Tag Archives: economy

Our Weekly Fresh Horrors

Gee, what fresh horror would make for a nice blog post today?

#1. We could start with this analysis of Orange Blossom’s perfectly inane trade policy, as expounded by conservative economist Walter Block in the not-so-failing New York Times:

“The negative consequences of a trade war will soon be felt, if they aren’t already. Even if the United States avoids trade conflict with Europe, tariffs on steel and aluminum from China, Mexico and Canada will raise domestic prices, hurting consumers. And the administration is likely to find itself subsidizing voters who purchase these items or who are hurt when other countries slap tariffs on American goods in retaliation — mainly farmers, manufacturers and builders.”

Perhaps the color coded cue cards were insufficient to explain BASIC economics to our special Orange Blossom during his meetings with EU officials.  Is there an emoji for putting both of one’s hands palm forward into one’s face? I could use one right now.

#2.  Also from the New York Times — the Feds announce they’ve met the deadline for reuniting children with their migrant parents. However, there’s this little Oops paragraph in the article:

“But in a day that saw government officials and community volunteers scrambling to bring families together, multiple reports of failed reunifications raised questions about whether the deadline had in fact been met. Further confusing the issue was a change in the way the government tallied its progress, with the latest report counting children rather than parents, a reversal from prior reports.”

So, if they can’t reunify families, then they simply reclassify the children and/or parents to say they aren’t eligible for reunification!  Whee. How convenient.   Yes Sir, I could say I really stuck to my pledge to make healthier eating choices — IF we don’t count the two chocolate chip cookies, the can of Pepsi, the chips, the cheeseburger, the … you get the idea. There are still some 700 children not reunited with family.  And when the ADL is putting out warnings about what happens to children separated from parents, as in what happened during the Holocaust, maybe we should be paying attention.  I really do need that double face-palm emoji thing.

#3.  The Ruskies are still here. As in still attacking our American electoral system; as in attacking the McCaskill Senate campaign in Missouri.  They also appear to have attacked two other campaigns. This isn’t “history,” this is current events.  There’s more at “The Hacking of America,” on Slate.   The article isn’t exactly pleasant reading, but it’s recommended as a reminder that God helps those who help themselves, and DHS is talking about new initiatives with 90 day timelines.   90 days?  What happened to getting a start on this, say some 1 year, 188 days, and 2 minutes (as of now) ago?

#4.  Special concern for the people in the Redding, California area.  The news on that fire front is horrible. Up here in cheat grass country we lucked out during the Holloway Complex Fire in 2014.  There’s nothing quite so chilling as the sound of a local deputy on a bull horn announcing a preliminary notice of an evacuation order.  I don’t wish it on anyone.  Please, California neighbors, stay safe!

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Filed under Economy, elections, Immigration, Politics

America Last

The first law of negotiation:  It is impossible to be part of any bi-lateral or collective agreement if an agency is not at the table.

And thus, the Rose Garden Jazz Concert and International Default Announcement last week violated the First Law, by a noted (albeit self-described) deal maker.  Green lit public buildings around the nation and globe notwithstanding, the Grand Announcement was more theater than substance.  There’s a pattern herein.  First, the administration announces its announcements.  “On Wednesday, June ___, at 12:05 pm the White House will ____”  This sets up our cable news “panels” for almost interminable displays of speculation, multiplying the publicity.  Thence comes The Announcement, which may or may not be substantive.  Witness the now infamous Rick-Rolling “announcement” by the administration about President Obama’s birth certificate authenticity.  Notice there was never any apology issued for the Birtherism, and attendant racist cant, just an “announcement” made in conjunction with the opening of a family business hotel.

In reality, the first time the U.S. can withdraw from the Paris Accord comes after the next presidential election.  In reality, the accord is entirely voluntary, and has been noted in several commentaries, can’t be both draconian and voluntary at the same time.  In reality, the rest of the nations aren’t about to allow the US to “renegotiate” the terms, especially since the Paris agreement was framed to answer US objections to the Kyoto version to which the US would not agree.  In reality, the world witnessed a statement expressing the narrow vision of the current administration, violating the First Law of Negotiation.

In short, reality has precious little to do with the Rose Garden Jazz Concert Announcement.  Nor does reality square with the Trumpian bluster that the Deal Maker can get America a better deal in the foreseeable future.  At the risk of redundancy, in order to get a deal an agent must be at the table.  The question then becomes does the administration even want a seat at that table?

One theme among the pundits is that the current administration sees international agreements in zero sum terms, that is, every multi-national treaty or protocol is a link in the shackles restraining American sovereignty.  The problem, of course, is that each American retreat also comes with an obverse side — leadership abhors a vacuum, and others will step in where the US fears to tread.  Isolationism brings with it the specter of Splendid Exile.

A related theme is a theory of executive management in which Dear Leader sits atop the pyramid, in a well appointed corner office, issuing edicts which others are expected to follow without dissent.  This, however, is also a formula for a toxic corporate culture:

“Companies hire people because the managers can’t do everything themselves. It stands to reason that we should trust the people we hire to do their jobs, but some fearful managers can’t give up control.

They have to make all the decisions and call all the shots. A rule-driven, command-and-control culture is a toxic culture that will drive talented people away.”  [Forbes]

It will also drive away those who want to cooperate in major projects and programs — like environmental improvement.  Applying a “toxic” corporate culture model to the management of major governmental projects and processes is counterproductive.

It is equally toxic to consider that an increase in cooperative engagements means that gains by some necessarily means someone must lose.  It’s easy to see the world in terms of Winners and Losers, but this perspective excludes the possibility that if everyone gives a little then the prospects for mutual gains are improved.  This philosophy also denigrates the idea that improvement is always possible, holding instead that destruction is the best option.  One of the first regional trade agreements in the modern era, NAFTA, has problems (which may be feeding discontent with other agreements), however, this doesn’t mean that the benefits of freer movement of goods and capital need to be obliterated in the interests of “removing the shackles.”

The idea that the US can effectively lead by abandoning the field (or the bargaining table) is inherently false, as are the promises extrapolated therefrom.

The second law of bargaining says “never negotiate with yourself.”  Pronouncements concerning unilateral actions — as being preferable to mutually agreed upon items of interest — rarely lead to positive outcomes. It’s essentially bargaining with yourself.  For example,  the United States under the current terms of the Paris Accord can set its own carbon emission standards and goals.  Operating in mutual terms, the US could modify its goals and simply inform global partners of the changes and rationale.  The isolationist response assumes that xenophobia is a positive feature of national policy, and no other nation is deserving of notice of our intentions and reasoning.  This is tantamount to that isolated corporate executive in the corner office who sees no benefit in having his or her board actually question directives.

When other voices are ignored those directives and policies coming from the top floor are more likely to be the produce of interior monologues than of well crafted discussion, in other words the CEO/President is negotiating with himself.

Violating the first two essential rules of negotiation aren’t exactly the way to cement one’s reputation as a deal maker.

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Filed under ecology, Economy, Politics

Republican Myths and Legends

Good morning, another day another 24 hours of trumpster fires, lit by the tinder of well worn Republican mythology.

The Economy Works In Reverse.  Let’s guess that the whopping increase in defense spending will be covered by an increase in “economic growth.”  I doubt very seriously that my utility company would be much impressed by my assertion that increases in my power bill will be paid for by my getting up an hour and a half earlier every morning.  The argument would go “because I get up earlier I will be more productive, and if I am more productive then my earnings will increase. If my earnings increase then I will have more money to spend, and therefore my bills will ‘pay themselves.'”  Gee, perhaps if I aroused myself two hours earlier I could trade my vehicle in for a Cadillac CTS-V? Somehow, I don’t think my banker will be sufficiently enamored of my presentation to hand over the money.

There’s another facet of the administration’s fantasy economy which we need to discuss, at least two ways in which while waving its firearms it shoots itself in the foot.  Round one into the metatarsal — anti-immigration rhetoric and action.  Before theorizing about economic growth, the GOP might want to look at economic activity in our major urban centers, which depend in no small part on their immigrant communities.

Round two into the navicular bone comes compliments of heavy budget cuts. For the millionth time in this blog, there’s a formula for the gross domestic product.  Once more C+I+G + (Ex-IM) = GDP.  That G stands for government spending, and not just defense spending.  Want to expand the consumer economy? Then remember that every dollar spent on the SNAP program almost doubles in economic activity.

Round three into the phalanges: Seek to limit increases in the minimum wage.  Evidently it has not occurred to GOP economists that people do not spend money they do not have.  They can accumulate debt (which Wall Street is only too happy to securitize) up to a point, but the point is quickly reached. Delinquency happens, leading to defaults, leading to the unraveling of all those beautifully packaged tranches of securities.  We know what happened last time.

Round four into the cuboid, continue the progress of income inequality, the trends of which promote the accumulation of wealth into fewer hands, creating a surplus to be used not for corporate promotion and expansion but for the collection and trading of risk diversion securities or for corporate buy-backs which do NOT generate economic growth in the overall economy but bolster the financial sector.  Have I been railing about Financialism before? Constantly?

Four shots into the foot and we’re not walking, much less running, anywhere towards overall economic prosperity.  It’s the return of the old, stale, Trickle Down Supply Side Hoax nurtured and pampered by right wing think tanks and GOP orthodoxy.

And now, we should return to a discussion of why we need an independent commission to investigate the political and economic ties of the Trump-Bannon regime to the Russian government. We might also want to avoid the trap of calling for a special prosecutor, which would only have the authority to investigate outright crimes, when what we need immediately is an investigation into the possibly profound security risks in the executive branch.  But that’s a discussion for another post.

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Filed under conservatism, Economy, financial regulation, Politics, Republicans

The Warning Flags are Up: Trumpsterism and Corporate Debt

Corporate Debt Chart 2016

No, you don’t need to get out the magnifier to get the gist of this chart, but if you’d like to see the original click here.  Simply consider the trajectory of the blue line indicating the level of non-financial corporate business debt – as in UP.  Nevadans may want to gaze at this with some caution, because (to borrow and vandalize a fine old saying) the last time the national economy caught a cold, Nevada got pneumonia.  We can, and should, look at the comparison in the trends of corporate debt, government debt, and household debt:

Corporate Government Debt Levels

In the last five years government debt has dropped precipitously, (don’t show this chart to Uncle Fustian at your holiday dinner it’s likely to jolt his fact free universe) household debt has declined, and “business debt” is way up.  There are all manner of reasons for an increase in corporate debt, and some of them are very productive – such as expansion of plants and factories – others not so much.  We’re in “maybe not so much” territory.

Part of the pile of current corporate debt is the result of stock buy backs, a boomlet of sorts in recent times:

“Over the first six months of the year (2016) S&P 500 companies paid out 112 percent of their earnings in the form of either dividends or share buybacks. That, Damodaran argues, is the kind of figure you might expect to see when a recession had suddenly crimped company cashflows, not during a very long-running, if tepid, expansion.

The last time companies were paying out this much more than they are taking in was in 2008, when the financial crisis hammered revenues faster than companies could cut buybacks and dividends.”

… Certainly the very idea of buybacks has come under increasing scrutiny. While a share buyback improves per share earnings performance, it is a piece of financial engineering which increases leverage but does nothing to improve a company’s product offerings or market position, much less its long-term prospects. Indeed, the vogue for buybacks has happened at the same time as an otherwise puzzling lack of corporate investment, especially given that corporate profit margins are still high by historic standards.” [Time] (emphasis added)

There’s nothing too terribly “puzzling” about this state of affairs.   Why would companies indulge in “financial engineering” while profits are high?  Could it be that the “wealth” of the company is financially anchored rather than structurally? Consider this Household debt service as a percentage of disposable personal income  chart from FRED:

Household Debt trends 2016

Superficially, we could argue that the American consumer has done some belt tightening since the Recession of 2007-08 and there’s less money being paid out in debt service from the family coffers – but, we’d also have to be realistic and see that the debt levels are already too high.

Yes, household debt levels relative to the GDP have been declining, but it remains higher than it’s been for almost all of post-war history, and by post-war we mean World War II. [Slate]  

What else could be depressing loans? Other loans – such as Student Debts. Again, we have a picture of that from the Federal Reserve:

Student Loan Trends FRED

What we see here is an increase in student loans owned and securitized, which are outstanding: from Q1 2006 at $480.9670 to Q3 2016 at $1,396.3355.  Student loan indebtedness now exceeds credit card debt, auto loans, and other non-mortgage debt. [Slate] What’s happening here?  Perhaps those corporate profits aren’t predicated on the increasing number of consumers flocking to their doors?  Perhaps not when consumers have an annual household credit card debt of $16,000; a $27,000 average of auto loans; and $169,000 in mortgages? [Slate]

Then, there’s the matter of real household income in the US.  In the first quarter of 1999 it hit a high of $57,909 and hasn’t been back since. The current figure is $56,516. [FRED]   Little wonder there’s some “financial engineering” going on in the corporate world.   That “financial engineering” especially in terms of stock buybacks simply doesn’t make any long term sense:

“No matter how low-interest rates get, it is hard to justify the raising of corporate debt to purchase outstanding stock. Longer-term debt should be used for longer-term needs, e.g. capital expenditures. But from a macroeconomic view, raising stock prices does not figure in promoting economic growth or general well-being—it is simply financial engineering serving the interest of only shareholders and management. No new jobs are created and no new capital investment is undertaken in a world of corporate buybacks. Investors are simply bribed with their own money.” [FinSen] (emphasis added)

So, where does Trumpsterism come into play?  First, let’s assume, given the preliminary appointments to Commerce and Treasury, that the emphasis in this administration won’t be on reducing student debt and regulating the securitization of corporate debt.  Let’s also assume that a Corporate Tax Holiday in the form of “re-patriated” corporate earnings will be a feature.  How is that likely to be spent?

The Financial Times reports: “Much of the debt sold by companies in recent years has been used to buy back their own shares, pay out higher dividends or finance big mergers and acquisitions. While these buybacks funded by cheap borrowing have boosted earnings, a missing ingredient has been spending on investment to build their businesses.”

Why not? If the consumers (read the other 99% of the US population) aren’t clamoring to spend more (read creating demand) then the “financial engineers” will boost themselves by … buybacks, higher dividends, and mergers and acquisitions.  Or…

“A tax holiday that prompts repatriation of cash held overseas by global US companies, a move investors expect during the Trump administration, could help boost investment. Mr Milligan says it is unclear whether companies will plough any repatriated profits into capital investment or simply boost buybacks.“Repatriation could flow through fairly quickly and lead to a noticeable rise in share buybacks.” [FinT]

In less diplomatic terms – here we go again.  Corporations, getting tax breaks and subsidies, faced with a market in which there is declining or stagnating consumer capacity, find ways to engineer their financial statements.  Nevada has seen this movie before, and it didn’t end well for us.

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Filed under Economy, financial regulation, Nevada economy

The Republican Money Pits

money whirlpool So, how many ways can the House GOP find to waste taxpayer money? Let’s start with the House Oversight Committee which wasn’t pleased with the FBI’s conclusions on their manufactured outrage narrative concerning Secretary Clinton’s emails – now they want to haul the FBI director in for a grilling. [TPM]  However, this is only the latest.

Meanwhile, it’s estimated by the Department of Agriculture that 15.3 million children in the United States under the age of 18 live in homes where they don’t have consist access to enough nutritious food to sustain a health life. [FA.org]

It was reported yesterday that House leadership was meeting to discuss whether to launch a formal investigation into the sit-in staged by House Democrats over the failure of the leadership to bring a gun safety bill to the House floor. [TPM]

Meanwhile,  every day 7 children in the United States die in gun violence, and another 41 survive being shot in assaults (31), suicide attempts (1), and accidental shootings (8). [BC.org]

Representative Marsha Blackburn (R-TN) continues to pump for more investigations into … Planned Parenthood. Who would have guessed? Not that the committee hasn’t soaked up some 80% of the supplemental funds for the House Administration Committee, that would be $790,000.  [Esq]

Meanwhile,  the CDC reports that between 2011-2014 the prevalence of children with obesity aged 2-5 yrs. was 8.9%, 17.5% among children between the ages of 6 and 11; and, 20.5% among adolescents aged 12 to 19. [CDC pdf]

The House Republicans racked up approximately $7,000,000 in expenses for its interminable Benghazi hearings.  [BBN]  The State Department spent about $14,000,000 trying to process and present information requested by the Committee, the Pentagon reported about $2 million in expenses associated with the “investigations.”

Meanwhile,  when the FAST Act expires at the end of FY 2020, the Congressional Budget Office projects the average annual shortfall to the federal Highway Trust Fund will grow to $16 billion, [TRIP scrib] and we have a backlog of pavement projects of about $59 billion, and another $30 billion needed to improve and maintain bridges.  This isn’t even county the $100 billion we need for highway system expansion and enhancement. [TRIP scrib]

Is it not reasonable to conclude that the House GOP is far more interested in political scandal mongering than it is in … investigating why 15.3 million children aren’t getting enough nutritious food to eat? Or, why 20% of our teenagers are suffering the health effects of obesity? Or, why we’re losing 7 children every day to gun violence?  Or, why we’re only spending 61% of what we should be allocating to the repair and maintenance of our national highway system?

Is there to be no investigation into why there isn’t adequate affordable housing in one single county in the entire United States? [Fortune]  Why aren’t members of the Congressional leadership interested in hearing why the gender pay gap is the widest for blue collar women? [Detroit News]

Instead, the House GOP seems entangled in the past, engaged in corybantic fits of furor over all but imaginary “threats” while veritably ignoring the very real economic, health, educational, infrastructure, and commercial interests of this country.  A person can reside in the past only so long as the future doesn’t catch up.

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Filed under Gun Issues, Health Care, Infrastructure, Republicans, youth

The Media Was Warned: Trump Campaign is one giant Gish Gallop

Gish Gallop Trump

“Trump’s incessant barrage of outrageous pronouncements is reminiscent of the Gish Gallop strategy of argumentation: keeping your opponent on their heels and unable to debate effectively by throwing out so many false and misleading statements that it becomes too difficult to address any single one of them or make your own case. It’s a common creationist tactic, and a common tool of hucksters and swindlers everywhere.” [Washington Monthly, November 22, 2015

Three ways to spot a swindle:

Number One:  High pressure sales pitch.  Those who would have you part with the contents of your wallet will tell you that “time is short!” “Act now.” “This is a limited time offer!”  Hogwash. In order for me to pull off a swindle on you it is necessary for you to feel the “urgency” of my pitch.  If I were trying to pitch an investment swindle, I’d tell you that the economy is in terrible shape (it isn’t) and if you don’t act now to protect your retirement fund (which is probably fairly safe where it is) you’ll be in Dire, I say DIRE straits down the line. Notice I didn’t tell you where that line was drawn.

Trump’s pitch, and it’s more Pitch than a stump speech, is that voting for him is necessary to Save The Country; Yes, Save It Immediately – from what?  The leading economic indicators forecast a modest growth rate in the early part of 2016. [MarketWatch]

What part of this chart indicates to any sentient person that there’s a horrible unemployment rate problem in this country?

Unemployment chart trend The President noticed the Gish Gallop from Trump quarters in a recent speech:

“But he largely defended his record and sought to tell voters about the stakes in this November’s election.

Improved economic numbers don’t mean “folks aren’t struggling in some circumstances, and one of the things I’ve emphasized is that there’s some long-term trends in the economy we have to tackle,” Obama said in the PBS town hall. “So we’re going to have to make sure we make some good decisions going forward.”

“The notion that somehow America is in decline is just not borne out by the facts,” Obama said. “But it resonates. It resonate with aggrieved people who are voting in big numbers for Donald Trump.” [NBC]

No, we’re not “in decline,” and NO we don’t need to make America great again, it’s already the strongest nation on this planet.  But that isn’t going to impress the devotees of the Gish Galloping Trump; they are listening for the second element of the perfect swindle pitch.

Number Two: It’s too good to be true.  Again, if I were to launch a swindle in your direction I’d promise outcomes like a 25% increase in your investment, in some ridiculously short amount of time.  And, should you hesitate I’d shower you with misinformation, disinformation, and pure south bound product of a north bound bull, all the time pointing to the Bright Blue Sky (to which MY bank account is headed if I can only get you to play along).

If, IF, you will invest with me all your troubles will be long ago and far away.  I’ll “build a wall,” I’ll “get a better deal,” I’ll “get you a better job,” I’ll “fight the Chinese currency manipulators,” I’ll “turn the water on.”…..

This will work, if you don’t do two things: Check my facts, and do some Critical Thinking.  If I can get you to avoid these two activities, then I can effectively initiate the third element of a good swindle pitch.

Number Three: Downplay the risks.  Galloping right along… Here’s Mr. Trump with a classic example: “We have been too afraid to protect and advance American interests and to challenge China to live up to its obligations. We need smart negotiators who will serve the interests of American workers – not Wall Street insiders that want to move U.S. manufacturing and investment offshore.”

Unfortunately, for those who know how to use the Google, downplaying the risk of getting into a trade kerfuffle with the Chinese is a matter of taking on the wrong target for the wrong reasons.  

The Chinese “currency manipulation” charge is a set piece of conservative attacks on our trade policy.  First, let’s agree that setting nominal interest rates is something that central banks DO.  The U.S. Federal Reserve sets its sites on the federal funds rate; the European Central Bank focuses on the marginal lending facility, and the Chinese central bank fixed the yuan-US dollar rate along with a “basket” of other currencies. [Wall St Journal]  Message to Mr. Trump: “Currency devaluation of revaluation is a common exercise of sovereign monetary policy.”

With this understood we can get down into the weeds, and again look closely at what the Wall Street Journal had to say about focusing on the “currency manipulating:”

“Movements in the nominal yuan exchange rate have almost no long-term impact on global flows of exports and imports or on broader considerations such as average wages. The exchange rate that matters for trade flows is the real exchange rate, i.e., the nominal exchange rate adjusted for local-currency prices in both countries.

The real exchange rate, in turn, reflects the deep forces of comparative advantage such as technology and endowments of labor and capital. These forces drive trade regardless of monetary policy.”

[…] Today more companies operate in global supply networks—in which trade and investment link different stages of production across different countries. Because these networked companies incur both revenues and costs in many currencies, their trade competitiveness tends to vary little with the movement of any one currency.” [emphasis added]

Thus, NO, Mr. Trump, waving the “Currency Manipulation” banner like some kind of red flag obscuring the more complex nature of international trade forces and trends, doesn’t come anywhere near explaining the issues involved in international trade and the related currency valuations thereof.  What Mr. Trump is saying is a rather vapid “I’ll get a better deal.” Without, obviously, introducing any of the real factors associated with international trade policy.  However, in Trump’s campaign, waving this banner is just one more piece of the continuing Gish Gallop.

Before the third element of the perfect swindle pitch is successful, it’s time to remind ourselves of H.L. Mencken’s famous line:”

“There is always an easy solution to every problem – neat, plausible, and wrong.”

It isn’t like the Trump Gish Gallop hasn’t been spotted already – Blue Virginia caught it back in March 2016, the Democratic Underground wrote of it in January 2016 – proposing to call it the “Trump Trot,” and the media was warned, as noted previously, by the Washington Monthly in November 2015.

Gish Gallop 2

Those still confused by the combination of Gish Gallop and Word Salad emanating from the Trump Campaign may note with some trepidation that Mr. Trump can lie faster than the fact-checkers can keep up.  Prevaricate he will, as he pours forth his high pressure sales pitch, promising that which is too good to be true, and downplaying the risks of his preposterous proposals.

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Filed under Economy, Nevada politics, Obama, Politics

Distracted to Distraction?

carnival barker What are there? Some 412 days until the next general election, and the broadcast media is behaving like that is going to happen any moment? Perhaps we might call the campaign thus far, as presented by the beltway media and associated punditry, “The Click Bait Campaign?”  There are as many explanations for why the campaign appearances and speeches by Democratic candidates (Clinton, Sanders, etc.) aren’t getting the press coverage garnered by the Republican Clown Car as there are Punditatti to express them.  But while the press-gangs muse about whether Secretary Clinton is seen as “reliable,” or if Senator Sanders is perceived as “electable,” of if candidate Fiorina is “crisp and effective”… or if candidate Trump is “serious”… we’re missing some issues that deserve far more attention than the National ADHD click bait coverage is giving us.  Here’s what I’m waiting to hear more about.

The national economy.  The candidate who can convince me that he or she understands the shape of the American economy is probably the one who will get my vote.  Surely someone can clarify and amplify the changes in the U.S. economy in the past forty years:

“Previously, income grew more or less in step with household wealth. From 1962 to 1966, a period of low inflation and robust economic growth, real private sector wages rose 27.5 percent while real net worth increased 23.6 percent, according to Bloomberg News calculations based on government data. In the five-year period ending in 1996, real net worth gained 15.6 percent while private wages grew 11.3 percent. More recently, the gap between household net worth and wage growth has widened. From 2001 to 2005, the value of household assets minus liabilities rose 16.6 percent after inflation. Private sector wages rose just 2.7 percent.” [Bloomberg 2006]

Thus we  have an hour-glass economy, [Salmon, Reuters] one in which the wealth is concentrated at the upper end of the scale, and more occupations continue fall into the low-income levels. [Salon]  Senator Sanders has made continuous reference to the Income Inequality Gap, [Sanders] and Secretary Clinton has made this topic part of her repertoire on the campaign trail. [WSJ]

By February 2015 someone on the Republican side of the aisle noticed the Income Inequality gap (hour glass economy) [NYT] and Senator Marco Rubio attempted to slot into the issue by suggesting expanding the Child Tax Credit and cutting the tax brackets from seven to two (15% and 35%) unfortunately there’s no suggestion as to how to pay for this. Nor does he specify how to pay for expanding tax credits to childless adults; put simply, his arithmetic doesn’t work.  [NYT]  And, then there’s the rather tired Republican “promise” to create “flex funds” – another way of expressing the block grant anti-poverty programs proposal which lends itself nicely to eventual (and predictable) cuts to the grants by Congress.  In short, there’s nothing much new here: Credit Card Conservatism, and cuts to anti-poverty programs.  Meanwhile, we have the Limping Middle Class.

Perhaps we need a What To Watch For List?

  • Which candidates are speaking of a taxation system which rewards work and not just wealth?
  • Which candidates are addressing the decline in middle class income jobs in this country?
  • Which candidates are advocating equal pay for equal work? And/or an increase in funding for child care?
  • Which candidates are proposing an increase in the federal minimum wage?
  • Which candidates are suggesting we need to address the restoration of the manufacturing sector in this country?
  • Which candidates are supportive of workers’ rights to organize and form unions to bring more balance with multi-national corporations?
  • Which candidates are advocating funding for the improvement and maintenance of our national infrastructure?

It may be difficult to listen for these points since the media seems intent on speculating about the “electoral” effect of what candidates are proposing instead of explaining or clarifying the implications of their policy positions.  Meanwhile the media focuses on “Abortion!” or the “Planned Parenthood” hoax videos – the “Email,” the “Islamists!” the Whatever Will Get The Clicks of the Day.  A little over 412 days from now Americans will vote, and we’ll probably cast ballots based on the issue that is and remains the top American concern: It’s the Economy Stupid. Or, It’s the Stupid Economy.

Recommended: Robert Reich, “The Limping Middle Class,” New York Times, 9/03/11.  Danny Vinik, “Marco Rubio…”, New Republic, 1/14/15. Brendan Nyham, “Why Republicans are suddenly talking about economic inequality,” New York Times, 2/13/15.  Andrew Leonard, “The Hour Glass Economy,” Salon, 9/13/15.  Future of Jobs, “In an Hourglass Economy,” transcript, Marketplace.org, 8/2011. Bernard Starr, “Corporations Plan for a Post Middle Class America,” Business, Huffington Post, 4/6/12.  Mollie Reilly, “Thomas Piketty calls out Republican hypocrisy on income inequality,” Huffington Post, 3/11/15.

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Filed under Economy, elections

Our Thirty Five Years of Mythological Economics

trickle down economics

The only problem with this cartoon version of  Trickle Down economics is that the bird at the top should be getting larger as the years extend.  Likewise, the birds in the middle range should be getting more stressed as they attempt to stay on their middle income perches.  It’s a nice touch that the background is in blue, suggesting we’re about to be washed up in a tide which only serves those who are perched high enough to avoid drowning.

Meanwhile, the  best response to the sentence “A rising tide lifts all boats,” is “Where Are The Customers’ Yachts?”  For those who have not yet read this 75 year old classic – it’s still available, and still germane to American economics.  It was true then, and true now.  The problem is that the financial sector has hijacked significant portions of our economic thinking, in ways that have left us prone to being bedazzled by BS.   Thus, we’d prefer to rail against the Wall Street Casino rather than believe we’ve been following some very foolish advice offered, in turn, by some very foolish, and very self serving,  people. And, there are people challenging the BS rendition of American capitalism.

Those who missed Mrs. Clinton’s speech at the New School (NYC) on our economic challenges can view the C-SPAN broadcast here. (55 minutes)

The initial response from journalists was “Hillary’s bashing Wall Street.” [Reuters] This makes for a convenient headline – Beltway Shorthand for her support for regulation of Wall Street investment bankers’ transactions – however, it doesn’t come close to adequately summarizing what both candidates Clinton and Sanders have been saying about financialism in American economics. The Beltway Media is missing the point, perhaps because it doesn’t fit neatly into a template predetermined by editorial policy, or a simplistic code for easy lead paragraphs.

The point is that we have had 35 years of what President George H.W. Bush called Voodoo Economics (although bless his heart he promoted it like any good Republican), and it doesn’t work in the real world. Why? Because the mythology violates the simple principles of American capitalism:

”So here’s an idea worth spreading. In a capitalist economy, the true job creators are consumers, the middle class. And taxing the rich to make investments that grow the middle class is the single smartest thing we can do for the middle class, the poor and the rich.” [LAT]

With this basis in mind, let’s tackle some of the mythology and deal with a bit more economic reality.  We might as well start with the “job creators” sound bite.

#Job transference is not necessarily job creation.  Yes, Home Depot has about 340,000 employees. [USAT]  However, in order to achieve those numbers, how many local hardware stores went out of business, or had to shave employment numbers, because they were hard pressed to compete with the Big Box Stores?  Of the 340,000 Home Depot employees only 21,000 were salaried, the rest were working on a temporary basis or for hourly wages.  The average hourly wages for employees in the retail sector are $14.36 per hour. [Monster] Further, we know that about 1/3rd of all retail sector employees are working part time. If we take a closer look we find that the median wages for retail employees (full time) in building materials and garden equipment were about $12.21 per hour. [BLS]

So, we have to ask ourselves, if a Big Box Store moves in an puts a local supermarket or hardware store out of business, does that translate into “job creation” or simply the transference of personnel from one job into another – possibly lower paying – job?

#Low wages make stocks attractive and the overall economy weaker.    The largest fast food chain in the U.S. has approximately 440,000 employees. [USAT]  And, what do food service preparation employees earn?  About $19,300 per year, or approximately $9.28 per hour. [BLS]  The average weekly hours for all employees are currently estimated as 25.8 per week, and for nonsupervisory employees at about 24.6 hours per week. [BLS] Significantly, before we fall into the hype-vat argument about the “kid’s first job,” only about 30% of fast food workers are teenagers, another 30% are between the ages of 20 and 24, and the remaining 40% are 25 years of age and older. [CEPR]

From the shareholder perspective it makes perfect sense to keep wages low, employee turnover high, and continue to appeal to those who have a “quarterly value” vision of America.   From the perspective of other business owners in the area, those low wages translate to minimal disposable income, which means fewer customers for their products and services.  In short, the yacht at the top is sailing along while the little boats bounce around the rocks.

#Wealth created from indebtedness doesn’t trickle anywhere.  Median household earnings are slowly, very slowly, emerging from the last Recession.

real median household income If we find more jobs transferred from, say, smaller local firms to larger national ones, or more jobs are being created in sectors like food and beverage service with notoriously low wages, then we might expect to find household incurring debts to maintain a middle income life style.

Consumer indebtedness, which was down to 4.88% of disposable income in the fourth quarter of 2012, is now back up to 5.30%. [Fed]  There are a couple of ways to see this, first as an indication that people are feeling better about assuming credit card or personal debt because their incomes are more stable, or secondly that while they’re feeling a bit better, the credit card has become a way to keep afloat.  However, those debts are the basis for altogether too much of what constitutes Wall Street wealth accumulation.

Household debt Whatever amounts of these debts are securitized means that they’ve gone into the Wall Street Casino to be used as the basis for hybrid financial products.  So, what’s been happening to the securitization of auto loans?  It’s “coming back strong” but not at “pre-crisis levels.” Translation: It’s not a bubble. [FRB ATL]  It’s lovely to know the Federal Reserve doesn’t consider the securitization of auto loans at the Bubble Level, but it’s also a bit worrisome to note that what is gained from that securitization isn’t trickling down anywhere near the automobile product consumer.

Nor is there much happy news about securitization and the student loan business.  ZeroHedge offers this gloomy prospect:

“So just as we have been warning about for sometime now: an underestimation of the impact of deferral and forbearance and weakness in the job market is likely to trigger defaults on billions in student loans and because these loans comprise the collateral pool backing ABS sold to investors, the ripple effect is magnified and we wonder if the July 2007 moment for the student loan-backed ABS market may come sooner rather than later.”

The ‘wealth’ produced on Wall Street is based on the loan the students took out to pay for educational expenses, securitized, tranched, sliced, diced, and repackaged for the ‘benefit’ of the investors – those who may very well get burned in this round of Securitization Bingo.

Evidently lost on the Sultans of Securitization is the simple fact that an asset based security requires someone to be able to afford the purchase of educational services or automobiles, or the other stuff on the credit card – the original assets.

It’s one thing to announce that “middle class incomes” are back where they were in 1995 – and another thing entirely to notice that the costs of college tuition are up 61% since ‘95; that home prices are up 13%; that the price of gasoline is up 94%; and that Big Mac is up 28%. [moneyCNN] These numbers aren’t the sort to make anyone comfortable who’s taking out the student loan or buying the house. Eventually, even Wall Street may have to take notice of the fact that no matter how much revenue it can generate in terms of ABS and the hybrids related thereto, if American consumers can’t generate sales – and jobs – then investors are caught trying to ride the bubbles.  Bubbles always pop, that’s why they’re bubbles.

The ‘wealth’ from the sales, and hedges, and bets, on asset based securities, again, trickles down nowhere near the average home owner or car buyer.  However, no one is arguing that ABSs don’t have value.  They are a way to spread the risk around, and that’s positive.  They are negative when we see them mask intrinsic cracks in American capitalism, and negative when we see that the revenue generated never quite manages to trickle back down to the local economies perhaps in the form  of better roads, better schools, better parks, better libraries, and better public services like broadband.

Candidates Clinton and Sanders aren’t “bashing Wall Street,” they are simply trying to point out that the lurch from one bubble to the next isn’t a productive way to run an economy, and lunging from one volatile market to the next isn’t the way to insure that the capacity of the average consumer to purchase the assets on which the securities are based remains steady and profitable for everyone.  If Wall Street can’t divest itself of its 35 Year Investment in imaginary economics, and can’t restrain itself from short term financialist thinking, then someone has to be the adult in the room.  The adult is called reasonable regulation, and that’s all they are asking.

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Cost Benefit Analysis Scramble

Cost Benefit Analysis

One of the dark clouds on the week that was in the U.S. Supreme Court was the decision in Michigan v. the Environmental Protection Agency, one portion of which reads:

“Our reasoning so far establishes that it was unreasonable for EPA to read §7412(n)(1)(A) to mean that cost is irrelevant to the initial decision to regulate power plants. The Agency must consider cost—including, most importantly, cost of compliance—before deciding whether regulation is appropriate and necessary,…”

Important Distinctions

First, let’s differentiate between a CBA (a cost benefit analysis) and a Cost Effectiveness Analysis (CEA).   There are two important functions of a CBA: (1) To determine if an investment or a decision is justifiable or feasible. (2) To provide a way to compare and contrast alternative projects or proposals. Additionally, “In CBA, benefits and costs are expressed in monetary terms, and are adjusted for the time value of money, so that all flows of benefits and flows of project costs over time (which tend to occur at different points in time) are expressed on a common basis in terms of their “net present value.”

The most common use of the CEA is found in the health sector.  In a CEA  the outcome is expressed as a ratio.  The denominator is the quantified gain, while the numerator is the cost associated with the gains.  For example, we know that sterilized surgical theaters yield quantifiable positive results for patients, therefore the costs associated with sterilization far outweigh the costs of sanitizing the facilities.

Another analysis which gets folded into the mixture is the analysis of the Social Return on Investment, or abbreviated SROI.  There are four elements considered: Inputs (investments), Outputs (products), Outcomes (benefits), and Impact (difference between the policy or practice change and what would have happened if nothing had been done.) [Investopedia]

There are other formats for analysis:  Cost/utility analysis; Risk/benefit analysis; and the Economic impact/analysis.  The definitions and descriptions of these forms are readily available from online sources.

The problem is that the CBA isn’t a static form of analysis.  Just as each problem in both the public and private sector has unique factors, the CBA may take on some elements from other formats – the CEA, the SROI, and the others.  Often the term “CBA” is used with great precision, i.e. it returns a study yielding a net present value.  There are other examples illustrating how the term CBA in common parlance and news reporting is an admixture of individual studies speaking to the CEA ratios, or the SROI elements.

As in so many other unfortunate instances, the cost/benefit analysis has come to mean what the partisan advocates want it to mean. One of the pitfalls involved in being a good consumer of news and political rhetoric is that the listener is required to sort out precisely what analysis is being described or advocated. The most common source of confusion comes when a CBA is conflated with an Economic Impact Study:

“One industry’s outputs are inputs to other industries, and vice versa. Input-output analysis measures all of the linkages and flows within the matrix (the economy). Based on these linkages and flows, the cumulative effect of any given stimulus (or change) can be derived. This is how multipliers are calculated.” [Decision Analyst Ser]

A public sector example might be that of a decision to build a public broadband access system.  This would trigger spending for infrastructure necessities for the system, which in turn increases employee and contractor income, causing (in sequence) more disposable spending for the local (or national) economy.  If we study the “linkages and flows” as the the project impacts the community we can calculate the cumulative “economic impact.”

So, when politicians speak to the necessity of doing cost/benefit analyses on government regulation it’s important to pin them down on precisely what form of analysis they are advocating, and how the form of the analysis can influence the reported results.

Good news Bad news

The bad news from the Michigan v. EPA  decision is that the EPA is required to perform a cost benefit analysis on emission regulations promoted by the EPA.  The slightly better news is that the decision doesn’t do what corporate radicals want – dismantle the EPA. Nor does the decision declare that the EPA may not issue rules on carbon or other pollutant emissions, granted that it does constitute another shackle on the Agency’s attempt to clear the air.

One way to support the efforts of the EPA to enforce the provisions of the Clean Air and Clean Water Acts might be be advocate for more, not less, study – studies which incorporate the CEA elements (health benefits included) and SROI quadrants which incorporate social benefits.

The argument that government regulations should hinge upon the notion that private sector operations should agree that the regulations are “not too expensive,” is a narrow, corporatist, perspective, and one which would all but insure no regulation of exploiters and polluters.  A better approach is to take into consideration the cumulative economic impact of regulations and the social returns we can make on our national investments.

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Filed under ecology, Economy

Sinking the Vasa: A Message for Global Corporations

Vasa 1

The construction of the Vasa took almost two and a half years; her hull built of more than 1,000 oak trees.  She carried 64 bronze cannon, and was to sail with masts over 50 meters high. She was the pride of the Swedish Fleet.  King King Gustav II Adolph was certain she would not only be a tangible reminder of Swedish military power, but a message to other 17th century monarchs of the potential futility of assaulting the Swedish navy.   There may be some modern comparisons, albeit somewhat tenuous, to King Gustav II Adolph and his plans.

79 year old Joseph Sepp Blatter recently won the FIFA election and will head the organization for another four years.  He has crafted a corporate alliance to insure his power, and maintained his control in a manner reminiscent of a feudalism which predates King Gustav II Adolph.   This, in the face of criminal charges against some of his top lieutenants. This, in the face of serious threats to create a new Thirty Years War and break the hold of FIFA on world soccer competition. [DailyMail]

Blatter’s reaction to the possible constriction of his power? He’s a victim, however:

“Between 2010 and 2013, half of FIFA’s 24-strong executive committee was accused of some form of corruption, five were forced to resign, and one was banned for life. In 1999, Blatter reassured the world about his soon-to-be-disgraced cabinet: “I can’t speak about everyone’s sense of morality but, for the 24 members of a committee I have the honor to direct, I can say they have all taken a sort of ethical oath.” [Slate]

By his lights his latest troubles are the result of American and British sour grapes.   There’s another contemporary example of a global mogul who cries “victim” when confronted.

In 2013 JP Morgan tried to spin the tale that it was a “victim” of government interference with the financial markets and therefore could not be held liable for the egregious mortgage/financial results of its actions during the Financial Collapse of 2007-2008.  It was a nice try, but the arguments weren’t constructed of anything so solid as the oaks which went into the construction of the Vasa hull. [Dealbook]   The whining continued into 2015.

CEO Jamie Dimon complained in January 2015 that “banks were under assault!”  A person might think Dimon considered himself analogous to the 1626 Polish-Lithuanian Commonwealth fighting off King Gustav II Adolph to secure the city of Danzig (Gdansk)?  However, there’s more and it brings on another whine. “It’s those lazy investors!” [C&L]

“You might think that the chairman and CEO of a major bank that had just pleaded guilty to a federal felony charge and has paid out more than $20 billion in legal settlements in recent years would show a little humility.  But then you wouldn’t be reckoning with Jamie Dimon, the head of JPMorgan Chase. At an investment conference in New York this week, Dimon lashed out at institutional investors who voted against his pay package and his dual role as the firm’s chairman and chief executive, and otherwise rejected management’s wishes on shareholder resolutions at the annual meeting May 19.” [LATimes]

Dimon’s craft was one of the survivors of the 2007-2008 debacle, Dick Fuld’s Lehman Brothers operation was one of the first casualties, but wait! it wasn’t their fault.  They ignored the 12-1 debt ratio, coming in closer to something like 40-1.  All it took was faulty economic modeling, excessive real estate exposure, over reliance on ratings, and an utter failure to manage their repos. [Bloomberg] One more we find one of the titans of industry and finance whinging as though they aren’t responsible for the systems they set in place.  No more so than King Gustav II Adolph could be blamed for the wreck of the Vasa?

When the King heard the Danes were constructing a ship with two gun decks, he changed the orders and specified the Vasa was to be similarly constructed.  That the original specifications were for a single enclosed gun deck was not taken into serious consideration.  One useless stadium here, another there – no matter.  One purchase of a highly questionable financial enterprise here, another there, no matter? One disregard of the 12-1 rule, so what could go wrong?

Indeed, what could go wrong when keel modifications were not taken into consideration, when no one at the time really knew how to calculate a ship’s stability, stiffness, and sailing characteristics?  Did anyone know the “value” of a hybrid financial product based on the price of a batch of derivatives in 2005?

There was a “lurch test” conducted on the Vasa before her launch, and the instability and ballast problems were noted.  The test consisted of having 30 men run from side to side amidship, and after three of these runs the ship was “rocking so violently it was feared it would heel over.” [FacUPedu pdf] How many more FIFA executives need to be indicted before that organization heels over?

All these ships, physical, financial, and entertaining,  were supposed to sail effortlessly in calm waters of their own choosing.

Vasa 2

The Vasa began her maiden voyage from the Skeppsgarden Shipyard on August 10, 1628; all 1210 tonnes of her, with her 38 ft. beam, her 16 ft. draft, and her 172 ft. height.  Yes, she was indeed top heavy, the ‘lurch test had illustrated that to all who witnessed it.  Hundreds, if not thousands came to see the flagship of the fleet take her first voyage.  The spectacle was not what was intended.

After she sailed about 1300 meters a light wind gust caused her to heel over on her side, the gun ports were open (to allow a salutary salvo to be fired) and water poured in.  The beautifully decorated, heavily armed, ship sank only 390 ft. from shore in waters about 32 ft. deep.

From both historic and modern inquests we know why she sank – there were “Ten Lessons Learned.”

There were excessive schedule pressures.  The scheduling pressures were exacerbated by changing needs, and operational characteristics were modified during the construction process.  There was a lack of technical specifications, compounded by a lack of a documented project plan.  Is any of this beginning to sound familiar?

There was excessive innovation, for example, no one in Sweden at the time had ever constructed a ship with two enclosed gun decks.  Worse still, there were secondary innovations added to accommodate the initial innovations, even though no one knew the implications of the initial ones.  And, there was the inevitable “requirement creep,” during the 2 1/2 years of construction;  we’d recognize this as “mission creep.”

There were no contemporary scientific methods for “calculating the center of gravity, the stiffness, and the resulting stability relationships of the Vasa.” We’d also recognize the creation of “financial products” the value of which couldn’t be determined at the outset being used as the “ballast” for subsequent iterations and innovations.  And, then there were two more items on the fail-list which we are obviously still dealing with today.

They ignored the obvious. The stability test was a failure – but that quite evidently didn’t deter the launch.  The second item is “possible mendacity,” or, “the results of the stability test were known to some but were not communicated to others.”  [FacUPedu pdf]

Imagine: a modern corporate leader.  A modern global corporate leader so anxious to “win,” to prosper, that in the interest of innovation caution is blown to the winds?  Imagine: a modern corporate leader who is so determined to “succeed” that the lack of specificity, the dearth of calculations, and the inappropriateness of methodology is dismissed? And, imagine a global corporate leader who either ignores or is never informed by the sycophantic warning signs that all is not well?  And so the beautiful Vasa sank.  She is now a museum piece.

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