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

Millions of India’s farmers fight for their economic lives

As a bit of a comparison, the 2018 Distribution of Federal Payroll and Income Taxes shows 761,000 household taxpayers making up 4 tenths of 1% of all taxpayers having the highest income in the US. I am not sure if we can get it as finite as what India shows in wealth. With a population of ~1.3 billion, the wealth of 831 individuals amounts to 25% of the nation’s GDP. The 831 are calling the shots for farmers in India and the nation.


Millions of India’s farmers are in a fight for their economic lives,” New Europe, Sonali Kolhatkar , December 21, 2020

Dale Coberly, Angry Bear Blog

India’s farmers are revolting against Prime Minister Narendra Modi’s government in a mass movement that has drawn international attention. The world’s largest democracy is witnessing a collective groundswell of protest as hundreds of thousands of farmers, largely from the states of Punjab and Haryana, have laid siege to the outskirts of the capital of New Delhi, determined to occupy the edges of the city until Modi reverses unpopular new laws that they say are anti-farmer.

About half of India’s workers depend on the agricultural industry, and the government has long had in place regulations to protect farmworkers, acting as a middleman between farmers and buyers of their produce. Now those protections have been upended. In September 2020, Modi and his Bharatiya Janata Party (BJP) pushed three deregulatory bills through Parliament amid chaos and even some opposition from within his own party.

Three laws now threaten the likelihood of farmers and subsequently the population’s food supply.

Housing permits and starts for November: yet more evidence of an economy primed for takeoff in 2021

Housing permits and starts for November: yet more evidence of an economy primed for takeoff in 2021

If there was bad news yesterday in the further increase of initial jobless claims, there was also good news in the 10+ year highs in new housing permits.

Here’s the graph of permits (blue), single-family permits (red, right scale), and housing starts (green):


Not only total permits but also the much less noisy single-family permits made 13-year highs. While the much noisier starts didn’t, the only months in the past 13 years that were better were last December through this February.

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.

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.

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.

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.

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

 

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.

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.)

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.