Aug 22, 2016

Macro vs. Micro

I have been periodically reading The Grumpy Economist (, published by professor John Cochrane.  Normally I don't lean towards academics as they are too theoretical, however, John seems to have a more applied viewpoint of economics.  Obviously I agree with the post below, otherwise I wouldn't be re-posting.



Micro vs. Macro

The cause of sclerotic growth is the major economic policy question of our time. The three big explanations are 1) We ran out of ideas (Gordon); 2) Deficient "demand," remediable by more fiscal stimulus (Summers, say) 3); Death by a thousand cuts of cronyist regulation and legal economic interference.

On the latter, we mostly have stories and some estimates for individual markets, not easy-to-use  government-provided statistics. But there are lots of stories.

Here is one day's Wall Street Journal reading while waiting for a plane last Saturday:

1) Holman Jenkins,
... unbridled rent seeking.  That’s the term economists use for exercising government power to create private gains for political purposes. 
Channelling Jefferson,
Mr. Obama’s bank policy dramatically consolidated the banking industry, which the government routinely sues for billions of dollars, with the proceeds partly distributed to Democratic activist groups. 
His consumer-finance agency manufactured fake evidence of racism against wholesale auto lenders in order to facilitate a billion-dollar shakedown.
 His airline policy, urged by labor unions, led to a major-carrier oligopoly, with rising fares and profits. 
His FDA is seeking to extinguish small e-cigarette makers for the benefit of Big Tobacco and Big Pharma (whose smoking-cessation franchise is threatened by cheap and relatively safe electronic cigarettes). 
His National Labor Relations Board, by undermining the power of independent franchisees, is working to cartelize the fast-food industry for the benefit of organized labor.
Summing up,
We could go on. Mr. Obama’s own Council of Economic Advisers complains about the increasing cartelization of the U.S. economy—as if this were not a natural output of regulation. In a much-noted Harvard Business Review piece this spring, James Bessen, an economist, lawyer and software entrepreneur, cites increased “political rent seeking” to explain the puzzle of rising corporate profits in the absence of job creation and economic growth.
The truth is, government playing neutral arbiter over the private economy doesn’t produce rents. A stable and predictable regulatory system produces only mingy or non-existent rents.
2) Uber class action buffet
Federal judge Edward Chen on Thursday rejected a $100 million settlement in a class action alleging that Uber misclassified drivers as independent contractors. That’s a big pot of cash, but the judge says the ride-hailing company can be raided for billions more....Judge Chen complained, however, that the settlement required class members to drop all employment-related claims (e.g., minimum wage, rest and meal breaks and workers’ compensation) ...he settlement would have pre-empted at least 15 lawsuits for employment-related claims as well as cases “before various administrative bodies such as the NLRB.”...the settlement would have scotched lawsuits brought under California’s Private Attorneys General Act—known among businesses as the “bounty hunter law”—that lets private attorneys litigate labor, safety and health code violations on behalf of the state. California pays the lawyers’ fees and keeps 75% of the bounty. The state’s Labor & Workforce Development Agency carped that the statutory penalties against Uber could exceed $1 billion.  
Uber brings flexible employment to thousands, and dramatically better and cheaper rides to consumers and businesses. Whatever you think of contractors vs. employees, nothing in this improves productivity and economic growth, or encourages the needed massive investment towards self-driving ubers.

3) You don't need a dentist to fill a cavity Whether (cheaper, less licensed) dental therapists will be allowed to provide basic services especially in poor areas where there are no dentists.

4) How Obama’s FDA Keeps Generic Drugs Off the Market
 One of the biggest factors fueling the angst over drug prices in the U.S. is that some older medicines that should be sold cheaply as generics are still priced very high, often owing to a dwindling number of generic competitors recent years the Food and Drug Administration has imposed on generic firms many of the same costly requirements that the agency applies to branded-drug makers.  
In 2003...we estimated that it cost less than $1 million for a firm to file a generic-drug application. ...Today, filing a generic application requires an average of about $5 million and can cost as much as $15 million.... 
For generics filed in 2009, the median review time exceeds three years. Yet generics launched in 2015 took about four years for the FDA to approve, since less than 2% of applications were approved on their first submission.    
A new FDA draft regulation...would force the generics to clutter their drug labels with defensive advisories to avoid “failure to warn” lawsuits. Legal fees stemming from the regulation would add over $5 billion to annual health-care costs, rising to $8.6 billion by 2024, ...
And this is just one morning's reading of one paper's opinion section while sipping coffee at the airport. Even the New York Times is waking up to the apres-Obama regulatory deluge.

As these stories make clear, the problem is not benevolent but ham-handed interventionism. The problem, much tougher, is best described as "cronyism." A veneer of public purpose stifles markets, to drive profits to connected parties in return for political support.

Can we really screw up every single market but make it all up with "demand?" The "ideas" and "stimulus" approaches presume everything else in the economy is working just fine. Is investment really slow only because there are, fundamentally, just no good ideas to invest in any more?

The deeper economic issue is whether "macro" and "growth" outcomes really can be separated from "micro" distortions in each market.

Aug 18, 2016

Obama's Promise of Improving our World Standing-More Failed BS

Remember when Obozo promised that he would "repair our standing around the world"?  HE has systematically destroyed the effectiveness of NATO, empowered Russia, given billions to Iran so they could support global terrorism AND become partner with Russia, released terrorists, abandoned Syria (who cares about 500,000 dead civilians), allowed the "Junior Varsity" of terrorist groups to take over most of Iraq, and given Cuba carte blanche without requiring them to do anything.

In the note below you will notice references to "the West", that's us.  Obozo has allowed NATO ally Turkey to swoon into the sphere of Russia (notice a trend here?).  It's ironic the Left has criticized Trump for his bromance with Putin, but fails to look inward at their failed policies that have allowed him to bring that country back as he attempts to rebuild the old Soviet block-without even a threat, much less a response, from our fearful leader.

Thanks to Zero Hedge for the note:

As Turkey "Considers Military Cooperation" With Russia, US Said To Move Nukes Out Of Turkey

by Tyler Durden
Over the past month, ever since the "failed" Turkish coup, there has been a dramatic, and surprising, deterioration in the of Turkey with various European states, most notably Austria and Germany, as well as with the US, and NATO in general. This was confirmed once again earlier today when Turkish Foreign Minister Mevlut Cavusoglu lashed out at NATO, in an interview with Russian Sputnik, saying the alliance is not fully cooperating with Ankara. More importantly, he hinted that Turkey would consider military cooperation with Russia.
In the interview, Cavusoglu said that Ankara has become alarmed at the lack of willingness shown by NATO to cooperate with Turkey, which is a member of the alliance. "It seems to us that NATO members behave in an evasive fashion on issues such as the exchange of technology and joint investments. Turkey intends to develop its own defense industry and strengthen its defense system,” he said.
Turkish Foreign Minister Mevlut Cavusoglu
And, as a result of Turkey's rising animosity toward NATO, it appears to have handed yet another fig leaf to the Kremlin: “In this sense, if Russia were to treat this with interest, we are ready to consider the possibility of cooperation in this sector," Cavusoglu said when asked about the possibility of working with Russia in the defense sphere.
It was Cavusoglu’s strongest rebuke of NATO to date. In an interview with the Anadolu news agency on August 10, he said that Turkey and Russia would look to establish a joint military, intelligence, and diplomatic mechanism, while adding that relations with NATO were not as satisfactory as he would have wished. He also proposed to bypass the dollar in bilateral trade between Turkey and Russia.
“Turkey wanted to cooperate with NATO members up to this point,” he said. “But the results we got did not satisfy us. Therefore, it is natural to look for other options. But we don’t see this as a move against NATO,” he told Anadolu.
Cavusoglu accused the West of treating Turkey and Russia like “second class countries” simply because they did not see eye-to-eye. "They consider Russia and Turkey to be second class countries, and they are outraged that these second class countries dare to criticize them… Therefore, faced with the straightforwardness and resilience of Erdogan and [President Vladimir] Putin, they feel very worried and anxious," Cavusoglu said.
Cavusoglu’s criticism was not restricted to NATO, as he launched a broadside towards the West, saying it was largely responsible for the crisis in Ukraine. “Look at what has happened in Ukraine,” he told Sputnik. “They were always threatening the country and forcing it to make a choice between them and Russia. They were saying, ‘you will either be with us or with Russia.’ This course of action is futile. What is happening in Ukraine is a reflection of the main problems in the region.”
* * *
To be sure, Russia has promptly taken advantage of these Turkish overtures, and in addition to the recent meeting between Putin and Erdogan where the two leaders vowed to boost economic and diplomatic ties, a member of Russia’s upper house of parliament has suggested that Turkey could provide its ?ncirlik air base for Russian Air Forces jets in their campaign across the border in Syria, Turkish daily Hurriyet reported.
“Turkey could provide the ?ncirlik base to the Russian Aerospace Forces for its use in counterterrorism operations [in Syria]. This could become a logical continuation of Turkish President [Recep Tayyip] Erdogan’s step toward Russia,” Senator Viktor Ozerov, member of the Russian Federation Council Defense and Security Committee, was quoted as saying by RIA Novosti on Aug. 16.
According to Russian news agencies, Ozerov did not rule out that Ankara could offer the use of its air base after Erdogan’s reconciliatory visit to St. Petersburg last week, where he affirmed support for Russia’s anti-terrorist mission in Syria. “It is not guaranteed that Russia needs ?ncirlik, but such a decision could be regarded as Turkey’s real readiness to cooperate with Russia in the fight against terrorism in Syria, and not just pay lip service,” Ozerov was also quoted as saying.
Ozerov also clarified that the decision could be taken based on similar agreements made with Syria on the use of the Hmeymim facility and the latest use of the Hamadan airfield in western Iran to carry out airstrikes in Syria, the Russian news website Sputnik reported on Aug. 16.
Turkey opened its ?ncirlik base to the U.S.-led anti-ISIL coalition in
July 2015 after a bilateral agreement was signed among both parties.
Notably, Incirlik airbase is where the US has stationed over 50 B61 nuclear bombs, as reported before. Which may explain why according to EurActiv, which cites two independent sources the US has "started transferring nuclear weapons stationed in Turkey to Romania, against the background of worsening relations between Washington and Ankara."
According to one of the sources, the transfer has been very challenging in technical and political terms. “It’s not easy to move 20+ nukes,” said the source, on conditions of anonymity.
Another source told that the US-Turkey relations had deteriorated so much following the coup that Washington no longer trusted Ankara to host the weapons. The American weapons are being moved to the Deveselu air base in Romania, the source said. Deveselu, near the city of Caracal, is the new home of the US missile shield, which has infuriated Russia.
EurActiv has asked the US State Department, and the Turkish and the Romanian foreign ministries, to comment. American and Turkish officials both promised to answer. After several hours, the State Department said the issue should be referred to the Department of Defense. EurActiv will publish the DoD reaction as soon as it is received.

The Romanian foreign ministry strongly denied the information that the country has become home of US nukes. “In response to your request, Romanian MFA firmly dismisses the information you referred to,”  a spokesperson wrote.

According to practice dating from the Cold War, leaked information regarding the presence of US nuclear weapons on European soil has never been officially confirmed. It is, however, public knowledge that Belgium, the Netherlands, Germany and Italy host US nuclear weapons.
Recall that earlier this week, a US-based Think Tank, The Stimson Center, warned that US nuclear bombs In Turkey are at risk of "Seizure By Terrorists Or Other Hostile Forces."
As such, while unconfirmed, EuroActiv's report does make strategic sense for the US and Romania, which is emerging as the new Eastern European focal point in the Cold War 2.0, even as NATO, and the US, quietly vacate Turkey. However, if even tangentially confirmed, it will merely accelerate NATO member Turkey's recent, and abrupt, shift away from the US sphere of influence and into that of Russia, a move which would have the biggest geopolitical consequences for the global balance of power since the end of the Cold War.

Aug 11, 2016

Hillary, The Donald, and Obama-They All Slept Through Econ 101

Hello All

I haven't posted in a very long time, but given all the garbage coming from our two candidates as well as our sitting President regarding the economy, I felt compelled to add my two cents.

This week both Hillary and The Donald offered their prescriptions to solve our economic woes.  Both plans are horribly off the mark, although I will say that The Donald ALMOST gets it right in a couple of areas.  Unfortunately he really can't explain it as he is just repeating what his team of economists told him.

Hillary came out and had the chutzpah to criticize The Donald's plan as she proposed a Keynesian nightmare that won't solve anything except her desire for power by buying votes with economic sounds bites that strike a populist chord.

Amazingly these two candidates are so bad that the country has taken another look at Obama and decided he really isn't as bad as we all suspected.  I think part of his improving approval rating is a direct result of him taking the George Bush approach to leadership.  When Bush was in office he rarely gave major speeches.  During the first seven years of the Obama administration he gave a speech- actually, lecture would be a more accurate description- almost daily.  The American people couldn't stand him-with the exception of the 18% self-described liberals and the media, who are liberals but don't describe themselves as such.  Now that he's taken to golfing and working on both his foundation (think Clinton Foundation) he doesn't have as much time to lecture us on how we should think, act, and be, and his popularity has risen accordingly.  Sometimes less is more.

Polling Data

RCP Average7/29 - 8/10--51.744.4+7.3
Gallup8/8 - 8/101500 A4946+3
Rasmussen Reports8/8 - 8/101500 LV5247+5
Reuters/Ipsos8/6 - 8/101459 A5045+5
Bloomberg8/5 - 8/81007 A5044+6
Economist/YouGov8/6 - 8/9911 RV4949Tie
Monmouth8/4 - 8/7683 LV5640+16
ABC News/Wash Post8/1 - 8/4815 RV5345+8
McClatchy/Marist8/1 - 8/3983 RV5340+13
NBC News/Wall St. Jrnl7/31 - 8/3800 RV5244+8
IBD/TIPP7/29 - 8/4921 A5240+12
FOX News7/31 - 8/21022 RV5245+7
CNN/ORC7/29 - 7/311003 A5445+9
PPP (D)7/29 - 7/301276 LV5047+3

The fallacy being followed by both of these candidates is that "shovel ready" spending on infrastructure has a stimulative effect on the economy.  This analysis is based upon observations from the 1940's and 1950's when the highway system in this country was expanded dramatically.

Consider a strawberry farmer in Peoria (please don't lecture me that they don't grow strawberries in Peoria, this is just an illustration) in the 1940's.  Because there was no paved road to Chicago, this farmer didn't have access to the larger Chicago market.  In steps the government to build the road, which has three impacts which are important.  First, jobs are created immediately.  This isn't stimulative in the long run because, unless the government wants to keep spending (I mean, who could imagine that?) those are temporary jobs.  Second, the money diverted from the private sector to pay for those jobs has a higher multiplier effect than the jobs, meaning ultimately, unless the economy has tons of slack, the impact of those jobs is actually negative on the overall economy.  Third, the new road creates access to a new market for the farmer, who can expand his business to address the new market, planting more strawberries, buying more fertilizer, using more water, possibly hiring more help, all of which is stimulative to the country's economy and hopefully his bottom line (I'll try to skip the tangent where the Democrats try to achieve something similar without letting anyone but the Clinton Foundation profit, for now).

Fast forward to 2016.  The road is in disrepair, but still being used by the strawberry farmer.  The government decides to repair the road, again creating temporary jobs at the expense of the private sector, in essence reducing economic activity in the overall economy.   Once the road is repaired and the temporary jobs move on or go away, we are left with the same road, albeit in slightly better condition.  Now, assuming there weren't road closures during the repair, the strawberry farmer is in exactly the same position he was in prior.  Not better nor worse.  The net is that there is no long term economic benefit from this activity.  It's akin to hiring someone to break a window, then hiring someone else to fix it.  In the end there is no difference except you've wasted some money.

This isn't to say there aren't infrastructure projects that could be additive to the economy, it's just that these two boneheads running for President are focused on roads and bridges like they are manna from heaven and spending money in this fashion will save the economy.  Hillary, who lies more than Charles Ponzi, actually mentioned in her painful, convoluted, overly contrived, pandering economic presentation a piece of infrastructure spending that could help the economy-broadband spending.  Now, it would appear from her presentation that she is actually just focused on getting subsidized or free internet access (aka Mo' Free Shit) to her constituents, however, in a knowledge based society, better access to information would be beneficial and could have a stimulative economic impact.  Unfortunately, with the exception of a couple of airports where throughput needs to be increased, the rest of her spending plan is exactly what she accused The Donald of-enriching special interests.  The temerity she demonstrates with her criticisms of pandering to special interests when her top donors are those she attacks is unfathomable.

 Let's talk a bit about the wage growth that Obozo was touting in February.  Unit Labor Costs, ie compensation, was reported to increase by 4.5% in the first quarter.  Obozo out on his victory tour, telling everyone that his economic policies were finally working.  Well, guess what kids?  The BLS revised that growth from an increase of 4.5% to a decline of 0.2%.  Have we seen that in the mainstream media?  No, because even though they are bemoaning the lack of income growth for the middle class, they are touting Obozo's success at getting wages up.  The 0.2% decline?  That's known as an inconvenient truth.

Anyway, I hope you are all well.  I'll try to post periodically and keep it on the economy and markets as opposed to the horrific leadership choices we now face.