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

The Nobel Economists Petitiion on Carbon Tax And Dividend Plan

The Nobel Economists Petitiion on Carbon Tax And Dividend Plan

As many now know, a large group of prominent economists, led by a large group of Nobel Prize winners, has published a petition in the Wall Street Journal.  This petition declares the idea of putting a tax on carbon and then returning the receipts from it to the population on an even per capita basis to be the best and most efficient plan for dealing with global warming.  This group continues to encourage more professional economists to sign this petition.  I had previously received an invitation from Janet Yellen to do so, and today one came from Larry Summers.  I kind of doubt that either specifically directed that I receive the invitation or, less likely, actually sent the message, although I could be wrong as I do know both of them.  This petition shows how powerful this revenue neutral carbon tax fad has become.

As it is, I have not signed it, and my use of the word “fad” indicates my attitude.  I really do not get why so many proiment and clearly highly intelligent economists have signed onto this proposal as being the one and only way to deal with this problem.  Why are these people not mentioning cap and trade as an alternative (formerly known as “tradeable emissions permits”).  There are multiple reasons to believe that cap and trade is at least as good if not better than this tax dividend proposal, both in terms of effectiveness and also in terms of the politics of getting something done.

The most famous cap and trade plan was that enacted in the US in 1990 for SO2 emissions.  This plan eventually got superceded, but until that point it was universally viewed as a successful program, substantially reducing such emissions in a manner that did not trigger noticeable economic pain.  There are now a substnatial number of carbon cap and trade systems in place, with the first one out the door being that of the EU, put in place to obey the Kyoto Protocol, which actually favored such systems.  That system has faced criticism and had a major decline in its price in 2006, but has since stabilized, a fact not widely reported. Very recently the system has been put in place by the world’s largest emitter, China.  Other nations or major sub-national units adopting cap and trade for carbon include South Korea, California, and Ontario,  The closest we came ot having a national program to deal wiith carbone emissions in the US was early in Obama’s first term when he  got a cap and trade plan passed by the House of Representatives, only to have it blocked by Republicans in the Senate.

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Weirdly Non-Monotonic Yield Curves

Weirdly Non-Monotonic Yield Curves

This is a situation that may be on the verge of disappearing and more or less normalizing, but over the last couple of months US bond markets have exhibited a weird phenomenon of non-monotonicity. It has been even weirder than what we saw during the period of negative nominal interest rates, when what we saw was interest rates on US treasury securities fell from the shortest time horizon to a low usually around the two-year time horizon, with the pattern then reverting to its usual upward slope. What has been going on recently has been a pattern of rates initially rising with the time horizon in the normal pattern, then turning around and declining, then turning around yet again and rising again. I do not know what to make of any of this. I exhibit it in a table below for the three days, January 2, January 10, and January 18 of this year.
3 mo.     1 yr.     2 yr.     3 yr.     5 yr.    10 yr.     30 yr.

1/2/19         2.42       2.60     2.50      2.47    2.49      2.66       2.97

1/10/19       2.43        2.59     2.56      2.54    2.56      2.74       3.06

1/18/19        2.41       2.60     2.62      2.60    2.62      2.79       3.09

So, at the beginning of the year the rates rose from 3 months to 1 year, with rates declining to 3 years, and then rising after that. The same pattern was still holding on January 10. On January 18 things were somewhat more normalized with the mid-range decline being a decline from the 2 year to 3 year range, but then reversing to rise in the normal way after that.

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Rare Yglesias Google Fail

(Dan here…lifted from Robert’s Stochastic Thoughts)

Rare Yglesias Google Fail

(Most boring title after “Worthwhile Canadian Initiative” but I couldn’t resist) Web savvy ultra wonk Matthew Yglesias wrote “There’s no polling on specific brackets or exactly who counts as rich that I can find,” Matty just google [income to be rich poll]. Jeez. Americans have varying ideas of how much money you need to earn each year to be considered “rich,” but most people say you need to bring in at least $1 million per year. Notice that the possibility that one is rich because of high wealth not high income is too weird to even mention. That’s rich.

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Industrial production: strong finish to 2018

Industrial production: strong finish to 2018

Industrial production for December was reported this morning at +0.3%, slightly better than estimates. But what was really surprising is how strong the manufacturing component was, up over 1%:

With this reading, YoY industrial production for manufacturing improved to +3.4%, and overall production came in just below 4%:

This is in contrast to the sharp slowdown we saw in both the December regional Fed indexes and the ISM manufacturing index.

This was a good finish to 2018. Despite this, I am expecting a substantial slowdown within the next 6 months. If the government shutdown proves intractable, the odds of recession by mid-year increase strongly.

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Whatever Happened To Iran?

Whatever Happened To Iran?

Who? What? Where?

Long a headliner in the news, Iran has disappeared from the headlines, and even the inside pages. It has largely disappeared from the news, after being the big headline for a long time. This is probably good for Iran, despite its many problems.

I have made a big effort to find out its current economic status. The little data out there seems to suggest that not much is happening. GDP had been falling in the aftermath of the US withdrawal from the JCPOA nuclear agreement, which Iran had and continues to adhere to, with the official support of the official signatories, even as private companies in many of them against their governments, have pulled back from dealing with Iran under US pressure. But that is old news.

The US withdrawal from the JCPOA was provocative, and pushed many companies such as France’s Total to withdraw from dealing with Iran, along with many others. This satisfied a campaign promise of Trump’s, even as he has been lying on a 15 per day rate recently according to recent reports.

About the time of the US’s withdrawal over a half year ago, there were many reports of having a collapsing economy. There were many reports of demonstrations against the government in hardline Islamist regions over the troubled economy. Somehow these reports seem to have stopped, although I would not rule out that some may still be happening. But the world is not hearing of them, and I do not think this is due to some increased level of Iranian suppression.

No, I think Iran has halted its economic decline, not that things are great. This post is partly triggered by talking to a good friend recently returned from Iran who reports that while things are expensive, most goods are available and the economy seems to be more or less stable.

Despite this supposed intense push by the US to harm the Iranian economy, parts of that certainly in place, without publicity US policy has recently gone the other way, not so vigorously harming the Iranian economy. For starters we have that the US gave “temporary” exemptions from the renewed US sanctions against nations importing Iranian oil for 8 major such importers. The upshot is not all that much of a reduction of such exports from Iran, an obviously crucial factor.

Then we have more recent subtle pro-Iranian decisions, most importantly Trump’s announcement of US removing troops from Syria. This helps Iran, even if the removal is slowed down as seems likely. We also have SecState Pompeo pressuring the Saudis to end their boycott against Qatar, which has retained both political and economic relations with Iran, not to mention having just whupped Saudi Arabia in soccer 2-0.

So, we, or at least I, do not know what precisely is going on inside Iran, long a highly repressive regime, despite its facade ofs pseudo-democracy. They have been continuing to adhere to the JCPOA nuclear deal, even as recent reports have them possibly setting up increased uranium enrichment facilities and activities. While there have been many demos against the government over the troubled economy, it seems that these have slowed down, or at least reporting of them has.

The US does not determine all that happens in Iran, but it seems that currently the US has an inconsistent verging on incoherent policy regarding Iran. But for Iran, this turn from full hostility, combined with a possible upturn in world oil prices, may explain an unreported stabilization in Iran.

Barkley Rosser

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Why I’m expecting a 2nd half rebound in housing

by New Deal democrat

Why I’m expecting a 2nd half rebound in housing

In all of the storm und drang about yield curve inversions in the bond market, one important and overlooked consequence is how it is likely to help the very important housing sector.

This post is up at Seeking Alpha.

As usual, clicking over should be educational for you and helps me with a penny or two.

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Notes on the government shutdown

Notes on the government shutdown

I have a post on the housing market pending at Seeking Alpha. If and when it goes up there, I will link to it here.

In the meantime, here are a few important notes on the shutdown.

I can’t find the quote now, but about a week ago it was floated that Trump could “save face” by declaring an emergency, starting to build the wall, and then allow the government to open. Then Trump indicated that if he declared a state of emergency, that wouldn’t mean that he would open the government even then. This is a win-lose capitulation transaction, and Trump is bound and determined to show dominance over the Democrats.

Aside from the fact that there is a large portion of the GOP that is taking advantage of this to “drown the government in a bathtub,” now that a Federal judge has turned down government workers’ “involuntary servitude” challenge, Trump has a ready-made force of de facto slaves that he can recall — or not — depending on whether he wants a particular government program to work or not:

Rank-and-file Democrats reject Trump’s invitation to shutdown talks, back Pelosi in opposition to border wall

The nearly 50,000 furloughed federal employees are being brought back to work without pay — part of a group of about 800,000 federal workers who are not receiving paychecks during the shutdown, which is affecting dozens of federal agencies large and small. A federal judge on Tuesday rejected a bid by unions representing air traffic controllers and other federal workers to force the government to pay them if they are required to work.

Don’t hold your breath waiting for SEC workers or those necessary to issue food stamps to be recalled.

 

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Getting Ever More Surreal

Getting Ever More Surreal

I am referring to a comment Sean Hannity made on his show earlier this evening in his monologue. The reports tht  President Trump was under  investigation by FBI Counterintelligence as being a possible “Russian asset” supposedly taking orders from Vladimir Putin has pushed uber Trump defender Hannity to ever more surreal forms of defense, in this case one especially bizarre given the cloase association in Trump’s early career between him and Roy Cohn, the lead attorney for the late anti-communist scourging Senator Joseph McCarthy of Wisconsin.

This new more surreal position has Hannity after declaring that “the walls are closing in” on former FBI Director James Comey over his supposed role in this investigation, although apparently it was the circumstances around Trump’s firing of Comey that initially triggered this reported conterintelligence investigation, Hannity then compared Comey to the late anti-communist scourge, J. Edgar Hoover, FBI director for 48 years.  In particular he pinpointed Hoover’s investigation of the late Henry Wallace in 1948 for his reputed ties to the Soviet Union, highlighting that Wallace had served as vice  president during FDR’s third term (and was pushed out of that position to be be replace by Harry Truman in FDR’s fourth term by conservative Democrats worried about his perceived to be friendly attitude to the Soviet Union).  In 1948, when Hoover was making his investigation and allegations, the Cold War was starting, and Wallace was the candidate for president of the Progressive Party, running heavily on a platform of opposing the Cold War (and certainly the anti-communist positions of McCarthy).  The sight of Hannity of all people praising and defending Wallace against the supposedly evil Hoover was quite a spectacle.

As it  is, I am sympathetic to the view that Wallace was unfairly treated and smeared.  Also, the Progressive Party and Wallace supported many, well, progressive policies that were and remain reasonable, such as national health insurance.  All of that adds to the irony of Hannity now defending him as he has no use for such policies.  The exact nature of Wallace’s relations with Soviet leaders and of the connection between the Progressive Party and CPUSA remain controversial to this day, but but ceetainly Wallace opposed the incipient Cold War and publicly supported Soviet positions in 1948.  I do not know if it was possible to avoid the Cold War or not, and it is impossible to know what would have happened if Wallace had won, especially given that he came nowhere near dong so.  As it was, Hoover was correct that Wallace was very friendly with various Soviet leaders and agreed with their views, for better or worse.

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Flying blind

Flying blind

The government shutdown is affecting some important economic indicators. All of the series published by the Census Bureau, including retail sales, manufacturers’ and wholesalers’ data, personal income and spending, new home sales and housing permits and starts, are not being published.  It appears that GDP is not going to be published by the BEA either.

In the past I have created work-arounds for a few economic series, in particular new jobless claims and industrial production, neither of which appear affected at this point, as the former is published by the Department of Labor, and the latter by the Fed.

If the government shutdown continues — and a long shutdown, until there is widespread pain or an avoidable disaster (like a plane crash or widespread food-borne disease outbreak) looks like the most likely scenario for now — I will attempt serviceable work-arounds for at least some of these series.

For starters, retail sales was scheduled to be released this Wednesday. Almost certainly that isn’t going to happen, so on Wednesday I’ll publish a guesstimate that hopefully will at least get the direction correct, and capture some of the strength or weakness of that direction.

But, make no mistake, not having access to reliable economic data isn’t just a drawback for me, it’s a cost to any enterprises attempting to make decisions. Some of those businesses are going to postpone making a decision — on hiring as well as spending — until they have more clarity. And the postponement of spending decisions means a drag on GDP and employment.
Unfortunately it appears that the spate of short shutdowns in the past several decades have caused Washington to “learn” that, at least in the short term, nothing too bad happens when government is closed. Thus, flying blind will continue until we crash into something.

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The Key to Gentrification

The Key to Gentrification

In the world of urban politics, there is probably no more potent populist rallying cry than the demand to halt gentrification.  Activists have fought it on multiple fronts: zoning, development subsidies, permitting, rent control—every lever housing policies afford.  But what if they’re mistaking cause for effect, hacking away at the visible manifestations of the problem while leaving the problem itself intact?

Pivot to an important article in today’s New York Times, reporting on recent research David Autor  of MIT presented at the economics meetings in Atlanta earlier this month.  It’s all summed up in this set of charts:

As you can see from the tiny print at the top, the data are being read horizontally within each chart, from less dense regions (rural areas) on the left to high density cities on the right.  The question being asked in the article is, if you live in a rural area or a small town, how much benefit can you get from moving to a big city?

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