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

Markets Slipping…

As I watch the Dow slip below my attractor level of 17,300, the Fed rate is expected to lift off this week, oil is near $36/barrel and Christmas is close. Usually the markets try to hold their value through the holidays, so this slipping in the stock markets is something to watch.

When the Dow goes below 17,300, I wonder if the markets will stay below that level and eventually just keep going down. The markets have hit their top. The aggregate profit-equilibrium level was reached about a year ago. Profits are down amongst oil producers but up elsewhere in the economy. However, if oil prices were higher, we would probably have seen the opposite… profits up amongst oil producers and lower elsewhere.

A recession will happen when a certain number of businesses start to contract. They then further cause other businesses to contract. What can cause that? An overly strong rise in the Fed rate or even excruciatingly low oil prices leaving North American oil producers without extended credit.

Some say the economy can overcome these moments and that the future is bright. Others, like me, say a recession will happen before the Fed rate reaches its 3% natural level for a full-employment economy with stable inflation. It would be nice to reach that level, but when the business cycle has already passed its aggregate profit-equilibrium point, contractions in business are harder to overcome.

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US life expectancy flat for third year

US life expectancy flat for third year

Life expectancy in the United States has stalled for three straight years, the government announced Wednesday.

A child born last year can expect to make it to 78 years and 9 1/2 months — the same prediction made for the previous two years.

In most of the years since World War II, life expectancy in the U.S. has inched up —- thanks largely to medical advances, public health campaigns and better nutrition and education. The last time it was stuck for three years was in the mid-1980s.

What does this mean for the future solvency of Social Security? Beats the crap out of me. But it sure casts doubt on all those who preach “demography is destiny” and “we are all living longer so work until you are 70”.

On a more mathy note small changes in input into Social Security models can have amazing effects on output, particularly over 75 year actuarial projections. Tweak some mortality and immigration assumptions and results change dramatically. We don’t even have to go the MJ.ABW. Though More Jobs. At Better Wages would itself have some outsized effects.

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Conservative Legal Movement Week at the Supreme Court

This is Conservative Legal Movement Week at the Supreme Court.  (Okay, even more so than most weeks.)  Things really get going tomorrow, when the court will hear argument in two legislative-redistricting cases at the behest of (surprise!) Conservative Legal Movement voters represented by Conservative Legal Movement lawyers whose names on a petition for review (a “petition for certiorari”) guarantee that five justices will read the petition.  (All but one is a member of the usual-suspect crowd; the other one is a St. Louis-based lawyer I’ve never heard of, but presumably is active in Republican election-law circles.)

Things get going today with a state-sovereignty case, but this case is peanuts—just a small appetizer—compared with what will come tomorrow.  The first one tomorrow, Harris v. Arizona Independ­ent Redistricting Commission, is the one that will be argued by the St. Louis lawyer.  You can read about it here.  It is, best as I can tell—and I make no claim whatsoever to expertise in election law—by far the less far-reaching of the two redistricting cases, and because an outcome favorable to the petitioners, it seems to me, might not be an unalloyed long-term (or even short-term) victory for Republican candidates, an outcome in favor of the petitioners may not be in the bag.

Not so for the effects of a victory for the petitioners in Evenwel v. Abbott, Governor of Texas, the second case to be argued tomorrow.  Its purpose is to have the Supreme Court declare that legislative districts, federal and state, must be apportioned according to the number of eligible voters in each district, rather than the number of residents in each district as indicated by the Census.  So minors, recent immigrants or immigrants who have not yet gone through the naturalization process, convicted felons, and elderly Blacks who cannot produce a birth certificate from Nowhere County, Mississippi, will lose their status as legal constituents of the policymakers formerly known as their congressional or state legislative representative.

Which presumably would permit them to stop paying taxes, including sales taxes, since, y’know, the founders would be upset at the idea of taxation without representation.

This is outright crazy.  But it also in right in line with John Roberts’ own recent, surprising public statement about what his modus operandi is in joining with his four Reagan-era Conservative Legal Movement colleagues to make dramatic changes in broad areas of law: quiet.

As in, speak very softly and drive an armored vehicle (i.e., cases in obscure areas of election law and procedural and jurisdictional law the public has no clue exist) through the Democratic Party; labor unions; civil rights plaintiffs of the sort that benefited from the original purpose the Court stated for its “strict scrutiny” equal protection pronouncements that the Court now regularly disavows without actually mentioning that it is doing so (more about this, maybe, in a follow-up post about Wednesday’s argument at the court); civil rights plaintiffs who are challenging state and local authorities’ bald and routine violations of even the most obvious and fundamental civil and human rights; and ordinary consumers.  (Ordinary is a careful selected term or art here, but I won’t elaborate in this post.)

Roberts and his compadres  have, since the ’80s,  had a list of perhaps 10 areas of law that they they are hellbent on using the Supreme Court and the lower federal courts to rewrite.  It is the Federalist Society’s unabashed agenda.  But always—first, foremost and forever—their priority is using the Supreme Court to try to orchestrate a permanent Republican majority across the full breadth of elective office: the presidency, both houses of Congress, state governorships, state legislatures, and various county and municipal offices.  And Roberts, whose very essence is stealth, does not ever take is eye off that ball, even if his more intemperate or less skilled colleagues do.  If Roberts miscalculates on whether or not the public will notice a momentous opinions replete with bizarre statements—Citizens United, for example, in 2010—it may be time two years later to uphold much but not all of the Obamacare statute, since that issue wasn’t an election-law case and ruling striking the ACT down did have the potential to inure to the benefit of Democrats in the 2012 election.  Including to Obama.

So I guess I should add one more reason why the petitioners in Harris might lose: The opinion in Harris and the opinion in Evenwel will be released either on the same day or a day or two apart with Harris released first.  Seeee, everyone?  The Evenwel ruling wasn’t partisan.  Got that?

A coup by any other name—Supreme Court capture of the electoral process, I guess, would be the name—smells as rotten.

The case argued on Wednesday—and it is the only case to be argued that day; usually the Court hears arguments in two cases on the very few days each year on which it hears arguments—Fisher v. University of Texas at Austin, is a standard-issue affirmative-action-in-public-universities case, although this case is back for its second turn at the Court.

I might write more about this later today or tomorrow in a follow-post (Conservative Legal Movement Week at the Supreme Court, Part II, I guess), but this case has a remarkable peculiar twist added only at the Supreme Court level—normally problematic procedurally, but, well, y’know ….  This time around, aided by the suggestion of the dissenting judge (an aggressive, high-profile Conservative Legal Movement G.H.W. Bush appointee) on the lower appellate court panel that ruled in favor it the university and its admissions criteria, the petitioner, Abigail Fisher, a white graduate of a public high school in a wealthy Houston suburb, in claiming an affinity with African-American students who were admitted to the university.

It’s an insult to those students, she now claims.  And since for several reasons, including that her grades and SAT score were not high enough to gain her admission even without the school’s use of race in any aspect of the admissions policy, and that she long ago now graduated from another university (a weaker problem than the first, in my opinion), she may otherwise lack legal “standing”—an actual live and particularized injury—to pursue the case, she wants to piggyback on the insult she suddenly says was perpetrated on the Black students under the university’s admissions system the year she applied and admits now under the same policy.  She’s concerned about the university’s insult to the Black students they admit!

This is far more clever than her earlier piggybacking on Supreme Court petitioner Jennifer Gratz, the white salutatorian of her working-class suburban Detroit high school whose SAT score apparently wasn’t quite up to the par set by the children of more upscale folks, and who eventually won her case against the Supreme Court against the University of Michigan at Ann Arbor in 2003 (after she, too, had graduated from another university) in a case challenging not the university’s preference for the children of those who looked to be able to pay the tuition without financial assistance from the school or student loans, but instead the university’s racial affirmative action program.  Because, well, that was the only civil rights avenue available to her–although once the original purpose of the “strict scrutiny” test for determining equal-protection lawsuits, as has now occurred, the automatic application of strict scrutiny to any equal protection claim based on race, but not to most other grounds for a claim  of denial of equal protection, itself violates equal protection.  I would think.

But on the piggybacking-on-the-insulting-the-Black-admittees’ ground, three of the current justices, and (I think) Roberts as a lawyer for the Bush folks (I think), did think George W. Bush had legal standing to invoke the voting rights of Florida Republican voters whose votes would be diluted if all those ballots with hanging or pregnant chads used by Democrats in counties and precincts that hadn’t cleaned their punch-card equipment since the Civil War were counted.  Now, I’ll grant that the Bush v. Gore opinion did limit its ruling to that case only.  But there are other Republicans in need of such a courtesy from the Court, too, and Abigail Fisher seems to be one of them.  “Standing” on that ground is probably in the bag for Fisher.

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Japan should raise wages

I direct you to an article by Adam Posen and Olivier Blanchard called, Japan’s solution is to raise wages by 10%. (Link)

The only way that Japan is going to get its needed inflation is to firmly raise the wages of labor. Many of us knew Abenomics was not going to work unless wages rose. And they never did enough. Now there must be concerted action by labor, business and the government to raise them.

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Estimating Effective Demand toward a Recession

The new update to 3Q labor share came out today. The last two quarters were revised firmly upward. Investors may be concerned about profits after these revisions.

I have my own estimation of an effective demand limit upon a business cycle which is based on labor share, capacity utilization and unemployment. Labor share represents effective demand. The graph basically measures spare capacity as the difference between labor share and a composite of utilizing capital and labor. The more labor share, the more spare capacity can be utilized.

update UT index

(link to graph and equation)

The current business cycle has followed perfectly so far my projection that the plot line would be limited by the zero lower bound, as has been the case for decades. Many well-known economists doubted my projection. So we may end up opening a paradigm shift in economic insight…

The question remains whether the plot line will bounce off of the zero bound again as it did before the last two recessions or start heading upward toward another recession.

The movement of the plot line above can be used in another graph to signal the probability of a recession. As spare capacity starts to rise after hitting the effective demand limit, the economy rides the edge of a recession.

update recession alert

(link to graph)

When the plot drops below the yellow line, a yellow flag goes up for a recession. If the plot drops below the red line, we are in recession. The plot line dropped below the yellow line in 4Q 2012, but the economy hadn’t reached the effective demand limit yet.

Currently, the plot in the first graph has reached its effective-demand zero lower bound… and is near, but not below, the yellow line in the 2nd graph. So fingers on the yellow flag, but not raising it yet.

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What to do with $45 billion? Giving it to charity is too cliche. So old hat.

Facebook founder and his wife have decided to give away 99% of their fortune.   That is $ 45 billion.

Now, I know many will heap praise upon them for their generosity.  Same deal when the Gates and Buffet did their give away announcement.  But, I’m not so keen on this.  I know, how heartless of me.  How ungrateful.

Being grateful or not is my issue.  Why, in an economy designed to make money from money, where labor has lost it’s power to assure proper distribution of the income earned from its productivity should I be heaping praise on those who are giving away massive amounts of money that was accumulated off the skewed economy put in place by those with the money to politically create this system?

Just how does them giving away money such that the masses have to in essence beg to get some of the benefit of such money provide equality in this economy?

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