Saturday, June 30, 2012

Three Items

  • Corporate profits are at an all-time high, wages are at an all-time low and employment continues to be less than stellar.

    I say the problem is too much regulation and high taxes are adversely affecting confidence! (gads)

  • Chris Hayes' weekend gig is a revelation, coming out of nowhere to be the best political show on TV. It's not the usual back & forth prattle to fill up time between commercials, rather Hayes makes sure to keep the discourse elevated and interesting. Highly recommended.

  • Regarding Europe, billionaire hedge fund manager Ray Dalio recently wrote, "[T]alk of a fiscal union to resolve these problems has to be looked at in light of the question of whether it is in the interest of fiscally strong contributors to have a fiscal union with fiscally weak recipients in which the majority rules how the money is divided."

    One can argue whether or not it's in the interest of the "fiscally strong contributors," but then one would also need to argue whether or not the system we have in place here in the U.S. is in the interest of those states that are fiscally stronger than weaker states.

    The fact remains the monetary system in Europe has been deeply flawed since its inception. Sovereign states or nations all using a common currency and yet lacking a central body of authority just doesn't work. Over time, some countries will inevitably fare better than others and since the lagging countries no longer have their own currencies to devalue, boosting their competitive advantage, they suffer with no recourse. If a central body existed with adequate power and jurisdiction, it could step in and help those countries by shifting aid from the strong to the weak.

    It's what we do in the U.S. We are a fiscal union sharing a common currency and yet we're comprised of 50 states. For every $1 in taxes California sends to Washington, it gets back just $0.78, meanwhile Mississippi receives over $2 for every $1 it pays in taxes. Is this fair to California? Perhaps not, but Mississippi does not have it's own currency to devalue in hopes of better competing with California. And for those states in need, we don't instead enforce harsh austerity measures at the federal level.

    Given we are a union, meaning separate states but one country using one currency, how else does this arrangement work without resulting in the current ongoing situation across the Atlantic?
  • Saturday, June 16, 2012

    Great (But Not Good) Expectations

    With the numerous and deep layoffs of 2008-2010, it's no wonder corporate profits have reached peak levels never seen before in history. And yet with profits at such extreme highs, why no hiring?

    Two reasons come to mind, the first being the obvious one: no demand for goods/services. Real wages remain low and continue to trend lower. Unemployment continues to remain high. Government spending at the state and local level has been near nonexistent, with hundreds of thousands of layoffs as a result. The federal stimulus was woefully too small given the severity of the economic decline (worst since the Great Depression). Many continue to be saddled with too much debt. And the ever-expanding gap between rich and poor has never been wider. All of these things have contributed to keeping consumer demand in a perma-low state, with income repressed and future prospects uncertain.

    Typically, to fill the void under such circumstances, government is expected to step-in and provide fiscal stimulus to help offset the lack of demand in the private sector -- and in this case, would be a bargain since interest rates are near zero (actually negative in real terms). But we have a Republican Party that chooses to put politics ahead of country in hopes of insuring conditions remain poor so that Obama is a one-termer.

    A second reason why companies are not hiring is not often mentioned. It has to do with expectations. With profits soaring, earnings per share also dramatically increase, with most companies successfully surpassing Wall Street analysts expectations. As a result, the stock price more often than not rises.

    However, herein lies the circle-jerk dance whereby company management must continue to exceed expectations -- expectations that continue to elevate with each earnings per share beat. When the next fiscal quarter comes around, if management fails at outperforming Wall Street estimates, the stock will get punished, more often than not severely.

    With a continued lack of demand in the economy, translating into scarce demand for products/services, management is left with few alternatives to boost earnings. Although unfortunate, in an effort to cut costs the easy choice becomes employee layoffs, with another being accounting finesse or tricks. But with layoffs comes further income repression, meaning further demand repression -- rinse & repeat as the ugly cycle spirals its way lower.

    Thus hiring people becomes an out-of-the-question proposition and it will remain so until demand returns -- assuming it ever does. And it's why, to paraphrase a famous quote, we all need to become Keynesians, sooner rather than later!

    Reminder: Keynes was not for permanent government spending, not at all. Instead he advocated that government needed to spend during times like now, when the economy was in serious recession or depression, to provide a floor and provide the needed fuel to turn the economy around. In due course, the private sector feeds off this changing of the tide and a full-fledge recovery is in motion. When the economy is back on its feet and by all accounts heading in the right direction, it's at this time that you focus on debt reduction (as did Bill Clinton in the late '90s).

    So please do not allow right-wingers to obfuscate matters with misinformed, alarmists cries about Keynesian = endless government spending. It's simply not true. In fact, over the last thirty years, what we've had are two presidents each presiding over enormous government spending during good economic times (Reagan & GW) and one president (as already mentioned, Clinton) who followed Keynes' advice and reduced the deficit when the time was right.

    But of course, deficits only matter as a topic of serious concern when a Democrat resides in the White House.

    Monday, June 11, 2012

    Just The Facts, Please

    The far right all too frequently bloviates as if what they're saying is true and based on facts, but all too frequently it's not the case.

    Examples: they favor lower tax rates to boost the economy, and yet we have Clinton's eight years versus GW's eight years. Another is they endorse the Austrian school of economics over Keynesian when in a recession or depression, and yet we have the Great Depression versus the New Deal.

    They often point to Ayn Rand's Atlas Shrugged as if it's non-fiction. Folks, it's a novel, and a poorly written one at that. It's not factual or based on real-life events.

    Granted, I didn't offer a huge sample size above, but unfortunately when it comes to sheer numbers of events to support a given contention, history does not provide numerous recessions or depressions, for example (thankfully!). However, Clinton's eight years do in many ways effectively counter GW's eight years when it comes to tax rates, economic growth and creating jobs. The New Deal versus the Great Depression does in many ways highlight what works and what doesn't work when it comes to rejuvenating a left-for-dead economy (spending or fiscal stimulus works, austerity does not).

    Sure, they try every so often to come up with what they believe to be a gotcha moment, where they think they finally have something that's based on fact. The latest being Reagan's recovery versus Obama, and Latvia as some kind of austerity success story. It didn't take long for both to be exposed as loaded examples at best.

    Paul Krugman, Michael Tomasky and conservative David Frum, among others, have been explaining that the Reagan recession and recovery was quite different than Obama's much-worse predicament, and yet you'll hear the far right attempt to make the apples/apples comparison. Krugman's column on the subject is particularly illuminating, and his blog post offers a graphic that all but puts to rest any justification for equating the two periods.

    As you can see, during Reagan's recession, total spending occurred at a 14% clip, or more than double that of Obama's relatively anemic 6% rate (yes, The Gipper was a big-time Keynesian!). And yet Obama inherited not a Fed-induced recession as did Reagan, but rather a consumer-driven depression with much worse structural difficulties to overcome -- a more severe level of unemployment being one of them. As these authors point out, Reagan at least had an opposing party willing to help and compromise for the good of the country. In contrast, Obama has had nothing of the sort as Republicans have firmly refused to give in on any meaningful measures to boost the economy. In addition, they've invoked the filibuster more than at any time in history, stone-walling most of what this administration would've liked to accomplish.

    I would also add that another big difference of now versus then that is getting no mention is the gap between the rich and poor. In the early 1980s, the inequality gap was nowhere near as large as it is now which made for a much healthier, dynamic and resilient economy, one more readily able to bounce back from a downturn. Thirty years later, this gap has exploded into a massive chasm. As a result, more Americans have less in real dollars and therefore demand has remained stunted. Government spending typically serves as a temporary fix as it fills in for the lack of demand, helping to spur and lift the economy out of its doldrums. But as already mentioned, spending under Obama is less than half that which occurred under Reagan, despite the fact Reagan's recession was far less deep. So today (vs. early 1980s) you have a greater percentage of people with less inflation-adjusted money and you have less governmental economic aid in the form of real per capita spending. I won't even ask why we haven't felt the effects of trickle-down job creation from the super-wealthy, a group that is the richest to ever inhabit the planet.

    As for Latvia, again it's already appearing to be a bit dubious as the poster child of what austerity can achieve during tough economic times. I will just say that Latvia is hardly representative of a G20-type economy, meaning one more akin to the U.S. Austerity has been ongoing in Ireland for years and we've yet to see it work its magic there, and mind you Ireland's economy is more of a relevant comparison to the U.S. than that of Latvia.

    I actually applaud the right wingers in trying to come up with anything fact-based to support their beliefs. It will be refreshing to (finally) see some actual evidence that plausibly makes one nod and say, "You know what, they might actually have something here...." But I'm not holding my breath.

    Friday, June 08, 2012

    Romney Is Desperate, and the Electoral Map

    We've observed Romney cozy up to the likes of Donald Trump, Ted Nugent and Dick Cheney -- quite the motley crew. While at first it may appear inexplicable as to why Romney would want to associate himself with such fringe characters, to put it politely, I think it simply means Romney continues to run desperate. It infers he is still trying to nail down far-right support in his own party, meaning he's still trying to secure the base! That's quite a bad sign for him if at this point in the campaign season he must still placate and sell what remains of his soul to insure that the 20% who supported Bush/Cheney to the bitter end, i.e. the wingnuts, will vote for him. If he can't lock-up the apoplectic Obama haters, what does it say about his chances to win over the swing voters?

    On that note, although many polls have the November election too close to call, just take a look at what counts in this country, the electoral map. Thus far, the race is not nearly as close as such polls make it out to be, with Obama comfortably ahead of Romney when it comes to electoral votes. Obama has approximately 40 more votes than Romney, and Obama already has the amount need to win re-election. Granted, these are projections and anything can still happen between now and November, but the point is the media is, as always, trying to make the race appear very competitive (it's in their interest to do so), more so than is reality.

    I would also point out that perhaps the best political handicapper out there, Nate Silver, has Obama's chances of winning at 63%, which stands in stark contrast to the toss-up polls we're used to seeing. And if the election were held today, Nate puts Obama's chances of winning at a whopping 77%, again further bringing into question today's polls.

    But I reiterate, for Romney to have to curry favor with such extreme figures in his party to me speaks volumes. Obama has those who will definitely vote for him and those who definitely will not, with the remainder likely making their final decision depending on how the economy fares. It's not as if they feel the need to get to know him better as a person -- he's been president for four years. Either they already like him or not, and the rest comes down to the economy or some other hugely influential event yet to occur.

    Yet Romney has a small number of people who really like him, with a greater majority lukewarm or just barely tilting his way, and then of course there are the many who very much dislike him. He may eventually get all of these fence-sitters to come around to his side, but the fact is it remains a question mark. Meanwhile Obama has many fewer wishy-washy folks to win over and many more who are certain to vote his way. Advantage Obama.

    Monday, June 04, 2012

    Romney, a modern-day Omega Theta Pi frat brother

    I think it's pretty clear by now that Mitt Romney would've been a textbook-perfect brother of the Omega Theta Pi fraternity. What fraternity is that, you ask? In the movie Animal House, it's the frat house populated with well-to-do, pompous, vacuous a-holes, represented most famously by Neidermeyer. Recall Douglas Neidermeyer was your stereotypical ROTC/Patton-wannabe, a bit too gung-ho, a bit too straight-laced, a bit too into enforcing what he deemed normal. All in all, your classic jerk and bully.

    Compare this profile to what we've come to learn about Romney, in particular the recent revelation about his bullying of a gay classmate. During high school, several friends held down the victim as Romney proceeded to use scissors to cut clumps of hair from the presumed gay boy's head.

    Romney's defense? "I participated in a lot of hijinks and pranks during high school," he said while chuckling. The described act of bullying is disturbing enough, but to hear 40+ years later Romney attempt to excuse it away as "hijinks" while laughing no less is even more inexcusable and disgusting. As long as he's not the victim, then it's no big deal. As long as it wasn't one of his sons that were held down and had hair removed with scissors, then it's OK, no big deal. And it's as if for him to show empathy or compassion is to show weakness, and he just can't have that happen. What would the Republican base think?

    How this incident, along with the Seamus incident, do not qualify as occurrences that demand at least some serious consideration when it comes to judging Romney as a person and as a candidate is something I don't understand. If you had a long-time friend and learned that he had committed such a heinous act many years ago, are you telling me it wouldn't impact how you looked at him, how you viewed him as a person going forward? I have to think it would. It's just ugly and in my experience this kind of telling behavior does not completely vanish with maturity. Someone capable of doing such a thing then most likely retains some of those unfeeling, hateful qualities today.

    Is this a major campaign item? No. But it should be something voters contemplate when deciding what personality traits and characteristics are important in the POTUS.

    If Anything, We Should Be Getting Much More In Debt

    Felix Salmon writes:
    Just look at the amount of money which is flowing straight to corporations’ bottom lines, and not being put to good, productive work. Corporate profits now account for significantly more than 10% of GDP: that’s never happened before.

    To spell this out: high corporate profits and low levels of job growth are two sides of the same coin. If things were working properly right now, companies would take their excess revenues and use them to hire more people. Instead, they’re basically just letting those excess revenues sit on their balance sheets as cash because they’re scared to invest in themselves. It’s frankly pathetic.
    Felix continues on to mention something I asked a few months ago:
    The solution to this problem is nothing complex — the arbitrage is sitting there in the first chart, plain for all to see. The government can borrow at 1.45%: it should do so, in vast quantities, and invest that money back into the economy itself. Take a few hundred billion dollars and use it to fix our broken infrastructure, to re-hire all those laid-off teachers and firefighters, to provide some kind of safety net for the millions of Americans who have been out of work for more than a year. Even if the real long-term return on any stimulus package was zero, the nominal long-term return would be well over 1.45%, making the investment worthwhile.
    As I've written here before, we may very well look back upon this period as a time of tremendous lost opportunity. With interest rates at historic low levels, and the economy likewise at historically depressed levels, what the government should be doing (and should have been doing) is borrowing hundreds of billions of dollars at a real interest rate of less than zero to spend on long-delayed infrastructure projects, hiring workers and generally getting the economy back on its feet. Yes, classic Keynesian economics. But the crucial difference in this case is that we have an economy that truly needs such stimulus and we're fortunate to have such incredibly low rates to fund such desperately needed stimulus. It's a complete no-brainer and yet because of continued partisan intransigence, the nation suffers.

    Republicans want the economy to remain in the toilet. They've always wanted this. They have nothing else to run on, so they must continue to insure that the economy does not recover. It's their only shot at ousting Obama. "Country First" -- right....