Friday, August 21, 2015

Just About Says It All About America


Quotes of the Day

"Risk is what’s left over when you think you’ve thought of everything." - Carl Richards

“Socialism in general has a history of failure so blatant that only an intellectual could ignore or evade it.” - Thomas Sowell

Source: But What Does It Mean (which is worth a read too)


Risk is what’s left over when you think you’ve thought of everything.”
– Carl Richards.
- See more at: http://www.cobdencentre.org/2015/08/but-what-does-it-mean/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+org%2FXJzD+%28The+Cobden+Centre%29#sthash.zxDhIiZ8.dpuf
Risk is what’s left over when you think you’ve thought of everything.”
– Carl Richards.
- See more at: http://www.cobdencentre.org/2015/08/but-what-does-it-mean/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+org%2FXJzD+%28The+Cobden+Centre%29#sthash.zxDhIiZ8.dpuf

Why College Tuition is Out of Sight: The Federal Government

Why College Tuition is Out of Sight: The Federal Government, another excellent insight from John Goodman:
Our health care system and our system of higher education have a lot more in common than you might think. As I explained in a previous column at Forbes, in both systems a third-party payer pays a good portion of the bill, leaving consumers and producers with perverse incentives to take advantage of it. The financing of both systems is dysfunctional. There is much waste and inefficiency. And low-income families are the least well served.

Here is what I wrote two years ago:

We spend about twice as much as other developed countries as a fraction of national output. Yet our results are mediocre. Public and private spending is growing much faster than our income ? putting us on a course that is clearly unsustainable. It appears we are buying quantity instead of value. Outcomes vary wildly from state to state. And programs that target the poor seem to be backfiring instead.

I asked readers to guess whether I was writing about health care or higher education? I could have been writing about either.

Loyal readers already know that health care spending was proceeding moderately until the advent of Medicare and Medicaid. Amy Finkelstein showed that in the first ten years Medicare had no impact on the health of the elderly. And fifty years after the fact, we are still arguing about whether Medicaid affects the health of the poor. Yet this massive infusion of federal spending fueled health care inflation that has been barreling along ever since. The same thing appears to have happened in education. According to economist Richard Vedder, the explosion in college costs began about the same time as the cost explosion in health care ? with the Higher Education Act of 1965.

Vedder was the first economist to demonstrate that federal tuition loans were fueling spiraling tuition costs and his work was largely ignored. But a new study by economists at the Federal Reserve Bank of New York finds that Vedder was right all along. As summarized in the Wall Street Journal:

The New York Fed study found that for every new dollar a college receives in Direct Subsidized Loans, a school raises its price by 65 cents. For every dollar in Pell Grants, a college raises tuition by 55 cents. This is one reason tuition has outpaced inflation every year for decades, while the average borrower now finishes college owing more than $28,000.

Writing in The New York Times, Eduardo Porter says:

The United States shares two dubious distinctions. It has the most expensive higher education in the world: $26,000 a year, on average. And the college graduation rates of America’s young are growing at nearly the slowest pace in the industrial world, the third from the bottom among 30 nations tracked by the O.E.C.D.

What about helping students from low income families? Porter writes:

It’s not just that many colleges and universities are bleeding taxpayers. The government’s overall strategy to subsidize higher education is failing at its core task: providing less privileged Americans with a real shot at a college degree. Alarmingly, it is burdening low-income students with risks they cannot bear and steering them into low-quality educations...

Low-income students in the United States often end up with the short straw: no degree, no job and a bundle of debt that they must pay anyway.

In addition, middle income families who try to save for their children’s college expenses have a rude surprise. When the income tax law is combined with the typical rules for college aid, these families face a marginal tax rate in excess of 100 percent! That is, when they save an additional dollar they lose more than a dollar in higher taxes and reduced financial aid.

A study by Claudia Goldin of Harvard and Stephanie Riegg Cellini of George Washington University finds that for-profit schools that get federal subsidies charge, on the average, 78 percent more than for-profit institutions that are not eligible for aid. The price difference is almost identical to the value of the subsidy. (For-profits, by the way, get about one-quarter of all federal subsidies.)

Meanwhile, colleges and universities are doing just what hospitals do to capture more federal dollars. They are competing on amenities. Water parks, climbing walls, elaborate dorms and dining facilities – these are all part of the modern college experience – which is increasingly a social and recreational experience rather than an academic one.

So what’s the solution? Hillary Clinton has weighed in with a proposal, summarized in the Wall Street Journal:

[T]he Clinton plan aspires to convert loans into grants. The proposal would allow all borrowers to enroll in income-based repayment programs such as the federal Pay As You Earn, which caps loan payments at 10% of discretionary income and forgives the balance after 20 years—10 if you work in intentionally vague “public service” fields. This encourages students to earn less—and sends you, taxpayer, the billion-dollar bar tab....

To pay for it, Mrs. Clinton says she’ll close “tax loopholes and expenditures on the most fortunate.” This idea is getting a workout since it seems to be the way she’s paying for every other new spending proposal too.

My proposal for higher education is similar to what I’ve recommended for health care: a fixed sum voucher. (More details here.) I would also allow students to put future earnings up as collateral for college loans. For example, a lender might be entitled to 10 percent of post-degree earnings for a period of time. More details on that in a future post.

Why Was Social Security Designed Like A Ponzi Scheme?

Another excellent post from John Goodman, Why Was Social Security Designed Like A Ponzi Scheme?:
Have you ever wondered why we have a Social Security system?

For most of human history, people relied on families and extended families for security in old age. But as we moved into the 20th century, families became dispersed and increasingly unreliable. As a result, people turned to government to meet a need that was not easily met in the private market place.

But why is our system designed the way it is?

What rational person would choose a system that makes promises to pay workers benefits 45 years in the future without making any provision to save and invest the funds needed to pay those benefits? What rational person would devise a system that encourages people to believe they will get benefits 45 years in the future, knowing all along that the payment of benefits depends on future taxpayers — but without knowing what the fertility rate will look like a half century later and therefore without knowing how many future taxpayers there will be? In short, what rational person would devise an entire retirement system, using the same techniques that Bernie Madoff used to scam his investors?

The short answer is that no one would do that and to my knowledge no rational person ever did. That is, wherever leaders had discretion, wherever they were not compelled by the logic of democratic voting, they devised an entirely different system.

After World War II there were about 21 former British colonies, governed by individuals appointed by the crown. In these countries, the systems adopted were provident funds, in which workers were required to contribute, the funds were invested and the workers retirement benefits were dependent on worker contributions and market returns – much like the 401(k) system in our country.

The most notable of these was the Singapore system – which is probably the most successful social security system in the world. In fact, one in every six households in the country is a millionaire household. The second most successful system in the world is the Chilean system – which has been copied by a number of other countries in subsequent years, including (non-democratic) Hong Kong. Although Chile was never a British colony, its system was adopted under a dictatorship.

Something here is remarkably consistent. Up until the last decade or two of the 20th century, every democracy that established a social security system set up a pay-as-you-go system with no saving, no investment and no way to assure benefit payments in the future. Every non-democratic regime (I’m ignoring the communist countries here) set up a funded system – although it’s worth noting that after British rule ended, some of these did not always work out well when politicians discovered that provident funds could be looted.

What is it about democratic voting that creates pay-as-you-go social security? First, as we have already seen, it meets a need. Second, politicians can appear to meet the need without really paying for it. That means they can confer benefits on some without appearing to impose costs on others. This works because of a Public Choice principle: Information is costly, and because people who bear that cost and learn about what is going on cannot use that information to effectively change anything on their own, people tend to be rationally ignorant about what is really going on. Along the way, government can use its money to falsely advertise (pretending that there really are funds stashed away in “trust funds” in ways that would land a garden variety Wall Street fund manager in prison). It can also deny, ignore or try to minimize the fact that we have promised future retirees far more than any revenues we expect to collect.

Third, pay-as-you-go social security generates revenues in the early years that are much larger than the required payouts. This means that (like a chain letter), politicians can give retirees in the early years more than what was promised. They can also spend the extra revenue on other programs that confer benefits on their constituencies. The incentives to do these things seem to be irresistible. Politicians who don’t do them lose elections.

Finally, as more people are brought into the system, the taxpayer base expands. As the years go by, the beneficiary base also expands. This creates a “ratchet effect,” making it harder and harder for a future group of politicians to undo what has been done.

Why, then, do pay-as-you-go systems get privatized? Because at some point, countries realize they can’t pay for the promises they have made. This realization may be reinforced by foreign creditors. Once the realization filters down to voters, the political cost-benefit calculations begin to change. And once private accounts are established, a new type of ratchet effect takes over – as people become zealous defenders against government intrusions into their retirement savings.

Yet in recent years a counter-revolution has set in. Governments have seized, “temporally seized” or threatened to seize private pension funds in France, Ireland, Hungary, Poland, Cyprus, Russia, Argentina and other countries. In many cases the pensions are individual accounts, set up as an effort to create a funded alternative to pay-as-you-go social security. In fact, a 2011 report by the Adam Smith Institute, published in the Christian Science Monitor, notes that at least 11 countries have rolled back or abandoned efforts to privatize their retirement systems:
The most striking example is Hungary, where last month the government made the citizens an offer they could not refuse. They could either remit their individual retirement savings to the state, or lose the right to the basic state pension (but still have an obligation to pay contributions for it). In this extortionate way, the government wants to gain control over $14bn of individual retirement savings.

The Bulgarian government has come up with a similar idea. $300m of private early retirement savings was supposed to be transferred to the state pension scheme. The government gave way after trade unions protested and finally only about 20% of the original plans were implemented.

A slightly less drastic situation is developing in Poland. The government wants to transfer of 1/3 of future contributions from individual retirement accounts to the state-run social security system.

Presidents Who Exceeded Their Historical Reputations

I like Ivan Eland's work, and his latest, Presidents Who Exceeded Their Historical Reputations, was both surprising and educational, namely because I am not a fan of Jimmy Carter:
Two former presidents have recently been in the news for unfavorable reasons. Recent DNA testing showed that Republican Warren Harding, already believed to have had an extra-marital affair with at least one mistress, likely had a love child with another, perhaps confirming the second one’s tell-all book about their affair written in the 1920s after Harding had died in office. Another former president, Democrat Jimmy Carter, announced that he had cancer. What do these seemingly unrelated chief executives—in both time, party, and temperament—have in common? They were both significantly better presidents than the historical reputations they have been given.

In fact, these presidents may have been better than they themselves believed. Warren Harding famously admitted that he was unfit for the role of chief executive. In Jimmy Carter’s case, he has done little to try to improve the historical memory of his time in office, instead concentrating on many noteworthy humanitarian accomplishments during his post-presidency—perhaps an admission that things didn’t go so well while he was in the White House. These two men were too hard on themselves.

Both of these men did have their failures, which are often highlighted by historians, but also had forgotten accomplishments that greatly exceeded their disappointments. Harding is remembered for scandals, both sex and corruption, while in office, whereas Jimmy Carter is mainly remembered for stagflation—high inflation combined with slow economic growth.

Harding’s sex scandals had even less to do with his performance in office than those of Bill Clinton (Clinton’s perjury in a personal matter undermined the legal system, whether or not one believes it rose to the level of an impeachable offense). In the three corruption scandals during his administration, later publicized after he died, Harding had no involvement, and the culprit in one of them was not appointed by Harding. It is never good to have corruption in a presidential administration, but historians have been selective in forgetting significant corruption in some favored administrations—for example, they have let Harry Truman and Ronald Reagan off the hook for significant venal corruption for which the Harding administration was not excused. Also, historians focus on venal corruption—such as that of the Harding and Ulysses S. Grant administrations—at the expense of constitutional scandals, such as Ronald Reagan’s Iran-Contra and Richard Nixon’s Watergate, which have much more serious implications for the republic than a few officials benefiting excessively from public service.

Instead, Harding should be remembered for reestablishing what he called “normalcy” after Woodrow Wilson’s great fiasco—altering the balance of power in Europe by the U.S. entry into World War I, which ultimately led to World War II and the Cold War. After the war, Harding rejected U.S. entry into the League of Nations, which would have usurped Congress’s constitutional power to declare war and could have automatically involved the United States in many unnecessary overseas wars. Harding—and the war-exhausted American people—wanted to avoid future conflicts. So Harding reached the first international arms control agreement, the Washington Naval Treaty, which reduced the naval tonnage of the world’s largest naval powers. The treaty was used as a precedent for future arms control agreements that saved money and made war less likely. At home, Harding successfully dealt with a war-induced recession by greatly reducing government spending and allowing the economy to right itself naturally. Harding—and his successor Calvin Coolidge, who largely continued Harding’s peaceful polices abroad and fiscal conservatism at home—presided over one of the few times, since its origin in the 1850s, that the Republican Party has actually given the American people small government (the others being the one-term of Rutherford B. Hayes and perhaps the one term of Chester Arthur, both in the late 1800s).

Despite their difference in party, Jimmy Carter followed similar policies to Harding in returning the country to normalcy after the unpopular Vietnam War and Watergate scandal. Contrary to conventional wisdom, even among historians, Carter—not Reagan—was the first conservative president since the Harding/Coolidge era. Carter pioneered most of what Reagan would become famous for—deregulation of the economy and fiscal and monetary conservatism. Carter inherited stagflation from Nixon’s Vietnam War and profligate monetary policies to win re-election. In the end, Carter appointed one of the greatest heads of the Federal Reserve in American history—Paul Volcker—who austerely reduced the money supply, which ultimately dramatically lowered inflation and led to the prosperity of the 1980s, for which Reagan’s measly net tax cut has been given the credit. Furthermore, experts on regulation have noted that Carter’s full or partial deregulation of four major U.S. industries was much more consequential than Reagan’s reducing enforcement of existing regulations.

Finally, Carter, sensing the war exhaustion of the American people after Vietnam, had the best post-World War II presidential record of military restraint. Reagan, often given credit for a macho reputation that deterred conflict, really began the ramp up back to useless and costly overseas American meddling—by militarily provoking Libyan dictator Muammar Gaddafi, invading the tiny country of Grenada for no good reason, and getting almost 250 Marines killed in Lebanon in support of Israel’s invasion of that country. In contrast, Carter only used military action once in an attempt to rescue hostages held by Iran, which he eventually got released by negotiation.

Thus, the candidates for president in 2016, both Democratic and Republican, could learn valuable lessons from the successful small government policies, both at home and abroad, of Harding and Carter; but as yet, they don’t seem to be getting it.

"An Almost Perfect Predictor of GDP Growth..."

Another excellent piece from Thad Beversdorf entitled An Almost Perfect Predictor of GDP Growth and Bernie Lays the Boots…:
I recently watched a video clip of Bernie Sanders laying the boots to Alan Greenspan back in 2003, for Greenspan’s seemingly out of touch perspective of the average American. Now while we do have a repentant banker in Greenspan, a rare phenomenon for sure, I found the scolding interesting in that essentially every accusation Sanders lays on Greenspan could be repeated today to our subsequent central banking gods. During the video notice that all the figures Sanders explicates not only remain true today but have gotten far worse. Particularly note the national debt figure which has now increased by more than 400% since then!!! The clip is well worth the 5 minutes.


But so let’s dig in a little to what Bernie is really saying to Greenspan. The overall theme of the trouncing is that the Federal Reserve, the keeper of American monetary policy, had implemented policies that clearly had done significant damage to the vast majority of Americans. Specifically Sanders is suggesting that the policies were a cancer to the economic prosperity of Americans and all the while creating extreme wealth for a select few. And while that is bad in and of itself, what Sanders finds despicable is that the Fed seems to not only deny the harm they were responsible for but Greenspan seemed to be alleging success by focusing solely on the massive wealth it had provided to the very few on top.

Now in a recent whitepaper by Stephen Williams, VP of the St. Loius Fed, a case is made that the Fed’s ‘recovery’ policies have not helped to boost the economy. And while I agree with that conclusion, I feel the paper is a fraud. Not only on the surface of that argument does it create a false dichotomy of either helped or not helped (dismissing the idea that the policies may have actually been harmful) but Williams explicitly suggests the policies were not harmful to the economy. And that was the real intended message. Remember nobody publicly denounces their employer without being fired. And so if Williams keeps his job we know that this message was a coordinated message. Further, by the structure of his argument the objective is clear. The Fed is already setting up the argument that while they were not entirely effective in a recovery they are not to blame for the inevitable second coming of the credit crisis (a definite dead canary).

You see the problem comes down to the moral hazard created by fiat currency. Specifically, I mean that when you have essentially infinite resources you become very careless about each unit of resource. Subsequent to ending Bretton/Woods in 1971 the US has succumb to such a moral hazard. This is clear when looking at the collapse of fiscal discipline immediately following the end of Bretton/Woods, which was a quasi gold standard that necessitated fiscal discipline.

Screen Shot 2015-08-19 at 6.40.52 AM
And so that chart tells us the moral hazard absolutely exists but it doesn’t explain why that is bad. To do that we need to look at a visual representation of this moral hazard and its respective destructive characteristics over time. But before we do let’s remember, as I recently laid out in some detail in The Fed’s Fatal Flaw, the central banking system is designed to require perpetually increasing money stock. The reason is simple. The Central Banking Act of 1913 was designed by three banking families (refer to Jekyll Island) whose profits expanded along with money supply. And so a system that necessarily required the expansion of money supply was to create immense wealth for banking families that drafted the Bill. While that is certainly unethical, it is the destructiveness of such a system that is the real evil. The system is such that profits for the very few come directly at the expense of the masses. Let’s look deeper into this matter.

What must be understood but seems to be lost on most PhD economists today is that money in our system can either be a fuel or a drag, but it cannot be neither. Remember that our system attaches a unit of debt to each unit of currency. That means that each unit of currency must return an amount greater than itself. If it does, it is fuel. If it doesn’t it is a drag.

The problem then with the system is the destructive force inherent of the moral hazard (having the ability to create infinite currency) as depicted in the next chart. That is, currency created and used for consumption rather than investment becomes a drag rather than a fuel and the economy becomes less efficient. This increasing inefficiency has been occurring since the end of Bretton/Woods or since the beginning of the moral hazard. That said, you will never hear very intelligent but also very disingenuous guys like Alan Goolsbee discuss the secular economic deterioration as it doesn’t suit their role of policy champions.

The following chart depicts corporate domestic investment as a percentage of M2 money stock (blue line) and real GDP (red line).
Screen Shot 2015-08-17 at 9.32.00 AM
What becomes immediately apparent is the correlation between the percentage of money stock being used for corporate investment and real economic growth and the significantly negative slope of both.

One might wonder then what are corporations doing with their money if not reinvesting it?
Screen Shot 2015-08-19 at 7.42.56 AM
Well the answer is clear. While for decades domestic investment (i.e. fixed capital reinvestment) as a percent of money stock averaged around 8% today it has declined to about 5%, a 40% decline. On the other hand corporate dividend payments (green line) have increased to a 15 year average of about 7% from 4% of money stock, a 75% increase. So each year, 3% of money stock is being reallocated from private domestic investment to corporate dividend payments. And make no mistake, dividend payments do not fuel the economy as some +90% are reinvested into the secondary market. An investment which provides almost no economic benefit (with the exception of very few secondary offerings that add cash to corporate balance sheets) as opposed to domestic fixed reinvestment which is pure economic fuel.

But let’s take a closer look at the moral hazard and its direct implication on the economy.
Screen Shot 2015-08-17 at 9.29.08 AM


What we see by adding trendlines to both parametres is that very shortly after the US went to a pure fiat currency in 1971, domestic investment as a percentage of money stock began to drop, resulting in the secular deterioration in real GDP that continues today. I say resulting rather than mere correlation and let me explain.

Again the reality is that excess money stock is a drag on the economy because each unit of money stock necessarily has a unit of debt attached to it. Logically then, as the percentage of money stock allocated to investment (meaning potential positive net returns) declines the percentage of unpayable debt (attached to the uninvested money stock) requires the perpetual rolling over of ever more debt.

This results in massive drag on the economy because remember that mathematically debt used for consumption rather than investment is a net negative on medium and long term output. The implication is that while all debt gets included into current GDP (through its expenditure today), all consumed debt plus interest is removed (paid back) from output later on. This effect is not easily seen because the reduced medium and long term output is being continuously offset by even more consumer debt.
Screen Shot 2015-08-19 at 7.22.24 AM

So what we’ve ended up with is a death spiral of economic prosperity dressed in sheep’s clothing. The above chart depicts that every worker in America today has increased their consumer debt levels by about 40% since the ‘end’ of the credit crisis. Think about that for a moment. Perhaps the most destructive economic collapse in history that was triggered by excessive credit has led American workers to take on 40% more consumer debt.

Allow me to digress for a moment about the concept of consumer debt and why if it is such a destructive thing policymakers would allow it to continue its record expansion. Think of it like this; where a purchase made with earned money is a two party transaction a purchase made on debt is a three party transaction. Essentially banks become a party to every consumer transaction that is done on debt. And so banks essentially are feeding off of every transaction between a consumer and a proprietor. In the natural world we call that a parasite. For the corporations the parasite is helpful because it magically turns the consumer’s debt into profit and so they don’t mind. However, for consumers, the transaction doesn’t end after they eat the candy bar. The debt not only remains, it builds, and so the parasite slowly deteriorates the consumer’s ability to prosper. But because the parasite controls the economic policies of the nation the policies actually drive the indebtedness that we see in the above chart which benefit both the banks’ and the corporations’ profits but to the detriment of the working class (discussion as to the borrowers’ responsibility in the matter won’t take place here but I will note the data today suggests more than ever consumer debt is being used on inflating staples – healthcare, food and rent – rather than discretionary purchases).

And yet we are told by the very elite PhD economists that the credit crisis ended back in 2009. And worse we are told that the expansion of excess credit will end differently this time around. And still worse, any Americans who actually have savings have been forced into bloating equity valuations (along with corporations for the same reason but from the other side of the coin) because interest rate securities have been set to return effectively nothing.
Screen Shot 2015-08-19 at 7.31.21 AM


The above chart depicts income from private savings (using the 2 yr rate as a proxy, which is likely being generous today) has declined from about 2.0% of GDP in the early 1980’s to 0.6% in 2000 to around 0.2% today. And so while consumer borrowers have been forced into a state of perpetual borrowing, savers has been forced to lend money into secondary markets which will once again be transferred to the very few upon the inevitable next market crash. A crash that is already being signaled around the world.

So when we watch guys like Bernie Sanders get visibly angry at guys like Alan Greenspan it behooves all of us to go beyond the entertainment of it or some prima facie agreement and to truly understand why the anger is justified. When we do we will be asking why in the hell is no one yelling at Janet Yellen??

Economics has become hostage to academia where PhD’s want to ring fence the subject with statistics and calculus to ensure only those who have done the very narrow and otherwise irrelevant studies can play. But economics has very little to do with stats and calculus. Economics is a subject of interrelatedness based on logic with a little basic math thrown in.

If we were to all take the responsibility to understand the lifeblood of our American existence i.e. the economy, we will most certainly be moved to remove not only the policymakers but the system that together serve only those at the top of the economic food chain and at a cost to the rest of us. At the end of the day the system is a zero sum game in a monetary system that is based on trading a unit of currency for a unit of debt. There is no other end than a bad one and I’m sorry my friends but that is a (simple) mathematical certainty.

The Random Thoughts of Thomas Sowell

I'm a huge fan of Thomas Sowell's work, especially his book Intellectuals and Society.  His "Random Thoughts" columns are likewise superb reading and his latest (below) is no exception.  However, allow me to point out below where I disagree with him, if I may be so honored and humbled to do so.  Also note, that emphasis is mine too:
Random thoughts on the passing scene:

Stupid people can cause problems, but it usually takes brilliant people to create a real catastrophe.

President Obama's "agreement" with Iran looks very much like "the emperor's new clothes." We are supposed to pretend that there is something there, when there is nothing there that will stop, or even slow down, Iran's development of a nuclear bomb.
[Semper Ratio:  I disagree with Mr. Sowell.  I believe in Obama's agreement.  If I read Sowell correctly, it looks like the only action that will "stop or even slow down Iran's development of a nuclear bomb" is war.  Iran, for all its warts, has a right, just like the US and Israel, to protect itself with weapons, including nuclear.]

The endlessly repeated argument that most Americans are the descendants of immigrants ignores the fact that most Americans are NOT the descendants of ILLEGAL immigrants. Millions of immigrants from Europe had to stop at Ellis Island, and had to meet medical and other criteria before being allowed to go any further.
[Semper Ratio: True Mr. Sowell, but you are being disingenuous.  Our descendants could at least GET to Ellis Island, whereas today, our country has no such equal.]

Governor Bobby Jindal: "I realize that the best way to make news is to mention Donald Trump. ... So, I've decided to randomly put his name into my remarks at various points, thereby ensuring that the news media will cover what I have to say." Governor Jindal's outstanding record in Louisiana should have gotten him far more attention from the media than Trump's bombast.

In her latest book, "Adios, America!" Ann Coulter says, "if Romney had won 71 percent of the Hispanic vote in 2012, instead of 27 percent, he still would have lost. On the other hand, had he won just 4 percent more of the white vote, he would have won."

Despite an old saying that taxes are the price we pay for civilization, an absolute majority of the record-breaking tax money collected by the federal government today is simply transferred by politicians from people who are not likely to vote for them to people who are more likely to vote for them.

Do the people who are always demanding that there be more "training" for police ever say that the hoodlums that the police have to deal with should have had more training by their parents, instead of being allowed to grow wild, like weeds?

Europe is belatedly discovering how unbelievably stupid it was to import millions of people from cultures that despise Western values and which often promote hatred toward the people who have let them in.
[Semper Ratio:  True Mr. Sowell: many millions do "despise Western values" especially when the people who purportedly hold those values interfere, meddle, bomb, destroy and kill in the Middle East.  Sorry, but if the roles were reversed, I'd hate us too.]

There are so many conservative Republican candidates for the party's presidential nomination that they may once again split the conservative vote so many ways as to guarantee that the nomination will go to some mushy moderate.

Barack Obama wrote a book titled "The Audacity of Hope." His own career, however, might more accurately be titled "The Mendacity of Hype."

With all its staggering horrors and insanities, World War II may yet turn out to have been just a dress rehearsal for the ultimate catastrophe of a nuclear-armed terrorist nation like Iran. We seem oblivious to the possibility that we may be leaving our children and grandchildren at the mercy of people who have demonstrated repeatedly that they have no mercy.
[Semper Ratio:  Please, let it go with Iran.  America's documented track record in Iran is a disgrace, especially the overthrow of their elected president in the 1950's and reinstalling the Shah.  Who has the mercy?]

No matter how many federal felony laws Hillary Clinton may have violated by using her own personal email account to do her work as Secretary of State, she is unlikely to face any legal consequences. President Obama can pardon her, as he can pardon Lois Lerner or the head of the Internal Revenue Service or others who may have violated federal laws during his administration.

When Jeb Bush allowed hecklers shouting "Black lives matter" to drive him off the stage in Las Vegas, he may have given us a clue as to what kind of president he would be. We ignored too many clues about Barack Obama before putting him in the White House. There is no excuse for ignoring clues about another candidate now. Can you imagine Ronald Reagan letting hecklers drive him off the stage?

Donald Trump has credited his political donations with getting Hillary Clinton to come to his wedding. What kind of man would want Hillary Clinton at his wedding, much less boast of having her there?

A salute to Bill O'Reilly for being one of the very few people in the media to talk plain common sense about the disintegration of the black family, and the resulting social problems that followed.

Ronald Reagan won two landslide victories with the help of "Reagan Democrats." These were voters who usually voted for Democrats but were now voting for Reagan. He got these voters by winning them over to his policy agenda -- not by adjusting his policy agenda to them, as the Republican establishment today seems to think is the way to expand their constituency.

Academic Fascism II

I posted Walter Williams first post on Academic Fascism here.  Fortunately for us, he's followed that up with another on the same subject, oddly enough entitled Academic Fascism II:
Last week's column highlighted college campus absurdities and the ongoing attack on free speech and plain common sense. As parents gear up to fork over $20,000 to $60,000 for college tuition, they might benefit from knowing what greets their youngsters. Deceitful college officials, who visit high schools to recruit students and talk to parents, conceal the worst of their campus practices. Let's expose some of it.

Christina Hoff Sommers is an avowed feminist and a scholar at the American Enterprise Institute. She's spent a lifetime visiting college campuses. Recently, upon her arrival at Oberlin College, Georgetown University and other campuses, trigger warnings were issued asserting, in her words, that her "very presence on campus" was "a form of violence" and that she was threatening students' mental health. At Oberlin, 30 students and the campus therapy dog retired to a "safe room" with soft music, crayons and coloring books to escape any uncomfortable facts raised by Sommers.

The problem for students and some professors is that Sommers challenges the narrative, with credible statistical facts, that women are living in a violent, paternalistic rape culture. As a result, she has been "excommunicated from the church of campus feminism" in order to protect women from her uncomfortable facts. This prompted Sommers to say, "There's a move to get young women in combat, and yet on our campuses, they are so fragile they can't handle a speaker with dissenting views." I wonder whether there will be demands for the military to have therapy dogs and safe rooms in combat situations.

The University of New Hampshire published a "Bias-Free Language Guide," which "is meant to invite inclusive excellence in (the) campus community." Terms such as "American," "homosexual," "illegal alien," "Caucasian," "mothering," "fathering" and "foreigners" are deemed "problematic." Other problematic terms include "elders," "senior citizen," "overweight," "speech impediment," "dumb," "sexual preference," "manpower," "freshmen," "mailman" and "chairman." For now, these terms are seen as problematic. If the political correctness police were permitted to get away with it, later they would bring disciplinary action against a student or faculty member who used the terms.

The offender would be required to attend diversity training, the leftist equivalent of communist re-education camps. In a rare instance of administrative guts, UNH President Mark Huddleston said he is offended by many things in the guide and declared that it is not university policy.

Florida State University has an "Equal Opportunity and Non-Discrimination Statement," which says, "Behavior that may be considered offensive, demeaning, or degrading to persons or groups will not be tolerated." That's both broad and troublesome. Say that you're a Muslim student and offended by homosexuality. Can you demand termination of campus activities that support homosexual activities?

A 2014 report by the Foundation for Individual Rights in Education found that 59 percent of the 427 higher-education institutions it analyzed have policies that infringe on First Amendment rights. FIRE found that the University of Connecticut prohibits "actions that intimidate, humiliate, or demean persons or groups, or that undermine their security or self-esteem." The University of South Carolina prohibits "teasing," "ridiculing" and "insulting."

In 2012, FIRE listed the "12 Worst Colleges for Free Speech". In no particular order, they are the University of Cincinnati, Syracuse University, Widener University, Harvard University, Yale University, Saint Augustine's College, Michigan State University, Colorado College, Johns Hopkins University, Tufts University, Bucknell University and Brandeis University.

University presidents, other academic administrators and faculty members all too often find the well-worn path of least resistance most attractive. They give support to claims of oppression and victimhood. These close-minded people are simply the "grown-up" leftist hippie generation of the 1960s and '70s.

You might ask: What's Walter Williams' solution to these problems? For starters, benefactors should stop giving money to universities that endorse anti-free speech and racist diversity policy. Simply go to a university's website. If you find an office of diversity, close your pocketbook. There's nothing like the sound of pocketbooks snapping shut to open the closed minds of administrators.

Sunday, August 16, 2015

Milton Friedman on America's War on Drugs

Courtesy of Professor Mark J. Perry, here's a great 1991 interview with Milton Friedman on the War on Drugs.  The world, well ok, just me maybe, misses Friedman's logic.  The only reason America maintains its futile war on drugs is because it profitable for those that supply weapons to the country's police forces; the police forces/unions (therefore, the city governments); prisons and prison guards, etc.

What Americans Don't Know About The Federal Budget

George Will explains just how little most people know about how their money is spent by those they purportedly elect to "represent" them.  Here's America's Barnacled Budget:
You probably never knew of the federal funding of museums commemorating America’s long-gone whaling industry. The funding existed for nearly nine years, until fiscal 2011, because almost no one knew about it. A mohair subsidy continues six decades after it was deemed a military necessity in the context of the Cold War. The subsidy survives because its beneficiaries are too clever to call attention to it by proclaiming it necessary, which of course it isn’t.  
To understand these two matters is to understand how American government functions. And why James Madison, whose flinty realism is often called pessimism, was too optimistic. 
Federal funding went to whaling museums in three states from which whalers went to sea (Massachusetts, Alaska and Hawaii) and in Mississippi, which was not a home of whalers but is the home of Sen. Thad Cochran(R), an Appropriations Committee titan. The whaling program, which cost about $9 million in its last year, was administered by the Education Department. It objected to doing this, which is one reason the funding ended: Government changed because part of it was annoyed. Also, a congressman publicized the subsidy. 
The $9 million was a piddling smidgen of a fraction of the federal budget, as is the $5 million wool and mohair subsidy. It was smuggled into the 1954 National Wool Act, which was supposed to stimulate wool production, lest we run short when next we need 12 million uniforms for a two-front world war. Mohair had nothing to do with this supposed military necessity, but mohair producers wanted a seat on the gravy train.
Their subsidy became briefly notorious and briefly died (it was resuscitated when no one was any longer paying attention) after Jonathan Rauch called attention to it in his 1994 book “Demosclerosis.” Rauch’s neologism describes government that is resistant to change because it is solicitous toward many minor but attentive factions.  
These clients thrive in obscurity because of the law that governs much of government, the law of dispersed costs and concentrated benefits. Taxpayers do not notice, unless someone like Rauch tells them, the costs of subsidizing whaling museums or mohair, but the subsidies mean much to those who run the museums or produce the mohair. Similarly, consumers do not notice the cost of sugar import quotas added to the sugar they consume, quotas that substantially enrich sugar producers. And so on and on. 
This is why minorities constantly manage to milk money from majorities, which is not how Madison thought things would work. Greg Weiner, an Assumption College political scientist, notes that in Federalist Paper 10, Madison confidently says minority factions will be defeated by “the republican principle,” which enables the majority to trounce the minority “by regular vote.”  
But what if, as usually happens, there is in no meaningful sense a “regular vote” on minority appetites? The whaling-program subsidy was born as a barnacle on the 2001 No Child Left Behind education bill. There was no majority-minority conflict about it because only the wee minority of whaling enthusiasts and a few solicitous legislators were paying attention. 
Madison counted on conflict, but gargantuan government is, because of its jungle-like sprawl, mostly opaque. So there is what Weiner calls “dissipation of conflict.” And Weiner suggests that this, which enables minorities to feed off the inattentive majority, is the result of what Madison thought would inhibit abusive majorities — the size of what Madison called an “extensive” republic. 
His revolution in democratic theory was this: Hitherto, it had been thought that if democracy were at all feasible, it would be so only in small polities. Factions were considered inimical to healthy democracies, and small, homogenous societies would have fewer factions. So, Madison favored an extensive republic because it would have a saving multiplicity of factions. They would save us from tyrannical majorities because all majorities would be impermanent coalitions of minorities. 
For a century now, Weiner writes, the national government has been hyperactive in distributing economic advantages to attentive but inconspicuous factions. This will not stop. Why?  
James Joyce said his readers should devote their entire lives to understanding his fiction (not that a lifetime is long enough to fathom “Finnegans Wake”). If Americans devoted their lives to mastering the federal budget’s minutiae, gargantuan government might behave better. But what economists call the “information costs” of such mastery would be much higher than the costs of just paying the hundreds of billions that the subsidies cost. There is a name for what this fact produces: demosclerosis.

Saturday, August 15, 2015

Welcome To The World Of ZIRP Zombies

Yep, welcome to our world indeed!  A worthy read from Alasdair MacLeod, entitled Welcome To The World of ZIRP Zombies: (emphasis in original)
Interest rates in the US, Europe and the UK were reduced to close to zero in the wake of the Lehman crisis nearly seven years ago. 
Initially zero interest rate policy (ZIRP) was a temporary measure to counter the price deflation that immediately followed the crisis, but since then interest rates have been kept suppressed at the zero bound. It had been hoped that the stimulus of close-to-zero interest rates would also guarantee economic recovery. It has failed in this respect and the low bond yields that result have only encouraged the rapid expansion of government debt. 
It is clear that monetary policies of central banks are the problem. Instead of boosting recovery they have simply destroyed the mechanism which recycles savings into capital for production. They have brought about Keynes’s wish, expressed in his General Theory that he “looked forward to the euthanasia of the rentier”, whose function in providing finance for entrepreneurs is to be replaced by the state: entrepreneurs “who are so fond of their craft that their labour could be obtained much cheaper than at present.”[1] 
Instead of storing the fruits of his labour in the form of bank deposits to be made available to the investing entrepreneur, the saver is discouraged from saving, instead being forced to speculate for capital gain. In that sense, ZIRP is the logical end-point of Keynes’s ideal. 
The mistake is to subscribe to the ancient view that interest is usury and that it only benefits the idle rich, a stance that appeared to be taken by Keynes. What Keynes missed is that interest rates are an expression of time preference, or the compensation for making money available today in return for a reward tomorrow. 
If you try to ban interest rates by imposing ZIRP, then the vital function of distributing savings in the interests of progress simply ceases. An economy with ZIRP joins the ranks of the living dead. 
Von Mises recognised this in 1909 when he wrote that “…a falling value of money goes hand in hand with a rising rate of interest and a rising value of money with a falling rate of interest. This lasts as long as the movement of the objective exchange-value continues. When this ceases, then the rate of interest is re-established at the level dictated by the general economic situation.”[2] 
Besides noting that Von Mises’s analysis was independently confirmed by Gibson’s paradox, it may be helpful to restate it in easier to understand terms. History has shown that a borrower of good standing in a sound-money economy that is stable would pay about 3% interest. If prices are rising, his margins will improve, and he will be prepared to pay more to seize the opportunity to profit. If on the other hand prices are falling, he can only afford to pay less and he will most likely restrict his future activities to those he can finance from his own resources. It is this free market demand that sets interest rates, not the usurious lenders reviled by Keynes. 
On the face of it a suppressed interest rate should make it profitable to borrow, but that is not the way a producer looks at it. The marginal benefits of extra borrowing have to exceed the costs of investing in production in order to be profitable. A business with a good balance sheet will normally improve its existing products by reinvesting its own reserves without recourse to external funds under almost all conditions. Recourse to external funds implies a materially different product being planned or that a significant expansion of productive capacity is being considered, a more risky step requiring greater capital expenditure, only to be undertaken when economic prospects are set fair. 
It is this capital commitment that is missing, despite prolonged monetary stimulus. Central bankers are becoming acutely aware of the failure, which has only lured their governments into a deepening debt trap. That is why the Bank for International Settlements has publicly expressed concerns for some time and why both the Fed and the Bank of England have expressed the wish to get back to some sort of interest rate normality. It will be extremely difficult, but let us assume for a moment that interest rates are raised: what happens then? 
An increase in interest rates to more than one or two per cent will be accompanied by rising commodity prices: this much is evident from Gibson’s paradox. It would likely come about as speculative money flees financial assets, closes short positions in commodities, and then seeks protection from a fall in the purchasing power of currencies. 
Businesses will see two things. Obviously, with bonds, stocks and residential property prices falling as interest rates rise, the business outlook would be deteriorating. However, with commodities and wholesale prices rising, reflecting a fall in money’s purchasing power, businesses would be prepared to pay more interest to Keynes’s rentiers. This is the basis behind Gibson’s paradox. 
Not that this is properly understood: macroeconomists have found that their theories have failed, and they don’t know why. They want to back-track to safer ground, but are frightened of the consequences. Normalising interest rates could generate a stock market collapse, risk setting off an avalanche of bankruptcies from overleveraged businesses and make government finances wholly untenable. Higher interest rates risk triggering a second financial crisis that could also undermine currencies, pushing up price inflation. While macroeconomic theories can be faulted on the basis of outcomes, there is little doubt the systemic threat from a trend of rising interest rates is very real. 
On balance, it is a situation that calls for inaction justified by hope. After all, with the Fed funds rate at 0.25% and $2.6 trillion of commercial bank funds already on deposit at the Fed, could it be that even a small increase in the rate will just suck more deposit money out of the US banking system, leading to a contraction of bank lending? 
Central bankers are beginning to see what it has been like for their colleagues in Japan, where for twenty-five years with zero interest rates nothing tried seems to work. Welcome to Keynes’s world of euthanized savers and state-sponsored funding. Welcome to the world of ZIRP zombies. 
Source: Welcome to the world of ZIRP zombies

Worthy Reads from Thad Beversdorf

I'm on my Mac and it's very much a PITA to copy/paste text, so please, check out these two worthy reads from Thad Beversdorf.

The FBI Considers the IRS and DOJ, Domestic Terrorists


What we saw with the latest GDP reports is something truly remarkable.  A market that was explicitly told the past 4 years of economic growth had been overstated simply shrugged off the news.  That is, absolutely no price recalibration took place.  This really evidences beyond any doubt that there is no relationship between the economy and the market.  It further evidences the Fed’s increased proficiency in directly guiding the market.
Now I know this is not shocking to many of us.  But to watch the market’s blatant irreverence toward a report that, with the flip of a switch, removed 12% of the presumed economic growth from the past 4 years did strike me as remarkable.  It shows that the printing of economic indicators is nothing but theater.  There is absolutely no rational market explanation that the market traded flat to up on the day when current GDP missed estimates  and the past 4 years of growth was adjusted downward, all in the midst of one of the worst seasons for YoY deteriorating corporate revenues/earnings.

The Pope Comes To Philadelphia - And Shuts It Down In The Process


June 30th:  Pope Francis' itinerary for September visit released  
  • Arrives on 9/26 @ 9:30am
  • Leaves on 9/27 @ 8:00pm (for Rome) [whew, I'm exhausted by his stay here!]
July 3rd:  Center City will be fenced in during Pope Francis visit: Sources

July 6th:  Phila. official denies Center City fence for Pope Francis' visit

July 10th:   City fence during Pope Francis' visit is definitely happening  (well, it required only 4 days to undo the denial of the fence)

July 22nd:  Papal visit will terminate Greyhound’s terminal, and some bus companies haven’t been told:
With two months to go before the Papal visit, intercity bus operators like Greyhound and Megabus – and about a dozen others that regularly run services to and from Philly – still don’t know where they’ll be able to drop off and pick up passengers.
July 22nd: Bridge closure under discussion for pope's visit.  Great, now people from Jersey can't get here. This gets better every day.

July 24th:  Papal event consultants confirming Ben Franklin Bridge closure, seeking I-95 shutdown and expanded security perimeter.    The POTUS was here two weeks ago and you wouldn't have known he was at all, but fuck, the pontiff comes for what is less than 48 hours and let's shut the city down!  WTF!  Here, check this fucking quote from the link: [emphasis mine]
Pitts also essentially confirmed what Duncan Black has been saying, that the event organizers have intentionally been sending a message to stay away.

"The truth is, you've got a five pound bag, and you can only do five pounds. So at some point you've got to discourage people from coming here. It's message. Design, management, and message--that's how we manage this. The message needs to be much more concise, much more dramatic, and much more consistent a lot sooner than three weeks before the event."
July 24th:  PPA executive reveals Papal plans: 700,000 on the parkway, security perimeter around Center City, SEPTA bus suspensions and more.

August 7th:  Pope visit forces Penn, Drexel to cancel classes

August 7th:  Security map, highways closed for pope visit.  Here's a "great" quote:
Mayor Michael Nutter answered the question that Philadelphians have been wondering since first learning of Pope Francis' visit to the city – where traffic will be prohibited in Center City.

"Be prepared to walk. Private vehicles will really not be a viable option on the weekend in Center City," Nutter said in the Wednesday afternoon press conference. "Public transportation routes and schedules will be altered for efficiency.
New - August 12th: Eastern State puts haunted house on hold during papal visit

New - August 13th:  NJ officials announce Papal visit transportation plans - this is a truly "WTF" clusterfuck situation.
 

Tuesday, August 11, 2015

Academic Fascism

Absolutely love the title of Walter E. Williams' latest post on the sorry state of our institutions of supposedly higher learning.  Allow me to add a statement here in case any reader is offended by micro-aggressions: fuck you! Here's Academic Fascism:  [emphasis is mine]
George Orwell said, "There are some ideas so absurd that only an intellectual could believe them." If one wants to discover the truth of Orwell's statement, he need only step upon most college campuses.

Faculty leaders of the University of California consider certain statements racism and feel they should not be used in class. They call it micro-aggression. To them, micro-aggressive racist statements are: "America is the land of opportunity." That is seen as perpetuating the myth of meritocracy. "There is only one race, the human race." Such a statement is seen as denying the individual as a racial/cultural being. "I believe the most qualified person should get the job." That's "racist" because it gives the impression that "people of color are given extra unfair benefits because of their race."

These expressions don't exhaust the list of micro-aggressions. Other seemingly innocuous statements deemed unacceptable are: "Everyone can succeed in this society, if they work hard enough," "When I look at you, I don't see color," or "Affirmative action is racist." Perhaps worst of all is, "Where are you from or where were you born?" For more of this, see a document released by The College Fix titled "Diversity in the Classroom," UCLA Diversity and Faculty Development.

This micro-aggression nonsense, called micro-totalitarianism by my colleague Dr. Thomas Sowell, is nothing less than an attack on free speech. From the Nazis to the Stalinists, tyrants have always started out supporting free speech, and why is easy to understand. Speech is vital for the realization of their goals of command, control and confiscation. Free speech is a basic tool for indoctrination, propagandizing, proselytization. Once the leftists gain control, as they have at many universities, free speech becomes a liability and must be suppressed. This is increasingly the case on university campuses.

Daniel Henninger, deputy editor of The Wall Street Journal's editorial page, writes about the campus attack on free speech and different ideas in his article titled "Obama Unleashes the Left: How the government created a federal hunting license for the far left".

He says that in the Harvard Crimson, an undergraduate columnist wrote: "Let's give up on academic freedom in favor of justice. When an academic community observes research promoting or justifying oppression, it should ensure that this research does not continue." The student was calling for the suppression of the research of conservative Harvard government professor Harvey Mansfield.

Oberlin College proposed that its teachers be aware of politically controversial topics such as "racism, classism, sexism, heterosexism, cissexism, ableism, capitalism and other issues of privilege and oppression." The presumption that students must be protected rather than challenged in a classroom is at once infantilizing and anti-intellectual.

Last year Vassar College faculty and students held a meeting to discuss the school's movement to boycott Israel. Before the meeting, an English professor announced the dialogue would "not be guided by cardboard notions of civility." That professor's vision differs little from Adolf Hitler's brown-shirted thugs of the paramilitary wing of the Nazi Party in their effort to crush dissent.

Azusa Pacific University "postponed" a speech by political scientist Charles Murray to avoid "hurting our faculty and students of color." Brandeis University officials rescinded their invitation to Somali writer and American Enterprise Institute scholar Ayaan Hirsi Ali, whose criticisms of radical Islam were said to have violated the school's "core values." Brandeis officials claimed that allowing her to speak would be hurtful to Muslim students.

Western values of liberty are under ruthless attack by the academic elite on college campuses across America. These people want to replace personal liberty with government control; they want to replace equality before the law with entitlement. As such, they pose a far greater threat to our way of life than any terrorist organization or rogue nation. Leftist ideas are a cancer on our society. Ironically, we not only are timid in response, but also nourish those ideas with our tax dollars and charitable donations.

Friday, August 7, 2015

Economic Worthy Reads

Eugen von Böhm-Bawerk: How the FOMC got institutionally corrupt

Zero Hedge: Fed Admits Economy Can’t Function Without Bubbles

The American Oligarchy

A post all Americans would do well to read, American Oligarchy – 400 Families Represent 50% of Money Raised by 2016 Presidential Candidates Thus Far, by Michael Krieger.  The overwhelming majority of Americans believe they control their government and that their voice, as well as their vote, matters: both do not.  The overwhelming majority of Americans believe their elected representatives actually represent them: this is not the case.  Try getting an appointment to speak to the president or your senator.  If Sheldon Anderson calls, you can rest assured he'll get the appointment, or better yet, your representative will fly (on your expense) to see him.  Please read Krieger's entire post, but allow me one quote, which he in turn quotes in his piece:
Despite the seemingly strong empirical support in previous studies for theories of majoritarian democracy, our analyses suggest that majorities of the American public actually have little influence over the policies our government adopts. Americans do enjoy many features central to democratic governance, such as regular elections, freedom of speech and association, and a widespread (if still contested) franchise. But we believe that if policymaking is dominated by powerful business organizations and a small number of affluent Americans, then America’s claims to being a democratic society are seriously threatened.
Let's just say that America's been "seriously threatened" since the time of President Woodrow Wilson.  

Philadelphia Is A Leader In Something, Finally!

My City of Brotherly Love is best at predicting the f'ing economy!! Here's REVEALED: The best indicator of the US economy (of course, any reference to Philly has to include the required picture of a cheesesteak!):
The Philadelphia Federal Reserve's index of manufacturing activity is the best gauge of economic growth.

In their US Economics Weekly note, Bank of America Merrill Lynch (BAML) economists highlight recent research that examines which indicators are best for "nowcasting" models of gross domestic product, the quarterly arbiter of economic growth.

To determine this, the researchers created real-time "nowcasting" models that gauged the importance of each indicator to show their "intrinsic" value in measuring economic growth.

The factors that determined their value were:
  • Timeliness, or how quickly it is released in the data flow. This was the most important.
  • Revision noise, or whether it is adjusted multiple times after the fact.
  • Relation to fundamentals, or how much the data point tells us about the economy.
Based on these criteria, BAML wrote (emphasis added:)
"Table 1 shows the top 10 out of 36 indicators in terms of their intrinsic value in nowcasting GDP. The results are striking. The most useful indicators in nowcasting are not the big macro numbers, but rather secondary indicators that are released in a very timely manner. Thus the top three indicators are all survey-based measures that are released before the end of the reference month they are measuring — the Philadelphia Fed Index, the preliminary UM sentiment index and the Chicago PMI. The mighty payroll report is only fifth on the list."
The research also found that the jobs report was the top market-moving indicator, followed by retail sales.
But for forecasting whether the economy actually grew or not, look to the Philadelphia Fed index.
Via the Philly Fed, this is a quick description of what the monthly manufacturing business outlook survey includes: "Participants indicate the direction of change in overall business activity and in the various measures of activity at their plants: employment, working hours, new and unfilled orders, shipments, inventories, delivery times, prices paid, and prices received."
Here's a 20-year look at the indicator:

bos0615chart1 

Philly Fed
And with the index at the top, here's the full list via BAML.

Screen Shot 2015 07 13 at 7.47.15 AM

This Says It All About What's Wrong with American Politics

"Senator Chuck Schumer, the most influential Jewish voice in Congress, said Thursday night that he would oppose President Obama’s deal to limit Iran’s nuclear program." - New York Times

So, what do I find wrong with this?  First, why do Americans need an "influential Jewish voice" in Congress?  Though I know it has happened for decades too numerous to count, senators and congressmen should not be lobbyists for foreign governments.  His first duty is the U.S. Constitution, and the best interests of the United States, not Israel.  Secondly, to break ranks, which in most cases I find refreshing, and become aligned with the neo-conservative warmongers instead, is just disgraceful.  Peace must be given a chance and must become the alpha and omega of diplomacy. 

A Worthy Read on China's Economy: Past, Present and Future

A very well-written article from Guy Sorman, Market forces destabilise the regime in China:
The 14% drop in the Shanghai stock exchange in July may be a mere technical, contained event, with little or no consequence for the global economy. Or, instead, it could be a warning shot for a significant change of course in Chinese history: the end of the era of “miraculous” growth at 10% per year, and the dawn of a new era ruled by uncertainty.

Let us explain this hypothesis in simple terms, starting with the role of the stock exchange for the Chinese. This role is not the same as the one played in the West. The new Chinese middle class born of the economic growth over the last 30 years is made up of around 200 million people.

Unlike in the West, these people do not enjoy collective health insurance, public pensions, or free education. In China, everyone pays their own way, while in the West the government saves money for you and, more or less, redistributes it accordingly.

When the Chinese middle class and the most modest members of society receive a regular income, they save around half to finance their healthcare, education and retirement. The Chinese have very little choice when it comes to investing their savings. Banks offer interest rates lower than inflation, and investing abroad is an option only open to the Communist aristocracy.

For rational law-abiding Chinese the only choices left are between the Shanghai and Shenzhen stock exchanges and investing in real estate. The new Chinese cities and their empty residences and offices act as the country’s piggybank. If the real estate bubble bursts, the Chinese middle class will be bankrupt. Many China watchers have heralded this collapse for the last ten years, but have for now been proved wrong. The rural exodus and booming growth have turned these buildings and fledgling cities into profitable investments. At least so far.

If growth slows and the rural exodus peters out – which seems to be increasingly the case – these buildings will remain empty and valueless. The domino effect will mean that individual investors will then be unable to pay for their healthcare, their children’s education, and can kiss goodbye to their pensions. The same goes for the stock exchange.

If stocks continue to fall, creating the same risks seen in the real estate bubble, the investing middle class will also be destabilised. This is why the Beijing government is going out of its way to smooth the stock exchange, forcing the state-run banks to buy shares and forbidding State owned companies from selling them. But it all seems to be for nothing.

The plummet is continuing in a vivid illustration of how capitalism in China is slipping through the grasp of the powers that be. Both the financial and real estate market actors have realised the 10% yearly growth is definitively over.

Remember that this growth was possible because China started with nothing (Deng Xiaoping’s 1979 economic reforms authorised the Chinese to work for themselves) and had a considerable workforce ready to move from the fields to the factories. This transition from Communism to State Capitalism happily coincided with globalization and Western demand for new consumer goods such as mobile phones.

This era is now over: global demand has slowed; China has found itself in competition with other “subcontractors” including Vietnam, Bangladesh and Mexico; robotics have sparked the West’s reindustrialisation, and the Chinese workforce is flagging due to a shrinking population brought on by the one-child policy.

Similar situations were seen in Japan, South Korea and Taiwan one or two generations ago. But their governments and entrepreneurs were smart enough to move upmarket, creating renowned brands and exchanging quantity for quality.

The same can hardly be said for China. Xi Jinping’s government has succumbed to delusions of grandeur, pumping its profits into fantastical projects that have culminated in empty airports, deserted highways, the creation of a blue water navy and repeated Olympic games. The most resourceful entrepreneurs , those who could have founded the Chinese versions of Samsung and Toshiba, have left for the United States where their patents and freedom of expression are protected.

The Chinese leaders are fully aware of this critical analysis. And the government partly took it into account by announcing earlier this year that growth target would be lowered to 7%. China then posted first-quarter growth figures of ….7% at the start of July, inspiring scepticism of official statistics.

In the meantime, as we have seen, stock prices have been artificially boosted to show the Communist Party is still in control of the market, and not vice versa. But quite the opposite is happening. The laws of the market are outweighing the Party’s policies, and confronted with a situation increasingly out of its control, the Party has decided to repress in lieu of adapting. There have never been more dissidents, internet users and lawyers in Chinese prisons since the death of Mao Zedong.

Pro democracy and pro market , Beijing based economist Mao Yushi has said “The Chinese will give up their freedom, but they will never accept losing their savings”. It seems they are about to lose them on both stock exchange and the real estate market. What should we predict? To avoid misleading readers, we will not entertain potential conclusions.

It would be presumptuous to announce that the end of booming growth, or even the disappearance of savings, will inevitably bring about the collapse of the Communist Party. The current government rules the country without any real opposition while guaranteeing civil order. And there is nothing that scares the Chinese more than disorder. I would bet on the status quo.

Thursday, August 6, 2015

Agreed: No More Lifetime Appointments to the SCOTUS (and while we're at it, time for term limits too)

Long have I been an opponent of both term limits and non-tenured appointments to the Supreme Court.  No more.  Time for a change.  The scumbags in power require some constraint and, given the record of the Supreme Court, especially Justice Roberts, time to limit their term as well.  Here's Doug Bandow's Supreme Court: No More Lifetime Appointments:
Democrats and Republicans alike have turned Supreme Court appointments into a partisan slugfest. No wonder: while the judiciary has long been described as the least dangerous branch of government, the court has become instead a continuing constitutional convention. Just five votes can turn the Constitution inside out.

The latest Supreme Court term was seen as a shift to the left. The high court rewrote Obamacare to save the president’s landmark legislation to socialize American health care and completed a social revolution by nationalizing gay marriage. These decisions set off a flurry of promises from Republican Party presidential candidates to confront the judiciary.

Extreme Measures

Jeb Bush said he would only appoint judges “with a proven record of judicial restraint,” even though previous presidents claiming to do the same chose Anthony Kennedy, David Souter, and John Roberts, among many other conservative disappointments.

Senator Ted Cruz (R-TX) called for judicial retention elections. Such a change at the federal level would require a constitutional amendment, though it would mimic the practices of some 20 states. Even more controversially, Cruz suggested that only those whose case was brought before the justices had to respect Supreme Court rulings.

Extreme measures seem necessary because a simultaneously progressive and activist judiciary has joined the legislature and executive in forthrightly making public policy.

Should Justices Serve for Life?

The influence of judges has been magnified by their relative immunity from political pressure. Although the courts sometimes follow the election returns, in many cases — such as abortion and gay marriage — judicial decisions have short-circuited normal political discourse.

That fact alone makes judicial appointments important. Their significance is magnified by judges’ life tenure.

Lose the battle over filling a Supreme Court slot and you may suffer the consequences for decades. Gerald Ford’s unelected presidency merits little more than a historical footnote, but his Supreme Court legacy long persisted through Justice John Paul Stevens, a judicial ideologue hostile to liberty in most forms. Republicans going back to Dwight Eisenhower publicly lamented the evolution of their appointees, and every one of them made at least one choice that ultimately advanced a big-government agenda. Anthony Kennedy and John Roberts fill that role today.

Lifetime tenure has other consequences. The appointment process is endlessly arbitrary, as judges hang on, irrespective of advancing age. Although instances of obvious infirmity are few — the last clear Supreme Court case was William O. Douglas, who served more than 36 years before retiring in 1975 — outcomes should not be affected by actuarial tables. A gerontocratic court differs dramatically from the society on behalf of which its members purport to speak. The lack of turnover also may deaden court debate, reinforcing established patterns of thinking.

Independence versus Accountability

Life tenure is enshrined in the Constitution and rooted in history. The justification for lifetime appointment is to insulate the courts from transient political pressures. Some such protection is necessary if judges are to feel free to make unpopular decisions upholding the nation’s fundamental law.

Yet, judicial independence does not require lack of accountability. Judges are supposed to play a limited though vital role: interpreting, not transforming, the law. The dichotomy of activism versus restraint is the wrong prism for viewing judges. They should be active in enforcing the law, striking down legislation, and vindicating rights when required by the Constitution. They should be restrained in substituting their policy preferences for those of elected representatives.

When jurists violate this role, as do so many judges, they should be held accountable. Unfortunately, many of the proposed responses are more dangerous than the judges themselves. For instance, limiting court jurisdiction or impeaching errant jurists, oft proposed in the past, provides obvious opportunities for abuse. Worse is Cruz’s idea that most people should ignore the Supreme Court. Where government branches collide, someone must have a final say, or else the result will be enduring political conflict and limited legal legitimacy.

Ignore the Court?

More important, Cruz would presumably not want politicians to ignore court rulings with which he agreed. After all, as originally conceived, the judiciary was tasked with the critical role of holding the executive and legislative branches accountable, limiting their propensity to exceed their bounds and abuse the people. For instance, Alexander Hamilton imagined independent courts playing a “peculiarly essential” role to safeguard liberties and being an “excellent barrier to the encroachments and oppressions of the representative body.” Indeed, he contended, the judiciary would “guard the Constitution and the rights of individuals” from “the people themselves.”

Thomas Jefferson argued that judges would provide a “legal check” on political majorities. James Madison, often viewed as the father of the Constitution, predicted that
independent tribunals of justice will consider themselves in a peculiar manner the guardians of [Bill of Rights guarantees]; they will be an impenetrable bulwark against every assumption of power in the legislative or executive; they will be naturally led to resist every encroachment upon rights expressly stipulated for in the constitution by the declaration of rights.

Of course, all too often the judiciary fails to fulfill this role today. No less than the presidents and congressmen, judges have become avid advocates of statism. Jurists as well as politicians should be held accountable. Unreviewable power is always dangerous.

Throw the Bums Out?

Some 20 states have implemented Cruz’s second idea, of retention elections. Few judges are defenestrated, but on occasion, the results are dramatic. Three decades ago, California voters ousted three state supreme court jurists who had effectively repealed the death penalty. In 2010, Iowa voters defeated three state supreme court judges who ruled in favor of gay marriage.

National judicial elections, however, would be far more problematic. Should the decision be made via national vote or by a majority of state votes? Moreover, it is hard to believe that Americans who today choose their president based on 30-second television spots would pay serious attention to esoteric legal issues and make the fine distinctions characteristic of legal and constitutional analysis. Worse, judicial votes might reinforce the reigning political consensus, allowing majorities to remove justices most prepared to enforce the constitution against those in power. Unfortunately, further politicizing the judiciary would be an uncertain means of counteracting the problem of a politicized judiciary.

There is a better alternative.

The Solution: Fixed Terms

The Constitution should be amended to authorize fixed terms for federal judges. Perhaps one term of 10 or 12 years for Supreme Court justices, though Federalist Society founder Steve Calabresi suggested 18-year terms. Another option would be a renewable term of 6 or 8 years. Staggering terms would ensure every president at least a couple of appointments. Mixing short and long terms would expand diversity.

Such an approach would offer several advantages. While every appointment would remain important, judicial nominations would no longer be as likely to become political Armageddon. The new justice’s service would be bounded with his exit from office already set, and another appointment would be due a couple of years later.

Term limits also would ensure a steady transformation of the court’s membership. New additions at regular intervals would encourage intellectual as well as physical rejuvenation of the court. No longer would justices attempt to desperately hang on in order to outlast a president of another party. Law rather than health would determine the pace of judicial appointments.

Most important, fixed terms would establish judicial accountability. Justices still would be independent, largely immune to political retaliation for their decisions. Thus, if so inclined, they still could “resist every encroachment upon rights expressly stipulated for in the constitution by the declaration of rights.”

Nevertheless, abusive judges would no longer serve for life. Elective officials could reassert control over the court without destroying the judicial institution. There would be no court-packing, a la Franklin Delano Roosevelt, as transformation would take time, over two or three presidencies.

The Supreme Court has become as consequential as the presidency in making public policy. Indeed, contrary to their originally envisioned role, judges have become as likely as politicians to push to expand state power and limit individual liberty. It is necessary to find a way to impose accountability while preserving independence. Appointing judges to fixed terms would simultaneously achieve both objectives.
Let's make this  happen.  Fast.