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The Wall of Worry

an excellent post from Scott Grannis at Calafia Beach Pundit, The Bad news is why I am optimistic

Grannis is one of my favorite economics bloggers- and one of the few that seems to combine a sense of harsh reality with a sense of optimism. He is strongly data driven yet retains a human element in his analysis.


As I noted some years ago, all the spending and borrowing that was supposed to “stimulate” the economy was essentially flushed down the toilet. Since 2009 we’ve conducted a laboratory experiment in the power of government spending to grow the economy by stimulating demand, and the result is proof that Keynesian theories are destructive, not stimulative. Neither government spending nor easy money has the power to create growth out of thin air, but politicians want to convince you that they do. The economy is weak today because we have wasted many trillions of dollars on transfer payments that only create perverse incentives to work less.

The biggest negative of them all is that the US economy is not nearly as large and as healthy as it could or should have been, had policies been better designed. This has been the weakest recovery in post-war history, and by a lot. If the economy had rebounded from the Great Recession with the same vigor it displayed in every post-war recovery, national income would be almost $3 trillion higher than it is today, as the chart above illustrates. Per capita income would be almost $9000 higher, and a family of four would be making $35K more every year. That’s real money, and it explains why the electorate is so upset these days with the establishment.


I guess his reasoning is that it is more likely to get better than to get worse.  One can err from excessive pessimism as much as excessive  optimism and the effect on your investments would be worse.

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Selective Free Enterprise


I watched with incredulity as businessmen ran to the government in every crisis, whining for handouts or protection from the very competition that has made this system so productive. I saw Texas ranchers, hit by drought, demanding government-guaranteed loans; giant milk cooperatives lobbying for higher price supports; major airlines fighting deregulation to preserve their monopoly status; giant companies like Lockheed seeking federal assistance to rescue them from sheer inefficiency; bankers, like David Rockefeller, demanding government bailouts to protect them from their ill-conceived investments; network executives, like William Paley of CBS, fighting to preserve regulatory restrictions and to block the emergence of competitive cable and pay TV. And, always, such gentlemen proclaimed their devotion to free enterprise and their opposition to the arbitrary intervention into our economic life by the state.  Except, of course, for their own case, which was always unique and which was justified by their immense concern for the public interest.

From William Simon’s  A Time for Truth, as quoted in Robert Higg’s excellent volume Crisis and Leviathan (1987).  Simon was Secretary of the Treasury under both Nixon and Ford.

Higg’s thesis was that the crisis of WW I and WWII engaged the government in such mobilization that its growth met little resistance.  Government power ratcheted up during these crisis and never returned to their pre-crisis level.Some companies benefited so much for that period and the ensuing dramatic growth in the military industrial complex that the government controlled mixed economy became accepted by business and made peace with their government partner and even sought to use it their advantage.

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Policy Under False Pretenses


from Mark Perry at Carpe Diem,  New BLS data show that for all ‘chief executives,’ the ‘average CEO-to-average worker pay ratio’ is less than 5-to-1

For the sample of 20,620 CEOs reported by the BLS, their average pay increased only 2.1% in 2015, from $216,100 in 2014 to $220,700 in 2015. In contrast, BLS data show that the average pay of all full-time workers increased by the same 2.1% last year to $48,320 from $47,320 in 2014. Therefore, the average worker last year saw an increase in their pay that was exactly the same increase in pay for the average CEO. Over the last decade, the average annual increase in CEO pay of 3.3% is only slightly higher than the average annual increase of 2.5% for workers in all occupations.

In contrast to the more sensational reports we’ll hear about in May from the AFL-CIO, there’s no “skyrocketing of CEO pay” when we consider all CEOs, and the Average CEO-to-Average Worker Pay ratio is less than 5-to-1, nowhere near the 400-to-1 ratio the AFL-CIO is likely to report in a few months for a small, elite group of CEOs that excludes 97.6% of all CEOs in the US. The chart above shows that the pay gap between CEOs and the typical worker has remained remarkably stable and flat for the last decade, and shows no upward trend that could be described as “skyrocketing.”


This is a common form of distortion in data used to enact policies under false pretenses.    It is also a common case of journalistic malfeasance that such distortion are rarely countered is most mass market media.

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Protecting Jobs vs Protecting Votes


From Barron’s and  Thomas Donlan,  Trading Promises About the Trans-Pacific Partnership-Politicians are the threat to rising incomes and global prosperity.

The AFL-CIO and much of the Democratic Party at large (though thankfully not the White House) are working their way toward outright protectionism. They have convinced themselves that the North American Free Trade Agreement caused most of the U.S. manufacturing decline, and they expect the same from every new trade agreement.

In a political sense, this is not unreasonable, because trade agreements do facilitate globalization, technological change and increased productivity, wherever they take place. It happens that many of the U.S. industries most affected are older industries that were unionized and cartelized before they faced international competition.

But trade agreements are a small part of the overall trend and don’t cause serious job losses in the U.S. that wouldn’t have taken place otherwise. Unions and their friends just want to preserve political power.

Even in the supposedly halcyon days of the 1950s and 1960s, U.S. businesses were moving overseas to serve new markets and find greater opportunities for productive investment. With regulation and taxation, the U.S. has been pushing jobs out of the country for decades, with cumulative effects that can’t be cured with more laws, more regulation, and more taxation.


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Short Term Policy Horizons

Firms Shy Away from Spending-  Eric Morath in the WSJ

Companies appear reluctant to step up spending on the basic building blocks of the economy, such as machines, computers and new buildings. The broadest measure of U.S. business investment advanced 2.2% from a year earlier in the third quarter, the Commerce Department said last week, marking one of the worse performances of the six-year-old economic expansion.

Other measures show an even gloomier picture. A gauge of capital expenditures—orders for nondefense capital goods excluding aircraft—declined 3.8% through the first 10 months of the year compared with the same period in 2014, according to government estimates.

Weak investment restrains economic output, one key reason the economy has struggled to grow faster than 2% in recent years. The weakness also saps the economy’s future potential. Capital expenditures are an important ingredient in improving employee productivity, which has grown at an anemic pace in recent years but is critical to workers’ wages and corporate profits.


the article omits any consideration of the toxic mix of stupidly cheap money and tipping point friction costs, including the unfriendly reception given to capital. I also contend that the lack of faith that any tax policy will survive more than a single  Congressional session chills the willingness to invest for the long term. The problem isn’t short term thinking of business, it is the short term horizon of policy makers.