02 May 2014

Things Go Better With Koch

Wow. Lots to babble about today. Let's get to it.

Since Nate left the NYT, the Times has created a group that they call "The Upshot", which has the remit to talk about data, graphics, and policy. Today was the release of April's employment numbers, and the mainstream pundits are aghast. While the job increase number was higher than the pundits predicted, at 288K, the plunge in the participation rate has them spooked. Just as corporations, the ones left in the USofA at least, make mo money by firing employees; so too does the macro-economy. Lower the denominator, and the percentage (employed, the inverse) goes up. Imagine that. The referenced link, among many others, trots out the "retiring baby boomers" meme as explanation. Baloney.

It's going up for geezers. Economists generally only care about the cohort up to 55, and that's the one that's been dropping. So, kind of right, but for the wrong reason. Boomers can't afford to retire early. Been there done that. Not that I have any interest in retiring. Deming worked, if running seminars in one's chosen passion can be called work, well into his 80's. I attended a couple.

So, it was with some amusement that I read my dead trees NYT early, before I saw the BLS reporting. "The Upshot" folks do a decent job of reviewing, as these endeavors have advised more than once, the details. All of this data, and nearly all of the data produced by OECD, and any other first world source one can name, come from samples. You should find a copy of Snedecor's Little Yellow Book on the desks of BLS mavens. About the only population data is the weekly unemployment number. That's a census, and not always squeaky clean.

A couple of other pieces in the Times which bear on the two major themes of these endeavors, data and policy.

First, Floyd Norris takes on interest. In particular, the demand for mo money for lending money. He begins:
When buyers demand something, the supply will be created.

Especially on Wall Street.

He could have mentioned WS's willingness to create toxic mortgage bundles, at that point in the piece. Whatever.
"It is a very favorable time for bond issuers," said Martin Fridson, the chief investment officer of Lehmann, Livian, Fridson Advisors and a longtime analyst of the high-yield market. "There is just a lot of money sloshing around out there. There are simply not a lot of alternatives, and money managers are under pressure to put that money to work."

The problem remains: there are only two sources of cash to pay the vig on a loan; deferred consumption and increases in productivity. The former is a less than zero sum game, and should generally be avoided whenever possible. The latter is true, organic growth. Back in the 19th century, we had a lot to learn in science and engineering, so as we learned we devised ever more productive assets. Not so much today. We've found all of Earth that there is. We know all the elements, and the ways said elements can become molecules (there's a reason organic chemistry, based on carbon, encompasses far more of the field than that of the rest of the periodic table). The reason interest rates are in the toilet has nothing to do with the Fed. If corporations' CEOs actually had the skill for which they are titularly paid, superior asset allocation, then the Fed's assault on short-term rates would have worked. It didn't.

Krugman closes his piece today with:
Meanwhile, powerful political factions find that bad economic analysis serves their objectives. Most obviously, people whose real goal is dismantling the social safety net have found promoting deficit panic an effective way to push their agenda. And such people have been aided and abetted by what I've come to think of as the trahison des nerds -- the willingness of some economists to come up with analyses that tell powerful people what they want to hear, whether it's that slashing government spending is actually expansionary, because of confidence, or that government debt somehow has dire effects on economic growth even if interest rates stay low.

Whatever the reasons basic economics got tossed aside, the result has been tragic. Most of the waste and suffering that have afflicted Western economies these past five years was unnecessary. We have, all along, had the knowledge and the tools to restore full employment. But policy makers just keep finding reasons not to do the right thing.

Back to Norris. In discussing some new, innovative(?), techniques:
The funds also have the freedom to move in and out of different kinds of bonds, which is supposed to produce superior performance -- and will do so if the managers do turn out to be able to call market turns in advance.

Good luck.

Norris is generally pretty laid back. But then adds this zinger, Vulcan mind meld with Your Humble Servant
All this easy credit may not do as much as it could for the economy. Loans that finance corporate acquisitions, or dividends to private equity funds, won't do anything for employment, or at least a lot less than loans that pay for the purchase of new plants and equipment.

Finally, he closes with (making for a Three Musketeers moment)
At least some of the criticism might be better directed at the Congress. Had it been willing to provide more fiscal stimulus, the Fed might not have been forced to follow the course it has.

Once again, whenever data contradicts policy, and policy is controlled by those with the Big Bucks, policy wins.

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