Business Items

succumbing to graphics

Bernie Sanders Can Be My McGovern

Posted by levikafka on February 7, 2016

“Oh…the vision thing” – George H. W. Bush

If you read the title, then you know where this post is going. I hope you’ll suffer a bit of rambling preamble along the way.

I was born in Minnesota a little less than four months before 48 of the other 49 states chose Ronald Reagan over Jimmy Carter in the 1980 Presidential election. That sentence has at least two major implications relating to my view of American electoral politics. The first is that I’ve only seen American politics function as the balance of a Republican party pushing its beliefs irrespective of facts and a Democratic party struggling to provide some manner of reason and reliability to government. The second is that I have or will soon reach the midpoint of my natural life, a fact that affords me some level of historical perspective as well as some sense of urgency about the future.

Moving nearer the topic at hand, let’s introduce the notion of the 2016 Presidential election. On one side is a party torn between an outright racist, an aspiring theocrat, and a baby-faced Hispanic man hoping to pull enough of the xenophobic and theocratic votes to get the monied interests at his back. It’s not the kind of thing that lends one a lot of faith in the American electorate, but then, it shouldn’t be. The Republican party has long been the party of entrenched interests, primarily white people with money. As white people decline as a proportion of the electorate, then, the Republican party is collapsing in on itself with all the accompanying paroxysms of a start going super-nova. As the core Republican base rightfully grows anxious about its waning electoral power, it demands greater purity from its representatives, thus preventing said representatives from supporting policies that could broaden its voting base.

I mention these details because we need to be realistic about where things stand. Yes, thanks to a lot of arbitrary boundary lines, the House is apt to remain under Republican control for the foreseeable future. On the other end of that spectrum, the Democratic candidate has won the majority of votes in four of the last five Presidential elections. Thus, it seems reasonable to expect a Democratic candidate will win the 2016 election and be positioned to accomplish little, if anything.

Enter the two Democratic candidates. The first is an eminently qualified candidate, having previously served eight years as First Lady, six years as U.S. Senator from the State of New York, and four years as U.S. Secretary of State, who’s bound and determined to be the first female President of these United States. The second is an adequately qualified candidate, having contributed to many legislative accomplishments large and small during his quarter-century in the U.S. Congress, who’s bound and determined to fight back against the excess power capital has over humanity here in the world’s largest domestic economy. Perhaps these descriptions are biased, but they certainly reflect what I’ve seen from debates and Sunday morning shows.

Now, let’s talk about the issues. To my mind, there are three domestic problems to be addressed in short order: income/wealth inequality, climate change, and campaign finance. Coincidentally, the first and third of those items are the first and third bullets on Bernie’s “Issues” page. Bernie wants to dramatically increase the progressivity of federal income taxes and use the new revenue to provide Americans with the same kind of general security enjoyed by citizens of nearly every other industrialized democracy. He wants to raise the minimum wage and move to make imports more costly so American workers don’t have to compete against child slaves abroad. On climate change, Bernie more or less wants to work toward an end to the fossil fuel trade. On campaign finance, Bernie’s sworn to appoint only Supreme Court justices who explicitly state their readiness to overturn Citizens United. He’s also working toward broader transparency rules and functional public financing of political campaigns.

Hillary isn’t completely absent on these items. Her “Issues” page eschews prioritization in favor of alphabetizing, and the descriptions tend toward the kind of non-specificity that made me unsubscribe to the Obama email list lo these many years ago. Nonetheless, it seems the only daylight between her and Bernie is on the wording around Supreme Court nominations and vocalization. On climate change, Hillary has a plan that involves spending $90 billion (From where? I don’t see specificity.) to subsidize the owners of solar and wind power generators and keep the people in coal country from relocating for economic reasons. While I obviously think the coal country thing is nonsense and fail to understand why there’s no mention of a carbon tax in her plan, it would be admittedly difficult to be less realistic than Bernie’s climate change agenda in the near- or medium-term.

On economic inequality, explicitly, Hillary stands mute. In hearing her speak and browsing her website, it’s clear this is a campaign that’s eager to stop talking about the malallocation or resources, the harm to meritocracy caused by relative power within markets, and the general hopelessness felt by most Americans with regard to upward mobility. In fact, many of Hillary’s plans under the “Economy” and “Small Business” are apt to exacerbate economic disparities. The notion of a business tax break intended to incent profit-sharing, for instance, seems wrong-headed from its start inasmuch as creating a system where ownership contributes less to society on the basis that some of the difference goes to its direct employees isn’t making anyone better off relative to that particular ownership.

This is, I think, a Mitt Romney-type problem. By no means to I mean to say that Hillary is party to outright bribery. I think she acts on her conscience and her experiences. I just don’t know why anyone would think her experiences are the slightest bit reflective of contemporary life for the median American. She hasn’t been allowed to drive a car since 1992. Per Wikipedia (sorry) she earned $11 million in the fifteen months ending less than a year ago. This is all on top of the cognitive bias intrinsic to most high-level aspirants, which relates to their personal success leading to the false belief that our economy is meritocratic and just. I think Hillary cares about poor people. I don’t think she understands that roughly half the country is functionally poor with no reasonable expectation of upward mobility. Either that or she really is the Democratic George H. W. Bush: immensely qualified with no specific aspiration for national accomplishment.

That probably doesn’t matter for policy. As we said earlier, Republican control of the House is pretty much a foregone conclusion. Regardless of whether Bernie’s shouting or Hillary’s minding her business, we’re unlikely to accomplish anything hugely helpful in the next administration. However, the bully pulpit is strong, and beyond running the country, the President is the face of his or her political party. Right now, Democrats are enjoying a generational shift. Voters tend to stay with the party for which they vote in the first two or three elections, and that 18-34 demographic has been huge for Obama.

As we’ve already seen in Iowa, Bernie goes gangbusters with young people. Sure, some of that is because radicalism is more amenable when you’re twenty. Realistically, though, he’s also the only candidate speaking to their problems. Can you imagine being 18 today? Assuming you graduate high school and aren’t planning a career in grocery or fast food, your most likely options are either setting off on a life of physical pain and limited opportunity in the trades or going to college on the simple hope that you’ll be able to repay your student loans and start saving for retirement by the time you’re 35 or 40. Bernie may be ahead of his time in terms of viability, but much of his agenda is necessary for those kids entering adulthood to find security and opportunity. What happens to the Democratic party in the next few years if it tells the youth to fuck off in this election? I don’t want to know. I want to see Bernie berating entrenched interests from the Oval Office for 4-8 years and making it crystal clear to everyone who isn’t yet rich and white that the Democratic party is on their side.

Speaking of viability, I’m not going to pretend Bernie’s a sure thing in the general election. Hillary is much closer to that. Hillary’s running as a guaranteed backstop against Republican crazy, and that seems to be what we’ll get if we nominate her. My only thought to the contrary is that her campaign seems to be trying to have it both ways on the first woman President thing. Either her gender is going to be a hindrance in the general election or it’s a non-issue. I tend to think the latter, but I’m also an optimistic liberal.

I mention that point because I see folks who like Bernie using his electoral prospects against him. Yes, he’s been serving and an Independent Socialist, and yes, there remains anti-Socialst stigma evident in polling. As I understand the cross-tabs, this is an artifact of the Cold War that holds about twice as strongly for retirees as for young people (i.e. ~1/3rd over 65 would consider voting for a Socialist, whereas 2/3rds under 35 would). Again, being an optimistic leftist, I think the bulk of the people who wouldn’t vote for a Socialist either don’t vote or vote Republican as a matter of party identity. I also think that, by dint of having an actual agenda, Bernie motivates more voters to turn out than Hillary does, so by the time he’d have run a Democratic general election campaign everything more or less nets out relative to the HRC counterfactual.

All that largely unedited rambling done, I’m voting for Bernie. In the worst case, he wins the nomination, thus validating the party identity of a whole lot of young and/or underprivileged voters and turning the national party toward a liberal platform — and then loses the general election, thus leaving the Republican party to fold in on itself. No, I’m not saying Hillary is so conservative that her election would be immaterial. Her outcomes would be much less harmful than that of a Republican President. Unified Republican government, though, is a threat to that party. Look at what’s happened in the House in the last year; these are not orderly and fact-based people! Unified Republican government would lead to such brutal internecine battles as to hasten the return of Democratic control of Congress.

I hope things don’t need to get worse before they get better. If we’re not ready to take that risk, though — if you’d rather bury Bernie’s political revolution under a Loraxian “UNLESS” — then we’ll have no one to blame but ourselves for the American electorate’s continued slide away from reason.

Advertisements

Posted in Uncategorized | 2 Comments »

On That Whole Minimum Wage Thing

Posted by levikafka on April 23, 2014

I’m’a take some of this money, go and give some back/’Cause people won’t forget about the time you gave, know what I’m sayin’?/So start thinkin’ ’bout a path to pave.” – Outkast, “Slump

Watching tonight’s NewsHour, I had a few thoughts. Yes, they extended beyond “Why can’t we have a news broadcast that doesn’t literally talk slowly in its economic coverage?” and “I love me some public broadcasting, but I wish they wouldn’t assume we all have absolutely no capacity to retain information.”

The story in question was about efforts to raise Seattle’s minimum wage to $15/hour. I’m all for it, and I adore the fact that they’ve elected a vocal Socialist to their City Council. Nonetheless, I may have a slightly more nuanced take on why raising the minimum wage is a bloody spectacular idea, and I’d like to get it out there so people can piss on it. Thus, I provide my thoughts on increasing the minimum wage, in the form of a FAQ.

Should we raise the minimum wage?
Clearly you lack the patience to read my very brief introduction. If you don’t leave now, you may get frustrated by all the words. Thanks for playing.

Raising the minimum wage is a great idea because it’ll allow poor single parents to afford their lives, right?
Umm…not exactly. In reality, I think the idea that the minimum wage will ever support a single parent — who I believe are overrepresented among the adult population at the low end of wages — is a bit of a winged unicorn. Chasing rainbows may be good cardio exercise, but you’ll never find the unicorn that bleeds them.

Wait? What? Why?
Think about it, man. It’s not like you can only raise wages for consumers. That income is someone else’s expense, and minimum-wage jobs are pretty prevalent in businesses like grocery stores, fast food, and retail. Prices will rise along with the wage. They ought not rise as much as the minimum wage, but they’ll still go up. In other words, a national $15/hour minimum wage would increase the purchasing power at the bottom of the income scale, but it’s unlikely to make members of that group wholly self-sufficient.

So then…why are you big on increasing the minimum wage? You just said it’s being oversold.
Maybe you didn’t catch the part about increased purchasing power. Additionally, a higher minimum wage increases the flow of money to those with the highest marginal propensity to consume, thus increasing the velocity of money and juicing the economy at large. Everybody wins!

If everybody wins, then why is there even a debate?
Okay, you caught me. Not everybody wins. The people with shitloads of money lose. Allow me to elucidate. You know how I mentioned prices rising to pay the increased wage? Yeah, we call that inflation. That’s when the purchasing power of any given dollar declines, effectively making those dollars less valuable. Thus, raising the minimum wage is bad for people with stockpiles of cash, and that effect should get exacerbated as wage gains trickle up.

Trickle up?
Right. We have a pretty strong connection between wages and status in this country. Do you really think the folks currently working for $15/hour won’t get loud about needing a raise when they find themselves now minimum-wage employees? Right; me, neither. Now imagine that wave moving up the income scale. Yes, eventually it all stabilizes at a new inflated baseline, but it should produce a nice one-off boost. Oh, and as long as there’s some downward price pressure to keep corporations from collecting all the gains, the increased purchasing power for our least wealthy should hold for at least a while.

If you say so. Won’t it eventually trickle all the way up so all we’ve accomplished is a jolt of inflation?
Two things:
1. Dude, have you seen how much the one percent of the one percent takes home? Increasing the minimum wage to $15/hour is more or less a 100% increase. If you think the fatted calves at the top can double their incomes and haven’t yet, then you’re even more cynical than me.
2. I forgot to mention another benefit of inflation. Existing debt is measured in nominal dollars. Your mortgage, credit card, and car loan don’t have clauses for inflation adjustment. Okay, your adjustable-rate loans are apt to see rate increases, but the principal won’t change. That gives the folks at the bottom who’ve been doing their best to tread water a much better debt/income ratio, which has all kinds of good knock-on effects.

Would you like to discuss those further?
Kind of, but I really need to go to bed.
To be clear, though, that line about everyone winning wasn’t entirely accurate. The very rich will continue to be excessively rich, but their income will be a slightly lower multiple of the lowest possible income from full-time work. Creditors also get a healthy dose of shaft as the other side of that “debt devaluation” coin. They’re getting repaid money that doesn’t buy as much as they’d expected. Given that we’re largely talking about institutions that have done their best to shaft most everyone else for at least the last 15 years and individuals with so much free cash laying around that they had to lend it out, I’m less concerned for their welfare than for that of the minimum-wage adults hoping not to have to choose between groceries and rent this month.

Posted in Uncategorized | 3 Comments »

Idiocy or Conspiracy

Posted by levikafka on July 16, 2010

“That’s been the majority Republican view for some time…That there’s no evidence whatsoever that the Bush tax cuts actually diminished revenue. They increased revenue, because of the vibrancy of these tax cuts in the economy.” – Senate Minority Leader Mitch McConnell

According to Mitch McConnell, most Republicans think the Dubya-era tax cuts were, at worse, revenue-neutral. Although his sentence eschews clear interpretation, he also seems to think Dubya presided over a vibrant economy, and the tax cuts in question made it so.

Unfortunately, no part of that paragraph checks out. The previous administration’s efforts to minimize revenue can be credited with a good portion of the current and forthcoming federal deficits. Moreover, arguments about whether or not economic growth occurred during Dubya’s administration are difficult to parse. As you may recall, much of the domestic activity in this century’s first decade derived from the housing bubble, which was fueled by low interest rates and poorly engineered financial instruments. Not only was such growth essentially independent of the tax regime, it was also largely nominal. Asset prices remain in the process of correction, making it impossible to state the amount of real economic growth Dubya may have overseen with any certainty. As a party, Republicans refuse to let facts mar their ideology.

As Krugman illustrates, Republicans have fallaciously been arguing the ability of tax cuts to pay for themselves for some time. His Friday column does more to discredit this notion than I could here, and Mark Thoma [Henceforth, The Good Mark Thoma] adds his two cents to the case that this is intentional misinformation covering the campaign against the at-risk and impoverished. That is to say those making the argument feign idiocy to grow deficits as an intermediary step to further cutting the States’ miserly social programs.

One doesn’t know whether to be more troubled by the thought that those roaming our halls of power fail to understand the policies they advocate or that they knowingly pursue policies that would increase poverty. Presuming the latter and applying the former to much of the electorate seems the most plausible course. It’s also perhaps the least palatable.

Of course, there are some factors greater than ideology or intelligence. Power is one of them, and with the declining heft of labor over the past 30-40 years, capital and its hoarders have a preponderance of it.

Take, for example, HR 4213, The American Jobs and Closing Tax Loopholes Act. When originally raised in House, the titular “Closing Tax Loopholes” bit referred — at least in part — to a clause that would have ended the loophole allowing venture capital and hedge fund managers to file the bulk of their earnings as capital gains rather than income, because those earnings are calculated as a portion of investors’ capital gains. The fig leaf of logical consistency was quickly annihilated, leading to a series of negotiations with fund managers’ lobbyists regarding the portion of their accruing wealth they might allow to be taxed at the proper rate.

Read the current draft. Tell me if you see anything about mitigating the carried interest loophole; I don’t. There’s a whole lot about licensing rights for broadcast programming, and the notoriously unsuccessful effort to further extend unemployment benefits is there. The bit about fund managers paying their share of the tax burden appears to be gone, yet the bill still hasn’t passed.

Since we’ve already made it to the subject of fund managers, we might as well proceed to the subject of the Federal Reserve, a well-worn whipping boy for capitalist conspiracy theorists. Generally, I don’t throw my lot in with the End the Fed fanatics. A fiat currency makes sense, and someone needs to manage it. Like Democracy, it’s the worst system, except for all the others.

The latest minutes from the Federal Open Market Committee (FOMC), however, do make for some head scratching. Without directly quoting Calculated Risk’s summary, it appears the FOMC has recognized its own failures and determined to make no more efforts to amend them. Never mind the brass huevos required to make such a proclamation. High unemployment and threatening deflation form the cornerstone of a pro-hoarder position. Money gets more valuable, and labor gets cheaper. The thing is that the Fed could do more to prevent this situation. Let me rephrase. The Fed should do more to mitigate the situation. Meeting unemployment and inflation targets are the Fed’s dual mandates!

In other news from the Fed, industrial capacity and capacity utilization remain flat-to-negative. Stare at this handy graphic for a few minutes. The Dubya tax cuts sure did make for a vibrant economy.

Posted in Uncategorized | Tagged: , , , | Leave a Comment »

Missing the Confusion

Posted by levikafka on July 13, 2010

“Advocates of fiscal stimulus make it sound as simple as solving an undergraduate homework problem and I think they sometimes genuinely do not realize how much the rest of the world, including politicians, views them as simply being very convinced by their own theory.” – Tyler Cowen

Talk of deficit-cutting is all the rage with politicians these days. Like shaking hands and kissing babies, advocating a balanced federal budget as economic panacea has become standard practice. It’s a troubling trend.

Why is it troubling? Well, for starters, people primarily concerned with the deficit currently have more to celebrate than to lament. According to the Congressional Budget Office’s (CBO) latest Long-Term Budget Outlook (LTBO) [graph here], the baseline scenario is quite manageable for the next quarter-century. The catastrophic alternative scenario assumes a number of imprudent legislative changes, such as failure to allow the Bush tax cuts to sunset and a series of amendments to the PPACA (health care reform) preventing its full implementation.

If you’re concerned about ongoing federal fiscal stability, your ideal slogan would appear to be “Do Nothing.” Note that doing nothing is entirely different from cutting, well, anything.

Stasis also remains incongruous with improvement. In case you missed the preliminary June employment report, it was a clustershag — as Jon Stewart might say, were he British. Absent changes in Census employment, the country added 100,000 jobs. That’s not enough to keep pace with population growth, much less allow those cast aside over the past 2 years to rejoin productive society. Despite population growth of 191,000 for the month, the labor force sloughed a net 652,000 individuals, presumably because they lost hope of finding a job. If one counts only full-time jobs, we remain 9-10 million shy of the level — measured as a percentage of the population — that prevailed for the 2 preceding decades.

So, we’ve established a manageable projection for the federal budget, so long as little is changed. We’ve also established that some things need to change. Fear not; there is a solution.

The magic word is growth. If the U.S. can find a sustainable path to real growth and distribute that growth in a way that supports sustainable consumption, then perhaps not all is lost. Real growth would mean more government revenue and fewer stabilizing expenses such as unemployment insurance and aid to states. To get there from here, however, we short-term federal deficits need to grow.

Some would prefer to dismiss this conclusion as the product of brainwashing. They might say I’ve fallen victim to a pleasant theory, perhaps a failed theory. This is a valid — if incorrect — argument against my yen for stimulus via redistribution. Were the income tax regime to be remade in the image of the one that existed between World War II and the infidel Reagan and the increased revenue used to fund either transfer payments or jobs programs, everyone would win. More dollars would find the hands of those with the highest marginal propensity to consume, and the increased velocity of money would create growth. That, however, isn’t what I’m talking about today.

What I’m talking about today is the domestic need for government deficits, and that’s a matter of accounting, not theory.

If we consider these United States as a single system, there are only so many ways for currency to enter or exit. It could come in via net exporting of goods and services or leave via net importing. The latter continues, as it has for at least a couple decades. The matter of balancing global trade is better left to sharper minds than mine — or at least more strategically-located ones.

Currency could enter or depart as international investment. Setting aside the question of whether or not importing enough investment capital to change the shape of the U.S. economy would be glorious or tragic, one can safely say investment isn’t a position to thrive. As previously noted, unemployment is ravaging our consumption base. Also, disuse of idle machines, plants, etc. is leading to an absolute decline in production capacity. Real investment won’t contribute to broad economic growth until the U.S. rebuilds enough demand to support the existing infrastructure.

Theoretically, domestic households could increase their spending. That’s much of how the household sector functioned since the Reagan years, when debt began to fill the gap between stagnant real earnings and growing consumption expectations. Of course, that’s why households are net savers now. It’s not that everyone’s actually socking away their income. They’ve just slowed their borrowing and begun repayment of the outstanding debt.

To recap: the U.S. exports dollars to import goods and services; demand will have to grow substantially before corporations have reason to disseminate dollars through investment; and households are spending less to make room for debt repayment. I left out the part where banks are holding those repaid dollars to offset their devalued assets [Read: bad mortgages], but that’s immaterial when demand for investment capital is lacking, regardless.

What remains is the public sector. With currency leaving the circulation kitty via export and private domestic hoarding, the only way to achieve growth or stability is for the government, in aggregate, to spend more than it receives in revenue. As luck would have it, U.S. Treasury bonds are among the world’s last credible AAA-rated securities, and their relative scarcity has driven interest rates down.

Unfortunately, too few people realize this facet of macroeconomic accounting, and too many allow themselves to get swept up in the anti-deficit propaganda. Some of those propounding the nominal virtue of a balanced federal budget are honestly ignorant. Others, however, are wealthy and active misinformers who stand to benefit from deflation and would prefer to forgo the kind of righteously progressive tax policies repayment of the necessary debt would entail. What’s important to remember is that, at this juncture, all of them are wrong.

Posted in Uncategorized | Tagged: , , , | Leave a Comment »

Joe Barton, Village Idiot

Posted by levikafka on June 18, 2010

“In a future where people pay for good content, bloggers who produce truly valuable information might actually be able to pay their mortgages and buy food for their families.” – Walter Isaackson, The Atlantic

A quick Google search of the term “Boehner job-killing” provides extensive results. Among the things described by Ohio’s orange Congressman as job-killing are: Obama’s job-killing agenda, Washington’s job-killing policies, Democrats’ job-killing agenda, Obama’s job-killing policies, House Democrats’ job-killing takeover of student loans, House Democrats’ job-killing takeover of health care, a job-killing national energy tax, job-killing legislation (generally), and job-killing [health insurance] mandates. This list is not exhaustive.

You kind of have to respect Boehner’s diligence. Irrespective of reality or good sense, he’s determined to keep repeating his job-killing mantra until someone somewhere associates it with the President. One gets the feeling that, if asked, the minority leader would describe Obama’s lunch as “a job-killing ham sandwich.”

Yesterday, Texas Republican Joe Barton displayed a similar determination not to be drawn off message by reality. In his capacity as ranking Republican member of the committee in charge of flogging Tony Hayward, Barton took the opportunity to apologize for the President’s “shakedown” of BP. Allegedly, Barton believed the $20 billion escrow account agreed upon Wednesday to be a “tragedy of the first proportion.” Yes, his implicit assertion was that BP’s agreement to begin setting aside funds to pay for the damage resulting from its environmental catastrophe was comparable to the Holocaust, among other things.

Hours later, Barton took to the microphone again, this time to recant his apology. I’m not saying Republican leadership gave him a swirlie, but his hair had certainly become disheveled in the interim.

At the risk of offending people whose lives are already difficult enough, this may be one’s only chance to observe that Rep. Joe Barton displays many physical characteristics of someone with a spare 21st chromosome. That statement is purely an objective observation and in no way intended to disparage anyone.

Back to the matter at hand, it was lucky for Joe Barton that the Congressional flagellation lasted long enough for him to disentangle himself from the view of the Republican Study Committee. That Representatives should spend an entire day fruitlessly venting their impotent frustration, however, doesn’t bode all that well for any pretense at efficient or effective government.

In all seriousness, everyone in the hearing room could have used the day better. The oil well isn’t a little bit pregnant. It can’t be un-f*#ked. If Tony Hayward absolutely, positively must receive a flogging, then at least delay the dressing-down until such time as there’s no possibility that occupying him might negatively impact spill-remediation efforts. I suffer no delusion about the extent of Mr. Hayward’s active participation therein. Keeping him out of sight, though, would at least allow me to imagine he were available to authorize some crazy new idea.

Of course, the availability or otherwise of BP’s CEO is a lesser matter than the mass distraction of our federal legislative body. It’s not as though they’re short of chores.

Posted in Uncategorized | Tagged: , , , , | Leave a Comment »

Put Your Head Between Your Knees

Posted by levikafka on June 17, 2010

“All we got from President Obama was a vague call for some sort of new energy policy. Plus a Gulf Coast Restoration Plan, an oil spill study commission, a reminder that the secretary of energy won a Nobel Prize in physics and 17 references to God, prayer, blessings or faith.” – Gail Collins

Personally, I take a certain comfort in knowing this administration has no fewer than 2 Nobel laureates on staff. Credentials like that make me all warm and gooey inside. At the same time, I can recognize that believing Stephen Chu’s eminence in physics will substantially impact ongoing efforts to cap BP’s sub-sea oil leak would constitute magical thinking.

Sadly, magical thinking has been the basis for much economic prognostication. Full-time employment fell about 8%, and the powers that be vacillated between wondering how long it would take to regain full employment and when the inevitable yet unpredictable innovation that will trigger the next boom will fall into place.

Last week, however, at least one venue more prominent than crackpots such as myself asked whether there’s reason to believe employment will return at all. The story from Fortune is short, somewhat sensational, and focuses on the success of automation.

Of all people, David Brooks linked to this more comprehensive study from the Center For American Progress (CAP). It observes that the financial crisis and ensuing labor depression exacerbated an existing trend toward labor polarization. As America’s post-industrial economy has progressed, mid-level jobs have been automated, out-sourced, or otherwise eliminated, leaving the labor force divided between low-skill, low-wage jobs and high-skill, high-wage jobs.

The CAP paper doesn’t address the most troubling question its observations raise in my mind: If there are no mid-skill jobs, then where does one enter a career track leading to a high-skill job? If investment banking is any indication, the answer is that, more than ever, power and remuneration will be reserved for Ivy League graduates. Without middling jobs, only those with the credentials to gain high-end jobs immediately upon entering the work force will have access to upward mobility. Considering tuition costs for the universities in question and their acceptance rates, mobility may not attach. Those born into privilege may eventually be allowed to fail down, but the rest of the populace will have essentially no opportunity to succeed to the level of their competence.

Not to get too far off track, but this development is exemplary of my issue with capitalist fundamentalism. The notion of allowing markets to compensate individuals to the extent those individuals contribute to social production makes sense. Unfortunately, labor markets are prohibitively far from being efficient.

Back to the matter of employment. Yesterday, the Fed released its May figures for industrial production and capacity utilization. Glance at this graph of the capacity utilization series (courtesy Calculated Risk) and this graph of percent change in industrial capacity (lifted from Angry Bear). The good news is that capacity utilization is up. The bad news is that production capacity is declining for only the second time in the past 40 years.

Why should we worry about these numbers? Admittedly, they’re rather obscure. The problem is that high levels of capacity utilization indicate pending risk of inflation. As capacity utilization nears the upper bound, products are becoming relatively scarce enough for prices to rise. In many cases, marginal cost of production increases near the upper bound, forcing prices to rise.

Now, all sensible people know that deflation is presently a greater concern than inflation. [Note: Not all prominent economists/policy-shapers can be assumed to be sensible.] With production capacity falling, however, capacity utilization rises without the increase in demand and production accompanying a real economic recovery. Hence, capacity utilization will near the levels interpreted as inflationary while much of the economy remains in the crapper. At that point, the Fed will have to take its dual mandate to the balancing scale and decide whether to raise rates to fight inflation or leave them low to aid employment. Unless Obama appoints people capable of changing the Federal Open Market Committee’s disposition, smart money will be on the former.

There you have it. Roughly 22 months ago, the U.S. economy began sloughing a substantial portion of its labor force. Not including those who have given up on finding a job, nearly 4.5% (again, Calculated Risk) of that labor force has now been continuously unemployed for at least 6 months. The supply side is adjusting down to meet depressed levels of demand. People used to have low-skill jobs, mid-skill jobs, or high-skill jobs. Unless something changes, the enduring situation will include many people with low-skill jobs, a few people with high-skill jobs, and a mass with neither jobs nor the prospect of finding them.

Maybe the only people with enough time to notice the transition are those left unoccupied by the inaccessibility of decent employment. For you and me, there are basically 2 options. You can try to explain what’s wrong, do such things as are possible, and hope against all indications that the powers that be come to their senses.

Alternatively, you can put your head between your knees and kiss your ass goodbye.

Posted in Uncategorized | Tagged: , , , , , | Leave a Comment »

On Another World…

Posted by levikafka on June 15, 2010

“Yet another demonstration of the fact that sometime in 2000 we entered a strange world in which Paul Krugman is always right. If we are going to live in such a world, I really, really wish that he had a sunnier and more optimistic disposition. It would make things much better…” – Brad DeLong

This weekend, the U.S. soccer team managed a 1-1 tie with Britain in World Cup play, thanks to the fecklessness of British goalkeeper Robert Green. It would seem he was prepared to block any shot, so long as it wasn’t slow, straight, and aimed directly at him. Given BP’s continued conversion of the Gulf of Mexico into a tragic crossover between Gilligan’s Island and The Beverly Hillbillies, Green’s inability appeared somewhat emblematic.

As part of his ongoing public relations response to the BP debacle, President Obama is scheduled to deliver an Oval Office address this evening. Good for him. He’s spent a lot of time walking around tar balls and distraught pelicans. There’s no reason he shouldn’t give his next electrifying speech from the comfort of an ergonomic desk chair.

Early reports are that this evening’s address will start with some hand-holding regarding efforts to contain the oil spill. Once that facile necessity is out of the way, Obama will allegedly push for the passage of an energy bill. Considering that the band of idiots who preceded him in office managed to convert the most dastardly terrorist attack in this country’s history into its longest-running war — and another in Iraq — it’s not unreasonable to think the current administration might be capable of reconfiguring America’s energy situation on the back of its worst environmental disaster. Unfortunately, accomplishing some actual change would compromise the current administration’s regime of radical tweaks.

Let us, then, consider a world in which the U.S. government tried to solve problems. This is a difficult exercise, I know, but it may provide a scenario against which to measure our disappointment.

The obvious step is so unavoidably evident as to evince discussion even in our world: Pigovian taxes. This would include some form of cap and trade. Absent industrial exemptions, pollution rights would be auctioned by the federal government and thereafter traded in the secondary market until their fixed expiration. More controversially, a comprehensive system of environmental Pigovian taxes would have to include hefty taxes on gasoline, diesel, and perhaps natural gas. Although politically untenable, such a fuel tax would be instrumental in any real effort to decrease both carbon emissions and petroleum consumption.

“Taxes?” you say. “Won’t that raise prices?” As Yves Smith is apt to say about facets of financial reform, that’s a feature, not a bug.

Wait, there’s more. Whatever happened to the campaign shpiel about modernizing the electrical grid? Reading Bloomberg’s story of windmills’ salutary effect on electric power prices, one sees the necessity for robust transmission capacity.

Yes, I said windmills. Sure, they’re apt to kill a fair share of the birds dumb enough to attempt a flight through moving rotors, but they produce power with diminishing marginal cost and pollution. Also, as it turns out, this here continent has an abundance of wind. Conveniently, much of that wind flows through areas rural enough to field windmills.

Not to be impolitic with respect to the Southwest, but we also have plenty of acreage good for nothing more than collecting sunlight. Solar technology is constantly improving. So are computers, but the government hasn’t delayed buying computers until the technology plateaus. My point is that there’s no time like the present to start tiling the desert with either photoelectric arrays or mirrors and Stirling engines. I have no dog in that fight. Just use whatever an appropriate committee of Ph.D.’s speedily deems most likely to succeed.

Part of the logistical problem with these plans is that, in this world, they get bogged down in our deification of the private sector. Rather than taking necessary actions, the government will create some mushy form of incentives for the private sector to take them. Yes, Pigovian taxation works by a similar logic, but disincentive is a somewhat different beast than positive action.

I suffer from few reservations about the government doing things the private sector has heretofore been unwilling to do. Hence, the populace of our idealized world similarly lacks such reservations. In that world, then, the President pushes for the foundation of a public electric utility. This government-owned business would erect solar fields and wind farms. It would also directly undertake such transmission system upgrades as are both deemed necessary and left undone by existing utility companies. Once these resources were online, the electricity they produced would be sold at market rates. Alternatively, these new means of production could be sold to private-sector players at market rates, so long as those market rates met or exceeded the inflation-adjusted cost of construction.

Along the way, this solution would have the handy consequences of employing a bunch of people, exploiting the favorable rates for U.S. government borrowing, and shuffling toward the holy land of energy independence.

The one caveat here is that I have no more knowledge of electric utility administration than does a roll of toilet paper. There are probably some confounding factors therein, but I’m confident they can be circumvented.

This would be a works project that worked for everyone. If it strikes you as outlandish, then perhaps you haven’t been to a National Park. The WPA didn’t see a mountain and look for ways to incent the creation of a massive statue. They bought some dynamite and made Mount Rushmore. They didn’t go into the Colorado mountains and wonder if anyone would play a concert there. They made Red Rocks. I could go on, but you get the point. There’s stuff to be built, and people who could be building it. Let’s put them together.

Of course, as I said before, these are actions that would be taken in another world, one in which the U.S. government solved problems. Since we’re stuck in this world, tonight’s Presidential address is apt to disappoint.

If it makes you feel any better, there are people who are more disappointed than you may be — and I certainly will be — after tonight’s speech. For instance, there’s the congregation in Ohio whose giant Jesus burned down after being struck by lightning.

Posted in Uncategorized | Tagged: , , , | Leave a Comment »

U-6 Movement?

Posted by levikafka on June 8, 2010

“…not only does a sky-high IQ not guarantee success but it could also pose a danger…I therefore urge the relevant regulatory bodies of the United Studies and Canada to incorporate an IQ test into their securities licensing exams. … nobody would be allowed to work in the financial markets in any capacity with a score of 115 or higher. Finance is too important to be left to smart people.” – Warren Buffett (via Yves Smith)

The Daily Show was new last night. Also, ABC chose to air another 2 hours of The Bachelorette, a reality show so dreadfully written as to make one pine for Wipeout‘s subtle humor. Elsewhere, Shane Victorino and Placido Polanco stole bases in synchronicity, Brian Wilson recorded a save, and an inestimable volume of crude oil floated nearer the open waters of the Atlantic. Put simply, existence seems to be a crap sandwich dotted with Junior Mints.

Mmm…Junior Mints. They are the bastard progeny of Raisinets and a York Peppermint Patty, and for this metaphor to work, you must imagine they’ve been sparingly applied to a fecal feast which, while your only source of sustenance, appears to be in obscenely large but finite supply. For roughly 7 decades, it presents the implicit question of whether to continue eating or turn away forever. You can see why we focus on the mints.

In that vein, we ought to address something that went overlooked in yesterday’s discussion of unemployment.

Consulting Table A-15, we see the seasonally-adjusted U-6 number (my people!) fell from 17.1% to 16.6% between April and May. Over that month, full-time employment increased by 625,000. That’s good news.

Of course, it comes with a litany of caveats. Full-time employment is still down about 6.5% from its lowest point in 2007. The big news is bad; the immediate news is good.

Also, there’s the matter of U.S. Census hiring. Conceivably, all 411,000 of the temporary Census hires could have contributed to full-time employment growth. If discount accordingly, that leaves 214,000 “real” jobs, which is still decent. Full Census contribution, however, is unlikely. By Calculated Risk’s reasoning, the number of individuals bumped from part-time to full-time expectations by Census work was more in the neighborhood of 200,000, which would leave a gain of just over 400,000. That would be the greatest increase in full-time employment since April 2008 — before Lehman went kablooie.

Perhaps the most confounding issue comes in trying to find the numerical value implied by a -0.5% shift in the U-6 rate. Aggregating the “Total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force” is left to those with better resources than myself. If we assume those who became discouraged workers in the last month remain among the marginally attached, then the half-point change involves some combination of total employment growth and full-time employment growth, discounting for overlap.

Notwithstanding the caveats, more households with some semblance of a financial base makes for good thinking. Of course, with Phil Hughes facing Baltimore, fantasy baseball should provide ample active distraction.

Posted in Uncategorized | Tagged: , , | Leave a Comment »

More of the Same

Posted by levikafka on June 7, 2010

“This is really, really bad.” – Paul Krugman

You’ve probably heard there’s a hole in the bottom of the Gulf of Mexico. If you haven’t, then I’ll take that as a compliment; clearly, you consult no other news source. The ongoing BP oil spill is a great news story. That is to say it’s not particularly good, but it’s extraordinarily large. By the same metric, it’s a great distraction.

Yes, the public should be aware of the crude oil filling the Gulf and the many failed efforts to stem its flow. Hiding such developments would constitute propaganda of Soviet proportions. By the same token, however, there seem to be a paucity of credible alternatives to what’s already being done. To that end, my vote is for less news coverage. Take a few minutes to catalog any changes, and then move on to something on which public opinion might hold some sway.

For instance, let’s talk about the employment situation. It’s abysmal.

The preliminary report for May estimates the private sector created 41,000 jobs last month. Quick consultation of Table A shows that 41,000 is many fewer than the 170,000 individuals added to the civilian noninstitutional population. How, then, did the headline U-3 number decline from 9.9% to 9.7%? Some of that might have to do with the roughly 410,000 temporary U.S. Census jobs that started last month. Considering the number of people who likely took Census work as a second job, that seems somewhat unlikely. The primary reason last month’s unemployment number “improved” is that the labor force declined by 322,000 despite the aforementioned population growth. While far from complete protonic reversal, this falls squarely in the “bad” category.

Additionally, the roll of those unemployed for more than half a year — the “long-term unemployed” — continued to increase. Representing nearly 4.4% of the civilian labor pool, these folks are nearly numerous enough to account for baseline unemployment in a healthy economy without any help from niceties like market friction. From an humanitarian perspective, these are the people who warrant concern. They’re what one might call “aspiring vagrants.”

Meanwhile, as Brad DeLong and Paul Krugman have noticed, the demand for U.S. Treasuries is large. With first MBS and then European sovereign debt having proven less than air-tight, the U.S. government represents one of the few credible issuers of debt on a large scale. Thus, demand has increased, and yields have fallen.

To summarize, demand for secure debt is high. So is unemployment. Oh, if only some apparatus existed that could issue debt and apply such credit to a mass employment effort! Wait a minute…

I’m going to take the liberty of skipping past a perfunctory explanation of Keynesian stimulus and why Austrian/supply-side/neoliberal economics is primarily a propaganda tool for the avaricious. There are pools of money waiting to be lent to the U.S. government, and there are millions(!) of households seeking funds to spend on food, housing, and other items that more often than not are at least filtered through local vendors. These circumstances require material connection.

How does one put the unemployed underclass in touch with government monies? I’m not sure I even have a dog in that fight. Considering the age of many local utility systems, a system involving grants to municipalities for infrastructure construction makes a lot of sense. Also, the filling of the Gulf of Mexico with crude oil makes a person think there could be many more Americans building windmills at which to tilt. In terms of increasing aggregate demand while refusing to turn our collective back on our most unlucky brethren, developing a sustainable system for enforcing an income floor of sorts would do just as well.

If no action of this sort is undertaken, then it’s difficult to see when or why the employment recession might end. The unemployed remain unemployed, demand remains decreased, and those responsible for economic projections continue to assume can openers in the medium term. No one can point a magic wand and create growth. Someone must spend. Someone must take a long position, turning liquid currency into material assets.

Somehow, the preceding paragraph appears to be in dispute. Prevailing wisdom seems to say the economic ship will magically right itself, so Congress and other bodies are refusing to take the necessary actions. Considering the idiocy such a course requires saps my confidence in humanity.

If you need me, then, I’ll be single-mindedly monitoring my fantasy baseball team.

Addendum: For a longer, more historically-minded diatribe on the failings of the economic zeitgeist that followed Ronald Reagan, read this post by Richard Abrams.

Posted in Uncategorized | Tagged: , , | 3 Comments »