Potpourri

Depressing news this weekend as the candidate representing the Clinton/Obama wing of the Democratic Party won the Democratic National Committee's chairmanship, defeating the candidate from the Sanders wing of the Party.  I'm sure Tom Perez is a good guy, but the technocratic wing of the Democratic Party just got its ass handed to it in an election that was supposed to be Hillary Clinton's to lose.  This does not augur well for the left's chances in 2018 or 2020.  It would be nice to have an honest debate in this country between the hard right wing, represented capably by the GOP, and something approximating Western European socialism, but it appears that is not to be.  Of course, we will see how the DNC unfolds under Perez.  Perhaps he will surprise us all.

Elsewhere: Barbara Ehrenreich, author of "Nickel and Dimed," has a nice short piece on the old, defeated working class of lore, many of whom voted for Donald Trump, and the future of the working class generally.  Ehrenreich makes some very basic points that nonetheless are frequently lost and worth repeating:

• One, the working class is no longer strictly white (in fact, it never was, but it's even less so today).

• Secondly, the jobs of today are non-unionized, low-wage and not in manufacturing, by and large.

• Thirdly, job retraining is a bunch of bunkum.  It's been tried and works very poorly, despite how swell it sounds.  Sometimes you can't teach an old horse new tricks.  Given that, do you simply let the horse die, or try to provide for it in some way?

• Fourthly, the energy of labor is largely based around unofficial campaigns such as that for an increase in the national minimum wage, whereas the AFL-CIO frequently plays a role in suppressing upstart labor movements which it sees as inconvenient or a threat in some way.

None of that should be news, but these points are often lost in how we talk about the working class, as though it were a strictly white, factory-based class, falling behind the arrogant class of doctors, lawyers, and other "professional" types who are wildly successful.  It's a view of the world that contains glimmers of reality, but in its narrow focus distorts reality, and it's one we should retire.

This article on the modern labor force is worth reading, though of course, I will attempt to highlight the best bits for you young urban professionals on the go.  Emphases added mine.

First of all, we're all nurses now:

But the forecasters were wrong in the most important respect. Workers continue to find work, but now the jobs are in service. Taking care of aging baby boomers, in particular, has become by far the largest driver of job growth in the American economy. Among the occupations the Bureau of Labor Statistics expects to grow most rapidly over the next decade: physical-therapy assistants, home health aides, occupational-therapy assistants, nurse practitioners, physical therapists, occupational-therapy aides, physician assistants. ... You get the idea. Nine of the 12 fastest-growing fields are different ways of saying “nurse.”

Because goods have become much cheaper over the decades, people are increasingly spending their disposable money on services (such as home nursing) rather than material objects.  These jobs are difficult to automate - would you pay extra for a human nurse, rather than a robot nurse?  Most of us would.  

Secondly, these new jobs suck, and its mostly women doing them:

The Cassandras, however, were right to warn about poverty in the midst of abundance. Personal-service providers — “servants,” as they once were called — tend to be poorly paid. There is little job security; the benefits are meager; the work is physically demanding and emotionally draining. It is not particularly surprising that women and immigrants have been more likely to take these jobs than native-born men. For many of the caretaking service jobs, less than 10 percent of the work force is male.

Oh, and, thirdly, they're likely to do these jobs their entire lives:

The wages of service work increasingly determine the welfare of the American working class and, to a substantial degree, the broader economy. But politicians have paid little attention. That’s partly because Americans continue to view service work as a way station, not a way of life. Teenagers get their first job at McDonald’s; mothers dip back into the work force as receptionists; seniors make a little extra money as Walmart greeters. The reality is that these are the kinds of jobs millions of Americans hold for their entire working lives. And increasingly, these are the jobs their children will perform, too.

Economic feudalism.

Moving away from labor for a minute: there is some interesting tax talk on the horizon.  I'll be giving this article a full run-down in a series of posts soon, but for now I encourage you to read it.  Some interesting ideas are being kicked around.  Some of them are terrible, but some are in fact actually sound.  In case of the TL;DRs, you don't need to start reading the article until paragraph #6.

Finally, I want to present you Warren Buffett taking a big you-know-what on hedge funds.

Warren Buffett is often wrongly held up as a saint, or as a totally infallible investor, and he is neither of those things.  But he is a stellar investor, and he does not mince words.  It is telling that such a wildly successful investor does not speak in business jargon, designed to make the mortal man or woman feel like a clueless idiot, but instead, speaks in plain English.

He estimates that $100 billion in the last decade has been straight-up wasted by investors paying exorbitant fees to so-called experts.  Just read this in its entirety, because it's gold, Jerry, gold:

“The wealthy are accustomed to feeling that it is their lot in life to get the best food, schooling, entertainment, housing, plastic surgery, sports ticket, you name it,” Mr. Buffett wrote. “Their money, they feel, should buy them something superior compared to what the masses receive.”

He continued, “The financial ‘elites’ — wealthy individuals, pension funds, college endowments and the like — have great trouble meekly signing up for a financial product or service that is available as well to people investing only a few thousand dollars.”

Mr. Buffett said that wealthy individuals get drawn in by consultants selling them big promises. “Can you imagine an investment consultant telling clients, year after year, to keep adding to an index fund replicating the S. & P. 500?” he wrote. “That would be career suicide. Large fees flow to these hyper-helpers, however, if they recommend small managerial shifts every year or so.”

That advice, Mr. Buffett added, “is often delivered in esoteric gibberish that explains why fashionable investment ‘styles’ or current economic trends make the shift appropriate.”

...

“Human behavior won’t change,” he wrote. “Wealthy individuals, pension funds, endowments and the like will continue to feel they deserve something ‘extra’ in investment advice. Those advisers who cleverly play to this expectation will get very rich.”

Indeed.  See you tomorrow!

The Muslim Brotherhood

There is consideration underway by the Trump administration to designate the Muslim Brotherhood a terrorist organization.  This would be a tremendous strategic mistake - a classic example of using a hammer where a scalpel is called for.

I won't bore you all with a lengthy history of the Muslim Brotherhood.  You can google that on your own (or read this to start).  It was founded in 1928 and has taken many permutations all over the world since.  Some of those permutations are indeed violent, extremist, and terroristic.  Others are benign, stabilizing forces.  The various offshoots of the Muslim Brotherhood, while sharing the name, have less cogency than various Catholic churches.  There is no Pope, no President, not even an Ayatollah, dictating the policy of the Muslim Brotherhood.

On the one hand, you have organizations like Hamas, which actively preach terrorism and might rightfully be designated as terrorist organizations (although even in Hamas's case, I would argue realpolitik, and not righteousness, should govern diplomacy - a complex topic for another post).  On the other hand, the Muslim Brotherhood in Jordan is essentially a benign, stabilizing force:

But in Jordan, one of the strongest American allies in the region, the Muslim Brotherhood's charitable activities have made it part of the fabric of mainstream society. The organization's political wing is the biggest bloc in the Jordanian Parliament.

The movement also has members of Parliament in another U.S. ally, Tunisia, and in Bahrain, where the U.S. maintains military bases.

I haven't had time this week to make you my own map of the Middle East.  This one from three years ago requires some slight modification, but isn't bad:

What's different today is that Egypt might now be colored yellow and Yemen should absolutely be colored blood red.  The rest of the map is still accurate, sadly.

Look at little Jordan there.  This is a country that has been a bulwark of stability in the region since modern Israel was born, absorbing countless Palestinian refugees and, in a later age, absorbing countless more Iraqi and Syrian refugees.  This is a county we in the United States should be doing everything in our power to help out, not to toss political dynamite into.

We have lost our ability as a superpower to attain dominance by providing for stability.  Instead we seem to excel at making dangerous situations more dangerous than they were previously.  One need not love one's fellow man like a hippie or a Christian to understand that picking fights constantly is awful geopolitics.  One need simply be hard-nosed and self-centered to understand that a stable Middle East, to the extent we can promote one, keeps Americans safer from terrorist attack and keeps the oil from the region flowing unperturbed.

What good does branding an organization which provides free medication to refugees as a terrorist organization do?  The CIA doesn't think it's a good idea.  The likelihood that the United States will in any way curtail this organization which has been going for nearly 90 years now by designating it as a terrorist organization is wishful thinking.  Basheer Nafi of al-Jazeera puts it very succinctly (emphases added mine):

If the objective is to liquidate the group, the Brotherhood will not be eliminated by being designated as a terrorist organisation by the US administration. The US is certainly the most powerful state in the world today. It is the most influential when it comes to the world’s resources and to the human community. Yet, the Brotherhood, throughout its long history, has passed through tougher circumstances than one that might be generated by a US designation of the group.

It has been subjected to pressures heavier than the campaign to which they are being subjected now. And it is not over. Should its history be viewed from a longer-term perspective, even if just a little longer, it is certain that the Brotherhood today is more influential, bigger, and weightier in the balance of power than it was before the campaigns designed to crush it.

Yep.  It might make us feel "tough" to designate the Muslim Brotherhood a terrorist organization.  But that is a placebo effect.  

That noted total geopolitics failure John Bolton is a big advocate of terrorist designation for the Muslim Brotherhood should tell you much of what you need to know about the merits of this idea.

Still, the concept of designating the Muslim Brotherhood a terrorist organization does have one big fan in the Middle East: the middling dictatorship of Abdel Fattah al-Sisi.  Sisi toppled President Mohamed Morsi of the Muslim Brotherhood in a coup in Egypt in 2013.  At the time, many liberals were relieved that the Muslim Brotherhood was out of power.  How's Egypt doing now?

In January, inflation reached 30 percent; the Egyptian pound is near historic lows, at 18 to the dollar. Tourism suffered an 80 percent decline since 2010; at many sites the vast majority of tourists are Chinese — Westerners are absent.

From the WSJ:

Despite post-coup propaganda and arrests by the Egyptian regime, there is very little to substantiate the charge that the Brotherhood behaved like a terrorist organization during Egypt’s transition or embraced violence either ideologically or strategically.

Instead, the most striking trend is that the Islamic State’s upsurge and al-Qaeda’s revival coincides with the crushing of Egypt’s Muslim Brotherhood and the broader regional crackdown on the organization.

Whoops.

We should be cultivating the moderate branches of the Muslim Brotherhood where we can.  We should also be cultivating the moderates in Iran.  The decision to attempt to wage an endless war against Islam as a religion will not end well for us.  Attacking moderates will empower extremists.  This is not rocket science.

Those of us who favor sanity in foreign policy should all be praying that H.R. McMaster successfully rolls against his charisma and catches the President's ear.  The scalpel should be on the table.  The hammer arguably should not.

Can this man do it?

Infrastructure Plan and Tax Plan Delays

Still suffering from a cold.  As such, I'm going to kick the can once again on writing about the Muslim Brotherhood and also Germany's industrial sector, two topics I truly hope to get to soon.

So instead let's talk infrastructure YET AGAIN!

The reason I keep beating the infrastructure drum is that a comprehensive infrastructure plan really could be the Trump administration's best bet to Make America Great Again, in terms of employment and wage growth (not to mention safer roads and cleaner drinking water, and other hypothetical benefits).  

And were the Trump administration really to go through with a substantial infrastructure bill, it would truly upend politics, making the GOP at least in part the party of "tax and spend," and breaking with decades of small (when convenient) government orthodoxy.

But it is looking like orthodoxy may - big surprise - triumph over Donald J. Trump's independent streak, as the infrastructure bill is likely being pushed off for the time being.

There are some legitimate (or at least legitimate-sounding) reasons for pushing the bill off:

The idea would be to take up infrastructure in an election year and make it very difficult to oppose money for home-state roads, bridges and other projects that lawmakers can take credit for. It also would make sense procedurally given we expect the money to pay for infrastructure will largely come through tax reform and deemed repatriation of overseas earnings with a one-time tax. 

Again the legislative strategy is still evolving and such a timeline would run counter to what GOP leaders laid out last month in their Philadelphia retreat, but the calendar is beginning to look crowded and infrastructure has always been less of a priority for Republican leaders on Capitol Hill than it has been for Trump. 

But I'm guessing there might be further legitimate reasons to push infrastructure spending off when 2018 rolls around.  Just an educated guess.

And what about this sentence: "It also would make sense procedurally given we expect the money to pay for infrastructure will largely come through tax reform and deemed repatriation of overseas earnings with a one-time tax."  Ok, so how about tax reform?  How's that looking?

Well, according to this blog post, House Republicans are getting ready to push for a $1 trillion border tax adjustment, but Senate Republicans hate that plan (while having no plan of their own).  Within the Trump administration itself, Steve Bannon, who according to rumor might be out the door at the NSC soon, favors the border tax adjustment, but economic advisor Gary Cohn and Treasury Secretary Steven Mnuchin aren't fans.  For what its worth, Mnuchin claims tax reform will get done by this August.  

So maybe tax reform will get done, bringing in the money to make the infrastructure plan possible - politically possible, that is.  Honestly, we could go ahead and pull the trigger on a $1 trillion infrastructure plan now.  If America is hurting as badly as Trump and company have depicted it as hurting, then surely a big infrastructure plan is a matter of some urgency?  It's not like we haven't successfully engaged in deficit spending before, in recent history.  Some procedural hoops may need to be lept through, but given all the maverick-ness that's transpired so far, what's the big deal?

In other tax news, Paul Ryan et al. are trying to kill the state-managed retirement plan.  This is standard GOP orthodoxy at its finest.  Keep that wicked government away from people's hard-earned dough!  The private sector is so much more efficient than the public sector, after all!  Right?  Right?

Trade

Dean Baker's article on trade, and how we talk about trade politically, is so on point today that I'm just going to quote the bulk of it straight-up and insert some pictures of butterflies in order to keep your attention from blinking out.

Tomorrow (or whenever I get over this cold) I'll be back to talk about this very self-righteous, very stupid idea.

Take it away, Dean (emphases added mine):

There are an awful lot of things to really dislike about Donald Trump and his conduct as president to date, but that doesn’t mean everything his administration does is wrong. In particular, there is considerable truth to what he has said about trade costing a large number of good paying manufacturing jobs and hurting the living standards of the middle class.

Unfortunately, rather than acknowledging this point, the media show the same determination as global warming denialists in saying that trade cannot be a problem. We got two examples of this sort of denialism in recent days.

The first was a piece in the Washington Post criticizing Trump adviser Peter Navarro’s view of trade and the trade deficit. While Navarro makes many questionable arguments in pushing his views on trade, his point that the trade deficit can reduce growth and employment is absolutely correct.

Ever since the crash in 2008 the bulk of economics profession has agreed that we faced a situation of “secular stagnation,” where the economy faced a persistent shortfall of demand. In this context, anything that boosts demand, such as an increase in government spending, private consumption, or a reduction in the trade deficit, leads to more output and employment.

In this context, the piece’s comment, taken from Harvard University economics professor N. Gregory Mankiw, “that a smaller trade deficit means lower investment along with possibly higher interest rates and less consumption” is completely wrong. If the economy is operating below full employment, as it certainly has been through most of the period from 2008 then reducing the trade deficit certainly can be a net addition to growth. As Mankiw says, “even a freshman at the end of ec 10 knows that.”

In this context, Navarro’s claim that a lower trade deficit could bring in $1.74 trillion in tax revenue over the course of a decade cannot be so easily dismissed even though the Post tells us:

“Hooey, say economists across the political spectrum.”

The key question here is whether the economy is now at potential GDP and whether it is likely to be over the next decade, even with a trade deficit that is close to 3.0 percent of GDP ($538 billion in the most recent quarter). On this question, the Congressional Budget Office (CBO) might be on the side of Navarro.

According to CBO, potential GDP for the 4^th quarter of 2016 was $19,049 billion. This is 1.0 percent higher than the estimate of GDP for the quarter of $18,860.8 billion. This means that if CBO is right, if there had been more demand in the economy, for example due to imports being replaced by domestically produced goods, GDP could have been 1.0 percent higher last quarter.

Of course CBO’s estimates of potential GDP are not especially accurate. Its most recent estimates for potential GDP in 2016 are more than 10 percent below what it had projected for potential GDP in 2016 back in 2008, before the severity of the crash was recognized. It is possible it overstated potential by a huge amount in 2008, but it is also possible it is understating potential today. It also hugely understated potential GDP in the mid-1990s, with 2000 GDP coming in more than 5 percent above the estimate of potential that CBO made in 1996. In other words, it would not be absurd to think that the economy could sustain a level of output that is 2.0 percent above the current level. (The fact that the employment rate of prime age workers [ages 25-54] is still 4.0 percentage points below the 2000 peak is certainly consistent with this view.)

Suppose that GDP were consistently 2.0 percent higher than current projections over the next decade due to a lower trade deficit. This would imply an additional $4.6 trillion in output over this period. If the government captures 30 percent of this in higher taxes and lower spending on transfer programs like unemployment insurance and food stamps, this would imply a reduction in the projected deficit of $1.38 trillion over the decade. That’s not quite the $1.74 trillion projected by Navarro, but close enough to make the derision unwarranted.

In terms of how you get a lower trade deficit, Navarro’s strategy of beating up on China is probably not the best way to go. But there is in fact precedent for the United States negotiating a lower value for the dollar under President Reagan, which had the desired effect of reducing the trade deficit.

There is no obvious reason it could not pursue a similar path today, especially since it is widely claimed in business circles that China actually wants to raise the value of its currency. The U.S. could help it.

The second half of Baker's article is a bit jargon-y even for yours truly.  To sum it up: there are ways in which goods simply passing through America (he cites that example of German cars arriving in New York for sale to Canada) can be counted, wrongly, as imports and exports, when they are in fact "re-exports".  Baker states that the WSJ might be wrongly maligning the Trump administration:

This is where we get to the WSJ article. According to the piece, the Trump administration was asking the Commerce Department to produce measures of bilateral trade balances that took out the re-exports on the export side, but left them in on the import side. This would have the effect of artificially inflating our trade deficit with a bogus number. If this is in fact what the Trump administration is trying to do, then we should be shooting at them with all guns. (This is metaphorical folks, I’m not advocating violence.)

....

I take very seriously efforts to mess with the data. We are fortunate to have independent statistical agencies with dedicated civil servants who take their work very seriously. However we should wait until we have a bit more solid evidence before assuming that the Trump administration is trying to interfere in their independence, as opposed to trying to make a totally legitimate adjustment to the data that the [Commerce Department Bureau of Economic Analysis] staff would almost certainly agree is an improvement.

Call me a cynic, but I would not at all be surprised to hear that the Trump administration was messing with data to artificially inflate the size of the trade deficit.  However, innocent until proven guilty, I suppose.  The WSJ has, over the course of its history, given us plenty of reason to look askance at its pronouncements.

Did you read all that?  Good!  Tomorrow I'll be back to talk the Muslim Brotherhood and possibly North Korea, and one of these days I promise I'll get around to this article about 4chan, which covered a lot of ground before 4chan itself.

Economic Projections

Wanted to touch briefly today on some things that are happening economically today.

First of all, there are plenty of troubling signs of a bubble in the markets, with stock valuations greatly outstripping earnings expectations.  ZeroHedge has some nice charts and very little text.  100% passes the "TL;DR" test!  Go check them out.  Here's my "favorite" of the lot of them:

HMMMMM.  That's not good.  I'm reading about Enron currently.  When you see stock valuations wildly outpacing earnings, you know you are looking at a potential big problem.

I would be lying if I told you that I knew for sure that we are currently in another bubble.  Maybe we aren't!  I certainly hope we aren't.  But the ZeroHedge article makes for short, "uh-oh"-inspiring reading, so read it.

Just like the S&P, it seems that the Trump administration may be engaged in some economic wishful thinking as well.  This WSJ article which you probably can't read because of the WSJ's obnoxious paywall breaks down the Trump team's rosy forecast for the economic future.  Let me parse it for you chunk by chunk.  Emphases added mine, as always.

Right off the bat:

The Trump administration has drafted preliminary economic growth forecasts in its federal budget planning that rely on assumptions that are far rosier than projections made by independent agencies and most private forecasters, according to several people familiar with the discussions.

...

The forecasts, which were initiated before President Donald Trump took office, project gross domestic product—a broad measure of national output of goods and services—growing between 3% and 3.5% a year over the coming decade, with inflation-adjusted annual growth ultimately settling at around 3.2% during the later years of the 10-year forecast.

The economy has grown around 2% on average over the past decade. Many economists believe sustained growth at more than 3% will be difficult to achieve without a sharp rebound in productivity growth and a reversal in the slowing expansion of the U.S. labor force, developments few are projecting. Worker productivity growth has slowed to 0.7% a year since 2010, a sharp slowdown from rates exceeding 3% in the late 1990s and early 2000s.

Where do we get this 3% growth?  From tax cuts?  As Paul Krugman reminds us, the best GDP growth of the last forty years (during the Clinton administration) took place when taxes were going up.  Yes, the Reagan years, years of max tax cutting, were the second best in terms of GDP growth.  But third best were the dread "socialist" Obama years - years that blew away the GDP growth of tax-cutter Dubya.

There's the traditional rosy GOP tax-cutting projections coming out of the Trump camp:

The higher annual growth estimates in the initial internal Trump forecasts would result in the U.S. economy becoming 17% larger after a decade relative to recent projections from the CBO, which produces forecasts that assume no changes to current tax and spending policies.

The higher growth assumption in the Trump forecast would show sharply lower deficits as a share of gross domestic product, especially in the back half of the 10-year forecast window.

Tax cuts leading to growth which in turn lead to decreased deficits is the premise of the famed "Laffer Curve," a curve that didn't even work during Morning Again in America.

Krugman points out that both Reagan and Obama (and to a certain extent Clinton) inherited economies where there was a lot of "slack," i.e., there were a ton of people just sitting around ready to re-enter the labor force.  Look at the pretty chart!:

Furthermore, while Trump did not, in fact, inherit a mess, both Reagan and Clinton did — in the narrow sense that both came into office amid depressed economies, with unemployment above 7 percent:

Photo

Credit

This meant a substantial amount of slack to be taken up when the economy returned to full employment. Rough calculation: 2 points of excess unemployment means 4 percent output gap under Okun’s Law, which means 0.5 percentage points of extra growth over an 8-year period.

I'm not sure that low growth is 100% set in stone, however.  As Dean Baker points out, where there's slack demand, there's going to be potentially employment people - men and women - sitting at home, not actively looking for jobs:

The fact that women's employment rates have fallen as well is important because it indicates that, contrary to what Brooks tells us, the problem is not a gender specific moral failing. The problem is most likely a good old-fashioned shortfall in demand in the economy.

This matters a great deal because we actually do know how to create more demand. It's called "spending money." This means that if the government spent more money on things like education, health care, and infrastructure, we could get more of these prime-age men and women employed. There are other ways to create demand. For example, if we got our trade deficit down by reducing the value of the dollar it would also generate more demand and employment.

So maybe the Trump administration will be able to get us 3% inflation.  I'd personally love it if we could hit this inflation target and I wish the President and his economic mandarins all the best getting there.

That said, the process by which the Trump administration has come to its economic projections strikes me as very similar to the way at which Enron put its stock valuation above all other concerns, especially cash flow, in a way that caused the company to collapse:

What’s unusual about the administration’s forecasts isn’t just their relative optimism but also the process by which they were derived. Normally, the executive branch starts with a baseline forecast prepared by career staff of the CEA [Council of Economic Advisors].

Officials then calculate how their policy changes add or subtract to that forecast. Those exercises are managed by the so-called troika—top political appointees at the CEA, the Treasury Department and the White House budget office. The heads of each department make final signoffs.

Discussions for the Trump administration unfolded differently, with transition officials telling the CEA staff the growth targets that their budget would produce and asking them to backfill other estimates off those figures.

Sounds a little Five-Year Plan-y to me.   

Let's hope I'm wrong, though, and let's hope "Tyler Durden" at ZeroHedge is wrong about a potential bubble.

Amazon, the Deep State, and More

Hello my friends!

I hope you are striking today.  If you are not, I hope you are having fab day regardless.

I have time for a little more total blog than I normally do, so I'm going to try to treat you to something good.

First of all I want to talk Amazon.  There's been a lot of talk amongst Trump opponents about how Amazon should be boycotted.  There's actually a lot of talk amongst Trump supporters that Amazon should be boycotted as well!  Business Insider lays it all out here, but in a nutshell, Amazon sued in Washington state to shut down the "Muslim Ban," which is why Trump supporters are mad, and meanwhile, Trump opponents are mad because Amazon still carries Trump brands (Ivanka's fragrance is doing quite well regardless).

There's a much better reason to boycott Amazon, and it goes back years before anyone ever heard of "President Trump."  And that reason is that Amazon's white collar workplace is cruel and punishing and its blue collar workplace is even worse.

I challenge you to read the two articles linked-to in the paragraph above (please do, I'm begging you) and ever use Amazon again.  I'm not big on "consumer activism"; I feel it is the role of the government to step in and legislate away cruel labor practices, not the role of working class people trying to live their lives with convenience to be personal saints and angels.  Relying on voluntary collective actions to get the trick done is fool's errand, and besides, the imposition of laws from above are why we have a government, are they not?  If we didn't need the government to impose rules on us, we could happily live in anarchy.

Still, for Amazon, I will happily engage in a little consumer activism.  I can get my books and diapers elsewhere.  Here are some highlights from Amazon's labor practices:

• Warehouse employees' every single movement monitored for efficiency; bathroom breaks discouraged; overtime not necessarily optional nor paid out at overtime rates.
• People worked so hard they develop ulcers.
• Women with children criticized for leaving work early to pick up their children at 4:30 pm and resume working from home after their child had been picked up.
• Brutal warehouse heat that was treated not with air conditioning but with Gatorade.
• Constant threats of termination; frequent "trials" of coworkers deemed to be producing insufficiently.
• Temps lured in with promises of permanent jobs, worked relentlessly, and let go on highly specious grounds to prevent Amazon from having to take on the financial burden of paying them benefits.  (As a former long-term temp, this item in particular makes me furious).

I could go on at great length.

Read about those warehouse conditions.  That is not acceptable.  Pardon my language, but that is 19th century bullshit.  This is not a company whose business practice should be in any way legal, and yet here we all are, ordering diapers via drone.  America will not be Made Great Again by companies such as Amazon.  One last quote (from the article describing white-collar conditions) and then I'll move on.  Emphases added mine:

A woman who had thyroid cancer was given a low performance rating after she returned from treatment. She says her manager explained that while she was out, her peers were accomplishing a great deal. Another employee who miscarried twins left for a business trip the day after she had surgery. “I’m sorry, the work is still going to need to get done,” she said her boss told her. “From where you are in life, trying to start a family, I don’t know if this is the right place for you.”

Good lord.

It goes without saying that Amazon is extremely hostile to unions, and has used management to lie to workers about being abandoned by unions and so forth.  Extremely scummy stuff.

On another subject, let's discuss the "Deep State" vs. Donald Trump.

I don't want to wade too heavily into borderline conspiracy-theory talk here (having just typed that sentence, I can visualize some of you rolling your eyes already, but bear with me!), but there's no denying that the "deep state" is a known factor in American history, and while I would hardly say the CIA, NSA et al. are orchestrating every event in American history like some sort of genius The Matrix-meets-the-Rothschilds supervillains, there's no denying that these powerful organizations do not hesitate to screw around with elected administrations when they see fit.

As such I present more as "food for thought" than as something I necessarily subscribe to this Glenn Greenwald analysis of the "deep state" vs. Donald Trump.   It's a very interesting read, but for you TL;DR types, here are some highlights. Emphases added mine:

Trump’s agenda [on Syria] that he ran on was completely antithetical to what the CIA wanted. Clinton’s was exactly what the CIA wanted, and so they were behind her. And so, they’ve been trying to undermine Trump for many months throughout the election. And now that he won, they are not just undermining him with leaks, but actively subverting him. There’s claims that they’re withholding information from him, on the grounds that they don’t think he should have it and can be trusted with it. They are empowering themselves to enact policy.

...

Even if you’re somebody who believes that both the CIA and the deep state, on the one hand, and the Trump presidency, on the other, are extremely dangerous, as I do, there’s a huge difference between the two, which is that Trump was democratically elected and is subject to democratic controls, as these courts just demonstrated and as the media is showing, as citizens are proving. But on the other hand, the CIA was elected by nobody. They’re barely subject to democratic controls at all. And so, to urge that the CIA and the intelligence community empower itself to undermine the elected branches of government is insanity. That is a prescription for destroying democracy overnight in the name of saving it. And yet that’s what so many, not just neocons, but the neocons’ allies in the Democratic Party, are now urging and cheering. And it’s incredibly warped and dangerous to watch them do that.

...

[T]he idea that Donald Trump is some kind of an agent or a spy of Russia, or that he is being blackmailed by Russia and is going to pass secret information to the Kremlin and endanger American agents on purpose, is an incredibly crazy claim that has been nowhere proven to be true. It reminds me of the kind of things Glenn Beck used to say about Obama while he stood at his chalkboard and drew those—those unstable charts that he drew, these wild conspiracy theories that are without evidence.

...

I think that what you’re seeing here is this really disturbing double standard, that all we’ve heard since the war on terror is that classified information is sacred and anybody who leaks it is treasonous and satanic and belongs in jail for a really long time, and now classified information seems to be something that’s just a plaything, like something that we just toss around for fun if it serves a certain agenda. And I think that that’s one of the issues that’s bothering me about the way this discourse is unfolding.

If you don't like to read (in which case, what are you doing here, my friends?) here's Dennis Kucinich laying it on the line.  There plenty of good reasons and ways to oppose the Trump administration while not inadvertently doing the bidding of the "deep state".

(DISCLAIMER, because I know people get very worked up about conspiracy talk one way or another: I am not endorsing the prospect that a grand conspiracy is underway to undermine Donald Trump.  I am stating that in light of American history, it is not unreasonable to suspect that the CIA and friends may be screwing with the Trump administration, trying to throw some gears in the works to hobble the administration.  As much as any of us might oppose the administration, that is not something we should cheer on.)

On yet another topic, yesterday was an immigrant's strike.  I'm disappointed it didn't get more coverage, but I say good for these folks for standing up for themselves. 

I'm Irish-American, I would not be here if my forebears had not immigrated here, and I stand with these immigrants.  I understand that illegal immigrants compete for Americans in the construction industry, but I feel the answer should not be to kick them out of this country but to bring them into the union, and good on those unions who realize that the immigrant is not the enemy but is a fellow laborer.  Our Irish, Italian, Polish, etc. forebears faced considerable hostility when they came to this country and those of us descended from them should not now turn on the immigrants of today with the hostility our family once faced.

Have a great weekend, everyone.

Press Conference

I'm so busy at work today I truly can post nothing.  In lieu of my typical post, just enjoy President Trump's latest press conference.  I don't see what the big deal is at this point; the President seems to have set up a modus operandi where he says the first thing that comes to mind and you just can't take his words at face value at all.  However, many of my friends and colleagues are totally outraged and aghast.  Maybe you too will be shocked, rather than bored.

Here's the press conference.

And if you don't have the spare time for that, here's Politico's coverage of it.

Have a very nice strike tomorrow!

Fed and Dollar Update

Janet Yellen, Chair of the Federal Reserve, testified before the Senate Banking Committee yesterday.  I offer my commentary on the NYT article linked-to above for your edification.  Emphases added mine throughout:

Senator Sherrod Brown of Ohio, the ranking Democrat on the committee, asked Ms. Yellen whether regulation had reduced the risk of financial crises.

“I believe the financial system is much more resilient than it was,” she said.

Are businesses unable to get loans? No, Ms. Yellen responded.

Are banks unable to compete with foreign rivals? No, she said.

Are consumers better protected against predation? Yes, she said.

OK.  So the current Fed Chair is on the record saying that Dodd-Frank and other regulatory innovations of the Obama era have made the financial system more resilient ("able to withstand or recover quickly from difficult conditions"), that businesses are not hampered in their ability to raise money, that banks are not at a disadvantage vis-a-vis their foreign rivals, and that consumers are better protected than they were.

Janet Yellen is a Democrat, but she is more hawkish and conservative than her Republican predecessor, Ben Bernanke, who oversaw the Fed during the introduction of most of these regulations, and approved of them.

We have a clear choice here: believe the Fed Chair or believe the average Republican politician, who argues that business cannot get access to credit and that regulations have gone too far.  Not always in life do we get such a clear choice of whose story to believe.  

Onwards:

Ms. Yellen was invited to Capitol Hill to deliver a biannual report on monetary policy to the Senate Banking Committee. And she found time to tell the committee that the Fed remained pleased with the performance of the economy and expected to continue raising its benchmark interest rate, although she dodged questions about the timing.

The Fed thinks, in contrast again to the predominant Republican belief (as well as the belief of many Democrats), that the economy is doing just fine.

The unemployment rate was little changed over the last year, standing at 4.8 percent in January, even as the economy added an average of 190,000 jobs a month during the second half of 2016, and an additional 227,000 jobs last month. That indicates people are returning to the work force. Inflation also showed signs of rising to a healthier level. Prices increased by 1.6 percent during 2016, a percentage point more than in the previous year, although that is still below the Fed’s preferred 2 percent annual pace.

Ms. Yellen demurred when asked directly whether the Fed planned to raise rates at its next policy-making meeting, in March. But she reiterated the Fed’s December prediction of three increases in 2017, raising the Fed’s benchmark rate from its current range, 0.5 percent to 0.75 percent, to a range of 1.25 percent to 1.5 percent.

So inflation is below the Fed's own target, but the Fed is still planning on raising rates. 

If that sounds stupid or contradictory, that's because it is.  The Fed may be staffed with intelligent people, but intelligent people can engage in fetishistic wishful thinking just like everyone else, and there is no bigger fetishist in the modern age than the Inflation Hawk.   

People hear the word "inflation" and lose their minds.  That sounds like Weimar Germany! Or Zimbabwe! Or the Carter era!  That's what a "weak" dollar will do to you!  We need a strong dollar!  Can't let the dollar have insufficient strength!

Actually, the stronger the dollar, the more difficult it is to engage in economic activity.  The more difficult it is to hire people.  To give them raises.  The less sense it makes for consumers to spend the money they've got, circulating it in the economy, allowing businesses to grow.

The Fed is misguided when it comes to the issue of interest rate hikes.  Interest rate hikes are premature.  Let those people who are finally rejoining the labor market after years of sitting at home, saying, "What's the point?" do so.  Let inflation hit 2%.  2% inflation is not going to lead to bread lines.  2% inflation is, if anything, a hair conservative.

In this regard, the Trump administration - rhetorically, if not in substance yet - has the right point of view.  We need more inflation; we need more economic activity.

Of course, there is the matter of what Trump says versus what he knows.  We know that President Trump recently called freshly-fired national security advisor Michael Flynn to ask whether or not a strong or weak dollar is "good".  This is deeply troubling.  

The Trump administration also still hasn't rolled out its infrastructure plan.  We have little to no idea what this plan will actually look like.  This is injecting a lot of uncertainty into markets, into the Fed's prognostications, into the lives of everyone who wants to know what the plan is.

If Trump does go big on infrastructure, however, Janet Yellen may be stepping up to the plate to put the kibosh on any inflation that might ensue:

Changes in fiscal policy have the potential to scramble the Fed’s economic outlook. Mr. Trump has repeatedly called for measures to stimulate economic growth, like tax cuts and infrastructure spending. Ms. Yellen and other Fed officials have suggested that the central bank would seek to offset such measures by raising interest rates more quickly because the Fed judges the economy to be growing at roughly the maximum sustainable pace already. But she reiterated that before acting, the Fed would see what Congress may do.

Do you think the economy is growing at the maximum sustainable pace?  I suppose if it grew at this pace for several years on end America might be Made Great Again, but I'm not convinced.  I could see the pace speeding up a hair, and based on this last election, I think a lot of my fellow Americans are with me.

Still, Fed's gonna Fed, and I'm not convinced that if Donald Trump were to fire to Janet Yellen and replace her with a new Fed Chair that his appointee would be any less hawkish than Yellen.  Inflation Hawk-ery is in the Fed's very blood.  (If you want to dip your toes in Fed history, I cannot recommend this long, but brisky-written and extremely gripping book highly enough.)

Onwards:

Gary Cohn, the president’s chief economic adviser and a former Goldman Sachs executive, said this month that bank lending had been constrained by changes requiring banks to raise a larger share of funds from investors rather than lenders. Such funding protects a bank in the event of losses, because it need not be repaid.

Mr. Cohn described this regulation incorrectly, saying banks were required to “hoard” capital. In fact, capital is a kind of funding; it is not held or hoarded.

Under questioning by Senator Elizabeth Warren, Democrat of Massachusetts, Ms. Yellen defended the importance of capital standards and corrected Mr. Cohn.

“It’s not a requirement that they stick it in a safe and it can’t be used,” she said.

Ok, this is, again, very troubling.  Maybe President Trump doesn't understand how the dollar works, but surely his chief economic adviser should understand how capital requirements work?!? I understand that, and I'm a legal secretary for a living.  Holy cow.

For those who, like Mr. Cohn, do not understand how capital requirements work: in a nutshell, capital requirements are the amount of money a bank must keep in reserve to conduct business.  They can totally "use" this money.  They just can't be so over-leveraged that, when many parties at once decide to cash in their chips (as in a market crisis) they are unable to pay back their creditors.  It's not rocket science, and the increase in capital requirements during the Obama years is, in fact, one of the most substantive accomplishments of the Obama years.

Anyways, because Donald Trump is saying "FULL SPEED AHEAD!" and the Fed Chair is saying "Now now, nice and easy," the dollar market is filled with uncertainty.

However, the dollar is steadily creeping upwards, rising for the 12th day in a row which, actually, breaks a historic record.  Why is the dollar behaving this way?

In a nutshell, the Fed has been saying for a good while now that a rate hike is coming.  Yellen won't say when, which I'm sure irritates many, but the Fed is a known factor and if they say a rate hike is coming, it's likely coming.  A rate hike leads, other factors aside, to a stronger currency.

The Trump administration, by contrast, says an infrastructure plan is in the works, but what is it?  It's been a month now and everyone - Republicans, Democrats, you name it - have no clue what it's going to look like.  Will it be $1 trillion over ten years?  Will it be a quarter of that size?  Will it even happen at all?

Therefore if you're in the dollar market it makes sense to listen to the dependable Fed and put the words of the chaotic Presidential administration in the backseat.

Momentive, Boeing, Oil and the Estate Tax

One of our readers asked me to speak about some tax issues, and today I'll be taking a look at the estate tax in particular.  But first, a few miscellaneous items:

The Momentive strike may be coming to some resolution.  It looks like the union won't be getting its ass handed to it as badly as the company had hoped, but it sure doesn't look like a bed of roses for the Momentive workers.  A $2,000 bonus and a cumulative 4% salary increase over two years is guaranteed by the settlement, but the same settlement also includes cuts in health and life insurance benefits, cuts in vacation accruals, and the guaranteed year-long use of non-union workers in the Building 71 facility specifically. Twenty-seven workers fired during the strike may or may not get their jobs back through an appeals process.

Upstate Dem political leaders are leaning heavily on the union to ratify the settlement and declare it a victory.  If it is a victory, I'm not sure it's a rousing one.

In other union news, South Carolina Boeing employees are voting tomorrow on whether or not to unionize.  They face considerable hostility from their employer, who is doing its best to depict union organizers as a hostile outside force trying to "get between" the workers and their bosses:

Still, the campaign faces considerable obstacles. A local business group tied to the South Carolina Manufacturers Alliance, of which Boeing is a member, has been running advertisements on local television, including one depicting a thuggish casino boss urging people to roll dice at a craps table. The message is that the union wants workers to gamble away what they already have.

Boeing implies that a vote to unionize would mean inserting the union into the relationship between workers and managers, something the union says is false. Organizers say that union stewards would be available when workers felt they had been mistreated, but that otherwise workers would be left to interact with managers as they saw fit.

It will be interesting to see how, if at all, the President weighs in on the Boeing vote (and whether or not the Boeing vote succeeds - far from a given due to the cultural hostility to unions prevalent in South Carolina).

In other economic news, OPEC is cutting its oil production, in conjunction with Russia, and they seem to be sticking to their guns.  Gas prices at at the pump are already up 7% since the oil cuts were announced.  For those who fear a return to high gas prices, the United States, Canada and Brazil may come to the rescue by pumping out oil of their own.  I would not stay up at night in fear of higher gas prices, but I could always be wrong.

Janet Yellen is testifying before Congress today - I'll try to do a full report tomorrow.

Now! On to the estate tax.

Here are ten facts you should know about the estate tax, by the Center on Budget and Policy Priorities, an organization founded by a former Carter administration official, so in other words, they are filthy communists.  Nonetheless their analysis is not bad.

The key point is bear in mind is: the first $5.4 million dollars of a given estate is exempt from the estate tax.  So the worst case scenario, if you are the child of loaded parents, Ma and Pa can at least leave you $5.4 million.  That's not chump change.

You hear a lot from the GOP about the urgency of repealing the estate tax, which is odd, given than less than two-tenths of one percent of all estates will pay any estate tax.  In other words, the estate state is simply not an issue at all for most Americans.  Those estates that are taxed generally pay about one-sixth of their value in taxes.  And then, of course, there are loopholes:

For example, some estates use grantor retained annuity trusts (GRATs) to pass along considerable assets tax-free.  The estate owner puts money into a trust designed to repay the estate the initial amount plus interest at a rate set by the Treasury, typically over two years.  If the investment — typically stock — rises in value any more than the Treasury rate, the gain goes to an heir tax-free.  If the investment doesn’t rise in value, the full amount still goes back to the estate.  Such techniques have been described as a “heads I win, tails we tie” bet.

The estate tax only generates around $27.5 billion per year, about 1% of all federal revenue.  So eliminating the estate tax would not cause budget income to run dry.

However, claims advanced by proponents of estate tax repeal that it would lead to increased capital investment are in all likelihood quite wrong, and here's why (emphases added mine):

The reason is simple:  while repealing the estate tax might lead some people to save more, it also would lead the government to borrow more to offset the lost revenue.  Government borrowing “soaks up” capital that would otherwise be available for investment in the economy.  In the case of estate-tax repeal, the added government borrowing would more than outweigh any added private saving, leaving the economy no better off and quite possibly worse off.

Regarding the above: the premise that government borrowing "soaks up" or "crowds out" investment is really only feasible when there's strong economic growth, low unemployment, and the private sector is firing on all cylinders, which it most certainly is not doing quite yet.  With that said, the idea that large estate holders freed of the estate tax will go invest their saved capital, as opposed to just stashing it in this or that bank, is wishful thinking that does not stand up scrutiny.  (As I have to say far more often: this is a complex issue that deserves its own blog post).

Estate tax repeal would generate quite the windfall for Donald Trump and his cabinet, several of whom are billionaires.

What about the concept that lowering the threshold for the estate tax would destroy the family farm, a claim that often circulates when discussion estate tax repeal?  It appears to be total rubbish with no basis in reality.

I am having an awfully hard time finding estimates of what would happen if the estate tax exemption threshhold was lowered below $5.4 billion.  That's kind of depressing, as it suggests that such a possibility is so politically verboten that no analysis has been done.

It's worth pointing out that as of 2014, six of the ten wealthiest Americans had inherited, not earned, their wealth (this includes famed villains of the left the Koch brothers, as well as the Waltons of Walmart).  According to Forbes, the number of self-made millionaires is on the rise and the number of millionaires who inherited their wealth is on the decline over the course of the last 30 years.

That sounds like an American success story to me, and I'm not sure why we should want to help reverse that trend by repealing a tax that levels the playing field (well, if you count inheriting 5.4 million bucks "level") at least somewhat.