Monthly Archives: October 2013

The new head of the Fed

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janet yellen in star wars

They’ve made Janet Yellen the new Chairperson of the Federal Reserve in the US and the quantitative easing crowd are in ecstasy. It will be a flood money until recovery sets in which means it will be a flood of money for near on ever. As it happens, I met Janet (why not first names, as we were then) when she worked for the OECD and I was representing Australian employers at an OECD meeting in Paris, this one if my memory serves me right, on some aspect of the business cycle – I think it was on consumer and business confidence surveys. I remember the meeting well for a lot of reasons but one that stands out was that the OECD wanted us to agree with them that the economics profession had conquered the business cycle and that recessions were a thing of the past. So I led the rebellion against such idiocy (true) in the person of Janet Yellen who was the OECD person responsible for trying to get us all to agree. It was her bad luck that she had to deal with me because the probability that I then or now would have agreed to such a thing would be in the vicinity of zero-point-zero. She was just another specimen of that same macro menace that continues to lead us from one disaster to another. At the OECD her potential for damage was generally limited. Now, however, there is no end to the harm she might yet do.

This is from one of her big supporters although I suspect her detractors would say exactly the same thing:

The Fed will be looser for longer. The FOMC will continue to print money until the US economy creates enough jobs to reignite wage pressures and inflation, regardless of asset bubbles, or collateral damage along the way.

On past performance there is little doubt she will do exactly that because that was the mentality I met up with all those years ago. But if you would like to see the other side of this same question, you could do worse thanto read this article from The American Thinker. Many fascinating paras to choose from but let me just jump to the section outlining a sketch of the kind of world Janet Yellen and her approach may be laying out for the US as everything finally falls apart, “the perfect storm” as he calls it. Not at all my own forecast; I provide it merely as a contrast to the belief that all will be well as long as we keep flooding the market with money and distorting factor markets for as long as it takes until Janet Yellen finally realises that things are not working out.

As the perfect storm approaches, the regime will address it the only way it knows how — as a revenue, rather than a spending, problem.

And, as the regime becomes more desperate, unwilling to make cuts to anything other than the military, it will look for opportunities to increase revenue, all the while being indifferent to, or ignorant of the negative economic impact of taking more money out of the private sector and transferring it to the government. Like throwing gas on a fire to put it out, it has the opposite effect.

Here are prototypical examples, not literal predictions, of an increasingly desperate regime:

One-time tax on all IRA account balances as though they are current income, without deleting future taxes on gains from the remaining balance, but removing tax credits for subsequent losses;

Reduce the face value on all short-term (2-3 years) Treasuries if redeemed at maturation, plus subtract interest gained from the pay-out, unless, that is, the holder renews their T-bill at the same rate of interest as at the last renewal, or purchase, whichever is lowest;

Forgive student loans to placate young voters disaffected by the unexpected – to them -high cost of their health insurance under the ACA;
Offer federally-subsidized, reduced-interest loans for first-time “poor” home buyers;

Remove tax-exemption on debt incurred by major municipalities (over 500,000 residents);

Remove interest deductions on all mortgages over $300,000;
Require 401Ks, IRAs and Pension Funds to have a certain portfolio percentage in Treasuries;

Accelerate the schedule of required minimum withdrawals from IRAs to kill the stretch IRA concept and boost tax revenues;

Install a national federal sales tax at 1% on all goods and services (soon rising to 2%, and then up);

Remove the tax-exempt status of all non-profit organizations, including churches and charities;

Collect a yearly tax on the endowments of religious and educational institutions (For example, Harvard University received $650 million from the federal government during their last fiscal year. At the end of 2012, Harvard’s endowment was $30,745,534,000 – #1 among universities. It’s time to tax Harvard. It’s only fair.);

Eliminate deductions for state income tax payments;

Install a yearly tax on vehicles based on miles driven (a 2011 CBO suggestion);

Install a minimum tax rate of 50% on all former members of Congress for five years after leaving federal service and joining think, lobbying firms, and PACs.

Gruesome, of course, but by no means impossible. We live in dangerous times.

UPDATE: A trimmer version of the above article may now be found at Quadrant Online under the perfect title, “On Planet Janet the Spending Never Ends“. Comes with the above picture as well.

Where have all the workers gone?

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participation rate us 2013

That’s in the US. I hadn’t seen this before but it comes as quite a shock. It is certainly lucky for the President that there’s a D after his party affiliation or else the media would have roasted him alive. Meanwhile back in Australia:

ELECTION of the Abbott government in September might have lifted businesses’ spirits but it failed to spark a hiring spree, with unexpectedly weak jobs growth in September and a further drop in the number of people looking for work.

The unemployment rate fell to 5.6 per cent in September from 5.8 per cent in August but only 9100 new jobs were created, not enough to keep the unemployment rate stable given population growth.

The participation rate – the share of the working-age population in or looking for work – fell to 64.9 per cent, the fourth consecutive monthly fall and the lowest level since 2006.

The total number of people actively seeking work fell a little to 697,000, while full-time employment grew 5000 to 8.1 million and part-time work expanded by 4100 jobs to 3.5 million, according to today’s release from the Australian Bureau of Statistics.

It is a bit early to expect any turnaround from an election that was only a month ago when these data were being collected. Not good figures at all, but they are part of the legacy our new government has inherited, exactly the kind of thing all Coalition governments inherit from their Labor predecessors.

And after all that stimulus spending too

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You do know most of our economies are going nowhere, right? So to add to the rest of the tales of woe, there is this from David Uren:

Even assuming that the US overcomes its current budget crisis without wreaking too much damage, businesses in the advanced world may continue to hold back from the investment required to generate jobs and growth. The slowdown in the emerging world, the severity of which has taken the fund by surprise over the past six months, may prove intractable.

The biggest change in the IMF’s outlook in the past six months concerns China. In April, it believed the slowing of China’s growth to just below 8 per cent this year would be a passing pang, with growth returning to 8.5 per cent by 2015 and continuing at that level into the indefinite future.

But it now believes there has been a permanent reduction in China’s potential, and it sees growth slowing to 7.3 per cent next year and to just below 7 per cent beyond 2016. If the pattern of global disappointment continues, China’s long-term growth rate could be below 6 per cent, it says. For the IMF, which traditionally adjusts its forecasts in fractions of a percentage point, this is a huge downgrade.

Public spending beyond some limited amount is a long-term economic disaster. The evidence mounts. But are we learning? We shall see. I will only add that the story presumes that there is a kind of wilfulness in business not investing at the present time. They would if they could so the fact that they don’t tells you something else about how badly our capital base has been mismanaged for the past decade or so in particular.

Only the members of a government and their advisors are apt to believe that members of a government and their advisors are able to direct our resources in a value-adding direction. It is a delusion, but they’re the ones who get to decide. But what a mess their delusions cause!

Plausible denial getting less plausible

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Plausible denial is the name of the game in criminal activity. But so far as the President and the IRS are concerned, the denials are getting less plausible as the days go by. This is where we are as of today:

Top Internal Revenue Service Obamacare official Sarah Hall Ingram discussed confidential taxpayer information with senior Obama White House officials, according to 2012 emails obtained by the House Oversight and Government Reform Committee and provided to The Daily Caller.

Lois Lerner, then head of the IRS Tax Exempt Organizations division, also received an email alongside White House officials that contained confidential information.

Keynesian economics is such junk science

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It’s not that Greece has forecast a budget surplus that matters but that it has forecast a return to growth and stability going forward. That’s the story in the AFR and although this is all you can see at the link, this is pretty informative as it is:

The government has presented a draft budget for next year forecasting a tenuous return to growth, offering the first real hope that Greece could emerge from a six-year recession.

Well fancy that. They cut spending with a cleaver and the next thing you know they are forecasting a return to economic growth. No riots, no blood in the streets, just a quiet reversal of fortune.

I, of course, mention it because this is such a prime example of how useless Keynesian economic theory is that it is a scandal we haven’t had a mass book burning of all our macro texts. Where besides here are you going to find anyone to explain to you why cutting spending in the midst of recession is good for growth.

Now the story does go on to say that the economy has shrunk by a quarter since 2007. But it’s not the economy that has shrunk but the measured level of GDP. Since most of that shrinkage was in public sector waste, the economy did not shrink at all but actually expanded. With each cut in non-value-adding expenditure the actual effect has been positive. Our macroeconomic data, structured around a Keynesian framework as they are, provide not only zero information about the state of the economy, they may even provide negative information, telling you that things are getting bad when they are in fact on the mend.

The unemployment rate is now going to fall from 27% to 26% which is horrific all round no matter how you look at it. But what they had was unsustainable since most of the jobs lost did not pay for themselves from their own productivity. Now jobs will have to pay their own way. It’s not as pleasant as coasting on the value adding activity of others but it is the only way to create long term growth and stability.

Keynesian economics is such junk science.

Coalition self-preservation and the ABC

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This is the UK:

The first rules on state regulation of the press for more than 300 years will be set out this week.

It is a disgrace for any government but for one that goes under the name of Conservative it is beyond disgraceful. It is a contagion that is likely to spread.

Meanwhile we have a rogue state-funded broadcaster who sees its role to be the government-in-exile when the Coalition sits to the right of the speaker. Let us go to the scandal de jour for a quick run through.

So far as testing the limit of their expenses, everyone in Parliament seems to do it, which is bad. But all of this information has been available for as long as you might wish but is being made an issue now and really only for one side of politics. The ABC in particular thinks it is an issue only in relation to the Coalition and will not make much of anything in relation to Labor of what is a bi-partisan form of creaming. Blog sites are not an effective counterweight to a billion dollar national megaphone.

So my real point is that this repulsively-biased publicly-funded anti-Coalition media organisation has to be wound back. Its Managing Director – in fact the entire organisation – is basically saying to the government stuff you, come and get us if you can. Well all I can say is that if the Coalition has even the remotest sense of self preservation they will take the ABC up on this offer and the sooner the better. We no longer need a state funded media organisation assuming we ever did. And if it cannot be shut down, make it pay its own way. We will then see just how popular Q&A really is when it has to attract advertising to cover the cost of bringing its drivel to air.

In fact, take away the ABC funding and give everyone a publicly funded licence to a basic Fox subscription or make a Fox subscription tax deductible if you want to provide access to a broader cultural suite of programs. In this day and age, a public broadcaster is an anachronism that should be preserved for totalitarian states and banana republics.

We’re dumb and we vote

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This is a story from the Associated Press picked up at Drudge and this is their title, not mine: “US adults are dumber than the average human“. And the point is made in the second para:

In math, reading and problem-solving using technology – all skills considered critical for global competitiveness and economic strength – American adults scored below the international average on a global test, according to results released Tuesday.

The test included questions like how many states are there in the US and what language do they speak in Austria, that kind of thing. You can see an outline of the test here which is not all that easy.

The story is also told in USA Today with the article titled, “U.S. adults lag behind counterparts overseas in skill“.

AP thinks the problem is average intelligence while USA Today sees the problem in the education system. Since we know as an established fact that all human groups are identical in their potential, there is no other reason for this result other than the underfunded and poorly resourced education system in the US.

US middle class at 1970s poverty level

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This is Jimmy Carter we’re talking about here and this is what he said:

Former President Jimmy Carter said Monday that the income gap in the United States has increased to the point where members of the middle class resemble the Americans who lived in poverty when he occupied the White House.

Carter offered his assessment of the nation’s economic challenges Monday at a Habitat for Humanity construction site in Oakland – the first of five cities he and wife Rosalynn plan to visit this week to commemorate their three-decade alliance with the international nonprofit that promotes and builds affordable housing.

The “income gap”, nonsense concept though it may be, used to be constructed to highlight the difference in living standards between rich and poor. Now the middle class has fallen into the lowest class, with all the insecurity and uncertainty that all of it entails. The producing middle classes are being plundered and robbed and it has gotten beyond a joke. And it is the lying despicable media in the US that is covering up every inch of the way. It hasn’t happened here, at least it hasn’t happened yet, because we still have means to fight back.

But there is no reason to be too smug about it. We all have a political class who knows better than us what to do for our own good. How they can be prevented from ruining us by their priorities and expenditure is a conundrum that may yet prove to have no answer.

Conclusions first, rigged evidence to follow

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Not news to us, but Melanie Phillips says it so well:

It’s over – but its adherents will never admit it. Just as the exposure of the excesses of Stalinism drove many true believers into an ever more fanatical and deluded defence of Soviet communism, so the conclusive destruction of anthropogenic global warming theory is provoking ever more fantastical contortions by warmist zealots who, contrary to all reputable evidence, claim that the planet is about to turn into a furnace and (pace Bob Geldof) it’s all over for the human race.

The recent release of the IPCC’s Final Draft Report of the Working Group I contribution to the IPCC Fifth Assessment Report Climate Change 2013: The Physical Science Basis revealed, beyond any measure of doubt, the intellectual vacuity, sophistry, and outright corruption of the AGW industry. Presented as an authoritative statement of the current state of climate change evidence, it was nothing of the kind. Indeed, it wasn’t even any kind of statement of evidence. It was instead a politicised draft summary of evidence that was to be amended to ‘ensure consistency between the full Report and the Summary for Policy-Makers’. As Lewis Carroll might have said: conclusions first, rigged evidence to follow.

Her conclusions are also sobering in another direction, not just the effect on the poor which have been devastating and are likely to get worse, but on the standing of science, which the AGW crowd have taken down with them:

But the implications of this epic scam are even more serious and wide-ranging. For what the warmists have done is nothing less than to undermine public confidence in science itself. Science is a synonym for truth-telling, for the exercise of reason, for open-eyed inquiry and the absolute integrity of following where the evidence leads.

But wrapping themselves in the mantle of science, the warmists have utterly corrupted it: making the evidence fit prior conclusions, suppressing inconvenient truths that blow AGW theory into the stratosphere, tampering with and distorting the facts in order to serve a political agenda, pressurising and intimidating scientists who have tried to tell the truth about nothing-out-of-the-ordinary climate change. With AGW zealots pumping out propaganda under the guise of ‘science’, how is the public to be expected to believe scientists when they do tell the truth about where the evidence leads?

For ultimately, this is not even just about science. It is about truth, evidence and rational thought. The real casualty of the AGW scam is surely reason itself.

The “science is settled” has become a laugh line for a reason.