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

SECURE Act Up for Consideration in the Senate – A Rehash

I covered the House SECURE Act and the Senate RESA version last July. The House RESA Act is up for consideration in the Senate now. It does not look like it is going to make it due to the impeachment process going on and a potential trial in the Senate. There is also a small matter of a budget needing to be passed. It was to be considered under an unanimous consent vote; however, three Republican Senators (Mike Lee of Utah [unidentified reason], Ted Cruz of Texas (529 Accounts), and Pat Toomey of Pennsylvania [Gold Star tax exemption]) put holds on the bill (reasons in parenthesis). Then there is McConnell, who will not bring it to the floor for a vote.

Congress has been working on a much-needed improvement for “Middle Class” savings and growth over the span of employment in order  to boost retirement resource for citizens who can afford to save. Both the Senate and the House versions have been sitting since July. Whata surprise, heh?

Dueling bills to restructure IRAs and 401ks appear to be redundant; but, there are differences.  Better known as the “Setting Every Community Up for Retirement Act” (SECURE Act) H.R.1994 and the Senate has the “Retirement Enhancements and Savings Act” S.792 (RESA) version. Both bills were passed with bipartisan support. Both bills for the Middle Class had pluses and rather big negatives also. It appears the House RESA Act is going forward for a vote.

The RESA Act is mostly for the masses who may be able to save some money for retirement in spite of stagnant wages. No worries for the for the rich in income (unless something has changed since I last looked at this).  A major outcome of the Trump tax bill were tax breaks for the wealthy and corporations. Besides much of the resulting income increases going to 1% of the household taxpayers, the same 1% were given the ability to shelter large amounts of income in gifts to their heirs. It is a great time to be rich in income and have the ability to shelter it by making gifts of it to your heirs’ tax free! Keep in mind, seven or so years out and those income tax cuts will disappear for the middle income brackets. Somebody has to pay for the overall breaks otherwise their tax relief will sunset as they were passed under reconciliation in the Senate.

A little history (past the leap) on why Congress did something which will help those who can afford to save presently, penalize those bequeathed whatever is left over after death, and pay for the IRA and 401k break.

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Plastic: Part of the Problem . . . Part of the Solution – Part 1 (of 4): A Global Problem

Introduction: I am still on the mailing lists of quite a few resin and plastics companies. This particular presentation is from Sesotec GmbH (“company with limited liability”). Sesotec was an exhibitor at the K trade fair in Düsseldorf and now is reflecting on an exciting and positive trade fair appearance (for them) with its topic of a “Circular Plastics Economy.” This is part 1 of a 4 part presentation which I believe to be done in an exemplary manner and worthy of repeating.  Having cost modeled plastic parts at SY and Yazaki NA and purchased resins for Marquardt, Flex, and Stoneridge, I enjoyed the presentation.

This is why I thought this was worthy of presentation  at Angry Bear: “The K trade fair is held every three years and is an optimal opportunity to learn about current topics in the industry and to exchange information about these topics.

Marc Setzen, CEO of Sesotec GmbH: ‘We are more than satisfied with the results of the trade fair. With concern to the focal topic of the K trade fair, the Circular Economy not only is a technical challenge but also requires a change of the way people think. The attitude of plastics being throwaway products must be abandoned and people must become aware of the fact plastics being valuable reusable materials. Our machines and systems only are one component in the material cycle; but nevertheless, they make an essential contribution because they ensure the high quality of secondary raw materials made from recyclate and guarantee that the cycle really works.'”

This fits with what we must change to and be doing today.

Some 70 years after the first plastic products hit the market, the vision of a world without plastic waste still appears far off. Yet this substance – a plague once it becomes waste – is an extremely attractive material. What we need is a different approach to dealing with plastic waste. In this multi-part series, we will take a look at the role that the waste management and recycling industry can play in the process. Part 1 takes us to a variety of destinations, including China.

The production of plastic has increased dramatically around the world in recent decades and currently stands at 200 times the amount manufactured by factories back in 1950. Europe is responsible for one-quarter of the world’s plastic consumption, mainly due to packaging that lands in the rubbish bin after being used for only a short time. Plastic is also used in construction (20%), vehicles (8.6%) and electronics (5.7%).

After the leap, how China and the EU are increasing the pressure . . .

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What quid did the president quo and when did he quo it?

What quid did the president quo and when did he quo it?

Aside from the headline news about a July 26 phone call, I learned four big things from the impeachment inquiry hearing this morning. First, the specific corruption surrounding Burisma Holidings had to do with self dealing by company founder Mykola Vladislavovich Zlochevsky — issuing oil and gas licences to his own company when he was Minister of Ecology and Natural Resources. In other words, Zlochevsky did exactly what Donald J. Trump attempted to do with his Doral Golf Club and the G7 summit.

The second thing I learned is that President Trump was nursing a grudge against Ukraine because some Ukrainian politicians said some nasty things about him after he made a comment about letting Russia have Crimea. That’s why he felt Ukraine “owed” him. The third thing is that the Ukraine shit made fanfall just about exactly the time that Trump was extemporizing about Hurricane Dorian hitting Alabama. Who knew Trump could multi-task?

The fourth thing I learned is the big one. There was not one quid pro quo but two. One involved Zelensky, the other Putin. That’s the significance of the timing of the Trump-Zelensky phone call — the day after Robert Mueller’s congressional testimony was a dud. Humiliating Zelensky by forcing him to make a public announcement of a politically-motivated investigation of Biden-Burisma-2016 would hand to Putin his reward — a weakened negotiating partner — for the favor of having helped put Trump in the White House. The art of the deal, indeed.

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“Are Robots Stealing Your Job?” is the Wrong Question

Andrew Yang says, “Yes, Robots Are Stealing Your Job” in an op-ed at the New York Times. Paul Krugman thinks they’re not and advises, “Democrats, Avoid the Robot Rabbit Hole.” This is, of course, a classic case of asking the wrong question.

The real question is: will robots burn down your house and kill your grandchildren? Let’s imagine that all those self-driving trucks and the computers needed to guide them will run on electricity generated by wind turbines and solar panels. Will the robots in the truck factories and the robots in the computer factories also run on wind and sunshine? How about the robots in the wind turbine factories and the solar panel factories and so one ad infinitum? I know an old lady who swallowed a fly…

Let’s assume that it is feasible to phase out all current fossil fuel consumption by 2050 and replace it with renewable, zero-carbon energy. Does that mean it is equally feasible to provide the additional energy needed to run all those job-stealing robots? Or to put the question in proper context, would it be feasible to do it without an uncorruptable, omniscient global central planning authority?

The hitch in all this robot speculation is a little paradox known as Jevons paradox conjoined at the hip, so to speak, with it’s counterpart, “Say’s Law.” The former paradox says that greater fuel efficiency leads to more fuel consumption, the latter paradox tells us that labor-saving machines create more jobs than they destroy. Here are two inseparable positive feedback loops that together generate an incongruous outcome. “Yes the planet got destroyed. But for a beautiful moment in time we created a lot of value for shareholders.” Or lots of jobs, jobs, jobs. Or a monthly $1,000 payment to every adult “so that we can build a trickle-up economy,” Choose your poison.

There is, they say, “a certain quantity of work to be done.” Who says that? Good question. In the beginning, it was the political economists — even proto political economists — who said it. But around 1870 economists realized that the maxim conflicted with other things they had in mind so instead of professing it they began to condemn it and to attribute the idea to others — to Luddites, Malthusians or Lump-of-Laborers. The idea that a people could always do more work was just too great a temptation. In principle, the amount of work that could be done is infinite! The robots will not replace us! The robots will not replace us!

What this job-stealing robot debate is really all about is an economics version of theodicy. “Why does evil exist if God, the creator, is omnipotent, omniscient and good?” This theological question is echoed in the puzzle about poverty in the midst of plenty and in Mandeville’s “Fable of the Bees,” where private vices promote public virtues. If it seems like robots are stealing your job, have faith, all is for some ultimate purpose in this best of all possible worlds, as Candide’s tutor Dr. Pangloss would assure him.

Taking the Panglossian philosophy into account, it becomes clear that both Andrew Yang and Paul Krugman are on the same page. They are just reading different paragraphs. Although they disagree on what the solution is, they agree that there is a solution and it doesn’t really require a fundamental change in the way we think about limits to the “certain quantity of work to be done.”

 

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Ukraine Corruption and Transfer Pricing

Ukraine Corruption and Transfer Pricing

As I listened to the testimony of Bill Taylor and George Kent, I was also reading up on some South African transfer pricing case involving iron ore:

Kumba Iron Ore will pay less than half of the tax bill it received from the SA Revenue Service (Sars) last year following audits of its export marketing practices during the commodities boom. The settlement of R2.5bn significantly overshot the R1.5bn Kumba had set aside as a contingent liability. It is, however, a fraction of the taxes, penalties and interest payments Sars was pursuing the country’s dominant iron ore producer for. The existence of a potential tax liability was first reported to shareholders in June 2014, but Kumba could only put a number on it early last year when it received a tax assessment of R5 billion for the years 2006 to 2010.

If this account sounds like a lot of accounting gibberish, one might check with other accounts including whatever BDO wrote but these other accounts were even less informative. To paraphrase one commercial “people who know” avoid BDO. I think what happened is that the South African tax authority objected to what it saw as a lowball transfer pricing paid to the South African mining affiliate by a tax haven marketing affiliate and decided to completely disallow any commission income for the tax haven affiliate. This account at least notes that Kumba Iron Ore eventually told its shareholders that there might be some transfer pricing risk and that the issue was eventually resolved with a more modest commission rate booked by the marketing affiliate. So what does this have to do with Ukraine?

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Real average and aggregate wages declined in October

Real average and aggregate wages declined in October

October’s consumer inflation reading came in at a surprisingly high +0.4%, which as shown in red in the graph below, was one of the 3 highest in the past two years. Meanwhile average hourly earnings increased less than +0.2% – the second lowest reading in the past two years, shown in blue:


As a result, real average hourly earnings decreased -0.2% last month, the worst reading since late 2017:

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How economists blew the analysis of the manufacturing jobs shock

How economists blew the analysis of the manufacturing jobs shock

I came across this article yesterday, posted by – to his credit – Brad DeLong, whose argument it eviscerates. Entitled “The Epic MIstake about Manufacturing That’s Cost Americans Millions of Jobs,” it deserves widespread attention. So I am summarizing it here. But by all means go and read the entire piece.

Just to give you the frame of reference, here is the historical graph of manufacturing jobs in the US for the past 50 years:

After peaking in 1979, the number more or less gradually declined in the 1980s, and then stabilized in the 1990s, before plummeting right after 2000.

 

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Scenes from the October employment report: full employment?

Scenes from the October employment report: full employment?

Last Friday the household jobs report – the one that tells us about unemployment, underemployment, and labor force participation – has been particularly strong in the past three months. This has driven some impressive gains in labor force participation and the unemployment rate.

To begin with, gains in employment as measured by the household survey (red in the graphs below), as opposed to the larger (and, yes, more reliable) payrolls survey (blue), have totaled 1,222,000 in the last three months:

One month ago this gave us the lowest unemployment rate in the past 50 years, and the U6 underemployment rate is also at its lowest level, save for one month, since the series began in 1994. Each ticked up by +0.1% in October. In the below graph, both metrics are normed to zero at their lowest levels:

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Has Tyler Cowen or John Cochrane Ever Heard of Monopsony Power?

Has Tyler Cowen or John Cochrane Ever Heard of Monopsony Power?

I’m going to replicate one portion of a long winded rant about alleged cognitive dissonance:

The argument for a minimum wage is that labor demand is inelastic — employers will hire the same number of workers. They will just absorb the higher wages or pass along the costs to customers. Workers get all the benefit. If labor demand is elastic, employers cut back on the number of employees.

Of course, labor economists would recognize that John Cochrane’s entire post assumes a perfectly competitive labor market. One has to wonder about economists who have never even considered monopsony power.

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Innovative bureaucrats?

by David Zetland    (Via One handed economist)

Innovative bureaucrats?

The Dutch are fond of subsidies for arts, sustainability and… innovation.

These subsidies arise when bureaucrats with “topical portfolios” award cash to winners of various “promise to stimulate [topic]” contests.

On the one hand, I am pleased to see the government providing public goods, i.e., stimulating efforts to help everyone.

On the other hand, these programs tend to find the least-productive incentives to advance the “topic”

(My one-handed view is that this structure is wrong… keep reading…)

So the irony is that the bureaucracy in charge of innovation…

  • …has permanent employment contracts and long vacations;
  • …gains nothing from success but loses nothing from failure;
  • …works in non-market areas where the lack of objective measures of performance leads to subjective choices of winners and losers; and
  • …happily spews a meaningless whirlpool of jargon borrowed from strategic plans, conference videos, and social media #buzzwords.

If I was in charge of these topics, I would follow the new development model of “pay for results” by specifying the criteria for success and then rewarding the most successful efforts to reach those goals with cash and publicity.

This system would have nothing to say about who did the work, what angle they took, or how fancy their method. It would pay for results.

My one-handed conclusion is that governments should stop chasing “creative,” “innovative,” “smart,” or “sustainable” and just reward results.

What’s your experience on this topic?

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