An article in this morning's NYTimes by Catherine Rampell outlines the minimum wage increases that are coming on the 1st of January in eight states. As if lower income employees don't have enough problems this Christmas season, leave it to politicians (and economists) to make their lives worse.
The minimum wage increases will take place in Arizona, Colorado, Florida, Montana, Ohio, Oregon, Vermont and Washington. Note that some of these states are controlled by Republicans, some by Democrats. This is bi-partisan mischief.
Imagine that these same states passed a law saying that a gallon of milk can't be sold for less than $ 10 per gallon. Would dozens of economists step forward with studies showing that milk consumption would be unaffected by this kind of law? Would there be a bi-partisan consensus that a minimum price of milk is a good idea and would promote milk drinking? But, precisely this kind of absurd reasoning is brought forward to defend minimum wage laws (and their increases). Economists are notorious for putting forward their partisan political views as if they were science.
Minimum wage laws are an infringement on the freedom of contract and they deny job opportunities to people who need them. Those who might wish to work free as a way of gaining skills are legally prohibited from doing so. Those with skill sets below the minimum wage level would like to have a job at a lower wage (rather than no job at all), but are forbidden by law to have that first step up the ladder.
Why not just pass a law saying that poor people should be required to stay poor by law? That would have an effect similar to that of minimum wage laws. Economists and politicians who support minimum wage legislation should be ashamed of themselves. Perhaps we should pass a law saying that economists should be paid $ 10,000 per hour or otherwise be forbidden to work. Then, perhaps, economists would begin to understand the pernicious effects of minimum wage laws.
Sabtu, 24 Desember 2011
Kamis, 22 Desember 2011
Another "Rip Van Winkle Year"
In 1987, the Dow Jones Industrial Average began and ended the year in the neighborhood of 2200. In July it topped out above 2700 and hit a low of 1700 in October. A lot of sound and fury to end unchanged!
It looks like we have a repeat performance this year. After the big rally in the first half of the year and the huge slump at the end of the summer, the Dow and the S&P are within a day's rally of being unchanged on the year. Not bad given all the bad news and disappointments.
Look for a big rally in 2012. 2011 isn't over yet, but it certainly seems to be about to finish about where it began, if not better.
Europe is a mess. US government policy is a mess. But, business is getting better and profits are improving. If you're looking for a job and you are in the bottom half of the nation's skill set, you're still in trouble and things aren't going to improve much for you in 2012. But, for the highly paid and for government employees, next year looks pretty good. Stocks will do well, bonds won't. Europe will adopt something akin to a monetization of the sovereign debt of the Eurozone countries -- a big mistake, but one that will give them a few years' breathing space until disastrous inflation overtakes them.
So, the long run future is pretty bleak, but the next couple of years will be good for stocks, good for rich people and good for protected government employees. For everyone else, let them enjoy the liberal rhetoric, because the liberal policies have undermined their future.
It looks like we have a repeat performance this year. After the big rally in the first half of the year and the huge slump at the end of the summer, the Dow and the S&P are within a day's rally of being unchanged on the year. Not bad given all the bad news and disappointments.
Look for a big rally in 2012. 2011 isn't over yet, but it certainly seems to be about to finish about where it began, if not better.
Europe is a mess. US government policy is a mess. But, business is getting better and profits are improving. If you're looking for a job and you are in the bottom half of the nation's skill set, you're still in trouble and things aren't going to improve much for you in 2012. But, for the highly paid and for government employees, next year looks pretty good. Stocks will do well, bonds won't. Europe will adopt something akin to a monetization of the sovereign debt of the Eurozone countries -- a big mistake, but one that will give them a few years' breathing space until disastrous inflation overtakes them.
So, the long run future is pretty bleak, but the next couple of years will be good for stocks, good for rich people and good for protected government employees. For everyone else, let them enjoy the liberal rhetoric, because the liberal policies have undermined their future.
Republicans Blink and Cave -- Once Again
Extending the two percent payroll tax holiday is bad policy. The Republican House's rejection of the Senate bill was the right thing to do. Now, for purely political reasons, they are reversing course. Big mistake.
If, at the end of the day, Republicans can't show more backbone than this, then the future is not bright. Obama, even with no constructive policies (he has lots of destructive one) will coast to re-election if the public sees Republicans as lacking principles. Capitulating on the two month payroll tax holiday is not a good sign.
If, at the end of the day, Republicans can't show more backbone than this, then the future is not bright. Obama, even with no constructive policies (he has lots of destructive one) will coast to re-election if the public sees Republicans as lacking principles. Capitulating on the two month payroll tax holiday is not a good sign.
Selasa, 20 Desember 2011
What Explains Corzine? Really?
Who would have thought: a former top dog of Goldman Sachs betting the ranch on Spanish and Italian sovereign debt. Really?
This is one for the behavioral finance boys. Hubris is the only real explanation. You would have to believe that you are the smartest man in the world and that there is virtually no possibility that you could be wrong. Then, away you go! Load up on junky sovereign debt and show the world!
Is this were a movie script, no one would buy it. It's too ridiculous.
But, happen it did. Not only that, Mr. Corzine appeared before Congressional committees and tritely explained that he knew nothing at all about how his company, MF Global, was meeting the daily margin calls (all repo transactions are marked to market daily). But, of course, Corzine did not know anything about that. He bought 6.5 billion in bonds and didn't give a thought to what the necessary cash position was that would be necessary to sustain that position as it collapsed in the market place. Really?
I suppose the reason that Corzine wasn't concerned about how his firm was going to meet the cash marks on their huge bond bet was that it was 100% certain to go his way. No need for cash!
Did they have to dip into customer accounts to meet margin calls? Apparently, this was not Corzine's concern. He was not involved in how the firm met the growing cash margin calls that were escalating daily at MF Global. Really?
I suppose Corzine was merely a face man. Someone else must have been running MFGlobal all this time. I wonder when that person will appear and own up to what happened to the customers $ 1.2 billion in missing funds. Really?
This is one for the behavioral finance boys. Hubris is the only real explanation. You would have to believe that you are the smartest man in the world and that there is virtually no possibility that you could be wrong. Then, away you go! Load up on junky sovereign debt and show the world!
Is this were a movie script, no one would buy it. It's too ridiculous.
But, happen it did. Not only that, Mr. Corzine appeared before Congressional committees and tritely explained that he knew nothing at all about how his company, MF Global, was meeting the daily margin calls (all repo transactions are marked to market daily). But, of course, Corzine did not know anything about that. He bought 6.5 billion in bonds and didn't give a thought to what the necessary cash position was that would be necessary to sustain that position as it collapsed in the market place. Really?
I suppose the reason that Corzine wasn't concerned about how his firm was going to meet the cash marks on their huge bond bet was that it was 100% certain to go his way. No need for cash!
Did they have to dip into customer accounts to meet margin calls? Apparently, this was not Corzine's concern. He was not involved in how the firm met the growing cash margin calls that were escalating daily at MF Global. Really?
I suppose Corzine was merely a face man. Someone else must have been running MFGlobal all this time. I wonder when that person will appear and own up to what happened to the customers $ 1.2 billion in missing funds. Really?
The Payroll "Tax Cut"
Is reducing the payroll tax for one year by 2 percentage points a good idea? Normally, I think reducing any tax is a good idea. Why feed the beast?
But, don't forget the real issues are: 1) economic stagnation; 2) size and reach of government; 3) the growing national debt. A temporary drop in the payroll tax doesn't do much about any of these issues. So, what good is it really?
It's interesting that the politicos have seized on this debate as a big deal. In truth, whether or not the payroll tax is temporarily reduced by an amount of this magnitude is mostly political theater.
The big Obama concession in this drama is the Senate Democrats retreat from the millionaire surtax. The millionaire surtax is a completely absurd idea that moves us away from the resolving the three problems cited above.
Name me a millionaire who cares what the tax rate is. Millionaires can simply readjust their assets (or better yet just take out loans) and avoid taxable income at their pleasure. Thus raising the tax rates on millionaires just guarantees a lower level of tax revenues from millionaires. Who wins with that outcome?
The House Republicans are the only adults in the room. They see the folly of a two month drop in the payroll tax. It is political theater and should be rejected as such.
If the public can't see through this silliness, then they deserve the government (and the economy) that they have.
But, don't forget the real issues are: 1) economic stagnation; 2) size and reach of government; 3) the growing national debt. A temporary drop in the payroll tax doesn't do much about any of these issues. So, what good is it really?
It's interesting that the politicos have seized on this debate as a big deal. In truth, whether or not the payroll tax is temporarily reduced by an amount of this magnitude is mostly political theater.
The big Obama concession in this drama is the Senate Democrats retreat from the millionaire surtax. The millionaire surtax is a completely absurd idea that moves us away from the resolving the three problems cited above.
Name me a millionaire who cares what the tax rate is. Millionaires can simply readjust their assets (or better yet just take out loans) and avoid taxable income at their pleasure. Thus raising the tax rates on millionaires just guarantees a lower level of tax revenues from millionaires. Who wins with that outcome?
The House Republicans are the only adults in the room. They see the folly of a two month drop in the payroll tax. It is political theater and should be rejected as such.
If the public can't see through this silliness, then they deserve the government (and the economy) that they have.
Minggu, 18 Desember 2011
Visions of Sugar Plums
One more week and Santa comes cruising our way. What will be in his stocking and what does the New Year portend?
The good news for many Americans is that the US economy is not falling off the cliff. Even the coming debacle in Europe will not prevent the American economy from a slow and steady climb out of the abyss.
Bad economic policy has throttled the American and western economies in ways that the Asian economies haven't yet learned (they will learn in time). But even bad policy can't completely eliminate economic growth, if some remnants of capitalism remain.
So, the future is bright for Asia and the future is bright for most of the under-developed world. The advanced economies have mortgaged their futures, so the lights will dim for the coming generations in the western economies. At the end of the day, someone has to work, someone has to save, someone has to hire people. This is a message that the western world has forgotten, but the underdeveloped world has not.
There will continue to be cycles of all types, booms and busts, bubbles, bankruptcies and all the rest. These are all necessary ingredients of healthy capitalism and will not go away until capitalism is extinguished by ardent reformers.
True economic fairness and justice requires providing the opportunity for every citizen to use his/her talents to the fullest. Policies in the US and Western Europe go in the other direction. Anyone with real talent will be stifled in the western economies over the next few generations. The bright lights are on in Asia, the dimmer switch has been hit in the Western world.
Perhaps this is not all bad. The advanced economies have had their moment in the sun and the current advancing economies are hungry to supplant them. That they will do so will write the history of the 21st century.
The good news for many Americans is that the US economy is not falling off the cliff. Even the coming debacle in Europe will not prevent the American economy from a slow and steady climb out of the abyss.
Bad economic policy has throttled the American and western economies in ways that the Asian economies haven't yet learned (they will learn in time). But even bad policy can't completely eliminate economic growth, if some remnants of capitalism remain.
So, the future is bright for Asia and the future is bright for most of the under-developed world. The advanced economies have mortgaged their futures, so the lights will dim for the coming generations in the western economies. At the end of the day, someone has to work, someone has to save, someone has to hire people. This is a message that the western world has forgotten, but the underdeveloped world has not.
There will continue to be cycles of all types, booms and busts, bubbles, bankruptcies and all the rest. These are all necessary ingredients of healthy capitalism and will not go away until capitalism is extinguished by ardent reformers.
True economic fairness and justice requires providing the opportunity for every citizen to use his/her talents to the fullest. Policies in the US and Western Europe go in the other direction. Anyone with real talent will be stifled in the western economies over the next few generations. The bright lights are on in Asia, the dimmer switch has been hit in the Western world.
Perhaps this is not all bad. The advanced economies have had their moment in the sun and the current advancing economies are hungry to supplant them. That they will do so will write the history of the 21st century.
Jumat, 02 Desember 2011
The Equity Market Spurt
This is another extraordinary week for global stock markets. The US market has climbed nearly eight percent in just the past four market days. Why?
Once again, the pundits look to Europe and the ongoing circus of inept politicians struggling to keep defaults from occurring on their watch. This week's announcement of non-Euro central bank swap facilities' rate drop to provide liquidity to the ECB, to be passed along to the European banking community, is cited as the reason for the rally. Not likely.
The political antics in the Eurozone will provide no relief to the inevitable defaults that will sweep the Eurozone. Nothing will prevent that from happening. The only thing the European politicians are trying to do is kick the can down the road. No one is discussing the real solution, which involves dismantling the entitlement structures and reducing the role of government in their economies. Anything short of the real solution is no solution and will ultimately fail.
But, does it really matter all that much for global equity markets? The markets have struggled to find any direction since late July even though the microeconomics of public companies have rarely been as good as they appear today. The US economy, in particular, is not falling into a second recession. The US economy is growing, though saddled with some of the most perverse economic policies in its history. Today's NY Times has a very instructive article detailing the plight of the unemployed who are at the bottom of the skill pyramid. The administration's policies have doomed these folks to permanent penury.
But, the US economy as a whole is growing. The rich get richer and the poor get poorer under the Obama regime's policies, which, ironically, are designed to help the poor at the expense of the rich. Policies like that always boomerang. The US economy will continue to grow slowly and businesses will continue to find ways to avoid hiring in any large numbers.
Remember September, 1983 when the economy produced 1.1 million jobs? That seems like a lost memory of the bad old days of Reagan-economics. That won't happen again as long as the Obama team is in place. An administration committing to demonizing job creators will find job creation a long, slow process and the many Americans that are looking for jobs will keep looking until these policies change. But stocks will do fine.
Once again, the pundits look to Europe and the ongoing circus of inept politicians struggling to keep defaults from occurring on their watch. This week's announcement of non-Euro central bank swap facilities' rate drop to provide liquidity to the ECB, to be passed along to the European banking community, is cited as the reason for the rally. Not likely.
The political antics in the Eurozone will provide no relief to the inevitable defaults that will sweep the Eurozone. Nothing will prevent that from happening. The only thing the European politicians are trying to do is kick the can down the road. No one is discussing the real solution, which involves dismantling the entitlement structures and reducing the role of government in their economies. Anything short of the real solution is no solution and will ultimately fail.
But, does it really matter all that much for global equity markets? The markets have struggled to find any direction since late July even though the microeconomics of public companies have rarely been as good as they appear today. The US economy, in particular, is not falling into a second recession. The US economy is growing, though saddled with some of the most perverse economic policies in its history. Today's NY Times has a very instructive article detailing the plight of the unemployed who are at the bottom of the skill pyramid. The administration's policies have doomed these folks to permanent penury.
But, the US economy as a whole is growing. The rich get richer and the poor get poorer under the Obama regime's policies, which, ironically, are designed to help the poor at the expense of the rich. Policies like that always boomerang. The US economy will continue to grow slowly and businesses will continue to find ways to avoid hiring in any large numbers.
Remember September, 1983 when the economy produced 1.1 million jobs? That seems like a lost memory of the bad old days of Reagan-economics. That won't happen again as long as the Obama team is in place. An administration committing to demonizing job creators will find job creation a long, slow process and the many Americans that are looking for jobs will keep looking until these policies change. But stocks will do fine.
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