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

Subsidy Tracker Reaches Major Milestones

Subsidy Tracker, the free subsidy database created in 2010 by Good Jobs First, has reached major milestones in its coverage of state, local, and federal subsidies.

This month’s enhancements to the database bring it to a once-unimaginable 500,000 individual incentive awards with a cumulative nominal subsidy value of $250 billion! That’s starting to add up to real money!

I explained two years ago how to use the data from Megadeals or Subsidy Tracker to compare a proposed economic development incentive package with past subsidies given in the same industry to get some idea whether the proposal represented a gross overpayment for a given investment. This method relies on finding good matches by industry, location, unemployment rate, and so on. The more deals available to search means your chances for finding good comparables improves proportionately. This can only enhance the ability of citizens’ groups, labor organizations, etc., to independently analyze proposed costly incentive packages.

As Philip Mattera, Good Jobs First Research Director, says, the steady expansion of Subsidy Tracker “reflects the improvement in government transparency over the past decade.” I can personally remember when the first statewide transparency law was passed in Minnesota in 1995; transparency has improved exponentially since then, although there is much progress that still needs to be made.

One notable recent innovation in Subsidy Tracker is a matching system to determine the ultimate corporate parent of subsidy recipients. According to Mattera, it now includes 2,606 parent companies, a threefold increase since 2014. This is critical information, given that so many companies hide their corporate connections through misleading names.

Although transparency remains an elusive goal, it’s worth celebrating successes when they occur. Cheers!

Cross-posted from Middle Class Political Economist.

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Refinancing is dead: a generation of Hard Times will continue until secularly real wages improve

New Deal Democrat

writing from The Bonddad Blog On Monday I gave what I think is a reasonable roadmap to the next recession. I want to follow up on this a little.

The post from nearly 10 years ago was entitled, Are Hard Times Near? The great decline in interest rates is ending.” The theory is right in the title. Since the 1970s, real average hourly earnings had declined. Average Americans coped by spouses entering the workforce, by borrowing against appreciating assets, and by refinancing as interest rates declined.

By 1995 the spousal avenue peaked. Borrowing against stock prices ended in 2000. Borrowing against home equity ended in 2006. When interest rates failed to make new lows, the consumer was tapped out, and began to curtail purchases. A recession began – and its effects have lingered and lingered. Hard Times were indeed near.

Here is a graph from 1981 of mortgage rates and 10 year treasuries:

invisible hand

In that article in 2007, I wrote that the consumer might yet have one more chance to refinance debt. In fact after the recession it turned out there were two: in 2009 and again in 2013. Ten year treasuries made a 60 year+ low in 2013 at 1.50%. Even if treasuries, and mortgage rates tied to them, make a new low, the floor is somewhere north of 0%. That -1.5% decline in a mortgage payment on a $250,000 house would be $3750 a year, or a little over $300 a month. That’s the most extreme case. Even if interest rates make new lows, households that refinance are likely to see more on the order of $100 or $200 per month of freed up cash — not enough to power much consumer spending.

Yesterday Molly Boesel of Core Logic confirmed this, writing in her blog

Because a refinance isn’t free, a simple rule of thumb is to add 100 basis points to the current market mortgage rate as the rate at which borrowers would have an incentive to refinance…. According to the chart [bleow], most borrowers hold mortgages with rates up to 4.50 percent, with 62 percent of mortgages and 72 percent of UPB in this range.

Finance 2

If mortgage rates rise as predicted, we will certainly see refinancing volumes fall in 2016. Note there is a small share of outstanding mortgages with interest rates of about 300 basis points or more above the current market rate.

Currently nominal wage growth is running at about 2.5% YoY. Real wages have been boosted in the last 2 years by collapsing gas prices. Once that is over, what happens next? Even 2% YoY inflation eats up nearly all of consumers’ wage growth. A 3% YoY inflation rate means real wages decline.

So the bottom line is, we are already in a period – a period that I expect to last an entire generation – where real gains by average Americans won’t be available from financing gimmicks, but must come from real, actual wage growth. At the moment I see little economic or political impetus to make that happen, even though average Americans understand via their wallets the issue all too well. Eventually it will happen, but I believe between now and then is another recession, one that I fear is likely to be worse than the 2008-09 recession because it is likely to include a spasm of wage-price deflation.

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Why did the Clinton campaign say earlier this month that Trump’s statement that he plans to partially default on the national debt could work? (And, yes, that, as the NYT mentions today, is what the Clinton campaign said.)

Debates have broken out in Mrs. Clinton’s Brooklyn headquarters over the best approach to take. Some advisers worry that by running against Mr. Trump as she would a traditional Republican candidate, Mrs. Clinton is actually making the reality­ television star appear more legitimate.

This month, when Mr. Trump suggested he would reduce the national debt by negotiating with creditors to accept something less than full payment, economists dismissed the idea as fanciful. Hours later, the Clinton campaign sent out a news release about Mr. Trump’s “risky” idea of defaulting on the national debt with a response from Gene Sperling, formerly a senior economic adviser to both President Obama and Mr. Clinton, condemning the idea. The seriousness of the campaign’s response seemed to elevate a nonsensical proposal.

The seriousness of the campaign’s response seemed to elevate a nonsensical proposal. “That is a danger,” said Dan Pfeiffer, a former senior adviser to Mr. Obama. “You have to take the threat of Trump becoming president seriously, but you shouldn’t treat him as a serious person.”

Hillary Clinton Struggles to Find Footing in Unusual Race, Amy Chozick, Alexander Burns and Jonathan Martin, New York Times, today

Oh.  Brother.  The Clinton campaign characterized Trump’s statement that he wants to partially default on the national debt as “risky.” In other words, they said that, yeah, this would be a big risk, but there’s also the possibility that it could work!

Actually, when I read that sentence this morning in the Times I did remember reading an article about that response by the Clinton campaign shortly after it was made.  I remember thinking, “Risky?  Seriously?  Risky?  Not absurd?  Not a guarantee of global economic collapse and immediate major increase in the Treasury debt needed to pay off current debt that Trump was agreeing to pay off immediately in this refinance scheme?  No, merely risky?”

I also remember reading the Sperling response, which was concise, very good and easily understandable, I thought.  But, why the borderline-comical characterization of this proposal as risky?  Why not say it would be certain to cause global economic collapse and, by its own terms as a refinancing scheme, would require the borrowing of the money to pay the debt at far higher interest rates than the current full-faith-and-credit debt is borrowed at?

And, why wasn’t the candidate herself on television, immediately, saying these things?

What Trump actually said was that he was going to renegotiate with creditors.  It took me—me, a complete novice in anything resembling high finance—only a few hours after Trump’s comments hit he internet for me to post what I thought (okay, probably incorrectly, but it did make the point) was a hilarious parody of Trump sitting across the negotiating table from all the owners, worldwide, of Treasury securities, their lawyers and financial advisors in tow, negotiating reduced interest rates on these securities.

Okay, I posted this on an economics blog.  But the points on all of this could be made—and were made, by Sperling and many others—clearly, understandably, and easily.

The Times article quotes Clinton campaign official Jennifer Palmieri as telling one of the reporters on this article “Each tactic we use is designed for a particular purpose to either engage the press or reach a certain audience.”  The article summarized Palmieri’s explanation, paraphrasing her as saying that “[a]ny aggressive approach by Mrs. Clinton is potentially dangerous, however, because recent polls show she is viewed negatively by a majority of the electorate.”

What Palmieri apparently didn’t explain (at least it’s not reported) is why a response to Trump’s outlandish proposal as merely risky was expected possibly to engage the press, presumably because it was not.  It was instead, I guess, intended to reach a certain audience: the audience that political consultants for both parties long have been telling their clients respond negatively to candidates who seem “risky” or to policy proposals that seem (and may well be) risky.  “Risky” is one of the buzzwords that focus groups show should be used as often as possible to characterize the opponent or a policy proposal of the opponent.

And since the Clinton campaign limits its responses and campaign rhetoric to focus-grouped buzzwords and clichés, and “risky” seemed the most apropos of the words and phrases on the be-sure-to-use list, “risky” it was.

Good grace. Any aggressive approach by Mrs. Clinton is potentially dangerous, because recent polls show she is viewed negatively by a majority of the electorate?  Any aggressive approach by Mrs. Clinton is potentially dangerous, because recent polls show she is viewed negatively by a majority of the electorate?  Explaining to the public how ludicrous Trump’s partial-default proposal is, and how stupefyingly ignorant he is of even basic public-finance and economics mechanisms, is potentially dangerous, because recent polls show she is viewed negatively by a majority of the electorate?

Educating the public about Trump’s actual fiscal-policy proposals and matching them with Romney’s and Paul Ryan’s would be potentially dangerous, because recent polls show she is viewed negatively by a majority of the electorate?

If so, then Clinton should throw in the towel.  She and Sanders could ask their delegates to come together to nominate Warren, or something.  ‘Cuz this ain’t working, folks.

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Does One Chair Lifted Over One’s Head Make a Riot???

This certainly isn’t the 1968 Dem Convention in Chicago; but, there were a lot of angry people in Nevada.

“What I see is that the only thing holding those assh-les back, were the security people and the fence in front of them. That one man did indeed pick up a chair and raise it in the air and unless he was doing so so that his imaginary elf friend could sit down then I expect he was doing it to menace the people on the stage.” So Bagerite says in the comments section of May 22nd The Daily Banter New Video of Nevada Dem Convention Shows Someone May Have Been Hit By Chair. So where does this place Bernie Sander’s comment that “no one was touched?”

In the clips, you can see a chair over someone’s head and it is moving forward towards the stage. The levitating chair was stopped by two people before it could get past the fence. During the appearance of a little bit of upper butt-check, you can see Mr. Upper-Butt-Cheek bending over and helping someone up. Apparently a woman was knocked down during the take down of the person with the chair over his head (not to be confused with The Hora) in preparation for what? Since there was no one in the chair, one can assume it was ready to be flung somewhere.

I could not find it; but somewhere, someone is holding a piece of wood in the air also.

Anyhoo, judge for yourself.

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Attractor State of Productive Capacity is Shifting

What is an attractor state?

It is a state around which a dynamic system organizes itself.

Self-organization is the spontaneous often seemingly purposeful formation of spatial, temporal, spatiotemporal structures or functions in systems composed of few or many components. In physics, chemistry and biology self-organization occurs in open systems driven away from thermal equilibrium. The process of self-organization can be found in many other fields also, such as economy, sociology, medicine, technology.

“Stable internal representations of the external world indicate the presence of attractors. Here, an attractor means one of the states of the system where the system settles after starting from a given initial condition. Self-organization needs these attractors to have a sufficient instability to be able to alter in order to adapt to the environment.”  (Self-organization at

The plot below will show how the economy settles into an attractor state for Productive Capacity. Then it breaks away from the attractor state to adapt to a new environment of economic growth for the next business cycle. The economy shows both stability and instability in the graph. That is the key to an attractor state of self-organization, adaptation and growth.

Here is the graph which plots Real GDP against the TFUR… (capacity utilization * (1 – unemployment rate). (TFUR is what I call Total Factor Utilization Rate.)

update attractor productive cap

Productive capacity is found where the attractor lines cross a TFUR of 100%.

The pattern is normally for the plot to follow a line originating at the crossing of the x and y axes during the growth phase of a business cycle. This line represents an attractor state for the growth in a business cycle. Then the plot rises above the line and falls to the left into recession setting up the next business cycle at a higher attractor level of Productive Capacity and Real GDP.

The 1990s were an exception because the plot kept rising without the TFUR falling into a recession.

This updated graph shows that the economy has lifted off from the current attractor state and is heading toward the future projected attractor state.

How will we get there?

There are two possibilities…

  1. A recession
  2. The TFUR stays stable while Real GDP keeps rising. But the key is to have increasing productivity. This happened in the 1990s.

We do not see increasing productivity growth, so the most likely path will be through a recession.

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You DID hear it here first. I picked Becerra for VP 15 months ago.

Clinton-Becerra 2016

Back then and even now it was and is ‘Xavier Who?’ But equally nobody thought Trump would even be running, still less making his campaign largely center on the Yuuuge Wall. And a lot of progressives are little leery of Julian Castro based on his mixed record as HUD Secretary. I think Congressman Becerra could have big effects on Nevada, Arizona and Colorado.

And sooth feelings in California over what is looking to be a bruising Senate battle between Kamala Harris and Loretta Sanchez. Because the Dem establishment will be lining up behind Harris in what will seem like an embarrassing pile on way. Picking Becerra can smooth that right out.

We will see of course. Just wanted to double down when and if.

Quick update: this from the NY Times on May 5 of this year: As Xavier Becerra Stirs Crowds, Hispanic Democrats See a Running Mate

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Asshole Drivers are Assholes, which Dr. Black Used to Know

I got hit while parking today. Driver in front of me, parked with no lights or flashers, backed her van up into my car because she wasn’t actually parking, just dropping one of her kids off at school.

For a moment, I’m all, like, WTF?

She immediately gets out of the van, comes back, apologizes, checks me and my car. No damage. (Her car was moving maybe 3-5 MPH; pulling out speed. I was parked.) I get out, make certain her car and her remaining kids are also unharmed, she goes on her way, I park.

If she had spent the next hour sitting behind the wheel of her car, acting as if she had done nothing, I might have been pissed too.

Sorry, Duncan, but you’re flat wrong on this. A five to ten-ton bus cuts off 15 stone of cyclist and he bloody well better do more than sit there acting like the asshole he is. THAT was the mistake, no matter what the idiots interviewed for your local pooper-scooper paper may claim.

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