Saturday, 21 September 2013

Poor Policies; Poor Predictions

The Obama Administration and the Federal Reserve have consistently over-estimated the strength of the US economy.  The Fed has, on no occasion since 2009, had a remotely accurate prediction, constantly and consistently over-estimating economic growth by well over 40 percent on average.  With that record, one wonders why anyone cares what the Fed thinks about the future.  (The Wall Street Journal on Thursday reported, in a graphic, the predictions that the Fed had made over recent years).

Now, economists like Laura d'Andrea Tyson, a Clinton economic advisor, wonders why the poor are getting poorer in the Obama non-recovery since 2009.  After five years of government expansiveness and a Federal Reserve out-of-control, the rich are getting richer and the poor and middle class are losing ground.

Strangely, these results were perfectly predictable.  They follow from the Obama policies.  We have implemented in detail what David Stockman, in his recent book "The Great Deformation," has excoriated as 'crony capitalism' that benefits mainly rich folks.  It is no wonder that Warren Buffett supports all of this.  He does well in an Obama economy.  I doubt that his secretary's income is growing as fast as his personal wealth, regardless of who pays what in taxes.

Buffett, like other rich folks, is a hypocrite.  He knows that Obama's policies mainly benefit folks like him and destroy opportunity for the middle class and reduces them to scrambling for part-time work or applying for food stamps and other subsidies.  For Buffett, that works.  For Obama, that works.  For the poor and middle class, this is disaster.

Obama's only economic initiative this year is to encourage expansion of a law that makes it a criminal offense to hire an employee below a certain wage level.  This means that low-skilled workers that wish to learn a skill on the job are!  Forget about taking a job, without pay if necessary, to learn a useful skill that will enable you to get a real job.  That kind of apprenticeship, long a staple of growing economies, has been criminalized.  Obama would like to criminalize it further.

You wonder why Obama doesn't just propose a law saying that no one can hire a worker unless they are willing to pay them $ 150,000 and provide them with free health care.  That would pretty much eliminate any opportunity for folks below the top 25 percent in income and wealth.  I feel certain that Buffett could endorse such a proposal.  Then he could fire his secretary and no longer have to worry about what taxes she pays.

The hypocrisy of folks like Obama, Bernanke and Buffett knows no bounds.  They have spent the last five years in a successful effort to shut down the great American economic engine.  They have succeeded.  Expect the rich to get richer and the poor to get poorer.   That's where these folks are taking us.

Wednesday, 18 September 2013

A Rose By Any Other Name

The Fed announced today that it would continue it's bond buying binge to the tune of $ 85 billion monthly, a policy that has been in place since the 2008 financial collapse.  This has expanded the once miniscule Fed balance sheet to over $ 4 trillion. 

The Fed, of course, can create money digitally.  That's what it uses to buy the bonds.  It just says:  "let there be money" and there is money.   This massive expansion in the monetary base has created huge excess reserves in the nation's commercial banking system.  Why doesn't anyone loan this money out?

The pitiful loan activity is a result of two factors.  Dodd-Frank and activism in the Justice Department and others has made it a criminal activity to loan money to anyone who doesn't have the very, very best credit.  And people with that kind of credit have lost interest in borrowing to build businesses in the new Obama world of massive regulation and impending soaring health care costs.  So, not too many loans are getting on bank books.  The reserves are simply piling up.

But what happens if, heaven forbid, the economy recovers?  Ah, an outcome not contemplated by the Obama-Bernanke clique.  So far, they have successfully prevented any serious chance of a strong economic recovery that would quickly expand loans and the money supply, bringing on the inevitable out-of-control inflation.  But, that won't happen if you keep the economy from recovering.  I think that I am beginning to understand the Obama-Bernanke plan.  It's working.

Saturday, 14 September 2013

Inequality and the Poverty of Economics

The Journal of Economic Perspectives is an academic journal that summarizes the state of research in various fields of Economics.  Perusing this journal shows the extreme political bias of much of modern day economic research.  The Summer 2013 issue was devoted to "income inequality."  The main theme was that rich folks are getting richer, but, of course, the facts actually show just the opposite.  Not deterred by the facts, the various economists that opine in this edition blithely parrot absurdities such as wealthholders ability to "sustain their preeminence.

What is the analysis?  Imagine that you wanted to know if baseball teams created dynasties and "perpetuate" their dominance of baseball.  What facts would you want to assemble to prove this?

Here's the way economists think:  collect data that shows that back in the old days, the baseball teams that won the pennant won 65 percent of their games each year.  Then show that, today, the teams that win the pennant win 70 percent of their games each year.  (Don't bother to check whether the teams that won in the old days are the same teams that win today.  Why would that matter, say economists?)  Would that evidence convince you that certain teams are dominant and "maintain their preeminence?"  That is the precisely the kind of logic that perpetuates the factually incorrect myth that the rich get richer.  Check out the articles in the JEP and you will see.

The truth is that if you list out the 100 richest Americans today and then compare that to the one hundred richest Americans 25 years ago, you will find very little overlap.  The richest folks have more of the wealth (if you totally leave out the huge proportion of wealth transferred by government transfers such as social security, welfare, medicaid, food stamps and on and on), but it is a different set of rich folks as time goes on.  Wealth rises and falls in the US.

The opposite is true in Europe.  The wealthiest families in Europe are the same families that were wealthy 50 years ago.  Contrary to the complete nonsense you read from economists, the chances of improving your lot in Europe are almost non-existent.

Now, in the US, the Obama Administration would like to create the European model, which traps people into whatever economic group that are born in....or, actually reduces the life chances of the folks born into the bottom half of the income distribution.

Notice the data since Obama came into office.  Since mid-2009, long after the bottom of the financial collapse and well after the Obama $ 800 billion stimulus package, the economic position of lower income folks in the US has deteriorated.  The Obama sledgehammer on business has delivered results.  Jobs are scarce and what few jobs there are, are part-time.  (Obamacare, of course, influences this trend toward part-time employment by creating built-in disincentives to businesses to hire full time employees).

The real truth is that the US has historically always been the best place to be born if you want a chance to move up in the income distribution and it remains the best place for that purpose.  Obama is trying to kill off that opportunity, but so far he has not totally succeeded in this strange endeavor.

Economists have done a disservice to the public by presenting facts in a way that is totally misleading and obscuring the real truth about the economy and about the historical dynamism of the US economy.

Saturday, 31 August 2013

College Grads and Jobs

There is a growing discussion about whether or not college graduates are generally prepared for the workforce.  This is a very interesting (and revealing) discussion.

This is not so much about GPA as it is about more fundamental problems -- attitude tops the list.  Far too many college graduates think that they have 'paid their dues' by attending college and collecting a degree.  Many seem to think that joining the work force is akin to joining a fraternity or sorority.  They seem disappointed that employers' have high work expectations and are in no hurry to provide massive benefits and a club-med work environment to a rookie employee.

What every employer wants is someone committed to work hard, to learn new skills, and to already possess basic writing and mathematics skills.  The vast majority of college graduates, measured against these expectations of business do not measure up. 

That's the sad truth about higher education.  We don't insist that our graduates have adequate writing and math skills to perform at a high level in the work force.  Those graduates who do have these skills, likely had them before they entered college.  They certainly don't gain or nurture these skills in college.

As for attitude, there is no more-forgiving environment than the modern university.  Students can argue a C grade into an A grade, if they understand how things work.  It is a simple task to manage one's GPA to end up with a 4.0 without serious study.  Meanwhile, skipping classes, scrimping on assignments, cheating, massive drug and alcohol abuse are all tolerated with little or no punishment.  Moving from the university environment to a work environment is a real culture shock for most college graduates in the modern era.

More and more the modern college and university is a great four year social experience that probably makes it more, not less, difficult to adjust to the realities of a market-based economy.

Thursday, 22 August 2013

The Nasdaq Flap

The Nasdaq halted trading today and was down for a couple of hours.  Listening to the financial media (CNBC, Larry Kudlow, etc.), you would have thought a great crime had occurred.  99 percent of the investing public had no idea and could care less, me included.

What serious investor could possibly be harmed by a two hour shutdown of the Nasdaq?  Are these pundits serious?  If there was ever an 'inside baseball' issue, this is it.  Only manic traders and hedge funds could possibly care one way or another about the Nasdaq shutdown.

No portfolio of any serious investor could possibly be damaged by a temporary shutdown of a stock exchange.  This is a ridiculous tempest in a teapot.

Obama and Higher Education

Just what we need, the Obama tenacles reaching into higher education.  In typical style, Obama points to a problem -- the high cost of higher education -- and proposes a solution that has nothing to do with the problem and actually will likely make the problem far, far worse than it is now.  This has been the pattern with the economic rescue plan, with the 'affordable' health care act, with wind and solar initiatives, and on and on.  Every problem that Obama has inherited has become a much bigger problem under his leadership.

What is wrong with higher education?  Mainly the government, as in most other things.  Federal funding for research grants and student loans has made higher ed less interested in scholarly pursuits and more interested in the pursuit of federal largesse.  Students are borrowing huge amounts of money to maintain a college lifestyle that for prior generations was simply unavailable.  Who could spend that kind of money on beer and fitness centers in the good old days?

Education itself doesn't cost much to provide; less today than a generation ago thanks to the advent of the digital age.  But 'higher education' is no longer in reach for middle income Americans unless they are willing to bankrupt themselves and their children to enrich university bureacrats and aging academics (and they are aging thanks to tenure).  There is a growing gap between 'education' and 'higher education.'  More and more these two concepts are separate and distinct -- perhaps, incompatible.

Obama is going to measure the inputs to higher education to figure out what the outputs are -- a completely absurd approach to measuring the effectiveness of an education program.  Why not measure the difference between a student's life chances when entering the institution with the life chances when leaving the institution.  The 'elite' colleges would not fair very well using a measure like that.  But, if only inputs are measured -- the Obama plan -- then the elite colleges will do very well indeed (that's why they are called 'elite'), but the community colleges, who fare much better using my measure will not do well under the Obama plan.

Once more, under Obama, the rich get richer and the poor and middle class will be left holding the bag.

Media Misleads Once Again

Reuters has a story today about the jobless claims number that is completely absurd.  According to Reuters, "...then new claims... rose...but...gave a positive signal for hiring during the month."  This conclusion is based upon absolutely nothing. 

What the data, in fact, shows is that jobless claims rose last week and rose more than the market expected -- not good news at all.  Worse, the numbers are barely (five percent on average) lower than the numbers in the early part of the year.  Given that revisions are typically well above five percent, a drop of five percent is statistically irrelevant.

The real truth is that the economy is not producing enough jobs and the few that are produced are mostly part-time, low wage jobs.  Not surprising, given the Obama economic program, which guarantees economic stagnation as far as the eye can see.

The media has made a habit of consistently distorting the truth about the American economy in their cheerleading effort to defend failed policy.