Tag: Economy

What Dealing With the Pandemic Seriously Looks Like

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The Spanish Government has taken control of all private hospitals in order to effectively fight the corona virus pandemic:

The Spanish government has nationalized all of its hospitals and healthcare providers in the country in its latest move to combat the spread of the coronavirus.

The Ministry of Health in Prime Minister Pedro Sánchez’s administration on Monday announced it would put all of Spain’s private health providers and their facilities into public control as the spread of COVID-19 continues to grip the country.

………

“The government of Spain will protect all its citizens and will guarantee the right life conditions to slow the pandemic with as little inconvenience as possible,” Sánchez said.

Madrid has also closed restaurants, bars, and shops — except for supermarkets and pharmacies. Authorities are using drones to monitor the movements of its citizens.

There were 9,191 confirmed cases of the virus in Spain as of Monday, with 309 deaths linked to it.

In one fell swoop, Spain has dealt with a problem, profiteering, that the US government is actively encouraging.

That’s why Trump’s head of the CDC said, “I guess I anticipated that the private sector would have engaged and helped develop it for the clinical side.”

The powers that be in the United States, in both parties, are so wedded to the rules of Neoliberalism:

  1. Because markets.
  2. Go die!

Gee, You Think?

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An interconnected world is one which is more vulnerable to disruptions, so, when Christine Lagarde, the head of the European Central bank is warning that COVID-19 could trigger a bigger meltdown than the Great Recession of 2008, she is merely stating the obvious:

The president of the European Central Bank has warned that the coronavirus outbreak will spark an economic downturn in Europe similar to the 2008 financial crash unless EU governments provide financial support for their economies.

Christine Lagarde held a call with EU leaders on Tuesday night to urge them to take action and raise spending in order to counter the economic effects of Covid-19, a source with knowledge of the matter told Bloomberg.

The eurozone’s central bank boss reportedly added that Europe would otherwise be at risk of a “scenario that will remind many of us of the 2008 Great Financial Crisis”. Lagarde said the ECB was considering all of its options before its meeting on Thursday, when it is widely expected to cut interest rates and expand its quantitative easing programme, according to Bloomberg.

The downside of globalization,  is that you creating a system which is more vulnerable, and more more likely to suffer from catastrophic cascading cascading failures.

This is exactly what happened in 2008.

Look Out Below

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Wall Street’s record-breaking 11-year “bull market” came to an end on Wednesday as fears about the spreading Covid-19 pandemic hit stock markets again.

US stock markets have been on an unprecedented streak since 2009, a bull market of gains. On Wednesday investors sold off shares across all sectors after the World Health Organization declared the outbreak a pandemic for the first time and criticized “alarming levels of inaction” by governments in corralling the virus.

The Dow Jones Industrial Average closed down over 1,400 points, 5.8%. After days of wild fluctuations, the Dow has now fallen 20% from its most recent highs – finally signaling a bear market. The S&P 500 also fell and is now 19% below its recent high.

I would note that the bulk, if not the totality of all net stock purchases over that period has been stock buybacks.

This is long overdue, and luckily, it’s happening during an election year with an incumbent Republican.

How Our System Screws the Ordinary People

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The Cost of Thriving Index

A right wing economist has come up with a concept called the, “Cost of Thriving” which describes how well being of the average American has been declining.

The argument is that core expenses have increased more rapidly than the CPI, and additionally that “Hedonic Adjustments” which subtracts a deflator because the quality of the products consumed increase, makes the government supplied cost of living data inaccurate.

At its core, a TV shows you shows you shows, no matter how flat it is, a car moves you no matter how many options have become standard features:

Economists and financial experts have been telling us for years how great things are for U.S. workers and consumers. The stuff we buy is dirt cheap, and living standards are higher than ever. Wages are keeping pace with inflation. Inequality probably isn’t as bad as you’ve been led to believe. The stock market is booming!

So why, then, do so many of us feel like we can barely make ends meet?

A new report published by the Manhattan Institute, a conservative think tank, offers a clear explanation for the disconnect between the economy described by economists and the one experienced by regular people. It all boils down to the startling shift illustrated in the chart below. (Above and to the right here)

Lead author Oren Cass distills it as follows: “In 1985, the typical male worker could cover a family of four’s major expenditures (housing, health care, transportation, education) on 30 weeks of salary,” he wrote on Twitter last week. “By 2018 it took 53 weeks. Which is a problem, there being 52 weeks in a year.”

Cass calls this calculation the Cost-of-Thriving Index. It measures the median male annual salary against four major household expenditures:

  • Housing, defined as the annual rent for a three-bedroom house in the 40th percentile of the local housing market.
  • Health care, defined as the annual premium on a typical family health insurance policy.
  • Transportation, defined as the average cost of owning and operating a car driven 15,000 miles per year.
  • Education, defined as the average cost of tuition, fees, and room and board at a four-year public college.

………

It’s these realities, Cass writes, that are most salient for the middle-class families who tell pollsters they live paycheck to paycheck and worry that their kids’ standard of living will be lower than theirs. Traditional economists might look at the plummeting price of flat-screen TVs as a sign that standards of living are increasing. But how useful is a cheap TV when you can’t afford your insulin?

The fact that a very right wing economist understands that the current metrics of the cost of living are wrong, and that they are obscuring a fall in standard of living.

This is not the sort of thing that I would expect the Manhattan Institute.

Look Out Below

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Interesting charts from Morgan Stanley. Recent drop of air pollution in 4 major Chinese cities. 2 conclusions. #Corona does 10 x more than EU Green Deal to environment. The drop in Chinese manufacturing is unseen in history and should bring Q1 GDP of China in negative territory pic.twitter.com/DRfh2wl6J9

— Gino Landuyt (@GinoLanduyt) February 14, 2020

If the Chinese economy is headed for an actual recession, we are headed for profoundly interesting times.

The Missing Story of the Iowa Clusterf%$#

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Dave Dayen makes what should be the leading story of the Iowa vote count clusterf%$#, that this is a manifestation of what he calls the. “Bullsh%$ Economy,” where economic decisions are on the basis of connections, and not competence or value.

This is important.

The failure of the ACRONYM subsidiary SHADOW is not an issue of the inherent problems with software, it is an issue of corruption and self-dealing:

In one sense, the Iowa caucus debacle will last just a couple news cycles. We have the data on paper, tabulated in front of tens of thousands of witnesses, and it merely needs to be collated. Eventually it will, and though the damage to the news cycle is irreparable—Joe Biden’s disappointing outcome has been diluted in particular—the process will go on with an accurate count. Caucuses are horrible and probably a dead letter, but for different reasons than the delayed count; the real problems arise from the electoral college-style distortions between the initial percentages and the final delegates, and the tacit vote suppression from forcing people to attend a two-hour meeting on a weeknight when they might be working.

 But the spectacle has highlighted a much more consequential problem in America, something I have coined the bullsh%$ economy. We’ve seen elements of it all over the place. When MoviePass offered unlimited screenings for ten bucks a month, when Uber gets an $82 billion valuation for a low-margin taxi business it has never made a dime on, when WeWork implodes after the slightest scrutiny into its numbers, that’s the bullsh%$ economy at work. We have seen the farcical bullsh%$ of Juicero and the consequential bullsh%$ of Theranos.

………

 The story of Shadow, makers of the app that utterly failed to deliver in Iowa, is a perfect example of the bullsh%$ economy. It starts by being a tech solution to a non-existent problem. Iowa counties are compact; the largest one has a landmass of 973 square miles, and it’s close to twice the size of the average county in the state. Even there, no major city is more than a 30-minute drive from the county seat, Algona. Even with that ancient technology of the car, you could have each of the 99 counties report final results within a couple hours of the end of the caucuses.

………

 Shadow is a subsidiary of ACRONYM, a non-profit with lots of connections to the Democratic consultancy, including veterans of Hillary Clinton’s presidential campaign and David Plouffe, the Obama campaign manager who sits on the ACRONYM board. MSNBC’s Chris Hayes asked Plouffe on a late-night panel about his participation, and as he swiveled in his chair uncomfortably he disclaimed any knowledge of Shadow or the app.

 Similarly, ACRONYM issued a statement positioning themselves as a mere investor in Shadow, without knowledge of their inner workings. But last year, ACRONYM announced they were “launching” Shadow, as part of an effort to help Democrats “win” the Internet and run better campaigns. The head of ACRONYM, Tara McGowan, is married to a Pete Buttigieg strategist.

 All this doublespeak is a hallmark of the bullsh%$ economy. Your mind doesn’t have to travel to the nether regions of conspiracy, but you can hardly blame people for doing so. This is reflective of the rolling incompetence covered by confidence within the modern economy, especially when you sprinkle on the labor-saving promise of techtopia. When the bullsh%$ economy fails, it robs people’s belief in the basic bargain of commerce, the idea that you get what you pay for, that companies operate in good faith to provide quality service. But when placed in contact with politics, it just demolishes faith in the system. The bullsh%$ economy spurs distrust.

 So there we have it: an unnecessary app that narrows the supply chain of votes to the central tabulator, and when the supply chain fails it creates chaos. We see this all over our economy; useless services, narrow supply chains, magnified fiascos. As long as confidence men lie to the right people, they can gain entry and take on enormous responsibility, until it all falls apart. We live in a country where you can spout New Age consultant speak, charm a large foreign investor, and make off to your guitar-shaped living room with over a billion dollars, paid effectively to go away. That’s WeWork guru Adam Neumann’s story, and increasingly it’s our story.

(%$ mine)

Our economy, and our society, is deeply, and possibly ineluctably, corrupt.

It needs to be fixed, which means that many of these people need to be aggressively prosecuted.

An Interesting Historical Data Point

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When we look at the rise of Fascism in the 1930s, they all started with the troika of privatization, tax cuts for the rich and businesses, and shredding the social safety net.

This is quite literally the neoliberal consensus:

It’s time to talk about the Banality of Evil. The Nazis didn’t start with genocide. Heck, they didn’t even start with the Nuremberg Laws. Our education system and popular media focus on the most horrific, the most dramatic, and the most apparent aspects of Fascism. However, Fascism begins in a much less dramatic fashion. In the beginning,Fascism is banal, and to many of us, it is oddly familiar.

 Before the rise of Fascism, both Italy and Germany had a robust social safety net and public services. In Italy, the trains were nationalized, and they ran on time while serving rural villages in 1861. The telecom industry was nationalized in 1901. Phone lines and public telephone services were universally available. In 1908, the life insurance industry was nationalized. For the first time, even poor Italians could ensure that their family could be taken care of if they died a premature death.

Between 1919 and 1921, Italy went through a time of worker liberation that has been dubbed as Bienno Rosso. Italian workers had formed factory co-ops where they shared the profits. Large landlords were replaced by cooperative farming. Workers received many concessions: higher wages, fewer hours, and safer workplace conditions.

………

 Benito Mussolini became Prime Minister in October 1922. Nazis rose to power in 1933 in Germany. Mussolini convened a meeting of his cabinet and immediately decided to privatize all the public enterprises. On December 3, 1922, they passed a law where they promised to reduce the size and function of the government, reform tax laws and also reduce spending. This was followed by mass privatization. He privatized the post office, railroads, telephone companies, and even the state life insurance companies. Afterward, the two firms that had lobbied the hardest: Assicurazioni Generali (AG) and Adriatica di Sicurtà (AS), became a de-facto oligopoly. They became for-profit enterprises. The premiums increased, and poor people had their coverage removed.

 In January 1923, Mussolini eliminated rent-control laws. His reasoning ought to be familiar since that is the same reasoning used in many contemporary editorials against rent control laws. He claimed rent control laws prevent landlords from building new housing. When tenants protested, he eliminated tenants’ unions. As a result, rent prices increased wildly in Rome, and many families became homeless. Some went to live in caves.


 Once more, these policies allowed landlords to increase their profit and holdings while they severely hurt the poor.

 ………

 Hitler’s economic policy was Mussolini’s policy on steroids. In the 1920s, the NSDAP was a minor party. In the 1932 elections, the Nazi Party did not have an outright majority. According to the Nuremberg Trial transcripts, on January 4, 1933, bankers and industrialists had a secret backroom deal with with then Chancellor Hindenberg to make Hitler the Chancellor of Germany in a coalition.

In 1934, Nazis outlined their plan to revitalize the German economy. It involved reprivatization of significant industries: railways, public works project, construction, steel, and banking. On top of that, Hitler guaranteed profits for the private sector, and so, many American industrialists and bankers gleefully flocked to Germany to invest.

The Nazis had a thorough plan for deregulation. The Nazi’s economist, stated,” The first thing German business needs is peace and quiet. It must have a feeling of absolute legal security and must know that work and its return are guaranteed. The interferences In a business which occurred at first, perhaps as a result of too much zeal, have become intolerable.”

………

 Fascism isn’t the merger of corporations and government that is too vague, and too easy to confuse. Fascism is government functions being replaced by private corporations. Fascism is when the public good is replaced by private profit.

(emphasis mine)

If you have ever wondered why the US foreign policy (and its proxies like the IMF) seems to favor entities who could be reasonably described as fascist, this provides some valuable context.

If This Isn’t a Sign of Empire Collapse………

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We are quite literally selling ourselves, and it is horrifying:

America is one of the only developed countries in the world that pays people to donate blood, much of it sold abroad (70% of the world’s plasma is of US origin), and as commercial blood donations have soared, blood now accounts for 2% of the country’s exports — more than corn or soya.

There’s more growth ahead for blood products, expected to “grow radiantly” according to an analyst who was cheering 13% growth between 2016-17.

One study found that the typical blood-seller derives a third of their income from selling blood. Princeton’s Kathryn Edin called the commercial blood industry “the lifeblood of the $2 a day poor.”

Mintpress’s interviews with blood-sellers reveal “a mix of disabled, working poor, homeless, single parents, and college students,” who describe a system of arbitrary and predatory payments, which fluxuate wildly from day to day.

The horror.

Keynes Noted This 80 Years Ago

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John Maynard Keynes wrote about the dangers of destructive speculative capital flows, and now even the IMF is beginning to warm to capital controls:

Advanced economies have delivered a decade of woeful economic growth since the global financial crisis. The last thing the world needs is for emerging economies to be dragged down, too.

Such thinking is taking hold in some parts of Washington, where the IMF is rethinking the once rigidly “neoliberal” advice — stressing open markets and free-floating currencies — that it doles out to economies great and small.

David Lipton, first deputy managing director of the IMF, says one of its primary concerns is that low inflation in the developed world may, through capital flows, be “spreading in an undesirable way to emerging countries and causing them to stagnate”.

“Many of these countries are concerned about how spillovers from advanced world policies cause them to lose some degree of control over their domestic economies.” He questioned whether policies such as currency intervention could be used to “offset this transmission mechanism”.

………

Developing countries run the risk of becoming overindebted as a result of capital inflows reducing borrowing costs. For some such countries, she said, the IMF’s preliminary modelling suggested “capital controls are the appropriate instrument to tackle this overborrowing problem, and they should be imposed as prudential policy in normal times before debt limit shocks strike”.

The use of the phrase “in normal times” suggests that, for some countries at least, the IMF is moving towards endorsing capital controls on a semi-permanent basis, not just in an emergency.

………

One EM economist at a leading bank, who backs the rethink but asked for anonymity given the sensitivity around the subject, said that for decades the IMF “has been guilty of capital account fundamentalism”.

It only took them 74 years for them to get a clue about this sh%$.

One wonders just how many people died before they got a smidgen of a clue.

The Most Evil Bureaucracy in Government

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Matt Stoller is on this.

He is talking, of course about one of the (many) misbegotten spawn of the Clinton administration, the Office of Information and Regulatory Affairs (OIRA) which among other things, literally assigned a price to raping children in prison. (adults too)

This is just one of the abominations, coal ash comes to mind, that these people have been hip deep in:

Today I have a treat for you, an issue of BIG written by an anonymous government lawyer buried deep in the bowels of American bureaucracy. One of the reasons Americans are losing faith in our political institutions is because laws passed by democratically elected officials increasingly don’t matter. One of my favorite regulators, Rohit Chopra at the Federal Trade Commission, said explicitly, as a sort of challenge to the commission, that “FTC orders are not suggestions.”

Of course, laws and regulators that affect the powerful are increasingly suggestions, and that’s why we’re in a political crisis. This anonymous lawyer is going to lay out one of the key institutional mechanisms by which economists and corporate interests wreck our ability to actually have laws take effect once they’ve been passed.

His explanation of how bureaucracy works will show that we should be paying attention this Wednesday to an obscure nomination of a corporate lawyer, Paul J. Ray, to be head of an agency of economists, the Office of Information and Regulatory Affairs, or OIRA. Because OIRA is where power really lives in Washington. It’ll be interesting to see if any Senators show up; Democratic Presidential nominee Kamala Harris is on the relevant Senate committee.

Why Congress Couldn’t Outlaw Prison Rape

Prison rape is one of the most horrifying and abhorrent practices in American culture. Prison rape is pervasive, a form of soft torture so extensive it is the butt of endless jokes in popular culture (as John Oliver noted in a long segment on how Hollywood jokes about the practice). In 2003, Congress unanimously passed the Prison Rape Elimination Act, a bill directing the Attorney General to issue regulations detecting and eliminating prison rape in Federal jails. In 2012, Erich Holder finally did so.

Congress gave discretion to the Attorney General, but because of an obscure regulatory agency, Holder didn’t have the final word. Instead, the Department of Justice was required to conduct an extensive cost-benefit analysis of its proposed rule and submit it to a small group of economists in the White House for their thumbs up on whether the Attorney General would be allowed to finalize the rule.

This group of economists is located in an obscure agency called the Office of Information and Regulatory Affairs, or OIRA, staffed at the time by a close friend of Obama, legal legend Cass Sunstein. Most agencies wishing to put out a must draft an extensive Regulatory Impact Analysis (RIA) detailing the costs and benefits of the rule, justify the need for the rule to OIRA, and make any changes OIRA economists demand. In this instance, technocrats issued a 168-page RIA questioning how much money the rape victims would be willing to pay to avoid rape, or how much they would be willing to accept in exchange for being raped. (The estimates were $310k to $480k for an adult victim, and $675k for a juvenile victim, for the ‘highest’ form of sexual assault.)

In the end, the regulations put forward were cruel and weak, exempting immigration facilities and putting “tight restrictions on inmates who report rape.” It also removed the requirement that prisons actually *do* anything except have a plan to reduce prison rape. Failure to execute on the plan meant they’ll need another plan.

………

The Regulatory Impact Assessment is here, if you want to to go through the cost/benefit analysis of prison-based sexual assault. Or you can just read a key paragraph, which details the amount it is ‘worth’ per victim.-

They also did their best to stop Congressionally mandated regulations for backup cameras (backing over your own kids), coal ash, favored vapes, etc.

OIRA has the authority to do all of this because of Executive Order 12,866, which was signed by President Clinton in 1993 “to reform and make more efficient the regulatory process.” Every president since Clinton has reaffirmed E.O. 12,866, often with their own “twist;” Obama emphasized that agencies should “consider…values that are difficult or impossible to quantify,” and Trump has put in place a regulatory budget. Regardless (especially since OIRA never took consideration of values impossible to quantify seriously), E.O. 12,866 has the end result of elevating economists above scientists and public health experts and giving economists a veto over all health, safety, and environmental regulations.

This may be worse than Clinton’s crime bill, devastation of the social safety net through “Welfare Reform”, and the repeal of Glass Steagall.

The good news is that OIRA is established by executive order, and so can be shut down by executive order.

Unfortunately, the only candidate likely to do this is Bernie Sanders.

Read the whole article for more horror stories about how OIRA has monetized the public good.

Today in Hack Journalism

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The New York Times uncritically reports on a study that shows that a wealth tax would slow down the economy.

The study assumes that none of the money collected will be spent on other programs, so this tax, like ANY tax will have a contractionary effect.

It’s only a few paragraphs down that they mention this.

It’s called burying the lede:

Senator Elizabeth Warren’s proposed wealth tax would slow the United States economy, reducing growth by nearly 0.2 percentage points a year over the course of a decade, an outside analysis of the plan estimates.

The preliminary projection from the Penn Wharton Budget Model, which was unveiled on Thursday in Philadelphia, is the first attempt by an independent budget group to forecast the economic effects of the tax that has become a centerpiece of Ms. Warren’s campaign for the Democratic presidential nomination.

The assessment found that if the tax raised as much new federal revenue as Ms. Warren intends, and if the proceeds went toward reducing the federal debt, annual economic growth would slow from an average of 1.5 percent to an average of just over 1.3 percent over a decade.

The model did not assess growth effects from Ms. Warren’s spending plans, which critics said undercut its findings. Economists who favor Ms. Warren’s plan said the analysis did not accurately account for the economic boost from programs she would fund with the tax revenue, including universal child care, increased education funding and student loan forgiveness.

Instead, it assumed that the tax revenue would be used to reduce the national debt, a move that encourages growth in the Penn Wharton simulation. Had the Penn Wharton model factored in the money’s going into programs rather than paying down debt, it most likely would have produced an even larger drag on growth from the wealth tax.

So, their model calls upon the austerity fairy in order to make their numbers.

This analysis is complete bullsh%$, and the report is even more cow excrement.

Missing the Point

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Over at The Nation, they are wringing their hands over how the recent collapse of coffee prices are devastating small farmers all over the world.

The problem is not the vicissitudes of coffee prices.

The problem is that, as a result of trade policies from the United States and the EU, farmers are forced to move away from growing staples to growing cash crops, which makes those farmers lives even more precarious, because they are subject to the whims of the market, and they cannot eat what they grow.

So they starve, or they are forced to sell their farms.

The problem is heavily subsidized US and EU agricultural products flood their markets, and force them to abandon the production of food crops.

Argentina: 1 — IMF: 0

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Argentine president Mauricio Macri has decisively lost his bid for reelection, showing that the the people of Argentina have gotten sick of the myth of expansionary austerity:

Argentina’s Peronists swept back into power on Sunday, ousting conservative president Mauricio Macri in an election result that shifts Latin America’s No. 3 economy firmly back toward the left after it was battered by economic crisis.

Peronist Alberto Fernandez had 47.79% of the vote, ahead of Macri’s 40.71%, with more than 90% of ballots counted, putting the center-left challenger over the 45% threshold to avoid a runoff and win the election outright.

Macri, speaking at his election party, conceded the race and congratulated Fernandez. He said he had invited Fernandez to the presidential palace on Monday to discuss an orderly transition, seen as essential for Argentina’s shaky economy and markets.

Here’s hoping that this is the beginning of a trend.

The standard neoliberal prescriptions create little more than misery.

Obvious to Anyone Who Worked in the Nuclear Industry

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I spent about 6 months working for a company in the nuclear energy area, and I’ve always known that nuclear power is too expensive and too slow to be a viable solution to anything, including (particularly) anthropogenic climate change:

Nuclear power is losing ground to renewables in terms of both cost and capacity as its reactors are increasingly seen as less economical and slower to reverse carbon emissions, an industry report said.
FILE PHOTO: Cooling towers and high-tension electrical power lines are seen near the Golfech nuclear plant on the border of the Garonne River between Agen and Toulouse, France, August 29, 2019. REUTERS/Regis Duvignau/File Photo

 In mid-2019, new wind and solar generators competed efficiently against even existing nuclear power plants in cost terms, and grew generating capacity faster than any other power type, the annual World Nuclear Industry Status Report (WNISR) showed.

 “Stabilizing the climate is urgent, nuclear power is slow,” said Mycle Schneider, lead author of the report. “It meets no technical or operational need that low-carbon competitors cannot meet better, cheaper and faster.”

 ………

 The extra time that nuclear plants take to build has major implications for climate goals, as existing fossil-fueled plants continue to emit CO2 while awaiting substitution.

It should be noted that if nuclear power were accurately costed, it would cost in excess of ten times as much of any other power source.

The cost of generating solar power ranges from $36 to $44 per megawatt hour (MWh), the WNISR said, while onshore wind power comes in at $29–$56 per MWh. Nuclear energy costs between $112 and $189.

Over the past decade, the WNISR estimates levelized costs – which compare the total lifetime cost of building and running a plant to lifetime output – for utility-scale solar have dropped by 88% and for wind by 69%.

For nuclear, they have increased by 23%, it said.

Note that these costs do not reflect the cost of disposal of radioactive waste, or the cost of the security and non-proliferation measures required for nuclear.

Unless you want a nuclear submarine, or a nuclear weapon, nuclear power is a very bad deal.

An Inverted Yield Curve Predicted Twelve of the Last Five Recessions

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For those who are not up on the term, longer term bonds typically pay more interest than shorter term ones, because they lock up your money for a long time.

When, for example, the 3-month US Treasury pays more than a 10-year treasure, the yield curve is said to be inverted.

This is significant because pretty much every US recession since the end of World War II has been preceded by an inverted yield curve, though, to be fair, a lot of not-recessions have been preceded by inverted yields as well.

Well, we are now seeing a pretty large inverted yield curve:

A widely watched bond market indicator sent its strongest recession warning in more than a decade on Wednesday, as the global growth outlook dimmed and questions swirled about the Federal Reserve’s commitment to cut interest rates in light of rising US-China trade tensions.

The yield on three-month US Treasury traded as much as 41.23 basis points above that on the benchmark 10-year government bond — the widest gap since March 2007. Such an inversion of the yield curve — in which short-term yields are higher than longer-term ones — has preceded every recession of the last half century.

My guess is that this time it is right, because it’s been a long time, and our economic growth seems to be primarily an artifact of speculation and consumer debt, neither of which are sustainable.

Well, this Explains Bird and Lime

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One of the incessant tropes of the draw-by-crayon libertarians is that doing harm to the public is simply bad business.

To quote the Bard of Baltimore, this ,”Is an answer that is clear, simple, and wrong.”

It tuens out that there are many ways in which a business can profit from doing harm, and streets strewn with haphazardly parked scooters is the least of it:

Arlie Russell Hochschild’s Strangers In Their Own Land profiles residents of deeply conservative parts of Louisiana, pondering why they are so opposed to government environmental regulations even as they suffer from environmental catastrophes that stricter regulations could have prevented. I don’t wish here to dive into the many reasons why that is. Instead, I’d like to look at one popular belief that pops up in the book that is very easy to believe but also very wrong. When Hochschild talks to people about the 2010 BP Deepwater Horizon oil spill, she discovers that they are all strongly opposed to Barack Obama’s temporary moratorium on deep sea drilling, even though they were also appalled by the spill. One of the interviewees says the following:

“It’s not in the company’s own interest to have a spill or an accident. They try hard… so if there’s a spill, it’s probably the best the company could do.”

 I think it’s easy to see why people believe this. There’s actually a persuasive-sounding logic to it. Many libertarian economists believe it entirely. The argument, expanded a bit, goes: The fact that corporations pursue their own financial self-interest means that regulation is not needed. A company that causes disasters is certainly not helping its own profits. BP didn’t want to spill all that oil in the Gulf, obviously. BP has every incentive to avoid oil spills, because they want to keep the oil! Accidents happen, no company is perfect, but ultimately profits and safety coincide. A corporate executive who bungles like this is not actually pursuing the self-interest of the company, and so when corporations produce environmental catastrophes it is not because they are pathologically self-interested, but rather because they were not pursuing their self-interest well enough. Greed is still good.

………

It’s true that accidents themselves are not in a company’s self-interest, in that no company gains anything from a horrible accident that destroys their equipment (and possibly their employees’ lives, though from a company’s perspective employees are fungible). But “the behavior that produces accidents” can absolutely be in a company’s self-interest, and accidents don’t always sufficiently damage a company’s self-interest to make it worthwhile to avoid them. Eating the cost of a few accidents here and there might end up being more profitable than extreme precaution.

………

A Friedmanite, i.e. sociopathic, company only has incentives not to hurt people to the extent that there are strong external institutions, in the form of government, media, consumer groups, and labor groups, that can create those incentives. If hurting people doesn’t cost money, then it isn’t in the interest of companies to avoid cheap, risky practices. The “expected return” on a dangerously risky move might be high enough that it is “economically rational” (not to be confused with being “actually rational”).

It’s also important to remember that just because a gamble doesn’t pay off, doesn’t mean it was the wrong move. Even if there are strong coercive external institutions that punish toxic cloud emission, and mean that if you emit the toxic cloud your company will be severely hurt, a company might still take the gamble on Method A, because the potential rewards are so high. If there’s a 99/100 chance that by pressing a given button you get a billion dollars, and a 1/100 chance that you’ll be instantly killed, “self interest” doesn’t necessarily dictate that you’ll stay away from the button. It depends on whether you’re feeling lucky. The 2008 financial crisis was like this. People made piles and piles of money of risky investments, until they didn’t. They weren’t necessarily “failing to pursue their own interest” just because they took risks. For many of them, it was probably a smart move that turned out well. Every company takes risks. What if playing dice with people’s lives actually turns out to be good for BP, on the whole? It might go wrong once or twice, but what if overall they make out pretty well from putting quantity of oil over safety, because the oil makes up for the accident costs? Then what?

………

BP certainly wants to convince the ordinary Louisianans that Hochschild talked to that the company is a partner and friend. Why would we want to hurt you? We’re all in this together! We’re bringing you jobs. We’re cleaning up the spill, and we certainly don’t want another. Don’t believe them. Milton Friedman was quite clear: All they want is money, and if they can convince people that “big government” is bad and regulation is unnecessary, then environmental destruction is costless. (The companies tearing down the Amazon rainforests, and displacing native populations, are behaving precisely as Friedman would have wanted.) Doing harm is only bad for business if we make it bad for business.

I am beginning to think that if corporations are legal people, then most of them need to be committed to a hospital for the criminally insane.

Reality, Bitches, Kansas Edition

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We all know that Sam Brownback promised that his radical program of slashing taxes would unleash an economic powerhouse.

Rather unsurprisingly, it turned into a complete sh%$ show, with Kansas’ budget, economy, and infrastructure turning into a complete sh%$ show.

Well, now that he has been replaced by someone who is ……… well ……… sane, Kansas’ economy and budget have made an impressive turn-around:

Residents of one midwestern state can be forgiven if they have a feeling they are not in Kansas anymore. The Sunflower State finishes a respectable No. 19 overall in this year’s CNBC America’s Top States for Business rankings. That is a 16-place jump from 2018, making Kansas this year’s most improved state.

One year ago Kansas was still nursing a hangover from a disastrous tax-cutting experiment by former Republican Gov. Sam Brownback, who slashed individual income-tax rates and eliminated taxes on “pass-through” income from certain businesses. Even though a bipartisan super-majority of the state legislature had repealed the Brownback program over his veto in 2017, the state was still dealing with a residual $351 million revenue shortfall for fiscal 2018, according to the Center on Budget and Policy Priorities. In addition to its No. 35 overall ranking last year, Kansas finished a dismal No. 45 in the Economy category.

This year the full force of the repeal has taken effect: The state is running a budget surplus. In addition to the 16-point improvement in its overall ranking, Kansas rises 16 points in the Economy category.

“We are returning to our roots as a very progressive, thoughtful, forward-looking state,” Gov. Laura Kelly, a Democrat, told CNBC in an interview. Kelly was elected last year as part of the backlash over the Brownback plan.

Delusiona economics are a cruel mistress.

Look Out Below

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We just got the May job numbers, and it’s pretty grim.

Of course, the stock marked soared, because they believe that this will lead the Federal Reserve to cut rates, because investors are psychopaths.

More significantly, it appears increasingly likely that we are at the leading edge of a downturn:

As of 8:29 a.m. Friday, things were shaping up for the Federal Reserve to face a real conundrum at its policy meeting in less than two weeks.

Some financial market indicators, mainly in the bond market, were suggesting that the economy was weakening and that the Fed would need to cut interest rates in the coming months to prevent a recession. But there was little evidence of a major slowdown — only a few soft data points here and there.

In particular, the United States labor market has been booming, not at all suggesting an American economy in need of rescue with interest rate policy.

The good news out of the Labor Department’s May employment report released at 8:30 a.m. Friday is that the Fed no longer faces a conundrum. The bad news is that it showed a job market that was not as robust as it had seemed.

It’s not just that the economy added only 75,000 jobs last month, far less than the 180,000 forecast. That might be chalked up to the statistical randomness that can cause the numbers to bounce around in ways that don’t reflect the underlying reality of the economy.

More worrisome is that the report also revised previous months’ numbers down by 75,000, meaning that the blockbuster spring job creation rates were considerably more modest.

It is now clear that there really is softer job creation in 2019 than there was in 2018 — an average of 164,000 jobs a month so far this year, compared with 223,000 last year.

………

Perhaps most significant, wage growth is also steady or slightly declining, rather than accelerating. Average hourly earnings for private-sector workers rose 0.2 percent in May, and are up 3.1 percent over the last year. Wages rose 3.4 percent in the year ended in February.

If this really were a situation of softening job growth because employers were up against the constraints of full employment, you would expect them to have to pay more to find scarce workers. Instead, the wage growth picture is steady as she goes.

………

More worrisome is that the report also revised previous months’ numbers down by 75,000, meaning that the blockbuster spring job creation rates were considerably more modest.

Slowing Economy + Rising Food Prices = Civil Unrest

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This is a literally recipe for rioting in the streets.

Business is normally bustling at the sprawling Xinfandi produce market in southern Beijing, where stores, restaurants and thrifty shoppers buy their fruits and vegetables in bulk.

But more apple sellers were napping than hustling one recent afternoon. The price of apples had nearly doubled, to roughly $1 per pound, and people were spending their money elsewhere.

………

Already grappling with a slowing economy and President Trump’s trade war, Beijing now has to worry about the rising price of food. It is not just apples. Other fruits and vegetables are more expensive. The price of pork has jumped as the country deals with a devastating swine fever epidemic. Chicken, beef and lamb prices have been creeping up, too.

When juxtaposed with the current tit-for-tat on tariffs, where the Chinese have placed taxes on American agricultural products, this is a heady mix.