29 November 2013

Angry Birds

When these endeavors began, the first post asserted "Why the Stimulus Will Fail"
In 2009, who are the unemployed? Not, by and large, workers in factories that will make goods for American consumers. The deindustrialization of the economy, in progress since the 1970's, makes any stimulus program a low probability gamble. Will the stimulus program re-employ the leeches in the financial services industry that sent us over the edge in the first place? It is important to realize that this sector of the economy had grown to a very large proportion; possibly unprecedented. Even if the Federal government chose to reward them with new employment, what is it that the Federal government could buy from the sector? Variable annuities? Would those who are re-employed as a result of the stimulus program spend their newly increased incomes in the financial services sector, thus re-employing all those folks? Would that be rational?

In later postings, which don't come to mind (and given the allusive nature of post titling used ...), this notion was made more specific. Any economic recovery from depression/recession faces a fork in the road early on: either re-inflate the businesses which had been employing those made redundant by the collapse (even, and especially in the current case, those who caused the collapse), or move the economy into new (and by intent anyway, less silly) modes of production. I've returned to them in both versions of this endeavor on occasion. Re-inflation is easier to do, since it rewards the wealthy miscreants, and that's exactly what the QE exercise has done. Total employed has barely changed over the course. Capital gains, for those with capital naturally, have exploded. Such a country!!

In sum: the raptor-quants intend to snip the gonads off the only part of Dodd-Frank that deals with the root cause of The Great Recession. They want all mortgages to be classified as exempt from the stricter rules (which aren't all that strict, particularly in historical context). They want to go back to 2004 when they could slurp jeroboams of moolah from the stream going from the saving class to the borrowing class. A zero-sum profit machine.

As Floyd Norris reports today, the Banksters, in harmony with builders and even some titular Left Wingnuts, have been hard at work to "Make it So", putting the oomph back into Banksterism.
The rules on qualified mortgages are meant to assure that consumers can afford them, and the requirements are rather low. Lenders must go to the trouble of verifying a borrower's income, and the total monthly debt obligation must be no more than 43 percent of pretax income. There are no requirements for down payments, or limits on how much is lent relative to the value of the property.

He later quotes the figure I've generally used: 35% as the operational rule of thumb. The new rules define three classes of mortgages, with the best having no restrictions. Naturally, the Banksters want all mortgages to magically qualify. "Welcome to Lake Homebegon, where all the Banksters are strong, all the men are feckless, and all the mortgages are above average."

So, the part of Dodd-Frank that's under assault is that which intends to rein in profligacy by home mortgage issuers (be they banks or mortgage companies). Both don't want to go back to the Good Old Days (which they always do, mostly) when savings' banks lent most mortgages and held them to term. Not much moolah to be slurped up that way. Better to make loosey-goosey ARMs and such, and sell them off for a quick few bucks. The builders don't want the new rules, since such rules reduce the number of high value qualifying houses; higher price thus higher profit. Just ask Apple how that works.

The raptor-quants are starting to feel hungry and need a hearty meal. I suppose it's just a coincidence that we hear about their hunger pangs at Thanksgivanukkah.

27 November 2013

Snake Bit

Bitcoin is in the news again. Twice in the NYT in a few days (once, and twice).

What none of the pundit class has discussed, in the cyberink that comes my way, is what a fixed amount of currency (21 millions "units", as I understand it) would have on a global economy? If the "exchange rate" (e.g. $35/ounce as gold once was) is fixed, then dee-flation is the rule. It has to happen, since as commerce expands both across nations (growth by accretion) and within nations (growth by procreation) prices have to aggregate to the amount of currency available.

If one looks at 19th century USofA, when specie money was the law, that's exactly what happened. There was localized inflation in mining areas (shopkeepers charged steep prices for necessities, and more for amenities), but national deflation since the economy was expanding along with its territory. With a nearly fixed amount of specie, relative to economic activity, aggregate prices had to multiply out to that specie hoard. Holders of specie made out, but the rest of the economy suffered in debt that grew in real terms. Not a process that aided Main Street. Not to mention tech/science was creating truly new forms of goods and commerce. And, no, today's cybershit isn't remotely as revolutionary to this era as coal fired steam traction and petroleum introduction and air flight and telegraphy and on and on to its.

Should bitcoin, and any number of other fiat currencies (why, one might wonder, is it OK for private issue fiat currency to exist, but not sovereign?), displace national currencies, batten down the hatches, Bro! The Dark Ages will have returned. The Winklevossen will be the liege, and the rest of us serfs.

20 November 2013

Dee Feat is in Dee Flation, Part 28

Well, here we go again. The CPI percents are out, again. And, again, DEflation is the rule of the day. We're going Japanese. All you folks that been stuffing your moolah in the mattress, you win for the rest of us losing.

17 November 2013

Not Such a Nobel Man

Lars Peter Hansen is the Other Guy who got the Nobel in economics this year. Mostly been quiet about it, although it was generally understood from the outset that he was somewhere in between Shiller and Fama (get it?) on the ideological spectrum. Well, today Jeff Sommer in the NYT has a bit of an interview. I'm disappointed. This is a Nobel Man? He labours at Univ. of Chicago, which makes him, a priori, a Freshwater economist. (That's another way of saying Right Wing.)

As with most econometricians of late, he ignores policy (or, as some do, provides cover for his preferred version), and toes the stats line.
Earlier in his career, along with Professor Sims and especially with Professor Sargent, he provided some of the mathematical underpinnings for what is known as the rational expectations theory -- the notion that people use all available information in making economic decisions.

Nonsense. Capital, in particular, makes decisions based on gaming the rules of engagement. To posit otherwise is foolish. If they really were "rational" there'd never have been a Great Recession, since no rational Bankster or CDO insurer would have touched those mortgages with a ten-foot pole. The mortgage companies wouldn't have made them, either, since such instruments were bound to fail. While the macro folks in New York and Washington might have willfully ignored the fantastic unsticking of median house price to income ratio, local real estate agents couldn't. The numbers were in their faces every day. Early on in the run up to the crash, I read/saw some reporting in which the reporter asked one of these how the buyer could possibly carry the mortgage he just sold them. His response: "I don't care". He didn't care because he'd gotten his gelt, and from then on the problem belonged to someone else. Such a country!!

One might, and some have, argue that everyone from the local real estate agents on up to the CEOs of Merrill and AIG and so on rationally expected to get a Washington bailout when it all imploded. But that's both specious and tautologous. No one who hews to the homo economicus myth can argue that it is rational to depend on welfare.
It suggests that people may not "be fooled by policy makers" into making decisions against their own self-interest, he said -- for example, by spending all the proceeds of a one-time tax cut if they understand that the windfall is only temporary.

This is an astonding assertion, and is contradicted by actual behaviour. Folks used these "one time" gains in house appreciation as ATM withdrawls, particularly as median income continued to stagnate. And people do so every spring, with that tax refund they get. Never mind that 99.44% of those getting a refund have no clue that they've lent the money to Uncle Sugar at 0% interest. Come on!!
Prevailing economic models do not adequately explain the financial crisis, the severe recession or the weak global recovery, he said. "Systemic risk" is a buzzword for politicians and financial regulators, he said, but "the truth is, we really don't know how to measure it or what exactly it is."

Again, more willful ignorance. The data were out there and available to modelers. But, just as the Banksters took the notion of musical chairs ("while the music plays, we all have to keep dancing"), or Russian roulette, with the real economy, so too did a large proportion of quants who claimed to be analyzing the economy objectively. Since the behaviour didn't square with both their bias and models, i.e. house prices are always correct, they made no attempt to incorporate conflicting data. And so we got a black swan event. Except that it wasn't.

As my Momma used to say, "what would the world be like if everybody behaved like you?" Ignorance of this question remains the flaw in the "macro is just the aggregate of all the micros" approach to all of economics, both theory and quant. It ain't, just as a local water supply can't be sustained if all residents treat all the water as all theirs. The fact that this remains unspoken by the micro folks just means it will happen again. Most quants, be they econometricians or hedgies, earn their pay from entities which ignore or actively dissemble the externalities they create. If Adam Smith (the real one) were right, then there would be no unpaid externalities. No fracking way, of course.

14 November 2013

Obambi, Meet Gresham

Gresham's Law is long and widely known in econ circles, though not mentioned often enough among the punditocracy. Obambi faces it now, and once again, he's blinked (as of the time I'm typing).

In essence, in the absence of symmetric true information, bad goods drive out good goods (hard to say, and it's not just coinage). There was a reason that the scam health insurance policies, almost all aimed at uninsured individuals, weren't grandfathered into the AHA: stupid poor-ish people are easily duped into buying same. They look only at the monthly premium, not at the expected value vs. the premium. Such policies will drive those most in need of real insurance into faux insurance.

As I type, the news states only existing (and those canceled, allegedly, due to AHA) policies will be allowed to continue. New buying is not permitted. We'll see the Right Wingnuts crying: "let the market decide!!!" once again. As if health is a market good. Ayn Rand would be proud.

13 November 2013

And The Choir Sings, "Amen"

From the outset, this endeavor was built on the notion that economic collapse is always traceable to income and wealth concentration. The reasoning is straightforward: collapse of an economy can only happen when most of the folks have little of the GDP and a few folks have most of the GDP. And so it has happened. The mainstream pundits, on the whole, haven't been willing to call a spade, "you're a spade". But every now again, it happens.

Today is such a day. In the journalism biz, it is standard practice to run the lede (that's the term, and not my typo) in/as the first paragraph. Porter didn't do that, so I've put the nut here:
Professor Katz illustrates this with a nifty calculation. Between 1979 and 2012 the share of national income captured by the richest 1 percent of taxpayers increased from 10 percent to 22.5 percent. Had their share instead remained at 10 percent and the rest been distributed equitably among taxpayers in the bottom 99 percent, each would have $7,105 more to spend.

Can't get more obvious than that, now can we? The issue, as framed by Porter, is whether increased education is really the panacea to rebuilding the decimated middle class. In the piece, he presents evidence (from other researchers) that such hasn't been the case. And, one can reasonably infer, won't be in the near future. It's the distribution, stupid.
Both sides agree that the overall weakness of the job market since the turn of the millennium is a prime culprit. As Professor Katz noted: "The only moments we've had of broadly shared prosperity have been in tight labor markets."

In other words, without "countervailing power", to use a term from old style political economics, capitalists will always be able (sans a change in laws) to exploit the excessive breeding of the lower classes. Stop dipping your pen in that inkwell. I recall seeing Paul Theroux on C-SPAN/Booktv a few years ago flogging a book at some book festival. During the Q&A session he responded to some question with, "stop having so damn many kids!" Or thereabouts. Remember, what we now call the middle class had its birth following the plagues of Europe, which wiped out masses of peasants. Those that survived got more gelt. I mused about that before.

One of the researchers does get it, though:
Mr. Mishel's preferred explanation of inequality's rise is institutional: a shrinking minimum wage cut into the earnings of the nation's least-skilled workers while falling trade barriers, deregulation and the decline of labor unions eroded the income of the middle class. The rise of the top 1 percent, he believes, is mostly about executive pay and the growing footprint of finance.

Policy drives the economy, not data. Data always loses if it disagrees with policy comfortable to those who can control policy. Just like in the Dark Ages.

In another one of those coincidences of publication, we find Germany being called a spade, by some. As mentioned here a few times: Germany is intent on punishing the victims, mostly so, of The Great Recession. The EU/Euro can't work without a Federalist fiscal system. And that means the Northerners have to stop wringing the last kopeck out of the Southerners. The Germans, clearly, think they can keep going by killing their customers. They can't, but policy trumps data, of course.
The trade surplus has become a source of friction not only with euro zone partners but also with the United States. Washington has warned that Germany's export success, with no offsetting demand for imports, has depressed demand in the euro zone and increased the risk of deflation.

Too bad "Washington" hasn't figured out that the FIRE brigade here keeps its heel on the neck of the 99%, just as the Germans have the Greeks et al. Easier to give others advice than to do the right thing in one's own home.

10 November 2013

Kumite', Again

Anthony Bourdain is among the most interesting of reality show personalities. He's now on his third show, and third network: "Parts Unknown" on CNN, Sunday at 9 PM. (As with his previous shows, the title is both metaphor and allusion: he goes to places tourists seldom do, and indulges in eating animal bits that suburban Americans wouldn't, and likely don't even know about.) Somehow, I missed last week's episode, but I saw a promo for it, in which he talks about doing the episode. It's even edgier than usual. Which is more than usual for basic cable.

The episode is Tokyo, but not the touristy parts. It repeats again Sunday, the 10th, at 8 PM. You should see it. This Tokyo is disturbing.

Well, it's Tokyo and Tony visits with a sushi chef he'd known for years in New York, Yasuda. At about 20 minutes into the piece, we see that Yasuda has been practicing karate for some years, and we see a few minutes of footage from the dojo he uses in Tokyo. An earlier missive in this endeavor made metaphor of karate and kumite'; not all practitioners have the skill and discipline to fight as they practice. There's some kumite' on display, and some, but not all, of the roundhouse kicks are by the book.

We find that Yasuda does, both in kumite' and sushi.

Yasuda, not too surprisingly, is a stickler for doing sushi the right way. His knuckles remind me rather a bit of George's.

06 November 2013

Great Expectations

A bit of history: in the late 1960s Uruguay's attempt to be the Switzerland of South America was coming unstuck. Most folks were getting poorer and a few folks were getting richer. The real economy was more surreal than real. Perhaps not the first, but certainly the first time in a long while, found the birth of the urban guerilla; generally educated and often from the dwindling middle class.

Today's news brings some related stories.

First, even US public education is mostly for the rich.
In New York, according to Peter Applebee, an expert on education finance at the United Teacher's union, only 18 percent of students in the poorest 10 percent of school districts scored above proficiency level in math last year. In the richest tenth, 45 percent did.

These gaps will be hard to close until the lopsided funding of education changes. As income and wealth continue to flow to the richest families in the richest neighborhoods, public education appears to be more of a force contributing to inequality of income and opportunity, rather than helping to relieve it.

And, as one might expect, New York is not the outlier, on the whole.
Among the 34 O.E.C.D. nations, only in the United States, Israel and Turkey do disadvantaged schools have lower teacher/student ratios than in those serving more privileged students.

Just to be fair, sort of: the expenditure figures in the piece make no (claimed) attempt to weight by local price levels. Appalachia is certainly cheaper to live in than Manhattan, so unweighted teacher pay isn't the best measure. Materials and the like cost about the same irregardless of location.

One might wonder what the result would be if all kids, rich and poor, got quality education? Would the USofA become a bastion of productivity and wealth? Is there an archetype, in the here and now, that we can look to for evidence?

Now that you mention it... China
... crowded with educated young people who are trying to figure out their futures in a country where the job market still prizes assembly-line workers willing to labor monotonous hours on backless stools.

Hmmm. No Child Left Behind? China's industry really is the 19th century New England Mill Town model. I've said it before, and here's more concrete evidence. Train kids to be rocket scientists, and they're not likely to jump at the chance to imitate Charlie Chaplin in "Modern Times". Gotta love the title, 1936 was when modern actually meant something.
The common theme of all the policies: how to create a consumer-led economy and arrest a steep increase in unemployment among young, educated Chinese.

But, Nixon opened China so that US corporations could exploit all those eager Chinese wanting US made consumer goods, right? Well, no. Nixon opened China to exploit all those rice paddy workers who would be moved to simplistic factories making goods for our 10%. Welcome to bi-lateral fascism. Now, both countries are in a fix. Payback's a bitch.
A big impediment to creating a consumer economy are the low incomes of a generation of China's young people, the country's would-be consumers.

As if this is any surprise to anyone with more than a turnip for brains.
"I want a job for which I was trained, or else my education will be wasted. I don't want to work in a factory."
But without broader policy changes, economists question how the Chinese economy will produce enough desirable jobs to bring down youth unemployment, particularly among college graduates, a group that has been among the most politically volatile in China.

Been there, seen that. And so China goes down the same black hole as the US:
Similar plenums in 2003 and 2008 produced calls for a shift to a more sustainable economy based on more consumption, more high-end services like finance and more high-tech jobs.

Just what the world needs: not just one global economy crasher, but another entire country dedicated to weapons of mass financial destruction. To quote Dirty Harry, "Swell".

Lastly, we have a Mingus on Wall Street. Steve Cohen was passionate about getting rich. He did, and proved that the way hedge fund quants make money is by cheating. Numbers are nice, but knowing the numbers before anyone else is a sure thing. And, it's good to be rich,
But there is perhaps one group that will not bear any significant costs: high-net-worth investors.

"This will not put the fear of God into the individual investor," said Martin D. Sklar, a lawyer at Kleinberg, Kaplan, Wolff & Cohen. "The S.E.C. and Justice Department have not made any of the investors bear the losses -- in a way, you are not incentivized to invest away from the crooks."

The rich still get to keep the ill-gotten gains. What a country!!??!

05 November 2013

Frankly My Dear, I Don't Give a Damn

Let's, for the moment, assume that Obamacare works much as it was designed: provide affordable healthcare. Next, let's follow Einstein's lead and conduct a thought experiment. He devised the notion, although not the algebra, for the theory of special relativity whilst sitting on a tram looking at a receding clock tower. He imagined that, were the tram moving fast enough, the clock would look to him, on the tram, to have stopped. And the rest is history and a Nobel. The proceeds went to his estranged wife, whom he didn't like all that much. Oddly, still more: she did most of the algebra underpinning special relativity. Albert was a bit of an ingrate. Didn't believe in quantum theory, either.

What, then, can we imagine would stop if Obamacare works as designed?

Mostly, bad marriages. Very Einstein, don't you think? And why would one come to such a conclusion? It's been well documented that having access to healthcare is a powerful force, keeping otherwise disgruntled people in bad marriages and bad jobs. House ownership, too. But Obamacare doesn't deal with that. Yet anyway.

So, we should see an increase in divorces. Whether that increase will be above sampling noise, is another issue. But unintended consequences have a habit of occurring. Just ask Greenspan; he crashed interest rates without much of a clue what would ensue.

Bookmark this post, and come back in five years. If the globe hasn't exploded, of course. Never know what the Jews and Arabs might do.

04 November 2013

Pretty Boy Floyd

Floyd Norris' column this Saturday was unusual, in that there was no cite to the QWERTY Analytics (or some such), just his byline, NYT, and BLS data. Let's see.

Start with the title:
Changes in Labor Force Mask Gains in the Jobs Situation

With such a title, one would rationally expect that he's going to present data which contradicts both the Left Wing and Right Wing Nuts, who point to the continuing drop in the size of the labour force as the main reason the stated unemployment rate has fallen. The lack of progress by Obambi is something both camps agree on. They disagree as to why, of course. The Left asserts that the Tea Party House (and the Senate, but less egregiously) eviscerated the stimulus effort; they got to spike the recovery and shift the blame to Obambi. The Right disclaims any responsibility for watering down the stimulus, claiming it wouldn't work at any amount of money; the key is to get all those welfare cheats back to work at starvation wages, and then all will be well.

The record is clear: the Right did spike the stimulus. What might have happened with either a more focused stimulus, or none at all can't be known now. We do have much historical data to demonstrate that robust stimulus works. It's called World War II. It would be helpful to get the stimulus effect without all the dead bodies and razed cities, of course.

So, he continues:
But the actual employment picture may be better than those statistics would indicate. Over the last few years, the labor force has changed in important ways because of demographics.

The accompanying charts attempt to adjust for those changes. They do not show a strong recovery, but they do indicate that the overall employment situation has improved.

One might reasonably infer from this that, despite a drop in the size of the measured labour force (usually referenced as the Labour Force Participation Rate, rather the count), unemployment has really gone down, i.e. employment has really gone up. Let's see.

The makeup of the working age population has changed substantially in only a few years. When the recession began at the end of 2007, 54 percent of the people considered to be working age were in the prime working age range of 25 to 54. Now, the figure is 51 percent. The proportion over 55 went to 34 percent, from 30 percent. With more people at or over traditional retirement age, it should be no surprise that fewer are working.

While I don't have a cite immediately to hand, data since The Great Recession began have measured an *increase* of older workers working past the "average" retirement age of the years previously. In other words, to the extent that older workers make up the demographic, there is data indicating that they've not gone off to the Life of Riley Hammock, sipping gin. And if we look at the linked graphs, we see that old folks continued to work. If you examine the middle cohort, in middle dense blue, you can see that the unemployment rate and participation rate track exactly in The Great Recession period, lending credence to both the Left and Right that things ain't all that much better.

In sum: the oldest cohort has stuck to the labour force in greater numbers than in the past, from which those with rose colored glasses conclude that the unemployment situation is getting better, overall. For those not so festooned, the middle cohort has, even with Norris' "adjusted" numbers taken it the gut. The youngest cohort, worse still.

As I read the data, the oldest cohort retains due to coercion, not choice. Their positive effect on overall employment status isn't really a positive: they can't afford to retire and leave their jobs to younger folks. This is not progress. Note that the Right Wing Nuts constantly bray about forcing the old farts to work until 70 or 75; after all in 1935, 65 was the average life expectancy so we should obviously raise today's retirement age to average life expectancy. Makes sense to me.