Free Markets, Free People

Economics

Economic Statistics

Here are today’s statistics on the state of the economy. And yesterday’s too, since a family emergency kept me from posting them.

1st Quarter GDP was revised downwards to a 2.4% annualized growth rate. The GDP Price index also dropped to a 1.1% annual rate.

Initial jobless claims rose 10,000 to 354,000. The 4-week average rose 6,750 to 347,250. Continuing claims rose 63,000 to 2.986 million.

Corporate profits in the first quarter fell -4.0% to $1.738 trillion annualized.

The Bloomberg Consumer Comfort Index held at a near 5-year high at -29.7.

The Pending Home Sales Index rose a worse-than-expected 0.3% to 106.0 due to supply constraints.

The Fed reports the weekly M@ money supply fell -11.9 billion.

Personal income was unchanged in April, while spending fell -0.2%. The PCE price index fell -0.3% while the core rate was unchanged. On a year-over-year basis, income and spending were up 2.8%, while the PCE price index rose 0.7% at the headline level, and 1.1% at the core.

The Chicago Purchasing managers index rose sharply to 58.7 in May.

The Reuters/University of Michigan’s consumer sentiment index improved to 84.5 in May.

~
Dale Franks
Google+ Profile
Twitter Feed

Liberals Don’t Understand How Agricultural Subsidies Work

To be fair, they don’t understand how most things work, especially when there’s math involved, but this particular quirk is quite annoying.

I remember the first time I came across this general ignorance (see the comments), in a West Wing episode:

Actual dialog from a recent West Wing rerun:

Josh: What do I say to people who ask why we subsidize farmers when we don’t subsidize plumbers?
Farmer’s daughter 1: Tell ’em they can pay seven dollars for a potato.

Yes, I know it’s a TV show, but do people actually think like this? I always assumed that the reason we couldn’t get rid of farm subsidies was rent seeking by the farmers, but if people actually believe this, that could be part of the problem.

Yes, people actually do believe this. Indeed, here is David Sirota spouting the same ignorance:

GOP meat eaters aren’t free market – they want everyone to subsidize their eating via taxes that fund meat subsidies.

Among best ways to reduce meat consumption is to end ag subsidies so that the cost of meat is a true free market price – think: $9 burgers

David also makes the correct point that some GOP congressmen vote to keep these subsidies in place (particularly those in states with farms that benefit the most from them), but that doesn’t alleviate the complete misunderstanding of what these subsidies do.

In short: agricultural subsidies don’t reduce consumer prices, but instead raise them.

In fact, the entire point of these subsidies is to set minimum price levels (often called “price supports”) or trade barriers that create an artificial monopoly. The entire milk industry, as an example, is propped up with such subsidies. Why else do you think it costs about as much for a gallon of milk as does for a gallon of gas?

Although there had been several different forms of subsidies in the U.S. prior to the 1930’s, most were simple tariffs. When the Great Depression began, the Roosevelt Administration sought to prop up the nation’s farmers by raising their incomes. How did they propose to do that? Mainly by setting minimum prices and production quotas (remember Wickard v. Filburn?):

When Franklin D. Roosevelt was inaugurated president in 1933, he called Congress into special session to introduce a record number of legislative proposals under what he dubbed the New Deal. One of the first to be introduced and enacted was the Agricultural Adjustment Act. The intent of the AAA was to restore the purchasing power of American farmers to pre-World War I levels. The money to pay the farmers for cutting back production by about 30 percent was raised by a tax on companies that bought farm products and processed them into food and clothing.

The AAA evened the balance of supply and demand for farm commodities so that prices would support a decent purchasing power for farmers. This concept was known as “parity.”

AAA controlled the supply of seven “basic crops” — corn, wheat, cotton, rice, peanuts, tobacco, and milk — by offering payments to farmers in return for farmers not planting those crops.

The AAA also became involved in assisting farmers ruined by the advent of the Dust Bowl in 1934.

In 1936 the Supreme Court, ruling in United States v. Butler, declared the AAA unconstitutional. Writing for the majority, Justice Owen Roberts stated that by regulating agriculture, the federal government was invading areas of jurisdiction reserved by the constitution to the states, and thus violated the Tenth Amendment. Judge Harlan Stone responded for the minority that, “Courts are not the only agency of government that must be assumed to have capacity to govern.”

Further legislation by Congress restored some of the act`s provisions, encouraging conservation, maintaining balanced prices, and establishing food reserves for periods of shortages.

Congress also adopted the Soil Conservation and Domestic Allotment Act, which encouraged conservation by paying benefits for planting soil-building crops instead of staple crops. The rewritten statutes were declared constitutional by the Supreme Court in Mulford v. Smith (1939) and Wickard v. Filburn (1942).

During World War II, the AAA turned its attention to increasing food production to meet war needs. The AAA did not end the Great Depression and drought, but the legislation remained the basis for all farm programs in the following 70 years.

The entire point of these subsidies is to increase the incomes of farmers. It has never had anything to do with making the price of a potato or a hamburger cheaper for consumers. By design, these programs intend to raise the price for agricultural products, as well as to transfer dollars from taxpayers to farmers.

How liberals like David Sirota and Aaron Sorkin came to think the exact opposite is puzzling. As Ronald Reagan said: “It isn’t so much that liberals are ignorant. It’s just that they know so many things that aren’t so.”

Don’t like the GDP numbers? Change the rules …

Seems easy enough.  That way you can claim to be improving it even while nothing is actually improving in reality:

The Bureau of Economic Analysis announced last week it would be changing the guidelines with which it calculates Gross Domestic Product, more familiarly known as the GDP, the standard by which the size and growth of the economy is measured.

The change comes after more than five years of economic stagnation that, despite frequent claims of a strengthening recovery, have seen high unemployment and extremely slight growth in the size of the economy.

GDP is calculated by adding up the total amount of private consumption, investment, government spending, and net exports. The new changes, which will include definitional changes to expand what is counted in GDP, are expected to add 3 percent to the GDP report, while not changing the actual output of the economy.

The agency claims the changes in calculation “more accurately portray the evolving U.S. economy and to provide for consistent comparisons with data for the economies of other nations.”

Note the emphasized text.  Realize that the addition of 3% to future GDP reports will be made without any explanation that a) there have been changes in the way it was calculate and b) in reality, the actual output of the economy has not changed at all.

But the administration will claim victory and the low information voters will buy it while the “no” information voters (those on the left who refuse to challenge anything put out by this administration) will crow about the “improvements” that the administration has brought to the economy.

Meanwhile the unemployment picture will remain the same (about 7.5%) until they can find a new way to calculate that and take about 3% off .  Then we’ll be officially “fixed”.

Amazing.

~McQ

Jobless numbers “unexpectedly” rise to 4 month high

Because, you know, we’re in a (perpetual) recovery and stuff like this isn’t supposed to happen:

The number of Americans filing new claims for unemployment benefits hit a four-month high last week, the latest suggestion the labor market recovery lost some momentum in March.

Initial claims for state unemployment benefits increased 28,000 to a seasonally adjusted 385,000, the highest level since November, the Labor Department said on Thursday.

Economists, who had expected claims to drop to 350,000, said while part of the rise reflected difficulties adjusting the data during the Easter and spring breaks, there was no doubt the pace of job growth had eased.

“What we do know is that the growth momentum has slowed, employment has slowed. The question is how much?” said Millan Mulraine, a senior economist at TD Securities in New York.

How much?  Well let’s consider something shall we?  What has recently and finally gone into full effect to the point that employers can now finally make some plans with reference to it as to how many they plan to employ (or continue to employ)?

Oh, yeah, ObamaCare.  The taxes and penalties kick in this year and – not saying this is the only reason – companies and corporations are finally put in the position of executing their plan to avoid the prohibitive costs and penalties imposed.

That’s right – “avoid”. Again, as is usually the case, the left has ignored Human Nature 101 as they usually do. You have to remember, the purpose of their utopia is to change human nature once and for all from a self-interested and independent being to a hive worker enslaved to the state, er, an enlightened being who thinks of others first … yeah, that’s the ticket.

And when their utopian plans meet human nature, well they call the result “unintended consequences”. We who study human nature call them “entirely predictable outcomes”. They seem surprised by these “unexpected” developments. We simply shake our head at their studied stupidity.

The problem, of course, is they presently have the power of the state in their hands. What that means is they will continue to try to drive the square peg of their utopia into the round hole of human nature and use the power of government to do so.

What that means is at some point, when they’re finally out of power, we’re going to have to pick up their pieces of what they’ve destroyed and try to piece it together in some form or fashion, if that’s possible.

And all the while that’s being attempted, we’ll have to listen to them whining and complaining that what is being done isn’t “fair” or “equitable”.

Well, what you’re suffering now is a result of “fair and equitable” nonsense that ignored Human Nature 101. Maybe it’s time to figure that out if you’re on the left.

~McQ

What was Einstein’s definition of “insanity”?

Oh yeah, “doing the same thing over and over again and expecting different results”.

Today’s example, via the usual suspects, just boggles the mind:

The Obama administration is engaged in a broad push to make more home loans available to people with weaker credit, an effort that officials say will help power the economic recovery but that skeptics say could open the door to the risky lending that caused the housing crash in the first place.

President Obama’s economic advisers and outside experts say the nation’s much-celebrated housing rebound is leaving too many people behind, including young people looking to buy their first homes and individuals with credit records weakened by the recession.

In response, administration officials say they are working to get banks to lend to a wider range of borrowers by taking advantage of taxpayer-backed programs — including those offered by the Federal Housing Administration — that insure home loans against default.

This is just, frankly, incredible in its stupidity.  We’ve been here, done this and suffered the consequences in terms of a financial meltdown and an economy that seems to be in permanent “recession”.  We’d have the T-shirt too, but they took it off our backs.

Consider the administration’s solution to the perception that we’re “leaving too many people behind:  Let’s do again what was a major contributor to the last melt down.  No prob.  They’ll just blame the banks and the “market”.  The result: more people “left behind”.

I mean, it hasn’t even been a decade yet.  We’re not even doing this with a new administration.  These are, for the most part, the same people who crashed it last time.

Why is it that “leaving too many people behind” is the priority, when in the past those who were supposedly left behind, found some way in the future to catch up?  Why is it government’s job to “insure” risky loans because of that feel-good claptrap?

Because we’re freakin nuts, that’s why.  We’re bound and determined to ruin this country based on an ideology that plays to “feelings” and “emotions” rather than good common sense, the laws of economics and freedom and libery.  That’s why.

This is tar and feathers worthy, yet we’ll sit around like lumps while a majority claims it’s a “good idea” because it is “only fair”.

“Fair”.  The word that will – is – ruining this country.

~McQ

Regulation tends to cost lower income people more

I know that’ll come as an absolute stunner, huh? Not really. Regulation costs money. It costs money for compliance enforcement, which comes from taxes, and it costs companies money for compliance in the form of higher costs – costs that are passed on to consumers.

So? So – from the Mercatus Center at George Mason University, find out:

Low-income households benefit the most when they act to reduce their exposure to the greatest risks they face, such as relatively common events and activities that cause illness, injury, and death, many of which can be traced to living in unsafe neighborhoods. In contrast, high-income households generally focus more on small risks—for example, tiny environmental risks that are far less likely to occur and generally affect fewer people at the expo- sure levels regulations address.

LOWER INCOME HOUSEHOLDS BEAR MORE OF THE COSTS OF REGULATION

Regulation focused on small risks delivers benefits to a limited group but spreads the costs across everyone. As a result, regulation effectively transfers money from low income households, who need to prevent larger risks, to high income households, who are concerned about small risks. Low income households are, in a sense, paying for the lifestyle preferences of the wealthy.

Such regulation increases consumer prices and lowers worker wages.

• Regulations act like a regressive sales tax, with middle and lower income households bearing much of the cost of rules that focus on the risk preferences of wealthier households, since they all pay the same, higher prices.

• Cost of regulation as a share of income is estimated to be as much as six to eight times higher for low-income households than for high-income households.

• [Diana] Thomas estimates that households can mitigate the same level of mortality risks privately for about one fifth of the cost of public risk-reduction strategies.

Well, imagine that, the laws of economics at work in a very predictable way.  And, of course, completely opposite of the professed claim of the left to be on the side of the poor. Because it is that very group that continually push more and more regulation because, one assumes, they believe if some regulation is good, more has to be better. But, as a group, being mostly economically illiterate combined with unaccountable faith in government power, they end up with these sorts of ‘unintended consequences’ all of the time.

~McQ

Were American’s misled about the cost of ObamaCare?

Does a duck quack? Of course they were. Were politicians pushing an agenda involved? That’s a rhetorical question:

And yes, we told you so.

As Thomas Sowell pointed out, and I’m paraphrasing, how anyone thought that adding a layer of bureaucracy and regulation to the current system was going to drive costs down was beyond him.

And it was beyond most people who have even a modicum of common sense.

Medical claims costs — the biggest driver of health insurance premiums — will jump an average 32 percent for Americans’ individual policies under President Obama’s overhaul, according to a study by the nation’s leading group of financial risk analysts.

The report could turn into a big headache for the Obama administration at a time when many parts of the country remain skeptical about the Affordable Care Act. The estimates were recently released by the Society of Actuaries to its members.

While some states will see medical claims costs per person decline, the report concluded the overwhelming majority will see double-digit increases in their individual health insurance markets, where people purchase coverage directly from insurers.

The disparities are striking. By 2017, the estimated increase would be 62 percent for California, about 80 percent for Ohio, more than 20 percent for Florida and 67 percent for Maryland. Much of the reason for the higher claims costs is that sicker people are expected to join the pool, the report said.

Well done, Democrats — well done.

~McQ

Study: Government policy primarily the reason for sub-prime mortgage meltdown

Despite the attempt by government and particularly Democrats, to blame the financial meltdown we’ve endured on banks and unscrupulous investment companies, the buck stops with them according to a new study just released:

Democrats and the media insist the Community Reinvestment Act, the anti-redlining law beefed up by President Clinton, had nothing to do with the subprime mortgage crisis and recession.

But a new study by the respected National Bureau of Economic Research finds, “Yes, it did. We find that adherence to that act led to riskier lending by banks.”

Added NBER: “There is a clear pattern of increased defaults for loans made by these banks in quarters around the (CRA) exam. Moreover, the effects are larger for loans made within CRA tracts,” or predominantly low-income and minority areas.

As we’ve mentioned previously any number of times, government policies can set and enforce preverse incentives.  And that has nothing to do with a free market.  That’s at best a mixed market.  So no, the problem wasn’t a “market failure”, it was the usual result of government intruding and setting preverse incentives that are contrary to good business practices and would likely not survive or succeed in an actual free market.

Here’d the bottom line:

The strongest link between CRA lending and defaults took place in the runup to the crisis — 2004 to 2006 — when banks rapidly sold CRA mortgages for securitization by Fannie Mae and Freddie Mac and Wall Street.

CRA regulations are at the core of Fannie’s and Freddie’s so-called affordable housing mission. In the early 1990s, a Democrat Congress gave HUD the authority to set and enforce (through fines) CRA-grade loan quotas at Fannie and Freddie.

It passed a law requiring the government-backed agencies to “assist insured depository institutions to meet their obligations under the (CRA).” The goal was to help banks meet lending quotas by buying their CRA loans.

But they had to loosen underwriting standards to do it. And that’s what they did.

Not only that, they guaranteed the bad loans with your money.  Why do you think so much money has had to be pumped into those two institutions?

You see the market had determined that certain standards protected their investments.  The government decided to ignore reality and push a social agenda using “race” as the basis for throwing out those standards and using their coercive power to implement the social agenda they preferred.

The result was predictable.

And the coverup as well.

~McQ

Why it is so hard for government to quit spending

It’s hard, in a nutshell, because no one wants to see their favorite programs defunded.  The system encourages politicians to pander to these constituencies for votes.  The result is ever increasing spending while both the public and the politicians claim to be for spending cuts.

A perfect example of the process can be found in microcosm in Chicago, where, to save money in the wake of intemperate government spending, the school system plans on closing 54 schools.  The constituency affected are not going to let this go quietly.  Even though the plan would save the city $600 million over 10 years and certainly help close the 1 billion dollar shortfall it suffers, the people (voters and teacher’s unions) who don’t want those schools closed are taking their protest to the politicians (aldermen) who depend on their votes.

The problem now being realized with the process described above is there’s a thing called “reality” that intrudes on this system of ever increasing spending to satisfy the demands of ad hoc constituencies.  It’s called economics.  And it has laws that resist being broken.  Laws such as you can only spend more than you have for so long before you can’t get anymore to spend.  And at a local level, where a city government can’t print money, that reality has come to bear on the process that the city of Chicago has indulged in for so long.

It can’t afford the process any longer.  And that means the process and its cycle will, of necessity, have to be broken if the city isn’t to become another Detroit.  In the case of the school closings in Chicago, the only question that remains is whether or not the politicians, in the face of opposition by a coalition of voters/unions/politicians, will do what is necessary or  – as we see on a national level time after time – endeavor to find a way to satisfy the coalition and kick the can down the road?

To the story:

Chicago Public Schools officials ended months of speculation when they released the list of 54 schools the city plans to close, but the pushback against Mayor Rahm Emanuel and his schools chief is likely just starting to ramp up.

As word of the schools on the long-awaited closings list trickled out Thursday, parents, teachers and community members — some furious, some in tears — vowed to fight the closings. One group took a bus of people to protest in front of the homes of school board members, and some parents spoke of a lawsuit. The Chicago Teachers Union already had scheduled a mass protest march through downtown for next week.

"We are the City of Big Shoulders and so we intend to put up a fight," union President Karen Lewis said. "We don’t know if we can win, but if you don’t fight, you will never win at all."

Emanuel and schools CEO Barbara Byrd-Bennett say the closures are necessary because too many Chicago Public School buildings are half-empty, with 403,000 students in a system that has seats for more than 500,000. But opponents say the closures will further erode troubled neighborhoods and endanger students who may have to cross gang boundaries to attend school. The schools slated for closure are all elementary schools and are overwhelmingly black and in low-income neighborhoods.

About 30,000 students will be affected by the plan, with about half that number moving into new schools.

So 30k out of 403k will be effected in a school system that appears to have a declining population.  Any sensible person would understand that even if money wasn’t a problem, at some point adjustments would need to be made. 

But we’re a schizo population who somehow believes – even as our reality  reminds us in our own lives daily that we’re delusional – that we can have our cake and eat it too. 

This problem and the reality aren’t unique to Chicago:

Chicago is among several major cities, including Philadelphia, Washington and Detroit, to use mass school closures to reduce costs and offset declining enrollment. Detroit has closed more than 130 schools since 2005, including more than 40 in 2010 alone.

The problem is, however, pretty unique to cities who’ve followed that process I described above and, for the most part, have been “blue” strongholds for decades.  Reality is weighing in on their misguided governance with a vengeance.

What’s interesting is it is pitting blue against blue (blue city government against teacher’s unions, etc.).  And, it also has a coterie of politicians who refuse to accept reality because, well because it could cost them their jobs and the perks that come with it:

The issue has again pitted Emanuel against the Chicago Teachers Union, whose 26,000 members went on strike early in the school year, idling students for seven days. Chicago aldermen and other lawmakers also have blasted the plan.

Of course they have.  Common sense and reality say the plan is the way to go. 

But we all know, in the world of politics, common sense was killed off decades ago and reality is ignored as long as possible.

And look at the result.

~McQ