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Regulatory Rent Seeking

from David Goldman at The Asian TImes, Deplorably, Trump is going to win

That’s not why Trump crushed the Republican primaries. He won because Americans are tired of an economic elite that ignores them. Americans know the game is rigged against them. For generations Americans could make there way from the bottom to the top of the heap by starting businesses. In some periods more of them succeeded than others, but everyone knew someone who got rich more or less honestly. That came to a crashing end during the Obama Administration. There were fewer small firms with fewer workers in 2013 than there were in 2007.

Corporations are making money by gaming the regulatory system rather than deploying new technologies. Close to half of the increase in corporate profits during the past decade can be attributed to regulatory rent-seeking by large corporations, according to a June 2016 study by Boston University economist Jim Bessen. Bessen concluded that “investments in conventional capital assets and R&D account for a substantial part of the rise in valuations and profits especially during the 1990s. However, since 2000, political activity and regulation account for a surprisingly large share of the increase.”

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Ignore My Transgressions

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From Kevin Williamson at National Review,  Move On

“Move on!” is a strange demand to make on behalf of a woman such as Mrs. Clinton. “Move on!” means drawing a line at the current moment in the timeline, leaving the past to the past and dedicating now to the future. That sounds appealing from a certain addlepated and idealistic point of view, but if you are running on a long record in public office and on yor experience, insisting that the past is a foreign country is odd, indeed. In 2000, a young and fresh-faced Barack Obama might have plausibly used “move on!” as a slogan: The country certainly was ready to move on from the Bush years, and he was youthful, energetic, and relatively new to the scene. Mrs. Clinton has many qualities that she might offer voters, but she soon will be running hard up against her 70th birthday, and her campaign of 1990s nostalgia represents the opposite of a break with the past. She is offering the very freshest political thinking of 1968 when she isn’t sidelined into the latest cutting-edge policy ideas from 1916.

But consider this: President Clinton’s performance in office demanded a “move on!” Mrs. Clinton’s performance as first lady, aiding and abetting her husband’s various misdeeds (which were far from limited to sexually preying on the help) inspired a great deal of “move on!” Mrs. Clinton’s time in the Senate called for a “move on!” of its own. Her tenure as secretary of state was “move on!” after “move on!” after “move on!” She’s still demanding we “move on!” today, and her hangers-on sing a “move on!” chorus day and night.

It says something about the Clintons that every time a member of that sorry clan is given a position of public trust, it ends with a demand that we forget how they abused that trust and instead “move on!”

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The True Cost of Low Rates

From Barron’s Stephanie Pomboy: A Grim Outlook for the Economy, Stocks by Leslie Norton

In the past rates that were too high were the trigger (for a financial crisis). Not this time. No. 1, we have basically bankrupted corporate and state and local pensions by having rates at these repressive levels. If you lay on top of that a decline in equity prices, there will be a scramble to plug holes in pensions. Obviously if a state or local government has to divert funds to plugging its pension, it won’t build more roads. The corporate sector has the luxury of kicking the can down the road, and because their spending has been on buybacks, not plants and equipment, the economy would suffer less. For S&P 1500 companies, the pension deficit is roughly $560 billion, but for state and local governments, it’s $1.2 trillion. According to the Center for Retirement Research, if you used a more conservative discount rate, the unfunded liability would go to $4 trillion.

No. 2, you’re pushing consumers to the brink as they try to save enough for retirement at zero rates. You’re already seeing a reluctant return to credit-card usage, a clear sign of distress—they are charging what they previously paid with cash. The credit-card delinquency rate is picking up.

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Stifling Inflation and Productivity

From The Reasons Behind the Obama Non-Recovery by Robert Barro in The Wall Street Journal

The main U.S. policy used to counter the Great Recession was increased government transfer payments. Federal social benefits to persons as a ratio to GDP went from 8.7% in 2007 to 11.7% in 2010, then fell to 10.9% in 2015. The main increases applied to Medicaid, Medicare, Social Security (including disability) and food stamps, whereas unemployment insurance first rose then fell. Unfortunately, increased transfer payments do not promote productivity growth.

The 2007-08 financial crisis was also followed by vast monetary expansion involving increases in the balance sheets of the Federal Reserve and other central banks. The Fed’s expansion featured a dramatic rise in excess reserves, used to fund increased holdings of Treasury bonds and mortgage-backed securities. Remarkably, the strong monetary growth came without inflation.

The absence of inflation is surprising but may have occurred because weak opportunities for private investment motivated banks and other institutions to hold the Fed’s added obligations despite the negative real interest rates paid. In this scenario, the key factor is the flight to quality stimulated by the heightened perceived risk in private investment.

HKO

High monetary growth without inflation happened because:

  1. High friction costs stifled investment. Included is the accumulation and addition of regulations and the uncertainty; every increase in regulation and taxation is followed by calls for more.
  2. The combination of low interest rates and higher friction costs meant that the prudent use of the cheap money was stock buy back rather than increases in productive investment. Misguided corporate incentives that pay for increased shareholder value rather than higher productivity or better return on assets (as opposed to equity) exacerbated this trend.
  3. Low velocity of money. Related to the above, individuals reduced debt and curtailed both consumption and investment.  The individuals still have some control.

 

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A Foundation of Power

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From Jonah Goldberg at National Review, House Clinton and the Wages of Corruption

Hillary Clinton recognized that her ambitions could only be realized by hitching herself to her sociopath husband. No doubt that decision had its downsides, but look where she is now. Let’s not pretend she didn’t make peace with her husband’s ways a long, long time ago. She was happy to make $100,000 on cattle futures, after all. When the Clintons left office they created a “foundation” whose chief purpose was to give form and function to House Clinton, a modern day version of a medieval aristocracy. The House of Medici did many good things. They fed the poor. They built cathedrals. But their good works were the price of power, not the purpose of the power. The Clinton Foundation does some good things, I’m sure. But the charitable work should be seen for what it is: the cost of business. Mob bosses buy ice cream cones for poor kids. When Marlo Stanfield becomes the big man in The Wire, he’s quick to have his goons hand out money to the school kids for new clothes.

No doubt the Clinton Foundation is full of well-intentioned people who are committed to making the world a better place. But the idea that the core mission of the Clinton Foundation is to do good works is absurd. The core mission of the Clinton Foundation is to expand the empire of House Clinton (and improve the lifestyle of the Lords of the Keep). This is obvious not only from their own accounting, but from everything we know about how Bill and Hillary Clinton have conducted themselves. The mere fact that Sidney Blumenthal was on the foundation’s payroll tells you all you need to know. The Gates Foundation or Oxfam would never hire Sidney Blumenthal because they have no use for a malevolent and lugubrious political mercenary.