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Daylight spending more than you have

by David Zetland

Daylight spending more than you have

Some countries are changing their clocks this week while others will do so next week.

These changes are labeled “daylight saving” (DS) even though the number of daylight minutes stays the same. Marketing at its finest!

Indeed, there’s abundant evidence that this twice-annual ritual is useless or even harmful. As I’ve written before, it would be a triumph of global collective action to  get rid of DS and even better to move the entire planet to one time (UTC) as a means of reducing numerous problems with time zones, at a cost of losing some anachronisms (“lunch at 12 noon” as opposed to “lunch at midday”).

But let’s look into the psychology and goals of DS.

First, are you saving an hour by setting the clock forward in the Spring and then spending that hour when you set it back in the Fall, OR are you borrowing an hour in the Fall and repaying it in the Spring? In either case, there’s zero interest paid or received in this +1 – 1 = 0 or -1 + 1 = 0 calculation. So that’s why the concept is a lie.

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Let’s make a coronavirus deal?

Latest on the relief negotiations is here.  Short version, Pelosi and Mnuchin are still negotiating over a $1.9 trillion bill; McConnell is floating the idea of a $500 billion dollar bill, but it is far from clear he can or even wants to pass anything.

If Pelosi can get to a deal with Mnuchin, that’s great.  I still think that the House should pass a bill with or without sign off from Mnuchin and challenge Trump and Senate Republicans to pass it.

But I would add now that the House should consider passing a $500 billion bill and calling McConnell’s bluff.  Part of the impetus for hanging tough on a big bill was to limit the ability of Senate Republicans to sabotage a Biden presidency by withholding any further relief (which they would surely do).  But it looks increasingly likely that the Democrats will take the Senate and be able to pass their own bill in January.  Of course this is not guaranteed, but we need to play the probabilities.  If the polling holds up on the Senate, the main aim should be to get through the next 3 months without too much human suffering and economic damage.  $500 billion is not enough, but properly targeted it would be a lot better than nothing.  Passing an inadequate bill would not help the Republicans politically, and it might help the Democrats drive home how intransigent and destructive Republicans are being on coronavirus relief.

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The stimulus negotiations

A good discussion of the current state of play is here.  The short version is Speaker Pelosi and Treasury Secretary Mnuchin are negotiating over a package of $2 trillion or so, McConnell plans to introduce a very limited $500 billion package that he may or may not actually have votes to pass (he may just be giving his members up for re-election a messaging opportunity), and Trump has declared that he wants Pelosi and Mnuchin to go bigger.

My take is that it is time for Pelosi to call Trump’s bluff.  She should pass a $2 trillion or so package, with or without final sign off from Mnuchin, making a nominal concession or two to Trump, and tell the truth:  “Everyone knows what is going on here.  The Democrats have been trying to get more relief to the American people and the Republicans in the Senate have been obstructing.  President Trump is the leader of the Republican Party.  He says he wants more stimulus.  He needs to show he is a leader and not just a television personality and get this bill through the Senate.”

The only possible downside here is political – passing the bill might benefit Trump and the Republicans.  But the election is the Democrats’ last leverage point until Biden takes office (assuming he does).  That’s a long time to wait, both in terms of individual suffering and aggregate macroeconomic damage.  And if Democrats don’t capture the Senate, there may never be another stimulus bill of any kind.  And it’s not even clear the bill would benefit Trump and the Republicans.  I say do it.

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To Do IV. Education

The COVID-19 pandemic is just what the Doctor ordered for American education. Well, it could be. First, we must, as is our wont, muddle for as long as possible. Plenty of time. What with students and teachers being quarantined one right after another, it’s going to be a long year. Time a plenty to fall for all that state propaganda about how classrooms are safe and kids need to be in the classroom just like before. You’d think we would learn. It’s been a long year already.

Dr. says: In order to safely open the schools, class sizes need to be reduced by at least one-third, by one-half being even mo betta. Class schedules need be staggered in order to reduce hallway, bathroom, and cafeteria crowding. Extra staffing required. Ventilation needs to be improved. Things that will require money and money was always the problem; before the pandemic, for a long time now. The big con that let them get by without properly funding the school for so long now was to blame it on the teachers. Who else could they blame, themselves? Koch Bros weren’t being stupid all these years, didn’t pack school boards with masochists; they wanted folks on school boards who liked pointing fingers. Wanted the media to tell people what to think about schools; right away. No experience needed. Opinions and jokers wild. It was all about taxes in the end, you know.

Poor teachers were being given advice from left and right from people with absolutely no knowledge of what it was like in public school classrooms. Born to teach, they just bowed their necks and took more of the load. Teachers work for the board. The board works for the parents and other residents; board’s a political job, often seen as a possible first step to a career in politics. The parents of kids with issues didn’t want to be blamed for these issues, and no one running for school board was about to do so. District residents living in their dream homes didn’t want to, couldn’t afford to, pay anymore taxes on something they paid more for than they could afford in the first place. Higher taxes lower real estate values. School failure was all the fault of overpaid teachers and their damned teachers’ union.

A quick look at when, where and why it all began to go awry. When – the year was 1978. Place – California. Why – the Jarvis-Gann Amendment, aka, Prop 13. Prop. 13 limited all property taxes to 1.0% or less of assessment. Gang aft a-gley. It started an avalanche of clones nation-wide. Worse, a guy named Grover Norquist caught wind of the excitement; decided there was gold in California’s Prop. 13 and began mining a national tax rebellion for a living. Convinced the National Republican Party to adopt a no new taxes platform, he did. Neither California or the nation has been quite the same since. Before 1978, schools in most states were pretty well funded. Since, across America, public schools have been systematically starved, infrastructure has deteriorated, …; it’s been all down hill. Prop. 15 on this year’s California Ballot is designed to overturn the most egregious aspects of the 1978 Prop. 13. If 15 passes and other states copy, that’s a big first step toward righting an egregious wrong. The implications are huge. Prop. 13 played a big role in increasing the price of housing. Increased housing prices drove homelessness. One might expect the opposite effect if it’s undone.

Where to get this extra money for schools? Given the momentous changes in the economy over these 40 plus years; a look at other sources for school funding might be in order. Given that the industrial base is all but gone, retail is fading fast, and wages have long been stagnate; follow the money and tax the flows of money and goods, and tax wealth. Today’s and tomorrow’s ka-ching is the mouse click; that’s when the sale is transacted, when and where to collect a tax. At the port of entry’s another ka-ching, ka-ching with each scan of the bar code. By electronic transfer only.

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Ponzi Finance II: quid pro quo

The real story revealed by the New York Times Trump tax returns bombshell is not that Donald Trump paid no taxes in 10 out of 15 years or that he paid $750 in 2016 and 2017. The real story is that he doesn’t have net income to service his debt. There is nothing inherently illegal about that. He did it before in the 1980s and when real estate prices stopped rising in 1990, his creditors were left holding the bag.

Hyman Minsky wrote about Donald Trump’s investment strategy in a 1990 talk, “The Bubble in the Price of Baseball Cards.”

One of the puzzles of the 1980s was the rapid rise in the financial wealth of Donald Trump, author of The Art of the Deal, and what else. Trump’s fortune was made in real estate. Many large fortunes have been made in real estate, since real estate is highly leveraged. Two factors made Trump somewhat unique — one was the he developed a fortune in the period of high real interest rates, and the second was that the cash flows on most of Trump’s properties were negative.

Trump’s wealth surged because the market value of his properties — or at least the appraised value — was increasing faster than the interest rate. Trump obtained the funds to pay the interest on his outstanding loans by increasing the draw under what in effect was a home equity credit line. The efficiency with which Trump managed these properties was more or less irrelevant — hence Trump could acquire the Taj Mahal in Atlantic City without much concern about the impacts on the profits of the two casinos he already owned. Trump was golden — he had a magic touch — as long as property prices were increasing at a more rapid rate than the interest rate on the borrowed funds.

The puzzle is that the lenders failed to recognize that the arithmetic of his cash flows was virtually identical with that of the developing countries; in effect Trump was Brazil in drag. In the short run Trump could make his interest payments with funds from new loans — but when the increase in property prices declined to a value below the interest rate, Trump would become short of the cash necessary to pay the interest on the outstanding loans.

The increase in U.S. real estate prices in the 1980s was regional, and concentrated in the Northeast and in coastal California; for the country as a whole, real estate did not increase relative to the price level. The regional dispersion in the movement in real estate prices more or less paralleled the changes in personal income. Real estate prices dipped in the oil patch, climbed modestly in the rust belt, and surged in those areas that benefitted from the rapid increases in incomes in banking and financial services — sort of a derived demand from the financial success of Drexel Burnham. In effect, those individuals with high incomes in financial services — and with the prospect of sharp increase in incomes — set the pace for increases in real estate prices

 

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All My Children

Though more different than alike, they do have a lot in common. All are, in some way, progeny of the microprocessor. Some were born in around Silicon Valley, others quite distant. The first generation was born in the US early in the last third of the 20th Century. The second was born near the end of the late 20th — early in the 21st Century. None of them could have been born in an earlier era. Microsoft* 1972, Apple*1976, and Oracle*1977, were instrumental in developing the power of microprocessors either through developments in software, hardware, or both. Amazon*1994, Google*1998, Facebook*2004, and Twitter*2006 were all about utilizing the vast computing power of microprocessor based computers. They grew like weeds. The nation had not seen the likes since Carnegie and Rockefeller of the 19th Century. Now, as then, it didn’t quite know what to do with them. Now, as then, the Nation found itself being jerked about economically, socially, and politically by these new giants. What are to be the standards when all is so new?

Called Technology Companies because they were the children of this Age of Technology; some sold software, some hardware, some both; some provided a service in exchange for the users eyeballs, and personal info, which they then sold to others. Some sold stuff for others until they became so rich they took these others’ business from them, bought others, and did some of everything. One thing they held in common was that they all, excepting Theranos and Twitter, had quickly grown to be very prosperous, and to be very big and powerful. Amazon has enough cash on hand to buy General Motors outright; so does Apple, Microsoft, Google, and Facebook. Another thing held in common; they all started up in an unregulated environment. And another; these Technology Companies were all, with the exception of Theranos, started up by young men, some of whom were very young.

For nigh on fifty years now the US Government hasn’t seemed to know enough about what was going on with this new technology to step up and impose needed regulations. In some cases, those running these companies couldn’t have told you what was going on. It has all been a wild ride. Now, in the early 21stCentury, as in the early 20th, it is clear to most that something must be done. As in 1904, the first step is to break them up. They are so big that no one else can compete. Sound familiar? As with the titans of the Gilded Age, these guys have tremendous influence on national economics, society, and politics and policy. These guys have world-wide influence.

As in the gilded Age: Too big is when a company has its own Representatives and Senators, and writes legislation meant to benefit itself. Too big when, as a result of that legislation, immigrant labor is used to suppress workers wages. In the Gilded Age, Capitalism was next to god; strikers were shot. In Myanmar, Buddhist nationalist beat, raped, and killed Rohingya Muslims because of anti-Muslim hate-speech postings on Facebook. When confronted with this fact, Facebook expressed concern.

As in the Gilded Age, these new Titans of what was now the Technology Age have been hailed as geniuses. Fair to say, some of them are of well above average intelligence. Also fair to say that some of them are not. That some aren’t all that well rounded, or educated. That some are amoral. Wise? We have seen little or no evidence of that.

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Review: Bad Blood

by David Zetland (originally published at One-handed economist)

Review: Bad Blood

I’d heard about this book — the story of the rise and fall of Elizabeth Homes and her company Theranos — long ago, but I only decided to read it when preparing readings for my course, The World of Entrepreneurs. I wanted to understand her case, as an example of the dark side of Silicon Valley —  not the side of “fake it until you make it” —  but the side of “lie to everyone, about everything, if that gives you an advantage.”

Aside: I worked in three start-ups in Silicon Valley, of which two were dominated by frauds of the “funding secured” and “vaporware” models, respectively, so I have a real interest in similar stories. That said, I am pretty sure that at least 80% of start-ups are, on the whole, legitimate (read this review). The trouble is not the really bad apples — Theranos and WeWork being recent examples — but those that cut corners as a “necessary part of doing business” — Facebook and Uber being high on that list.

This review will be short because Carreyrou is such a good writer and the story comes at a fast pace. What strikes me are the following:

  • Elizabeth Holmes was an aggressive, ambitious founder who wanted to change the world and become rich and famous. Her challenge was reality. She preferred to ignore inconveniences and distorted reality to convince others that she knew what she was doing, i.e., building a machine that could run 200 blood tests based on a finger-prick sample of blood. Outside scientists told her that her goal was impossible, due to physics and chemistry. Inside scientists, lab workers and “beta-test” doctors said her machine was not working or viable. Rather than listen, she lied about using commercial equipment to do the tests supposedly run on her machines and ignored the dangers of bad results from her machines. (One million tests later deemed “inaccurate” translates into one million stories of false positives, false negatives and needless suffering.)

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Industrial production improves in August, but with sharp deceleration

Industrial production improves in August, but with sharp deceleration

If the jobs report is the Queen of Coincident Indicators, industrial production is the King. It, more than any other metric, is found at the turning points where recessions both begin and end.

This morning’s report of industrial production for August shows that the recovery from the bottom of the coronavirus recession has come close to stalling out.

Overall industrial production grew by 0.4%, while July was revised higher by 0.5%. Manufacturing production grew just under 1.0%.  July was likewise revised higher by 0.6%. Here are the overall totals:

The good news is that manufacturing production has gained back almost 70% of its decline from March. Overall production has gained a little over half of its decline.

 

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To Do I, II, & III

The COVID-19 Pandemic, the inadequate response thereto, and the incompetency of the Trump Presidency in general, combined, have exposed our nation’s weaknesses and failings to an extent unknown since at least the Great Depression. This is likely a do or die moment for America. Recovery will be difficult. Improbable unless we are careful in our choice of goals and daring in our efforts to achieve them. The margins for error do not allow for dawdling. Attempting to just return to a time before Trump and The Pandemic would be disastrous. A time like this should also be seen as a time of opportunity.

First, we must rid ourselves of denominational economics such as Capitalism, Socialism, Hayekism, Free Marketism, … These, but ideologies, dogmas, that some would impose on economics, on the rest of us; have done the Nation great harm. They are, at their very best, reasonings of a time past. As likely to be the answer to today’s problems as Adam Smith is to rise from his grave.

As a first step toward becoming again competitive in today’s world; we must stop blindly paying twice as much for inferior healthcare, internet, and cellphone service,… as is being paid in other developed nations; and while we are at it, we need to solve our homeless problem. These are all essential services that should be provided to all. In the grand competition of things; we’re losing. Have been for a while. Were before the pandemic. Ideology is a luxury we can no longer afford.

Let’s pay for these things that need to be done, and help with our wealth distribution problem, too, by taxing the piss out of the too rich and too profitable. Apple, Google, Amazon, Facebook, Microsoft, Sheldon, Warren, …; fun and games are over guys, time for you to pay up.

Let’s pay for these things that need to be done by cutting the ‘Defense’ Budget in half. Halve the number of Generals, the number of Admirals, the number of Aircraft Carriers, the number of Missiles, …; and full-stop attacking other nations. Half of $720+Billion is $360+Billion; $360+Billion is aplenty for Defense, nothing for Attack, and about right for expanding Medicare to Medicare For All. Ike was right about that and Harry was right about health care.

I. Internet Access and Cellular Networks

All those fireman who died because of poor communication on 9/11/2001 should have taught us the need for an ubiquitous cellular network. Mobile radio networks separate cellular networks should have shown us the need for one network. A police car with a half dozen radio antennas on the roof is ridiculous.

So, too, the fact that our cell phone uses a cellular network, our computers use a cable based internet service, and that we need a WIFI router to use our laptops. What’s now the cellular network should be the WIFI router and these routers should be all over our homes, all over every floor in every building, everywhere on our streets, and all across and over rural America. Ubiquitous. Today, thousands and thousands of teachers across America are trying to remotely teach kids, many of whom have very limited internet access, over an internet system that is not reliable. When the fires struck Santa Rosa, the cell towers went down. The internet w/ phones must work at all times during normal times and during times of emergency; needs to be bullet proof. This new inclusive internet is too critical to be trusted to the ‘Market’. Cell phone and Internet should be one and that one should be regulated as a public utility; a service, as a service application, and, as always, the application dictates. Not the ‘Market’.

As a Post Office service, maybe?

In order to fully utilize our Nation’s productivity, better fulfill our personal lives, and assist in times of emergency, the Internet needs be ubiquitous and bulletproof. We should be able to access the internet from our backyards, on a hike, in the mountains, in transit, …; from anywhere we are or can be. It was a big mistake letting cable companies have the internet and the cell phone companies the phone towers. Let the cable companies have Cable TV. Internet and cell phone transmission should be one and the same; should be a Public Utility. It isn’t about ideology, it’s about how it should be; what should be. Half-arsed won’t get it. If we continue to stick with ideology and dogma, China, Japan, and the EU will continue to eat our lunch.

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Au Revoir, Robert J. Samuelson

Au Revoir, Robert J. Samuelson

 For quite a few years not so long ago I was regularly posting here variations on “Today is Monday, so on the WaPo editorial page Robert J. (not related to Paul A.)* Samuelson is calling yet again for Social Security benefits to be cut,” and he did indeed do that very frequently over a long time.  However, today was his final column for the Washington Post, so we shall no longer have RJS to kick around, sob! It was titled, “Goodbye, readers, and good luck – you’ll need it.”  There is also a letter to the editor from former publisher, Donald Graham, praising RJS and reminiscing knowing him as a freshman in 1962 at Harvard.  Graham noted RJS eschewed a nominal non-partisan position and studied and thought hard about his columns, even as Graham himself disagrees with some of RJS’s long-held positions, noting in particular RJS’s longstanding support for privatizing Amtrak.  He also noted, as RJS himself stated in this final column, he is not an economist; he has merely reported on economics for a long time, starting at the Post in 1969 and columnizing on economics since as far back as 1977 in various venues.

I also disagree with RJS on privatizing Amtrak, although this is not a topic he has written much in recent years, although he did mention it in this final column.  I would argue that he has ignored that governments fund highways, which gives vehicles a competitive edge on trains, which governments do not provide or support.  So I certainly see a case for government aid to railroads, with Amtrak certainly one of the more heavily used lines in the nation.

I should note what RJS spent most of his last column writing about. He argues the biggest story of his career has been “the rise and fall of macroeconomics.”  But then he turned to economists. Much of it is on the money.  He says some nice things about us in general: “With some exceptions most are intelligent, informed, engaged and decent.” But then we have been wrong about a lot of things, such as deciding at various points that recessions will never happen again, although RJS admits that he did not recognize the housing bubble or foresee the Great Recession (some of us here or associated with us here did, but RJS largely ignored us). He also accurately notes that many economists take stronger positions than they might otherwise out of a desire for power and position in this or that administration, and also claim to have more influence on the economy than we do.  And then he notes the unwillingness of most to change their minds after a certain point, something he himself exhibited on some of his more strongly held views.

 

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