Wednesday, August 31, 2011
Then of course there is the real world yardstick which is, how much exactly did you spend per job? According to the CBO report, about $700 billion of the stimulus has been spent, so that is $350,000 per job created or $260,000 per full time equivalent. How exactly is that a success? Were the jobs created at Goldman Sachs or something? That sounds like a pretty big failure to me especially since we are paying interest on the funds that created those jobs. Coupling this with the fact that the real unemployment rate is at a post-depression high (keeping the labor participation rate stable so you count the long term unemployed), the stimulus is unequivocally a failure. Unless you are nothing but a partisan hack or are high.
First, there is the National Labor Relations Board. You knew the group heading this crew were particularly anti-business when they sued Boeing over a plant OPENING in South Carolina, simply because South Carolina is a right to work state. What's particularly galling here is that no union jobs were lost as a result of this move, so the NLRB is basically saying that non-union members don't have a right to a job. They are also disincentivizing plant openings in lower cost states as businesses fear the wrath of the NLRB. This makes products more expensive and hence negatively impacts the discretionary income of both businesses and consumers in general. Does that sound like it's good for the economy?
Unfortunately, the anti-business, anti-non-union worker decisions don't end there. The NLRB has also scrapped a 45 day window in which workers can request a secret ballot after a card check unionization effort. Card check unionization essentially allows unions to organize without a formal vote and as it is non-secret, allows unions to bully people into signing. Hence a secret ballot would be a good way to make sure that a minority of the workers aren't speaking for the whole shop. This decision doesn't do anything for the rights of labor, just the rights of unions. The board has also just made it easier for unions to organize in nursing homes through micro-unions, aka bringing gerrymandering to unionization. This will have a very negative impact on care as the nursing home industry is currently one of the least profitable of any around, with an average net margin of 0.9%! Even the slightest change in labor costs can have a dramatic impact, causing many to lower their costs to remain profitable. This basically means that unions will be directly profiting at the expense of the elderly. And I've personally seen the difference between a good nursing home, where residents have a decent standard of living, and one where there is clearly no investment by the people in charge. It was basically a concentration camp for old people. This ruling will make more nursing homes like the latter instead of like the former. But hey, gotta help your union buddies!
Then there is the Holder DOJ war on banks. They are using pressure tactics to force banks to lend to minorities at below market rates (according to some settlements). They are using statistical analysis and the fact that certain banks might not have as many branches in minority areas to sue banks to eek out the concessions that they want. No proof of actual discriminatory intent is needed. And I don't think it would be possible anyway for any of the larger banks. They work off of statistics like income and credit scores to judge who is most likely to pay them back and adjust interest rates accordingly. By forcing loans to effectively subprime borrowers at below market rates, you are essentially forcing banks to take on more risk than they would otherwise want to. How is that going to end well for them? It's not like their balance sheets are doing especially well these days as they are still full of non-performing mortgage loans (oh, you thought they went away? Nope, banks were simply allowed to use their own discretion as to when they wrote them down. Bank of America alone may be at risk in their current portfolio for another $50 billion in writedowns!).
These regulations may seem minor, but they certainly add up. The White House recently disclosed that 7 new regulations from the EPA and Department of Transportation may cost the economy over $100 billion to comply with. I know we are used to large numbers like that being thrown around (especially when Obama flushed $862 billion down the toilet) but that is 0.7% of GDP we are talking about. That's enough to bring us into recession, especially with some plants closing because of these regulations. Obama's regulators have issued another 212 regulations each with an impact of at least $100 million. That is another $21.2 billion in costs at a very absolute minimum.
This is another reason why I will vote for ANY Republican over Obama. Republican regulators will hopefully be able to undo some of this damage, however if Obama wins, his regulators will be unleashed to do much more. And at that point he won't have another election holding him, or them, back.
Tuesday, August 30, 2011
Analysis by independent researchers revealed the Krueger-Card report, which was based on a phone survey in which fast food restaurant managers and assistant managers were asked about their staff size, to be deeply flawed. The Employment Policy Institute analyzed the phone survey results against actual payroll data from the restaurants and concluded that "the data set used in the New Jersey study bears no relation to numbers drawn from payroll records of the restaurants the New Jersey study claims to cover."
According to the Krueger-Card data set, a Burger King in New Jersey went from zero to 29 full-time workers after the minimum wage hike between February and November of 1992, while a Wendy's in Pennsylvania reduced its workforce from 30 to zero full-time workers during the same nine-month period. Truly radical — indeed, implausible — shifts in a business's employment strategy. When compared to actual employment records, the EPI analysis found that in one third of the restaurants surveyed, Krueger-Card even got the direction of employment change (whether staff was cut of added) wrong.
A subsequent analysis published by the National Bureau of Economic Research based on payroll records of fast-food restaurants during the same period revealed that Garden State workers experienced a 4.6 percent decrease in employment after the minimum wage hike compared to the Pennsylvania control group. In other words, they confirmed the commonsense economic principle that when something costs more, people can afford less of it. Or in the case of a minimum-wage hike, when workers cost more to employ, businesses can afford to hire fewer workers.
As someone who handles data on a daily basis, it's pretty clear that either Kreuger didn't know how to handle a survey like this or he knew that if he scrubbed the data properly he would have had a result that was contrary to his initial bias. Why did he include the outliers that were clearly wrong and skewing the data? Why did he rely on the memories of assistant managers at fast food restaurants? Does he really think they can remember how many people they hired or fired over any stretch of time? The fact that one third of respondents even got the direction of employment change wrong when compared to actual payroll data is pretty horrible. So I just have to wonder, did he know his study was bogus or was he such a data novice that he didn't realize its flaws?
It comes down to this: do you prefer a president who doesn't believe in evolution, or do you prefer a president that doesn't believe in Israel?
That counts for something.
It sure does Kinky, it sure does. Personally, I'd prefer a President who believed in both but as a President can't do anything about evolution but can do plenty about the existence of the State of Israel, my choice is clear.
And there's the rub. When I mentioned that I liked Rick Perry here and on Facebook, some of my liberal friends started pummeling me with Perry's statements on evolution, prayer in school and the separation of Church and State. My reaction was pretty much "so what?". What power does the President actually have to impose religion on anyone in this country? He can't force school to teach creationism or intelligent design, those decisions are made at the local and state level. Pretty much the only thing he can do is make the Christmas celebrations bigger at the White House, but that has no effect on me (and anyway, that is not a non-denominational holiday shrub on the White House lawn during the holiday season, it's a Christmas tree).
On the matter of Israel, however, a President has quite a lot of power. Israel receives billions of dollars in aid from the United States every year, and in times of war, is dependent on the United States to re-supply it with both spare parts and ammunition. Without these, Israel could be overrun or at least severely hampered in it's effectiveness on the field of battle. Just consider for a second if there is a regional war in the Middle East (a distinct future possibility now that the Sadat/Mubarak regime has been overthrown) and Israel is in dire need of resupply. Do you see Obama initiating a massive airlift to resupply Israel or calling for both sides to cease hostilities and doing nothing to help Israel in it's time of need? There might be a chance he might do the right thing in his first term (when he needs Jewish votes and Jewish money) but my guess is all bets will be off in his second. Perry, on the other hand, would not hesitate to come to Israel's support, there is no doubt in my mind of that.
Monday, August 29, 2011
(h/t Jennifer Rubin)
If you've never been to Tel Aviv, you might think that people are used to this sort of thing, but then you'd be wrong. Besides the fact that you'd never get used to kids being targeted by subhuman murderers, Tel Aviv itself has more in common with South Beach in Miami than with a war zone. People often go to the beach almost every day and like to have fun so Tel Aviv has a much more relaxed atmosphere than some of the other cities in Israel (especially Jerusalem and cities in Judea and Samaria). They don't think there could be a terrorist lurking to strike them at any moment and personally I've felt extremely safe there.
Unfortunately, this attack reminds you that you really aren't safe anywhere and neither are your kids, not with millions of potential murderers lurking in your midst. According to a Pew research poll in 2007, 68% of Palestinians think suicide attacks on civilians are justified. Obviously, the percentage who would actually perpetrate such an attack is smaller, but how much smaller? It's not 50%, but could it be 20%? Maybe. Murderous anti-semitism has been around long before there was a Jewish state and before any land was "occupied" by the Jews. I also remember seeing a poll mentioned in Benny Morris' book 1948 that showed 90%+ support for the Nazis in World War II era Jerusalem amongst the Palestinians.
Needless to say, I do not have high hopes for a peaceful solution to the conflict anytime soon. All evidence suggests that any concessions by Israel will only be viewed as a sign of weakness and will just bring the violence closer to home. In the last 15 years, Israel has withdrawn from Lebanon, Gaza and most of the West Bank only to be faced with more attacks than before. There have been over 6,800 rocket attacks from Gaza alone! So what would my solution be for stopping the attacks? Unfortunately I don't have one. A two state solution doesn't work (as it would lead to more attacks, not less) and neither does a one state solution either (fully integrating millions of muslims would destroy the Jewish character of Israel and there is no humane way to transfer the population to another area). So some version of the status quo, though with a more hawkish bent (complete and utter elimination of the leaders of terrorist groups that target civilians would be a nice start), is all I can come up with.
Friday, August 26, 2011
The Federal Reserve has a range of tools that could be used to provide additional monetary stimulus. We discussed the relative merits and costs of such tools at our August meeting. We will continue to consider those and other pertinent issues, including of course economic and financial developments, at our meeting in September, which has been scheduled for two days (the 20th and the 21st) instead of one to allow a fuller discussion. The Committee will continue to assess the economic outlook in light of incoming information and is prepared to employ its tools as appropriate to promote a stronger economic recovery in a context of price stability.
Normally, monetary or fiscal policies aimed primarily at promoting a faster pace of economic recovery in the near term would not be expected to significantly affect the longer-term performance of the economy. However, current circumstances may be an exception to that standard view--the exception to which I alluded earlier. Our economy is suffering today from an extraordinarily high level of long-term unemployment, with nearly half of the unemployed having been out of work for more than six months. Under these unusual circumstances, policies that promote a stronger recovery in the near term may serve longer-term objectives as well. In the short term, putting people back to work reduces the hardships inflicted by difficult economic times and helps ensure that our economy is producing at its full potential rather than leaving productive resources fallow.
So they've already discussed additional monetary stimulus and will even extend the scheduled meeting so they can discuss everything fully. Then he goes on to justify the need for additional stimulus, implying that it would not only stimulate the economy near term but might actually help our long term growth. It really could not be any clearer what he intends to do.
While he makes it all sound very reasonable, what he is actually talking about doing is insane. We just had a massive $600 billion round of monetary stimulus (aka QE2) that started last November and just ended less than 2 months ago and what exactly did it achieve? It juiced up stock prices as nobody wanted to "fight the fed" and caused commodity inflation but did not achieve anything positive for the economy. The GDP in the quarter before QE2 was 2.5% which went down to 2.3% in the fourth quarter and then 0.4% in the first full quarter of the "stimulus" and was 1% last quarter. Clearly any wealth effect from juicing stock prices was overwhelmed by the food and energy inflation which it sparked, as that inflation cut into consumer spending. So tell me how anything even close to that is a good idea?
Thursday, August 25, 2011
1. Make it easier for homeowners to refinance at today's low rates.
2. Possibly convert the large swathes of empty foreclosed houses into rental properties, the idea being that there will be less pricing pressure in real estate markets due to less supply.
Both ideas show exactly how oblivious the Obama administration is in terms of economics as both will have major negative effects downstream and will be unlikely to actually stimulate anything. On the refinancing, the only people unable to refinance their home right now are the bad credit risks and those underwater, or close to it, in their mortgage. Since even with a government program, those that are underwater will probably still not be able to get refinanced (who is going to underwrite a 30 year mortgage for $300,000 on a house worth $250,000?) you are left helping those with bad credit. And even with those, there will have to be some minimum level of income in order for them to refinance so you are left helping just a small swath of the population, which will do nothing for housing prices or the economy in general. But what it will do is spook mortgage bond investors who will view any program like this as an additional risk they are taking. For mortgage bond investors, refinanced mortgages are a bad thing as they limit the amount of money they collect from the mortgages they invested in. By changing the risk-return dynamics of the bonds, the government will, in effect, lower the value of these bonds which will hurt all those banks we just bailed out a couple of years ago as they are still loaded to the gills in mortgage debt.
The other possible proposal is equally braindead. Yes, taking foreclosed properties off the market will take off some immediate selling pressure. However, putting these homes on the rental market will lower rents across the board, which will negatively impact the residential market negatively in two ways. First, those deciding whether to rent or own will more likely decide to rent, which will take some of the buying pressure off the market. Second, those that buy homes in order to rent them out will have less of a return on their investment, so they might decide either not to invest at all or will be willing to pay a lot less. Basically, by reducing supply, this plan would also reduce demand. As even a Keynesian can figure out, much of the benefits of this program will therefore be canceled out by the unintended by very predictable consequences.
Essentially, both proposals are worthless. Yes, on the margin a few people might be able to refinance and a few might be able to get a little more for their home but due to the downstream consequences the benefit to the economy will be meager at best and detrimental at worst.
On another note, if this Egyptian threat is true, this just shows once again that Tzipi Livni, is nothing but a lying opportunist who only has her own interests at heart. She recently attacked the government for not responding harshly enough. It would be one thing if she was known as a hawk as a hawk would have a legitimate beef with the impotent response to the attacks. However, she is very much a dove and usually attacks from the left. So I think she knew about the threat and attacked from the right knowing the government would be helpless, at least for the time being, and not be able to up the response. God forbid she ever takes power.
Wednesday, August 24, 2011
Times haven't changed much in government and it seems that this is the exact thinking behind the economic and budgetary estimates the CBO puts out (as they did today). As the chart below shows, their track record in predicting the economy, and hence, revenues, is about as good as a rhesus monkey's:
As you can see, the CBO has an unrealistic view that this economy never goes into a recession and therefore doesn't plan on any. Between 2002 and 2010 all of their real GDP projections were between 2.6% and 2.9%. By overestimating growth, you overestimate revenues, which underestimates the deficit and gives politicians the impression they have more of our money to spend before they get into trouble.
The CBO's current estimates are so bad that they even include a section on page 34-35 where they comment on the recent negative economic data that they DIDN'T TAKE INTO ACCOUNT in their projections, and mention that there is downside risk to their estimates. My question is, if they were aware of the recent data, I'm not quite clear exactly why they wouldn't take them into account? Would it have required too many changes to the tables in the report and that was too much damn work?
Their real GDP growth projection is 2.4% for 2011, which, barring a miracle, is almost certainly not going to happen. With annualized GDP growing by 0.4% in Q1 and 1.3% in Q2, GDP growth would have to be close to 4% in Q3 and Q4 to hit the CBO's bogey. And with negative data coming out of the regional fed surveys for August, if anything growth is falling, not increasing. Their 2012 estimate of 2.6% growth is also very clearly at risk as any recession that starts around now will probably still be going on next year.
2013 is where the real fun begins. In their current baseline estimate, they assume the Bush tax cuts expire, providing a whopping $234 billion in additional revenues. There are a few problems with this, first, if we are in recession next year, that won't happen. Obama will probably use an extension as an October surprise to help himself get re-elected. Second, the CBO is not even close to accounting for what kind of impact such a huge tax raise will have on the economy. In 2013, that amount would be equal to 1.4% of GDP, an extremely large amount of money to be sucked out of people's wallets and then vanish in deficit reduction land, with no offsetting increase in spending. The negative impact of this would likely be around 4% of GDP (assuming a multiplier of around 3). Yet the CBO GDP estimates only fall 0.7% on a nominal basis and 0.9% on a real basis. Somehow, billions of dollars in revenues will magically appear in government coffers without actually being taken from anywhere else in the economy (a neat trick). As 2013 is a critical year for CBO estimates as they see income tax revenue going up by 25% in that year alone, what actually happens then is critical for their long term deficit projections, as that tax base is added to in future years.
So, I decided to play a little bit with the CBO's revenue estimates, to see how sensitive they are to their rosy estimates, that assume no major negative impact from a massive increase in taxes and, once again, assume we have no recessions over 10 years. The changes I made to the estimates were slight and only impacted the individual income tax line, the most impacted by the economy. I still assumed they would eliminate the Bush tax cuts and that the Super Committee would do what it promises to do (yeah, like that is going to happen, but one thing at a time). For 2011, I shaved a little bit off of individual income tax growth, dropping it from 21% to 15%. Then in 2012, I assumed no growth, which could potentially be overshooting still as in the last recession we saw individual income tax revenues drop 20% in 2009 alone. For 2013, I assume 10% growth, offsetting the elimination of the Bush tax cuts with a slower economy. After that, I assume 6% individual income tax growth, the average from 1970-2010 (the average increase from 2000-2009 was only 0.4%).
I don't think any of these assumptions are particularly unreasonable or bearish. I still don't assume a fall in revenues in any year, I just make the growth look more realistic. So what do these relatively minor changes do to the deficit projections? Blow them sky high. Currently, the CBO is assuming a deficit of $3.5 trillion from 2012-2021. Using my projections, the deficit from 2012-2021 is $9.6 trillion! You can see the difference in the chart below:
Now you see why I think the CBO's estimates are dangerous. The current baseline is saying that we don't need any fundamental entitlement reform. That as long as the Bush tax cuts expire and we follow through on with the debt ceiling agreement, the deficit will be manageable and everything will be okay. However, if you just change their assumptions slightly to account for a more realistic revenue scenario, you see we are on a path where deficits blow up massively and we end up in very serious trouble as a nation.
He should roll out a campaign for a national infrastructure program to repair, retrofit, and modernize the nation's public schools called FAST!—Fix America's Schools Today. It's got important advantages over the president's infrastructure bank idea; it's highly visible, can be stood up faster, and it's more labor intensive, too.
Really? Maintenance projects on schools? Is that the best you can do? Given it is already almost September, unless you want to close down schools for the sake of the construction, or give the kids hazmat suits to wear to class, you pretty much have to wait to do any of this until next summer. Also, what is with the construction projects? Does the left have any stimulus ideas that don't involve lining the pockets of their union supporters?
You know what would be a great and cost free stimulus for the economy? Rescind all those regulations from Obamacare and the EPA that are forcing the closure of coal plants, oil rigs to literally float away, and healthcare premiums to skyrocket (as they did in my company this year). All those are directly having a negative impact on both investment and new hiring and can be done away with at the stroke of a pen.
Tuesday, August 23, 2011
As you can see, the P/E ratio generally followed the M/O ratio. The thinking here is that people aged 40-49 are in their prime in terms of investing for the future while those 60-69 are more likely liquidating investments in order to fund their lifestyles. So the higher the M/O ratio, the better for the stock market. Now check out what happens when they model out the P/E ratio going forward using expected demographic data from the Census bureau:
That is not even slightly a good thing as P/E's can be expected to fall by another third. We've already lived through a lost decade stock-wise and it looks like we have another couple decades to go based on this data. Everybody start having more kids, quick!
He said that an increasing number of scientists have challenged this notion and that, in conclusion, he stood with them -- whoever they might be. In Appleton, Wis., Sen. Joe McCarthy's skeleton rattled a bit.
The late and hardly lamented demagogue pioneered the political use of the concocted statistic. In his case, it was communists and they were, literally, everywhere.
Ironically, after attacking Perry for the "political use of the concocted statistic" he then concocted one of his own, or at least used one with zero attribution:
There are some scientists who are global warming skeptics, but these few -- about 2 percent of climate researchers -- could hold their annual meeting in a phone booth, if there are any left. (Perhaps 2 percent of scientists think there are.)
Really, two percent of climate researchers? Was this a scientific study by Richard Cohen or does he have something to back that up with? Maybe he should start reading Climate Depot which has quite a bit of published research available on the site debunking global warming theory. Also, I did notice that he said "2 percent of climate researchers" not 2% of scientists. Climate researchers are people who generally get grants by saying there is global warming so his statistic has as much meaning as "98% of gold miners find value in gold".
The rest of the piece is no better. It attacks Perry for not believing in global warming and then doesn't actually provide any argument why he should believe in it other than the "experts" say that he should.
Monday, August 22, 2011
I've spent a lot of time thinking about ways in which the past few years could have gone differently. I've even come up with a few. But none of them lead to dramatically better outcomes today.
I can come up with scenarios in which President Obama accomplished somewhat less — perhaps by scaling back the health-care plan — and lost fewer seats in the midterm election. I can come up with scenarios in which the White House accomplished marginally more — perhaps by using the reconciliation process for an energy bill — but paid a greater political cost. I can come up with scenarios in which the stimulus was slightly more visible — perhaps it could have wiped out the payroll tax entirely — or slightly larger or included a long-term deficit reduction component.But I've never been able to come up with a realistic scenario in which a lot more got done, the economy is in much better shape, and the president is dramatically more popular today.
Reading this, I just shook my head. Either Ezra Klein is a complete and utter schmuck or he really can't imagine courses of action outside of his usual liberal democratic viewpoint. A reconciliation process on an energy bill? What the heck would that accomplish? My guess is that we still wouldn't be doing anything that would benefit us in the near term (drilling on public lands that hold oil/natural gas) and would still just be getting a lot of hand waving from the President about clean energy. In fact, we'd be lucky if it weren't a net negative on the economy as he does like to ban things he doesn't like (note the recent EPA rule that will force many coal plants to close). Also, note no mention of any jobs program in lieu of Obamacare, the most he can assume is just its "scaling back". Anyway, here is what I think Obama could have done differently, keeping in mind of course that he is a Democrat:
- Work with the GOP on bi-partisan legislation. The economy was in shambles, Obama came into office to bring America together and what does he do instead? Gloat and rub it in the GOP's face that they lost and he doesn't need their help to pass squat. He pretty much poisoned the well on any cooperation for the rest of his tenure. Remember when he told the GOP "I won" during negotiations over the failed stimulus? Remember when he told McCain "the election is over" at the Healthcare Summit? Or when he said he didn't want the GOP "to do a lot of talking"? This guy has been completely uncivil with regards to opponents of any party. My guess that if he acted like a statesman and not like a bully, things would have gone differently.
- Re-focus within the $862 billion stimulus. Instead of paying his union buddies to fill (or not fill) holes in the ground or pay to save other union jobs, he might have actually thought about programs that might actually help create wealth and jobs. Once a highway project is done, all those people who were paid through it are out of a job again. However, when you create new companies in new industries, you help create jobs for years on end. A smaller stimulus that would have focused on new job/industry creation (through increased R&D credits, subsidies, job training) and not have broken our budgetary bank would have probably done wonders. Even if this wouldn't work (like the first stimulus), at least he would have had some dry powder to try later, but as it is now, there is nothing he can do.
- Why do Obamacare at all during a financial crisis? It seems pretty clear that Obama and his cronies just assumed that this business cycle would repair itself in time for the next election and that he didn't have to "let a good crisis go to waste" by not pushing for Obamacare. Unfortunately, the massive tax increases within Obamacare have probably had a negative impact on today's economy (people/businesses do restrain spending when they know their are taxes coming their way in the near future). So have the new health insurance regulations that were included which causes premiums to skyrocket in the last year, making it even more expensive for companies to hire new workers.
- Don't do Dodd-Frank. Thousands of on the whole profitable traders lost their jobs because of the Volcker rule which pretty much eliminated proprietary trading at the banks. This has always been a profit center and was not why we had a financial crisis. So why target them? If you want banks to lend, make them feel more comfortable, the less comfortable they feel, the less they lend. Dodd-Frank did not make them feel more comfortable.
As you can see, things are definitely worse. We can tax Warren Buffett and everyone who makes $10 million a year at 100% and we wouldn't even come close to balancing the budget this year. Their tax rate would actually have to be almost 700% for us to do that, which is obviously impossible. We couldn't even close the budget deficit by taxing everyone making above $200,000 at 100%, even theoretically (also remember, if we take 100%, what would the state and local authorities get, as there would be nothing left over for them). And evenif you make the tax increases across-the-board, the effective tax rate would have to practically triple for us to balance the budget, a politically untenable solution.
The worst part about the above chart is that the reality would actually be much worse as this table assumes no negative impact on the economy of said taxes. Obama's former Chair of the Council of Economic Advisers, Christina Romer, found that the multiplier on taxes is 3. So for every $1 in tax cuts, $3 is added to the economy. It doesn't take a rocket scientist to realize the reverse is true. For every $1 in tax increases, $3 is taken from our economy. So if you close a $1.6 trillion budget gap through tax increases (and there won't be any offsetting spending in this scenario as you are trying to balance the budget) you would have $4.8 trillion leave the economy, an equivalent of 34% of GDP!
What about spending? As Robert Barro points out, the multiplier on government spending is probably less than 1. So for every $1 in government spending only $0.80 gets into the economy. That seems true doesn't it? If it were greater than 1, our economy probably would be zooming right now given the level of stimulus. Instead we are headed back into recession. I know many people like Paul Krugman are saying this is the worst time possible to cut spending as we are rolling over again. But what if we coupled spending cuts with permanent tax cuts so that the negative economic impact of the spending cuts was counter-balanced by the positive impact of tax cuts. Seems like a great way to get out of our current mess.
Thursday, August 18, 2011
Q I farm north of here. We enjoy growing corn and soybeans, and we feel we do it as safely and efficiently as we possibly can. And Mother Nature has really challenged us this growing season -- moisture, drought, whatever. Please don't challenge us with more rules and regulations from Washington, D.C., that hinder us from doing that. We would prefer to start our day in a tractor cab or combine cab rather than filling out forms and permits to do what we'd like to do. (Applause.)
So Politico decided to check out what exactly happens when you contact USDA to find out about the regulations the farmer is talking about. First, he calls the USDA main line and is told to call the Illinois Department of Agriculture, which he does. He is then told to call the Illinois Farm Bureau, which isn't even a governmental organization. When he calls them, they really have no idea what the reporter is talking about. So he called the Illinois Department of Agriculture again and they tell him to call the director of the department as they have "policy people". The director's office transfers him to the agricultural product inspections department who then transfers him to the environmental programs department. They tell him that the EPA handles what he is looking for. He made a few more calls and in the end got this email from the Secretary of Agriculture's office:
THE PRESIDENT: Well, we've got the Secretary of Agriculture right now, so is there a particular -- is there a particular rule that you're worried about?
Q We hear what's coming down about noise pollution, dust pollution, water runoff. Sometimes the best approach is just common sense, and we are already using that.
THE PRESIDENT: Yes. Here's what I'd suggest is, the -- if you hear something is happening, but it hasn't happened, don't always believe what you hear. (Laughter and applause.) No -- and I'm serious about that. Because a lot of times, what will happen is the folks in Washington -- there may be some staff person somewhere that wrote some article or said maybe we should look into something. And I'm being perfectly honest, the lobbyists and the associations in Washington, they'll get all ginned up and they'll start sending out notices to everybody saying, look what's coming down the pike. And a lot of times we are going to be applying common sense. And if somebody has an idea -- if we don't think it's a good idea, if we don't think that there's more benefit than cost to it, we're not going to do it.
And so, I want to make sure that everybody gets accurate information. If you ever have a question as to whether we're putting something in place that's going to make it harder for you to farm, contact USDA. Talk to them directly. Find out what it is that you're concerned about. My suspicion is a lot of times they're going to be able to answer your questions and it will turn out that some of your fears are unfounded.
But nobody is more interested in seeing our agricultural sector successful than I am, partly because I come from a farm state. And I spent a lot of time thinking about downstate issues as a United States senator. And I'm very proud of the track record that we've developed. If you look at what's been happening in terms of agricultural exports -- what's been happening in terms of agricultural income during the time that I've been President of the United States -- I think we've got a great story to tell. And I want to continue to work with you and other farmers to make sure that we're doing it in the right way that's not inhibiting you from being successful.
"Secretary Vilsack continues to work closely with members of the Cabinet to help them engage with the agricultural community to ensure that we are separating fact from fiction on regulations because the administration is committed to providing greater certainty for farmers and ranchers. Because the question that was posed did not fall within USDA jurisdiction, it does not provide a fair representation of USDA's robust efforts to get the right information to our producers throughout the country."
So if a farmer follows the Chief Executive's advice and "call's USDA" he would actually have to talk to about 7 people just to figure out the right agency to call about regulations that all of them should know something about (I would think the Department of Agriculture would be on top of regulations that ummmm regulate agriculture?). One wonders that if the Chief Executive and farming regulators don't know what regulations the farmer needs to face (or even who to talk to about them), how exactly is the farmer supposed to be compliant with them?
Update: So I looked at the historical data more closely. Every reading of the Philly Fed survey of this magnitude has either meant we were in a recession or heading into one within 6 months. I also looked to see at what reading point does it look like there is a significant chance of us either being in a recession or heading into one. It looks that with a reading of -11.8 or worse there is an 89% chance of us being in a recession or heading into one. If you take into account the 3 readings that were within 3 months of the end of the previous recession, the odds go up to 93%. Again, note the reading is at -30.7, a level at which there was never a false reading.
Wednesday, August 17, 2011
- He is the candidate best able to eloquently present both what Republicans believe in, and most importantly, why. The last candidate to do this well was Reagan, who did it well through anecdotes and funny stories. I think Paul Ryan can do it through reason.
- The mainstream media likes to paint Republicans as either crazy (Bachmann and McCain) or stupid (Rick Perry and George W.). Ryan is very clearly neither.
- To turn out the vote, it really helps to have a candidate you can be proud of. Of the current candidates, is there anyone you can honestly say won't embarrass you and make you have to make excuses to people who are either on the fence or on the other side? During last Thursday's debate, I actually found the most reasonable Republican on stage to be Rick Santorum (he did another good job sounding very reasonable last night on Hannity)and the most intelligent to be Newt Gingrich. That's a problem given that neither candidate is considered to be a serious contender for the GOP nomination or Presidency. I do realize that all politicians have gaffes given their grueling schedules, but the media is most likely to excuse Democratic gaffes (like Obama saying there are 57 states) than Republican ones.
- Ryan will wipe the floor with Obama in the debates. Obama is clearly weakest when he doesn't have his trusty teleprompter telling him what to say. He will very likely misstate facts and even downright lie during the debates which will give an opening for Ryan to pounce, as I believe Ryan is very on top of the facts. McCain was never able to take advantage of this because he just has never been the wonk that Ryan is.
- Ryan has actually offered up an entitlement reform plan, something Obama has not yet done and probably will never really do (at least nothing above talking points). Also note that Ryan's budget plan got 40 more votes in the Democratically controlled Senate than Obama's, which got exactly zero.
- Ryan can unite the party. He is clearly someone that both the Tea Party and the establishment can live with. Party unity will be very important when turning out the vote next year.
- He will help get the midwestern vote to the GOP side. The midwest is the biggest battleground on a regional basis left. The northeast and pacific states are mainly Democratic, the south and mountain states are mainly Republican. Having a candidate at the top of the ticket from the region may help get a few votes here, a few votes there. They could certainly add up and get a couple key states to switch, making it easier to get to 270 electoral votes
- Paul Ryan is an Irish catholic, a group that has historically voted for the Democrats. Just as an African-American surge helped Obama win some key states, an Irish Catholic surge for Ryan can do the same for him (with the added benefit of actually stealing votes from Obama). I know his religious affiliation is no guarantee of anything as John Kerry was a Catholic and still managed to lose the Catholic vote, but given Paul Ryan's everyman status I can see how he might do better. Who knows, maybe he can swing New Jersey or New York? Neither state is exactly happy with Obama right now.
- Paul Ryan could be the JFK of the Republicans, with his relatively youth of 41, exciting young people. Obama had a decided advantage within this demographic in 2008 because he was in his 40's while John McCain was 72. Shaving a few percentage points from Obama's under 25 lead could do wonders for the GOP.
- I know, with absolute certainty, that having Paul Ryan as President for two terms will have made what we've had to endure under Obama worth it. I know I can't say that about any of the other candidates. He's the one candidate I'd actually be voting FOR, as opposed to just voting for whomever the Republicans put up against Obama.
Tuesday, August 16, 2011
Monday, August 15, 2011
10. Perry hates Social Security. Oh, what a shocker. I'm sure everyone would be shocked that a supporter of free markets hates social security. We've only been referring to it as a ponzi scheme for years.
9. World War II, not the New Deal, ended the Great Depression. Isn't that the consensus nowadays? The only error Perry seems to have here is that he claimed World War II unleashed private enterprise. I can sort of see the point as it was re-purposed private factories, not government factories, that were behind the increase in industrial production (though they were paid through government dollars), but that is a bit too nuanced for anyone to really care about.
8. Cut Medicare without "Death Panels". Somehow Yglesias thinks it's weird to attack medicare and attack medicare cuts based on government councils deciding what treatments people get. Well just like everything else, there is a right way and a wrong way to do things. Paul Ryan's medicare vouchers would cut the cost of medicare but wouldn't create "death panels", so what's so weird about what Perry said?
7. Dodd Frank is unconstitutional. One would think that forcing banks to lay off all of their prop traders wouldn't be something that the founding fathers would consider a legitimate government role.
6. The Consumer Financial Protection Bureau is unconstitutional. I would guess that any small government advocate would think any government agency called the Consumer Financial Protection Bureau is unconstitutional (right up there with "Unification Board" and "Bureau of Economic Planning and National Resources".
5. Perry doesn't like the usage of the commerce clause to allow federal laws regulating the environment, regulating guns, protecting civil rights, establishing the massive programs and Medicare and Medicaid, creating national minimum wage laws, [and] establishing national labor laws. Again, this is a shock because...? Anyway, isn't the EPA regulating carbon dioxide now? Isn't that a bit of overreach as we tend to exhale that naturally?
4. He is against the Department of Education. So what? Aren't our schools run mainly at the local and state level? So why would we need a giant federal bureaucracy? To write glossy reports which just summarize other reports?
3. Perry is not a fan of the global warming crowd. Big shocker there. Considering we don't know for sure if temperatures are actually rising or if any temperature rise is due to man made reasons or because of variations in solar activity, who can blame him?
2. He doesn't like activist judges. If someone likes the Constitution how can someone like a judge who legislates from the bench?
1. Perry blamed the Federal government for sparking the Civil War through it's historic trampling of Northern rights. This is a bit unique but his argument that items like the Fugitive Slave Act fomented tensions isn't exactly crazy.
So basically, I was very disappointed in this list as I was sure he was going to dig up at least something truly surprising. Like a belief that when the world was created 6,000 years ago, God created dinosaur bones to test people's faith in the Almighty or something of that ilk. The list, while using some creative hyperbole, in it's essence simply paints Perry as a free market and small government conservative. I'm sure that is weird for Yglesias and his buddies but not for the majority of Americans.
No wonder Obama has 49% disapproval (and 45% approval) in New York, historically one of the bluest states around that voted for Obama 63%-36% over McCain in 2008.
And based on this article from the NY Times on Saturday, he and his team are as clueless as ever. There were two passages that are very telling, here is the first one:
Administration officials, frustrated by the intransigence of House Republicans, have increasingly concluded that the best thing Mr. Obama can do for the economy may be winning a second term, with a mandate to advance his ideas on deficit reduction, entitlement changes, housing policy and other issues.
And how exactly are they going to argue that he will improve the economy with a second term when he did nothing to improve it in the first? The worst part is that none of those ideas listed will actually do anything to stimulate the economy. And given his position to raise taxes starting January 1, 2013, which is probably the most recessionary thing a President can do, re-electing Obama will likely make things far worse. While a Republican will only take office on January 20, 2013, they can always rescind any tax increases once in office so that the negative impact will be minimal.
Now if you didn't think they were completely out to lunch already, check out this passage:
The administration may also merge the Department of Commerce, the Office of the United States Trade Representative and some economic divisions at the State Department into a new agency, administration officials said. Possible names include the Department of Jobs or the Department of Competitiveness.
And how will changing the logo on people's business cards help any? It's the actual policies that the bureaucrats are implementing that are the problem, not how they are organized. I also like the fact that the Department of Labor will not be merged into this so you would have a Department of Labor and a Department of Jobs. That reminds me of an old Soviet joke. You see there were two main papers in the Soviet Union, one called Pravda (truth) and the other, Izvestia (news). So the saying went, there is no news in Pravda and no truth in Izvestia. So in this case, I guess you will have a Department of Labor without jobs and a Department of Jobs without labor (i.e. actual employment).
Friday, August 12, 2011
1. He would have instant name recognition around the country and people would also be very familiar with his stellar record as Governor. Right now, most people, at least outside us political addicts, don't really know who he is or whether his record was good or bad. Given that he received an "A" in the Cato Fiscal Policy Report Card, which is extremely difficult to get (they don't believe in curves over there) it's actually quite a shame that his record has received almost no notice in the press or anywhere else for that matter. That would not have been the case in 2008 when every inch of his record would have been sifted through by people on both sides of the aisle, allowing him to be the Conservative alternative to Romney this time around.
2. It would have allowed him to make the mistakes he made early in the 2012 campaign back in 2008. Just as Palin seems much more confident now than she did back then, I think Tim Pawlenty would as well.
3. The GOP has historically liked to nominate the next in line from the last election. Since Palin isn't running in 2012, that became Romney who was the #2 contender vs. McCain in the primaries in 2008. If Pawlenty had been the VP nominee, he would be next in line and would therefore have the inside track for the nomination.
4. The Palin nomination really greased the skids for Bachmann's candidacy this time around. Not to take anything away from Michelle Bachmann, as she is very impressive in her own right, but I think she would not have catapulted as high if Palin were not nominated the last time around. There are a good number of people who fell in love with her at the GOP convention after she gave that wonderful speech and stayed in love with her. When it seemed that she wasn't running, I think a lot of people naturally gravitated to Bachmann who was a more politically experienced and forceful version of her (I'm not trying to be sexist here, I just think that's just how people thought). Not having as strong a Bachmann would have made Pawlenty's road to victory in Iowa that much easier.
Anyway, as we know, timing and luck can everything in politics and so the best candidate for President often doesn't win the nomination. Otherwise, I think we would have had a President Phil Gramm or a President Jack Kemp (or President Hillary Rodham Clinton) at this point.
Thursday, August 11, 2011
Also, most of the independents and Republicans who voted for him last time around seemed to vote for him for two reasons. First, he promised to find a third way and bridge the left-right divide (why anybody believed someone could do that when they are from a one-party city like Chicago is beyond me) and second, he promised to mend the fences with the international community following his more cowboy-esque predecessor. Obviously, he didn't bridge the left-right divide. He didn't even try to attempt the first one. Once elected, he came out guns blazing attempting to silence and exclude the GOP from decision making. Remember when he told the GOP "I won" during negotiations over the failed stimulus? Remember when he told McCain "the election is over" at the Healthcare Summit? Or when he said he didn't want the GOP "to do a lot of talking"? His foreign policy has been a complete disaster. He has backstabbed and even deposed allies and his attempts to grovel to our enemies hasn't gone anywhere (the Russians are even back to their old dirty tricks). Things have been so bad that even the French think we need to get more aggressive.
So he can't seem to run on either his domestic achievements or improvements in our foreign policy. No wonder he's already planning to go negative on who he thinks is the likely GOP nominee.
Wednesday, August 10, 2011
So the question is, once the Federal Reserve does start easing, should you buy stocks? Not necessarily. A lot of people like using the phrase "Don't Fight the Fed", as if it's a losers game to go against the well informed junta sitting on top of unlimited gobs of cash. That totally makes sense, but unfortunately if you followed it ahead of the last two recessions, you would have lost quite a bit of money. The problem is that, the Federal Reserve only eases when things get bad, and you never know how bad things are until later, so the market can still go to heck, even with Fed action. On January 3, 2001, the Federal Reserve decided to lower the fed funds rate by 0.5%, from a peak of 6.5% to 6% (remember when rates were that high? Neither do I.). There was a massive rally that day, and the S&P 500 went up by 5% that day compared with the day before, pretty much inline with the performance yesterday. However, in 6 months, you would have lost 3.8% (including the 5% gain that day), in 1 year you would have lost 9.2% and in two years 29.2%! On September 18, 2007, the Fed started lowering rates with a 0.5% cut from 5.25% to 4.75%. As we fully know, this really didn't help much. That day the S&P 500 rallied by 2.9%. But in 6 months it was down 9.9%, in 1 year it was down 18.3% and in 2 years it was down 27.7%!
Another issue is that it is unclear what the Fed plan will be this time around. Clearly, rates can't go any lower as they are nominally zero and quite negative in real terms when you take inflation into account, so they are pretty much paying people to take the money (it's pretty scary that the economy is in such dire straits with such an already loose monetary policy). They can always do QE3, where they buy treasuries on the open market. The thinking goes, the money that treasury dealers get from the Fed, they then invest in other places. With QE2, that meant the US stock market, emerging markets and commodities. There is no such thing as a free lunch however and one could argue that quantitative easing has been a net negative economically as it caused commodity/energy prices to go through the roof, hurting the disposable income from consumers (70% of the economy). As I mentioned before, at the tail end of QE2, you actually saw personal consumption expenditure fall for 3 months in a row in the second quarter, and that was after practically no growth at all in the first quarter. As the S&P eventually does trade on earnings, margin compression from higher raw materials coupled with a slower economy will hurt stocks, even if some of the more momentum-oriented players do react positively to a QE3 announcement. Another problem with the Fed buying more bonds is that it's balance sheet is currently leveraged about 54:1. And people thought Lehman;s 30:1 leverage was insane. Now I'm not saying the Fed can go the way of Lehman, it definitely won't, but the leverage could be problematic at some point.
Also, remember that the current crisis is only partially due to what is happening here. Europe is the main culprit and the Fed has little to no control over what happens there and unfortunately our banks have $640 billion in exposure to the PIIGS alone!
Tuesday, August 9, 2011
Q I know you said he’d be specific, and there has been this discussion before about how he communicated his specific recommendations and desires with Congress in the grand bargain. So my question is, how is he going to do it differently this time, or is it going to be different?
MR. CARNEY: ... I think many of you know with a great level of detail what the proposals were that he worked on with the Speaker of the House. I think that those are reflective of the approach that this President will take, the tough political choices he's willing to make, and the fact that he is not just willing to but demanding to lead, in this case, and take the case to Democrats about why we need to take further measures to get our deficit under control and our debt under control, and he looks forward to finding partners in that cause in September.
He has said this in the past, in prior press briefings, that many of the people int he White House briefing room know the details of Obama's proposals and that should somehow be enough. Well none of us outside the beltway know, and don't we have the right to? From our position he has only given speeches and those are full of him talking about raising taxes in a slow and probably recessionary economy. If that is reflective of the approach the President will take, maybe he shouldn't be involved with the super committee. I'm also not sure about the phrase "he is not just willing to but demanding to lead." From my experience, leaders just lead, they don't demand to lead. The people demanding to lead are whiny people with power trips who nobody likes or trust which is why they won't follow them.
Q But last night on CNBC, Secretary Geithner was asked if the administration's policies bear any responsibility for this downgrade, and he said, "Absolutely not." So is that true? The White House believes that its policies have no responsibility for the downgrade?It's really amazing when they won't even take part of the responsibility for the downgrade. Federal spending in 2011 is 28% higher than in 2008! And Obama's budget for 2012 actually had deficits above the prior baseline scenario (it was so bad it was voted down unanimously in the Senate). And the economic justification was not "wholly changed" after the error. $2 trillion sounds like a giant number, and it is, but its a 10 year number, so the error in any near to medium term budget year is very small. As S&P wrote in their response the 2015 net debt to GDP ratio went from 81% in the original analysis to 79% after the error was fixed. Not that big a deal and it clearly is still at a level that is not consistent with AAA status. The S&P concluded it's response to say "the primary focus remained on the current level of debt, the trajectory of debt as a share of the economy, and the lack of apparent willingness of elected officials as a group to deal with the U.S. medium term fiscal outlook. None of these key factors was meaningfully affected by the assumption revisions to the assumed growth of discretionary out lays and thus had no impact on the rating decision." And even if the downgrade was entirely political, can anyone really say with a straight face that Obama has been Mr. Bipartisan since he took office? As I wrote yesterday, they really don't seem to be taking this seriously.
MR. CARNEY: I couldn't say it better than the Secretary of the Treasury said it.
Q So you haven't added any --
MR. CARNEY: The downgrade -- but, Ed, I assume you read the S&P document. The downgrade had everything to do with the political gridlock.
Q Not everything. Partly.
MR. CARNEY: This -- there was no economic justification. It was based -- the economic justification was wholly changed after the $2 trillion error, which is not exactly a rounding error, was identified in about 10 minutes by the folks over here who have expertise in it.
Q But why can't you say, okay, there were -- gridlock is a problem, but President Bush didn't pay for two wars, didn't pay for prescription drug benefit; Republicans bear responsibility. And you know what, we had a stimulus of nearly a trillion dollars; we've had other things we didn't pay for.
MR. CARNEY: That is not --
Q Why can't you say, "We have some of the responsibility"?
MR. CARNEY: We have the responsibility to take action and compromise, and we have shown our willingness to do just that and reach across the aisle, meet Republicans more than halfway, make politically tough choices like taking on the issue of the need to strengthen our entitlement programs and make changes in them as necessary.
Q Last thing, on Norah's question of urgency. The President said there's urgency. Why, then, did it take him three days to comment on the downgrade?
MR. CARNEY: I think our opinions on this were pretty well expressed, beginning on Friday --
Q But what about the American people who are wondering about this and are looking for the President to react?
MR. CARNEY: Well, I think -- again, I don't think most people over the weekend were wondering where the President stood or where the administration stood on this.
People were talking about the downgrade all weekend, it probably would have been nice if he gave a speech over the weekend that actually sounded Presidential and serious, I bet the market wouldn't have been down 600 points if he did that. Instead we got a disaster of a speech, 50 minutes late, without any questions from the press in which the President blew off the downgrade and even talked about making the deficit/debt worse. No wonder even his Press Secretary admitted that most people don't really care what the President thought about this. He's clearly over his head and as Bret Stephens pointed out, just isn't that smart.