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    The End of Accounting Book Review – Part One

    Posted by Carl from Chicago on 8th January 2017 (All posts by )

    Recently I read an excellent book called “The End of Accounting and the Path Forward for Investors and Managers” by Baruch Lev and Feng Gu. I highly recommend this book for investors, analysts, accountants, and those with a general interest in business. The book is very well written and researched in that it:

    1. Describes the current situation in depth
    2. Aligns the situation across an historical context and with relevant research
    3. Makes specific recommendations about how to improve the situation

    If you’d like to read more about this topic on your own (will help to frame out these posts), here is an excellent Wall Street Journal article titled “The End of Accounting” (if the link doesn’t work because you don’t have a subscription you can probably find it elsewhere on the internet). Here is a link from Accounting Today and an interview with the author from CFO magazine.

    The first post in this series is going to be my personal insights and journey in the area of accounting information, financial and investor relations analysts. This context is relevant because I, too, have seen the problems that the authors outline in the series and come up with my own “hacks” to attempt to gain better information and insights.

    I started out my career as an accountant, and I used to help create the footnotes that you see at the end of the financial reports. This wasn’t creative work per se – you would start with last year’s footnote as a template and insert new numbers, unless it was a new requirement, in which case it was a lot of work and we would turn to specialists. At that time (20+ years ago) there were only a few footnotes and the financial statements themselves weren’t that long; you would be able to read from the Chairman and CEO’s letter all the way through to the last footnote in a couple of hours.

    This was also before the internet; we would go into the company library and look at microfiche sometimes to do research or you’d pull up the hard (printed) copy from the files. At that point an annual report was also somewhat of a marketing document; companies put a lot of thought into the cover, for instance.

    At various points in the history of accounting there has been a focus on the balance sheet (assets and liabilities), the income statement (earnings per share and price / earnings ratio) and on cash flows (cash generated from the business). Each of these views are important and have their merits and their drawbacks. The statements were generally the “GAAP” view which focused on financial statement presentation and used taxes at official rates (many companies pay almost nothing in taxes in actuality by deferring them indefinitely) and held assets at historical costs. Both of these assumptions made the financial statements less useful for certain types of companies and industries.

    Read the rest of this entry »

    Posted in Book Notes, Business, Capitalism, Economics & Finance | 3 Comments »

    Autos and Disruption

    Posted by Carl from Chicago on 1st January 2017 (All posts by )

    Prior to moving to the West Coast, I had little need for a car because I walked and / or took public transport to work (or a cab if I was lazy, back in the days when you could hail a cab on the street).  Thus I typically invested the minimum amount I could in a reliable car that could fit 4 passengers with a full size trunk and also squeeze into a narrow parking garage.

    The cars that “fit the bill” for me were the older model Nissan Altima which I drove for a decade and then a Jetta which I picked up in 2011.  Each of these cars cost about $17,000 “out the door” and contained a reasonable level of equipment (the Altima was my first car with air bags, the Jetta was my first car with ABS and traction control) – they weren’t completely stripped down models with manual transmission, for instance.  These cars have both turned out to be highly reliable autos – and the old Nissan Altima is still driving today, almost 20 years later, as a starter car in my extended family.

    The average age of a car on the road today is 11.5 years (nowadays you don’t even have to “link” to sources – Google just brings in the data from Wikipedia as a search response when you ask a common question) and that seems long to me.  For every new car on the road, for instance, there is a late ’90s model still driving to offset it in order to get back to an average of 11.5 years.

    My theory today is that the total package of “functionality” or “value” that you could obtain from a new Jetta for $17,000 would be comparable to autos that cost far more for 99% of the scenarios in which you would plausibly use that auto.  These scenarios include 1) commuting to work 2) running errands around town 3) going on a trip and putting luggage in the trunk.

    That’s not to say that there aren’t scenarios where it doesn’t make sense to have a more powerful or capable auto.  In Oregon we went to visit a friend who lives up in the hills and I had 4 people in the car and gravel had been newly laid on an uphill slope (which, as it turns out, means that it is very slippery).  As a result our car couldn’t make it up the hill and we slid sideways into a ditch and had to have a friend hook up a rope and give us a pull from their big pickup truck to get us back on the road.  If I lived up there, for instance, then this car would be completely inappropriate.  But that isn’t a common “use case” for my auto.

    When you look at the “true cost” of owning an auto, there are a lot of factors to consider, and whole web sites to calculate it in various ways.  Instead, I am going to make the general statement that if you buy a new car at around the $17,000 price point and drive it for perhaps 7-8 years before selling it you are probably going to pay about $150 / month for that car (net of what you receive on resale).

    Read the rest of this entry »

    Posted in Economics & Finance, Personal Finance, Transportation | 23 Comments »

    This is Why We Can’t Make Nice Things

    Posted by David Foster on 30th December 2016 (All posts by )

    A positive review of General Electric stock points out that the company is less exposed to the oil market than it was prior to the Baker Hughes spinoff…and then goes on to say:

    Gone too is the iconic firm’s appliances business, which was sold to Chinese firm Haier. This is really a progression of the economic cycle. While folks like President-elect Donald Trump and financial provocateur Peter Schiff lament that Americans just don’t make stuff anymore, at a certain point, advanced economies should outsource physical work to less-advanced countries. It’s not so much a matter of ability as it is financial efficiency.

    Does this writer believe that GE should also divest the jet engine business, the power generation business, and the transportation (locomotive) business?  All of these businesses make physical things, and make substantial amounts of those physical things in the US.

    The idea that manufacturing is devoid of intellectual content and hence unworthy of advanced economies is fallacious and has done serious harm–see my post Faux Manufacturing Nostalgia.  Happily, this attitude has turned around substantially since I wrote the linked post..to the point that manufacturing is being practically over-romanticized…but islands of the “who needs it?” view still exist.

    GE’s reasoning for divesting Appliance seems to have been centered on a desire to focus the company on business-to-business markets rather than consumer markets and, and also, I think, on a perception that there was not sufficient room in the appliance world for product differentiation and a technology edge.  “Technology edge,” rightly understood, includes the complexity/difficulty of manufacturing something, not just the intellectual property embedded in the product itself.  It certainly did not reflect any conclusion that manufacturing is inherently a low-value function.

    It would be silly to argue that a computer programmer in a bank is a “knowledge worker” and a programmer in manufacturing is not.  It would be equally silly to argue that a bank branch manager is inherently performing a more highly-skilled job than a shift supervisor in a factory, or that a first-level customer service rep for Amazon is performing a more advanced kind of work than an assembly line worker, or that an operations research expert doing inventory studies for a manufacturing firm is less of a knowledge worker than his equivalent doing inventory studies for Target.  But this is implicitly the argument that many of the ‘we don’t need manufacturing here’ crew have been making.

    This dismissive attitude toward a vast and complex industry which supports millions of people represents one more example of the constellation of attitudes against which many people rebelled when choosing to vote for Donald Trump.

    Posted in Business, Economics & Finance, Tech | 7 Comments »

    There Is No Possible Reform for HUD

    Posted by Kevin Villani on 17th December 2016 (All posts by )

    “The Department of] Housing and Urban Development has done an enormous amount of harm. My god, if you think of the way in which they have destroyed parts of cities under the rubric of eliminating slums … there have been many more dwelling units torn down in the name of public housing than have been built.” ~ Milton Friedman, Interview, Hoover Institution, February 10, 1999

    President-elect Trump’s appointment of Dr. Ben Carson as Secretary of Housing and Urban Development is being criticized on the grounds that he lacks the requisite administrative experience. More likely, Carson’s affront was to question why HUD exists.

    Republican presidents have been ambivalent. Having bigger fish to fry, President Reagan appointed Sam Pierce HUD Secretary so that he could ignore it. George H.W. Bush repaid Jack Kemp’s political opposition by first making him HUD Secretary and then frustrating his attempts to eliminate the Department. HUD Secretary Alphonso Jackson, appointed by George W., was allegedly focused on participating in the traditional kickback schemes while his Assistant Secretary for Housing pursued homeownership policies that contributed mightily to the financial crisis of 2008.

    Democratic presidents have used it as a platform to pursue other agendas. Jimmy Carter’s HUD Secretary Patricia Harris introduced Fannie Mae housing goals – quotas – as punishment for not appointing a woman to the Board of Directors. Between scandals, Clinton’s HUD Secretary Henry Cisneros promoted the homeownership goals that left both the financial system and the new mortgage borrowers bankrupt.

    HUD’s budget is relatively small as compared to other federal departments, but it has always punched far above its budget weight in destructive power. To put HUD’s annual budget of about $50 billion in perspective, the cost of the homeowner mortgage interest tax deduction is two to three times greater, but HUD’s “mission regulation” of financial institutions has given it influence or control over trillions more.

    The initial political interest in housing during the Great Depression was entirely Keynesian, i.e., related to the short-term potential to create jobs and relieve cyclical unemployment – the “infrastructure investments” of that era. The Democrat’s approach to construction, management, and allocation of public housing was generally implemented to benefit builders and rife with corruption. FHA and Fannie Mae were chartered mostly as off-balance sheet financial institutions to stimulate housing production on the cheap.

    The problem of urban development, as many politicians and urban analysts saw it in the 1960s, stemmed from the 1956 Eisenhower initiative to build highways financed by the National Interstate and Defense Highways Act, a byproduct of which was that more affluent people commuted from the suburbs while leaving poorer families behind. The pursuit of the American Dream of homeownership left city administrations accustomed to cross-subsidizing municipal services in fiscal distress, creating a vicious cycle: as services declined, more affluent households moved out.

    The Housing and Urban Development Act in 1965 established HUD as a separate cabinet department as part of LBJ’s Great Society to give a greater priority to housing and urban issues. HUD inherited a mishmash of various New Deal federal programs, ranging from public rental housing to urban renewal, as well as financial oversight of FHA and Fannie Mae.

    Faced with steep “guns and butter” budget deficits, LBJ focused on ways to further encourage off-balance-sheet financing of housing construction through “public-private partnerships.” Republicans, led by Senator Edward Brooke of Massachusetts, convinced by academic studies that the urban riots of the 1960s were the direct result of poor quality housing and the urban environment and by lobbyists for housing producers, supported the Housing and Urban Development Act of 1968. The “goal of a decent home and a suitable living environment for every American family” was first introduced in the 1949 Housing Act. Title XVI of the 1968 Act “Housing Goals and Annual Housing Report” introduced central planning without specifying the goals, a timetable for implementation, or a budget.

    In the late 1960s, the Weyerhaeuser Corporation produced a forecast of single-family housing production in the coming decade to assist with tree planting. Congressional math wizards divided the total forecast by 10 to produce HUD’s annual housing production goals for the nation. For the next decade, HUD Secretaries were annually paraded before their Senate oversight Committee on Banking, Housing, and Urban Affairs to explain why they did or did not meet these production goals.

    Republicans have historically supported rental housing vouchers for existing private rental units for privately built housing to minimize market distortions. Republican HUD Secretary Carla Hills in the Ford Administration pushed HUD’s Section 8 subsidies for existing housing – something arguably better administered as a negative income tax – as a political alternative to the Democrats’ push for a return to public housing construction. But as a further political compromise, the largely autonomous local public housing authorities would administer these vouchers, leading to the same concentration of crime and urban decay as public housing. To borrow a phrase from former House Speaker Newt Gingrich, “Republican social engineering” isn’t necessarily better than “Democratic social engineering.”

    The economic goals of “affordable” housing have generally been in direct conflict with urban development. When I proposed demolishing the worst public housing projects and redeveloping the land, using the proceeds to fund subsidies for existing private market housing (something partially achieved during the Reagan Administration), Clinton Administration officials scoffed at the idea.

    HUD combines socialist goals and fascist methods that seriously distort and undermine markets. There is neither market nor political discipline on the enormous scope of its activities. HUD met unfunded goals through financial coercion, undermining both Fannie Mae and Freddie Mac, and their commercial banking competitors, with the collusion of the Senate Committee responsible for both financial and housing oversight, leading to the sub-prime lending debacle of 2008.

    There is no economic rationale for a federal role in housing or urban affairs in a market economy. HUD represents a continuing systemic threat for which there is no cure. May it RIP.

    Kevin Villani


    Kevin Villani

    Kevin Villani, chief economist at Freddie Mac from 1982 to 1985, is a principal of University Financial Associates. He has held senior government positions, been affiliated with nine universities, and served as CFO and director of several companies. He recently published Occupy Pennsylvania Avenue on the political origins of the sub-prime lending bubble and aftermath.

    This article was originally published on FEE.org. Read the original article.

    Posted in Big Government, Economics & Finance, Politics, Public Finance, Real Estate, Urban Issues | 4 Comments »

    Worthwhile Reading & Viewing

    Posted by David Foster on 15th December 2016 (All posts by )

    A USAF jet fighter pilot flies a WWII P-51 Mustang.

    An argument that China will never be as wealthy as America.  (‘Never’ is a long time, though)

    A huge database of artworks, indexed on many dimensions.

    An ethics class that has been taught for 20 years (at the University of Texas-Austin) is no longer offered.  According to the professor who taught it:

    Students clam up as soon as conversation veers close to anything controversial and one side might be viewed as politically incorrect. The open exchange of ideas that used to make courses such as Contemporary Moral Problems exciting doesn’t happen. It’s not possible to teach the course the way I used to teach it.

    At the GE blog:  Direct mind-to-airplane communication…and, maybe someday, direct mind-to-mind communication as well.  Although regarding the second possibility, SF writer Connie Willis raises some concerns.

    Also at the GE blog:  The California Duck Must Die – a very good explanation of the load-matching problems created when ‘renewable’ sources become a major element of the electrical grid. Media discussion of all the wind and solar capacity installed has tended to gloss over these issues.

    The Battle of the Bulge, December 1944 – January 1945.

    Posted in Academia, Aviation, China, Deep Thoughts, Economics & Finance, Education, Energy & Power Generation, History, War and Peace | 3 Comments »

    Can Donald Trump Prevent the Economy from Falling Into a Black Hole?

    Posted by Kevin Villani on 13th December 2016 (All posts by )

    Interest rates will eventually rise without an even more devastating policy of financial repression. When they do, rising interest costs will produce a vicious cycle of ever more borrowing. We are already approaching the “event horizon” of spinning into this black hole of an inflationary spiral and economic collapse from which few countries historically have escaped. A substantially higher rate of growth is the only way to break free.

    National economic growth is typically measured by the growth of GDP, and citizen well being by the growth of per-capita GDP. The long run trend of GDP growth reflects labor force participation, hours worked and productivity as well as the rate of national saving and the productivity of investments, all of which have been trending down.

    The population grows at about 1% annually and actual GDP growth averaged 2% overall for 2010-2016 (using the new World Bank and IMF forecast of US GDP at 1.6% for 2016), hence per capita GDP grew at only 1%. Moreover the income from that 1% growth went primarily to the top one percent while 99% stagnated and minorities fell backwards.

    Why we are approaching the Event Horizon
    The Obama Administration annually predicted a more historically typical 2.6% per capita growth rate, consistent with the historical growth in non-farm labor productivity. How could their forecasts be so far off?

    The Obama Administration pursued the most massive Keynesian fiscal and monetary stimulus ever undertaken. Such a policy generally at least gives the appearance of a rise in well being in the near term, as the government GDP statistic (repetitive, as the word “statistic derives from the Greek word for “state” ) reflects final expenditures, thereby imputing equal value to what governments “spend” as to the discretionary spending of private households and businesses in competitive markets. But labor productivity gains stagnated at only about 1%, most likely reflecting the cost and uncertainty of anti-business regulatory and legislative policies that dampened investment, something the Administration denied, trumping even a short term boost to GDP.

    As a result the national debt approximately doubled from $10 trillion to $20 trillion, with contingent liabilities variously estimated from $100 to $200 trillion, putting the economy ever closer to the event horizon. Breaking free will require reversing the highly negative trends by reversing the policies that caused them.

    Technology alone isn’t sufficient
    Obama Administration apologists argued that stagnation is “the new normal” citing leading productivity experts such as Robert Gordon who dismissed the potential of new technologies. Many disagree, but Gordon’s findings imply even greater reliance on conventional reform.

    Fiscal policy won’t be sufficient
    Raising taxes may reduce short term deficits but slows growth. Cutting wasteful spending works better but is more difficult.

    The list of needed public infrastructure investments has grown since the last one trillion dollar “stimulus” of politically allocated and mostly wasteful pork that contributed to the stagnation of the last eight years. Debt financed public infrastructure investment contributes to growth only if highly productive investments are chosen over political white elephants like California’s bullet train, always problematic.

    Major cuts in defense spending are wishful thinking as most geopolitical experts view the world today as a riskier place than at any prior time of the past century, with many parallels to the inter-war period 1919-1939.

    The major entitlement programs Social Security and Medicare for the elderly need reform. But for those in or near retirement the potential for savings is slight. Is Medicare really going to be withheld by death squads? Are benefits for those dependent on social security going to be cut significantly, forcing the elderly back into the labor force? Cutting Medicare or SS benefits for those with significant wealth – the equivalent of a wealth tax – won’t affect their consumption, hence offsetting the fall in government deficits with an equal and offsetting liquidation of private wealth. Prospective changes for those 55 years of age or younger should stimulate savings and defer retirement, improving finances only in the long run.

    The remaining bureaucracies are in need of major pruning and in numerous cases elimination but they evaded even budget scold David Stockman’s ax during the Reagan Administration.

    Americans will have to work more and consume less
    That is the typical progressive economic legacy of excessive borrowing from the future.

    The first Clinton Administration created the crony capitalist coalition of the political elite and the politically favored, e.g., public sector employees and retirees, subsidy recipients and low income home loan borrowers. The recent Clinton campaign promised to broaden this coalition, which would have accelerated the trip over the event horizon.

    Reform that taxes consumption in favor of savings and a return to historical real interest rates could reverse the dramatic decline of the savings rate. Regulations redirecting savings to politically popular housing or environmental causes need to be curtailed in favor of market allocation to productive business investment.

    Repeal and replace of Obama Care could reverse the trend to part time employment. Unwinding the approximate doubling of SS Disability payments and temporary unemployment benefits could reverse the decline in labor force participation.

    Service sector labor productivity has been falling since 1987, the more politically favored the faster the decline. Legal services are at the bottom, partly reflecting political power of rent-seeking trial lawyers, followed by unionized health and then educational services. Union favoritism through, e.g., Davis Bacon wage requirements and “card check” increases rent seeking, particularly rampant in the unionized public sector.

    Competition, of which free but reciprocal trade has historically been a major component, has traditionally provided the largest boost to well being by realizing the benefits of foreign productivity in a lower cost of goods while channeling American labor into employment where their relative productivity is highest. The transition is often painful, but paying people not to work long term is counterproductive. Immigration of both highly skilled and low cost labor (but not dependent family) generally contributes to per capita labor productivity in the same way as free trade.

    None of this will be easy. The alternative is Greece without the Mediterranean climate or a sufficiently rich benefactor.

    —-

    Kevin Villani, chief economist at Freddie Mac from 1982 to 1985, is a principal of University Financial Associates. He has held senior government positions, been affiliated with nine universities, and served as CFO and director of several companies. He recently published Occupy Pennsylvania Avenue on the political origins of the sub-prime lending bubble and aftermath.

    Posted in Big Government, Current Events, Economics & Finance, Politics, Predictions, Public Finance, Trump | 13 Comments »

    Technology and Offshoring

    Posted by David Foster on 9th December 2016 (All posts by )

    Thought question: If Henry Ford had been able to have the Model T manufactured in Mexico by people making 50 cents a day…and with no need for the assembly line and related productivity-improving technology…would that have been equivalent, in terms of its economic, social, and political consequences, to making it in Detroit on the assembly line with workers making $5.00/day and a 10:1 reduction in unit labor content?

    Posted in Business, Economics & Finance, Tech | 28 Comments »

    Attack of the Job-Killing Robots, Part 2

    Posted by David Foster on 15th November 2016 (All posts by )

    In my previous post of this series, I remarked that most discussion of the employment effects of robotics/artificial intelligence/etc seems to be lacking in historical perspective…quite a few people seem to believe that the replacement of human labor by machinery is a new thing.

    This post will attempt to provide some historical perspective on today’s automation technologies by sketching out some of the past innovations in the mechanization of work,  focusing on “robots,” broadly-defined…ie, on technologies which to some degree involve the replacement or augmentation of human mind/eye/hand, rather than those that are primarily concerned with the replacement of human and animal muscular energy…and will discuss some of the political debate that took place on mechanization & jobs in the 1920s through 1940s.

    Throughout most of history, the production of yarn for cloth was an extremely labor-intensive process, done with a device called a distaff, almost always employed by women, and requiring many hours per day to generate a little bit of product.  (There even exists a medieval miniature of a woman spinning with the distaff while having sex…whether this is a comment on the burdensomeness of the yarn-making process, or a slam at the love-making skills of medieval men, I’m not sure—-probably both.)  Eventually, probably around 1400-1500 in most places in Europe, the spinning wheel came into use, improving the productivity of yarn-making by a factor estimated from 3:1 to as much as ten or more to one.

    Gutenberg’s printing press was invented somewhere around 1440.  I haven’t seen any estimates of its effect on labor productivity, compared with the then-prevailing method of hand copying of manuscripts, but surely it was at least 1000 to 1 or more.

    The era from 1700-1850 was marked by tremendous increases in the productivity of the textile trades.  The flying shuttle and other advances greatly improved the weaving process; this created a bottleneck in the supply of yarn, which was partly addressed by the invention of the Spinning Jenny–a foot-powered device that could improve the yarn production of one person by 5:1 or better. Power spinning and power looms yielded considerable additional productivity improvements.

    An especially interesting device was the Jacquard Loom (1802), which used punched cards to direct the weaving of patterned fabrics.  In its initial incarnation, the Jacquard was a hand loom: its productivity did not come from the application of mechanical power but rather from the automation of the complex thread-selection operations previously carried out by a “Draw Boy.”

    Turning now to woodworking:  in 1818, Blanchard’s Copying Lathe automated the production of complex shape–a prototype was automatically traced and copied. It was originally intended for making gunstocks, but also served in producing lasts for shoemakers, and I believe also chair and table legs.

    Another major advancement in the clothing field was the sewing machine.  French inventory Barthelemy Thimonnier invented a machine in 1830, but was driven out of the country by enraged tailors and political instability.  The first commercially-successful machines were invented/marketed by Americans Walter Hunt, Elias Howe, and Isaac Singer, and were in common use by the 1850s.

    By the late Victorian period the sewing machine had been hailed as the most useful invention of the century releasing women from the drudgery of endless hours of sewing by hand. Factories sprung up in almost every country in the world to feed the insatiable demand for the sewing machine. Germany had over 300 factories some working 24 hours a day producing countless numbers of sewing machines. 

    The beginnings of data communications could be seen in gold ticker and stock ticker systems created by Edison and others (circa 1870) , which relayed prices almost instantaneously and eliminated the jobs of the messenger boys who had previously been the distribution channel for this information.  Practical calculating machines also appeared in the 1870s.  But the big step forward in mechanized calculation was Hollerith’s punched card system (quite likely inspired in part by the Jacquard), introduced in 1890 and used for the tabulation of that year’s census.  These systems were quickly adopted for accounting and record keeping purposes in a whole range of industries and government functions.

    Professor Amy Sue Bix, in her book Inventing Ourselves out of Jobs?, describes the fear of technological unemployment as silent movies were replaced by the ‘talkies’. “Through the early 1920s…local theaters had employed live musicians to provide accompaniment for silent pictures.  Small houses featured only a pianist or violinist, but glamorous ‘movie places’ engaged full orchestras.”  All these jobs were threatened when Warner Brothers introduced its Vitaphone technology, with prerecorded disks synchronized to projectors.  “Unlike other big studios, Warner did not operate its own theater chains and so had to convince local owners to screen their productions. Theater managers would be eager to show sound movies, Harry Warner hoped, since they could save the expense of hiring musicians.”

    The American Federation of Musicians mounted a major PR campaign in an attempt to convince the public that ‘living music’ was better than ‘canned sound.’  A Music Defense League was established, with membership reaching 3 million…but the ‘talkies’ remained popular, and the AFM had to admit defeat.  A lot of musicians did lose their jobs.

    Read the rest of this entry »

    Posted in Book Notes, Business, Capitalism, Deep Thoughts, Economics & Finance, History, Tech, USA | 47 Comments »

    Attack of the Job-Killing Robots

    Posted by David Foster on 12th November 2016 (All posts by )

    Here’s a new factory for making automobile frames, specifically designed to minimize the need for human labor.  The CEO of the company that built it actually said, “We set out to build automobile frames without people.”

    At the start of the process, rough steel plates are inspected by electronic sensors, automatically pushing aside any that deviate from tolerances.  Conveyors take the plates through punching, pressing, assembling, and nailing machines, as well as a machine that can insert 60 rivets simultaneously in each frame.  A set of finishing machines then rinse, dry, spray-paint, and cool the frames.  Aside from a few men moving frames between conveyor belts, the floor routine of the plant requires almost no hand labor.

    And today’s robotics and artificial-intelligence advances go far beyond automating routine manufacturing labor and take over the kind of cognitive functions once thought to be exclusive to human beings. Here, for example, is a new AI-based system that displaces much of the thought-work which has been required of the people operating railway switch and signal installations:

    The NX control machine is in effect the “brain” of the system. It automatically selects the best optional route if the preferred route is occupied.  It will allow no conflicting routes to be set up. It eliminates individual lever control of each switch and signal.

    Pretty scary from the standpoint of maintaining anything like full employment, don’t you think?

    Read the rest of this entry »

    Posted in Business, Economics & Finance, Tech | 12 Comments »

    Don Beaudreaux Supports Government by Experts

    Posted by David Foster on 10th November 2016 (All posts by )

    …which doesn’t mean what it sounds like it means

    Similar points are made in Sarah Hoyt’s post makeup, mate choice, and political philosophy

    Posted in Deep Thoughts, Economics & Finance, Political Philosophy | Comments Off on Don Beaudreaux Supports Government by Experts

    Voter Fraud (not what you think)

    Posted by TM Lutas on 8th November 2016 (All posts by )

    Today is election day for the US. Tomorrow is the annual meeting for my homeowners association. I’m looking at a fraudulent proxy statement issued in my name for that HOA annual meeting.

    We’ve gotten out of the habit of treating fraud seriously, depending on the high reputational penalties associated with getting caught doing such things in the first world.

    My HOA’s budget is tiny, about an eighth of a million. The amount of energy being spent on controlling it is beyond foolish.

    Posted in Business, Economics & Finance, Elections, Miscellaneous | 6 Comments »

    Quote of the Day

    Posted by Jonathan on 3rd November 2016 (All posts by )

    Home Builders Say Federal Loan Limits Shut Out Many Buyers (WSJ):

    One of the hallmarks of the housing recovery has been the historically low level of new-home construction, particularly at lower price points attainable for first-time buyers. Although a wide range of factors are at play, from slow wage growth to higher regulatory costs, builders say the FHA limits in many markets are shutting out potential buyers.
     
    The challenge is particularly acute in California, which has the nation’s highest upfront fees for new construction, according to housing-research firm Zelman & Associates. Fees to pay for roads, sewers, schools and other infrastructure in California markets average between $40,000 and $72,000 per home, according to the firm’s research, compared with an average of $2,600 in Houston. [emphasis added]

    Posted in Big Government, Business, Economics & Finance, Political Philosophy, Real Estate, Urban Issues | Comments Off on Quote of the Day

    Efficiency and Restaurants

    Posted by Carl from Chicago on 30th October 2016 (All posts by )

    Since I eat out a lot and have frequented restaurants of every stripe over the last few decades I am always interested in restaurant efficiency. The restaurant industry is brutally competitive and it always disturbs me when I eat at a restaurant and enjoy it but then fear that the restaurant won’t survive because it lacks a critical mass to make enough money.

    There is an Italian restaurant called “Grassa” in Portland (you can see their logo, below). They are attached to another restaurant called “Lardo”.

    These restaurants serve high-end food (not luxury cuisine, but far from fast-food) and alcohol but have communal tables and always seem to be packed with a line out the door. They are different because their menu is a large signboard (dishes are frequently updated) when you enter the space and you order your food at a central register and they hand you a “flag” to bring with you to your table. Then when your food is ready, they bring it out to you and take away your flag and you eat your meal. Drinks are brought out first (and appetizers) and you can also flag down one of the servers to order more drinks (although most people tend to have one drink with their meal and then leave, based on a few times that I’ve sat at the restaurant). You can also order your food “to go” at Grassa, as well.

    This model drives peak efficiency at the restaurant. There are many fewer tables than you would need at a “standard” restaurant due to the communal standing tables and the food comes out as soon as it is available (the servers don’t have to take orders, they just serve the food as soon as it is up and return back to the kitchen area, unless they are bussing a table that just left). They don’t have to take reservations or mess with any of that complexity, either.

    Read the rest of this entry »

    Posted in Business, Economics & Finance | 11 Comments »

    Hiring a President

    Posted by David Foster on 13th October 2016 (All posts by )

    When hiring someone for an important job, it is of course important to assess whether or not that person has the skills you think are necessary for doing the job well.  But it’s important to also assess what they think are the important aspects of the job, and make sure these line up with what you think are the most important job factors.  You want to know what they are ‘passionate’ about, to employ a currently-overused term.

    And when hiring an executive, keep in mind that you are also likely gaining access to his network of former employees, customers, suppliers, consulting firms, etc.  A similar but even more powerful dynamic plays out in politics, as Daniel Henninger of the WSJ reminds us:

    A recurring campaign theme of this column has been that the celebrifying of our presidential candidate obscures the reality that we are not just just electing one famous person.  We will be voting into power an entire political party, which has consequences for the country’s political direction no matter what these candidates say or promise.

    By that measure, there is a reason not to turn over the job of fighting global terrorism to the Democrats.  They don’t want it.

    So, what are they key aspects of the Presidential job that needs to be done over the next four years, and how do the candidates and their beliefs about what is important stack up against those factors?  Here’s my list..

    The suppression of radical Islamic terrorism.  Henninger is completely correct: the Democrats don’t want this job.  Henninger notes that during a House hearing in 2005, Guantanamo Bay was denounced (almost entirely by Democrats, I am sure) as ‘the Gulag of our times.’  Whereas GOP Congressman Mike Pence correctly responded that the comparison was ‘anti-historical, irresponsible and the type of rhetoric that endangers American lives.’

    Henninger continues: ‘Dahir Adan invoked Allah while stabbing his way through the Minneapolis mall.  Both Mrs Clinton and President Obama consistently accuse their opponents of waging a war on all practitioners of the Islamic religion. Presumably, if instead we were being attached by Martians, they’d say any criticism of Martians was only alienating us from all the People on Mars. The problem is we aren’t getting killed by Martians or Peruvians or Finns but by men and women yelling ‘Allah Akbar’…Virtually all Democratic politicians refuse to make this crucial distinction.’

    The protection of free expression. As long as we have free speech and a free press, there is a possibility that our array of problems can be solved.  But once this crucial feedback connection is cut, problems of all kinds are likely to compound themselves until catastrophe happens.

    Remember, Hillary Clinton’s response to the Benghazi murders was to blame them on an American filmmaker exercising his Constitutional rights, and to threaten to have him arrested.  Which threat she was indeed able to carry into execution.

    And note that Hillary Clinton’s Democratic Party is closely aligned with the forces on college campuses which are creating a real nightmare for anyone–student or professor–who dissents from the ‘progressive’ orthodoxy or who even demonstrates a normal sense of humor.

    There is a very strong tendency among Democrats to call for the forcible government suppression of political dissidents, and to carry this belief into action when they can get away with it:  the witch-hunt in Wisconsin and the IRS persecution of conservative organizations and individuals being only two of many examples.  More here.

    Trump is by no means ideal on this metric: he is thin-skinned and has shown himself to be very litigious.  But he is far preferable from a free-expression standpoint to Clinton and the forces that she represents.

    Economic growth.  Clinton herself would surely like to see economic growth, if only  for political reasons.  But there is in the Democratic Party a very strong strain that believes America is too wealthy, that our people have too many luxuries, that we need to be taken down a peg. I have even seen attacks by ‘progressives’ on the existence of air conditioning. The Democrats are generally willing to sacrifice economic growth on the altar of environmental extremism and to serve their trial-lawyer clients. Sexual politics represents another cause for which growth is readily sacrificed by Democrats–remember when Obama’s ‘shovel-ready’ stimulus package was first mooted, there was an outcry from left-leaning feminist groups concerned that it would be too focused on ‘jobs for burly men.’

    And whatever her ‘small business plan’ may be in her latest policy statement, Hillary has an underlying dismissiveness to those small businesses–the vast majority of them—that do not enjoy venture capital funding.  Remember her remark, when told back in the Bill Clinton administration, that aspects of her proposed healthcare plan would be destructive to small businesses?  Her response was:  “I can’t be responsible for every undercapitalized small business in America.”  No one was asking her to be responsible for them, of course; only to refrain from wantonly destroying them.

    It is important to note that many of the top Democratic constituencies don’t really need to care, on a personal level, about economic growth. Tenured academics have salaries and benefit packages which are largely decoupled from the larger economy.  Hedge-fund managers often believe they can make money as readily in a down market as an up market. Many if not most lawyers are more dependent for their incomes on the legal climate than the economy. Very wealthy individuals may care more about social signaling than about money per se, given that they already have so much of the latter.  And the poor and demoralized will in many cases care more about transfer payments than about the growth of the economy.

    Improving K-12 Education.  Much of the nation’s public school system is a disaster.  There is no chance that Hillary would would care enough about fixing this system, and preventing or at least mitigating its destruction of generation after generation, to be willing to take on the ‘blob’…the teachers’ unions, the ed schools…these being key Democratic constituencies.  Also: the Democratic obsession with race/ethnicity has led to demands from the Administration that school disciplinary decisions must follow racial quotas.  Policies such as this, which would surely continue under a Clinton administration, make it virtually impossible for schools to maintain a learning environment for those students who do want to learn.

    The current state of K-12 education is a major inhibitor to social mobility in America.  Anyone who claims to care about the fate of families locked into poverty, while at the same time supporting a Hillary Clinton presidency, is either kidding themselves or straight-out lying.

    Read the rest of this entry »

    Posted in Academia, China, Civil Liberties, Civil Society, Economics & Finance, Elections, Politics, Russia, USA | 33 Comments »

    The things my kids say

    Posted by TM Lutas on 5th October 2016 (All posts by )

    My son just asked me if we can AirBNB our house while we evacuate for the hurricane (we’re currently leaning towards sticking Matthew out).

    Posted in Economics & Finance, Humor, Miscellaneous | 7 Comments »

    A Really Big Short Still Awaits

    Posted by Kevin Villani on 24th September 2016 (All posts by )

    When testifying in 2010 before the Financial Crisis Inquiry Commission into the financial crash, then Federal Reserve Board Chairman Ben Bernanke recommended only one reference, Lords of Finance: The Bankers Who Broke the World (2009), presumably for the narrative that insufficient money printing in the aftermath of the Great War lead to the next one. Right idea, wrong narrative!

    The US homeownership rate peaked at a rate well above the current level almost a half century ago mostly funded by a system of private mutual savings banks and savings and loans. The historical justification for federal “secondary market” agencies was political expediency – exemption from now obsolete federal, state and local laws and regulations inhibiting a national banking and mortgage market. Now government-run enterprises account for about 90% of all mortgages, with the Fed their primary funding mechanism, what the Economist recently labeled a de facto nationalization.

    The Historical Evolution

    How did the private US housing finance system repeatedly go bankrupt? To quote Hemingway: Gradually, then suddenly. The two competing political narratives of the cause of financial market crises remain at the extremes – either a private market or public political failure – with diametrically opposite policy prescriptions. The politician-exonerating market failure narrative has not surprisingly dominated policy, with past compromises contributing to the systemic financial system failure, the global recession of 2008 and subsequent nationalization.

    The Great Depression stressed the S&L system, but the industry’s vigorous opposition to both federal deposit insurance and the Fannie Mae secondary market proved prescient as the federally chartered savings and loan industry eventually succumbed by 1980 to the federal deposit insurer’s perverse politically imposed mandate of funding fixed rate mortgages with short term deposits and competition from the government sponsored enterprises.

    The S&Ls were largely replaced by the commercial banks. To make banks competitive with Fannie and Freddie, politicians and regulators allowed virtually the same extreme leverage, in return for a comparable low-income lending mandate – CRA requirements leading to a market dominating $4 trillion in commitments to community groups to whom the Clinton Administration had granted virtual veto power over new branch and merger authority.

    The Financial Crisis of 2008 and the aftermath

    The Big Short by Michael Lewis and more recent movie portrayed not just banker greed but the extreme frustration of those shorting the US mortgage market stymied by a housing price bubble many times greater than any in recorded US history that refused to burst. The reasons: 1. the Fed kept rates low and money plentiful, and 2. whereas banks would have run out of funding capacity, the ability of Fannie and Freddie to continuously borrow at the Treasury’s cost of funds regardless of risk and their HUD Mission Regulator requirement to maintain a 50% market share kept the bubble inflating to systemic proportions.

    The Obama Administration fully embraced the alternative private market failure narrative in Fed policy, regulation and legislation:

    • To partially ameliorate the effects on the real economy of disruption to the global payments mechanism the Fed had to bail out the banking system. QE1/2/3/4 and ZIRP (zero rates), now NIRP, did this by re-inflating the house price bubble, postponing defaults while allowing banks risk-free profits. The Fed – and taxpayers – would lose more than the entire S&L industry did should rates rise by a comparable amount if it marked its balance sheet to market.
    • Regulators had to appear to punish the banks. In response to paying hundreds of billions of dollars in what the Economist labeled “extortion” – some of which ironically went to populist political action groups – and the subsequent oppressive regulatory regime, U.S. commercial banks are exiting the US mortgage market in spite of ongoing profits enabled by extreme leverage.
    • One legislative centerpiece, the Dodd Frank Act passed in July 2010 in direct response to the financial crisis, doubled down on political control of financial markets without addressing the future of Fannie and Freddie. The other, Obamacare, enacted four months earlier, was similarly premised on regulating private health insurers to make health insurance simultaneously cheaper and more widely available.

    The Long Term Consequences

    Bernanke’s focus on choosing the narrative was useful, but the political choice of the market failure narrative appears to reflect convenience rather than conviction. The direct taxpayer costs of implicit or explicit public insurance and guarantees come with both a whimper – tax savings amounting to tens of billions annually due to the deductibility of interest costs – and a bang – future taxpayer bailouts generally delivered off-budget.

    Fannie and Freddie conservatorship deftly avoided debt consolidation while dividends reduced reported federal deficits. The student loan market has also been de facto nationalized, with potential unbudgeted losses totaling hundreds of billions. Obamacare was similarly premised on regulating private health insurers to make health insurance simultaneously cheaper and more widely available, but under-budgeted health insurance subsidies predictable caused massive losses and health insurers are now withdrawing from the market.

    Monetary policies caused household savings to stagnate as returns to retirement savings evaporated. Defined obligation public pension funds were all rendered technically insolvent when funding is valued at current market returns rather than the assumed rate as much as ten times that. The failure of the economy to grow per capita was explained as the “new normal”. But politicians made no attempt to reflect the implied technically insolvency of public pensions or Social Security and Medicare.

    Private firms fail, but private markets rarely do. Public protection and regulation makes firms “too big to fail” until markets fail systemically. The current and projected future public debt bubble is unsustainable, and financial markets will eventually ignore the accounting deceptions and pop it. The relative weakness of other sovereign debt is delaying the inevitably, making The Really Big Short a good title for a Michael Lewis’s sequel. Politicians and central bankers will again say “nobody saw this coming”. What then?

    ====
    Kevin Villani, chief economist at Freddie Mac from 1982 to 1985, is a principal of University Financial Associates. He has held senior government positions, been affiliated with nine universities, and served as CFO and director of several companies. He recently published Occupy Pennsylvania Avenue on the political origins of the sub-prime lending bubble and aftermath. This article was originally published at FFE.org

    Posted in Big Government, Economics & Finance, Markets and Trading, Predictions, Public Finance, Real Estate, Systems Analysis | 21 Comments »

    On Investing

    Posted by Carl from Chicago on 18th September 2016 (All posts by )

    Investing has changed significantly during the 25 or so years that I have been following both the market and also the tools available for an investor to participate within the market.  The following trends are key:

    • The cost of trading and investing has declined significantly.  Trades used to cost more than $25 and now are essentially free in many cases.  Mutual funds used to have “loads” of 5% or more standard when you made an investment, meaning that $100 invested only went to work for you as $95.  These sorts of up-front costs have almost totally been eliminated
    • ETFs have (mostly) replaced mutual funds.  ETFs “trade like stocks”, meaning that you can buy and sell anytime (mutual funds traded once a day, after being priced with that day’s activity) and they don’t have income tax gains and losses unless you actually make a trade (mutual funds often had gains due to changes in the portfolio that you had to pay taxes on even if you were just holding the fund)
    • CDs and Government Debt are all electronic.  You used to have to go to a bank for various governmental bond products or to buy a CD.  Now you not only can buy all of this online, you can choose from myriad banks instantly rather than settle for whatever your main bank (Chase, Wells Fargo, etc…) offers up to you
    • Interest Rates are Near Zero.  One of the key concepts in investing is “compound interest”, where interest is re-invested and even small, continuous investments held for a long time can end up amounting to large sums (in nominal terms, because inflation often eats away at “real” returns).  However, with interest rates basically near zero, you need to earn dividend income or take on more risk (i.e. “junk bonds”) in order to receive any sort of interest income.  There is no “safe” way to earn income any more
    • Read the rest of this entry »

    Posted in Economics & Finance, Investment Journal, Personal Finance | 4 Comments »

    Hillary Clinton’s Alinskyite Attacks on Pharma Companies

    Posted by Jonathan on 25th August 2016 (All posts by )

    “Pick the target, freeze it, personalize it, and polarize it.” (Saul Alinsky)

    Hillary is clever to go after individual companies. If she attacked the pharma industry as a whole, it could unite politically in response and perhaps gain political support from other industries that would reasonably see themselves as similarly vulnerable. But individual companies have no defenses against this kind of attack. By singling out one victim she discourages other industry players from doing anything in response, because any company or industry group that responds risks being targeted in the future.

    She has done this kind of thing before. She will probably keep doing it because it’s politically effective. Her attack on Mylan destroyed a large amount of wealth, and probably not just for Mylan’s shareholders. Today Mylan’s CEO is groveling in the media. As with past political attacks by Hillary and others on vaccine manufacturers, yesterday’s attack on Mylan will discourage pharma companies from introducing valuable new products and will reduce the availability of current products. We will probably see more of this kind of extortionate behavior by the federal govt if she is elected, because that’s how the Clintons operate and because a Hillary administration would appoint more lefty judges and DOJ and regulatory officials who would go along with it.

    Posted in Big Government, Crony Capitalism, Economics & Finance, Health Care, Leftism, Markets and Trading, Politics | 42 Comments »

    Supermarket Parable

    Posted by Jonathan on 5th August 2016 (All posts by )

    At the store they offer plain, vanilla and chocolate soy milk. Chocolate is the only flavor that’s any good IMO. Other customers seem to agree as chocolate is always in short supply and sometimes sold out by the time I get to the store. It seems obvious they should stock more chocolate but they never do.

    I complained a couple of times to guys in the dairy department and once to a manager. They didn’t understand what the problem was so I stopped complaining. When they have chocolate on the shelf I load up.

    Today I took two cartons of chocolate and couldn’t reach a third. One of the stock guys climbed up on the shelf and got it for me. He good-naturedly said that it’s great stuff, it flies off the shelves. I thanked him and mildly suggested the store should stock more chocolate because it’s the most popular flavor. He said that, on the contrary, people who like chocolate should be more considerate and leave some for the other customers. He added that there is a God upstairs and He is watching. I believe this man missed his calling. He could have been a successful bioethicist.

    Posted in Bioethics, Business, Customer Service, Deep Thoughts, Economics & Finance, Medicine, Personal Narrative | 31 Comments »

    New Jobs Contest! You Could Be a Winner!

    Posted by David Foster on 1st August 2016 (All posts by )

    In a comment to my post About Those Job-Killing Robots, TM Lutas said:

    If you want to slay the mistaken talk about the end of human employment, hold a contest. Come up with labor demand boosting ideas that we do not engage in today because we either don’t have enough people or don’t have enough money to do it. Weigh jobs that don’t require much intelligence or education as more valuable than those requiring high education/intelligence. Within a year I predict enough entries to be submitted to put the entire world to work multiple times over.

    It is a bit embarrassing to think about things we are too poor to do. This makes these jobs invisible to us today. By creating a contest and an artificial market for these ideas, they become visible and we turn from despair at the jobless future to wondering how we can become efficient enough to afford to do all these wonderful things.

    Let’s prototype the contest here, among friends (and a few special adversaries and maybe even some enemies), and maybe we can roll it out later on a larger scale. The winner will receive a microscopic amount of fame, and also a virtual certificate, not suitable for framing.

    What are the things that we collectively and individually can’t afford–but might be able to afford given higher levels of productivity and national income–that would meaningfully affect well-being and human satisfaction?  Define “things” as broadly as you like.  Consider both things that could become more affordable due to productivity improvements in a specific industry, and things whose creation might not by itself be meaningfully improvable from a productivity standpoint but which people could better afford given an upward trend in overall productivity and income.

    Thoughts?

    Posted in Deep Thoughts, Economics & Finance, Tech | 34 Comments »

    About Those Job-Killing Robots

    Posted by David Foster on 30th July 2016 (All posts by )

    Every day, there are articles and blog posts about how quickly robots are replacing jobs, particularly in manufacturing.  These often include assertions along the lines of “robots are replacing human labor so rapidly and so completely that it doesn’t really matter whether the factories are in the US or somewhere else.” There are also many assertions that robotics and artificial intelligence will triumph so completely that we must accept that we will permanently have a huge unemployed population who will need to be paid a “basic income” of some sort from the government.

    This May, there were breathless headlines about how Foxconn, which is Apple’s primary contract manufacturer, was replacing 60,000 workers with robots–indeed, in some tellings, had already replaced them.  If you google “foxconn 60000 workers”, you will get about 130,000 hits.

    But the story, however, is false; indeed, it did not even originate with Foxconn but rather with some local Chinese government officials who wanted to promote their area as “innovative.”

    There has also been a lot of coverage of robotics at Adidas, which is trying to use automation to improve the labor productivity of shoe-making to the point that it can be done economically in high-wage countries such as Germany.  This article on Adidas also cites the Foxconn “60,000 jobs” assertion.

    One key pair of numbers is missing from the stories I’ve seen on the Adidas project:  the ratio of human workers to shoes produced, with and without the addition of the robotics. You can’t really judge the labor-reducing impact of the project without these numbers.  In this Financial Times article, Adidas is quoted as saying, entirely reasonably, that they will need to get further into production with their new factory before developing meaningful productivity numbers.  The article also cites Boston Consulting Group as estimating that by “2025 advanced robots will boost productivity by as much as 30 per cent in many industries.”  Thirty percent is a very significant number, but it’s a long, long way from a productivity increase that would imply that factory jobs don’t matter, or that we’re going to inevitably have a very large permanently-unemployed population.

    There are a lot of very significant innovations taking place in robotics and AI, but the hype level is getting a little out of hand.  And it’s important to remember that automation is not a new phenomenon.  For example, a CNC (computer numerically  controlled) machine tool is a robot, albeit it might not look like the popular conception of one, and these machines, together with their predecessor NC (numerically controlled) machines, have been common in industry since the 1970s. One thing that articles and blog posts on the topic of robotics/AI/jobs could benefit from is a little historical perspective: do today’s innovations really represent a sharp break upwards in labor productivity, or are they more of a continuation of a long-term trend?  And how, if it all,  is the effect of these technologies appearing in the productivity statistics?

    Posted in Deep Thoughts, Economics & Finance, Tech, USA | 28 Comments »

    Despite Drop in Home Ownership, an Increase in Renters*

    Posted by Jonathan on 28th July 2016 (All posts by )

    Millennials cause homeownership rate to drop to lowest level since 1965:

    The drop in homeownership is largely due to a delay in homebuying by the millennials, who have the lowest ownership rate of their age group in history. Millennials are not only burdened by student loan debt, but they have also delayed life choices like marriage and parenthood, which are the primary drivers of homeownership.

    Why have today’s young people, as compared to young people in the recent past, delayed buying property, marrying and having children?

    “While the millennial homeownership rate continues to decline, it’s important to note that the decrease could be just as likely due to new renter household formation as it is their ability to buy homes,” wrote Ralph McLaughlin, chief economist at Trulia. “Certainly low inventory and affordability isn’t helping their efforts to own, but moving out of their parents’ basement and into a rental unit is also a good sign for the housing market.”

    Why are many of today’s young families choosing to rent rather than buy their homes?

    Read the rest of this entry »

    Posted in Big Government, Economics & Finance, Real Estate, Society, Systems Analysis, Urban Issues | 8 Comments »

    Quote of the Day

    Posted by Jonathan on 6th July 2016 (All posts by )

    Dale Franks, Vote Properly, You Virulent Racist!:

    But let’s go even further. Even if you could prove that, on balance, free trade is an unquestionable economic benefit, people might still prefer to be measurably poorer if that’s the price that must be paid to maintain their traditional social and political cultures. (This has even more relevance in the case of the EU, because the EU actually has power. Imagine if NAFTA had an unelected Commission in Ottowa or Mexico City that could impose laws on the United States.) Perhaps people don’t regard their economic interests as important as their national or cultural interests. It doesn’t matter what elite opinion thinks the people’s most important interests are. In a democratic society, ultimately, it only matters what the people think they are. People get to determine their own priorities, and not have them dictated by elites. The people get to answer for themselves the question, “In what kind of country do I want to live?”
     
    Of course, I would argue that we don’t have truly free trade or, increasingly, a free economy in the United States. The Progressives always look at the rising income inequality and maintain that it’s the inevitable result of capitalism. That’s hogwash, of course, and Proggies believe it because they’re dolts. But the problem in this country isn’t free trade—we have precious little of it—or unrestricted capitalism, since we have precious little of that as well. The issue behind rising income inequality isn’t capitalism, it’s cronyism. Income isn’t being redirected to the 1% because capitalism has failed, it’s happening because we abandoned capitalism in favor of the regulatory crony state and its de facto collusion between big business/banking interests and a government that directs capital to favored political clients, who become “too big to fail”. It doesn’t matter, for instance, whether the president is a Democrat or Republican, because we know the Treasury Secretary will be a former—and future—Goldman Sachs executive.

    Franks’s post is very well thought through and ties together the main themes that appear to be driving US, British and European politics. It’s worth reading in full if you haven’t yet done so.

    Posted in America 3.0, Capitalism, Civil Society, Conservatism, Crony Capitalism, Culture, Current Events, Economics & Finance, Elections, Human Behavior, Immigration, Leftism, Political Philosophy, Politics, Quotations, Society, Tea Party, Tradeoffs, Trump | 9 Comments »

    How Scotland can rejoin the EU

    Posted by TM Lutas on 28th June 2016 (All posts by )

    I’m surprised with all the sturm und drang of the brexit vote reaction in Scotland, it seems like everybody has missed entirely the easiest way for Scotland to rejoin the EU without a messy period of independence. It could apply for admission to the nation of Ireland based on their common historical roots.

    The likelihood of this actually happening given the political stars of today is approximately zero. What I find interesting is the reason why the idea is so far out there that it wouldn’t even be brought up. If an independent Scotland has difficulty making a go of it, why is a Scotland tied to the English and out of the EU superior than a Scotland tied to the Irish and inside the EU?

    Posted in Anglosphere, Britain, Economics & Finance, Europe, Politics | 30 Comments »

    Worthwhile Reading

    Posted by David Foster on 27th June 2016 (All posts by )

    No aesthetically-appealing photos or amusing stories today, I’m afraid, just some very serious links and excerpts.

    The rockets of Hezbollah.  I knew they had accumulated considerable weaponry, but didn’t know it was this bad.

    Men, women, Christianity, and Islam

    Kevin Williamson on  preventing jihadist violence

    The impact of Islamic fundamentalism on free speech

    James Schall of Georgetown University on Orlando in hindsight:

    The Orlando killer was not alone. He was a true believer and other believers in the mission of Islam inspire him. Neither he nor any of his predecessors or future companions are to be explained by psychology, economics, or sociology. They are to be explained by taking their word for what they are doing. If the President of the United States or the British Prime Minister, the media, the professors, the clerics, cannot or will not understand this reality, we cannot blame ISIS and its friends. They are also realists who understand where ideas and reality meet, sometimes on a battlefield in Iraq, sometimes in a night club in Orlando.

    The Democrats as the American Totalist Party

    Football player Herschel Walker reports that he has had speaking engagements canceled because of his support for Donald Trump.   Which is exactly the kind of action one would expect from members of a Totalist party.

    Shortly before the Brexit vote, writer Frederick Forsyth wrote about the basic character of the EU:  Government by deception:

    You have repeatedly been told this issue is all about economics. That is the conman’s traditional distraction. This issue is about our governmental system, parliamentary. Democracy versus non-elective bureaucracy utterly dedicated to the eventual Superstate.

    Our democracy was not presented last week on a plate. It took centuries of struggle to create and from 1940 to 1945 terrible sacrifices to defend and preserve. 

    It was bequeathed to us by giants, it has been signed away by midgets.

    Now we have a chance, one last, foolishly offered chance to tell those fat cats who so look down upon the rest of us: yes, there will be some costs – but we want it back.

    A former ‘big proponent’ of the EU has this to say:

    To be fair, the EU’s main problem has always been its troubled relationship with democracy…This contempt for the will of the people might still be perceived as tolerable if the leaders otherwise seemed sensible – but now that someone as bad as Merkel calls the shots in EU, we’re reminded of just why having perpetual democratic safeguards is so important…the EU’s contempt for European voters and its current attempts to shut down dissenting voices bodes ill for its ability to course-correct on its own. If the EU is to be saved, it first needs to be humbled, nay, outright humiliated in such a manner that no-one can doubt that recent developments can’t be allowed to continue.

    John Hussman  of Hussman Funds looks at Brexit from an economic and investing perspective:  Brexit and the bubble in search of a pin.  He quotes his own post from last month:

    My impression is that the best way to understand the next stage of the current market cycle is to recognize the difference between observed conditions and latent risks. This distinction will be most helpful before, not after, the S&P 500 drops hundreds of points in a handful of sessions. That essentially describes how a coordinated attempt by trend-followers to exit this steeply overvalued market could unfold, since value-conscious investors may have little interest in absorbing those shares at nearby prices, and in equilibrium, every seller requires a buyer.

    Imagine the error of skating on thin ice and plunging through. While we might examine the hole in the ice in hindsight, and find some particular fracture that contributed to the collapse, this is much like looking for the particular pebble of sand that triggers an avalanche, or the specific vibration that triggers an earthquake. In each case, the collapse actually reflects the expression of sub-surface conditions that were already in place long before the collapse – the realization of previously latent risks.

    Posted in Big Government, Britain, Christianity, Civil Liberties, Economics & Finance, Elections, Europe, Islam, Leftism, Terrorism, USA | 15 Comments »