Relevant and even prescient commentary on news, politics and the economy.

Is Trump Bailing Out Soybean Farmers Or Not?

Is Trump Bailing Out Soybean Farmers Or Not?

Chinese tariffs on US soybean exports have now kicked in, with China half the US soybean market, and exports much more important for soybeans than for corn, with the US producing half the world’s corn, but exporting less of it than soybeans.  Upshot is that while soybean prices have fallen roughly 20% since Trump started his trade war, corn prices have fallen noticeably less.

Recognizing that soybeans are very important in some key pro-Trump states like Iowa, North Dakota, and Indiana, he has promised to provide aid for them, even as he has at times said that the victims of his trade war will be “patriotic” and continue to support him, even as they lose their jobs, farms, businesses.  Googling suggests that he has himself has not followed through on supporting his damaged soybean farmer supporters, but in fact the situation is unclear.

I have made my annual visit with my old friend who is an Indiana farmer, among other things.  He is glad that he planted more corn than soybeans this year, given that corn prices have fallen so much less than have those of soybeans.  But he tells me that even though the internet says Trump has done nothing to follow up on his promises to help out the soybean farmers, there is a new USDA program to  provide some sort of assistance to soybean farmers.  He has signed up for it, but so far has received no clear information of what is going to come out of it.

As near as I can tell what this might be is a resurrection by somebody at USDA inspired by Trump of the old Commodity Credit Corporation programs that date back to the Great Depression and are still on the books.  I do not know if this is the case or not, but it is hard to see what else it might be. As it is, my friend is curious and hoping to get some assistance, but whether any will actually be forthcoming, much less how much or to what degree Trump actually has anything to do with it specifically, remains up in the air, as does so much else about the Great New Trade War of Donald J. Trump.

Barkley Rosser

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Indictment

Lawfare blog published a solid read of the latest indictment announced by Rod Rosenstein.

The indictment Friday morning of 12 Russian military intelligence officials in connection with the 2016 election hacks and the resulting distribution of purloined emails was not a total surprise. Observers of the Mueller investigation have been expecting it for a long time, particularly since the Feb. 16 indictment of 13 Russian individuals and three companies over the social media campaign conducted by the so-called Internet Research Agency.

Here are links to the indictment and the Justice Department’s accompanying press release.

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Children immigrants are becoming bigger business

MSN reports

Detaining immigrant children has morphed into a surging industry in the U.S. that now reaps $1 billion annually — a tenfold increase over the past decade, an Associated Press analysis finds.

Health and Human Services grants for shelters, foster care and other child welfare services for detained unaccompanied and separated children soared from $74.5 million in 2007 to $958 million in 2017. The agency is also reviewing a new round of proposals amid a growing effort by the White House to keep immigrant children in government custody.

Currently, more than 11,800 children, from a few months old to 17, are housed in nearly 90 facilities in 15 states — Arizona, California, Connecticut, Florida, Illinois, Kansas, Maryland, Michigan, New Jersey, New York, Oregon, Pennsylvania, Texas, Virginia and Washington.

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Real average and aggregate wages: July 2018 update

Real average and aggregate wages: July 2018 update

As we close out this week devoted to jobs and wages, with the consumer price index having been reported yesterday, let’s take a look at real wages.

By now you’ve probably read elsewhere that YoY wages for average workers actually declined slightly (-0.1%):

But the flatness goes back further: all the way to February 2016:

Real wages have only grown 0.4% in the last 2 years and 4 months.

 

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A (mainly) business cycle explanation for this year’s better jobs growth

A (mainly) business cycle explanation for this year’s better jobs growth

The pace of job creation declined from averaging over 200,000 a month between Q2 2014 through Q2 2015 to 180,000 or less during most of 2017. This year, it has picked up noticeably to over 200,000 per month again:

Why?  A basic analysis of the business cycle supplies an answer. To quickly refresh, long leading indicators tell us about the direction of the economy more than 1 year out; short leading indicators by less than 1 year. Payrolls, along with industrial production, are the premiere coincident indicators.

So let’s see where we have been over the last few years.

Professor Geoffrey Moore identified four long leading indicators in his 1993 book on forecasting: corporate bond yields, housing permits, real M2, and corporate profits deflated by unit labor costs. These four historically were bundled into the proprietary “US Long Leading Index” by the Economic Cycle Research Institute, or ECRI.  After disappearing from view since 2010, late last year an updated graph was published. Here it is:

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A Bit of Trivia – Big Boy

This is mostly a C&P as taken from Justin Frantz’s article One of the World’s Largest Steam Locomotives Is About to Make a Triumphant Return It is a fun post with a tad of economics tied to it.

It was not seventy years ago and may be more like sixty years ago when I took the train with my father out to Buffalo New York. I remember seeing the old steam driven locomotives in Chicago. I do not think one of them made the pull to Buffalo. It would have been kind of cool if one did. I think I was all of 5 then.

Seventy years after the First Transcontinental Railroad was completed in 1869, the steep Rocky Mountains of Wyoming and Utah were still giving the Union Pacific Railroad trouble. The mountains were too steep for a one engine pull.

Despite having the massive steam engines, the Union Pacific being one of the largest railroads in America struggled to move heavy freight trains over the mountains and would often have to use multiple locomotives to get cargo to its destination. This practice required more workers, more fuel, and more cost. In 1940, the Union Pacific’s mechanical engineers teamed up with the American Locomotive Company to build one of the world’s largest steam locomotives. A new class of engine simply known as “Big Boy.”

Now, six decades after the last Big Boy was taken off the rails, the Union Pacific is rebuilding one of the famous locomotives in honor of the upcoming sesquicentennial celebration of the first Transcontinental Railroad. It’s a project so ambitious that Ed Dickens Jr, a Union Pacific steam locomotive engineer and the man leading the rebuild, has likened it to resurrecting a Tyrannosaurus rex.

The Big Boy locomotives weighed more than one million pounds and were 132 feet, 9 inches long. Stood on its end, one would be the equivalent of a 13-story building. Each one cost approximately $265,000 to build, or about $4.4 million in today’s money. In the railroad world, the Big Boys were known as 4-8-8-4 articulated type locomotives. That designation meant the locomotive had four wheels in front, two sets of eight driving wheels (the large wheels connected to the pistons that make the locomotive move) in the middle, and four trailing wheels, all underneath one enormous boiler.

Union Pacific purchased 25 of the Big Boys between 1941 and 1944. According to Trains Magazine, the steam engines were originally going to be named “Wasatch,” after the mountains they were built to carry freight over. In 1941, an American Locomotive Company shop worker wrote “Big Boy” in chalk on the front of the locomotive and the name stuck. Below the steam engine’s new name, the unknown laborer also scratched a “V,” a popular symbol for victory during World War II, a conflict in which the Big Boy locomotives would soon play a pivotal role.

Locomotive No. 4000 and the first Big Boy left the American Locomotive Company factory in Schenectady, New York in the summer of 1941 bound for its new owner. The enormous steam engine garnered attention wherever it went and by one count more than 500 newspaper stories were written about it before it arrived on the Union Pacific’s tracks in Omaha, Nebraska on September 4, 1941. According to the historian John E. Bush, a self-described “Union Pacific steam locomotive nut” and author of numerous train books and a Trains Magazine blog about the locomotives; Locomotive No. 4000 and the other Big Boys were quickly put into service just as the Allied war effort was heating up. Between 1941 and 1945, the steam engines helped move millions of tons of war supplies and other materials.

Bush; “Without the Big Boys, the Union Pacific could never have moved all that material for the war effort.”.

Modern Cities Owe Their Cleanliness to These Innovative Old Sewers. The Union Pacific used the Big Boys until 1959, when they were replaced with diesel-electric locomotives, which were easier and cheaper to maintain, although arguably less impressive than a noisy, smoke-belching steam engine with its symphony of moving parts. Most of the Big Boys were scrapped, but eight were put on display around the country.

Although some steam engines still operate at museums and heritage railroads, for decades railroad enthusiasts believed the Big Boys were simply too big to ever run again. For one, the infrastructure needed to maintain such a massive locomotive had been torn down at the end of the steam era, and even if someone did rebuild one, there were few rail lines that could handle a machine of that size. But in 2013, Union Pacific announced that it was reacquiring a Big Boy in hopes of restoring it for the 150th anniversary of the completion of the Transcontinental Railroad. In spring 2014, Big Boy No. 4014 was moved from Pomona, California, where it was on display at the RailGiants Trains Museum, to Cheyenne, Wyoming, where Union Pacific keeps and maintains two other historic steam locomotives for special events and excursions.

Railroad historian John Bush was lucky enough to ride the Big Boy No. 4014 when it was hauled back to Wyoming by a pair of diesel-electric locomotives. He says highways along the rail line were packed with onlookers watching the unrestored steam engine roll down the tracks.

It was awe-inspiring, it was a dream come true for many.

Since the locomotive’s arrival at Union Pacific’s shop in Wyoming, mechanics have been slowly rebuilding it, which requires the disassembly, inspection, and repair of every single part of the locomotive. The steam engine will also be altered so that it can burn oil which is easier to acquire than the coal it once burned back in the 1940s and 1950s. “This is a massive ground-up restoration,” Dickens says.

Chief Engineer in charge of the rebuild Ed Dickens hopes to have No. 4014 completed and operating on its own power before May 10, 2019, the 150th anniversary of the Transcontinental Railroad. The first trip is expected to take the locomotive to Ogden, Utah, not far from where the Golden Spike was driven at Promontory in 1869.* The ceremonial spike joined the rails of the Union Pacific from Omaha with the Central Pacific Railroad from Sacramento, connecting the East Coast with the West Coast by rail for the first time in American history. Today, Promontory is a national historic site.

Bush expects train enthusiasts and history buffs from around the world to line the tracks from Wyoming to Utah when the Big Boy makes its first run in 60 years.

I cannot think of a bigger way to celebrate this anniversary than restoring a Big Boy locomotive. This is something railroad enthusiasts have dreamed about for more than a half-century.

References: One of the World’s Largest Steam Locomotives Is About to Make a Triumphant Return.

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A business cycle theory of labor force participation and wage growth

A business cycle theory of labor force participation and wage growth

I’ve devoted a lot of time and thought, and typed a lot of pixels of commentary, about wage growth in the last few years. Some of it has panned out: based on past expansions,I expected YoY wage growth to bottom consistent with an unemployment rate of about 6%. A little later I refined that to an underemployment rate of 9%. In retrospect that is indeed about when wage growth bottomed out in this expansion.

But even three years ago, I expected wage growth to rather quickly reach 3% YoY once that level of underemployment was breached to the downside.  Obviously, that didn’t happen.

Rather than ignore the call that didn’t pan out, I have tried to understand why.

One important part is the changed behavioral set-points of both employers and employees. Ever since the 1980s, when unions were effectively broken, employers have found that they can get away with paying less and less to maintain employees. Those employees learned to expect less and less in the way of raises from employers. During each successive expansion, employers have tightened the screws more and more, until by now giving raises has become a taboo, where employers would rather sacrifice at the least short term profits from more production than give in to the necessity of raising pay.

But if the taboo against raising wages is a secularly increasing phenomenon, on another level I think we can still tease out a lot of information in terms of the order and direction of employment and wage trends.

To that end, I want to propose a general theory of labor force participation and wages within business cycles. To wit, at least in the modern era since 1982, the pattern has been:

1. the unemployment rate peaks, and begins to decline.
2. prime age labor force participation bottoms, and begins to rise
3. nominal wage growth bottoms, and begins to rise.
BUT…
4. If labor force participation grows too quickly, wage growth languishes.

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Does The University of Illinois have a Problem

I’m not a lawyer. Also Republicans are worse than I imagine possible even taking into account the fact that they are worse than I imagine possible. However, I think Brett Kavanaugh defender Andrew Leipold of The U of Illinois School of Law is unfit to serve as a law professor.

The issue is that Kavanaugh signed the Starr report which argued that Clinton could be impeached for delaying his interview with special prosecutor Starr. Therefore, either Kavanaugh agrees that Trump should be impeached or he is a complete hypocrite and partisan hack (no prize for guessing which).

Leipold argues that people are not responsible for their signatures “I don’t think it’s a fair conclusion to draw that everyone’s name who appeared on the report agreed with everything written there,” Ah and what if it were an affidavit ?

Also “Our job was to emphasize the grounds for impeachment,” he added. “We’re not the decision maker; Congress is the decision maker.” I had the impression that a prosecutor’s job is to seek the truth and to attempt to make sure that justice is served. His saying that his job was to support a specifici conclusion is a a confession of prosecutorial misconduct.

Yet the University of Illinois pays him to teach students how to practice law.

I’m pretty sure tenure can’t be revoked for misconduct which preceeded the tenure decision. Telling the truth about how one is a hack is not moral turpitude. I don’t think there is anything to be done about the problem. But it is a problem.

On the other hand, judge Kavanaugh can certainly be asked whether he agrees that prosecutors are supposed to be biased against people they investigate, whether he knew of Leipold’s attitude at the time, and whether he tried to do anything to protect justice for Leipold.

I am hope that Kavanaugh can’t handle being under oath. He chose to lie the day his nomination was announced (saying no president nominating a justice had been more thorough than Trump). I think conservatives often have a problem in settings in which conservative and good are not treated as synonyms. Now he has been writing opinions for the DC circuit court and he has a Yale law degree, but I sure can hope.

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How Much Do the NATO Members Spend on National Defense?

How Much Do the NATO Members Spend on National Defense?

Josh Marshall provides a nice discussion of the difference between how NATO is funded versus how much each of its members spends on national defense, which begins with:

As we move toward the NATO Summit and the Putin-Trump summit, I thought it made sense to review some of the details behind the President’s demands that NATO member countries pay up and stop doing what he regards as freeloading on the US taxpayer dime. Most people have a general sense that Trump doesn’t seem to grasp how an alliance works, that it’s not meant to function as a protection racket. But the actual details are both sillier and more significant than it may seem on the surface.

While I applaud his discussion, something is amiss here:

The vastly greater amount is the combined military budgets of all the member countries combined, which was $921 billion in 2017. The great majority of that is made up of the US military budget. In 2017 the US military budget was $610 billion. The coming fiscal year puts it at $700 billion. (That big run-up is significant and we’ll return to it.) Some of that difference is driven by the fact that the US economy is far larger than any individual NATO member state. But the US also spends much more on a per capita basis. Staying with the 2017 numbers, the US spends 3.61% of GDP on defense. The next major NATO member is the UK down at 2.36% while most other major NATO powers are significantly under 2%. (Examples: France, 1.79%; Germany, 1.2% Canada, 1.02%)

Actually, U.S. national defense spending was over $744 billion in 2017, which came to 3.8% according to this source. Call me a pacifist but maybe we should all be spending less on the ability to wage war.

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