woodward’s history of the debt-limit wars, and one of the least flattering portrayals of the president this side of Breitbart.com. In it, Woodward recounts a July 27, 2011, afternoon meeting between Senate Majority Leader Harry Reid and White House negotiators. Reid wanted a “trigger” as part of a debt deal, some way to force more cuts in the future without defaulting on the debt that summer. Chief of Staff Jack Lew and adviser Rob Nabors proposed sequestration, as a threat that could be averted if/when Congress passed a better deal.

OK. The White House staff suggested it. Why ? Because they assumed that Republicans would cave in rather than accept cuts in the defense budget.

Read the rest of this entry »

Very little attention is being paid to the holiday today, except as a traffic annoyance. When I was a child, we still celebrated Lincoln’s birthday (February 12) and Washington’s birthday (February 22). Since the holidays were combined and made into a long weekend, like most other American holidays, interest has declined in the subject. It has been for many years the weekend of the Midwinter yacht races in southern California, so I enjoyed it as much as anyone.

Amity Schlaes’ new biography of Coolidge, which has been delayed for nearly a year from the original date promised, is now out and I have begun reading it. It has also attracted a hostile review in the New York Times by Jacob Heilbrunn author of such profound works as God Bless Bernie Sanders, an encomium on the Socialist Senator from the “people’s republic of Vermont”, as it is known in New Hampshire, and another tiresome attack on Justice Clarence Thomas and his wife.

Mr Heilbrunn does not seem to be an economist and I am not certain of his qualifications to criticize President Coolidge, other than the obvious invitation by the New York Times.

James Ceaser, a political scientist at the University of Virginia and a regular contributor to The Weekly Standard, said it was important to revive the “moral stigma” of debt, and added, “I want to go back to Coolidge and even McKinley.” The Claremont fellow Charles Kesler, author of “I Am the Change,” a recent book denouncing President Obama and liberalism, agreed: “We’re in for a Coolidge revival.”

Indeed we are. Coolidge was a figure of sport in his own era. H. L. Mencken mocked his daily naps — “Nero fiddled, but Coolidge only snored” — and Dorothy Parker reportedly asked, “How could they tell?” when his death was announced. But such quips have only heightened the determination of a growing contingent of Coolidge buffs to resurrect him. They abhor the progressive tradition among Democrats (Woodrow Wilson) and Republicans (Theodore Roosevelt and Herbert Hoover) as hostile to big business and prosperity. Instead, their aim is to spread the austere doctrine of what might be called Republican Calvinism.

Read the rest of this entry »

The Decline of America

America’s Bright Future

Both links via Common Sense & Wonder

A few things have happened recently that have the hairs on the back of my neck standing up in economic terms. It feels like it did right before the crash in 2007-8, when we were still in the end stages of the bubble.

One – Japanese and Venezuelan devaluation

Japan (a thoroughly modern economy) and Venezuela (a semi-dictatorship oil economy) both recently devalued their currency. Japan was warned by the G7 (fat lot of good that will do) here about it:

The official said: “The G7 statement signaled concern about excess moves in the yen. The G7 is concerned about unilateral guidance on the yen. Japan will be in the spotlight at the G20 in Moscow this weekend.”

Venezuela did more of an “old school” devaluation, where the “official” rate is moved closer to what it really is trading for in the black market, and Bloomberg writes about it here.

Venezuela devalued its currency for the fifth time in nine years, a move that may undermine support for ailing President Hugo Chavez and his allies ahead of possible elections later this year… He ordered his government to weaken the exchange rate by 32 percent to 6.3 bolivars per dollar… A spending spree that almost tripled the fiscal deficit last year helped Chavez, 58, win a third six-year term. The devaluation can help narrow the budget deficit by increasing the amount of bolivars the government receives from oil exports. Yet the move also threatens to accelerate annual inflation that reached 22 percent in January.

I kept that whole paragraph in the block quote because it encapsulates all the elements of fiscal ruin so succinctly – profligate government spending, impact on commodities imported or exported (that move opposite of currencies), and the impact on inflation.

Two – The Chinese and Russians Aren’t Buying Our Debt – We Are

I had thought that the Chinese and other countries were big buyers of our debt which funds our budget deficit. But I was wrong. Per this WSJ article:

China’s holdings of $1.17 trillion in U.S. Treasurys in November 2012—the most recent date for which we have a figure—are virtually unchanged from two years earlier, when they stood at $1.16 trillion. Beijing has purchased a lot of Treasurys over this period but many have been redeemed. Net new investment is essentially zero.

But if the Chinese aren’t buying our debt, who is? The answer – the US government.

The largest buyer of new U.S. Treasurys during the past three years has been not China but the U.S. Federal Reserve. In fiscal year 2011, for example, the Fed bought more than three-fourths of all new Treasury debt.

Here’s a challenge for you – try explaining to a child or someone unfamiliar with economics how it is that we can spend money that we don’t have, issue debt, and buy it back ourselves.
Read the rest of this entry »

UPDATE: An an article at Belmont Club describes interest in alternative money creation as a way of anticipating inflation. It also goes further into a discussion of general competence.

The idea that Virginia should consider issuing its own money was dismissed as just another quixotic quest by one of the most conservative members of the state legislature when Marshall introduced it three years ago. But it has since gained traction not only in Virginia, but also in states across the country as Americans have grown increasingly suspicious of the institutions entrusted with safeguarding the economy.

What has changed is faith in the federal government, not just in Virginia but in a growing number of places. The lack of faith in the competence of government — and the soundness of the dollar — has been growing leading some states to create contingency plans in case the currency goes bust.

Once again, I apologize for my pessimism but this is what I see. First, there is this article, which quotes a well known financier.

There may be a natural evolution to our fractionally reserved credit system that characterizes modern global finance. Much like the universe, which began with a big bang nearly 14 billion years ago, but is expanding so rapidly that scientists predict it will all end in a “big freeze” trillions of years from now, our current monetary system seems to require perpetual expansion to maintain its existence. And too, the advancing entropy in the physical universe may in fact portend a similar decline of “energy” and “heat” within the credit markets. If so, then the legitimate response of creditors, debtors and investors inextricably intertwined within it, should logically be to ask about the economic and investment implications of its ongoing transition.

Certainly “growth” seems to be fundamental to our economic health. That, of course, presumes a growing population but it also would be affected by a stagnant population with a growing age disparity. The obvious example of the latter is Japan.

The creation of credit in our modern day fractional reserve banking system began with a deposit and the profitable expansion of that deposit via leverage. Banks and other lenders don’t always keep 100% of their deposits in the “vault” at any one time – in fact they keep very little – thus the term “fractional reserves.” That first deposit then, and the explosion outward of 10x and more of levered lending, is modern day finance’s equivalent of the big bang. When it began is actually harder to determine than the birth of the physical universe but it certainly accelerated with the invention of central banking – the U.S. in 1913 – and with it the increased confidence that these newly licensed lenders of last resort would provide support to financial and real economies. Banking and central banks were and remain essential elements of a productive global economy.

The effect of asset bubbles on such a system is worrisome as the history of Japan and the recent history of the US have shown. The Panic of 1907 was largely responsible for the creation of the Federal Reserve. That financial crisis is thought, by the authors of a recent book, to have been a consequence of the 1906 earthquake in San Francisco, which destroyed a large amount of real assets and the insurance costs that were associated. The immediate cause was financial speculation but the real losses had added to the fragility of the system.

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Bill Kristol (corrected thanks to Joe) has an excellent column today on where Republicans could go in the next four years. I have little confidence that the House GOP can bend Obama to their will on the deficit or spending. He is riding high with the aid of the mainstream press and TV. The public does not understand the spending issue, or at least not enough of us do. The Republicans represent the “Eat your vegetables or there will be no dessert” philosophy and that is not popular right now. What do we do ? Here is one suggestion.

He quotes UN Ambassador Pat Moynihan in 1975.

The United States goes into opposition. This is our circumstance. We are a minority. We are outvoted. This is neither an unprecedented nor an intolerable situation. The question is what do we make of it. So far we have made little—nothing—of what is in fact an opportunity. We go about dazed that the world has changed. We toy with the idea of stopping it and getting off. We rebound with the thought that if only we are more reasonable perhaps “they” will be. .  .  . But “they” do not grow reasonable. Instead, we grow unreasonable. A sterile enterprise which awaits total redefinition.

I feel much the same way. I would have much preferred the GOP to have voted “present” when the “fiscal cliff” matter was before the House. I would like to see them do the same when the debt ceiling issue is voted on. Let Obama have his way but show that we do not agree.

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Back when I was growing up we kept the boxes on all electronics. Up in our attic there was a box for each PC, each TV, our stereo, and anything else of similar worth. You kept the box because these items were valuable and you might want to return them, and if you moved (in and out of college, or between apartments), the boxes might minimize damage to these important goods in transit.

Recently I bought a new printer, an Epson all-in-one Workforce 545. I bought this printer specifically because it had “iPrint” which allows for immediate printing with no drivers or other installation on all Apple devices, including iPads, iPhones, and my Mac. For your iPad or iPhone if you upgraded to IOS 6 you can see it immediately when you click on the icon. It works great. I have it directly connected to one of our Windows PC’s and it works great as a traditional printer, as well.

But what do we do with the box nowadays? I keep it around for a couple of days to make sure everything runs reasonably well, and then I throw it out. Why? Because that printer, which has capabilities that would have seemed like science fiction a few years ago in a home device (remotely print across all devices without drivers) cost me about $130. That printer is essentially disposable. This printer, which includes a scanner and actually relatively advanced networking functions, has plummeted in price from what it WOULD have cost to do the same functions (if it were even possible) a decade ago.

To see the opposite of efficiency, go out for dinner and drinks on a Friday or Saturday night in River North. Entrees, an appetizer salad, a couple of drinks each, and a dessert will definitely cost you north of $100 and likely closer to $200. Every time I go out on the weekend I essentially purchase one of those printers and throw it away anyways.

This difference between manufactured goods and services (or “crafty” items, like designer lighting or tile) has grown immense. I understand why it is expensive to buy a meal in River North – real estate is punishingly expensive, food is expensive, labor is expensive, you have to pay a raft of fees and taxes of all sorts (likely under and over the table) to run your business, union labor has to be used to build everything (unless you want a giant rat installed in front of your business, which I see a lot in River North). There is little or no efficiency inherent in any of the above items (except for food production), and few incentives to change the business model when you can just pass on these rising costs to people like me who go out on the weekend as long as they are willing to pay for it.

I still fall for the “mental trap” and sweat over paying a few dollars more for an electronic device buying from one location or another and whether or not to pay more for an upgrade or advanced features. Meanwhile I go out on the weekend and end up paying $200 for a meal for two and that is business as usual (in River North, at least). This is because I haven’t yet shed my upbringing to “keep the box”.

Cross posted at LITGM

When I first traveled to Door County in Wisconsin I visited the various lighthouses and was given a tour by local historians. One of the points that stuck with me most of all was that these lighthouses essentially were one of the few elements of the Federal government that were locally present in the region.

Today our government is ubiquitous at the Federal, State and local level, especially here in Chicago where Cook County is one of the largest counties in the country, with massive hospitals and criminal court facilities.

I wrote about government influence and how it is all around us in posts aptly titled “We’re Barely Capitalists” here and here based on some (semi-humorous) local insights. It would be difficult to find substantial portions of the economy anywhere in a place like Chicago that wasn’t heavily influenced by government spending and allocations.

This article in Business Insider reviews recent job growth and notes that 40% of it was subsidized by government.

Consider our economy right now: about 17% of it is health care; about 6% in terms of GDP is education; and with some overlap, 15-20% is what we call government consumption–government activity, not just transfers. At all levels of government, including state and local. Add those all up, take out the overlap, and it’s a pretty big chunk of the economy, like 20-30%. Those are all sectors where there are massive subsidies, massive distortions of incentives, a lot of bad policy; and it’s hard to measure value.

State and Local governments are poised to grow in 2013, according to this Bloomberg article.

After slashing their workforces by about half a million in the past five years, state and local authorities will add employees in 2013… Their payrolls in the fourth quarter will be 220,000 larger than in the same period for 2012.

Bloomberg then goes on to explain how this state and local government job growth is funded; by Federal US deficits at the trillion dollar+ level that then are passed down to the State and Local levels.

States get about one-third of their revenues from Washington. The agreement Congress hammered out to avoid more than $600 billion in automatic spending reductions and tax increases –the so-called fiscal cliff — spared states from cutbacks, at least for now. (states received) approximately $519 billion…in aid last year.

Don’t forget that, in addition to the US Federal debt and borrowings, the state and local governments are also deeply indebted. Not only are we borrowing to fund current needs, we are also accumulating pension and medical obligations that are truly enormous and growing, especially here in Illinois where recent pension reforms failed to get off the ground.

Our frame of reference on all this government spending and debt, however, is skewed by our comparison group. We continually compare US spending levels to the “Industrialized Powers” which include Western Europe and Japan. Comparing the US to these countries, many of which are economic “basket cases”, is not relevant for a forward looking appraisal of countries where our actual economic competition is coming from – we need to look at China, India, and other rising powers that represent the future.

One of the oldest shibboleths is the fact that the US doesn’t have a “single payer” health system, like the (broken) comparison group listed above. However, if you get sick in China, Brazil, India or other rising countries, there is a (small) safety net but you essentially have to pay substantially extra or have connections in order to get what we’d consider to be modern and effective medical care.

Another point of comparison is greenhouse gases and various environmental practices, such as use of “green” power. Our broken “peer group” countries like Spain invested heavily in massively subsidized wind generation, as I document here, which recently collapsed the moment that these subsidies evaporated (which correlated with the country essentially going broke and being re-floated by the EU central bank. China and India continue to invest enormous amounts in coal power, since it is so effective and plentiful and is needed to power their growing economies.
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I wish I were more enthusiastic but I still wish everyone a good year. The “fiscal cliff” talks have ended about as I expected. The Republicans have pretty much rolled over. The House has yet to vote and I wonder how that will go. If they all grew a spine (or some other anatomical parts) they would vote “present” and let the Democrats pass the bill by themselves. Drudge has a link to the Breitbart story.

According to the Congressional Budget Office, the last-minute fiscal cliff deal reached by congressional leaders and President Barack Obama cuts only $15 billion in spending while increasing tax revenues by $620 billion—a 41:1 ratio of tax increases to spending cuts.

“In 1990, President George H.W. Bush agreed to $2 in spending cuts for every $1 in tax hikes. The tax hikes went through, and we are still paying them today. Not a single penny of the promised spending cuts actually happened.”

This will be another such fake compromise. However, The Gods of the Copybook Headings are coming.

In the Carboniferous Epoch we were promised abundance for all,
By robbing selected Peter to pay for collective Paul;
But, though we had plenty of money, there was nothing our money could buy,
And the Gods of the Copybook Headings said: “If you don’t work you die.”

Then the Gods of the Market tumbled, and their smooth-tongued wizards withdrew,
And the hearts of the meanest were humbled and began to believe it was true
That All is not Gold that Glitters, and Two and Two make Four –
And the Gods of the Copybook Headings limped up to explain it once more.

It’s too long to post all of it and, for those who are unsure of the source of the title, copybooks were supplied for all school children in England, when it was still England. The copy books had traditional aphorisms on each page that children were expected to learn.

Another expression that relates to the books was someone “blotted his copybook.” This meant making an error that was difficult to correct.

The “copybook headings” to which the title refers were proverbs or maxims, extolling virtues such as honesty or fair dealing that were printed at the top of the pages of 19th-century British students’ special notebook pages, called copybooks. The school-children had to write them by hand repeatedly down the page.

The work has been described as “beautifully captur[ing] the thinking of Schumpeter and Keynes.”[2] David Gilmour says that while topics of the work are the “usual subjects”, the commentary “sound better in verse”[3] while Alice Ramos says that they are “far removed from Horace’s elegant succinctness” but do “make the same point with some force.”[4]

I don’t think I would agree that Keynes is an example of the copybook headings’ wisdom although his recommendations have been wildly distorted by politicians.

We are coming to a period when math will be far more determinant than wishful thinking in terms of our lives.

As it will be in the future, it was at the birth of Man –
There are only four things certain since Social Progress began –
That the Dog returns to his Vomit and the Sow returns to her Mire,
And the burnt Fool’s bandaged finger goes wabbling back to the Fire –
And that after this is accomplished, and the brave new world begins
When all men are paid for existing and no man must pay for his sins
As surely as Water will wet us, as surely as Fire will burn
The Gods of the Copybook Headings with terror and slaughter return!

Hopefully, not this year. Happy New Year.

When I was a first year staff person a couple of decades ago there was a presentation to a major multi-national company and I was the lowest ranking person on the team by a country mile. The account team prepared a map of the world with the client’s locations listed.

I looked at the map for about 2 seconds and just shouted out

You have Scandinavia on there twice

When they printed the map, for some reason they had Norway there one time and then again out in the Atlantic. I noticed it immediately because, well, it was very obvious (to me).

The account team was cursing because there was no time to change anything and they alternatively were mad at me and just laughing that someone who was a kid just hit their major presentation that hard. I think the presentation went well (I wasn’t at the meeting) and probably the client hardly noticed, anyways.

As I walked down the street in River North I noticed a custom clothing store that took up their main window space with this advertisement. This is pretty important because they get a lot of sidewalk traffic.

In 2 seconds I noted that $2,550 – $1,550 doesn’t equal a $383 discount – that sounds like $1000 to me. How they even got to $383 is a question in and of itself.

Cross posted at LITGM

I’ve tried to think about anything but the coming economic calamity but this column from the Daily Telegraph is too perceptive to ignore. Of course, the liars include most of the US media, press and TV. We have to get our news from the British media about American politics. The US media has become an arm of the Democratic party.

Must we assume now that no party that speaks the truth about the economic future has a chance of winning power in a national election? With the results of presidential contests in the United States and France as evidence, this would seem to be the only possible conclusion. Any political leader prepared to deceive the electorate into believing that government spending, and the vast system of services that it provides, can go on as before – or that they will be able to resume as soon as this momentary emergency is over – was propelled into office virtually by acclamation.
So universal has this rule turned out to be that parties and leaders who know better – whose economic literacy is beyond question – are now afraid even to hint at the fact which must eventually be faced. The promises that governments are making to their electorates are not just misleading: they are unforgivably dishonest.

I have not believed that Romney’s problem was one of poor communication or salesmanship. Certainly, the turnout numbers show that Obama’s organization made the most of a very intrusive data mining system. The possibility that the system of the campaign will become part of the political party’s permanent infrastructure is worrisome. I don’t want to be an alarmist but one feature of totalitarian governments, after the French Revolution, was the intrusion into daily life.

Of course, once in power all governments must deal with reality – even if they have been elected on a systematic lie. As one ex-minister famously put it when he was released from the burden of office: “There’s no money left.” So that challenge must be met. How do you propose to go on providing the entitlements that you have sworn never to end, without any money? The victorious political parties of the Left have a ready answer to that one. They will raise taxes on the “rich”. In France and the United States, this is the formula that is being presented not only as an economic solution but also as a just social settlement, since the “rich” are inherently wicked and must have acquired their wealth by confiscating it from the poor.

I see no sign of any recognition of reality yet by Obama or his government. The “fiscal cliff” negotiations, if they can be called that, have been a farce. The Republicans have allowed themselves to be maneuvered into secret negotiations which have been demagogued and which have set them up for blame for what is coming. They would have been far better advised to insist on open negotiations, on C-SPAN if necessary.

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