Thursday, March 31, 2016

The Coming Extinction of the Video Store and What It Will Mean for the Clerks Who Will Lose Their Jobs

WSJ reports:
Video store clerks are going the way of the dinosaur—and not the ones in Jurassic Park.

U.S. employers have added more than 13.8 million jobs since the labor market bottomed out in February 2010. But that steady growth has been uneven across sectors, underscoring the churn and displacement typical of a dynamic economy.

Indeed, a handful of industries have seen jobs collapse in recent years, perhaps none more completely than the video store. A fixture of the 1990s, the shops were done in by competition and changing technology, first from Netflix’s mail-order model and then by online streaming and video kiosks like Redbox.

The result? Employment in video tape and disc rental is down by almost 93% since its 1999 peak.
This, of course, is not a bad thing. Netflix and Redbox are better options.

Life is about change. The structure of an economy is continually changing. Jobs disappear in some sectors, resulting in workers having to move to other job.,

In a free market economy, there are always other job opportunities, We are never free from all want---thus, there is work to do.

And, certainly, if a person looking for work, couldn't find work, he would be far from being free from want. Thus, there is an internal contradiction in the idea that the loss of one job means the loss of all opportunities for work.


Calif. Lawmakers OK $15 Hourly Min. Wage, Highest in US

Looks to me like it will mean more opportunity for undocumented foreign workers, who are perfectly willing to work for below minimum wage.

The legislation passed Thursday now goes to Gov. Jerry Brown, who is expected to sign it into law after previously working out the plan with labor unions.

The Assembly passed SB3 with a 48-26 vote. The Senate followed, 26-12.

The increases would start with a boost from $10 to $10.50 on Jan. 1. Businesses with 25 or fewer employees would have an extra year to comply.

This, of course, will result in more unemployment for unskilled above- ground "legally protected" American workers.


A UMass Professor is Challenged: Should Economists Use Low-Skilled Workers as Guinea Pigs?

A Don Boudreaux letter to UMass Prof. Arindrajit Dube:

Prof. Arindrajit Dube
University of Massachusetts – Amherst

Dear Arin:

Washington Post columnist Charles Lane, writing today on California’s plan to raise that state’s minimum wage from $10 to $15 per hour, reports that you told him by e-mail that “California’s experiment is worth running and monitoring.”

With genuine respect, I must strongly disagree.  Even you, who generally support the minimum wage, concede that such an unprecedentedly high mandated minimum might well destroy jobs for many low-skilled workers.  So what right have we as economists – what right has anyone – to use poor people as guinea pigs in such an ‘experiment’?  I think none.

If this ‘experiment’ fails, the costs of the failure will not be borne by professors, pundits, or politicians; they will be borne by workers who lose not only current incomes but also opportunities to gain job experience and on-the-job training – experience and training that are key to raising their future wages.  And you must concede that the chances of this ‘experiment’ failing are high.  I cannot fathom how a mandated 50 percent increase the price of any good or service, including especially that of low-skilled labor for which there are numerous substitutes, will not in time reduce the quantities of that good or service that are purchased or hired.  Surely if economic theory does not allow us economists, even without data, to predict with confidence that such an enormous forced hike in the price of low-skilled labor will reduce the quantity demanded of such labor, then we economists should pack our briefcases, renounce our degrees, and admit to the world that our theories give us no practical understanding of reality.

Yet I am, as I hope you are, confident that economic theory does indeed give us some practical understanding of reality.  And if so, what aspect of our economic understanding is more fundamental – and as well-grounded not only in theory but also in practical experience – than the law of demand?  Are you really so unsure of the reality of the law of demand that you are prepared to risk the livelihoods of untold numbers of poor people by endorsing an ‘experiment’ that will work only if that law somehow is suspended (by what force I do not know) in California’s market for low-skilled workers?

Finally, economic science tells us also that politicians do not behave apolitically.  Contrary to the implication of your advice that California’s ‘experiment’ be ‘monitored,’ politicians are not disinterested scientists conducting experiments to discover and implement policies that best promote the public interest.  Instead, politicians are unavoidably subject to political pressures that frequently reward them personally for pursuing policies that benefit concentrated interest groups at the larger expense of the general public.

So because the costs of California’s ‘experiment,’ should it fail, will be spread widely and in mostly undetectable ways among countless low-skilled workers – and because politically influential labor unions will nevertheless benefit even if (indeed, especially if) this ‘experiment’ fails – it is unrealistic to suppose that politicians will call the experiment off if and when it casts large numbers of low-skilled workers into the ranks of the unemployed.

I urge you, please, to use your voice and stature to oppose this ‘experiment’ on California’s most vulnerable workers.

Donald J. Boudreaux
Professor of Economics
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.

Not Good, Free Market Hater Rears Her Head

Senator Elizabeth Warren (D-MA) appeared on the Stephen Colbert Show last night.

According to The Daily Beast, Warren launched into a speech about “people who work hard, who play by the rules” and are “having a really hard time getting ahead.”

Of course, she didn't mention she is one of those making the rules that make it difficult for the masses.

The big question, though, is why is she appearing on national television at this time. Not a good sign.


Gold Headed for Best Quarter in Nearly 30 Years

Oh yeah, the Fed is going to reverse its December rate cut and take rates negative with a first quarter gain in gold of $200 an ounce---not a chance, Austrian-lites have no clue. We are in the early stages of a  multi-year climb in interest rates.


Moody’s Warns On Possible Mexico Downgrade

Moody’s has just lowered its outlook on Mexico’s credit rating to negative, signalling a downgrade of the country’s debts over the coming year is increasingly likely.

The ratings agency, which currently rates Mexico A3, or four notches above junk, cited subdued growth and the financial woes at state-owned oil company Pemex for the move.

From Moody's
The key drivers of today’s rating action are the following:
1) Subdued economic performance and continued external headwinds will challenge the government’s fiscal consolidation efforts and increase the risk that rising debt ratios will not stabilize over the rating horizon.
2) Contingent liabilities in the form of possible government support to PEMEX, given liquidity pressures at the state-owned oil producer, could further undermine the fiscal consolidation process.

(via FT)

Do You Know What Federal Reserve District You Live In?

The Federal Reserve System is made up of 12 regional Reserve Banks and the Board of Governors in Washington, D.C.

(Chart via Phil. Fed)

BlackRock: "We Like Gold"

BlackRock has joined Pacific Investment Management Co. in recommending inflation-linked bonds and warning price inflation is poised to pick up.

“Stabilizing oil prices and a tighter labor market could contribute to rising actual, and expected, U.S. inflation,” Richard Turnill, BlackRock's global chief investment strategist, wrote Monday on the company's website. “We like inflation-linked bonds and gold as diversifiers.” New York-based BlackRock manages $4.6 trillion.

“If you look at inflation expectations as they are reflected in the bond market we think they are too low,” Joachim Fels, global economic adviser for PIMCO, said. “We still think markets are pricing in too low a profile for inflation. We don't think inflation will move significantly above central bank's targets but we think that there's a good chance that over the next 12 months or so, particularly in the U.S., that we will get back to 2%.”

In the EPJ Daily Alert, I am not only advising that price inflation will pick up but that the intensity of the acceleration will surprise most. First stop, 3% price inflation, which will be dismissed by most as "noise," then 5%.

This is not the type of environment where the Fed is going to reverse its December hike and certainly not the kind of environment where they are going to take rates negative. There will be more rate hikes this year but they will be too little too late to slow the price inflation.


Why is a Billionaire Koch Brother Liquidating His Assets and What is He Doing with All the Money?

In February 2016, I wrote this:
 Bill Koch, a much less politically active billionaire Koch brother than his brothers Charles and David, appears to be liquidating assets.

In 2015, he sold several high-profile pieces of art, including, for $67.5 million, Pablo Picasso’s “The Nightclub Singer",  reports WSJ.

Now he wants to sell an Aspen, Colorado property so bad that he has cut the price from $100 million to $80 million.
Now, Bill Koch is putting up for auction a large part of his wine collection.

Bloomberg reports:
On May 19, 20,000 bottles of wine from William Koch’s cellar will go to auction at Sotheby’s. The blockbuster sale, spread across three days (May 19–21), represents close to half of the billionaire’s total collection and was acquired over the course of nearly 40 years....
Koch’s wine, which will be broken up into about 2,700 lots, is estimated to go for $10.5 million to $15 million. More than 120 lots are from the coveted Château Latour, including one that consists of six 1961 magnums, which carries an estimate of $42,000 to $60,000. There are also more than 80 lots of Château Mouton Rothschild; one, composed of 10 bottles of Mouton’s 1945 vintage, is expected to sell for $80,000 to $120,000. “That’s one of the most legendary wines,” said Kriegel. “It’s the wartime vintage, and it’s one of the greatest wines they’ve ever made. To see it on such a scale is pretty spectacular.
The cover story is that he has more than wine than he will ever be able to drink:
 Koch simply had too much of a good thing. “He realized he could never get through all of this wine,” said [Connor Kriegel, head of auction sales for Sotheby’s Wine]. In a statement announcing the sale, Koch echoed that sentiment: “With around 43,000 bottles, I could not possibly consume everything in my cellar so I am delighted to offer this selection to allow collectors all over the world to enjoy the glorious moments that come with these wines,” he wrote.
But didn't he know this when he was spending millions of dollars on the wine?

Maybe a billionaire  might get bored with his paintings, or his multi-million dollar spectacular Aspen ranch, or his wine collection. but all three?

This looks to me like a massive asset liquidation. The question becomes why. He is not politically active the way his brothers, Charles and David, are, but he surely understands the precarious nature of the economy. Does he think the end is near for the economy? Does he think society is about to collapse? What is he doing with the money? Is he buying gold? Has he built a Galt's gulch?


Wednesday, March 30, 2016

The Virtues of Free Trade

Richard Ebeling emails:

Dear Bob,

I participated in the March 29, 2016 “Libertarian Angle,” webinar sponsored by the Future of Freedom Foundation, with the Foundation’s president, Jacob G. Hornberger, on the topic: “The Virtues of Free Trade.”

In a presidential election year, many of the worst economic fallacies seem to rise to the surface, and this year is no different. Some candidates have come out forcefully against free trade and for forms of protectionism; others have given lip service to free trade, but insisted that it must be “fair” trade.

The focus of this week’s webinar, therefore, was the ethical and economic case for unrestricted freedom of trade. Surely, if individual liberty is valued and considered morally desirable, then one component should be the right of people to peacefully and voluntarily enter into exchanges with anyone they choose for mutual benefits, whether a potential trading partner is across the street or half way around the world.

And from a more “consequentialist” perspective, since the time of Adam Smith economists have pointed out and emphasized the material and cultural benefits from international division of labor and specialization so all may benefit from what others somewhere may be able to supply less expensively or in a better quality than making it at home.

And in addition, economists have explained the notion of “comparative advantage,” which captures the insight that even those who are generally more productive and efficient than others will still gain by focusing on what they are most better at in terms of productivity and the market value of their specialized ability, and allow those less efficient do things that free up one’s time and resources for their most highly valued use in the marketplace.

Also discussed were many of the common arguments against free trade, including the “balance of trade” fallacy, the misconception that foreign competition permanently destroys jobs in one’s own country, and the error in thinking that any benefits from international trade comes from the sale of exports rather than the importing of goods from other lands.

The webinar runs for about 30 minutes.


Russia Raises Minimum Wage by 20%

Economic illiteracy and minimum wage madness are, of course, not exclusive to the United States.

Russia's Prime Minister Dmitry Medvedev said the minimum wage for workers in Russia will go up to 7,500 rubles a month ($109) in July, from the current 6,204 rubles a month ($90).

It will be the second increase this year after a 4% hike in January.

"The difference between the minimum wage and the cost of living remains quite high ... people are worried," Medvedev said last week in a speech at the United Russia party conference.

As EPJ readers are aware, minimum wage hikes only increase unemployment, but that didn't stop CNN Money, when reporting on the Russian minimum wage increase,  to declare in  its headline:
Russians are finally getting some good news. Minimum wage is going up by 20%.

Jack Lew: Economic Sanctions Are A Powerful Weapon of the US Empire and We Plan to Expand Our Enforcement Capabilities

If you think Iran was a limited case of the US implementing economic sanctions or that the sanctions now in effect against Russia are just another limited case, think again.

The United States government knows full well it has a powerful weapon in sanctions and it has a powerful infrastructure of analysts and researchers designated to do nothing but implement sanctions on anyone in the world at a moments notice.

In a remarkable speech today in Washington D.C. at the Carnegie Endowment for International Peace, Treasury Secretary Jack Lew made clear that the United States government uses economic sanctions to cause global actors to bend to the demands of the United States. He called economic sanctions "smart power":
Economic sanctions have become a powerful force in service of clear and coordinated foreign policy objectives—smart power for situations where diplomacy alone is insufficient, but military force is not the right response.  They must remain a powerful option for decades to come.  That is why the lessons we have learned from our experience need to guide our approach to sanctions in the future.  And we must be strategic and judicious in how we apply sanctions to challenging situations around the world.

The power of our sanctions is inextricably linked to our leadership role in the world....
While every situation will require a tailored approach, the underlying goal of all sanctions is an effort to change behavior.  Sanctions are not meant to dole out punishment for past actions.  They are forward-looking, intended to keep illicit or dangerous conduct out of our system and create pressure to change future behavior.  This foundational principle is very different from civil penalties and forfeiture, which are punitive and meant to address past behavior.
He made clear that the United States government has massive  intelligence capabilities, including investigators and analysts, to track violations of sanctions. He called it an "investment in infrastructure." But he indicated that the US wants more. The Empire expects tmore cooperation and "infrastructure" development from other governments  to intensify its abilities to control the globe's financial transactions:
[W]e have learned is that our experience has shown that to be effective, sanctions programs require an investment in infrastructure to implement and support our efforts.
Powerful sanctions require investigators and analysts to track how key actors move and store their money and to build detailed cases drawing on intelligence analysis.  And they rely on enforcement officers to investigate violations and levy penalties for significant wrongdoing....

Here at home, we have spent decades building a system to implement sanctions and to help private companies and foreign governments understand how sanctions apply to a complex range of industries and transactions.  We work closely to maintain two-way communications with companies that are well-positioned to observe the effects of our sanctions and often to assess where they can be improved.
This behind the scenes work is what makes an effective program. 
We need more partners internationally to help with this effort, which is why we are working to build capacity in countries around the world...
The United States has the most developed capabilities in this area, combining intelligence, policy, regulatory, and enforcement capabilities under one roof.  But we need to enhance them further.  And we will work with our counterparts in other governments to build their own capabilities. 

Donald Trump and China's Attempt to Pull Off the "Impossible Trinity"

Benn Steil, Senior Fellow and Director of International Economics at the Council on Foreign Relations, emails:
Dear Mr. Wenzel,

My op-ed in the March 30 edition of the Wall Street Journal, co-authored with Emma Smith, looks at presidential campaign charges that China is engaged in “currency manipulation” to boost net exports.  We show that the aims of China’s pegged exchange rate regime have varied over the past two decades, and have not always been mercantilist. In recent months, with capital flowing out of China at a prodigious rate, its interventions have been to keep its currency up—not down.  Launching a trade war with China over currency management, as Donald Trump and Bernie Sanders intend, would therefore be nonsensical—as well as damaging to U.S. interests.

I hope you find the piece of interest.

All best regards,

Benn Steil
From the piece:
Presidential candidates Donald Trump and Bernie Sanders, with a phalanx of lawmakers behind them, continue to bash China as a “currency manipulator.” Both men claim that Beijing is engaged in a permanent strategy to keep the yuan weak and prop up its trade surplus. But the reality was never that simple, and the charge is ludicrous at present.

Beijing began pegging its currency to the U.S. dollar over two decades ago, as part of its plan to integrate the Chinese economy into a global marketplace in which transactions were overwhelmingly priced in dollars. It stuck by this strategy even during the height of the Asian financial crisis, in 1998, when much of the world was expecting it to devalue. This earned it great praise from the U.S. government. “China, by maintaining its exchange rate policy,” pronounced President Clinton’s Treasury Secretary Robert Rubin, “has been an important island of stability in a turbulent region.”

But once market pressures reversed, and capital began flowing into China, U.S. lawmakers suddenly decided that currency stability was bad: They wanted the yuan to rise, while China continued to keep it fixed....

Fast forward to 2016, and capital is now flowing out of China at a prodigious rate. In an effort to slow the resulting fall in its currency, China’s central bank has been selling vast amounts of dollars and buying up yuan. At $3.2 trillion, China’s reserves still seem enormous. But they are down $790 billion from their 2014 peak, and $325 billion in the past four months.

At this pace of decline, China’s reserves will fall to $2.8 trillion in July. To put this in perspective, China, using the International Monetary Fund’s framework for reserve-adequacy measurement, needs to hold between $2.8 trillion and $4.2 trillion in reserves to safeguard against a balance-of-payments crisis. Once reserves fall below an adequate precautionary level, China is at risk of being unable to pay for essential imports or its dollar debts. The IMF estimate could be overly cautious, given China’s relatively low level of external debt, but it could also be too sanguine in that some significant portion of China’s reserves, estimated to be around a third, is believed to be tied up in nonliquid assets—and unavailable in a crisis. These include China’s capital commitment to the new Asian Infrastructure Investment Bank.

So what can China do to stanch the rapid decline in reserves?

The country has for years been pursuing what has been called the “Impossible Trinity”: controlling interest and exchange rates while leaving the capital account significantly open....

That China has no good options, and only a choice among painful ones, reflects the underlying structural problem in the Chinese economy—one that will take many years to fix... and a willingness by the Chinese government to allow businesses to die so that more promising ones may live.

The President of the Council of Foreign Relations on Trump's Economic Nationalism

Richard Haass, president of the Council on Foreign Relations, effectively using Donald Trump economic nationalism to present the false idea that he is for free trade when he is for crony trade.

This is what Trump has brought us.


Which Degree Will Get You Hired?

The National Association of Colleges and Employers conducted a survey asking 201 US companies which degrees they look for most when hiring.

Social science and humanities majors didn't make any of the lists, 40 of the 201 surveyed companies said they were hiring communications majors. Language and literature graduates have the toughest time, according to the data. Only eight employers said they were interested in such degrees.


Home Prices Climb 5.7% in January

The S&P/Case-Shiller 20-City Composite Index rose 5.7 percent in January from the previous year.

"Home prices are rising very rapidly — twice the rate of inflation. There is very, very little supply. There is four to five months supply in the market right now, which is quite low," David M. Blitzer, managing director and chairman of the index committee at S&P Dow Jones Indices, told CNBC.

The S&P/Case-Shiller 20-City Composite Home Price Index seeks to measures the value of residential real estate in 20 major U.S. metropolitan areas: Atlanta, Boston, Charlotte, Chicago, Cleveland, Dallas, Denver, Detroit, Las Vegas, Los Angeles, Miami, Minneapolis, New York, Phoenix, Portland, San Diego, San Francisco, Seattle, Tampa and Washington, D.C.

Prices climbed in all 20 of the cities in the index.

Portland, Seattle, and San Francisco reported the highest year-over-year gains among the 20 cities with another month of double digit annual price increases. Portland led the way with an 11.8% year-over-year price increase, followed by Seattle with 10.7%, and San Francisco with a 10.5% increase. Eleven cities reported greater price increases in the year ending January 2016 versus the year ending December 2015.

Does it really need to be said, this is not what a recession looks like?


Lester C. Thurow, Dead at 77

Lester C. Thurow, a prominent  economist who was one of the first to "warn" about the non-issue  of the income gap between rich and poor, died on Friday in Westport, Mass, The New York Times is reporting.

Thurow taught at the Massachusetts Institute of Technology for decades and was the dean of the M.I.T. Sloan School of Management from 1987 to 1993 and a founder of the Economic Policy Institute, an influential regressive research group. In his heyday, according to NYT, he charged speaking fees of $30,000 and was one of the most sought-after economists on the lecture circuit.

The Economic Policy Institute has found it difficult to argue against almost any kind of interventions in the economy, as can be seen by the headlines from recent press releases the institute has issued:
The U.S. economy would still benefit from fiscal stimulus
Nobel laureates and leading economists oppose constitutional balanced budget amendment
Trade deficits with TPP countries cost more than 2 million U.S. jobs in 2015
Raising the New York state minimum wage to $15 an hour will lift wages for 3.2 million workers
Wal-Mart trade deficit with China cost more than 400,000 jobs from 2001 to 2013
Thurow got caught up in the 1970s/1980s crazed perspective that the Japanese corporate management style, combined with Japanese government-directed industrial policy,  could do no wrong. NYT notes:
 Some of Mr. Thurow’s bolder predictions — for example, that Japan would emerge as a titanic trading power that would not just rival but overwhelm the United States and Europe in the global economy — never materialized.

Murray Rothbard's description of left-wing Keynesians fits very well in describing Thurow:
Left-wing Keynesians, the hallmark of Democrat administrations...favor bigger inflations and higher taxes than their more conservative counterparts. The major difference comes in “micro-economic policy,” where conservative Keynesians tend to favor the free market, at least in rhetoric, whereas left-Keynesians are more frankly in favor of “industrial policy,” “economic strategy,” and an activist “partnership of government and business.” 

Tuesday, March 29, 2016

WARNING On New Book: "Concrete Economics"

Steve Hanke tweets out:

And Simon Constable writes at Forbes:
How did America get so rich so quickly?

It’s a question at the heart of economics, which in one broad definition, is a study of how some countries get rich and some stay poor.

Some people, including me, would say that the United States benefited hugely from sound property rights and hands-off government (as in “keep your filthy hands off my stuff.”) Then add some bootstraps to pull and a lot of hard work, and then hopefully you get rich.

Not everyone sees it quite like that. For instance, the authors of the recently published book Concrete Economics: The Hamilton Approach to Economic Growth and Policy by Stephen S. Cohen and J. Bradford DeLong, say there was a heavy policy role for government in the early years of the republic, and one that continued quite successfully until it all went wrong starting with the Reagan administration in the 1980s...

Concrete Economics is a well written and well researched book. But it is still one that could be misused by some economic policy makers who might wish to have government put an even heavier had on the economic tiller.

There is a tendency among some people to believe that the government should do ever more in an economy. Such people came out of the economics closet during the financial crisis spouting calls for more regulation....

Unfortunately, as those government hands steering the economy get heavier, the dangers get greater, both for liberty and for economics.

From the books blurb which details the horrific central  planning perspective of the book:
Brilliantly written and argued, Concrete Economics shows how government has repeatedly reshaped the American economy ever since Alexander Hamilton’s first, foundational redesign.

This book does not rehash the sturdy and long-accepted arguments that to thrive, entrepreneurial economies need a broad range of freedoms. Instead, Steve Cohen and Brad DeLong remedy our national amnesia about how our economy has actually grown and the role government has played in redesigning and reinvigorating it throughout our history. The government not only sets the ground rules for entrepreneurial activity but directs the surges of energy that mark a vibrant economy. This is as true for present-day Silicon Valley as it was for New England manufacturing at the dawn of the nineteenth century.

The authors’ argument is not one based on abstract ideas, arcane discoveries, or complex correlations. Instead it is based on the facts—facts that were once well known but that have been obscured in a fog of ideology—of how the US economy benefited from a pragmatic government approach to succeed so brilliantly.

Understanding how our economy has grown in the past provides a blueprint for how we might again redesign and reinvigorate it today, for such a redesign is sorely needed.

What Obama's "Third Way" Between Capitalism and Socialism Really is All About

Richard Ebeling emails:

Dear Bob,

I have a new article on the news and commentary website, “EpicTimes,” on, “Obama’s Dream of a Softer, Gentler Capitalism.”

During his recent trip to Argentina, President Barack Obama told a group of young men and women that the ideological battle between “capitalism” and “socialism” in the twentieth century had all been unnecessary and misplaced. The goal should be to take from both systems what seems good and practical and blend them together for something better than either one by itself.

This has been the ideal and goal for European social democrats and the American progressives for many decades – a “third way” of a regulated and managed market economy with a redistributive welfare state.

The fundamental fallacy in this political pragmatism is that what is created is not a “third way,” but simply an interventionist economic system that, on the one hand, reduces competition and consumer-driven production in the marketplace with heavy-handed government commands and restrictions that hamper entrepreneurial autonomy for consumer-oriented innovation and investment guided by the profit-motive.

While, on the other hand, the welfare state reduces and restricts citizens’ choices and liberty to determine their own needs, wants and demands for retirement, medical insurance and care, education, social interactions, and personal betterment, due to the usurpation of such decisions by a paternalistic government that imposes on the people what politicians, bureaucrats and ideological social engineers assert to be what is “good,” right” and “just” for everyone in the country.

Obama’s “third way” is a road to restricted liberty and reduced competitive opportunity. It is, in fact, an abandonment of freedom for command. It highlights why, contrary to what the president of the United States may say, it is essential to understand and defend the principle of individual rights and liberty, in all facets of human life and association, including in a truly free market economy.


Fitch Lowers Rhamaland Credit Rating 2 Notches to Just Above Junk

Chicago's credit rating has been downgraded to just above junk grade by Fitch Ratings after the Illinois Supreme Court struck down Mayor Rahm Emanuel's reform plan for two city pensions.

Fitch lowered Chicago's rating from BBB+ to BBB- on Monday, increasing the cost of borrowing.

The downgrade affects $9.8 billion of general-obligation bonds and $486 million of debt backed by sales taxes.

Fitch said it believes last week Thursday's ruling "was among the worst of the possible outcomes for the city's credit quality" and made clear the city's "responsibility to fund the promised pension benefits."

The struck-down plan required city and employees to boost contributions to the municipal and laborers retirement funds and cut future cost-of-living increases. The court ruled that it violated safeguards to public pensions enshrined in Illinois's constitution.

Rhamaland has a $20 billion shortfall in its retirement funds.

Fitch said the rating could stabilize at BBB- if the city presents "a realistic plan that puts the pension funds on an affordable path toward solvency."

Chicago is the worst-rated major U.S. city after Detroit.


Krugman Endorses Trumps Crazed Trade Views

Where these two intersect on the policy charts, you know it it bad policy. Paul Krugman has endorsed Donald Trump's mercantilist views:
I’m not saying that Trump has any idea what he’s talking about; he doesn’t. But we are living in a world where, for the time being — and maybe for a long time to come, if secular stagnation theorists are right — mercantilism makes a fair bit of sense. But then Keynes could have told you that.
For a thorough takedown of mercantilism see Murray Rothbard's  Mercantilism: A Lesson for Our Times?


The Evil Minimum Wage: After 70 Tries, I Still Can’t Find A Job in Seattle

Mitch Hall writes:

My opposition to minimum wage increases comes as a direct result of my own experience searching for jobs as a new resident of Seattle, Washington, a city that currently has one of the highest minimum wages in the nation. In June 2014, the Seattle City Council, composed of just nine members, unanimously voted to increase the city’s base pay to a whopping $15 an hour, to be gradually implemented over the course of several years.

I’ve spent the majority of the last two months stalking online job sites and entire days traversing the various neighborhoods of Seattle.
On January 1, 2016, the newly mandated minimum wage rose to $13 for larger companies (those that have more than 500 employees in the United States), and $10.50 for smaller employers (those with fewer than 500 employees in the United States). On top of this, Washington state law now requires businesses to adhere to this minimum even for tipped workers, a rule that only six other states have on the books.

In December, I found myself needing a break from college, for a variety of reasons. So at the close of last semester, I decided (rather impulsively, as young people are wont to do) to take my spring semester off from the College of William and Mary and move out west to try my luck in Seattle, a place I had only visited once before.

My parents, although grateful to have one less semester of ridiculously high out-of-state tuition to pay for, let me know that I’d need to fund the venture myself. I had secured an internship in the Seattle area, but it was unpaid, so I knew I’d have to find additional part-time work very quickly.

Having a combined two years of serving experience and close to five years of total experience in the customer and food services industries (which is literally as much as you can ask for from a 20-year-old college student), I assumed I’d be able to find a restaurant gig in no time. So, after reassuring my parents all would be well in the financial department, I boarded a plane in Philly a few weeks later and made the move.

Yet seven weeks and more than 70 job applications later, I still have yet to land a part-time, minimum wage job. I’ve spent the majority of the last two months stalking online job sites and entire days traversing the various neighborhoods of Seattle, filling out applications and inquiring about job opportunities at any restaurant, coffee shop, retail store, or other service-oriented establishment I can find.

Having squandered all of the money I had saved to get myself through what I thought would be a brief job-hunting period, I now find myself faced with the reality that if I don’t find work very, very soon, I’ll have to cut my break short and move back to the East Coast.

Higher Wages Mean Higher Stakes
At first, I was utterly dumbfounded by my lack of success, and figured only bad luck was to blame. After all, I had been hired at every single one of my past serving jobs within only a day or two of searching and applying. I’d have to find something in Seattle eventually, I thought; I’m young, competent, and college-educated, and serving is by no means a highly skilled occupation that requires degrees or extensive training. I know how to make a good impression with prospective employers, and I already have years of experience in the food services industry. What more could these people want?

Employers, especially in the restaurant and food services industries, are far less willing to take chances on who they hire with so much money on the line.
But soon enough it became clear, through talking with potential employers and local college students also trying to find work, that my failure to land a job was likely due, at least in large part, to Seattle’s absurdly high minimum wage.

Employers, especially in the restaurant and food services industries, are far less willing to take chances on who they hire with so much money on the line. I was shocked to learn that some restaurants—comparable in quality to the ones that hired me with little or no experience on the East Coast—here required a minimum of three to five years of restaurant experience, even for support staff positions like hosts and bussers. I had multiple managers glance at my resume, see that my past jobs were seasonal or temporary, and tell me upfront that unless I could commit to at least a year of labor, they simply wouldn’t hire me, despite my qualifications.

Contrast this with my past experience working in Pennsylvania and Virginia, states that have a minimum wage of $7.25 per hour for non-tipped workers and a base pay of $2.13 per hour for positions that do receive tips. To the uninformed observer, this situation looks a lot worse than the progressive system Washington has put in place, and admittedly, after taxes most of my paychecks came out to little more than $0.

But in reality this wasn’t an issue, because the tips easily made up for the hourly wage I was missing. Working 30 hours a week, I was able to bring home around $500 per week, which translates to about $17 per hour and $26,000 a year....

Restaurateurs in states with the $2.13 per hour minimum wage requirement have much more opportunity for variety in their hiring practices, for the cost to train someone is little, and the tip-based salary incentivizes individual employees to improve on their own while allowing the business to keep most of its profits. They can usually hire year-round, and can afford to choose from a much more diverse applicant pool. This is likely why I was able to secure my first restaurant job, when I was 18 years old and had no prior serving experience, as a summer employee in a busy Mexican restaurant.

Read the entire commentary here.

Is This Fed President An Idiot? Read These Two Headlines And Decide

By Tyler Durden

As if The Federal Reserve's credibility was not already circling the drain faster than Kanye West's, San Francisco Federal Reserve President John Williams just dropped the ultimate tape-bomb of ignorance and flip-flopping.
In January, as the market begain to accelerate to the downside, a confident Fed explains why it is "not too concerned" about China's collapse: "We've built in a weakening path for China. I don't see that as a significant risk to the forecast" for the U.S. economy, China doesn't affect the US market that much at all."
While he fell one short of using the 'c' word, the implicit statement was that China risk was "contained," and would not lead to any pain in the US.
Sponsored by Direxion
And then, less than 3 months later, Williams utters the following painfully hypocritical comments:"We have a domestic mandate...but that said, we understand that we're in a global economy so what happens in Brazil or China has a huge impact on the U.S. in terms of our inflation and employment goals."

We can only imagine that The Fed members have simply given up on any sense of credibility, instead desperately reaching for any excuse (around the world) not to hike rates.

So to sum up, The Fed "wasn't concerned" about China's economic collapse... until suddenly it's impact is "huge."
As a reminder, these are the unelected career economists and central planners that are entrusted - by the banks - to run the world.

The above originally appeared at Zero Hedge.

BOOM The Consumer Metrics Index of Daily Online Demand Has Exploded

This is not what a recession looks like.

The Consumer Metrics Institute tracks daily online purchases of durable consumer discretionary goods as a more reliable way of tracking economic activity and determining economic turning points.  The statistics are updated daily and are not revised.

(ht David Jensen)

The Big Question for California Gov. Jerry "Moonbeam" Brown

On Monday. Gov. Jerry Brown announced a six-year plan to boost the statewide minimum wage to $15 an hour.

"It's a matter of economic justice. It makes sense," Brown said at a news conference at the state Capitol.

The plan, expected to be voted on by the Legislature before the end of the week, would raise the statewide minimum wage by 50 cents on Jan. 1 to $10.50 an hour. From there, it would rise to $11 in 2018 and subsequent dollar-a-year increases ending at $15 on Jan. 1, 2022.

So Governor, if minimum wage hikes don't hurt the economy and it's about economic justice, why wait until 2022 to raise the rate to $15.00? Raise it now.

The only answer is, of course, that minimum wage hikes do cause problems for the economy.

Lots of problems:


Minimum Wage Job Losses Recognized By MSNBC

Seattle Has Lost 1300 Restaurant Jobs Since Minimum Wage Hike

Walter Block on the Minimum Wage and Price Inflation

Testimony on Raising the Minimum Wage for Fast-Food Workers

New Higher Minimum Wage is Crushing Oakland's Chinatown

Oakland's Minimum Wage Hike is Crushing the Childcare Sector and the Domino Effect

The Horrific Origin of Progressive Minimum Wage Advocacy

The only thing that is likely to bail out a $15.00 minimum wage in 2022 is the fact that price inflation will be so aggressive that a hike to $15.00 won't mean anything at that time.


(via LaTi)

Monday, March 28, 2016

Average Price for a Gallon of Gasoline Climbs for the Sixth Straight Week

Take advantage of the still low prices while you can. They are not going to last.


Who Needs Negative Interest Rates to Spur Consumer Spending When You Have Demna Gvasalia?

Of course, consumer spending does not drive an economy, production and capital investments do, but the work of Demna Gvasalia should please confused Keynesians who think it is about spending.

Gvasalia, 34, is the lead designer at Vetements, where he has created the $750 and up hoodie.

Yes, like this is one:

In its early days, I did some financial consulting  for the True Religion jeans company. I had never heard of them before working with them. When I was told they might need my services, I thought it was a bible publishing company or something. I don't think anyone knew who they were at the time. That changed.

They hired a top marketing guru to get the word out on their high priced jeans. He told them, forget doing traditional advertising. get celebrities to wear your jeans, that will get the buying going. It, of course, did the trick. I quickly learned that it was not a bad thing to casually mention in hot bar scenes that I was doing consulting work for True Religion. 

Getting rags on celebrities appears to still work.

NyPo on the latest rag trick:

When Selena Gomez was spotted at a Los Angeles airport this month wearing a slouchy red hoodie, articles extolling the look popped up everywhere from Us Weekly to Vogue. Why? This wasn’t just any old flight-prime hoodie. It was a sold-out-everywhere, $735 hoodie from Parisian It label Vetements ...
Over the past year, Vetements — which simply means “clothing” in French — has become a favorite among A-listers and fashion folk, with its lead designer, Demna Gvasalia, 34, ascending from unknown to become a celebrity in his own right. His hallmark: a cotton-jersey hoodie in a supersize silhouette intended to drip off the body.

“It’s the sweatshirt of the moment,” says a sales associate at Barneys’ Madison Avenue flagship, which currently offers different versions of the indie brand’s hooded signature in the men’s department, even though it’s technically a women’s piece..

Barneys executive vice president Tom Kalenderian says the hoodies are “selling at the speed of light,” and key pieces from Vetements have sold out at online portals like Net-a-Porter, Totokaelo and Matches Fashion....

Due to limited distribution stateside this season, Barneys is currently the only brick-and-mortar store in New York City with surviving stock. That includes an $845 gray variant that, like Selena’s, features an embroidered riff on the cursive Champion logo, as well as a “Titanic”-themed version ($885), emblazoned with an image of Leonardo DiCaprio and Kate Winslet and seen on many an editor, buyer, blogger and stylist during fashion month.

WAR Krugman versus Mankiw

These two really don't like each other. It's a Keynesian version of the WWF.

Paul Krugman wrote this morning from his perch at NYT:
When I say that Republicans have been more protectionist than Democrats, I’m not talking about the distant past, about the high-tariff policies of the Gilded Age; I’m talking about modern Republican presidents, like Ronald Reagan and George W. Bush. Reagan, after all, imposed an import quota on automobiles that ended up costing consumers billions of dollars. And Mr. Bush imposed tariffs on steel that were in clear violation of international agreements, only to back down after the European Union threatened to impose retaliatory sanctions.
Before Harvard's Greg Mankiw could have downloaded the entire column to his computer, he responded:
Paul Krugman has an odd column today, suggesting that if you are a free trader, the Democrats are historically a better bet for you...
[W]hat really caught my eye is how wrong Paul is about the Bush steel tariffs. I was there for part of this episode, so I am confident that his interpretation--that President Bush was a protectionist--is completely backwards.

President Bush wanted to get Trade Promotion Authority (aka Fast Track) to negotiate future trade deals. It was, however, a hard sell in Congress. The steel tariffs were imposed as a quid pro quo to get a few of the votes needed to pass TPA. The political calculation was that it was worth suffering a small, temporary trade restriction to get the tools needed for a broader, more permanent opening up of trade.

Yes, after about a year and a half, the tariffs were found to have violated international trade rules, but that was always anticipated. Indeed, one can say that it was part of the plan. When the WTO ruling was announced, President Bush happily removed the tariffs, just as he had always intended.

Trump Is Right—–Dump NATO Now

By David Stockman

If you want to know why we have a $19 trillion national debt and a fiscal structure that will take that already staggering figure to $35 trillion and 140% of GDP within a decade, just consider the latest campaign fracas. That is, the shrieks of disbelief in response to Donald Trump’s sensible suggestion that the Europeans pay for their own defense.

The fact is, NATO has been an obsolete waste for 25 years. Yet the denizens of the Imperial City cannot even seem to grasp that the 4 million Red Army is no more; and that the Soviet Empire, which enslaved 410 million souls to its economic and military service, vanished from the pages of history in December 1991.

What is left is a pitiful remnant—–145 million aging, Vodka-besotted Russians who subsist in what is essentially a failing third world economy. Its larcenous oligarchy of Putin and friends appeared to live high on the hog and to spread a veneer of glitz around Moscow and St. Petersburg. But that was all based on the world’s one-time boom in oil, gas, nickel, aluminum, fertilizer, steel and other commodities and processed industrial materials.

Stated differently, the Russian economy is a glorified oil patch and mining town with a GDP the equivalent of the NYC metropolitan area. And that’s its devastating Achilles Heel.

Mises on the Man Who Clings to Socialism

Ludwig von Mises
From Socialism by Ludwig von Mises:
It is a mistake to think that the lack of success of experiments in Socialism that have been made can help to overcome Socialism. Facts per se can neither prove nor refute anything. Everything is decided by the interpretation and explanation of the facts, by the ideas and the theories.
The man who clings to Socialism will continue to ascribe all the world's evil to private property and to expect salvation from Socialism. Socialists ascribe the failures of Russian Bolshevism to every circumstance except the inadequacy of the system. From the socialist point of view, Capitalism alone is responsible for all the misery the world has had to endure in recent years. Socialists see only what they want to see and are blind to anything that might contradict their theory.
Only ideas can overcome ideas and it is only the ideas of Capitalism and of Liberalism that can overcome Socialism. Only by a battle of ideas can a decision be reached.
Liberalism and Capitalism address themselves to the cool, well-balanced mind. They proceed by strict logic, eliminating any appeal to the emotions. Socialism, on the contrary, works on the emotions, tries to violate logical considerations by rousing a sense of personal interest and to stifle the voice of reason by awakening primitive instincts.

(via  Peter Boettke)

Another Warning on the Elimination of High Denomination Note Currency

Former U.S. Treasury Secretary Lawrence Summers recently called for the elimination of the 500 note euro and the 100 note US dollar.

"Extensive analysis is totally convincing on the linkage between high-denomination notes and crime," Summers wrote in a recent editorial for The Washington Post.

In an article at, Simon Consatble is the latest to warn about what is really behind the move:
The problem is that such assertions don't pass even the most cursory sniff test.

Does anyone really think that the criminal element will just pack up their businesses because the C-note or €500 note are eliminated? Will drug dealers decide to go back to school and become pharmacists once handling cash becomes too troublesome?

In your wildest dreams, can you imagine a hardened crime boss saying: "OK, boys, it's time to shut down the firm. They've dealt us a fatal blow. No more C-notes."

Of course not!
What's really going on is that the government wants more control and tracking capability of all spending. Control to direct the spending habits of all Americans.  Constable again:
The truth is that eliminating high-value bills won't do much of anything to reduce crime.

But it will accomplish something in another arena, that of monetary policy as determined by the Federal Reserve and the European Central Bank.

"We know the big policy challenge is, 'What can the central banks do when interest rates are already so low?'" says Lakshman Achuthan, cofounder of the Manhattan-based Economic Cycle Research Institute.

If extra monetary stimulus is required in the United States, then one step is to reduce the cost of borrowing -- perhaps to zero. Alternatively, policymakers could set so-called negative rates, which amount to charging banks interest on reserves held by the Fed, rather than paying it. Other major economies including Japan and the European Union are already setting some rates below zero.

And if the Fed did eventually set negative rates -- a scenario included in this year's banking stress tests -- it would give finance companies a disincentive to park money at the central bank, where they would have to pay interest.

Eventually, if banks passed on the negative rates to depositors, instead of receiving $1 a year for each $100, you might lose a dollar a year.

The message becomes clear. Do something useful with the money you are saving in the bank. (By useful I mean invest it or spend it.) If you don't, we'll start taking little bits of it away in the form of negative interest rates.

But the Fed is also faced with the problem that if there are lots of large-denomination bills available, people might simply remove their cash from the bank and place it under the proverbial mattress.

Bottom line the elimination of large denomination notes is about squeezing the average citizen. Criminals will always find workarounds.


No More Free Pickles in Restaurants in the People's Republic of San Francisco

With a very high minimum wage, heavy taxes and extreme regulations. restaurant owners cut where they can. "I can't absorb it anymore."

Matt Miller emails:
See: The Great Restaurant Deluge (SanFrancisco Magazine)
Between the skyrocketing cost of doing business and the unprecedented level of competition, Bay Area restaurant owners are sounding the alarm: A storm is coming.
·       15 month permitting process (vs. 10 weeks in Portland)
·       $200,000 liquor license
·       Double construction costs
·       Taxes, minimum wage – if you pay the dishwasher $19 an hour, what are you going to pay the sous chef?
·       Swollen commercial rents
·       Liberal owners caught in conundrum – ie.
o   Minimum wage causes extreme challenges to their business model, when most income is earned by tips
o   Healthcare costs by city ordinance, spend $850,000 / year on mandated health insurance, yet as average age of employees is 26, likely not even $100,000 of that money is actually used.
·       Restaurants are cutting costs – no longer offer free pickles to everyone, slashing valet service, tipless model, but only so much you can do before you raise prices.

“People are like, ‘Aren’t you precious, selling $5 croissants.’ Well, no, we’re just trying to pay our bills,” says Marla Bakery’s Wolf. “But try to explain to someone the idea that organic butter is five times the cost of conventional butter. They don’t give a shit. They just see it as being four times as expensive [as another
croissant]. People have their limits they’re not going to go above, and they don’t understand why they would need to.”

And that’s why higher menu prices don’t necessarily mean proportionally higher check averages: “When restaurants raise prices,” says Borden, “people order less.” And if customers aren’t ready for higher prices, well, that’s too bad. “[They’re] going to have to stop asking us to subsidize their lifestyle,” Weinberg says flatly. “You’re going to have to pay double for your steak if you want to live in this fabulous city. I can’t absorb it anymore.”

European Council Meeting Postponed Because of Brexit Vote

The European Council's annual June meeting will be delayed four days to June 27 to avoid coinciding with the June 23 British referendum on whether to leave the European Union, according to high-level sources, Reuters reports.

Britain is not part of the Schengen Agreement on open borders, but the recent Britain attacks will certainly have an impact on the vote.

Polls are close but swinging toward a British exit from the EU. Prime Minister David Cameron has stated that his biggest concern was low voter turnout for the “in” campaign.

Votes aginst the one world order are almost always a good thing. A country can always keep its borders open for trade while ignoring the crony one world order regulations.


Damn, Warren Buffett Shows Up in Cuba

Gary North asks the right questions and nails it:
On Friday, the Rolling Stones became the first famous Western rock & roll group ever to play in Havana. It was a free concert.
Mick Jagger scheduled the performance a few months ago. Did he coordinate this with the White House? Probably the other way around. No one refers to Mick Jagger as a lame duck . . . or lame anything else.
“President Obama opens for the Rolling Stones.”
As Jagger said — in Spanish — times are changing.
The crowd was around 500,000. Big.
The concert was bizarre. All of their concerts are bizarre. They are bizarre. But the word “bizarre” does not quite convey the true absurdity of the event.
First, among the VIPs was Warren Buffett. That man never misses an opportunity — a trait he shares with Jagger. The biggest real estate boom on earth is about to begin in Cuba. How much Havana beachfront property is he buying? How many factories to be torn down and replaced? Or did he come just to see a bunch of kids on stage?