Thursday, December 30, 2010

Thursday Morning Paradox

I've spent some time this morning being transfixed by a back and forth between Brad Delong and Chris Bertram (of Crooked Timber) who has been influenced by Tom Walker (about whom I know really nothing other than now I like his blog and I'm going to read his manuscript should I have the time).  At issue is the application of the Lump of Labor fallacy to energy efficiency.  The argument is that there is a rebound effect (or Jevons Paradox) relating to energy efficiency that would reduce or eliminate the environmental benefits of efficient construction or installation.  The thought is that increased efficiency would lower energy costs and the result would be greater consumption.

Personally, I do not think we will have the opportunity to test this theory empirically for several years as domestic energy consumption will remain depressed due to economic factors.  Further, I think that over the next decade there will be increases in societal pressures to reduce consumption as the anti-intellectual backlash against environmental concerns abate.  This latter thought might be a bit pie-in-the-sky.  Anyway, check out the links, as you will either find them fascinating or as an excellent replacement for Ambien; valuable either way.

Wednesday, December 29, 2010


I've thought long and hard, but I cannot think of an issue that conservatives handle more stupidly than immigration.  Have any suggestions?  I'm certainly no expert, but this is what I think about it.

If there's one thing conservatives hate hate hate (leaving peoples out of it), it's the minimum wage.  They want wages to clear at the point the invisible hand deems appropriate to lower the cost of doing business.  The last thing they want is the potential for upward social mobility as that would be a key to preventing neo-feudalism from taking hold.  Heck, John Galt would despise the minimum wage as it is rather unbootstrappy. 

Well, let us imagine for a moment that the millions of undocumented workers in this country magically became citizens (not that anyone is proposing this, but for illustrative purposes).  Once they stopped beheading law abiding citizens, they would become eligible for the minimum wage which is greater than that which they had been paid previously.  The result would be a dramatic hit to bottom lines.  Assume, for instance, that the net increase in wages and benefits would be $1 per hour (which is unrealistically low) and the average undocumented laborer works for 40 hours per week and 50 weeks per year.  Further, assume there are 5 million workers who would be effected.  The result is $10 billion in increased costs to business.  I believe this number is significantly low and the actual effect would be much greater.  Regardless, this situation would make some powerful people awfully angry, as well as consumers who would see higher prices for produce and other products.  And such a result would be some powerful ammunition against the minimum wage.

On the other hand, increasing the legal, recognized, tax paying labor force would change dramatically the demographics of the country, alleviating some of problems facing another favorite foe of conservatives, Social Security.  Whipping teahadists into a racial frenzy is quite the paradox for conservatives, then.  I think it comes down to what is easy.  Courting the Latino vote is more difficult than riding the racial frenzy into office in the near term.  Attacking the minimum wage can wait until after they insert more regressive taxes that will push the working class into poverty anyway.  Am I the only one excited for the 112th Congress to start already?

Tuesday, December 28, 2010

The Inflation is Coming! The Inflation is Coming!

There has been a lot of talk of late of interest rates going up to their highest levels since (gasp!) June and how this portends the hyperinflation Glenn Beck has been warning about ever since he realized he could make money off it.  Well, as with most right wing talking points, this one is pretty easily debunked with a little (double gasp!) thought.

Let's take a look at how these run away interests rates have performed (in this case, on the 10 year treasury bond) versus the S&P 500:

Here, you can see the interest rate appreciation (green line) has occurred almost simultaneously with a huge rally in the S&P.  Also worth noting is that we're still well below where we were this spring.  There are two conclusions to be drawn here, which are really as unspectacular as can be.  First, as bond prices and interest rates are inversely related, this is an example of money coming out of the bond market and moving into the equities market.  Money chases performance.  Second, what is evident is there is hope out there, somewhere, that the US economy (and, by proxy the world economy) is improving.  Irrational Exuberance?  Maybe.  But hyperinflation?  Not so much.

Monday, December 27, 2010

Krugman on Commodities

At risk of making this a Krugman fan blog, I will once again refer to one of his pieces, today discussing commodities and inflation in which he dispels the commodity-as-inflation myth.  He points to the fact that the commodity markets are global and prices reflect demand from emerging markets.  Here's some more proof.  First, let's look at an oil chart:

Bang!  Look at that rise, exactly as expected.  You will note that, just as Krugman explains, this is a global commodity, priced in dollars that has appreciated significantly in the last six months.  Now, let's take a look at "natural" gas (I will explain the quotes there in a subsequent post).

Gas is a domestic commodity, traded for domestic consumption only.  It can be argued that, since gas is a primary input for electricity and industrial production, it is a reflection of the current economy.  In normal economic times, one would expect to see significant seasonal increases in prices as demand increases for residential and commercial heating.  But, as Lee Corso would say, not so fast my friend!  If we were seeing the inflation the righties have been foretelling, surely we'd see a dramatic rise in gas prices.  Maybe they're just wrong, or lying.

Sunday, December 26, 2010

Armbars, Douche and Irish Debt

Recently, I was on my way to a friend's house to watch some Mixed Martial Arts (MMA) fights when a neighbor I had not met before joined me on the elevator.  He looked to be in his mid to late 30s and he was wearing an audaciously douchey Xtreme Couture tee shirt.  Xtreme Couture is an MMA themed apparel company owned by one of the legends of the sport, Randy Couture.  MMA fans understand the douchey tee shirt all too well, and we've even become accustomed to differentiating between the various brands and their takes on how to look like a douche with skulls and other such imagery on your chest.  So, naturally, I asked him who he thought would win the fights that night.

"Fights?" he said.  "I have no idea.  I just thought the shirt was cool so I bought it.  I'm a banker; I can tell you how to solve the Irish debt crisis, but not who will win the fights tonight."

Immediately my mind started racing.  First, I thought, what kind of guy sees that tee shirt on a rack and thinks it looks cool without the MMA context?  A douche of epic proportions, I answered myself.  Then, onto the Irish debt question.  Are bankers what Ireland (and some of the other PIGS countries) really needs?

As Dean Baker has pointed out, the austerity package the ECB and the IMF have created for Ireland are likely to have disastrous results.  One particular portion of the package that I find laughable is that the corporate tax rate will remain the same, but the minimum wage will decrease by about 11%.  There's some justice for you: the banksters who blew up the economy make no sacrifice, but the hourly worker gets screwed.  I'd also like to point to a paper by Reinhart and Rogoff (unfortunately not available for free) in which they take a long term view of defaults and find that, contrary to popular current opinion, nations have used default or restructuring of debt time after time without the world economy imploding.  What Ireland needs is not more debt, but less; loaning them more Euros just exacerbates the problem.  But surprise, surprise, the banksters just want more more more and they will gladly push Ireland, or any other nation, to the brink to get there.

Friday, December 24, 2010

Yes, It Gets Worse

Krugman today points out how disingenuous conservatives claim that the government has exploded in size during Obama's presidency by ignoring data (or calendars for that matter).  I'd like to briefly point out the thought process behind these attacks and the inhuman end game that would come in to play should even minded policymakers accede to extremism.

One of the basic conservative arguments in this regard is that public sector employment crowds out the private sector.  But if that was true, why wouldn't the private sector be hiring people now that there is so much excess labor in the economy?  With near 10% unemployment, private industry should be able to hire workers without having to compete too voraciously with the pesky government, right?  Well, the answer the winking conservative will give you is that more of today's unemployment is structural; that, whereas the natural rate of unemployment just a few years ago was 4-5%, today's target unemployment rate should be around 7-8%.  This is of course can be easily debunked by looking at the widespread depression in employment among other data.  The natural rate of unemployment may have incrementally increased over the past few years, as it tends to do, but there is no evidence to suggest such a massive jump.  I may revisit this in another post to be a little more clear here, but structural unemployment is not the point of this post.

So, what's the BFD?  A little further thought into this line of reasoning exposes just how cynical it is.  "If", the line of thought might continue, "we're near the natural rate of unemployment, then there's no reason to do anything to stimulate the economy and, instead, we should really be focusing on cutting the deficit and paying down debt."  And we all know what cutting the deficit and paying down debt means: cutting any services that might help poor people or educate kids.  It's really paradoxical: more unemployment means we should help less.  But it gets worse once you think of the long term implications.

Two major drivers in any increase in structural unemployment in this country, recently and going forward, are high labor costs and the education gap between the US and our competitors, especially in math and science.  Well, conservatives are doing their best to bring the former down (in doing so lowering the standard of living for the vast majority of Americans) with their union busting and demagoguing of government employment, but 30 years under conservative policies of underfunding public education have virtually ensured the downward trajectory of the latter.  No single person embodies the relentless attacks on public education more than New Jersey Governor Chris Christie and if you look at the glowing reviews the (conservative) media gives him, it's not too hard to guess that more of this is coming.  It is safe to assume that the countries flying by us in terms of quality of education are not embracing policies such as these.

So, even if conservatives would admit that the structural unemployment argument at this point is bunk, they're doing what they can to make it a self-fulfilling prophecy.  Remember, the higher the natural rate of employment, the less support the unemployed need... or something.

Merry Christmas.

Thursday, December 23, 2010

Let's Christen This Bitch

Ah, yes, a blog.  What a novel idea.  "Why?  Why another blog?  Who are you?"

Great questions, dear reader!  How bright you are, even before reading my blog!  Well, let's face it: there's a lot of nonsense out there.  A veritable cornucopia of bullshit through which we are expected to meddle to find some kernel of truth.  And, one thing of which I can assure you, dear reader, is that, from time to time, there will be some bullshit here as well.  But it is my goal to minimize the bullshit and even apologize when it gets too deep.  But minimizing bullshit is no reason for you to take your valuable time to stroke my ego.

Really, the problem right now is that the bullshit is creeping out of the fringes into the mainstream and it's getting pretty scary out there.  Right now, the scariest, mainstreamiest bullshit is that the US needs austerity to fix us.  That the solution to unemployment is to fire government workers.  That, while we're on the verge of a deflationary spiral, we need to stop supporting the economy to avoid imaginary inflation.  That, instead of prosecuting those whose fraud led to the housing bubble, we should go after the people who were sold a bill of goods and entered into unrealistic mortgages.  This is the immediate impetus for this blog, but I reserve the right to call out dumbfuckery as it happens.

And, in regards to the second question, the who?  We barely know each other.  Let's see where this thing goes before we go and tell each other these intimate details... pervert.