Economists are Still Missing the Point on the Economy

A friend of mine on social media recently drew my attention to an article in Scientific American that drew my ire. Here's the Article. I find it amusing how economists can be so bright and yet so clueless as to the actual inner workings of the economy. But I guess when you are partisan and doctrinaire, it does give you blind spots. Here, the author is arguing that the American economy is rigged, and he blames insufficient regulation and enforcement. Obviously, I disagree with his assessment.

The American economy is rigged, just not in the way the author implies. He also is surprisingly clueless about the regulation of finance, given he was an advisor to the Clinton Administration. He talks about the relaxation of laws, but doesn't cite which laws specifically (using general terms throughout). From my perspective, corporate and finance laws have grown substantially year over year for a very long time. Sarbanes Oxley after the tech bubble burst and Dodd Frank after the great recession, are just two more recent examples. Also, anyone familiar with the regulatory state knows that they publish a vast amount of new regulations every year. Here's just the laws promulgated by the SEC's corporate finance division this year, for reference. The SEC is just one of a vast array of federal agencies, and each of the 50 states have a vast array of their own. Here's a list of federal agencies, also just for reference. Each of these agencies promulgates its own rules similar to the SEC taking up reams of paper. This is a vast and continuing expansion of regualtion, not a reduction.

The way the US economy is rigged is not from a lack of regulation or enforcement, it's through regulation and free trade. Regulations add a time and monetary burden on everyone participating in the regulated part of the economy (known generally as compliance costs). The companies that are best able to absorb the costs of new regulations are the large and rich multinationals who can afford to pay professionals to do proper compliance. Small local businesses, on the other hand, don't have the large amount of capital, or the credit lines, to hire the compliance people they need to compete effectively. The result is industry consolidation as small businesses are bought or go out of business, and the death of local competition. Since small business used to hire the majority of Americans, the death of these businesses harms the working man by reducing the supply of jobs in his local economy. With supply of labor growing continuously, this means workers are in a race to the bottom on wages to compete for a diminishing number of high paying jobs. Free trade further allows large corporations to shed middle and working class jobs by sending them to oversees markets that don't have our robust employee protections and high standard of living. Want to unionize? Now your jobs are all in South East Asia, feel free to unionize on the unemployment line. Why is everything made in China and Bangladesh? Because it's much cheaper to do business in those countries. Their low standard of living combined with comparatively little government oversight of the manufacturing process means it's much cheaper to make things there and ship them to the US and Europe. When you engage in free trade with the third world, their comparative advantage is low labor cost, while yours is large quantities of capital looking for better returns. The result is that capital then flows to the lower cost region of the world, profits come back on increased margins on labor, and the globalist corporation reaps a windfall in profits. 

Lastly, the author engages in some statistical misdirection that is common among left leaning economists. They point out there is a wider disparity between rich and poor in the US than other first world countries, but then doesn't bother to give you the raw data to see where this disparity comes from. Here, the author gives it away when he points out the USA has more billionaires that China and Europe. Well, even if the poor and middle classes all had the exact same standard of living in the USA, Europe and China, the fact that we have more rich people will give us a higher inequality rating simply because our rich are much richer, not that our poor are worse off. Moreover, there is ample evidence that even this is suspect as both Europe and China have long histories of hiding wealth from their governments. Examples: https://abcnews.go.com/International/ferrari-crackdown-italy-declaring-war-tax-cheats/story?id=16401014 . http://en.people.cn/n3/2018/0910/c90000-9499141.html . It could very well be that the reason we have more billionaires in the USA is because they have less incentive to hide their wealth from authorities, not that we actually produce the most wealth than China or Europe (though per capita GDP figures due tend to imply that we do produce more wealth, assuming these numbers are reliable, which they may not be due to the aforementioned tax evasion).

So what's the solution? Unfortunately, there aren't easy answers here. You can just accept job losses until the standard of living in the rest of the world raises enough to make it financially beneficial to bring jobs back to the US (some evidence of this happening as China and India have developed) but this means a long period of time where the poor and middle class suffer. Or, we can impose large tariffs on imported goods from these countries with low standards of living to protect our workers. The cost of this being that we would have to pay inflated prices for retail goods made overseas. Another options is that we can do a better job of regulating our local industries so we don't put small businesses at a competitive disadvantage to multinationals, but this would require massive rewriting of state and federal rules and regulations at a time when bipartisanship is at an all time low (i.e. highly unlikely to ever happen). My bet is we do nothing, inequality continues to rise and everyone plays the blame game without accomplishing anything.

Baby Boomers Need to Get Over Themselves

It's been about a year since I posted last... I would like to say that it's because I haven't had much new material to write about, but that's not true. The truth is quite the opposite, in the modern world there is so much stupidity and horribleness that the sheer multiplicity of targets makes it hard for me to pick one. That said, today I came across an article a friend of mine had posted on social media, and it made me mad enough that I posted a response. In reviewing my response, I decided that I should also share it here, as it falls into this blog's rubric of political, economic and philosophical discussions.

First, let me post a link to the article so that you all can read it and think about it: http://time.com/5280446/baby-boomer-generation-america-steve-brill/ .

Have you read it? Ok, here's my response:

"It's an interesting essay, but it reeks of self congratulation and "white" guilt (better read as the guilt of a successful person looking back on a life of selfishness, not a feeling exclusive to white people). The author is a baby boomer attorney with an ivy coated CV and a long resume. His claim is that the brilliant and successful boomers have destroyed America because they were too smart and too successful (amazing he can type while patting himself on the back that thoroughly) and now they should be concerned with looking out for the little guy, because otherwise America is doomed. He ignores the fact that the actual gilded age saw many of the same problems we are having today, and that lead to the rise of Socialism and Marxism (especially Marxism, his call that the workers should seize the means of production ran opposed to the Rockefeller et al. industrial monopoly barons of that era). What we are going through is another similar era, but instead of the industrial revolution, it is a digital and global revolution. But the same problems remain, we are killing jobs in certain areas while creating new ones in other areas with little means of retraining workers to take advantage of these new jobs (especially in the modern era where training takes many years and tens of thousands of dollars in educational expenses). And for all his talk about new achievers lobbying government for change, he seems to ignore that people were lobbying for change in the previous fifty years as well, and that there is little indication that the current generation will be any more successful than the last, or that one political spectrum is winning the battle for the hearts and minds of America over another. In the end, the author needs to get over himself and his pointless and insignificant achievements and realize that there is nothing special about the baby boomer generation, even its profound selfishness and search for redemption is nothing new. America will continue and isn't anymore broken now than it was when the stock market crashed us into a great depression at the end of the gilded age. It just needs to adjust to the growing pains associated with a revolution in how the general public provides for itself."

There is good reason for the current generation of young adults to be angry at the previous ones. The current world is one crippled by debt, ravaged by turmoil, and not friendly to the young lacking in wealth. That said, these problems are nothing new, and even if they were, that doesn't change the fact that they will have to be dealt with one way or another. And in the end, that's what the world is looking for, solutions to the problems of the modern age. This is also where the above article fails completely, it doesn't give us any solutions except to look to the new achievers. But this is a cop-out. It also belies the true point of the essay, which is not to help, but to go on a self absorbed lament about being a successful boomer wracked with guilt (or perhaps burdened by gilt) and hoping someone else solves the world's problems. Well guess what, you who bragged about your wealth and brilliance, why not try using your money and talents to make the world better yourself? Money, power and influence make this world you built go around, so how about doing something tangible to improve things? Oh, that's right, that would require effort on your part, and you're just super tuckered out after being so super smart and successful. Better let another generation deal with it. Guess what? Doing nothing and lamenting about it is no way to assuage your guilty conscience, and it runs counter to your initial assertion that you're a brilliant and successful over-achiever.

Why the Young Reject Capitalism

I know, it's been a while since I posted anything. My problem has been that the news cycle seems to be 100% Trump, and that means I find it 100% uninteresting to write about. I will leave that subject alone, since (almost) literally every single other post on the internet seems to be about him. Why pile on with obvious rebuttals and pointless fist shaking?

Fortunately, today I read an article in the Wall Street Journal (WSJ), HERE, about the apparent disconnect between the young's idolization of the silicon valley types (the Elon Musks of the world) and their vilification of capitalism. Now, the first thing I would like to point out here is that this is a terrible stereotype. The young, like the middle aged and old, hold a multiplicity of political and social opinions. So attempts to pigeonhole them into one particular view is, at best, misleading. Still, even if we accept the premise that the young or "millennials" all hold silicon valley types up as icons while hating capitalism, why should this come as such a surprise to the Wall Street types who the WSJ typically appeals to? Can they really think of NO reasons why the young would mistrust free enterprise and big business? It all seems very disingenuous.

Firstly, if we are going to stereotype millennials, we can at least do so a bit more accurately by saying they are far more tech savvy than the older generations, given they grew up on the internet and with smart phones. But even here, I admit, we are painting with a broad brush. Secondly, that they have lived through multiple economic down turns with both the tech bubble bursting and the great recession occurring during their lifetimes. Lastly, their generation has been saddled with more debt than any previous generation, due largely to the cost of college spiking during their lifetime. So, even without bothering to put up any more examples (of which their are plenty) of the apparent failure of capitalism to provide them with an improving quality of life, it should be obvious why the young distrust capitalism. They have seen the worst aspects of it without reaping any of the benefits, or that's at least how it appears to them. Obviously, modern America and our high standard of living exists, at least partially, because of capitalism, so we all (arguably) reap the benefits. But the point is, the defining moments of their lifetimes have not been ones in which capitalism has had much to crow about.

Now compare this with silicon valley. We have young dynamic companies creating billions of dollars seemingly overnight using the very technologies that this generation grew up with. More over, these companies are anxious to hire millennials and make use of their tech knowledge (one of the few areas of the economy that is all that interested in this generation).  More over, they have seen the Bill and Melinda Gates foundation use money earned in tech to do real good in the world. Similarly, they have seen Elon Musk create new companies and vast fortunes on technologies designed to ween the world from our reliance on fossil fuels that are (at the very least) partially responsible for our current global warming trend. Is it really a surprise that the young think highly of these actions?

The point of the article in the WSJ is really that we should be calling attention to all the good that capitalism has wrought (and the wrong government has caused through excessive regulation) and proselytizing this to the masses. And I do not disagree with this point. What I do disagree with is the facile notion that all millenials think a certain way, and that the benefits of capitalism should be obvious to the younger generations given our recent history. If we are to make a convincing argument for free enterprise and capitalism free of government interference, we should start by being honest with ourselves that the case for this is not nearly as obvious as we would like it to be. And from this point of mutual understanding, we can then build a case (using tech companies, if that seems the most likely example to keep our audiences' attention) that capitalism and free enterprise are things worth preserving.

In the Age of Trump, the Left Needs to Rethink Its Tactics

There were two very important editorials in today's Wall Street Journal that I'm sure most of its loyal readers glossed over. The first is a piece about how Liberals need to have a long look in the mirror about who is really at fault for the rise of Trump in the USA and ultra-nationalism in the EU and elsewhere. Here's the link. The second is a piece about how Liberals are going to have to rethink how they treat ever utterance and Tweet by Trump, as exhaustion will quickly overtake the wave of outrage they have been riding since he was elected. Here's the link to that piece. These are important opinion pieces about how the Left needs to change in order to be an effective force against these new political movements. If you have access to the WSJ, I highly recommend you read them. Because, as far as I can see, the Liberal political movements of the world are getting their asses kicked in local elections, and one party rule, regardless of the party, is never healthy for any country. Even though I dislike many of the policies of the left, I want them to be an effective fighting force against the worst deprivations of the right.

The problem in the USA currently is that the Democrats spent the last 6 years running this country through executive fiat after they lost their super-majorities in the first mid-term election of the Obama White House. They ran the country this way because they felt they had to, but also because they could not conceive of a future where they were not in charge of the executive branch of the US government. I get the feeling that both France and Germany in the EU have been doing much the same things, and are now perilously close to seeing Mrs. Merkel in Germany lose her re-election and see Marine Le Pen in France, if not take over the government there, continue to gain political power. The reason for this is because the left all around the globe have been in power for so long, and have isolated themselves from the people they supposedly represented for so long, that they are unable to truly understand the backlash they are facing. With that level of isolation, and policy making in an echo-chamber, they now find themselves unable to fight off the advances of their rivals. That very echo-chamber has sowed the seeds of their own defeat, and I fear a world where ultra-nationalism controls the helms of all of the world's super powers.

So, for any Liberal who truly doesn't understand how Trump beat Hillary, who truly doesn't get why Brexit won a majority of the vote, and who can't understand who would possibly vote for ultra-right leaning politicians, read these articles. They, better than I, will explain how your smarmy self congratulations over policies that did real harm to real people have rankled with the electorate. How every time you fought a battle for political correctness to the point of ruining someone's life that they and their friends took notice and began to hate you. How every time your politicians showed up in a limo to a $1000 a plate fundraiser to talk about how more needs to be done for the less fortunate, while doing little but expanding the well-fare state, infuriated many of the people you were supposedly trying to help. Basically, read those articles and understand, truly, how you all became the morally repugnant elite of the first world, and why your asses are getting kicked by people you think of as abhorrent. You've allowed previous successes to turn you into Marie Antoinettes saying "let them eat cake" as the revolution comes to your doors (I realize this is apocryphal, but it's a good analogy). You've become the limousine liberals that you likely once vowed you would never become. Please, for the sake of the world, do a better job. Because the rise of nationalism has, historically, signaled the beginning of a rough patch in human history.

Thank God That Awful Election is Over

"Welcome back," I say to myself as I sit down to write my first post in a few months. The reason for my absence is that the US election has been dominating the news for so long that there hasn't been much substantive news for me to be angry about. See, when I need inspiration for posting here, I go to my favorite news sites and wait for the idiocy and pig-ignorance to wash over me until I'm hopping mad about something. It usually takes the form of some article pontificating on a problem whose solution or answer seems obvious to me. Favorites have been why birthrates have been falling, why our economies have been stagnating and similar topics. The problem I have during an election cycle is that there is so much low hanging fruit (of the ignorance and stupidity variety) and so much hyperbole and histrionics that it isn't fun to point out how dumb most of it is. In case you haven't noticed, politicians lie, cheat and steal in order to get into office and then ignore all the promises they made (at least to the voting public, if not their donors list) while trying to get into office. This makes every debate, every speech and all that political spectacle pointless. Your best bet, as a voter, is to do a little research ahead of time about party affiliation and candidates' stated positions on the issues and then hope for the best. But watching the two year presidential election cycle like some sort of god-awful reality tv show is just an exercise in masochism. So, now that it's over, I will try to find more substantive stories in the news to be angry about so that I can write illuminating posts.

If you are at all wondering about my personal politics, I didn't like either of the two mainstream candidates and didn't vote for either of them. If it wasn't for my state and local elections, I wouldn't have bothered going to the polls. But state and local elections matter and have far greater impact on our daily lives than their low voter turnout implies they do, so I felt it was important to put in my two cents despite the garbage headliners. But beyond that, I wont waste any space on the internet adding to the plethora of articles pooping on Hillary and the Donald. It's been done to absolute death and at this point I'm not sure there's much more to say. I'll leave the continuing idiocy to other news sources who are far more experienced with histrionics than yours truly.

I don't know about you, but I am truly looking forward to the day that I open the front page of a newspaper and see that it contains no new stories about either of the candidates for president. It will be a small breath of fresh air in a stale and tired news cycle.

The Federal Reserve Failure

Today marks the beginning of the annual meeting of central bankers in Jackson Hole Wyoming. The central bankers of the world meet annually here to discuss their shared mission of ensuring that the world's financial markets continue to fuel economic growth around the world. Unfortunately, they are confronted with the same problem they have all faced since the great recession "ended", namely that they are seemingly incapable of achieving their missions. With persistently low inflation, low labor participation rates and slow economic growth from the entire first world, it is undeniable that the central banks of the world have failed to achieve their shared goal of persistent economic growth. Numerous newspapers around the world have taken the opportunity this meeting presents to opine on why this is and what should be done about it. Once article in particular struck me though; it's an opinion piece in the Wall Street Journal by a former member of the Federal Reserve board who has turned academic. Here's the Link . I encourage you to read the piece because I think it has some very prescient ideas about how the US Fed system needs to change.

What got a bee in my bonnet about the above linked article though was the repetition of the sentiment that academics and central bankers are confused as to why we have slow growth in the first world. Now, I've talked about this before Link , but the reason we have slow growth is anything but a mystery. We have strangled growth with high taxes, vast and expensive regulatory states, vast debts (both at a government level and at an individual level) and laws that encourage multinationals invest in the developing world while stymieing growth of small business back home. At this point, the continued complaint feels a lot like the famous Simpsons quote: "We've tried nothing and we're all out of ideas!" Link . The real problem here is that the Fed's mandate is to control unemployment and inflation by manipulating the federal funds rate and doing asset purchases and sales through the treasury. But, to solve the problem of persistently low growth, we need comprehensive regulatory reform to change the incentive structures that encourage businesses to move elsewhere and not reinvest their earnings at home. This means that the required reform literally is not within the Fed's powers. All the Fed can do is reactively adjust the interest rate and buy and sell assets, essentially manipulating the money supply, to try an get businesses to invest in labor and capital. There's nothing the Fed can do about the fact that international businesses are taking the cheap money, looking at the regulatory landscape, and are using that money to buy back their stocks, buy out competitors and move operations overseas to cheaper locales. The only way to fix this incentive problem is for the legislatures of the first world to undertake massive reform. Instead, what we have is infighting and regulatory sclerosis.

So where does that leave us? I predict that the results of the Jackson Hole meeting of central bankers will be a lot of hand wringing and a lot of doubling down on the same failed strategies. Until the governments of the world put on their big boy and girl pants and sit down and actually do some legislative reform, the first world is going to continue to follow in Japan's footsteps of ever increasing national debts and persistently slow or negative growth. So, to quote another internet meme, to the governments of the first world: "Your policies are bad and you should feel bad!" Link .

What's Going On in American Politics

Hello once again dear readers. As you may have noticed, I've been avoiding talking about the current election in the USA. This has left me with little to blog about recently, as the news here is still pretty much all election all the time. My not writing about the campaign is mostly because of my complete disdain for the process and my antipathy towards the candidates. The primary process is a joke, the rules are skewed to favor establishment candidates, and it has become so expensive to run that only shills for their party's well heeled interests can afford to run. Well, them or bombastic billionaires who don't care about wasting a few hundred million here or there. So I've avoided the subject like the poison it is.

During this time I have noticed that the powers that be in this election cycle constantly wonder why it is someone like an avowed socialist, or a bombastic billionaire, can be viewed by so many as viable candidates. To me it's never been that difficult to figure out, it's because both parties have betrayed their voters. What do I mean by this? That the left leaning democratic voters have seen election after election where their candidates have pledged to tame corporate interests and help the middle and working classes, and then failed completely to do so. Then, instead of owning up to their complete failure and acknowledging that most of their biggest donors are the corporate interests that they had pledged to tame, they blame the other party despite having controlled the presidency for 7+ years and majorities in the legislature on and off during this time. And don't think I'm letting the republicans off the hook either. They get elected by pledging to uphold "traditional" values, taming big government, and allowing the free market to prosper and create jobs for the middle and working classes, and have also completely failed in accomplishing any of it. They, however, at least are honest about being shills for their corporate overlords, not that this is all that much better than lying about it like their opponents do. Both parties are like children standing over the broken lamp of America and pointing at the other saying "He did it!" It's disgraceful. Meanwhile, wages have shrunk or stagnated, the labor participation rate has bounced around historic lows, and millions have fallen into virtual poverty, even if they aren't in poverty statistically. It baffles me how these fools can't see this and don't recognize that their positions of power have never, in their lifetimes, been on shakier ground. If they can't see socialist candidates and populist blowhards as canaries in the coal mines, then they deserve to be tarred and feathered. And if they continue to be so oblivious, they risk the proverbial tar and feathering becoming actual violent social unrest. This country was founded on revolution, and they would be fools to think another one isn't possible. But then, we already established their foolishness.

To go along with this sentiment, I read a poignant piece in the Wall Street Journal by Peggy Noonan. The premise of the article is having a "2016 Moment", or to realize this election will be historic, and not necessarily in a good way. She reports one of her long time friends, in stumping for a candidate in New Hampshire observed that:
"I was struck as I walked along a neighborhood using the app that described the voters in each house. So many multi-generational families of odd collections of ages in houses with missing roof shingles or shutters askew or paint peeling. Cars needing repair... It was easy to see a collective loss of hope in a once-thriving town... years of neglect and sadness. Something is brewing."
http://www.wsj.com/articles/that-moment-when-2016-hits-you-1461281849
This, I believe, hits it on the head; this is exactly what's going on in this country. Years of political neglect and kowtowing to special interests and the elite of both political persuasions has created a hollow shell of the America that was. An America which flees to the welcoming and reassuring arms of socialism, or into the bombastic fury of populism. Years of pursuing trade deals that export jobs and import profits for the elites, years of increasing taxation and decreasing return on those taxes, years of abject neglect, have destroyed the credibility of both parties. And if they don't make an about face soon, they may very well get crushed by the electorate they condescendingly pander to during elections, then ignore while in power.

If the politicians don't watch out, they may find the smell of freshly boiled tar visiting their neighborhoods. It may be time to invest in feather pillow manufacturers.