Thursday, July 2, 2015

Krugman to Puerto Ricans: Ditch Your Island

Paul Krugman, who, I must add, received his Nobel Prize for work in economic geography, doesn't seem to understand the law of comparative advantage,

He seems to think it doesn't apply to Puerto Rico and that nothing can be done there to turn things around:
There is much discussion of what’s wrong with Puerto Rico, but maybe we should, at least some of the time, just think of Puerto Rico as an ordinary region of the U.S.; at any given time, we expect some regions to be in relative and maybe even absolute decline, as the winds of technology and global trade shift. 
His solution:
 [O]utmigration need not be such a terrible thing.
This is his solution despite the fact that he admits :
Puerto Rico does, of course, have warm winters and beaches.
And despite his absurd  "leave the island" policy solution. at some level he does understand the real problem:
Now, you might argue that this is just an argument for big wage cuts. But Puerto Rico is part of the United States, and its residents are US citizens. This tends to put a floor under wages, in several ways. The New York Fed [http://www.newyorkfed.org/outreach-and-education/puerto-rico/2014/report-main.html] emphasizes the effects of the federal minimum wage and relatively generous federal safety-net programs (given low productivity) that may cause people to choose exit from the work force in the face of low wages.
But Krugman will not stand for cuts in the minimum wage or federal hand out programs, he wants Puerto Ricans to leave the island instead.

 -RW

Is Planetary Defense Against an Asteroid a Public Good?

MRUniversity, run by Dr. Tyeler Cowen and Dr. Alex Tabarrok, recently put out the below video arguing that planetary asteroid protection is a public good.





I asked Professor Walter Block (who has with Peter Nelson just completed a book on privatizing oceans and they are now working on a book about privatizing space) to comment on the video.

Dr. Block replied:
Dear Bob:

The doctrine of "market failure" is the stick with which the opponents of free enterprise use to beat up on supporters of economic freedom. "Market failure" as its name implies, practically invites government intervention. It is sad to see that Alex Tabarrok and Tyler Cowen, who supposedly support laissez faire capitalism buying in to this pernicious doctrine. Even worse, they totally ignore a large literature, emanating from Austrian economists, who debunk this fallacy. On this see right here:

Varoufakis Would 'Cut Arm Off' Before Signing Accord

Greek Finance Minister Yanis Varoufakis said he would "prefer to cut my arm off" than sign a new accord that doesn’t restructure Greece’s outstanding debt.

The Student Loan Bubble: Gambling with America's Future

By Addison Quale, Precious Metals Specialist at SchiffGold

The federal government can’t seem to help itself. After overseeing the inflating and bursting of the dot-com bubble in the 1990s and the subprime mortgage bubble in the 2000s, the United States government is at it again – this time in the area of student loans.

Student loan debt now stands at a record $1.2 trillion, which represents the second largest category of consumer debt after home mortgages. It has grown by leaps and bounds since the financial crisis of 2008 and now surpasses even car loans and credit card debt.




As many are aware, the subprime mortgage bubble was encouraged by politicians’ desires to guarantee the American Dream of a home to all Americans – regardless of their credit rating. Generous home loans were offered to people with little wealth or income, and therefore no realistic ability to actually pay them back. But with artificially depressed interest rates and the assumption that home prices would never cease to rise, it didn’t seem like such a bad idea. And with Uncle Sam implicitly guaranteeing to buy these risky mortgages from banks no matter what, subprime mortgage lending exploded.

Greek Finance Minister Says He’ll Resign if Referendum Endorses Bailout

 Finance Minister Yanis Varoufakis of Greece said on Thursday that he would resign immediately if Greeks voting in a referendum on Sunday endorse efforts to secure an international bailout deal for the country.

NYT concludes:
His comment is the starkest sign yet that the government of Prime Minister Alexis Tsipras is likely to be reshuffled or could even fall if a yes vote prevails....
If Greeks instead vote yes, it would signal their desire to accept the bailout with austerity conditions that Mr. Tsipras has been pushing against, and it would effectively be a repudiation of Mr. Tsipras and his government’s negotiating strategy. That could lead not only to to Mr. Varoufakis’s resignation but also to the withdrawal of numerous other government members from Mr. Tsipras’s leftist Syriza party — and possibly of Mr. Tsipras himself.

I made this same point on Tuesday:
The Sunday referendum in Greece for all practical purposes should be considered a vote on the current Syriza government. If the Greek  Prime Minister Alexis Tsipras does not get the "No" vote he is asking for on the referendum to reject a recent Eurogroup bailout proposal that includes higher taxes and cuts in government pension payouts, then the Tsipras government will likely collapse.

 -RW

Price Deflation is Not a Disaster, But a Blessing

By Jesús Huerta de Soto and Philipp Bagus

he ECB has finally launched its own open-ended Quantitative Easing (QE) planning to buy securities worth of €1.1tr euros. This unprecedented move requires a convincing justification. One argument in favor of QE is the low rate of price inflation in the Eurozone which allows the ECB to sell its program as countering a slide into deflation. Deflation is widely considered as the worst case scenario. The Economist claimed that deflation is “the world´s biggest economic problem”. Christine Lagarde called deflation an “ogre.”

But is the deflation phobia really justified? Is price deflation a problem for the economy as a whole?

To answer the question it is important to take an unbiased look upon the phenomenon of decreasing prices. A price is simply a historical exchange relationship. In every exchange there are two parties, a buyer and a seller. Of course, when prices fall, buyers benefit. It is true that falling prices cut the sales revenues of companies. Yet, essential to companies are not the sales but profits, i.e. the difference between revenues and costs. Companies can earn profits at higher and at lower price levels, depending on what happens on the cost side.

Read the rest here.

What It is Like for Greeks with the Banks Closed

WSJ reports:

ATHENS—At an automated teller machine underneath the Acropolis, Angeliki Andreaki clutched her debit card with both hands. She pays her bills in cash, and €330 in rent and €39 in telephone bills were due Wednesday.

“Tsipras has turned this country into North Korea,” the 83-year-old Ms. Andreaki said Tuesday, shaking her head about Greece’s prime minister, Alexis Tsipras. “I can’t believe at this age I have to line up to get rationed cash.”

She withdrew as much as she could—just €60 ($66)—and went straight to pay her phone bill. She said she would have to come back for five more days to get enough cash for the rent.

This is everyday life in Greece since it shut down its banking system and imposed controls to prevent money from flooding out of the country...

By Wednesday, many ATMs in central Athens had constant lines of people waiting to withdraw their daily limit. The crunch has suffused the economy. Merchants report lower spending. Wholesalers can’t pay for supplies. Importers’ foreign counterparts won’t trade.

Airline Ryanair Holdings PLC, which flies to Athens, Thessaloniki and other Greek cities said Tuesday it would accept cash for tickets at airports because Greek customers have had trouble paying with debit cards. Ryanair is based in Ireland, and electronic payments abroad are prohibited.

“The worst nightmare as far as the business community is concerned has come true,” said Constantine Michalos, the president of the Athens Chamber of Commerce and Industry.

Mr. Michalos also has a food wholesaling business, and 65% of his product line is imported. As of this week, his foreign suppliers aren’t sending any more, leaving him with about 20 days of remaining inventory. “I have the ability and necessary funds in my bank account to import,” he said. “I am not allowed to make an electronic transfer.”

Greece’s cash crunch hit small merchants first. They are less able to get credit from their suppliers, especially those dealing in perishable products that are continually imported. Christos Georgiopoulos owns a gourmet supermarket in Plaka, a picturesque Athens neighborhood frequented by tourists. He sells Champagne and Russian crab legs.

Nobody is buying. “I haven’t had a single customer in two days,” he said Wednesday. He is shutting down his shop and says he doesn’t know when he will reopen. He gave some crab legs to his workers and is taking some home. “I haven’t paid my staff and don’t know if and when I will,” he added.

Marie Palandjian-Raxevsky, marketing director at Mini Raxevksy, a Greek children’s clothing brand, depends on Google Inc. advertisements to generate sales from consumers in Greece and elsewhere.

Late Tuesday night, she got an email saying her Greek corporate credit card, which pays for the ads, was declined. “Now our campaign has completely disappeared,” she said.

Who has cash and who doesn’t is often arbitrary. Aspasia Kourana, an 80-year-old retiree, was shopping Tuesday at one of Athens’s many open-air fruit and vegetable markets, a staple in neighborhood life here known as laiki.

She got her monthly pension of €600 last Thursday. Her daughter withdrew it all the next day.

By Monday, Ms. Kourana’s daughter and son-in-law couldn’t get more than €60 of their respective salaries out of the bank. “We’ll use my €600 pension for the next few days,” Ms. Kourana said. “I might even get some cherries for my grandson. He loves them.”

With bank branches closed, retirees who don’t have ATM cards were frozen out entirely this week. On Wednesday, the government let them into some banks. In the morning, pensioners filed in to the National Bank of Greece’s neoclassical building in central Athens. A man at the entrance handed out tickets and turned away other customers. A sign said retirees could take no more than €120.

Next door at a branch of Alpha Bank, retirees were split into three groups by the first letter of their last names. The first group was told it could withdraw money Wednesday. Those whose last names start with Greek letters nu to omega will have to wait until Friday....

Cash is king. “Now you have almost every cardholder going to the ATM every day,” said Stefanos Kotronakis of payment-processing provider ACI Worldwide in Athens, which operates systems that drive ATMs. “Cash has a higher value now.”

Wednesday, July 1, 2015

The Powerful and Evil Central Planning Board Inside Obamacare

Without some evil medical "decider" board to determine who should get what treatments, Obamacare costs would soar completely out of control. Inside Obmamacare that medical decider board is officially known as the  Independent Payment Advisory Board.

It's pure central planning, where a government board decides how to ration medical care.

WSJ explains:
ObamaCare’s central planners knew that subsidies and “free” health care would drive up health costs, so they hyped various cost-control gimmicks that will make little difference if they work at all. But IPAB is supposed to be the killer app. Peter Orszag and the Obamateers designed it to be insulated from politicians in Congress who might object if the bureaucracy restricts breakthrough but expensive treatments.
Congress and the President would have to agree to an alternative cost-cutting proposal to overrule an IPAB decision. If Congress doesn’t repeal IPAB during a seven-month window in 2017, not even an agreement by Congress and the President will be able to supercede the board’s rulings after 2019.
Initially, IPAB is supposed to limit Medicare spending to a measure of inflation. After 2017 the target is the nominal per capita growth rate of the economy plus one percentage point. These targets will get harder to hit as baby boomers age and more advanced treatments come online for chronic conditions like Alzheimer’s.
ObamaCare putatively forbids IPAB from rationing or restricting care. But to adapt Humpty Dumpty, rationing means what IPAB chooses it to mean. As progressive single-payer champion Howard Dean explained in these pages (“The Affordable Care Act’s Rate-Setting Won’t Work,” July 28, 2013), IPAB will de facto determine which procedures and drugs get covered by setting reimbursement rates. IPAB will be able to restrict treatments by reducing rates to levels at which no doctor could provide care.
 -RW

The Question Before Greeks in Sunday's Referendum

Here's the Sunday referendum question being put before the Greeks:
Should the agreement plan submitted by the European Commission, European Central Bank and the International Monetary Fund to the June 25 eurogroup and consisting of two parts, which form their single proposal, be accepted? The first document is titled 'Reforms for the completion of the Current Program and Beyond' and the second 'Preliminary Debt Sustainability Analysis'.
Not approved/NO
Approved/YES
A poll published in the Efimerida ton Syntakton newspaper found that 54 percent of likely voters would vote "no" on the ballot question with 33 percent in favor. The gap, however, appeared to be narrowing.

Among the problems with this referendum is that the European Commission has already pulled the agreement the  Greeks will be voting on.

More problematic is specifically a "No" vote, since Prime Minister Alexis Tsipras appears to have no plan in place if voters do  reject the EC proposal (which is now off the table.)

Tsipras appears to think that he will be able to bring a "no" vote result as a club to negotiations with the EC. In other words, Tsipras doesn't seem to get that the EC doesn't care about his referendum or the results of a vote on it.

Since most Greek government debt is now held by transglobal government agencies, there is no private sector bankster-establishment-elitist pressure to get a deal done. They really don't care. It's the EC terms or the Grexit highway.

It's almost as though Tsipras doesn't get that German Chancellor Angela Merkel is not a left-wing radical socialist and that she feels no obligation to support a Greek socialist economy.

-RW

(Referendum translation by the BBC)





Moonlighting on the Rise or the First Signs of a Dramatic Change in the Nature of Work?

Justin Fox at Bloomberg has done some interesting number crunching, which suggests a climb in people moonlighting. He writes:


The Census Bureau's "nonemployer businesses" are sole proprietorships, partnerships or corporations that have no employees but report $1,000 or more in annual receipts -- unless they're in construction, in which case the cutoff is $1. In the chart below I also include the BLS data series on self-employment, which is derived from the Current Population Survey and only goes back to 2000 because that's when the government started keeping track of the incorporated self-employed along with the unincorporated self-employed. If every nonemployer business were a full-time job, the two lines would presumably overlap. They don't -- so the gap roughly represents people who are getting business income on the side.
Given how different the data sources are (tax returns versus a survey), this is only a rough approximation. But the gap is definitely growing. Also, the Census Bureau actually tightened its screens for identifying nonemployer businesses starting in 2009, meaning that the gap has probably been growing even faster than the chart shows.

In 2013, there were about 8 million more nonemployer businesses than people reporting that they were self-employed. This is a lot of people.

Fox then advances this theory:
[I]t may well be that we are on the cusp of dramatic change in the nature of work as technology destroys jobs and possibly enables new kinds of independent and semi-independent work. There are certainly a lot of people in Silicon Valley and elsewhere betting on this. We just haven't gotten there yet.
-RW

Happy Fourth of July (Business Cycle Boom Edition)

This will not end well, the boom-bust cycle never does, but we are certainly in the fireworks stage now.

(Chart via Ed Yardeni)

A Super Warning on Chris Christie's Economy

And this guy is running for President?



(ht Murray Sabrin)

Yet, Another Greek Bailout Proposal Rejected

A new proposal for budget cuts and policy overhauls from Greek Prime Minister Alexis Tsipras was dismissed by European officials Wednesday as insufficient to revive negotiations over a new bailout for Greece.

German Chancellor Angela Merkel signaled she is not about to tolerate any Greek half measures..

“A compromise at any cost would only be a result in order to get a result, only because one isn’t able to live with a conflict because one is afraid to fight the battle,”  Merkel said.

It continues to baffle me, but it appears that Tsipras has no plan B and has not yet even ordered up the printing of a new Greek currency, as an alternative option.

-RW