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Benjamin Franklin vs. John Locke on the Legislature vs. the Executive

Benjamin Franklin vs. John Locke on the Legislature vs. the Executive

An initial note: there is very little economic data this week. Some house price information gets updated tomorrow, and then on Wednesday we get a slew of data, including Q3 corporate profits, jobless claims, new home sales, durable goods orders, and personal income and spending. That’s probably worth two days’ of posts, at least one of which will probably be at Seeking Alpha.

Shorter version: don’t be surprised by light posting here this week!

In the meantime, as we wait to see whether the GOP Michigan and Pennsylvania legislatures will officially turn the United States into a banana republic, here are a couple of quotes worth your noting about Legislative and Executive power. Bolded sections are my emphasis.

John Locke, in his Second Treatise of Government, held that the Legislature must be the supreme authority in all well-ordered republics. But because it was not necessary, not beneficial, for the Legislature to sit permanently, there must be a permanent Executive power to enforce the laws at all times, including the use of “prerogative,” i.e., discretion:

Sect. 134. The … first and fundamental positive law of all commonwealths is the establishing of the legislative power…. This legislative is not only the supreme power of the commonwealth, but sacred and unalterable in the hands where the community have once placed it; nor can any edict of any body else, in what form soever conceived, or by what power soever backed, have the force and obligation of a law, which has not its sanction from that legislative which the public has chosen and appointed…; and therefore all the obedience, which by the most solemn ties any one can be obliged to pay, ultimately terminates in this supreme power, and is directed by those laws which it enacts:

Jobless claims: the beginning of a pandemic reversal?

Jobless claims: the beginning of a pandemic reversal?

 

This week’s new jobless claims rose from last week’s pandemic lows, while continued jobless claims again declined to new pandemic lows.

On an unadjusted basis, new jobless claims rose by 18,264 to 743,460. Seasonally adjusted claims rose by 31,000 to 742,000. The 4 week moving average, however, declined by 13,750 to 742,000. Here is the close up since the end of July (for comparison, remember that these numbers were in the range of 5 to 7 million at their worst in early April):

Unadjusted continuing claims (which lag initial claims typically by a few weeks to several months) declined by 419,670 to 6,081,402. With seasonal adjustment they declined by 429,000 to 6,372,000, both new pandemic lows:

Coronavirus dashboard for November 20: North Dakota “leads” the world

Coronavirus dashboard for November 20: North Dakota “leads” the world

 

Total US infections: 11,715,316*

Average last 7 days: 165,029/day (new record high = 1 out of every 2000 Americans infected per day!)

Total US deaths: 252,535
Average last 7 days: 1,335/day
Source: COVID Tracking Project
*confirmed cases only: I suspect the total number is on the order of 17 million, or 5% of the total US population (other estimates are much higher).

Just how ghastly is the situation in the northern Great Plains and Mountain States? So bad that if North Dakota were a country, it would be “leading” the world in infections and new deaths per capita, and rapidly approaching “leading” the world in total deaths per capita.

Here are the “top 10” US States for total confirmed infections (plus New York for comparison purposes):

Almost 9% of the entire population of North Dakota has had a *confirmed* infection. In about another week, that should be over 10% (and probably is already including infections that have not been confirmed).

 

John Locke: decisionmaking by standing rules set in advance is a foundational requirement for civil government

John Locke: decisionmaking by standing rules set in advance is a foundational requirement for civil government

John Locke’s “Second Treatise of Government,” published in 1690 just after and in support of the Glorious Revolution, is the founding philosophical document of modern liberal representative democracies.
In it he anticipates John Rawls’s “original position.” Locke argues that in order to protect their property, over time all groups of humanity form “civil societies” by agreeing *in advance* to rules that will be applied to public and private controversies, civil and criminal; and by establishing a legislature which will make further laws – again, *in advance* – to govern new controversies which may arise.
The essence of this argument is found in Sections 87, 88, 89, 94, 124, 131, and 142, which I have abridged below (advance warning: Locke writes in *extremely* long and convoluted sentences!)(bold emphasis is mine):

Sect. 87. … [B]ecause no political society can be, nor subsist, without having in itself the power to preserve the property, and in order thereunto, punish the offenses of all those of that society; there, and there only is political society, where every one of the members hath quitted this natural power, resigned it up into the hands of the community in all cases that exclude him not from appealing for protection to the law established by it. And thus … the community comes to be the umpire, by settled standing rules, indifferent, and the same to all parties; and by men having authority from the community, for the execution of those rules, decides all the differences that may happen between any members of that society concerning any matter of right; and punishes those offenses which any member hath committed against the society, with such penalties as the law has established…

 

Housing permits and starts: more evidence for a powerful economic liftoff in 2021

Housing permits and starts: more evidence for a powerful economic liftoff in 2021

This morning (Nov. 19) yet another leading indicator showed that the economy is revving to move ahead strongly, and is only being held back by the pandemic (and the horrible “response” by Trump).

Total (blue in the graph below) and single family (red) housing permits both made yet another 10 year + highs, while housing starts (green), which typically follow a month or two later, also improved. Here’s the longer-term look:

Focusing on the last 18 months shows that only starts have failed to make a new high:

Coronavirus Dashboard for November 16: raging out of control

Coronavirus Dashboard for November 16: raging out of control

Total US infections: 11,036,935*

Average last 7 days: 148,725/day (new record high)
Total US deaths: 246,214
Average last 7 days: 1,103/day
Source: COVID Tracking Project
*confirmed cases only: I suspect the total number is on the order of 16 million, or close to 5% of the total US population.

Back in August, when summer’s 2nd wave of new infections was near its peak, I devised my own rating system as to how each State was doing, as follows:

Deep Red (general alarm out-of-control fire): 200+ infections per million, 5+ deaths per million.
Red (3 alarm fire): 100-200 infections, 2-5 deaths
Orange (2 alarm fire): 60-100 infections, 1-2 deaths
Yellow (1 alarm fire):40-60 infections, 0.5-1 deaths
Blue (smoldering/1 alarm fire): 20-40 infections, 0.2-0.5 deaths
Green (embers): 0-20 infections,  0-0.2 deaths

As to infections, most of the States (33) were in the “Red” or “Orange” categories.

At the high extreme, there were 5 States in the “Deep Red” category for infections: MS, ND, GA, TN, and AL.

Economy still expanding, but with retail consumption outpacing production

Economy still expanding, but with retail consumption outpacing production

This morning saw two important releases of October data: industrial production and retail sales. Both showed continued strength.

Industrial production is the King of Coincident Indicators, and more than any other metric typically shows whether the overall economy is expanding or contracting. In October it increased by 1.1%, while manufacturing production increased by 1.0%. The overall number more than reversed last month’s decline, while past manufacturing numbers were revised higher. In the below graph I’ve normed both to 100 as of February to show the pandemic impact:

Note that their actual peaks were in November and December 2018, respectively. After declining about 20% at their April troughs, both are now only about 5% below their February peaks. Still, the pace over the last 3 months has averaged less than a 1% increase per month, so it would take about 6 more months at this rate simply to equal the series’ pre-pandemic levels.

 

Democrats: the “less unpopular” party

Democrats: the “less unpopular” party

No economic news today  (Nov. 16). I hope to put up an updated Coronavirus Dashboard (hint: it’s pretty unremittingly awful) later.

In the meantime, I wanted to add a postscript to yesterday’s post about the Democrats’ problem obtaining a durable electoral majority.

It occurred to me after I put up yesterday’s piece is that the essence of what I wanted to say in response to the meme that “Democrats have won 7 of the last 8 popular votes” is that, while Democrats may be “more popular than” the GOP, on an absolute scale the truthful statement is this:

“Democrats are *less UNpopular* than the GOP.”

Here’s why. If you average the popular votes that the two parties have gotten beginning with 1996 you get the following:

Democrats: 49.9%
GOP: 46.5%

The simple fact is that in the past 6 elections going back 24 years more people have voted *against* the Democratic nominee than have voted for the nominee.  In other words, in an absolute sense, the Democratic nominees have been *unpopular,* if by the slightest of margins. There’s simply no way to build a durable electoral majority on that basis.

The Democrats’ problem in the Senate, explained

The Democrats’ problem in the Senate, explained

 

One of the memes that I have read quite a few times in the past week is that the Democrats have won 7 of the last 8 Presidential elections and that the institutions of electoral government discriminate against them.

A review of the actual results of the last 8 elections does not quite support that assertion. In only 4 of those 8 elections has either party mustered a majority of voters; in the other 4 the victor won by a plurality. This to my mind betrays a fundamental disaffection (relatively speaking) for the choices given the electorate.

Here are the raw numbers:

Year      Dem.    GOP
1992.    43.0%.  37.4%
1996.    49.2%.  40.7%
2000.    48.4%.  47.9%
2004.    48.3%.  50.7%
2008.    52.9%.  45.7%
2012.    51.1%.  47.2%
2016.    48.2%.  46.1%
2020.*   51.0%.  47.3%

Only in 2004, 2008, 2012, and 2020 did the winner get more than 50% of the vote. The Democratic share has actually been remarkably stable since 1992, varying between 48.2% in 2016 to 52.9% in 2008. The GOP share has been much more volatile, varying between 40.7% in 1996 and 50.7% in 2004.

The bottom line is that in the past 24 years the Democratic brand of economic moderation and social liberalism has been only slightly more popular than the  GOP’s increasingly extreme brand of White Christian blood and soil hegemony.

This has led to the Democrats’ problems in obtaining a Senate majority.  The first two maps below show the Electoral College vote in 1992 and 1996:

Figure 1

Lack of inflation in September consistent with weak demand; real wages increase, but will the pandemic derail the gains?

Lack of inflation in September consistent with weak demand; real wages increase, but will the pandemic derail the gains?

 

Consumer prices were unchanged in October, both on a seasonally adjusted and unadjusted basis:

 

But while the lack of inflation is good news in isolation, the last two months can also be viewed as a sign of economic weakness – lack of demand – from a recession.

Digging a little deeper, for the past 40 years, recessions had typically happened when CPI less energy costs (red) had risen to close to or over 3%/year. We are nowhere near that now (last 15 years shown in graph):

Again,  note that the YoY% change in inflation has decelerated since the outset of the pandemic, potentially another sign of weakness.

On the bright side, because wages are “stickier” than prices, typically as recessions beat down prices (or at least price increases), in real terms wages rise. That has been the case for the coronavirus recession as well:

It is the “real” buying power of wages among those still securely employed during a recession that is one of the engines that usually restarts growth.

Also as a result, as I’ve noted for the past several months, real hourly wages for non-supervisory workers have finally exceeded their previous 1973 peak, although part of that has been the asymmetric loss of jobs among some of the lower-paid occupations:

Finally, one of the most telling metrics of the overall health of the middle/working class is that of real aggregate wages. After declining -13.8% from February through April, they have now recovered to a point -3.5% below their peak, approximately at the same level as they were in autumn 2018:

If the rate of gains over the past 4 months were to continue – a *very* open question – aggregate real wages would exceed their February level in about 6 months.

Of course, this data like almost all other economic data remains at the mercy of the course of the pandemic – which is basically out of control in much of the US. It is also very much subject to the public policy that has been stalled in Washington for the past half a year and is going to continue to be stalled until at least January 20.