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

Housing continues to surge

Housing continues to surge

Low interest rates continue to fuel a strong upsurge in new housing construction.

I’ll put up a more detailed post later, but for now simply note that housing permits, both overall and for the less volatile single family housing component, made new expansion highs, at levels not seen since 2007. Housing starts backed off from December – but to only the second highest numbers of the entire expansion.

Here’s the graph from the Census Bureau:

This is extremely bullish for the economy at the end of this year and into next year.

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What Is “Democratic Socialism”?

What Is “Democratic Socialism”?

Probably the best answer is whatever Bernie Sanders says it is as he is by far the most famous person ever to adopt this term as a label for his beliefs.  There is a group  in the US bearing that name, the Democratic Socialists of America (DSA), which has been in existence since 1983.  But while its membership has since then generally fluctuated between 4,000 and a bit over 6,000 through 2016, its membership had surged to over 45,000 by 2019, clearly responding to Bernie’s identification with the term, even though as near as I can tell, he has not been a member of the DSA.

If one goes to the Wikipedia entry  on “democratic socialism,” one finds claims that it originated with the utopian socialists and chartists in the early and mid-1800s.  Certainly many of these groups supported democracy and also some sort of socialism.  For that matter, Karl Marx also in many writings supported democracy and socialism, although in other places Marx sneered at what he called “bourgeois democracy,” and we know many regimes claiming to be inspired by Marx have not been democratic, unless one wants to call Leninist “democratic centralism” to be democratic, something most of us would not go along with, and current DSA types would not go along with.

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Bloomberg’s Plan for Reskilling America: The Quid without the Pro Quo

Bloomberg’s Plan for Reskilling America: The Quid without the Pro Quo

The Intercept usefully preports Michael Bloomberg’s proposals for higher education, focusing on plans to upgrade workforce skills along the lines desired by employers.  Here’s the selection they excerpted that covers this, worth reading carefully:

There’s a lot here that would be useful to businesses located in the US if they want to take advantage of it: money for vocational degrees geared to business needs, improved credentialing for these degrees, and support for internships and similar on-the-job training programs.  As the language of the press prelease makes clear, businesses would play a determining role in deciding what is worthy of being learned, how instruction and work experience would be carried out, what criteria would be used to ascertain skill acquisition, and how credentials would be standardized for use in an economy where workers primarily move horizontally across employers.  Some of this is based on a partial reading of the German apprenticeship system, where businesses work closely with education and training institutions to promote similar types of skills.

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The Philly Fed state-by-state diffusion index of economic expansion

The Philly Fed state-by-state diffusion index of economic expansion

This comes from the Philly Fed’s state-by-state coincident index, via Bill McBride. The graph below shows the number of states showing increasing economic activity:

In December the number of states in expansion was 39. Historically over the past 40 years, that number dropping to 35 or below has (with the exception of one month in 1986) been the marker of the onset of a recession.

Note the number is below the lowest level from 2015-16, in which weakness was generally confined to the Oil patch. It is yet another marker of a slowdown, but not of a recession.

Later this morning we’ll get the January ISM manufacturing report, and over the next 48 hours we’ll get reports on January auto and truck sales. Both of these will help tell us if the weakness in the production sector has been spreading or not.

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Live-blogging the Fifteenth Amendment: January 28, 1869

Live-blogging the Fifteenth Amendment: January 28, 1869

Note: I have fallen a little behind, due to traveling. My apologies! I am making a concerted effort to catch up. Today’s installment is particularly important on the issue of gerrymandering.

On January 28, Rep. Charles Stewart, a Republican from New York, spoke with reference to the proposed Amendment that had been voted out of the Judiciary Committee, which had been amended from:

No State shall deny or abridge the right of its citizens to vote, and hold office, on account of race, color, or previous condition of servitude.

to read:

The right of citizens of the United States to vote, and hold office, shall not be denied or abridged by the United States or any State on account of race, color, or previous condition of servitude.

Here is a brief excerpt from his speech:

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December 2019 real personal income and spending

December 2019 real personal income and spending

Real personal income and spending are both coincident indicators. They don’t tell us where the economy is going, but they do give us a snapshot of how ordinary Americans are doing.

In December, real income declined by less than -0.1%. Real spending rose by less than +0.1%:

Figure 1

Real personal spending excluding government transfer payments is one of the four indicators used by the NBER to determine if the economy is in recession or not. In December this was flat. Overall in 2019 there was a slow uptrend:

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SOCIAL SECURITY A Mystery Story

by Dale Coberly

A few years ago, now getting to be many years ago, I solved a crime. Not because I was a Great Detective, but because I happened to be standing across the street where I saw it committed and took the number of the getaway car. Since then I have tried to tell the police what I saw, but they don’t want to hear about it.

I don’t want to go too far with this parable, just wanted to let you know in advance that I don’t claim to be smarter than anyone else, but what I am talking about is not an opinion and is a verifiable fact.

So back to facts. Sometime in the late 1990’s I heard on public radio (“radio for intelligent people”) an expert claiming that Social Security was bankrupt, a huge burden that was going to crush the taxpayers, especially the young.

Intuitively that didn’t seem very likely to me. How much could it cost to pay for the basic needs of retired people? I did a few calculations and saw that it wasn’t likely to be very much and certainly not unreasonable.

The simple equation to set some parameters goes something like this: If you expect to live twenty years after you can no longer work, and you can live . . . comfortably . . . on about 40% of what you were making while you were working . . . the kids are grown, the house is paid for, you don’t need expensive vacations . . . you can save enough money while you are working for forty years (age 25 to 65) by putting away 20% of your wages:

20% of wages times 40 years equals 40% of wages times 20 years

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Everybody’s Talkin’ ‘Bout Taxes–especially Wealth Taxes and Mark-to-Market of Capital Gains

Everybody’s Talkin’ ‘Bout Taxes–especially Wealth Taxes and Mark-to-Market of Capital Gains

Not surprisingly for those of you who are members of the ABA Tax Section, there is a meeting of that group next week in Florida when a thousand tax lawyers (give or take a few) will be talking about everything from basis to wealth taxes; GILTI, BEAT, Dual BEIT, to EITC.  Yours truly will be on a panel of the Tax Policy and Simplification Committee, meeting Friday morning, to discuss how the tax system should respond to the wealth gap.  Joining me on the dais will be Roger Royse (moderator and panelist), Rich Prisinzano from the Penn Wharton Budget Model, and Dan Shaviro, Wayne Perry Professor of Taxation at NYU and a blogger at Start Making Sense.  We’ll talk about the income and wealth gap data, including the different perspectives of  Saez & Zucman, serving as wealth tax advisers to Senator and Democratic presidential candidate hopeful Elizabeth Warren; Penn Wharton Budget Model, applying a more standard budget model to determine harms and benefits of the Warren Wealth Tax; and Cato INstitute.  We’ll also discuss Sen. Ron Wyden’s proposal for a mark-to-market system of capital gains taxation (including a lookback charge of some kind for hard-to-value assets, Prof. (and former Cleary partner) Edward Kleinbard’s Dual Business Enterprise Income Tax proposal, and other means of making the regular tax system more progressive such as rates, removing the capital gains preference, and reinvigorating the estate tax that has been the object of a GOP murder squad for the last 20-30 years at least.

Meanwhile, today in Florida there was a Tax Policy Lecture at  the University of Florida on Taxing Wealth, with Alan Viard, resident scholar at the American Enterprise Institute, David Kamin, Professor at NYU School of Law, Janet Holtzblatt, Senior Fellow at the Tax Policy Center, and William Gale, Arjay and Frances Fearing Miller Chair in Federal Economic Policy7 at the Brookings Institution.

Last fall, the Tax Policy Center held a program on Taxing Wealth (webcast recording available at this link) with Mark Mazur, Ian Simmons, Janet Holtzblatt, Beth Kaufman, Greg Leiserson, Victoria Perry, and Alan Viard.  Sony Kassam from Bloomberg Tax served as moderator.  The link has a series of power point presentations from that meeting as well, for your edification.

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Guns and Commas

Guns and Commas

I am glad that the large pro-gun rights rally in Richmond on Martin Luther King, Jr. Day ended without any violence as had been threatened by some people around the US.  That is nice, but it does not end the unpleasant situation legal situation that has arisen here in Virginia.  As of now 93 jurisdictions, mostly counties, have declared themselves “gun sanctuaries” where any gun control legislation passed by the Virginia government will not be enforced.  The bills currently having received majority support in the Assembly and Senate with support from Governor Northam include requiring uinversal background checks for all gun sales (while allowing intra-family gun transfeers without that), a one-gun per month limit on gun purchases, and an especially controversial “red flag” bill allowing for a person deemed to be a danger to themselves or others to have their guns temporarily taken.

I am located in the Shenandoah Valley where this “gun sanctuary” movement got going, with neighboring county to the south of me, Augusta, getting highlighted in an article about this in The Economist recently.  VA is the only state where cities and counties are distinct and separate from each other.  So I live in the City of Harrisonburg, which is surrounded by Rockingham County, which supported Trump with over 70 percent of the vote.  Rockingham County has joined Augusta in becoming one of these on a unanimous vote of its Board of Supervisors, although I know at least one of those not happy about this. But an angry gun-toting crowd showed up at the meeting.  In Harrisonburg such a crowd showed up at the city council, but left angrily after the council refused to go along with this garbage.

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A Stock Market Boom is Not the Basis of Shared Prosperity

(Dan here,,,at lunch the other day a friend asked about the great prices for stocks.  This post by Thomas Palley caught my attention as a well written post on the nuances between stocks and finance and the 80% who do not own many stocks and the economy of losers and winners. )

 

by Thomas Palley  (re-posted)

A Stock Market Boom is Not the Basis of Shared Prosperity

The US is currently enjoying another stock market boom which, if history is any guide, also stands to end in a bust. In the meantime, the boom is having a politically toxic effect by lending support to Donald Trump and obscuring the case for reversing the neoliberal economic paradigm.

For four decades the US economy has been trapped in a “Groundhog Day” cycle in which policy engineered new stock market booms cover the tracks of previous busts. But though each new boom ameliorates, it does not recuperate the prior damage done to income distribution and shared prosperity. Now, that cycle is in full swing again, clouding understanding of the economic problem and giving voters reason not to rock the boat for fear of losing what little they have.

The Groundhog Day boom-bust cycle links with John Kenneth Galbraith’s observations on the phenomenon of financial fraud via embezzlement, which he termed “the bezzle”:

“To the economist embezzlement is the most interesting of crimes. Alone among the various forms of larceny it has a time parameter. Weeks, months, or years may elapse between the commission of the crime and its discovery. (This is a period, incidentally, when the embezzler has his gain and the man who has been embezzled, oddly enough, feels no loss. There is a net increase in psychic wealth.) At any given time there is an inventory of undiscovered embezzlement in – or more precisely not in – the country’s businesses and banks. This inventory – it should perhaps be called the bezzle – amounts at any moment to many millions of dollars. It also varies in size with the business cycle (Galbraith, J.K., The Great Crash 1929, New York: Houghton Mifflin, 1954, p.152-53).”

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