Saturday, October 31, 2015

Why Martin Shkreli Raised the Price of an AIDS Drug by 5,000%

Holman W. Jenkins, Jr. at WSJ explains the government programs, incentives and regulations that made it a logical business decision to do so:
 The plague of third-party payership encouraged by the tax code, Medicare, Medicaid and ObamaCare helps make it possible for the industry to hike prices without losing sales.

Probably no unpronounceable name is more pronounced lately than Martin Shkreli, whose company, Turing Pharmaceuticals, bought the rights to an AIDS drug and raised the price 5,000%. His argument (we’re paraphrasing): “Thanks to the environment Washington has given me, I can make more money for shareholders by jacking up the price of the drug because customers will keep buying it.”

The exception that proves the rule was the reaction of another drug maker, Imprimis, that took advantage of a federal regulation that lets manufacturers market an unapproved drug made by mixing approved substances. Imprimis offered a cheaper substitute for Mr. Shkreli’s jacked-up drug, but, sadly, the loophole it exploited is one applicable to AIDS treatments and few others.

Valeant is another company in the news for following the Washington incentives to a tee. It pared back investment in new drugs in favor of acquiring existing products, then ran up their prices. It transferred its legal domicile to Holland to escape onerous U.S. taxes on non-U.S. profits. Last week it came under suspicion for dealings with pharmacy companies aimed at making sure patients, when their doctors prescribe a Valeant product by name, get the Valeant product and not a cheaper substitute.

Unfortunately, if one rule prevails in American health-care policy, every problem must be tackled by doubling down on the policy mistakes that created the problem. Is health insurance being priced out of sight because of the inflationary impact of subsidies+regulation? Then double down on subsidies+regulation as the Affordable Care Act did.

Trump Warns Wall Street Journal




I Paid $300 for a $60K Round-the-World Adventure

You could consider this entrepreneurship (in a Kirznerian sense)  -RW

By Zachary Kussin



hink it’s impossible to shell out just a few hundred bucks to fly around the globe — in mega-pampered first-class seats, no less? It’s not.

Sam Huang, a 26-year-old blogger, is living proof that credit cards, as well as loopholes in airline policies, can result in major travel perks. In this case, he paid a mere $300 for a flight that normally would have cost him about $60,000.

Huang’s legendary 21,136-mile trip, which he documented on his TopMiles site, took him to seven countries and 11 cities across five continents, all on Emirates, with stops in faraway locations including Singapore, Sydney, Mauritius, Dubai and Milan.

Huang made this global trek possible, in part, by signing up for credit cards from Bank of America. The bank has an agreement with Alaska Airlines, which is also a Mileage Plan partner with Dubai-based premium airline Emirates.

Read the rest here.

INSANE Sweden Pulling ATMs, Wants to Ban Cash

Joe Salerno reports:
The Swedish government abetted by its fractional-reserve banking system is moving relentlessly toward a completely cashless economy.  Swedish banks have begun removing ATMs even in remote rural areas, and according to Credit Suisse the rule of thumb in Scandinavia is “If you have to pay in cash, something is wrong.”  Since 2009 the average annual value of notes and coins in circulation in Sweden has fallen more than 20 percent from over 100 billion to 80 billion kronor.  What is driving this movement to destroy cash is the desire to unleash the Swedish central bank to drive the interest rate down even further into negative territory.  Currently, it stands at -0.35 percent, but the banks have not passed this along to their depositors, because depositors would simply withdraw their cash rather than leave it in banks and watch its amount shrink inexorably toward zero.   However, if cash were abolished and bank deposits were the only form of money, well then there would be no limit on negative interest rate policy as banks would be able to pass these negative interest rates onto their depositors without adverse consequences.  With everyone's wages, salaries, dividends etc, paid by direct deposit into his bank account, the only way to escape negative interest rates would be to spend, spend, spend.  This, of course, is precisely  what the Keynesian economists advising governments and running central banks are aiming at....a pro-cash resistance movement is beginning to coalesce and the head of a security industry lobbying group relates,  “I’ve heard of people keeping cash in their microwaves because banks won’t accept it.”

NOTE: As Walter Block has correctly pointed out a "negative" interest rate is really a tax.

From Dr. Block's paper Negative Interest Rate: Toward a Taxonomic Critique:

A basic principle of Austrian economics is that the originary rate of interest (the rate of discount of future goods compared to present, otherwise identical, goods) can never be negative. The reason for this arises not because capital is productive, nor out of man's psychology. Nevertheless, in spite of the foregoing, there are many benighted souls who insist upon the possibility of a negative rate of originary interest. They are continually discovering cases which "prove" their conclusion. The number of such examples has reached such proportions that it seems advisable to take account of them in a systematic way. Accordingly, this paper is devoted to classifying them in a manner that makes the most intuitive sense: in accordance with the economic errors which are necessarily committed in their very statements.
 -RW

Ted Cruz Denounces "Shockingly Bad" Budget Deal

Of course, he is correct to do so. 

The office of Senator Ted Cruz released this statement on Friday:

WASHINGTON, D.C. — U.S. Sen. Ted Cruz (R-Texas) today delivered a speech on the Senate floor, denouncing the shockingly bad budget deal and outlining the Republican establishment’s multitude of broken promises.

Excerpts of Sen. Cruz’s speech can be read below. Watch the speech in its entirety here.

Mr. President, for many months, I’ve been speaking about what I call the Washington Cartel. The Washington Cartel consists of career politicians in both parties who get in bed with lobbyists and special interests here in Washington and grow and grow and grow government. The Washington Cartel is, I believe, the source of the volcanic frustration Americans face across this country. And it is difficult to find a better illustration of the Washington Cartel than the charade we are engaged in this evening. This deal that we are here to vote on is both shockingly bad on the merits, and it is also a manifestation of the bipartisan corruption that suffuses Washington, D.C.

What are the terms of this budget deal? Well, in short, what the House of Representatives has passed and what the senate is expected to pass shortly is a bill that adds $85 billion in spending increases…$85 billion in spending increases…$85 billion to our national debt…85 billion to your children and my children that they’re somehow expected to pay. I don’t know about your kids, but my girls don’t have $85 billion laying around in their rooms…”

…It’s worth thinking about just how much $85 billion is. It’s more than the Senate negotiated with the House when Sen. Harry Reid (D-NV)2%
 was majority leader. When Harry Reid was majority leader, the Ryan-Murray budget agreement, which was a flawed agreement, an agreement I voted against, increased spending by $63 billion over two years. Now, Mr. President, what does it say to you that a supposedly Republican majority of the United States Senate negotiates a bigger spending bill than Harry Reid and the Democrats?

…Republican majorities have just given President Obama is a diamond-encrusted, glow-in-the-dark AmEx card. And it has a special feature. The president gets to spend it now, and they don’t even send him the bill. They send the bill to your kids and my kids. It’s a pretty nifty card. You don’t have to pay for it. You get to spend it and it’s somebody else’s problem.”

…Let me point something out. You know, this bill that we’re voting on, this bill was not cooked up overnight. This wasn’t a slapdash on a post-it note last night. This represents days or weeks or months of negotiations. This represents the Cartel in all of its glory because this is the combined work product of Rep. John Boehner (R-OH)37%
 and Rep. Nancy Pelosi (D-CA)9%
 and Mitch McConnell and Harry Reid. The entire time Republican leaders have been promising, ‘We’re going to do something on the budget. We’re going to rein in the president,’ they have been in the back room negotiating to fund every single thing Obama did.

…Now, if someone is an effective Democratic leader, you would expect them to be able to pass legislation when a majority of Democrats supported it and a majority of Republicans opposed it — if you’re a partisan Democrat, that would be almost the definition of an effective Democratic leader. Nineteen times in the last ten months this so-called Republican majority has passed legislation, has had a vote succeed where a majority of Democrats supported it and a majority of Republicans opposed it…

Friday, October 30, 2015

I Grieve For My Discipline: Naïve Empiricism in the Extreme

Don Boudreaux writes an econ student:

Mr. Yong Park

Dear Mr. Park:

Thanks for your e-mail.

Objecting to my prediction that a 107-percent increase in the minimum wage (to $15 per hour) will destroy many jobs for low-skilled workers, you accuse me of “raising theorizing over necessity of data,” and of making a prediction that “is not scientifically supported yet.”  You believe that because we have no empirical data on such a steep hike in the minimum wage at the national level in the U.S, we can say nothing about its likely consequences.

I’m sorry, sir, but your empiricism is naïve in the extreme.  As my friend Lyle Albaugh points out, the absence of empirical observations of the consequences of an atomic bomb being dropped on New York City does not prevent us from justifiably predicting massive death and destruction in Gotham should such a bomb be dropped.

A great deal of evidence of the consequences of other minimum-wage hikes – in combination with enormous amounts of evidence, experience, and theory showing that individuals’ likelihood of doing X falls as their cost of doing X rises – supply sufficiently powerful scientific justification for predicting that a more-than-doubling of the real minimum wage will destroy jobs for many low-skilled workers.  To counsel “silence” on this question unless and until we have “enough empirical data” is not, contrary to your claim, “to insist on economists being scientifically modest.”  Instead, such counsel is to insist on economists being unscientifically moronic.  It is to insist that we abandon reason.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University

The above originally appeared at Cafe Hayek.

The US Stock Market Just Finished Its Best Month in 4 Years

The Dow Jones Industrial Average rose 8.5% in October, its biggest monthly percentage gain in four years. Thank you, Janet Yellen.

In addition to the Dow industrials’ big gain, the S&P 500 rose 8.3%.

It's a near global money printing craze.

In Europe,  the Stoxx Europe 600 climbed 8%, its largest monthly percentage gain since July 2009. Japan’s Nikkei rose nearly 10%, the biggest percentage climb since April 2013.

The idea that we are somehow in a Bear Market makes no sense. As I have been reporting in the EPJ Daily Report, there was a bit of a slowdown in money printing by the Fed over the summer, but that is now over. The major threat now is greater than generally anticipated price inflation in 2016.

-RW

The Economic Collapse in China is Really Getting Serious (So Chinese Officials Ban Golf)

By Simon Black

High up Yuntai mountain in China’s Henan province is a glass bridge that lets tourists walk out across the sky and look down at the lush valley floor over 3,000 feet below.

Glass walkways like this are quite popular across China, stunning visitors with both beauty and the thrill of danger.

Recently, this one cracked. And many tourists took to social media claiming that pieces of glass in the walkway broke away altogether.

The government of course is spinning a different story.

They reported that the glass walkway is completely safe, even though they’ve decided to close the bridge ‘temporarily’.

This is probably the best metaphor for the entire Chinese economy right now, because the glass is cracking everywhere.


China’s manufacturing sector has been weak for months, and its industrial sector is completely in the dumps.

This week the deputy head of the China Iron and Steel Association said that “China’s steel demand has evaporated at unprecedented speed as the nation’s economic growth slowed.”

There are more signs of contraction all across the economy.

Life Once the Accelerating Price Inflation Hits?


James Gourley emails:
Is this a teaser for the coming mayhem resulting from price inflation?
Police responding to the incident said "When the Waffle House employee tells you the sausage biscuit is no longer $1 and the new price is $1.50 please refrain from punching the glass door open while storming out."

http://news.blog.ajc.com/2015/10/26/police-angry-biscuit-lover-breaks-glass-at-brookhaven-waffle-house/

Monetary Central Planning and the State

Dear Bob,

I was the guest recently on the webinar show, “Rethinking the Dollar,” to discuss my recently published book, “Monetary Central Planning and the State.”

I explained the relationship between government central planning in general and the nature and the inherent problems with monetary central planning as one example of a form of central planning.

In this case, the lack of a competitive market process to determine: (a) what is it that market participants would find most useful to use as a medium of exchange; (b) what the value, or purchasing power, of money should be, given people’s demands to hold and use money in relation to its market-determined supply; and (c) what interest rates should be in terms of people’s savings in comparison to borrowers wishing to use saved funds for market-oriented investments and other activities.

This means, I explain, that distortions, imbalances and misallocations of labor, capital and other resources are virtually inevitable in the form of the booms and busts of the business cycle under the institution of central banking.

The show runs for about 30 minutes.

Best,
Richard

Why I Am Not Going to Be Reviewing Charles Koch's New Book

I received Good Profit: How Creating Value for Others Built One of the World's Most Successful Companies in the mail two weeks ago and though I am a voracious reader who can plow through books at a rapid pace, I have been unable to work my way through the Charles Koch book.

The book reminds me of a date I had once with a gal, who I quickly surmised had spent too much of her days in yoga class doing ohm chants. There was no fully functioning contact with the real world remaining.

No doubt Charles is a very slick businessman, he is a multi-billionaire, but I honestly believe that he is not enough in touch with himself to understand how he has become such a success. Further, in the first 111 pages that I did read, it is clear that despite being worth upwards of $40 billion, the man fears spilling the truth. If you can't take an "in your face" attitude to the world after amassing $40 billion, there is something wrong.

Charles writes about many of his business deals in his book, but he does little in the way of providing insight into his thinking when doing the deals. I have over the years talked to some very wealthy people, a man who once owned the Empire State building, another a very shrewd billionaire who managed a huge import company, I learned much about business from these men as they talked their deals. There are no such insights from Charles. Instead, we get crazed happy talk, as though he fears mere lefty multi-millionaires might not approve of him. He tells us, for example, that his father was an environmentalist (In the 1920s!)

He tells us that impressions, some good and some bad, were made on him not only by the writings of Hayek and Schumpeter, but also Lenin and Marx. And yet, he doesn't have the balls, to address his views of the economist and libertarian philosopher Murray Rothbard, whom he once bankrolled. Yes, he mentions Marx, Lenin, Schumpeter, Keynes, Mises, Popper and many, many others, but the name Rothbard is not mentioned in the book, not once. And it is not as though Rothbard didn't have an influence on the early business decisions of Charles in addition to influence on his economic and libertarian thought.

What we get from Charles in the book is a lot of happy talk about his invention, "market based management," of which, as one friend recently said to me, "The idea that you should listen to your employees is, how should I put it, not exactly a new insight."

MBM seems to be an attempt by Charles to flash his intellectual creds, mostly championing some insights of Hayek. And Charles, indeed, does recognize, and appear to understand, Hayekian insights that knowledge is dispersed broadly throughout a society, but  he seems to have no clue of Hayek's respect for tradition and rules.

At other times. the happy talk seems to get completely out of control in the book. One comment strikes me as instructive of the lack of reality based observations Charles exhibits. He writes, at one point, of his operating style, "I don't believe others' success will diminish our own." Yeah right.

Just a few pages later, he tells us how he teamed up with J. Howard Marshall to squeeze Union Oil out of a key early property, way below Union's original asking price.

So, again, I haven't read the entire book and I don't review books I haven't read in their entirety. The best I can do is point you to Tyler Cowen, who seems to have read the entire book.

But if you want insights into how businessmen really operate read Millionaire Dollar Habits and other Robert Ringer books. If I am not mistaken, he warns about the touchy-feely Charles Koch billionaire-types in some of his books.

If you happen to be fortunate like Charles and have inherited a good bundle that you want to grow, read Trump and J. Paul Getty The books they have written are far more insightful and honest books that you can learn much from. Hell, David Rockefeller's Memoirs is a far more insightful book, and he had the decency, though not holding Austrian school views, to mention Austrian economics and his relationships with Hayek and Schumpeter, which is something akin to what it would be like if Charles had the decency to mention Rothbard.

-RW

Rank the 12 Fed Districts by Their Populations

This is extremely difficult if you just try to eyeball it.

Texas Oil Rig Count Now at Its Lowest Level in More Than 5 Years

West Texas Intermediate crude oil prices have stabilized around $45 per barrel over the past six weeks after experiencing higher volatility in August and early September). However, the fall from $60 in June prompted a continued decline in the Texas rig count, which is now at its lowest level since mid-2009, reports the Dallas Fed.



With oil price stability, or a further climb in the oil price, we are likely to see strong acceleration in government price inflation indexes. The indexes were weighed down significantly by the declining oil prices, but as the rig count drops, supply will drop, steadying the price.

-RW

You Are Going to Pay More for Halloween Candy



Candy prices climbed in the last quarter at an annualized rate of 5%.



-RW

Thursday, October 29, 2015

What Is Not Seen

By Don Boudreaux

No single essay or article in economics is more vital than Frederic Bastiat’s “What Is Seen and What Is Not Seen.”  The fact that its simple but widely missed point is made crystal-clear by a writer intent on communicating in an easy and accessible style should not cause this essay to be viewed as an exercise in mere pop-econ.

So if you’ve not yet read Bastiat’s brilliant essay, do so.  Do so ASAP.  Then re-read it.  Ponder it.  Keep pondering it.  Never forget it or its lesson.  Let it prompt you always to ask about the visible that all-important question that probes the ever-present invisible: “As compared to what?”  By doing so you will thereby become a better economist than thousands of econ-PhD-sporting people today.

Pondering Bastiat’s essay prompts a realization that there are different ‘levels’ of the not-seen.

Lying Down at Work May Be the Future

Tom Clancy’s Baltimore Penthouse Goes on the Market for $12 Million

The Baltimore penthouse of late novelist Tom Clancy is going on the market for $12 million, making it the highest-priced listing in the city, according to Shawn Breck of TTR Sotheby’s International Realty, reports WSJ.

The approximately 12,000-square-foot, five-bedroom penthouse at the Ritz-Carlton Residences on Baltimore’s Inner Harbor is a combination of four apartments. The home has six terraces, a gym and a home theater.





-RW

The Probability Of A December Rate Hike Has Never Been Higher....

Based on futures trading.

Reports ZeroHedge:

What a difference a word and a day makes...

December odds the highest they have ever been...














Rarely Used Fed Language




In new language in the Federal Reserve statement released yesterday, the Fed said: “In determining whether it will be appropriate to raise the target range at its next meeting, the Committee will assess progress--both realized and expected--toward its objectives of maximum employment and 2 % inflation.”

Terry Sheehan, an economic analyst at Stone & McCarthy Research Associates, writes that Fed policy makers have used “the next meeting” language only once before in regard to the policy outlook -- in December 1999. A rate hike followed at the next meeting, she noted.

 -RW

Ron Paul vs. Rand Paul on Social Security

It is instructive to examine how Ron Paul and Rand Paul have handled presidential debate questions on Social Security. Last night in Boulder, Colorado, Rand Paul said:
When people ask me, whose fault is it? Whose fault is it that Medicare is broken, out of money, that Social Security is broken, out of money? And I say, look, it's not Republicans' fault, it's not Democrats' fault, it's your grandparents' fault for having too many damn kids...

After the war we had all of these kids, Baby Boomers. Now we're having smaller families. We used to have 16 workers for one retiree, now you have three workers for one retiree.

It's not working. I have a bill to fix Medicare. I've a bill to fix Social Security. For both of them you have to gradually raise the age. If you're not willing to do that, nobody wants to do it, but if you're not willing to gradually raise the age, you're not serious about fixing either one of them.

This is an absolutely absurd comment by Rand. No private sector insurance company ever runs into problems because the "grandparents had too many kids."

In the private sector, money put into a savings program is actually saved. The money isn't spent, the way the government has spent the Social Security money it has taken in, Chris Christie made this clear during the debate last night.

This was Rand, once again, muddying a very clear issue where the government is at fault and making it sound like some kind of technical issue.

But Rand didn't stop there in his outraeous commentary. In mainstream technocratic style, he went on to recommend a "solution" that benefits should be cut (by raising the social security age) to all the hardworking people who were forced into the Social Security scam in the first place. This was justifiably met with groans from those in attendance at the debate.

And it should be noted that while Rand wants to see a cutback in Social Security benefits to the elderly, he has called for an increase in the defense budget.

Contrast this with the answer his father gave during a 2011 presidential debate:
Well, I agree that Social Security is broke. We spent all the money and it's on its last legs unless we do something. One bill that I had in congress never got passed was to prevent the congress from spending any of that money on the wars and all the nonsense that we do around the world.
Now the other thing that I would like to see done is a transition. I think it's terrible that the Social Security system is in the -- the problems it has, but if people wouldn't have spent the money we would be OK.
Now, what I would like to do is to allow all the young people to get out of Social Security and go on their own.
Notice the difference here. Ron Paul recognizes the problem but does not want to solve the problem on the backs of seniors  who paid into Social Security. His solution, "Let's cut back on the spending of military adventures" and use the money toward making SS payments, is much more sound. Further, he advances his idea by calling for the young to have the opportunity to opt out of SS, rather than Rand's approach of trying to fix the system in a way that screws current seniors.

Bottom line: Rand's view is that of a typical government technocrat who wants to fix the current system and keep the coercive system up and running. Specifically, with a focus on keeping it in place by abusing the elderly. There is no focus on shrinking government. His father's plan is focused on shrinking government, including less in the way of military adventures and an out from the Social Security system for youth, while recognizing an implied promise to the elderly.

Rand's father's solution is moving in the direction of liberty, Rand's solution is about maintaining a grand government structure, seniors be damned.

 -RW

Becky Quick is Also a Gold Hater

The moderators for last night's Republican debate are facing heavy criticism for their establishment attack methods. During the debate, Ted Cruz called them out.




As the sun rises on a new day in America, the reviews have not gotten any kinder.

This morning's headlines:

ABC News: CNBC Debate Moderators Face Backlash After 3rd GOP Presidential Debate

The Boston Globe: The biggest loser? The media

The Washington Post: The conservative war on the mainstream media hit a new phase at the GOP debate

But the direction the moderators took should come as no surprise, they are establishment tools. I called out one of the moderators, Becky Quick on her establishment gold-hating ways, back in 2010: Is Becky Quick Stupid or Just Kissing Ass?

 -RW

Fighting Higher Minimum Wages: Burrito Vending Machines

Ted Cruz Solid on Money

Ted Cruz made a very sound and impressive comment on money in last night's Republican presidential debate. It's the best comment on money from a presidential candidate since Ron Paul ran in 2012:
You know, it's interesting, you look at on Wall Street, the Fed is doing great. It's driving up stock prices. Wall Street is doing great. 
You know, today, the top 1 percent earn a higher share of our income than any year since 1928. But if you look at working men and women. If you look at a single mom buying groceries, she sees hamburger prices have gone up nearly 40 percent.
She sees her cost of electricity going up. She sees her health insurance going up. And loose money is one of the major problems. We need sound money. And I think the Fed should get out of the business of trying to juice our economy and simply be focused on sound money and monetary stability, ideally tied to gold.
 -RW

GOP Debate: Chris Christie Tells It Like It Is on Social Security

During last night's Republican debate, one of the highlights was Chris Christie's comments on Social Security:
I mean, let me be honest with the people who are watching at home. The government has lied to you and they have stolen from you. They told you that your Social Security money is in a trust fund. All that's in that trust fund is a pile of IOUs for money they spent on something else a long time ago.
And they've stolen from you because now they know they cannot pay these benefits and Social Security is going to be insolvent in seven to eight years. We're sitting up here talking about all these other things; 71 percent of federal spending today is on entitlements, and debt service. And, that's with zero percent interest rates.
 -RW

Russian Official: Bitcoin a Conspiracy Created By US Intelligence Agencies

Russia's Deputy Finance Minister has confirmed the country's plans to penalise the conversion of cryptocurrencies such as bitcoin into the ruble.
Speaking to CoinDesk, Alexey Moiseev said a proposed draft law has been created and, if passed, would mean people engaging in crypto-to-fiat conversions would face up to four years in prison.
He explained:
"It's true that we have developed draft law which provides up to four years in prison for some types of activities which relate to ... quasi-currencies. These types of activities are typically related to an exchange of those currencies into the Russian national currency – the ruble. This is the only type of activity which we propose to penalise with criminal sentences."
Earlier this year, according to CoinDesk, Liberal Democratic Party MP Andrei Svintsov contributed to bitcoin's rocky history in Russia, telling a national broadcaster that digital currencies such as bitcoin were a conspiracy created by US intelligence agencies.

-RW

Wednesday, October 28, 2015

CNBC's Asking Price for Ads During Republican Debate: $250,000

Advertisers sometimes pay only a few thousand dollars for air time on CNBC. But they're paying $250,000 for a spot on the GOP debate, reports CNN.

How Long is It Taking for Newly Built Homes to Sell Once on the Market?

Did I mention we are in the boom phase of the Fed-created boom-bust cycle?


-RW

Fed Holds Rates Steady



Following a meeting of the FOMC, the Federal Reserve monetary policy setting committee, the Fed has announced that it will maintain rates it controls at current levels.

This was broadly anticipated since for technical reasons (There is no scheduled press conference after this meeting while there is one after the December meeting. ), it would have been very unusual for the Fed to make a move at this meeting.

Much more significant, the FOMC statement released by the Fed included new language which said the Fed would determine “whether it will be appropriate to raise the target range at its next meeting.” Previous statements have not had any time element to this statement, saying only that policymakers “would determine how long to maintain” rates at current low levels.

The Fed is extremely data driven and the statement repeated that FOMC members want to see “some” continued progress on labor markets and be “reasonably confident” inflation is rising toward their 2% annual target before hiking rates.

There is an underlying desire by the Fed to raise rates by 25 basis points, if for no other reason than to just show they can, indeed, raise rates. Unless, there is a significant downturn in economic data, or a major negative stock market activity, between now and the December 15-16 FOMC meeting, a rate hike at that time remains a very strong possibility.

-RW

Big U.S. Cities are Adding Jobs, Cutting Unemployment Rates

Did I mention we are in the boom phase of the Fed-created boom-bust cycle?

Of the 51 metropolitan areas with a population greater than 1 million, all but two saw nonfarm payrolls increase over the past year, reports WSJ.

The San Jose, Calif., metro area led the way, boosting employment 4.8% from September 2014 to September 2015, according to the Labor Department. Orlando, Fla., Salt Lake City, Utah, and San Antonio, Texas, followed with gains of 3.7%. Jobs fell in New Orleans and Richmond, Va.

 At 3.1%, Minneapolis-St. Paul and Salt Lake City had the lowest unemployment rates in September among metro areas with populations greater than 1 million. All together, 49 large areas had over-the-year unemployment rate decreases and two had no change.

The national unemployment rate in September was 4.9%, down from 5.7% a year earlier.

Among major metro areas, Detroit has had the steepest plunge in unemployment over the past year, Partly though because the city’s labor force has been shrinking, accounting for some of the decline in unemployment.

Bismarck, N.D., had the lowest unemployment rate in September, 2.0 percent. Yuma, Ariz., and El Centro, Calif., had the highest unemployment rates, 26.0 percent and 21.6 percent, respectively.

The largest over-the-year percentage increase in employment among the metropolitan divisions occurred in San Francisco-Redwood City-South San Francisco, Calif. (+4.7 percent), followed by San Rafael, Calif. (+4.5 percent), and Tacoma-Lakewood, Wash. (+3.5 percent). The over-the-year percentage decreases in employment occurred in Nashua, N.H.-Mass. (-1.4 percent), Dutchess County-Putnam County, N.Y. (-1.1 percent), Lawrence-Methuen Town-Salem, Mass.-N.H. (-0.3 percent), and Lake County-KenoshaCounty, Ill.-Wis. (-0.2 percent).

-RW

How to Invest and Profit From El Niño

Details in today's EPJ Daily Alert.

BLOOMBERG: The Starter Apartment Is Nearly Extinct in San Francisco and New York



Thanks a lot, Janet Yellen.

Bloomberg reports:
So you’re looking for a one-bedroom apartment in San Francisco, and you have about $2,000 a month to spend. You know the city’s median rent is more than $4,200 a month, but median means half the apartments cost less. Surely there are larger, more expensive apartments pulling up the midpoint.
Perhaps. But there’s a reason Google employees are sleeping in their trucks.
Ninety-one percent of one-bedroom apartments in San Francisco cost more than $2,000 a month. Perhaps more surprising is the number of apartments that occupy the high end of rental rates: In Manhattan, a fifth of one-bedrooms rent for more than $4,000....We’ve long known these are pricey rental markets. What these numbers show is the sheer scarcity of small apartments for rent at anything resembling a low rate in the country’s most desirable cities.









-RW

Should Austrians Cool It With the Hyperinflation Forecasts?

Of course, they should.

The possibility  of price inflation accelerating significantly in 2016 is very strong in my view, But that could mean inflation of "only" 5% to 7%. That's not hyperinflation.

When you have a system whereby a central bank can print money at will, the technical apparatus to create hyperinflation does exist, but it doesn't mean a central bank will go to that extreme. It depends upon who is in charge of the money printing and the economic environment at a given time. Matt McCaffrey gets this. A more regular threat to the economy is the central bank created boom-bust business cycle (Which is not always in bust mode!).

Austrians really need to get their act together in understanding the very complex nature of the economy and the many phases that an economy can go through, and not always forecasting imminent doom.

I expect things to be much worse on the price inflation front next year, but this doesn't mean I expect the world to end next year.-RW


There’s More to Money than Hyperinflation
By Matt McCaffrey


Critics of Austrian macroeconomics often resort to strawmen when trying to challenge arguments against central banking, fiat money, and expansionary monetary policy. For example, it’s common to paint Austrians as doom-and-gloom prophets of economic collapse, with little to offer besides paranoid predictions of hyperinflations and monetary collapses lurking around every corner.
Unfortunately, even readers of Austrian economics fall into the trap of believing that the central problem with government money monopolies is that they’re always on the slippery slope to immediate catastrophe. This kind of thinking can be harmful because it encourages us to think only about obvious and extreme consequences of public policy, while ignoring more urgent, underlying issues.
The fear of hyperinflation is a good example. Hyperinflations do occur, and when they do, they give us a good look at the ultimate consequences of monetary central planning. However, hyperinflation is only one possible outcome of bad macroeconomic policy, and a rare one at that. Poor monetary institutions produce many other subtler and more pressing problems worthy of our attention.
For instance, the destruction wrought by monetary expansion is great even when inflation is slow, consistent, or numerically small. We should therefore be careful to see the damage caused by expansion for what it is: an ongoing and systemic problem that consistently produces distortions in the economy. However, as bad as it might be, it won’t necessarily result in complete economic collapse tomorrow.
As always, it’s vital to focus on the unseen effects of monetary policy, and that means considering how monetary expansion influences the price system and the behavior of entrepreneurs. The thing is, we don’t need Weimar-style money printing to redistribute wealth and encourage bubbles: even small credit expansions produce inequalities and malinvestments, whether hyperinflation eventually happens or not. Mises and other Austrians have been arguing this point for decades.
The problems run deeper than the threat of total disaster. In fact, that’s the whole point: if bad monetary policies always produced immediate catastrophe, people would long ago have seen the failings of central banks and done something to replace them. But because the distortions caused by monetary expansion seep slowly and discontinuously through the economy, their true origins remain unseen, even when the bubbles they create become obvious to the world.
Austrians are not in the business of predicting inflation, and constant warnings of impending disaster run contrary to both good theory and effective strategy. That is, economics teaches us to be humble when making predictions, if we make any at all. And strategically, we undermine the reputations of economists like Mises when we invoke them to predict disasters that never materialize. We’re better off carefully studying their ideas and using them to think about the very real problems that already lie beneath the surface of our economy and its institutions. The end of the world can wait.

The above originally appeared at Mises.org.

The Fiscal and Ethical Stranglehold of the Welfare State

Richard Ebeling emails:

Dear Bob,

I have new article on the news and commentary website, “EpicTimes,” on, “The Fiscal and Ethical Stranglehold of the Welfare State.”

Looking over the next ten years the fiscal burden of the welfare state will continue to noticeably grow. In 2015, “entitlement” spending on Social Security, Medicare and Medicaid accounted for about 48 percent of all Federal government spending.

This will expand to 55.5 percent of government expenditures over the next ten years to 2025. Indeed, over this ten-year period mandatory entitlement spending will increase more than 28 percent faster than estimates of overall growth of the economy.

But it get worse when we expand the horizon to cover most of the twenty-first century, as do the Social Security and Medicare trust funds. Most conservatively, the unfunded liabilities for these two “entitlement” programs add up to a minimum of $95 trillion to over $150 trillion between now and 2090.

But equally worrisome as the future fiscal burden of the welfare state is its negative impact on the American spirit of individual liberty and self-responsibility as all become increasingly tax and spending dependents on the paternalism of Uncle Sam and those who politically influence the size and direction of government redistributional largess.

But we still have a weakened but not lost cultural legacy of liberty based on individual rights and a spirit of self-help and voluntarism that can still serve as a foundation to restore the idea and ideal of the free and responsible individual not enslaved to the dictates of political paternalists.

http://www.epictimes.com/richardebeling/2015/10/the-fiscal-and-ethical-stranglehold-of-the-welfare-state/

Best,
Richard

Cronies Win (Again)

The House Tuesday approved the reauthorization of the U.S. Export-Import Bank, with a majority of Republicans joining almost all Democrats to demonstrate a broad bipartisan coalition to revive the export-finance agency.

The measure passed 313-118.

More than half of the House’s 247 Republicans—127 in all—voted to renew the bank’s charter.

They can't even shutdown this crony operation in the face of serious opposition.

As WSJ reports:
Tuesday’s vote showed that an aggressive campaign by conservative critics to close the bank had done little over the last three years to turn GOP lawmakers away from supporting the bank. The vote marked a big victory for business groups that had fought to secure its revival... 
Opponents say the Ex-Im Bank puts taxpayers at risk and allows the government to pick winners and losers. They have strongly criticized a lobbying effort by the bank’s biggest patrons, Boeing Co. and General Electric Co.
“They’re great companies….I just wonder why they have to receive taxpayer subsidies,” said Rep. Jeb Hensarling (R., Texas), who as chairman of the House Financial Services Committee led the campaign to close the bank.
End the Fed? Not a chance in the current environment.

Also see:  The Cronies: Half of all Export-Import Bank Benefits Go to 10 Companies

-RW

Ron Paul Responds to Donald Trump Dissing Gold

Tuesday, October 27, 2015

New York’s Taxi King Is Going Down

By Jared Meyer

Evgeny “Gene” Freidman is no fan of Uber. The increasing popularity of this vehicle-for-hire (or ridesharing) company has lost him millions of dollars. He has even asked New York City taxpayers for a bailout. As difficult as bailing out the big banks was to swallow, bailing out a taxi mogul—who at one point owned more than 1,000 New York City taxi medallions—is an even harder sell. A bailout would be especially outrageous considering that Freidman and his financial backers are actively working to make consumers pay more for fewer options.

Freidman reluctantly took over his father’s modest yellow taxi business as a young man. He brought his experience in Russian finance to the industry, and started to accumulate increasing numbers of taxi medallions using highly leveraged financing. Freidman expanded a company with just a few taxis into a conglomeration of three- to five-car mini-fleets.

As Freidman’s taxi empire grew, he expanded into other cities, including New Orleans, Philadelphia, and Chicago. He gained control of hundreds more medallions that are also now in financial trouble. His willingness to bid on practically any medallion that came up for sale helped drive a rapid increase in medallion prices across the country.

Subprime Taxi Medallions

This model can work when times are good but, as the housing crisis showed, it has its dangers. It works until another technology emerges, consumers move on, and funding dries up.

This is where Uber comes in

Read the rest here.

Americans Renouncing US Citizenship Soars to Yet Another Record High

By Simon Black

1,426. That’s the number of Americans who renounced their US citizenship last quarter according to the US government’s report released just this morning.

That’s a record high for a single quarter, easily beating the last record high set earlier this year, which beat the previous record high set in 2013.

http://www.sovereignman.com/wp-content/uploads/2015/10/Renouncing-citizenship.png

This is clearly a trend on the rise, and it certainly raises the question: why?

What is it about the United States that drives so many citizens to leave?

Two main reasons:

If Sweden and Germany Became US States, They Would be Among the Poorest States

By Ryan McMaken

If Sweden and Germany Became US States, They Would be Among the Poorest States

OCTOBER 26, 2015
The battle over the assumed success of European socialism continues. Many European countries like Sweden have gained a reputation as being very wealthy in spite of their highly regulated and taxed economies. From there, many assume that the rest of Europe is more of less similar, even if slightly poorer. But if we look more closely at the data, a very different picture emerges, and we find that the median household in the US is better off (income-wise) than the median household in all but three European countries.
Worse than Mississippi? 

Paul Ryan is Faking It



Biggest Jump in Home Ownership in 11 Years Among Those Under 35 Years Old

The homeownership rate rose between July and September, after the biggest gain for those under 35 years old in 11 years.

The Commerce Department reported Tuesday that homeownership rate rose to 63.7% in the third quarter, from 63.4% in the second quarter.

The homeownership rate for those under 35 rose from 34.8% to 35.8%. That’s the biggest gain since the second quarter of 2004.

The rising demand to own a home comes even as house prices continue to accelerate. They rose 5.1% in the 12 months ending August, according to the latest data released Tuesday.

Have I mentioned we are in the boom phase of the Fed created boom-bust cycle?

-RW

REPORT: Insider Trading Case Against Goldman Sachs Trader (For Getting Info From Federal Reserve)



Jesse's Cafe Americain reports:
It appears that a criminal case is being brought against a 'rogue trader' at Goldman Sachs who was caught obtaining confidential documents from a 'rogue central banker' at the NY Fed. Informed rumour has it that the defendants may condescend to plead guilty to a misdemeanor. Who says that crime doesn't pay?

This must be a low-level guy. Normally, it is Lloyd Blankfein and Jan Hatzius, who are telling Bill Dudley what Fed policy should be.

-RW

U.S. Plans to Sell Down Strategic Oil Reserve to Raise Cash

The U.S. plans to sell millions of barrels of crude oil from its Strategic Petroleum Reserve from 2018 until 2025 under a budget deal reached on Monday night by the White House and top lawmakers from both parties.

The proposed sale, included in a bill posted on the White House website, equates to more than 8 percent of the 695 million barrels of reserves, held in four sites along the Gulf of Mexico coast. Sales are due to start in 2018 at an annual rate of 5 million barrels, rising to 10 million by 2023 and totaling 58 million barrels by the end of the period. The proceeds will be “deposited into the general fund of the Treasury,” according to the bill.

The sale is the second time the U.S. has raised cash from the reserve, created as a counter-balance to the power of Arab producers after the first oil crisis of 1973-74. The U.S. may sell also additional barrels to cover a $2 billion program from 2017 to 2020 to modernize the strategic reserve, including building new pipelines.

I am not a big fan of the US government stockpiling any resources, but this sale is a sign of desperation.

-RW

Yellen to Appear Before Congressional Committee Nov. 4

Federal Reserve Chair Janet Yellen will appear before a congressional committee on Nov. 4 to take questions on bank regulation, the head of the House Financial Services Committee said in a statement on Tuesday.

Unfortunately, there is no Ron Paul-type on the committee to really grill her.

-RW

DeLong: No Accelertaing Price Inflation in Sight

Right next to my "Paul Krugman Deflation Warning"  file, I am placing a new file, the Brad Delong "There is No Acceleration in Inflation Coming" file.

DeLong links to Nick Bunker who says:
This is entirely consistent with inflation-expectations anchored near 2%/year--or inflation so low that shifts in inflation expectations are not a thing... 
[N]ot only does the right wing of the Federal Reserve expecting an imminent upswing of inflation because of MONEY PRINTING! have it wrong, it strongly looks as though the center of the Federal Reserve has it wrong too...
My expectation is that there is a very high probability that price inflation in 2016 will climb far above 2% (as measured by government price indexes). First stop 3%, then 5%. And that's in my file!

-RW

Hayek on Democracies and the Problem of Special Interest Groups

BREAKING: White House, Congress Agree to Tentative Budget Deal; Debt Limit Hike

The spending shall continue.

Congressional leaders have reached a breakthrough tentative budget deal with the White House that would set government funding levels for the next two years and extend the nation's debt limit through 2017, avoiding routine talks of a government shutdown, reports NBC News.

The 144-page bipartisan funding bill, labeled a "discussion draft," was posted Monday online just before midnight setting up a potential vote in the House as early as Wednesday.

Without a deal, government funding is set to expire on December 11th, while the debt limit deadline is November 3rd, according to the Treasury Department.

 -RW

French Economist Thomas Piketty Talks Income Inequality at Stanford

Thomas Piketty lectured on his bestseller, “Capital in the Twenty-First Century,” last Friday in Memorial Auditorium on the campus of Stanford University, reports The Stanford Daily.

The lecture was part of a joint venture between the Stanford Economics Department and the McCoy Family Center for Ethics in Society, which hosted Piketty as part of their Kenneth Arrow lecture series.

Piketty is currently a professor at the Paris School of Economics. He received his Ph.D. in economics from the London School of Economics.

In his lecture, Piketty stated that wealth and income inequality is increasing in the United States while, at the same time, decreasing in Europe. Piketty held that this inequality is due to the rising inequality of labor income, citing that the minimum wage in the U.S. today is much lower than that of 1960 after adjusting for economic conditions, reports TSD.

“The rise in U.S. inequality is mostly due to rising inequality of labor income,” Piketty said.

Piketty proposed progressive taxation to remedy the United States’ wealth inequality.

For the weaknesses and errors in Piketty's view see Problems with Piketty: The Flaws and Fallacies in Capital in the Twenty-First Century by Mark Hendrickson.

In May, I interviewed Hendrickson,

 -RW

Monday, October 26, 2015

PIMCO: Oil Price Headed Higher




The asset manager PIMCO forecasts Brent oil will rise to $60 a barrel in 2016.

Its logic is that a combination of weaker supply and resilient demand will eventually sustain an uptick in the price next year. Brent - the international benchmark - is currently trading at about $47.88 a barrel.

Greg Sharenow, a former energy trader at Hess and Goldman Sachs who is now a fund manager at Pimco, said:
This combination of strong demand and slowing supply has reduced the likelihood of the doomsday scenario where stocks breach storage capacity and prices need to fall significantly to cause producers to shut down producing wells.
A lynchpin to accelerating price inflation will be an oil price that stabilizes, never mind a climbing oil price. Prpeare for accelerating price inflation.

 -RW

HARVARD: What Happens to Your Brain When You Negotiate About Money

By Kabir Sehgal

Not once in the original edition of Getting to Yes: Negotiating Agreement Without Giving In, which was published in 1981, was the word “brain” mentioned. Certainly, the “mind” was invoked several times to discuss the psychological aspects involved in negotiation. The absence of the “brain” is to be expected, as neuroscience didn’t reveal insights into negotiation and money usage until the mid 2000s, after functional magnetic resonance imaging (fMRI) was introduced a decade before.
But as one prominent neuroscientist put it, “MRIs are a game-changer.” For example, researchers in one study could predict whether participants would choose to buy stocks or a bond by looking at their brain scans. Participants who chose stocks, the riskier investment, had more activation in their nucleus accumbens, a section located deep within the brain that’s part of our reward circuitry and plays a role in processing motivations and emotions.
Part of the reason such results are so easy to see is that nothing excites the brain quite like money.
When you’re negotiating about money, for instance you’re dealing with something that elicits tremendous neural excitement. In one study, a team of researchers scanned the brains of a dozen people while they played a game in which they could make or lose money. The scans revealed the nucleus accumbens had heightened neural activity. The researchers then compared the brain scans of the participants who were about to make money with drug addicts high on cocaine. The results were startling: the brain scans were nearly identical.
“We very quickly found out that nothing had an effect on people like money – not naked bodies, nor corpses. It got people riled up. Like food provides motivation for dogs, money provides it for people,” says Dr. Brian Knutson, one of the researchers, and an expert who has published many works on the neuroscience of financial decision-making.

Two Upcoming Walter Block Lectures: Yale University and Brooklyn College

On November 2, Professor Walter Block will be speaking  at Yale University on immigration and open borders For further details, contacts: Angelina Xing [mailto:angelina.xing@yale.edu]; Eliza Scruton [elizabeth.scruton@yale.edu] representing the Yale Political Union. The presentation will take place starting at 7:30pm in room 102 of the Linsley-Chittenden Hall. It will also feature Yale students debating on this issue.

On November 3 Dd. Block will be speaking at Brooklyn College. The topic will be why regulation has failed America. Topics discussed in the lecture will include unionism and the minimum wage law, rent control, public housing, the drug war, and more. Contact: Professor Mitchell Langbert, mlangbert@hvc.rr.com. The talk will start at 6:00 PM in SUBO in the Gold Room.

Both events are free and open to the public.

John Taylor: Krugman's Claim is Absurd

John B. Taylor is the  Mary and Robert Raymond Professor of Economics at Stanford University and creator of the Taylor Rule, which is a formula by which to manage monetary policy.

Since I do not believe a central bank should be creating any money, I don't buy into the Taylor Rule, however, he is absolutely correct in his comment that Paul Krugman has distorted his position: 
I see that Paul Krugman is complaining again about an op-ed that Paul Ryan and I wrote in Decmber 2010.  I responded to Krugman back in February of this year when his complaints first appeared on his blog and in his New York Times column. But rather than deal with the economics of the response, he now again resorts to the same old claim that the article was promoting “monetary conspiracy theories.”   This is absurd.  Our op-ed said nothing about a conspiracy, it had no discussion of individuals, and it made no mention of people conspiring or even talking with each other. Our op-ed raised concerns about the ineffectiveness of quantitative easing and about the departure from rules-based policy—concerns expressed by many people then and now. Our op-ed also said that an upcoming round of “QE2 will create more economic uncertainty” and that quantitative easing operations “involved the Fed in areas of fiscal policy, such as credit allocation,” which were the proper role of Congress. Of course, we now know that QE2 was followed by QE3 about which even more questions about ineffectiveness have been raised.
 -RW