Dispatches from District 48
Archive for the ‘Economics’ Category.
Looking at the chart below, attempt to convince yourself that the cash-for-clunkers program had any real effect on economic activity.
And consider what was NOT purchased by the previous holders of the billions of dollars the government took from them to give to car buyers.
Sorry to steal the phrase from Marginal Revolution, but it seems appropriate for this story -- Surgery as an excuse to be laid up in bed watching TV
Come to find out that untold numbers of American males at this very moment are propped up in front of their television sets at home, bags of ice strategically placed in their respective crotches.
Cleveland urologist Dr. Stephen Jones has noted a 50 percent increase in recent years in vasectomies performed a day or two [before] the start of the NCAA men's tournament.
That's a lot of slicing and dicing.
You can imagine the dialogue, first between the dude and his woman:
"Honey, doc says I gotta take it easy for a couple of days. I'll be back to normal after the weekend."
"Sorry, I'll be out Thursday and Friday. Surgical procedure. Nothing big. No, I'll be laid up and it probably will be better if I start up fresh on Monday, OK?
Not sure I have the cojones to try that.
So Obama just signed a new "jobs" package
It's the first of several such measures Democrats have promised this election year to address the public's top worry: jobs. The measure includes about $18 billion in tax breaks and pumps $20 billion into highway and transit programs.
This is fascinating to me. Let's take it in reverse order, starting with the $20 billion in new spending. We are going to take 0.14% of the GDP out of some people's hands, who presumably thought they were employing the money productively, and put it into some other people's hands, and that is going to be a net jobs creator? ** Does this Keynesian myth really make sense to thoughtful people any more?
OK, but lets accept the logic - somehow if the government spends the money, it is more stimulative than if private people spend the money. But then the whole package is contradictory, because it includes $18 billion in tax breaks. Isn't that just taking money away from that great optimizer, the US Government, and handing it back to yucky old individuals who might just save it or pay down debt or something equally silly in the Keynesian world?
**Postscript- to answer a frequent comment I get, it does not matter if it is borrowed or taxed. Either way it takes money from some private purpose. There is only so much capital in the capital markets, and more government borrowing squeezes out private borrowing.
Here is as good a reason as any why many businesses (like mine) are currently reluctant to invest:
I've noted any number of times that government taxes comprise 14% of the national income and government spending is at 25% of the national income.
OK, so politicians have two alternatives -- they can make tough choices to reduce spending and reduce their own power, or they can just take more money from taxpayers and in so doing increase their personal power. Gee, I wonder which will occur?
Combine this is a health care bill no one understands but everyone suspects will raise the price of labor and a climate bill that won't quite die that will raise the price of energy and therefore most other inputs, and is it any wonder that businesses are reluctant to invest when their three highest costs (taxes, labor, energy) are going up by some undetermined amount?
Next week I am on a panel talking about alternative energy. These guys have already told me they don't want to re-fight the global warming science battle at this venue, and my guess is that there will be a lot of pragmatist corporate types who won't really care about individual liberty or role-of-government issues -- they will only care if there is money to be made, even if it is by rent-seeking. My best bet, I think, will be to discuss why alternative energy is a bad investment. My sense is that it is a bubble investment, like goofy Internet stocks in the 1990's or housing in the 2000's. Already, I think we see the crash in the corn ethanol business.
My two assumptions are
I would love for commenters or emailers to send me contra-examples if they have them to either of these assumptions. In particular, can you think of an industry that could not have grown initially without subsidies eventually prospering without subsidies.
To the second point, I looked at the numbers two ways.
(PS - the subsidy could also be in the form of taxes that increase the cost of alternatives, or production and/or import restrictions on the alternatives).
Any help along these lines in the comments is appreciated.
Update: This seems relevant:
First Solar shares skidded 8% Friday to close at $116 after the company issued a murky business outlook beyond June. Until then, however, "orders look very strong," First Solar CEO Robert Gillette said in a post-earnings conference call.
This commentary, along with price pressure and expected subsidy cuts solar panel makers get from the German government is making investors a bit more wary of First Solar, whose shares have been on a bumpy ride the past 18 months....
First Solar, helped by government tax credits extended to businesses for using solar power, has rewarded its investors since going public in November 2006 at $20 a share. The stock peaked at $317 in May 2008. But the shares have been skittish ever since.
Germany, the world's biggest solar market, is weighing a 15% cut on so-called solar feed-in-tariffs. This could make solar installations less attractive.
First Solar projects 60% of its 2010 sales from German-related contracts, according to Wedbush Securities analyst Christine Hersey.
Remember from above, the German feed-in tariff for solar is around $0.58 per KwH, or fully $0.50 above the price paid for the fossil fuel base load. At this subsidy level, the US would be paying $400 billion a year in subsidies and/or higher prices.
First Solar has grown at over 150% per year for the last 3 years so the 30% assumption above is conservative, as is the assumption about the number of competitors doubling every two years.
Another interesting note - First Solar makes a pre-tax margin around 33% of sales, which is over 6x larger than health insurance companies make (and are excoriated for). Is it any wonder Germany no longer wants to keep subsidizing First Solar's bottom line to levels far above most equipment manufacturing companies.
Long ago on this site, I wrote this:
More recently, progressives have turned their economic attention to lesser developed nations. Progressives go nuts on the topic of Globalization. Without tight security, G7 and IMF conferences have and would devolve into riots and destruction at the hands of progressives, as happened famously in Seattle. Analyzing the Globalization movement is a bit hard, as rational discourse is not always a huge part of the "scene", and what is said is not always logical or internally consistent. The one thing I can make of this is that progressives intensely dislike the change that is occurring rapidly in third world economies, particularly since these changes are often driven by commerce and capitalists.
Progressives do not like American factories appearing in third world countries, paying locals wages progressives feel are too low, and disrupting agrarian economies with which progressives were more comfortable. But these changes are all the sum of actions by individuals, so it is illustrative to think about what is going on in these countries at the individual level.
One morning, a rice farmer in southeast Asia might faces a choice. He can continue a life of brutal, back-breaking labor from dawn to dusk for what is essentially subsistence earnings. He can continue to see a large number of his children die young from malnutrition and disease. He can continue a lifestyle so static, so devoid of opportunity for advancement, that it is nearly identical to the life led by his ancestors in the same spot a thousand years ago.
Or, he can go to the local Nike factory, work long hours (but certainly no longer than he worked in the field) for low pay (but certainly more than he was making subsistence farming) and take a shot at changing his life. And you know what, many men (and women) in his position choose the Nike factory. And progressives hate this. They distrust this choice. They distrust the change. And, at its heart, that is what the opposition to globalization is all about "“ a deep seated conservatism that distrusts the decision-making of individuals and fears change, change that ironically might finally pull people out of untold generations of utter poverty.
Which is why I really enjoyed this article linked by Mark Perry:
"Years after activists accused Nike and other Western brands of running Third World sweatshops, the issue has taken a surprising turn. The path of discovery winds from coastal factory floors far into China's interior, past women knee-deep in streams pounding laundry. It continues down a dusty village lane to a startling sight: arrays of gleaming three-story houses with balconies, balustrades and even Greek columns rising from rice paddies.
It turns out that factory workers -- not the activists labeled "preachy" by one expert, and not the Nike executives so wounded by criticism -- get the last laugh. Villagers who "went out," as Chinese say, for what critics described as dead-end manufacturing jobs are sending money back and returning with savings, building houses and starting businesses.
Workers who stitched shoes for Nike and apparel for Columbia Sportswear, both based near Beaverton, Oregon, are fueling a wave of prosperity in rural China.
Update: I would have thought it unnecessary to add these provisos, but apparently per the comments it is necessary for some. Of course people need to be treated as human beings. Companies in some poor countries that are using the power of local government to actually enslave workers or to employ them in non-consensual ways are not organizations a good libertarian would ever defend, as our bedrock principle is to deal with other human beings without force or fraud.
My point is that we cannot apply our wealthy middle class values to the pay/benefits/workweek package being offered in poor countries. To my mind it is immoral to try to deny poor people in poor companies jobs just because we rich people in the US would not consider taking such a job. This arrogant and frankly clueless attitude forgets a critical question - what is their alternative? We may think the Nike factory job sucks, and against the choices we have it probably does, but I would bet the subsistence rice farming job, with one's family always one bad harvest away from starvation, would suck worse. Of course we should aspire that everyone in the world can work in an air conditioned building for $40,000 a year while spending most of the day surfing the Internet and texting friends complaining that they are underpaid. But you can't tell these countries that the only ladder they can use to escape poverty doesn't have any rungs in the first 20 feet.
I am really swamped at work, but I have a number of good things saved that I want to share.
1. This picture is the best single explanation of what is wrong with the stimulus jobs creation numbers -- the stimulus money comes from somewhere, and starves efficient businesses of capital in favor of politically connected endeavors. HT Russ Roberts
2. More on what I call the only good idea for reducing health care spending -- making individuals responsible for making price-value purchasing tradeoffs like we do, oh say, with absolutely everything else we buy. This article on on HSA's in Indiana:
State employees enrolled in the consumer-driven plan will save more than $8 million in 2010 compared to their coworkers in the old-fashioned preferred provider organization (PPO) alternative. In the second straight year in which we've been forced to skip salary increases, workers switching to the HSA are adding thousands of dollars to their take-home pay.
Most important, we are seeing significant changes in behavior, and consequently lower total costs. In 2009, for example, state workers with the HSA visited emergency rooms and physicians 67% less frequently than co-workers with traditional health care. They were much more likely to use generic drugs than those enrolled in the conventional plan, resulting in an average lower cost per prescription of $18. They were admitted to hospitals less than half as frequently as their colleagues. Differences in health status between the groups account for part of this disparity, but consumer decision-making is, we've found, also a major factor.
Mark Perry reports in a later post that Congress is declaring war on HSA's
3. There has been a lot of good stuff lately on the growing rift between the two America's -- those in government or with access to government patronage and those who actually make a living by being productive. I am increasingly convinced that Obama and Congress are working to create a European-style corporate state, where government insiders, a few large corporations, and a few large unions protect themselves against everyone else. Katherine Mangu-Ward looks at a study of government vs. private pay for the same jobs. It used to be government paid less in return for having to work less hard and being impossible to fire. Now government workers have it all.
There are two million civilian federal workers. 1.1 million of them have direct private sector equivalents. And they are laughing their asses off at those private sector suckers, who are doing similar jobs for less pay"â€often a lot less.
"Accountants, nurses, chemists, surveyors, cooks, clerks and janitors are among the wide range of jobs that get paid more on average in the federal government than in the private sector," according to a USA Today report. In jobs where there are private equivalents, the feds are earning $7,645 more on average than their private counterparts.
Her post has more data. And an update and response to criticisms is here. Mark Perry looks at wage growth, and the difference is amazing. Government employees are the new robber barons, and this time, the title is appropriate.
And speaking of the corporate state, this was an interesting essay at the Claremont Institute, via Maggies Farm.
Joseph Schumpeter ominously speculated that as capitalism succeeded, democracies in time would come to expect its end (wealth) but reject its means (free-market competition). He worried that because of the inequality and creative destruction it brings, capitalism would provoke a kind of adverse reaction. A popular call would arise for government to plan market outcomes according to some utopian view of society's good, and this democratically guided central planning would inevitably slow economic growth. Schumpeter predicted, in turn, that if economic expansion faltered, individual liberty would be directly imperiled or quietly ceded by citizens resigned to having their diminished economic position protected by the state.
The one mistake writers often make is to call capitalism a "system." Capitalism is the un-system. It is the lack of a system. It is the natural self-organization of individuals when they freely follow their own self-interest.
4. The individual responsibility story of the day, via Overlawyered
In 2004, truck driver Simon Loza Mejia violated company regulations, and took his eight-year-old Diana Yuleidy Loza-Jimenez along on a long-haul trip from Oregon to Bakersfield. That November 27, he was pulling away in the truck, but apparently didn't bother to check where his daughter was, and ran over her. This was, argued her attorneys, the fault of her father's employer"â€and a Sacramento County judge agreed with the argument that it was legally irrelevant that her father was the one who ran her over. Unsurprisingly, a jury ignorant of the facts awarded Diana, whose lower body was crushed, a jackpot verdict of $24.3 million.
5. Charter schools in Harlem. Never have so many kids been held hostage to so few, in this case a few union officials and their captive legislators.
The United Federation of Teachers and its political acolytes in the New York state legislature are hell-bent on blocking school choice for underprivileged families. Worried that high-performing charters are "saturating" Harlem, State Sen. Bill Perkins and State Assemblyman Keith Wright have backed legislation that would gut state per-pupil funding at charter schools and allow a single charter operator to educate no more than 5% of a district's students. Unions dislike charter schools because many aren't organized. But how does limiting the replication of successful public education models benefit ghetto kids?
These obstructionists, Mr. Clark says, aren't doing the community any favors. "The teachers unions ought to be ashamed of themselves because they know better than I do how bad these schools are," he says. "Everybody on my block and in my building and around the corner . . . they all want charter schools. They don't want a political debate."
Separately, John Stoessel digs into Diane Ravitch's shilling for the teachers unions.
6. I could have sworn the politicians swore up and down they would never ever interfere with business decisions at GM.
General Motors Co. will reinstate 661 dealerships it sought to drop from its sales network.GM executives said Friday that the dealerships -- more than half of those seeking to stay with the automaker -- will receive letters giving them the option to remain open. GM said it would not have enough time to negotiate with all 1,100 dealerships that appealed the automaker's decision to close them within a four-month window imposed by the federal government....
"It's not exactly what they wanted to do, and it's always I think a little embarrassing when you have to make changes based on an arbitration process, but they've had to adjust and move forward," he said.
Well, at least the Congress and the DOT is hammering GM's competitor Toyota, so I guess they can call it even. Welcome to Europe, guys. I have said it before, but this is exactly the kind of BS European nations do all the time - hammering foreign competitors of their domestic politically connected manufacturers in exchange for substantial ability to regulate and modify these companies decisions. Soon to follow - Europe's lower growth rates and higher structural unemployment.
7. Dog bites man: Paul Krugman still a political hack who is willing to eschew everything he knows or has written about economics to support his team.
As I have written a number of times, reserves numbers for oil are not based on the total oil though to be under the ground, but the total oil thought to be under the ground that is economically recoverable at expected prices. Changes in technology and/or oil price expectations change the amount of reserves, even without the discovery of a single new field.
Oil companies have known about the formation, and the oil trapped in it, since at least the 1950s. But they couldn't get more than a trickle of oil from the dense, nonporous rock.
That began to change in the early 2000s, when companies in Texas began using new drilling techniques in a similar formation near Fort Worth known as the Barnett Shale. They would drill down thousands of feet and then turn and go horizontally through the gas-bearing rock"”allowing a single well to reach more gas. Then they would blast huge volumes of water down the well to crack open the rocks and free the gas trapped inside.
The real shift has come in the past two years as companies honed drilling techniques, leading to bigger wells, faster drilling and lower costs. Marathon, for example, last year took an average of 24 days to drill a well, down from 56 days in 2006."
So apparently, oil production in North Dakota may soon pass that of Alaska, though this is more due to the fact that production can be ramped up in North Dakota without an act of Congress, which is not the case in Alaska.
The largest threat to oil prices and production remains not peak oil, but the fact that most of the world's best reserves rest in the hands of state-run oil companies whose competence and willingness to invest for the long-term is sometimes in question.
Roger Pielke, Jr. (hat tip to a reader) points to an interesting FT Lex column that should offer some interesting insights to America's progressives:
"Big" and "oil" are mentioned so often in the same breath that it is easy to lose perspective. Motorists and environmentalists never tire of berating the dominant supermajors whose petrol stations and share listings make them the public face of the industry, their favourite target being America's ExxonMobil. If market value were the sole magnet for opprobrium then Exxon's executives could breathe a bit easier because PetroChina recently overtook it as the world's most valuable listed energy company.
But there is "Big Oil" "“ last year, Royal Dutch Shell earned more than $1bn a month "“ and then there is bigger oil. No oil major is able to affect energy prices on its own and even Exxon is far smaller than the world's largest energy company. It is not even close. Saudi Aramco's estimated hydrocarbon reserves of 300,000 million barrels of oil equivalent make it 15 times Exxon's size. Exxon comes in about 17th place, with the top 10 being entirely state-owned.
US oil company executives routinely get pulled in front of Congress to defend themselves against charges they are manipulating world oil prices. Huh? It would be as rational to accuse Grinnell College of manipulating national tuition rates. Americans can take comfort in the fact that by limiting their ability to seek new oil in the US, we have made sure that oil markets are not controlled by evil publicly traded companies like Exxon and Shell but instead are controlled by entirely more trustworthy entities like the governments of Iran, Saudi Ariabia, Venezuela, Russia, Nigeria, and China.
This chart also supports the one good argument I think there is for peak oil -- that most of the world's oil reserves are controlled by patently incompetent institutions (e.g. governments) that have very bad incentives that make them highly unlikely to invest well. The only reason these countries are able to produce at all is because western companies are stupid enough to keep walking into this cycle:
1. US companies invest huge amounts of capital and know-how to build oil industry
2. Once things are producing, local government steals it all (they call it "nationalization")
3. Oil fields go into extended decline due to short-term focused and incompetent government management
4. US companies invited back int to invest huge amounts of know-how and capital
5. repeat
If Obama really wanted to get small businesses to start investing again, he could announce that both cap-and-trade and the health care bill are dead-dead and will not be disinterred this year. These two bills affect nearly 2/3 of our company's cost structure. Since we have single digit margins, small changes in the wage and fuel cost lines can completely wipe out our profits. Not knowing what 2/3 of our costs were going to look like into the future, we have been sitting on our hands.
Unfortunately, this may not be enough. The third leg of the uncertainty stool is income taxes, and its seems likely that some huge increase almost has to be forthcoming given Congress's predilection for taxes and marked unwillingness to cut spending in any meaningful way.
Here is a very specific example. We have an opportunity to invest about a half million dollars in a new operation in Texas. Financing is available. But in my evaluation spreadsheet, small changes in income tax rates combine with a potential 8% health care tax on wages and an unknown fuel tax increase to move the net present value by enormous amounts. I am not going to risk a half million dollars on a 20-year investment when the government is considering so much legislation that will arbitrarily move the value of this investment.
This is why Obama's offer of small business financing is meaningless. In the last decade, government sponsored cheap money lured people into housing "investments" that eventually went upside down. Are they now luring small businesses into a new trap, encouraging them to take on debt, only to slam the door on them with future increases to their operating costs and taxes?
NY Times | Paul Krugman | Learning From Europe
Europe's economic success should be obvious even without statistics. For those Americans who have visited Paris: did it look poor and backward? What about Frankfurt or London? You should always bear in mind that when the question is which to believe "” official economic statistics or your own lying eyes "” the eyes have it.
This is just silly. Its like walking out on a single day and saying, "well, it doesn't seem any hotter to me" as a rebuttal to manmade global warming theory. I am sure I can walk the tourist and financial districts of a lot of European cities with their triumphal centuries-old architecture and somehow be impressed with their wealth. But the number of upscale shopping options on the Champs-Élysées has little to do with the standard of living of the average Frenchman.
Okay, where did you go in London? Covent Garden? St. James? Soho? Westminster? The City?
Oh, you didn't go to North Peckham, or Newham, or Hackney? You went to the rich areas of the most prosperous city in the country, and not, I don't know, Liverpool, or Leicester, or Middlesbrough? No, you've never been to those places, have you?
Well several million people live there, and no offense to them, but they're not quite as charming as the tourist districts in London. I don't think they'd look to kindly on some rich American spending a vacation watching the Changing of the Guard and taking in a show on Haymarket and concluding he knows about their country and their life.
This really gets back to my post the other day on triumphalism. This is EXACTLY why states build pretty high-speed trains and grand municipal buildings and huge triumphal arches -- as a way to distract both their own citizens (and outsiders) from their own well-being relative to others. Its the magician waving something shiny around in his left hand to take your eyes off the right. And it is pathetic that not only does a former Nobel Laureate fall for it, but he doubles down by telling everyone else to fall for it.
Relevant actual data, via Mark Perry (click to enlarge, this is 1999 data from a 2004 Swedish study but I don't think the relative positions have changed):
Triumphal arches and high-speed trains don't make people wealthy. Wal-Mart has done far more to make the average person wealthier than any number of government projects you can mention.
Along these lines, I have said for years that one of the reasons we spend more on health care than Europe is because we can. We are wealthier, and (rationally in my mind) people choose to spend this incremental wealth on their health and well-being.
I have decided there is something that is very predictable about the media: they usually are very sympathetic to legislation expanding government powers or spending when the legislation is being discussed in Congress. Then, after the legislation is passed, and there is nothing that can be done to get rid of it, the media gets really insightful all of a sudden, running thoughtful pieces about the hidden problems and unintended consequences of the legislation. I remember that they did this with the ethanol mandates, when I summarized:
All this stuff was known long before Congress voted for the most recent ethanol mandates. Why is it that the media, who cheerled such mandates for years, is able to apply any institutional skepticism only after the mandates have become law?
And now we are seeing it with the stimulus bill:
A federal spending surge of more than $20 billion for roads and bridges in President Barack Obama's first stimulus has had no effect on local unemployment rates, raising questions about his argument for billions more to address an "urgent need to accelerate job growth."An Associated Press analysis of stimulus spending found that it didn't matter if a lot of money was spent on highways or none at all: Local unemployment rates rose and fell regardless. And the stimulus spending only barely helped the beleaguered construction industry, the analysis showed.
With the nation's unemployment rate at 10 percent and expected to rise, Obama wants a second stimulus bill from Congress including billions of additional dollars for roads and bridges "” projects the president says are "at the heart of our effort to accelerate job growth."...
Even within the construction industry, which stood to benefit most from transportation money, the AP's analysis found there was nearly no connection between stimulus money and the number of construction workers hired or fired since Congress passed the recovery program. The effect was so small, one economist compared it to trying to move the Empire State Building by pushing against it.
Well, better late than never. And actually moderately timely in this case because we are considering a second stimulus bill. It even includes this insight which is almost NEVER raised in stimulus-related discussions:
"As a policy tool for creating jobs, this doesn't seem to have much bite," said Emory University economist Thomas Smith, who supported the stimulus and reviewed AP's analysis. "In terms of creating jobs, it doesn't seem like it's created very many. It may well be employing lots of people but those two things are very different."
Exactly. Stealing $10 million from Peter so Paul can hire three more people doesn't net increase jobs until you understand what Peter would have done with the money. One has to argue that the market did a poor job in allocating capital to Peter and that the government will employ this capital more productively (hah!)
Transportation Secretary Ray LaHood defended the administration's recovery program Monday, writing on his blog that "DOT-administered stimulus spending is the only thing propping up the transportation construction industry."
Well, as the article goes on to say, this turns out not to be the case. But even if it were true, what industries were gutted by having their capital taken away so that one government-favored industry could be stimulated.
By the way, never underestimate the power of politicians to use every tool up to and including malfeasance to get more money and power for themselves (because that is exactly what the stimulus bills are -- a substitution of the markets with Congress in the capital allocation process).
It is also becoming more difficult to obtain an accurate count of stimulus jobs. Those who receive stimulus money can now credit jobs to the program even if they were never in jeopardy of being lost, according to new rules outlined by the White House's Office of Management and Budget.
The new rules, reported Monday by the Internet site ProPublica, allow any job paid for with stimulus money to count as a position saved or created.
Consider the incentives for a bank trying to set the risk profile of its investments. Should it go for higher returns at higher risk, or dial back the risk at a cost to near-term profits? Now consider this decision in the context of two actions from the past year:
Obama administration officials and lawmakers are scrambling to find a way to funnel some of the financial industry's record earnings back to the taxpayers who helped rescue the industry from looming disaster.The White House is considering a fee on banks and other financial companies
as one approach, with revenues earmarked to help recoup any losses from the government's $700 billion bailout fund, a senior administration official said.
Some in Congress want to add a new tax on bonuses or assess a small fee on all stock transactions, which would hit large banking companies the hardest.
Note that there is no attempt here to only charge banks who received bailout money, but all banks will be charged equally. To each according to his need, from each according to his ability. This is moral hazard in spades.
It is not often that the NY Times will question the long-term consequences of any Democratic program ostensibly aimed at mitigating a short-term need. So I don't want to fail to highlight this:
The Obama administration's $75 billion program to protect homeowners from foreclosure has been widely pronounced a disappointment, and some economists and real estate experts now contend it has done more harm than good.
Since President Obama announced the program in February, it has lowered mortgage payments on a trial basis for hundreds of thousands of people but has largely failed to provide permanent relief. Critics increasingly argue that the program, Making Home Affordable, has raised false hopes among people who simply cannot afford their homes.As a result, desperate homeowners have sent payments to banks in often-futile efforts to keep their homes, which some see as wasting dollars they could have saved in preparation for moving to cheaper rental residences. Some borrowers have seen their credit tarnished while falsely assuming that loan modifications involved no negative reports to credit agencies.
Some experts argue the program has impeded economic recovery by delaying a wrenching yet cleansing process through which borrowers give up unaffordable homes and banks fully reckon with their disastrous bets on real estate, enabling money to flow more freely through the financial system.
"The choice we appear to be making is trying to modify our way out of this, which has the effect of lengthening the crisis," said Kevin Katari, managing member of Watershed Asset Management, a San Francisco-based hedge fund. "We have simply slowed the foreclosure pipeline, with people staying in houses they are ultimately not going to be able to afford anyway."
When I grew up, one of my favorite movies when I was little was the Andromeda Strain (I am not sure why, the science in it is so goofy -- why do the people outside of the controlled area holding the diseases have to be so sterilized?)
Anyway, in that movie, they had some sort of scan that showed the disease progressing from the victims's lungs. That scan looks a lot like this interactive chart, which looks like the recession is a disease spreading from the Midwest and California.
Aptera apparently wants to build electric cars using our tax dollars. They are looking for a manufacturing plant location. They seem to be homing on an one of the last locations on the planet I would build a new manufacturing facility:
At least we learn that the company is might soon be closing in on a new production facility as a result of a new application to the DOE's AVTMP [advance vehicle technology manufacturing program]. The loan application asks for a 10-year facility plan, which meant Aptera needed to actually come up with such a plan. Aptera's production schedule "calls for more than 10,000 units in the first 3 years and more than 300 employees," so it is looking for a new place to build the cars somewhere in Southern California, specifically somewhere in San Diego County.
High land prices? Hugely expensive land use and environmental regulations? High taxes? Really high local wages? Perfect, lets build an auto assembly plant!
Another on trying to balance water supply and demand in the state with only a one-sentence mention of water rates.
Over the years, some communities have tried to reduce demand. Years ago, Tucson devised a set of water rates that escalated steeply with use. As a result, many people simply stopped planting grass or other thirsty landscaping.
Amazingly, it is the only thing in the whole article that has been demonstrated to work, but still the author leans towards land-use planning and goofy dictats like rainwater harvesting rather than raising rates as a way of managing water supply and demand.
I could link Mark Perry almost every day, and have to restrain myself. If you like my blog, you should be reading his too. Anyway, here is his take on US manufacturing figures:
If the U.S. manufacturing sector were a separate country, it would be tied with Germany as the world's third largest economy. It would also be larger than the entire economies of India and Russia combined. As much as we hear about the "demise of U.S. manufacturing," and how we are a country that "doesn't produce anything anymore," and how we have "outsourced our production to China," the U.S. manufacturing sector is alive and well, and the U.S. is still the largest manufacturer in the world.
I have crafted any number of Google adwords ads, and every time it is a challenge to get my marketing message across in the limited number of characters available. So it is probably a bad sign that five top advertisers in one search feel the need to use some of this limited real estate to write "not hiring."
For years it has aggravated me that politicians claim the need to make command and control decisions on water conservation, and they run advertisements trying to shame me for my water use, all while the state government has subsidized some of the cheapest water in the country.
This is crazy! If we are really drawing down reservoirs like Lake Mead and Lake Powell as well as underground aquafers, then raise the price until demand matches a sustainable supply level. Duh.
But water is one of those commodities like gasoline that politicians love to meddle with prices for populist ends. So we continue to have cheap water, and as a result we have 1) no incentive to find new sources and 2) no incentive to conserve. As I pointed out in the earlier post linked above, we here in the desert have water less than half the price of Seattle!. All while the government pays farmers over $100 million a year to grow water-hungry crops in the Arizona desert, using price-subsidized water.
Well, miracle of miracles, and for the first time in my experience, the AZ Republic actually published an article focusing on the absurdity of water subsidies. The article focuses narrowly on the cross-subsidy of our municipal power and water authority, charging higher electric rates to keep water rates lower.
Unfortunately, this is only a small part of the effective subsidy, for like most of the economically ignorant the Republic focuses only on the difference between the current price and cost (which is about $33 million). The real subsidy is the difference between the current price and the true market clearing price at a sustainable supply rate (sustainability defined here as the rate that maintains reservoir, both above and below the ground, levels constant or rising over the long term.) This is a MUCH larger number than $33 million.
. It is hard to do it justice with an excerpt:
What this potted history of population scaremongering ought to demonstrate is this: Malthusians are always wrong about everything.
The extent of their wrongness cannot be overstated. They have continually claimed that too many people will lead to increased hunger and destitution, yet the precise opposite has happened: world population has risen exponentially over the past 40 years and in the same period a great many people's living standards and life expectancies have improved enormously. Even in the Third World there has been improvement "“ not nearly enough, of course, but improvement nonetheless. The lesson of history seems to be that more and more people are a good thing; more and more minds to think and hands to create have made new cities, more resources, more things, and seem to have given rise to healthier and wealthier societies.
Yet despite this evidence, the population scaremongers always draw exactly the opposite conclusion. Never has there been a political movement that has got things so spectacularly wrong time and time again yet which keeps on rearing its ugly head and saying: "ËœThis time it's definitely going to happen! This time overpopulation is definitely going to cause social and political breakdown!'
There is a reason Malthusians are always wrong. It isn't because they're stupid"¦ well, it might be a little bit because they're stupid. But more fundamentally it is because, while they present their views as fact-based and scientific, in reality they are driven by a deeply held misanthropy that continually overlooks mankind's ability to overcome problems and create new worlds.
The language used to justify population scaremongering has changed dramatically over the centuries. In the time of Malthus in the eighteenth century the main concern was with the fecundity of poor people. In the early twentieth century there was a racial and eugenic streak to population-reduction arguments. Today they have adopted environmentalist language to justify their demands for population reduction.
The fact that the presentational arguments can change so fundamentally over time, while the core belief in "Ëœtoo many people' remains the same, really shows that this is a prejudicial outlook in search of a social or scientific justification; it is prejudice looking around for the latest trendy ideas to clothe itself in. And that is why the population scaremongers have been wrong over and over again: because behind the new language they adopt every few decades, they are really driven by narrow-mindedness, by disdain for mankind's breakthroughs, by wilful ignorance of humanity's ability to shape its surroundings and its future.
I have written about zero-sum thinking a lot, but here is one example.
From the Boston Herald via Radly Balko:
Grinchlike union bosses are blocking at least 200 of Boston's best teachers from pocketing bonuses for their classroom heroics in a puzzling move that gets a failing grade from education experts.
The Boston Teachers Union staunchly opposes a performance bonus plan for top teachers - launched at the John D. O'Bryant School in 2008 and funded by the Bill and Melinda Gates and Exxon Mobil foundations - insisting the dough be divvied up among all of a school's teachers, good and bad.
Unfortunately don't have the time to comment much on this absurd comment, but I am not sure it is even deserving of comment
Andy Stern, president of one of the nations biggest labor unions, said today that America is failing, and many entrepreneurs arent loyal to the U.S.
I think the country is in a mess, Stern, president of the 2.1 million-member Service Employees International Union, said at the Wall Street Journal CEO Council, a conference in Washington. I think America is failing.
Stern, the most frequent guest to the White House this year, said the U.S. economy has created a system in which the entrepreneurial class is not loyal to America. Its not wrong for the government to distribute wealth to people who need it, and labor unions can help the country do that, Stern said.
On any number of occasions from October through February, I predicted that this recession would top out at perhaps 9% unemployment at the most, and would probably not be as bad as the recession of the early 1980's. My logic was that we had a mortgage-driven banking crisis, but that the crisis was perhaps not as bad as that of the late 1980's and that many fundamentals (e.g. interest rates) were looking way better in this recession than in the early 1980's. I honestly thought that Bush and Obama Treasury and Fed officials were declaring the sky was falling more from the danger to their beloved former employers on Wall Street than due to any economic fundamentals.
Well, obviously I was wrong. Unemployment has topped 10% and could be headed higher.
So the question is, do I accept that others saw something I did not, or do I crack open the self-serving excuses. Well, at the danger that this will fall into the latter category (I will leave that to readers to decide) I do think some things have changed since late last year that have contributed to worsening the economy.
Businesses are reluctant to invest when the returns on their investment are wildly unpredictable, particularly when future income changes are more driven by changing acts of Congress rather than fluctuations in the market. Over the last year the Congress and Administration have:
I am sure this is just a subset (Louis Woodhill has more in this vein here), but these all have negative effects on investment. My company for one has backed out of several planned expansions this winter for four reasons:
I used to work as for several years in St. Louis as VP of Planning for Emerson Electric. I worked for a guy named Chuck Knight, who could be a real pain in the *ss to work for, but was a) brilliant and b) always willing to speak his mind without the typical filters a lot of other executives apply. It appears that his successor Dave Farr, who I also knew at Emerson, is following in this tradition:
Emerson Electric Co. Chief Executive Officer David Farr said the U.S. government is hurting manufacturers with regulation and taxes and his company will continue to focus on growth overseas."Washington is doing everything in their manpower, capability, to destroy U.S. manufacturing," Farr said today in Chicago at a Baird Industrial Outlook conference. "Cap and trade, medical reform, labor rules."...
Companies will create jobs in India and China, "places where people want the products and where the governments welcome you to actually do something," Farr said.
The unemployment rate in the U.S. jumped to 10.2 percent in October, the highest level since 1983. Emerson, which Farr said employs about 125,000 people worldwide, has eliminated more than 20,000 jobs since the end of 2008 to lower expenses.
"What do you think I am going to do?" Farr asked. "I'm not going to hire anybody in the United States. I'm moving. They are doing everything possible to destroy jobs."
Politicians in both parties are generally clueless about this kind of thing, because very few of them have ever run a business or even even been in a real business position other than as lawyer or lobbyist. Just look at how George McGovern feels now that he has run a business.
But the Obama administration is almost scary clueless. In defending their promotion of a good business environment, they cite the most hostile item on their agenda:
"This administration has made a significant commitment to U.S. manufacturing, including reforming the country's health insurance system to bring down costs and make American companies more competitive globally," Griffis said.
Not. One. Single. Clue.
Actually, I think the Obama administration may believe this, which just accentuates their preference for a corporate state wherein "business friendly" means support for the top 20-30 corporations in the country. In the context of a few old-line corporations with politically powerful unions, health care reform is helpful in that it dumps a bunch of the corporation's commitments to present and past workers onto the taxpayers. But these are not the companies that grow the economy -- they are just the ones with out-sized power in political elections.
From a press release from the Environmental News Network that landed in my inbox:
It's Time to Re-think Economic Growth for Advanced Nations
LONDON - In Prosperity Without Growth: Economics for a Finite Planet, published by Earthscan this week, Professor Tim Jackson raises fundamental questions about the economics needed to tackle climate change. Jackson argues that, faced with the limits imposed by carbon sinks and the scale of "˜de-carbonization' of the world's economy required to stay within them, continued economic growth in the already affluent world does not offer the solution; it represents the problem....
there is a strong case for the developed nations to make room for growth in poorer countries. It is in these poorer countries that growth really does make a difference. In richer countries the returns on further growth appear much more limited; for example subjective well-being diminishes rapidly at higher income levels."
Assuming that such thinking is not just a crass excuse for totalitarian control, it represents an enormous failure of imagination. The author cannot imagine what benefits increased wealth would provide, so he assumes those benefits to be zero. There is absolutely no reason that this same exact thinking could not have been applied in 1300 or 1750 or 1900. Fortunately it was not.
Wonder where the communists went when their philosophy was shown to be bankrupt? Wonder where the anti-globalization folks went after they looted in Seattle. Look no further than the global warming movement. The author suggests, among other things:
Just say no to ecological Marxism.
