Saturday, May 30, 2015
CBC - Peter MacKay quits politics. Yet another Conservative decides he's not going to run in the next federal election.
You have to wonder if it's because he sees that the west has swung away from the Conservatives, because they've figured out (with the drop in commodity prices) that they now need other people to be nice to them and help them when times are tough?
at 3:19 PM
Mark Thoma - Robert Reich on antitrust. Quote of his quote:
Last week’s settlement between the Justice Department and five giant banks reveals the appalling weakness of modern antitrust.
The banks had engaged in the biggest price-fixing conspiracy in modern history. Their self-described “cartel” used an exclusive electronic chat room and coded language to manipulate the $5.3 trillion-a-day currency exchange market. It was a “brazen display of collusion” that went on for years, said Attorney General Loretta Lynch.
But there will be no trial, no executive will go to jail, the banks can continue to gamble in the same currency markets, and the fines – although large – are a fraction of the banks’ potential gains and will be treated by the banks as costs of doing business.
America used to have antitrust laws that permanently stopped corporations from monopolizing markets, and often broke up the biggest culprits.
No longer. Now, giant corporations are taking over the economy – and they’re busily weakening antitrust enforcement.
The result has been higher prices for the many, and higher profits for the few. It’s a hidden upward redistribution from the majority of Americans to corporate executives and wealthy shareholders. ...
That bolded bit there is "rent seeking", isn't it, Mark and Bob?
So why aren't you two calling it what it is? In fact, let's ditch the technical term "rent seeking", and just call it "the corruption of the political-economic framework of the US by a cabal of kleptocrats"?
Congress has squeezed the budgets of the antitrust division of the Justice Department and the bureau of competition of the Federal Trade Commission. Politically-powerful interests have squelched major investigations and lawsuits. Right-wing judges have stopped or shrunk the few cases that get through.
That sounds like corruption in the political-economic framework, no?
How about if all you economists grew a pair of balls and started talking about this stuff out in the open?
Vox EU - left-of-Hillarynomics. Wait... so it's supposed to be "left of Hillary" to be against rent-seeking? Then what, the Virginia School is a hive of left-wing communism, is it? Cos the Virginia School seem to me to be market libertarians, and the problem of rent-seeking for them is the problem of plutocrats using political influence to produce market failures that they can earn a profit from:
The report, titled "Rewriting the Rules of the American Economy: An Agenda for Shared Prosperity" and released on May 12, is a far-reaching indictment of economic policy as it's been conducted in recent decades, which have resulted in sluggish growth and booming inequality, with wealth growing considerably faster than incomes. One central question, according to the report, is why is this even possible. Conventional thinking holds that wealth should be invested and, through investment, put to productive use, with those investments creating job opportunities and higher wages.
Alternatively, if few productive investment opportunities are available, the return on invested wealth should start falling. It ought to be a self-correcting cycle in which wealth cannot outpace incomes for long. But the return from capital remains high, and wages are stagnating. Something's gone wrong.
The problem, Stiglitz and his co-authors write, is that the rise in wealth isn't coming from productive investments.
It's coming from what economists call rents — a metaphorical extension of the 18th-century practice of small farmers paying rent to landlords for the right to use the total inert asset of land.
Stiglitz and his co-authors extend the idea to include a wider and more modern array of rents.
"Rent-seeking," as economists call it, is generally viewed as economically counterproductive. It's especially counterproductive when it becomes so lucrative as to provide a more attractive outlet for people's money than real investments.
The report's authors argue that's exactly what's happening with Wall Street. Its growth has fueled a big rise in credit — credit that tends to go to those who already have wealth, often in the form of rents, exacerbating existing rent-based problems. Financiers have also identified novel ways to rent-seek.
"Too big to fail" status, for example, can count as a rent. It increases the value of firms like Goldman Sachs or JPMorgan Chase not by making them more productive, but by providing an implicit government subsidy. Trading mortgage-backed securities for profit, similarly, does little to actually increase wealth but a lot to redirect it. That makes it attractive as a business activity for banks and hedge funds, redirecting their energies from profitable activities that create wealth.
Many of these rents are explicitly created by government policies. "Too big to fail" is an obvious example, but financial deregulation more broadly has made speculation vastly more profitable in recent decades, encouraging rent-seeking on the part of financial firms.
Stiglitz and his co-authors also finger tax cuts for the wealthy as a culprit. They cite research by Thomas Piketty, Emmanuel Saez, and Stefanie Stantcheva finding that countries that slashed their top marginal tax rates the most in recent decades also saw the biggest increases in inequality before taxes. That might make sense if the tax cuts boosted growth, but that wasn't really what happened. What happened instead, Piketty, Saez, and Stantcheva argued, was that the tax cuts gave top earners bigger incentive to extract rents for themselves, to bargain hard to increase their share of the company's wages. In the 1950s, when the top marginal tax rate in the US was 91 percent, getting an extra $1 in income through rents only yielded $0.09 after taxes. Today, it means getting $0.60. That's a sixfold increase — a huge increase in the incentive to find rents for oneself.
And Dylan Matthews at VoxEU calls this "left of center". I've just got to shake my fucking head.
Brad deLong - why the US economy is still depressed. Wherein we get this useful chart:
Meanwhile, again, that green line represents the collapse in government spending since 2010, which (wonder of wonders!) has a negative effect on growth. How much potential have we missed out on? This much:
Back in 2007 those whose business it was to forecast the American economy were confidently projecting that, come 2015, nominal GDP–the total amount of spending in dollars on currently-produced and marketed goods and services in the United States, plus imputed rent on owner-occupied houses–would be $21.5 trillion. It will be about $18.3 trillion. Back in 2007 they were projecting that real GDP at 2009 prices would, in 2015, be $18 trillion. It will be $16.5 trillion. Back in 2007 they were forecasting that 87% of 25-54 year-old males would have jobs, not 84%. Back in 2007 they were forecasting that 72% of 25-54 year-old females would have jobs, not 70%.
Why? At the arithmetic level, it is because residential construction and government purchases have fallen far below their expected trends by a lot, consumption spending has fallen below its previousy-expected trend by a little, business investment is more-or-less at its previously-expected trend, and only exports have boomed relative to 2007 expectations.
And as far as market commentary is concerned? Well, on the one hand, the US could see a drop in exports if USD continues to appreciate; meanwhile, the 20-25 demographic is a pretty big lump about to work its way through the US economy, which gives hope that residential spending might eventually pick up.
I think those two factors move on different timescales though.
And it seems Brad reads my blog:
And governments are not responding to market signals: financial markets are telling them that they have a once-in-a-lifetime opportunity to advantageously pull spending forward from the future into the present and push taxes back from the present into the future. But, because of the ideology of austerity, they are not taking advantage of this opportunity.
Sure I thought of it first, but I'm happy to see more people spreading the news.
More economics weekend reading: Jeremie Cohen-Setton tells you more than you ever needed to know about winter seasonality
Bruegel - the residual seasonality puzzle. An article that serves as a clearing-house for informed commentary on the American "winter seasonality" problem. I found this bit very compelling:
Justin Wolfers writes that the puzzle of the first-quarter slump seems to be confined only to G.D.P. There is no indication of similar problems affecting the seasonal patterns of other economic indicators. For instance, an alternative (seasonally adjusted) measure of economic growth called gross domestic income has not recorded an unusual number of first-quarter slumps. Likewise, there is no systematic difference in the quarterly pattern of seasonally adjusted growth in nonfarm payrolls.
By the way, Jeremie? Let me show you a quote from Wolfers' article:
I could find no indication of similar problems affecting the seasonal patterns of other economic indicators. For instance, an alternative (seasonally adjusted) measure of economic growth called gross domestic income has not recorded an unusual number of first-quarter slumps. Likewise, there is no systematic difference in the quarterly pattern of seasonally adjusted growth in nonfarm payrolls.
Anyway, from the looks of it, if GDI and NFP don't show this seasonality, then the GDP seasonality problem really must be just an excel spreadsheet error.
Serious, I wouldn't put it past anyone.
Bloomberg - US austerity eliminated 2.4 million jobs. It's nice that the lamestream media are starting to talk about this:
Bernanke, then the Fed’s chairman, said early last year that “with fiscal and monetary policy working in opposite directions, the recovery is weaker than it otherwise would be.”
The contractionary nature of the fiscal policy has been partially obscured because it’s an amalgam of government tax and spending actions at all levels -- federal, state and local -- rather than a single set of decisions.
Recent Obama administration comments about the fiscal policies of other major economies have also helped conceal the reality.
The administration has repeatedly criticized the big European nations, especially Germany, for running austerity programs of deep spending cuts and tax increases that the administration says slow their own growth and undermine the global recovery. Treasury Secretary Jacob Lew last fall urged Germany and others to “pursue more fiscal policies to boost demand.”
But figures from the Organization for Economic Cooperation and Development show that since the 2009 start of the recovery, the administration has allowed U.S. policy to tighten by more than twice as much on average as Germany, France, Italy and the U.K.
And this is where you get the tongue-in-cheek argument that, with real rates being negative, utterly every single capital investment project that the government can think of will have a positive payback: They could flatten the Appalachian mountains to reduce fuel costs in the economy FFS.
The problem is, you have to know how to do a Net Present Value calculation for capital investments: but that's something you only learn in the real world of engineering, not in the criminal underworld of politics. So the various levels of government in the US refuse to spend on positive-payback investments such as:
1. increasing human capital through increased spending on education;
2. increasing intellectual capital through increased spending on research;
3. compensating for capital depreciation by rebuilding existing transportation infrastructure;
4. generating increased future growth by spending on new transportation infrastructure.
Every single one of those components of government spending has a positive payback. The spending can be financed at (checking Bloomie) 2.85% over 30 years. (Basic demographics alone suggests interest rates will move up over the next 30 years, so a 2.85% locked-in rate will be an even better deal in real terms.) This is a gimmie, this is a fat pitch, and Republicans resisting spending on positive-payback items is utterly criminal.
And, critically, it seems business has taken the Republican philosophy so deep up their butts that now even businesses refuse to spend their net earnings on new investments with positive payback, instead either stashing it in zero-yielding overseas accounts or handing it back to capital in the form of share buybacks.
That's why this stagnation crisis is entirely the product of right-wing ideology, guys.
Nice to see some economists might be starting to clue in. Now if only they can grow some balls and talk about this out in the open.
Friday, May 29, 2015
The Krugginator - again, why the Euro is a doomed experiment. Quote:
...the broader story here is that we’re increasingly seeing that the problems of the euro extend well beyond the troubles of southern European debtors. Economic performance has also been very bad in several northern nations with good credit ratings and low borrowing costs — Finland, Denmark (which isn’t on the euro but shadows it), the Netherlands.
Again, the problems of Europe aren't caused caused by the laziness and corruption of the swarthy Mediterranean mud-races, despite what Bild would have you think. These problems are caused by the Euro currency union itself:
What’s going on? Well, in the case of Finland we’re seeing the classic problems of asymmetric shocks in a currency area that isn’t optimal. Finland’s two main export sectors, forest products and Nokia, have tanked; this creates the need for a sharp fall in relative wages to make up for the lost markets, but because Finland doesn’t have its own currency anymore this adjustment must take the form of a slow, grinding internal devaluation....
The problems of the euro, in other words, weren’t caused by an outbreak of fiscal irresponsibility that won’t recur if the Greeks can be brought to heel; they weren’t even, in a deep sense, the result of big capital flows that won’t come back again. The whole single currency project was flawed from the start, and will keep generating new crises even if Europe somehow gets through this one.
We have fiscal transfers in Canada to ensure, for example, that the formerly dirt-poor province of Saskatchewan didn't starve to death. And because we Ontarians aren't a hateful bunch of cunts, we were (when we had a booming export sector, i.e. before that cunt Harper) happy to send all our excess cash to Saskatchewan to keep their furnaces on all winter.
But Europe will never bring about fiscal transfers because there's still hatred between the nations. It's polite, it's quiet, but it's still hatred. Add that to their ignorant cartoonish Washington Consensus market fundamentalism and you've got an experiment doomed to failure by the sheer pig-ignorance of its own political leadership.
I eagerly await the IMF bailout of Finland.
Some more reading for tonight:
Calculated Risk - Q1 GDP revised down to -0.7%. And it's good to remember that Q1 ended in March, so it has already been priced into the market.
New Deal Demoncrat - corporate profits down somewhat sharply. Well, there's only so much rent you can extract from the market. I was freaked out by this and inspired to sell some of my US holdings this morning, but then I checked and I've actually got most of my money in Japan right now. Seems like the better idea.
Economist's View - Krugman on the insecure American. And it's true, you shouldn't expect anyone with over $1M in his bank account to have the slightest clue how life is among the peasants.
Rortybomb - and nothing will replace public higher education. And so the USA slits its own throat by deciding it won't invest in human capital anymore. That's okay, I guess you guys can sew sneakers for the Mexicans in the future.
FT beyond brics - why are EM forex reserves in a sustained decline? Cuz, um, that's what happens in an EM secular bear market?
IKN - Dalradian pops at the close. Well, it popped on only 200k shares traded, so that tells you how thin the ask was on this stock. It had to move someday, so it moved today. We'll leave it til Monday to see if it really was just a fat finger, or whether instead there was maybe a bunch of Chinese businessmen seen hanging out near a hole in the ground in Ireland.
Kruggers - sex and drugs and zero rates. Wherein he notes this chart:
which actually is scary, when you think about it.
I'd add that this chart also shows that a full 85% of wall street traders have never even seen a secular bull market - all they've seen is the doom of the Nasdaq collapse, followed by a tepid market recovery, then a banking collapse with OMG tanks in the streets and America presided over by a Kenyan gay muslim communist sleeper agent.
Then Kruggers gives us this comment by Kevin O'Rourke which seems perfectly believable:
The markets want money for cocaine and prostitutes. I am deadly serious.
Most people don’t realize that “the markets” are in reality 22-27 year old business school graduates, furiously concocting chaotic trading strategies on excel sheets and reporting to bosses perhaps 5 years senior to them. In addition, they generally possess the mentality and probably intelligence of junior cycle secondary school students. Without knowledge of these basic facts, nothing about the markets makes any sense—and with knowledge, everything does.
Yup, I believe it. My god though, Kev: this means that in order to beat the market handily, all you have to be is an even-headed non-coke-addict with some emotional maturity.
Then Kruggers bitch-slaps the clown at Bloomberg who wrote the story:
Side benefit: read the caption on the Bloomberg chart, and note how bad economic analysis — the specific kind of bad analysis one finds on cable TV business news — gets presented, probably unknowingly, not even as opinion but as fact. “Inexperienced traders will have to tackle markets without the central bank’s artificially low interest rates …” [my emphasis]. Who says they’re artificially low? What does that even mean? It might mean rates below the Wicksellian natural rate, which is the rate that produces stable inflation — but with inflation consistently below the Fed’s target, this criterion would if anything say that rates are artificially high, propped up by the zero lower bound.
I love the crotchety, mean-spirited new Krugginator.
Anyway, this whole rate-cycle thing doesn't really matter, considering enough of the Fed seem to want to concentrate on the unemployment section of their mandate and see how low this fabled "NAIRU" really is. And besides, the crappy data we've seen, with the lack of post-winter bounce, must suggest the economy has slowed and the Fed wouldn't have the growth headroom for raising rates for a while, right?
Though of course the cokehead brats on Wall Street will happily believe that Yellen will happily sabotage the US economy, driving it back into a liquidity trap. Because they're cokeheads and paranoia is their thing.
Here's Luciana back when she was significantly younger, with some summer party music:
Thursday, May 28, 2015
Been busy with school and busy with work, but in addition I haven't come across much in the way of news that's not bullshit so I didn't want to saddle you with crap.
But here's a few things:
New Deal Demoncrat - maturing expansion. He says "beginning in 2016 the expansion is on borrowed time". I guess he's given up hope of ever seeing a corp capex boom? Or does he think we're still in a secular bear market? I don't trust his opinion because far too many people fall for recency effect. We'll see.
WSJ RTE - pay inequality is growing more between firms than within them. Interesting, and might be thebeginning of the necessary bifurcation of the factor market consumers into the successful companies (those who recognize the value of human capital) and the failures (those who pay their workers chickenshit wages). I guess if you can't count on the employment model to raise wages (because it doesn't take employer market power into account), you can still hope for the market to separate intelligent employers from assholes.
Martin Wolf - why finance is too much of a good thing. Again, it's because finance is a form of rent-seeking, and it diverts far too much human capital out of productive work. No surprise here, you've been reading that for years.
Mike Konczal - proof "centrism" is dead. By "centrism", what I think he actually means is right-wing Washington Consensus market fundamentalism, not centrism. But I guess he can call it "centrism", since it's still to the left of von Mises, Ayn Rand and Zerohedge.
Wednesday, May 27, 2015
Here's QQQ's chart, including that oh so horrible red candle printed on Tuesday:
And it turns out yesterday was no big deal after all, and QQQ is moving right back towards its recent highs.
So whatever reason everyone had for selling the US yesterday, it turns out it was an utterly stupid reason.
Here's more news for you:
Liz Ann Sonders - market perspective. She (or more likely that panty-piddling sissy Kleintop) expects more volatile prices moves as the US gets closer to a rate hike. She (or more likely that panty-piddling sissy Kleintop) has forgotten entirely about "corrections in time" and how they replace corrections in price.
Yanis Varoufakis - austerity is the only deal-breaker. And because the IFKAT are still demanding austerity, despite Olivier Blanchards years-old mea culpa, indicates that the best thing for Syriza to do is to call all bluffs and go nuclear. Because as the Krugginator says,
Kruggers - Grexit and the morning after. Quote:
What I would urge everyone to do is ask what happens if Greece is in fact pushed out of the euro. (Yes, Grexit — ugly word, but we’re stuck with it.)But to be a German, you have to be pig-headed and continue suicidally racing toward the abyss, instead of admitting your errors and apologizing to the people you've hurt. That's yet another lesson from 1933-1945 that they still haven't learned.
It would surely be ugly in Greece, at least at first. Right now the core euro countries believe that the rest of the euro area can handle it, which might be true. Bear in mind, however, that the supposed firewall of ECB support has never actually been tested. If markets lose faith and the time for ECB purchases of Spanish or Italian bonds arises, will it really happen?
But the bigger question is what happens a year or two after Grexit, where the real risk to the euro is not that Greece will fail but that it will succeed. Suppose that a greatly devalued new drachma brings a flood of British beer-drinkers to the Ionian Sea, and Greece starts to recover. This would greatly encourage challengers to austerity and internal devaluation elsewhere.
Think about it. Just the other day the Very Serious Europeans were hailing Spain as a great success story, a vindication of the whole program. Evidently the Spanish people don’t agree. And if the anti-establishment forces have a recovering Greece to point to, the discrediting of the establishment will accelerate.
Mining.com - China be buyin' up all them miners. Zijin buys properties from Ivanhoe and Barrick, which must mean the Chinese intend to keep accumulating gold for the foreseeable future. Smarten up, you white-ass honky crackers!
Reuters - China sets up $16B gold investment fund as part of Silk Road initiative. Again, that must mean the Chinese intend to keep accumulating gold for the foreseeable future. But you go ahead and keep puking gold into thin bids, honky. Build yourself a big massive short position. Cuz you're right and China's wrong.
Evan Soltas - is growth understated? Sure. At work, we save a lot of money on site visits by looking at the project area in Google Maps street view. But the money saved goes into the pocket of the capitalist exploiter, as the guy in the comments section noted, so it'd still be measured.
John Quiggin - opportunity cost is a Fabian idea. This is what Friedrich von Wieser said when he invented the term "opportunity cost":
Instead of the things that would be more useful, there are things that pay better. The greater the difference in wealth, the more striking are the anomalies of production. The economy provides luxury to the capricious and greedy, while it is deaf to the needs of the miserable and poor. It is therefore the distribution of wealth that decides what will be produced, and leads to a consumer of a more anti-economic variety: a consumer wastes on unnecessary, guilty enjoyment that which could have served to heal the wounds of poverty. —Friedrich von Wieser, Der Wert Natürliche (The Natural Value), 1914.That is not something you're going to see reprinted in that Nazi pig Mankiw's intro economics textbook, now, is it?
Question for economists:
Using whatever model you like for an economy, ideal or real, determine what proportion of wealth generated per year will go into the hands of labour, and what proportion will go into the hands of the owners of production.
If you can't give an answer, then what you have there is not a science.
Tuesday, May 26, 2015
Not much to see today... gold dropped below US$1200, but only because USD popped. The subsequent further drop in gold is Americans selling because they still don't understand what this chart means:
And I'm through spainin'.
And of course the US markets have to dump 1% because nondefense capital goods gave us a good print. They must think this is the first of many good prints, just like last year after winter, and therefore sell because reasons, and even because potato.
You don't really need the news when you've got the stupid.
So, in place of the news, I've made a shocking discovery that I'd like to share with you.
Monday, May 25, 2015
No afternoon smackdown in gold today, because the Americans are off. I wonder when they'll clue in that they're the only people selling?
Anyway, here's the news:
New Deal Demoncrat - weekly indicators. Quote:
The US economy remains in a shallow industrial recession, but the remainder of the economy, as shown by housing permits and initial jobless claims remains quite positive. This has been driven by a 16% appreciation of the US$ globally, and secondarily by the effects of the collapse of commodity prices on raw materials producers. I expect the US$ to continue to retreat due to coincident weak economic performance, and the underlying past positivity of the US long leading indicators will come through.
WSJ RTE - inequality hurts growth, but how? It's only significant in that the WSJ, the bastion of the Nazi plutocracy, is talking about it.
Krugginator - on technology's lack of boost to growth. Maybe, Krugger, it's because the productivity gains produced by technology were confiscated as new rents for the rich? I mean, what the hell do you think is paying for all those NASDAQ stock buybacks?
Sunday, May 24, 2015
Raising the minimum wage does not create unemployment, despite what that Nazi Mankiw is trying to teach us in his first-year textbook.
Empirical evidence (from the US even) proves this, and in any case Mankiw is outright disingenuous (read: he's an outright liar) by asserting that you can use a perfect competition model to find the equilibrium wage rate.
Anyway, here's an article on a fascinating experiment about to unfold throughout the US:
New Yorker - a fascinating experiment is about to unfold.