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

Amazon defeated in New York UPDATED

Amazon defeated in New York UPDATED

In the biggest ever defeat for a subsidized project in history, Amazon announcedFebruary 14th that it was canceling its planned half of HQ2 for New York City, which was to receive subsidies worth at least $3.133 billion. After facing months of public opposition, the company provided a Valentine’s Day present in the form of capitulation. Amazon showed that, like Electrolux, its efforts to extract maximum subsidies from 238 cities constituted corporate rent-seeking on a grand scale. Not only did Amazon conduct an exploitative public auction for the supposedly single HQ2 facility, it furthered the impression that it was engaging in rent-seeking by its refusal to discuss alternatives with New York officials, by its absolute insistence on opposing a union for its workers, and by its sudden though not unexpected cancellation announcement. Activists scorched the firm, too, for the fact that for the second year running, Amazon will pay 0 in federal income tax despite earning $11.2 billion in profits in 2018 and $5.6 billion in 2017.

This is not to be confused with Foxconn, which is looking more and more like an economic development failure. There, it appears that the company will not be able to provide the investment and benefits it promised in Wisconsin. With Amazon, what we have is a case of the company being unwilling to continue the political battle to obtain its $3+ billion in incentives. While Amazon is by far the largest project ever defeated, such defeats are not unprecedented. I participated in two successful campaigns in the late 1990s and early 2000s against abusive tax increment financing (TIF) projects in the St. Louis suburbs of Olivette and O’Fallon, but these were on the order of $40 or $50 million, not $3 billion. Alas, I was also on the losing side of an exceptionally bitter battle against a TIF-funded mall in Hazelwood, Missouri, which still hurts to think about. The residents lost their homes to eminent domain, the city administration was high-handed and manipulative, and the new mall contributed substantially to the death of at least two nearby malls, part of the $2 billion retail subsidy merry-go-round during 1990-2007 documented by the East-West Gateway Council of Governments.

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Who Is Really A Socialist?

Who Is Really A Socialist?

Here are some varieties of “socialism:” command socialism, market socialism, socialist market economy, social democracy, democratic socialism, right wing socialism, utopian socialism, corporate socialism, just plain vanilla socialism.  Here are some people who have claimed to be socialist, some of them selecting one or another of these types, but some just keeping it plain vanilla generic: Kim Jong-Un, Xi Jinping, Stefan Lofven, Nicolas Maduro, Bernie Sanders, Aexandria Ocasio-Cortez (AOC).  Who is really a socialist and can we make any sense of all this?

Among the strictly economic issues involved here, aside from the political ones, there are three that stick out prominently: ownership, allocation, and distribution.  The first may be the most important, or at least the most fundamentally traditionally classical: who owns the means of production? This is bottom line Marx and Engels, and they were unequivocal: socialism is state ownership of the means of production, even though in the “hiigher stage of socialism” generally labeled “pure communism,” the statte is supposed to “wither away.” Capitalism is private ownership of the means of production, although there are debates over some intermediate collective forms such as worker-owned collectives, something favored by anarchistic and utopian socialism and its offshoots and relatives.

Regarding allocation the issue is command versus market, wiith command in its socialist form coming from the state, although clearly a monopoly capitalist system may involve command coming from the large corporations, with this reaching an extreme form in coeporatism and classical fascism, sometimes called corporate socialism.  Needless to say, it is possible to have state ownership of the means of production, classical socialism, but some degree of markets dominating allocative decisions.

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Amazon defeated in New York; more to come

Amazon defeated in New York; more to come

In the biggest ever defeat for a subsidized project in history, Amazon announcedyesterday that it was canceling its planned half of HQ2 for New York City, which was to receive subsidies worth at least $3.133 billion. After facing months of public opposition, the company provided a Valentine’s Day present in the form of capitulation. Amazon showed that, like Electrolux, its efforts to extract maximum subsidies from 238 cities constituted corporate rent-seeking on a grand scale.

Moreover, as Richard Florida reports at Citylab, the victory has also energized reformers around the country searching for a solution to the problem of corporate bidding wars. I myself have received inquiries from multiple elected officials’ offices about the European Union’s systematic control of investment incentives.

I’m playing at a chess tournament in Texas right now, so I will have more to say about this when I next have time to post.

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Electrolux closing Memphis plant; Economic development malpractice leaves Tennesse holding the bag

Electrolux closing Memphis plant; Economic development malpractice leaves Tennesse holding the bag

On January 31, Electrolux announced (h/t Alan Freeman, ipolitics.ca) that it would be closing its new (2012) factory in Memphis, Tennessee, by the end of 2020. This facility, you may recall, was a subsidized relocation from L’Assomption, Quebec (a Montreal suburb) that had an aid intensity of at least 99%! Yes, Tennessee state and local governments gave Electrolux a free factory ($188.3 million at present value in subsidies) while allowing it to get rid of its union, cut 60 jobs, and save over $4 per hour in wages on the jobs they kept.

As if all that weren’t bad enough, the state of Tennessee agreed not to put clawback provisions into the contract with Electrolux, although the state was already requiring such clauses in contracts with major companies like Volkswagen in Chattanooga. That piece of economic development malpractice has now come back to bite the governments involved where it hurts. Not only does the contract specifically prevent the state from getting its money back, state and local governments guaranteed loans connected with the project, the payments for which will last until 2036. According to the Commercial Appeal’s article, state government is on the hook for $48.5 million in loans, while Memphis and Shelby County governments must pay off a further $28.0 million.

While Electrolux committed to employing 1,240 people in order to receive the subsidies, its peak employment appears to have been the 1,100 who were employed in 2017. Now, just two years later, the company employs only 530 in Memphis, a figure that has been stable for about a year, supplemented only by overtime and temporary workers, both of which have now disappeared.

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What does a “Recession Watch” mean?

by New Deal democrat

What does a “Recession Watch” mean?

On Wednesday I went on “Recession Watch” beginning Q4 of this year.

Yesterday I explained what that means in detail over at Seeking Alpha.

So, what happens after this?

  1. If the weakness persists and spreads to the short leading indicators, the “watch” turns into a.warning.
  2. If the weakness abates without spreading into the short leading indicators, the “watch” is lifted.

As always, I will be relentlessly data-driven.

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December JOLTS report: mixed but with strong positive revisions

December JOLTS report: mixed but with strong positive revisions

The JOLTS report on labor is noteworthy and helpful because it breaks down the jobs market into a more granular look at hiring, firing, and voluntary quits. Its drawback is that the data only goes back less than 20 years, so from the point of view of looking at the economic cycle, it has to be taken with a large dose of salt.

With that disclaimer out of the way, Tuesday’s JOLTS report for December was mixed, and for the second month in a row was soft relative to the strength of the overall jobs gain for that month. With the exception of one new high, the other series are off their best levels, and two continued to decline, with the good news being that there were generally positive revisions in the previous month’s data:

  • Quits declined for the 4th month in a row, and are about 5% off peak.
  • Hires rose and are only 0.3% off their peak set two months ago.
  • Total separations declined and are off 4% from August.
  • Job openings made a new all time high.
  • Layoffs and Discharges declined (a good thing), but remain up about 10% from their recent low last March.

Let’s update where the report might tell us we are in the cycle.

First, below is a graph, averaged quarterly through the fourth quarter, of the *rates* of hiring, quits, layoffs, and openings as a percentage of the labor force since the inception of the series (layoffs and discharges are inverted at the 3% level, so that higher readings show fewer layoffs than normal, and lower readings show more):

During the 2000s expansion:

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I actually disagree with Paul Krugman for once

This is an exiting day. I disagree with something Paul Krugman wrote.

In 2017, private insurance paid about a third of America’s medical bills — $1.2 trillion, or 6 percent of GDP. Having the government pay those bills directly, without a revenue offset, would therefore be a spending increase — a fiscal stimulus — of 6 percent of GDP.

Suppose — as MMTers tend to assume — that interest rates nonetheless didn’t rise. Then this stimulus would have a multiplier effect, probably raising GDP, other things equal, by 9 percent.

I have 2 objections. First the replacement of private insurance with debt financed single payer is effectively a tax cut not a spending increase (as indicated by the phrase “those bills”) as such, the direct effect on demand is less than 6% of GDP. Krugman likes to do two kinds of analysis IS-LM and New Keynesian.

In a standard new Keynesian model, the shift would have no effect on demand — ultra rational consumers would assume that they would have to pay the public debt eventually, so they would save the money that isn’t being paid as insurance premiums (which would presumably be paid as salaries instead).

In an IS-LM model, the incrase would be 6% times the marginal propensity to consumer. Going full Hicks (the orignal IS-LM model) that is 1-1/(the multiplier) = 1/3. To consistently apply the original IS-lm model, Krugman should calculate (multiplier -1)(the tax cut) = 3% of GDP.

Second Krugman writes “a multiplier effect” when he means “a multiplier greater than one”. I hate that. It does not follow from the definition of “to multiply” If I have to multiply a by something to get b, that doesn’t mean b is greater than a. Mutiplying by 0.9 is multiplying.

I insist on this, because anti Keynesians often play the 1=0 trick. When fiscal stimulus is proposed, they claim to prove that the multiplier is zero. When data is analyzed they claim to have been proven right, because there isn’t proof that the multiplier is greater than 1.

But the important point is that the correct calculation implies a 3% increase in GDP. Okun’s law (click the link) implies a 1.5% reduction in unemployment to 2.5% which would probably scare the Fed into raising interest rates, but which is a lot more possible than -0.5% as calculated by Krugman.

Now I don’t think that the marginal propensity to consume is 1/3, but that means that Krugman and I have to explain why estimate multipliers are only 1.5 and not much higher. I suspect this explanation would imply that MMTers predict a negative unemployment rate, so I suspect thaat, in the end, I would agree with Krugman’s conclusion.

But I find his calculation suspect.

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A decelerating Staffing Index suggests that weakening temporary jobs in the monthly employment report is not just noise

A decelerating Staffing Index suggests that weakening temporary jobs in the monthly employment report is not just noise

Every week I report the YoY 4 week rolling average of American Staffing Association’s Index. It’s been decelerating recently, and last week was up only +0.5% YoY. On a single week basis, though, it went negative.

Because I have written several posts in the last couple of months emphasizing the leading aspect of temporary jobs in the monthly employment report, I thought I would compare the Staffing Index against it.

Here’s what I found: since the Staffing Index isn’t seasonally adjusted, you really have to compare each on a YoY basis. And while the two don’t turn positive or negative at the same time or for the same duration, they do correlate well on YoY direction; i.e., acceleration or deceleration in the YoY comparison.

The Staffing Index only began to be published in 2004. Since then, there have only been two periods when staffing turned negative YoY: the Great Recession and the 2015-16 energy patch downturn.

As the first two graphs below show, at the time of the Staffing Index lagged the monthly jobs report by half a year in 2007, and led it by one month at the end of 2009:

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Hey Rustbelt and beyond, Losing factories is not new

(There’s a movie at the end!)

For decades we have been hearing about the loss of industrial production through out what is called the “Rust Belt”.  It’s presented, even as recent as the prior presidential election as a relative regional problem that only began post Reagan.  What gets me though is that the reporting and ultimately the politics are as if the rust belt is/was unique in their experience with the west and east coast experiencing nothing of the sort.  The presentation is of the west coast Hollywood economy and now the “tech” economy, the east coast (namely New York/Boston) being the money economy.  The south east is not considered other than Disney and orange production.  The north west?  Microsoft and Starbucks.  Well I think it used to be lumber.

Wiki notes that the rust belt is not geographic but is a term that “pertains to a set of economic and social conditions“.     It includes the northeast which is proper in that industry started there but I have had the feeling for a few decades now that such history is forgotten and thus no longer considered when we look to understand what the hell happened to the middle class.

Let me start with this fun fact.  Rhode Island was the most industrialized state per capita in the nation at one point.  Wiki notes that:

…Aldrich, as US Senator, became known as the “General Manager of the United States,” for his ability to set high tariffs to protect Rhode Island — and American — goods from foreign competition.

We were where the super rich came to escape the heat and play.  And then it started to die.  Not just here though.  Neighboring Massachusetts was hit as was Connecticut.  If you ever get a chance, come visit the New Bedford  Whaling museum and read about the massive industry that was there.  Example, the worlds largest mill of weaving looms.  Some 4000+!  Whaling from that city in the later 1800’s generated some $71 million per year!  Not impressed? Well, using the GDP deflator it’s $1.480 billion per year!

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“I’m not sure I follow the arithmetic here.”

“I’m not sure I follow the arithmetic here.”

“Unless productivity goes up by at least 25% to compensate, everyone will be worse off.”

“Dropping hours from 5 days a week to 4 means that the work that would have been done in 5 days now needs to be done in 4, which means each day needs a 25% increase in productivity. Where on earth do you think such an increase is going to come from?”

“OK, but to arrive at the same output in 4 days rather than 5 means that people have to become 25% more productive than they are today. That’s an awfully big jump in productivity. I’m not convinced that people today are that unproductive. Certainly when I think of my past workplaces, I don’t think my colleagues were that sub-optimal. A 10% increase in productivity seems more reasonable.”

Following up on yesterday’s post about comments in the Guardian, here are some thoughts about “where on earth” a productivity increase of 25 percent might come from:

Let’s start from a 40-hour week in which the rate of output declines somewhat toward the end of the day when workers are beginning to tire. Let\s assume the least productive eight hours of work produce only 75 percent of the output of the most productive 32 hours of work. Call the average output of the most productive 32 hours “one unit” of output. Total output for 40 hours work is 38 units.

Now, reduce the weekly hours to 32. Better rested, more motivated workers result in a “reasonable” 6.25 percent increase in average hourly productivity above and beyond the productivity gain from eliminating the least productive hours. Total output in 32 hours is now 34 units compared with 38 units previously produced in 40 hours.

 

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