Friday, March 31, 2006

Krugman's Old Saw Gets Hammered

I've got to slog through the report to see if the methodology is sound, but the conclusions of a new Fed report seem entirely logical and refute one of Paul Krugman's famous threads on which he hangs the assertion that the current economy is a disaster, namely that unemployment is understated because so many people are discouraged at the lack of opportunities and thus are not counted as unemployed. With this already dubious argument now gone, I guess he can still hang economic catastrophe on the fact that the government doesn't offer unlimited, fully-paid hip replacements.

UPDATE: For those who don't subscribe to the WSJ, the article mentions a new report out by Fed economists Stephanie Aaronson, Bruce Fallick, Andrew Figura, Jonathan Pingle and William Wascher that says that the low unemployment rate of the last few years is indeed reflective of the strong job market, and specifically that it is not artificially low because discouraged workers have left the work force and go uncounted. This assertion, that there are numerous discouraged workers leaving the workforce and artificially reducing the unemployment rate, has been a staple argument for the likes of Krugman.

Incidentally, the original study is here.

Wednesday, March 29, 2006

I Will Miss You Dad, Love Donny

Blogging has been light. My father passed away this Saturday, and I've been spending time with Sister and Mother Baseball reflecting on what a great man he was. He was a product of a thorough-going Jesuit education (some would say "brainwashed") - Regis HS in NYC, St. Peter's College, and Fordham Law - and he truly lived up to the Jesuit mission of being a "man for others." He was a great man, and I will miss him.

Encouraging Antitrust Ruling

There was an encouraging development out of the Justice Department today, as the antitrust division cleared the way for Whirlpool's acquisition of Maytag. What is even more remarkable is that new antitrust director Thomas Barnett ignored the concerns of staff lawyers to give the merger the OK. So, after five and a half years, has the Bush administration finally managed to get a guy at justice who can break away from the static, zero-sum mentality of economics and markets and actually place trust in consumers and freely operating markets? I hope this a portent of a more hands-off approach at the antitrust division of the DOJ. It is a shame that it has taken this long.

Bloomberg has the story.

I know what you're thinking..."but who will protect the little guy from the depredations of Whirlpool, which will control 70% of the market for washing machines?" Well, you will. You will protect yourself, by not paying more for a washing machine than you value it. And you will get help from innovators, entrepreneurs and savvy companies who will jump into the game to sell you a washing machine if Whirlpool becomes uncompetitive or somehow distasteful to do business with. I assure you, Whirlpoool will not keep their 70% market share by running roughshod over its customers.

Tuesday, March 21, 2006

Here's Why There Are So Many Ex-Jerseyites

A few weeks back I indulged in some "I told 'ya so" finger-wagging at residents of my home state for subjecting themselves to higher taxes and continued runaway spending (and thus credit rating downgrades) in the form of Governor Jon Corzine. Well, the budget proposal is down on paper and Bloomberg has the lowdown.

It's a doozie. Another $2.6 billion in spending (+9% over last year) and Corzine's Treasurer has the balls to assert that they took an austere approach. But don't forget those property tax rebates!! If you're old and poor you get an extra $125 and if you are neither of those things you get an extra $30.

I shouldn't be harping on the misery of my compatriots back home in the Garden State, I am, after all, merely a few spots behind them in line for such a beating.

No wonder the country keeps moving south and west.

UPDATE: Case in point.

Newsflash: Proof Found In Pudding

Don Luskin has it. Hmm. $200 billion sitting abroad for years and suddenly coming home? What changed?

Not Just Talk on SARBOX from NASDAQ?

In this post I noted how the CEO of NASDAQ has come out publicly against Sarbanes-Oxley. He is doing this because the US, and his company in particular which caters to smaller, innovative companies, is losing listing business to London and other international stock exchanges. The LSE and Germany's Neuer Markt are ballyhooing that companies can avoid SARBOX by lisitng on their markets, and it is working.

Well, I just got emailed a survey from NASDAQ asking institutional investors are series of questions about the worth of SARBOX compliance in general and relative to its costs. I imagine that this survey will be used as a tool to bang our Sausage Factory Workers over the head and get them to wake up to the fact that they made a mistake. Here's hoping.

Monday, March 20, 2006

SARBOX...Dems Getting Smart, Reps Staying Dumb

Mallory Factor has the best analytical gutting of Sarbanes-Oxley in Saturday's WSJ that I have seen in awhile. He ties in all the disastrous effects that this law has had, and notes the sheer uselessness of the whole thing. What's more, he notes that it seems to be Democrats that are cottoning on to the idea that reversing course, to whatever degree, on this law is bound to win friends in the business community. He's right and it indicates that Democrats are getting smart and Republicans remain dumb. This is such a winning issue with the business community and the Democrats can garner support from business without having to concede any ground where business traditionally would like them to, taxes and spending. So the Dems wouldn't have to promise lower or steady taxes and a tight grip on spending, and they can offer up a goody to business that is essentially costless to them - the sole reason for SARBOX was for Congress to appear to be 'doing something' and the political benefits dried up after the first election cycle subsequent to its passage. So retreating on it is politically costless, especially for Dems who are unlikely to have the media accuse them of a "sop to big business."

In a previous blog post I recounted how I asked Mike Pence (R-IN), who professes to want to repeal bad laws as much as he wants to pass good ones, if congress was prepared to address the negative consequences of SARBOX only to have him say that it wasn't on anybody's radar screen. That no Republican is talking about SARBOX is further evidence that congressional Republicans have lost all connection to their voters interests and are giving the game to the Dems for '06 and beyond. They've blown it on spending, they are in the process of blowing it on taxes and if they blow it on burdensome regulations, business interests will leave them at the polls like the Dodgers left Brooklyn.

Thursday, March 16, 2006

Graphic Demographic Evidence

I have blogged previously about the demographic shift of this country, or how the economic and political power is moving south and west.

CNN lists the 100 fastest growing counties in the country. Of the 100 fastest growing counties, only one (Pike Co., PA) is in the northeast. One. Land outside of southern and western edge cities should be in your retirement portfolios.

This is THE Threat of Our Age

I posted about the alarming outbreak of protectionism here. In the FT today, the Lex column (page 14) emphasizes the seriousness of this development with some dark humor:

"The Luxembourg Chamber of Commerce is the latest entrant in the contest to find the world's most protectionist organisation. Competition is firece for this dubious accolade. The US Congress and the governments of France and Spain are all strong contenders."

Watch these developments closely. Protectionism - not an oil shock, not adjustable mortgages resetting, not the trade deficit (read this) - will be the source of any global economic crisis in our future. Senators Schumer (D-NY) and Graham (R-SC) are traveling to China to do some assessing before they decide on proposing trade tariffs on Chinese goods. Let's hope the food agrees with them and they have an otherwise fantastic time, so we are all spared the bipartisan idiocy that this duo is flogging. Lives are at stake. I am not exaggerating. Global depression was a major contributing factor to the rise of illiberal regimes preceding World War II. Do Schumer and Graham want to have a place in history alongside Reed Smoot and Willis C. Hawley?

Wednesday, March 15, 2006

My St. Paddy's Day Wish

While I always deep down wish for lasting peace in Northern Ireland (preferably achieved through a unified Ireland), this year I am going to wish for more pedestrian satisfaction...the Irish national rugby squad face off against the archrival POME squad in the legendarily hostile confines of Twickenham with a chance to bring home the Triple Crown.

Good Luck to the Boys in Green!!

UPDATE: Somebody was listening. Wish granted.

Iran Faces Petroleum Judo from the Democratic World

Nippon Oil, Japan's largest oil refiner, will cut its crude imports from Iran by 15%. I believe that this is a rational decision based on economic self-interest, but if you were a conspiratorially-minded type, you might think that this was all a coordinated plot to begin squeezing Tehran now that the diplomatic approach has floundered.

We Are Not Running Out of Oil

Gee, we found more oil. No surprise there. Let's repeat it again...the price we pay for energy has nothing to do with the quantity of oil in the ground, it has everything to do with our ability and desire to exact it, and how efficiently we use it once we extract it.

McCain's Campaign...One Step Forward, Two Steps Back

Allegedly, John McCain is meticulously and craftily getting in good with conservatives leading up to his run for the Presidency in 2008. Sure. Fine. I guess. I don't really know what that means, because "conservatives" is a rather clumsy term that the media use lazily, but from what I gather, when it comes to tax policy, it means people who want to keep more of the money they earn in lieu of giving it to the government to, mostly, waste it. In thinking about economic policy broadly, "conservatives" believe that capital in the hands of the private sector, rather than in the hands of the public sector, gets saved and invested to its best use and has a greater impact on our standard of living over time. So in that context, let's examine McCain's recent vote, on something called "paygo."

Paygo is a Democratic Senate caucus initiative to make it harder to cut taxes in general, and for this year's budget harder to extend the capital gains and dividend tax cuts of 2003 specifically. Of late, economic "conservatives" have been producing a mountain of evidence to show that these specific tax cuts a) paid for themselves as predicted by the theory known as the Laffer Curve b) cut short the recession and began a new cycle of capital investment, and c) laid the foundation for a stock market boom that is now three years old. These tax cuts are arguably the most successful policy achievement of the Bush administration (some would say the only successful policy achievement). Despite this there are a few Republicans who have consistently sounded and voted like their political opponents on tax policy. They are:
- Maine's RINO Sisters, Olympia Snowe and Susan Collins
- Lincoln "I Wrote-in George H.W. Bush" Chafee
- George "Cry Me a River" Voinovich

So, the paygo initiative came up for a vote yesterday. Every Democrat (and Independent) voted for it and 5 Republicans crossed the aisle to vote for it, the four listed above...and John McCain. McCain might think he is being a deficit hawk (he did after all join forces with Sen. Tom Coburn to attempt to scare the full Senate into addressing the crisis of runaway pork spending), but with one vote he single-handedly told economic "conservatives," from supply-siders to small government libertarians, exactly what they didn't want to hear. Despite all the other posturing, as a starting point, John McCain thinks more of your money should begin its journey to Washington DC.

I guess he loves his "maverick" status so much that he is willing to make such a silly vote and stand in solidarity with Voinovich & Co. All the better, I guess, Senators make lousy Presidents anyway.

Tuesday, March 14, 2006

Hayekian Capitalism Working for the Environment

From Tankerworld:

"The Estonian coast guard is testing a new oil spill detector for use in coastal surveillance planes, enabling easy detection of an oil spill and quick determination of spill size and type of oil spilled. The device is connected to the plane's radar system and is able to detect oil spills under water, on ice and in the dark."

While the overall performance of the fuel transportation industry is quite good, it is obviously imperfect, occasionally quite tragically and expensively so. This technology will vastly enhance our ability to minimize the negative impact of transporting fossil fuels over our oceans and in proximity to our coastlines. So while environmental absolutists would have us endure reduced living standards (less opportunity to travel distances, less speed to get places and do things, less control over our personal environments), human ingenuity is moving full steam ahead to obviate the tradeoffs and constraints of today so our children don't have to live with the same tradeoffs and constraints and are free to tackle different challenges. Collectively, this is how capitalism, free-wheeling Hayekian capitalism, makes us all richer. Still, I doubt that Greenpeace is going to rush to put their stamp of approval on this technology.

Like My Dad Always Said...

Liberals are only liberal when you agree with them...
...this one is for you dad.

UPDATE: Here, coincidentally, is a good post that points out the distinct between Liberal with a capital L and liberal with a little l.

Monday, March 13, 2006

Living Well Is the Best Revenge

I think that Ben Bernanke will have this old saw top of mind when he meets with other leading nation's central bankers, who according to Bloomberg are apparently intent on lecturing him about the US trade deficit. I suspect that Bernanke will be quite diplomatic, despite the article's assertion that BB will be less diplomatic. I don't expect BB to imply either 1) that Europe would give a major appendage for the US' economic performance, or 2) that Europe might oughta (a little phraseology from the beloved Mrs. Baseball's homeland) pipe down and focus on their little unemployment problem. I don't expect him to point out that the US has run a trade deficit for the better part of 200 years and that we've done alright by ourselves. I don't expect him to thoroughly discredit the theory of destructive trade deficits. Frankly, I expect him to simply blow off the criticism and relish the likelihood that the US will report supra 4% GDP growth for Q1.

ON A RELATED NOTE: Warren Buffett's bet against the dollar has been a $1 billion shellacking for Berkshire shareholders. Still, Buffett is wrong on his own dime. European politicos have no skin in the game and thus no incentive to get it right.

Friday, March 10, 2006

Awaiting the Greenspan-English Dictionary

This article tries to tickle our interest in the eventual memoir of Alan Greenspan. CNN seems to think that his political predictions will whet people's appetite. CCCCC'monnnnnnn. Here's the real goodies: "[a]nd he promised the newspaper he also will describe his 'encounters with, and impressions of 'numerous politicians, cabinet members, presidents and world leaders."

I for one can't wait to see how the english words "asshole" and "doofus" are translated into Greenspanese.

An Incompetent Cat-Herder, Maybe.

This is going on MSM-wide, but I'll just finger Bloomberg for assininely attributing incompetence to the Bush administration for the Dubai Ports World deal:
"Bush Defeat on Ports Deal Dents Image if Competence"

There may be cause to argue incompetence elsewhere, but not here. The cratering of this deal was solely at the hands of ignorance, fear and the political instinct to cover your ass. We are a (relatively) free-trading nation and we failed to live up to our principles and failed to see our broader interest on this one...and, make no mistake, it was a bunch of impetulent phonies in Congress that did it. Bush can only be seen as incompetent insofar as he failed to prevent ignorant hysteria among this limited population of 535.

The WSJ has it right today...let's hope this is just an isolated hissy fit, and not an emerging pattern of protectionism, which would be a disaster of the "first order."

UPDATE: And it gets more depressing...from Political Diary...

The leaders of the United Arab Emirates are not likely to soon forget their humiliation in having to back away from the deal after 14 U.S. agencies had cleared the arrangement. "They are going to lose a lot of face. In the Arab culture, losing face is a big deal," a former government official told The Hill newspaper. He warned that the Emirates now might not be as cooperative on issues of terrorism and intelligence gathering. "We risk losing that help. It is not an empty threat."

There is also the matter of Emirates Airlines, a gold-plated carrier that is the fastest growing airline in the world. Last year, it bought 42 Boeing 777 aircraft in a deal worth $9.7 billion to the Chicago-based manufacturer. The purchase made Dubai Boeing's largest customer for that key aircraft. This year, the resource-rich kingdom will choose whether to buy Boeing's new 787 Dreamliner or a competing aircraft, the European-made Airbus A350.
"I wouldn't bet a lot of money on Dubai going with Boeing again," one aviation expert told me. "The deal is potentially huge, Dubai is on track to buy 50 new wide-body aircraft over the next four years. But in the running for that contract, the U.S. has clearly hurt yourself with this hysterical reaction to the port deal."

If Boeing ends up losing the next Dubai bid, one sight you can expect not to see on Capitol Hill is a hearing that includes testimony from the laid-off Boeing workers who would have kept their jobs if Boeing had won the contract.

Tuesday, March 07, 2006

Protectionism Will Hurt - No Exceptions for Intentions

France is currently trying to put a stop to the acquistion of Gaz de France by the Italian firm Enel. Spain is trying to protect Endesa from a German company, E.on. This continues a long traditional of economic protectionism and illogic in Europe. (They staunchly defend unifying their currency, but oppose unifying some private businesses? Hmm.) Of course it is not the only reason, but this is one of the contributors to the dismal performance of European economies in recent times. Is this the road that the US really wants to follow? This is precisely what we are doing by clamoring for the kiboshing of the Dubai Ports World acquistion of P&O. Now, the Europeans have their reasons, their bad reasons, for maintaining this sort of policy, homeland security just just isn't it (well actually it is in a sense, if protecting some crazy abstract notion of "Frenchness" offers some a warm secure feeling). But just because homeland security is our bad reason for pursuing protectionism, we have to understand that the outcome will be the same as we see in Europe. The laws of economics and the workings of capitalism will not distinguish between bad reasons, protectionist policy will have its inevitable result regardless of why it was entered into. Here's hoping this flap dies down like every other flap that the media has tried to make stick on the administration, and we don't follow Europe down the road of sclerotic and destructive economic policy.

Monday, March 06, 2006

Bloomberg: Jerk Bush Wants Law Enforced

Despite the fact that the Solomon Amendment was passed by the US Congress in 1994, this is how Bloomberg opened up its story on the ruling:

"The Bush administration can demand that universities give military recruiters the same campus access as other employers."

This lead-in would have been equally true:

"The latest US Supreme Court decision has now revealed the laxity of the Clinton administration in enforcing a law duly enacted by congress because it didn't like the law."

Further, Bloomberg see the enforcement of the law as a desperate attempt to fill boots for Iraq and Afghanistan.

"The decision boosts the Bush administration as it struggles to maintain recruiting levels to wage wars in Iraq and Afghanistan."

Well, aside from the fact that the recruitment difficulties meme has been discredited, Bloomberg's assertion is ridiculous on its face. If we have to resort to recruiting at Columbia, Yale and Harvard to save the war effort, then the war is lost.

Solomon Amendment Foes Get Smoked

Not even close. I'm betting the ranch that massive hypocracy will rule the day and no university will forgo the federal support in order to make their principled stand. Not a single one.

NASDAQ CEO Regrets Support for SARBOX

I have beat the SARBOX thing like a dead horse here. Now, finally, some people who actually need to be heard on what a disaster this law is, are waking up and talking out. I hope John Thain at NYSE gets vocal too.

Thursday, March 02, 2006

Only the Tipsy Haven't Tipped

On the train home tonight I read Jim Geraghty's editorial in the NY Sun ($) about the "tipping point." I got it, it made sense, but I didn't know that it was, like 'ya know, a theme, like, out there. Then I get home, play with/bathe/tuck in the kids and surf to Instapundit and find out that the 'Tipping Point' seems to be, like, a construct. Anyway, here is what Glenn has chosen to highlight:

The Bush Administration’s reaction to the cartoon riots was comparably milquetoast. The violence and threats committed over the cartoons shocked, frightened and really, really angered Americans. They want somebody to smack the Muslim world back onto its heels and set them straight: “It doesn’t matter how offensive a cartoon is, you’re not allowed to riot, burn down embassies and kill people over it.”
They’re ashamed that Denmark is leading the fight over this.
When the Bush administration’s reaction was mostly equivocating statements and a failure to confront the Muslim world over its insistence of the worldwide applicability of its blasphemy laws, I suspect a lot of folks whose top issue is the war on terror concluded that Bush was going wobbly. . . . Not ashamed to let Denmark fight the fight over important, yet abstract, principles of Western liberalism (small l!) while we, the Americans, dispatch more terrorists to that Great Brothel of Virgins in the Sky. The fact that Der Fuhrer Chimpy Hilter did not publicly express his "concern" about the cartoon controversy did not sway me from confidence that he would have Osama, and all loyalists thereof, whacked in a heartbeat via Hellfire missile or Special Ops bullet to the forehaead, take your pick. (Come to think of it, why are we not giving the Gotti clan a deal... go to Waziristan and whack this guy and and get your walking papers. I mean, the mafia can get to anybody, right?)

Wobbly? Doubt it. It's a feint. I wouldn't be surprised if he even wanted to appear wobbly leading up to dropping a few bunker-busters on Natanz and Bushehir. When will people learn? The Bush/Rove strategy is to sit by, apparently clueless, and wait until opponents have their necks so far out before they lop off your head.

Anyway, there may be something to this tipping point thing, but I don't see why we have to learn the lesson over and over for it to become wisdom. My tipping point was 9/11. What people should be cogitating over is when and where is the tipping point in the Muslim world. When will they realize that their religion has gone off the rails?

A Penny Not Saved...

Last week I was pondering some new data about mutual fund inflows that were truly remarkable (but did not blog on it as I was in a NyQuil-induced haze). The tsunami of money going into mutual funds these days would seem to contradict the conventional line that we repeatedly hear in our mainstream media that Americans are terrible savers. Indeed, the national savings rate seems to be the most popular economic metric in the MSM these days precisely because it tells a negative story - the actual rate is, in fact, negative - beautifully aligning with the theory that Americans are profligate spenders, spending our way to economic catastrophe. There are ample criticisms of statistical methodology that goes into the National Savings Rate. (Here is just one.) But beyond such nitty gritty, you can suss out the silliness of this profligacy meme by asking yourself just some simple, intuitive questions, like, 'How did we get to be the richest nation in all of human history if no one saves any money?' Which leads me back to the mutual fund inflows. Dr. Ed Yardeni looks at the numbers...

1) Net inflows into equity mutual funds totaled $201 billion. (2) Net inflows into bond mutual funds totaled $76 billion. (3) Savings deposits rose $117 billion. (4) Time deposits rose $432 billion. (5) At the end of 2004, Individual Retirement Accounts totaled $3.5 trillion, up from $3.1 trillion in 2003 and $2.5 trillion in 2002

...and rightly concludes that "something doesn't add up." Where the hell is all this money coming from if Americans don't save? Let me break it to you folks, Arab sheiks don't plow their oil riches into the Fidelity Small Cap Growth Fund. This money is coming from Americans. Americans don't save, they invest. Americans are not interested in hording cash, they are interested in building wealth by owning things. Yet, to the government statistics mandarins, none of this counts, investments and investment gains are not savings in their world.

So the savings rate is both intuitively hokey and, upon further analysis, methodologically dubious, and yet it is widely cited in the mainstream press, probably because it is one of the few metrics left that can even remotely support ominous reporting on the economy. Well actually that's not true - on the very day, yesterday, that the ISM reported increasing US manufacturing, CNN had a headline story that slowing manufacturing activity could hurt the economy. So it is not beyond the MSM to talk about bad things that aren't happening but that COULD happen in order to spread glumness about the economy. Nonetheless there are MSM outfits that restrict themselves to statistics that actually are not blindingly positive, thus the popularity of the savings rate.