Tag: Business/Finance

A Recovery About Nothing

As you know, there are signs — tentative ones — that our economy is beginning to recover from Great Depression II. It’s about on schedule — I thought we would need about five years to crawl out of the hole we were in. But we had 5% growth in Q3 and unemployment continues to edge down (although the U6 remains high). Projections for 2015 are cautiously optimistic, barring a major war or something (which, with Obama, is always on the cards).

I have noted, however, that this recovery runs against the dogma we’ve been hearing from the Keynesians and pseudo-Keynesians on the Left Wing. According to them, the “austerity” of the last few years (i.e., flat spending) should have caused us to have a double-dip recession. David Harsanyi expands on this:

But if activist policies really have as big an impact on our economic fortunes as Washington operatives claim, I only have one question: What policy did Barack Obama enact to initiate this astonishing turnaround? We should definitely replicate it.

Because those who’ve been paying attention these past few years may have noticed that the predominant agenda of Washington has been to do nothing. It was only when the tinkering and superfluous stimulus spending wound down that fortunes began to turn around. So it’s perplexing how the same pundits who cautioned us about gridlock’s traumatizing effects now ignore its existence.

For instance, Paul Krugman wrote a column titled “The Obama Recovery.” The problem is that the author failed to justify his headline. It begins like this:

“Suppose that for some reason you decided to start hitting yourself in the head, repeatedly, with a baseball bat. You’d feel pretty bad. Correspondingly, you’d probably feel a lot better if and when you finally stopped. What would that improvement in your condition tell you?”

Suppose you tell us what the bat represents, because spending in current dollars has remained steady since 2010, and spending as a percentage of GDP has gone down. In 2009, 125 bills were enacted into law. In 2010, 258. After that, Congress, year by year, became one of the least productive in history. And the more unproductive Washington became the more the economy began to improve.

Krugman argues that the recession lingered because government hadn’t hired enough people to do taxpayer-funded busywork. The baseball bat. But then he undercuts this notion by pointing out that there was an explosion of public-sector hiring under George W. Bush—the man he claims caused the entire mess in the first place. Krugman also ignores the stimulus, because it screws up his imaginary “austerity” timeline. He then spends most of the column debunking austerity’s success in Britain.

Britain’s “austerity”, incidentally, was called austerity when the UK economy was stagnant. When it began to recover, the exact same budgets were described as having abandoned austerity. With the Keynesians, it’s always heads they win, tails we lose.

This recession was not about a lack of demand or a lack of spending. It was about the huge amount of debt that the American people had dug themselves into. That debt has declined — mortgage debt is down and consumer debt is down. Student and public debts have risen but not as sharply. In short, we’re finally getting out from under the 16,000 pound boulder that was the Housing Bubble. And, who knows? Maybe things would be better if we didn’t have the 10,000 pound boulder of federal debt and the 2,000 pound barbell of student loans.

OK, I’m letting that metaphor get away from me.

Anyway, our gridlocked do-nothing Congress has failed to pass a “jobs” bill, has failed to enact “temporary” stimulus and has cut programs to “build the economy”. And the result is the healthiest economic numbers in a decade.

Funny how well we can do when our government stops “helping” us. Now imagine if we could get them to stop giving us “free” healthcare and regulating our every move.

Let Them Drive Electric

I’m not overly fond of the Tesla automobile. It’s publicly-supported rich man’s toy that hasn’t made huge technological strides but likes to pretend it has. And I’m dubious that it will ever be anything other than a curiosity. The last decade has seen big leaps in fuel efficiency in our automobile fleet. Part of this is because people are demanding and buying more efficient cars. A little bit of it is hybrids. And much more of it just good engineering:

When many people think of fuel economy, they think hybrids or electric cars. But that’s only part of the story. The chart above shows various efficiency technologies that have become more prevalent since 2008.

As it turns out, improvements to the existing combustion engine has been a huge source of innovation over the last five years. There’s gasoline direct injection, which is a more efficient technique for delivering fuel to the engine. Or there’s cylinder deactivation to save fuel. These get less attention than electric cars, but they’re key advances.

I was recently in Montana and my in-laws had an SUV that got as good mileage as my old Ford sedan. Direct injection, a continuously variable transmission, variable valve timing — all of these combined to make it a reasonable vehicle.

But despite my distaste for the Tesla, this is ridiculous. Tesla is being banned in many states from selling cars directly to the consumer.

This week, the Georgia Automobile Dealers Association filed a petition with the state’s Department of Revenue in an attempt to bar further sales of Tesla sedans. Such battles have erupted in numerous states, from Missouri to New Jersey. In the latest issue of Regulation, University of Michigan Law professor Daniel Crane argues that dealer distribution restrictions are based on faulty ideas of consumer protection. Traditional dealers claim that competition among a brand’s dealers prevents the manufacturer from “gouging” consumers and extracting monopoly profits. Crane argues that standard economic theory demonstrates that these claims are nonsense. Firms with market power will be able to claim monopoly profits, regardless of whether middlemen, such as dealerships, are involved.

Moreover, by restricting competition among business models for auto sales, laws such as those in Georgia stifle competition among automakers. When companies such as Tesla seek to lower costs through innovative business designs, they face costly regulatory hurdles and legal challenges such as the sales ban in Georgia. These laws protect existing dealers and hurt consumers.

This is about more than Tesla, which is filling a niche market at best. Indeed, that’s a big reason they want to sell direct instead of through dealers. What this is about is other companies, companies that have not been born yet but could potentially compete with the big automakers. Imagine if, instead of having a handful of huge automakers, you had a hundred Teslas out there, all upending the market in their own way. Won’t someone please think of the unions?

Similar laws protected wine distributors in various states until the Supreme Court struck it down for violating the interstate commerce powers of the federal government. Of course, several states — including my own — have refused to comply with the ruling in the nine years since that decision hoping they can rope in enough Congressmen to re-institute the shipping restrictions. In light of SCOTUS’s precedent, I can’t see that the auto dealer cartels can possibly be legal. But I don’t expect anything to be done.

All Your Channels Belong To Us


Comcast said Thursday it had agreed to buy Time Warner Cable for $45 billion in a deal that would combine the two biggest cable companies in the United States.

If the deal is approved, the combined group will be the country’s dominant provider of television channels and Internet connections, reaching roughly one in three American homes.

If this deal goes through, Comcast will control one-third of the cable market, dwarfing any other provider and having virtual monopoly in parts of the country (that’s one estimate; I’ve seen other figures as high as 42%).

There’s some question about whether the Administration will seek to scuttle this deal, as they did the AT&T/T-Mobile deal. Despite my libertarianism, I think they should.

Here’s why: cable is not a free market in this country. It is a controlled market where certain cable companies are given fiefdoms in most cities. They are regulated to some extent, but the consumer really doesn’t have a choice. I have Comcast. In Texas, I had Time Warner. In both instance, I had no real alternative.

If cable were a free market, then I would have a lot less of a problem with this deal since small cable companies would be able to out-compete the leviathan that Comcast/Time-Warner is going to be. But that’s not the case. If this deal were to be approved, it would have to come with a gigantic overhaul of telecom law that allows — or in some cases forces — markets to be open.

I don’t know if the Obama Administration will scuttle this. You may remember that the Most Transparent Administration Ever Which Has Totally Ended the Revolving Door approved Comcast’s acquisition of NBC. Then one of the commissioners who approved the deal got a high-paying job with Comcast immediately after approving the deal. So it’s possible that if Comcast waves enough money and future jobs around, this will go through even if it completely hoses the consumer.

When Is A Cut Not A Cut?

When it’s a program we like. A couple of Republicans have proposed a change to the budget — eliminating the sequester on the military in exchange for chained CPI for Social Security. It’s not going anywhere, but it does serve to highlight the cognitive dissonance that defines the Left:

Reps. Jim Bridenstine (R-Okla.) and Doug Lamborn (R-Colo.) are introducing the Provide for the Common Defense Act on Tuesday. The legislation would cancel out the next two years of sequestration cuts for the Pentagon by putting a heavier burden on senior citizens and federal workers.

Even without the sequestration, military spend will go down under the BCA. But notice that HuffPo gets its math right here: these are actual cuts in defense spending and the Republican are, well, making the cuts smaller — in real dollars. Sequestration is real cutting. In my own work, I’ve seen NASA closing down programs or canceling new ones in response to it.

Now let’s go a paragraph earlier:

A pair of House Republicans have a new bill that would spare the military from sequestration by cutting the Social Security benefits of many Americans who already experience painful federal budget cuts.

Emphasis mine.

These are not cuts. They are changes in the rate of growth of Social Security benefits. Many economists believe these changes reflect actual spending patterns. You can disagree with you want* but you can’t change the language life that.

(*Many fools on the Left want Social Security massively expanded despite its current and swelling fiscal shortfalls. Krugman says that Social Security is the only part of the retirement system that’s working well. All Ponzi schemes work well … until they collapse. My 403b would be working great too if my bank could stock up an imaginary portfolio against expected future investments.)

If the Republican proposal were to increase military spending very slightly, HuffPo wouldn’t call those cuts. But slow the rate of growth of their pet program and it’s “cuts!”.

We Are Big Oil


The United States has overtaken Saudi Arabia to become the world’s biggest oil producer as the jump in output from shale plays has led to the second biggest oil boom in history, according to leading U.S. energy consultancy PIRA.

U.S. output, which includes natural gas liquids and biofuels, has swelled 3.2 million barrels per day (bpd) since 2009, the fastest expansion in production over a four-year period since a surge in Saudi Arabia’s output from 1970-1974, PIRA said in a release on Tuesday.

It was the latest milestone for the U.S. oil sector caused by the shale revolution, which has upended global oil trade. While still the largest consumer of fuel, the rise of cheap crude available to domestic refiners has turned the United States into a significant exporter of gasoline and distillate fuels.

I’m sure Obama’s defenders will be rushing to credit him for this while his detractors will be rushing to … I don’t know, claim the numbers are skewed. But Obama’s primary role in this has been to stand out of the way. The truth is that this revolution has been more than a decade in the making as rising oil prices spurred innovation and made shale oil economically viable.

The thing is that this is exactly what conservatives and libertarians predicited. When oil prices spiked many years ago, the usual suspects blamed evil Arabs, evil oil companies, evil oil refineries, evil government and the evil Bush Administration with its evil ties to Big Evil Oil. Had we pursued the path of price controls, the result would have been shortages instead of a boom. People who understand economics pointed out that this was simply a surge in demand and that the demand would create new supply — either through new oil resources or energy tech innovation. That’s exactly what happened. And considering that the energy industry is the only thing propping up our economy, the Great Recession would still be going on had we listened to the naysayers.

I’ve quoted Lee before on this subject but it’s always worth repeating his insight:

Oil will never run out. Ever. There is too much money to be made in the technology industry for the world to keep relying solely on oil. We don’t need nightmares, we don’t need screaming histrionics, we don’t need end of the world scenarios. What we need are smart people taking the problem seriously, and finding workable, reasonable solutions to transition the world from a petroleum economy into the next generation.

One day, the oil industry will die. We probably won’t run out — proven reserves are gigantic (and that’s not even including natural gas and methane clathrate). But oil will fade because we’ll make some breakthrough on nuclear fusion or vacuum energy or whatever that makes cracking open the Earth to extract a mineral slime un-economical. When that happens, we’ll be fine. Fossil fuels are a fraction of our economy. But petro-states like Saudi Arabia will collapse.

In the meantime, technological progress is producing an economic goldmine. Mainly because we let it do so.

The Collapse of Detroit

This went out a week ago, but you really should read this article from the Detroit Free Press about the implosion of the city. Complete with animated graphs, it documents how, especially in the last decade, Detroit was the author of its own decline. Contra Krugman, this didn’t “just happen”. It was made. And the people who made it were Democrats.

A few choice quotes.

The total assessed value of Detroit property — a good gauge of the city’s tax base and its ability to pay bills — fell a staggering 77% over the past 50 years in today’s dollars. But through 2004, the city cut only 28% of its workers, even though the money to pay them was drying up. Not until the last decade did Detroit, in desperation, cut half its workforce. The city also failed to take advantage of efficiencies, such as new technology, that enabled enormous productivity gains in the broader economy.

Pension officials handed out about $1 billion in bonuses from the city’s two pension funds to retirees and active city workers from 1985 to 2008. That money — mostly in the form of so-called 13th checks — could have shored up the funds and possibly prevented the city from filing for bankruptcy. If that money had been saved, it would have been worth more than $1.9 billion today to the city and pension funds, by one expert’s estimate.

Contrary to myth, the city has not been in free fall since the 1960s. There have been periods of economic growth and hope, such as in the 1990s when the population decline slowed, income-tax revenue increased and city leaders balanced the budget. But leaders failed to take advantage of those moments of calm to reform city government, reduce expenses and protect the city and its residents from another downturn.

One event that that precipitated the current crisis was a complex debt deal that Kilpatrick engineered. Praised at the time, the deal ended up putting Detroit nearly three billion in the hole. I’ve commented before about cities and municipalities engaging in these complex financial deals that end up bankrupting them, particularly here in Pennsylvania. As I mentioned before, the city also negotiated lucrative deals to lure businesses to Detroit, which both drove non-rent-seeking businesses away and cost them. Chrysler’s Jefferson North Assembly Plant, funded by taxpayers, ate up $250 million all by itself.

This didn’t have to be. Pittsburgh survived the collapse of the steel industry by reinventing the city. It’s now one of the vibrant cities in America. But Detroit failed to see the problem coming, made decisions that made a bad problem worse and has now completely imploded.

Ah, I’m sure there’s nothing to learn there. Things like Detroit “just happen”. Why here’s the Krug himself, comparing Pittsburgh and Detroit and deciding that Pittsburgh taking “better care of its core” was the difference. Detroit was just a victim of people fleeing the city, which has absolutely nothing to do with crony capitalism, out of control spending and skyrocketing taxes. No sir. It had nothing to do with Pittsburgh having one public employee per 94 residents compared to Detroit’s one per 60 (and even that is misleading, since Detroit pays out more to retirees than to current employees). No, sir. It all has to do with protecting your core, whatever that means.

(In his full article, Krug hilariously states that Detroit is a result of the creative destruction of capitalism. But cities are generally large enough that the creative destruction balances out — new businesses thrive as the old ones fail. When “creative destruction” is that widespread, it’s usually a different kind of destruction.)

Yeah, I know the Free Press has done their research, poring over 10,000 first-hand documents to reach their conclusions. But the Left thought really hard about this one night and came to different conclusions. So who you gonna believe? The excuse-makers? Or the facts?

Benefits of brown energy are yet to come

So says IHS’s report on the economic impact shale which has tallied up the benefits coming from shale oil & gas exploration & extraction.

In their latest report on the economic benefits of the shale revolution, the global research firm IHS makes a number of encouraging findings. IHS estimates that the unconventional oil and gas value chain already supports over two million jobs, is responsible for $1,200 in average additional net income per household and is contributing nearly $300 billion to GDP. The most promising finding for manufacturers is that the best is yet to come. Looking at just one manufacturing sector, the chemical manufacturing sector, capital investments in new plants and expansion at existing plants is expected to more than triple in just four years.

These estimates are not theoretical; they are largely based on real projects that are already under development, some of which are identified in the report. Similar growth is expected in several manufacturing sectors, which collectively will drive more production, create more jobs and further fuel the economy.

Of course, the Gaia worshippers want nothing to do with this real economic boon, and keep pretending that the heavily subsidized and failure prone green energy sector is where all the good stuff is. Dreams are just that: dreams. As I told some leftard that kept telling me he wished the green energy sector would show how great it was already earlier today: shit in one hand and keep making that idiotic wish in the other, and see which one fills up first.

New Zealand following Cyprus lead?

While we are constantly getting told by our resident collectivists how well their particular socialist paradises are doing, I must admit I was suprised that one of those paradises is looking to follow in Cyprus’ confiscatory practice to fix their financial woes footsteps:

The National Government are pushing a Cyprus-style solution to bank failure in New Zealand which will see small depositors lose some of their savings to fund big bank bailouts, the Green Party said today.

Open Bank Resolution (OBR) is Finance Minister Bill English’s favoured option dealing with a major bank failure. If a bank fails under OBR, all depositors will have their savings reduced overnight to fund the bank’s bail out.

“Bill English is proposing a Cyprus-style solution for managing bank failure here in New Zealand – a solution that will see small depositors lose some of their savings to fund big bank bailouts,” said Green Party Co-leader Dr Russel Norman.

“The Reserve Bank is in the final stages of implementing a system of managing bank failure called Open Bank Resolution. The scheme will put all bank depositors on the hook for bailing out their bank.

“Depositors will overnight have their savings shaved by the amount needed to keep the bank afloat.

“While the details are still to be finalised, nearly all depositors will see their savings reduced by the same proportions.

If they are doing so great, why the need to do this? Inquiring minds want to know. CM, can youre details on this bro?

Cyprus Hell

As you may have heard, Cyprus is being bailed out by the EU and the terms are rather striking:

The euro zone agreed on Saturday to hand Cyprus a bailout worth 10 billion euros ($13 billion), but demanded depositors in its banks forfeit some money to stave off bankruptcy despite the risk of a wider run on savings.

The eastern Mediterranean island becomes the fifth country after Greece, Ireland, Portugal and Spain to turn to the euro zone for financial help during the region’s debt crisis.

In a radical departure from previous aid packages – and one that gave rise to incredulity and anger across the country – euro zone finance ministers forced Cyprus’ savers to pay up to 10 percent of their deposits to raise almost 6 billion euros.

Parliament was due to meet on Sunday to vote on the measure, and approval was far from assured.

This may sound familiar. This scenario — a seizure of savings and investments accounts — has been flogged for about two decades by various pundits who are convinced it will happen in this country. Does the Cyprus bailout indicate this is a possibility? I think it’s proof that it won’t happen, actually.

First, Cyprus is in a unique situation:

The depositor haircuts seem to have been necessary to get political support for the deal in the EU–and political support in the EU was necessary because Cypriot banks had assets somewhere in the neighborhood of 8 times the Gross Domestic Product of Cyprus. And just to bring it full circle, the banking system had grown to such grotesque, hypertrophied proportions because Cypriot bank accounts seem to be a favorite of tax-dodging Russian oligarchs . . . which is why it was politically necessary to give depositors such a large haircut.

This is not a situation even remotely comparable to the United States. For one thing, there would be no one to bail us out if the banking sector grew to $120 trillion. For another thing, there is no agency that can compel us to terms of a bailout. For a third, vast amount of the of assets in our banks are not held by shady foreign concerns (right now, the Cypriot government seems to be trying to allow natives to pull out cash while extending the bank holiday so that Russians can’t).

Second, even this relatively small taking (on the scale of the European economy) is triggering a potential disaster. There is a run on Cypriot banks as people try to get their money out. The Euro and European stocks plunged in morning trading. And it’s still touch and go as to whether the legislature will assent to the terms.

So, no, I don’t think this is a “it could happen here” scenario. In fact, at this point, I’m not 100% convinced it’s an “it could happen there” scenario. The reaction of the Cypriots and the markets is a perfect illustration of why this is such a bad idea. And hopefully this will be thrown at the next obscure Lefty twit who suggests the idea in a Congressional hearing and sparks the next round of claims that a savings tax is imminent.