economy

[dmp]

I would add Hayek and perhaps others to your short list of influential economists but lets not pretend it was a mutual admiration society where they all agreed with each other.

I read "the road to serfdom" last year, which was Hayek's major work. I thought it was mostly opinion and I found it nearly devoid of substance. I was pretty surprised it is considered a major work of economics.  And I don't think that's my team politics speaking either, because I think Milton Friedman's "Capitalism and Freedom" is excellent. And Friedman is about as fiscally conservative as they come. And it's a pretty easy read.

I have not seen anything remotely resembling fiscal discipline from either party in Washington (both are afraid of the touching the third rail of politics)

Both parties know that cutting entitlement spending would be a death sentence at the next election since the beneficiaries of that spending (retired / AARP voters) turn out so strongly. However, that doesn't justify cutting revenue with tax cuts when it puts the gov balance sheet deep in the red, IMO. Unfortunately, some conservatives see this as a strategy to address what they see as out of control gov spending (Grover Norquist's starve the beast).

Economics is called the dismal science, and I am uncomfortable calling it any kind of science. It seems more akin to philosophy with a heavy dose of BS (baker sierra).  Science obeys strict physical laws, while economic laws seem more like suggestions about human behavior that can only be parsed out of large scale studies statistically.

Money is a conserved quantity in the economy so it is fair to apply equations to it (excluding money printing). And understanding the velocity of money has been key to a better understanding of inflation.
I think the hardest kind of science is discovering and understanding complex, chaotic dynamic systems. Applying statistics and other methods - chaos theory / game theory, things like that.  An interesting feature of economics is that an increased understanding of the economy changes the underlying system behavior going forward, i.e. as people understand more about the economy and have more measurements to look at (GDP, trade balance, earnings, etc), it influences their individual actions.  Fascinating stuff. 

 

[kambo]

so, is it a good time to buy house or wait for another year or so!

 

[JohnRoberts]

so, is it a good time to buy house or wait for another year or so!

That is unclear but probably depends on location.

Housing supply for sale (in the US) is generally tight so in classic supply/demand relationship prices will have some upward pressure under them, but in a classic location always matters, a friend of mine who just sold his house in CT, where some large corporations are leaving the area (like GE that just moved their headquarters to Boston), reported his closing a few months ago was not as smooth or profitable as they anticipated.

Long term I think home ownership is generally a good investment, but so do hedge funds and investment banks. One new strategy they are using to participate in housing appreciation is to keep a fractional interest in new home mortgages that they issue, so they can receive a share of the profit when the home sells later for a profit (or suffer a share of the loss, but they wouldn't be doing this if they expected losses.).

It is a safe bet that home prices will appreciate over time, just probably not as fast as they did this most recent decade (since the housing bubble collapse) with the central bank actively working to bail out underwater mortgage holders by inflating asset prices. That party isn't completely over but is surely winding down by now. 

Sorry for the convoluted answer but real estate has always been local, so it depends on local housing availability and local economy. Don't expect to find a cheap fixer upper in silicon valley, or napa. 

JR

PS: Recent tax law changes also limit the deductibility of large real estate tax bills, like in some high tax states (NJ, NY, etc) that will have a negative impact on home prices in those states.  This was another aspect of the new tax law I didn't care for... (not very nice. )

 

[kambo]

thank you John,
yea, CA is crazy!!!
most neighborhoods went up 100K past last year....
even on a creepy neighborhoods if u find a fixer/upper, some people come with cash,
and u dont even get a chance to make offer...

 

[Script]

Nothing but a few random thoughts.

Milton Friedman's version of negative income tax (NIT) is somewhat interesting – also against the backdrop of universal/unconditional basic income (UBI) as discussed recently in some parts of Europe.

First, introducing a tax exemption threshold above which incomers have to pay tax and below which incomers receive money from the state (that is, instead of deductions and allowances!) would most probably reduce administrative work (slimmer state).

Second, such tax exemption threshold could be kept flexible in that each year’s tax exemption threshold is based on last year’s tax revenue and expenditure, for instance, or average of last five years etc.

Third, and this is actually a ‘but’, it would require reforming the all too often complex taxation systems we maintertain right now. Not sure how easy that would be and these systems are complex for a reason (equality), but reality can change faster than tax laws could possibly be altered or adapted to respond to any change.

Fourth, and this sure is a ‘but’, I’m not sure it’s desirable on a societal level today to see a true flat tax rate (as in: same percentage for all) – rather more like progressive or, in the extreme case, exponential above threshold and logarithmic below. Affluent people often have more opportunities already anyway (many argue), while helicoptering* too much money to below tax exemption incomers can all too easily result in negative stimulus (mild case: people cutting down on work hours, as happened when they tested Friedman's NIT in the 1960s(?) ).

Fifth, somewhat unrelated by maybe related, reality is changing and we are losing jobs to automation today. Maybe this calls for a redefinition of the term ‘work’ to something like (purely tentative): ‘work is defined as someone or something spending time to do something that creates value (in economical terms) or is considered to be of value (in societal, cultural, artistic etc terms)”.

-----

*I think I mentioned it before, the Japanese had tried ‘helicopter money’ before they fired the first QE bazooka -- their helicopter experiment had failed. It was a one-time payment equivalent to US$100 to all taxpayers in Japan. They tried their helicopter experiment in a quasi deflationary environment. The result: people took the money but didn’t spend it. As for criticism: Some said helicopter money is a wrong approach altogether (wrong stimulus). Others said the cash was given to the wrong people (taxpayers only). While yet others claimed US$100 was way too little money to show any effect. Anyway, the Japanese go QE now and will continue to do so with no end in sight.

 

[dmp]

so, is it a good time to buy house or wait for another year or so!

Impossible to predict...

Interest rates are rising and have already started pressuring selling prices (a higher interest rate makes the monthly payment for a house higher). Rates will probably rise another % over the next year.

My gut feel is we are at the top right now, but don't put much trust in my predictions. If you lock in a 30 yr mortgage today with something you could afford you'd probably do OK. I would not do a ARM (adjustable rate mortgage) since rates are going up and what you can afford today would be much more expensive in a few years.

If you wait until the next recession, you may get a bargain - but you would need to be in a strong financial position (probably cash or mostly cash). Prices dropped in 2009 because very few people were able to buy. The real deals were scooped up by cash in hand buyers.

 

[JohnRoberts]

Nothing but a few random thoughts.

Milton Friedman's version of negative income tax (NIT) is somewhat interesting – also against the backdrop of universal/unconditional basic income (UBI) as discussed recently in some parts of Europe.

First, introducing a tax exemption threshold above which incomers have to pay tax and below which incomers receive money from the state (that is, instead of deductions and allowances!) would most probably reduce administrative work (slimmer state).

Second, such tax exemption threshold could be kept flexible in that each year’s tax exemption threshold is based on last year’s tax revenue and expenditure, for instance, or average of last five years etc.

Third, and this is actually a ‘but’, it would require reforming the all too often complex taxation systems we maintertain right now. Not sure how easy that would be and these systems are complex for a reason (equality), but reality can change faster than tax laws could possibly be altered or adapted to respond to any change.

Fourth, and this sure is a ‘but’, I’m not sure it’s desirable on a societal level today to see a true flat tax rate (as in: same percentage for all) – rather more like progressive or, in the extreme case, exponential above threshold and logarithmic below. Affluent people often have more opportunities already anyway (many argue), while helicoptering* too much money to below tax exemption incomers can all too easily result in negative stimulus (mild case: people cutting down on work hours, as happened when they tested Friedman's NIT in the 1960s(?) ).

Fifth, somewhat unrelated by maybe related, reality is changing and we are losing jobs to automation today. Maybe this calls for a redefinition of the term ‘work’ to something like (purely tentative): ‘work is defined as someone or something spending time to do something that creates value (in economical terms) or is considered to be of value (in societal, cultural, artistic etc terms)”.

-----

*I think I mentioned it before, the Japanese had tried ‘helicopter money’ before they fired the first QE bazooka -- their helicopter experiment had failed. It was a one-time payment equivalent to US$100 to all taxpayers in Japan. They tried their helicopter experiment in a quasi deflationary environment. The result: people took the money but didn’t spend it. As for criticism: Some said helicopter money is a wrong approach altogether (wrong stimulus). Others said the cash was given to the wrong people (taxpayers only). While yet others claimed US$100 was way too little money to show any effect. Anyway, the Japanese go QE now and will continue to do so with no end in sight.

I saw a video interview from 1968 with Friedman explaining his NIT concept and it has some attractive prospects. First it could reduce the bureaucracy of government welfare programs, turning it into an extension of the income tax system.

He addresses the negative incentive aspect by proposing a 50% credit for income below threshold. So as you earn more you receive more in total while reducing the benefit fraction of the wage. So below threshold workers would still be motivated to earn more.   

One unintended consequence I do not like is that this would in effect subsidize large employers of below subsidy threshold workers by paying the low wage workers more making it easier for the companies to hire low wage workers for less. While this might slow down the march of automation replacing entry level workers, it feels too much like a subsidy for the employer too. Forcing the employer to pay the subsidy is indistinguishable from higher minimum wage, that kills entry level jobs. 

Are there any examples of countries where this actually works well? It seems like there could be other unintended consequences I don't see.

JR

 

[dmp]

Wonder what Friedman would think of the Trade war Trump is starting.

30% tariff on solar panels I guess was acceptable to the conservatives because it got the tree hugging liberals. But 25% on steel and 10% on aluminum is gonna be a shock, I expect.

 

[dmp]

And.... the stock market is crashing with Trump's announcement today on the steel and aluminum tariffs.
Any US company that buys metal is going to be hit hard (i.e. car companies) .

 

[JohnRoberts]

Wonder what Friedman would think of the Trade war Trump is starting.

Some argue we have been in a trade war for years...  Reportedly there is only one US company making transformer grade steel that seems a necessity worth protecting. There has been funny business going on with aluminum from China for years with one guy smuggling aluminum out of china. He even manufactured pallets out of aluminum to conceal the exports. 

30% tariff on solar panels I guess was acceptable to the conservatives because it got the tree hugging liberals. But 25% on steel and 10% on aluminum is gonna be a shock, I expect.

A wide tariff on all steel and aluminum could cost more jobs than it saves (more businesses in the US consume steel/aluminum than sell it), while there are probably strategic US interests worth protecting.

As usual I will ignore the hysterical political arm waving and wait for the rest of the story.

JR

PS: Stock market down, may be another buying opportunity, thanks for the heads up.  8)  (just checked.. gold and my canadian pot stock are up today.)

 

[dmp]

Some argue we have been in a trade war for years... 

A trade war does not commonly refer to competition, it refers to protectionist measures that would seem to benefit one side initially, but when responded to, just hurt both sides.
Some people have accused China of manipulating it's currency to cause American's to buy Chinese imports. I'm not sure it is that simple. American's buy cheap Chinese imports because they get more for less.

A wide tariff on all steel and aluminum could cost more jobs than it saves (more businesses in the US consume steel/aluminum than sell it), while there are probably strategic US interests worth protecting.

The solar tariff is reportedly doing just that. There are far more jobs in the US installing solar panels than manufacturing them. But for those politically opposed to green energy that is probably a motivation. Regardless of Trump's efforts, coal as an energy source is decreasing fast. It was recently surpassed by natural gas, which is cheaper and cleaner.

 

[JohnRoberts]

A trade war does not commonly refer to competition, it refers to protectionist measures that would seem to benefit one side initially, but when responded to, just hurt both sides.

as usual thanks for the definitions...  Yes, unfair competition. But if one side is competing unfairly and if you don't respond it can cause economic displacements and damage to the domestic economy. 

The solar industry is a interesting example. The chinese ramped up their domestic manufacturing to enjoy economy of scale and dumped solar panels in the US and EU to squash competition. The US and EU solar panel makers long since gave up trying to compete and buy chinese panels. It is weird to see an entire US industry of solar panel installers using government subsidies and dumped panels to lease solar installs to homeowners with easy credit.  I wonder what these will look like in 30 years when the warranties run out. Of course a 30 years warranty ASSumes the company will still be around (maybe Elon Musk will.) Tesla made some interesting solar roof solutions but his roof would cost about 2x what I paid for my house.  Elon thinks further out into the future than even I do (but I'm getting old so little point).

Some people have accused China of manipulating it's currency to cause American's to buy Chinese imports. I'm not sure it is that simple. American's buy cheap Chinese imports because they get more for less.

every country wants a cheap currency to help imports. Recently Secry Mnuchin remarkably spoke that truth, and shocked markets, because US treasury secretaries never "officially" comment on the value of the dollar.  :

The solar tariff is reportedly doing just that. There are far more jobs in the US installing solar panels than manufacturing them. But for those politically opposed to green energy that is probably a motivation.

I am not opposed to green energy but I am opposed to stupid wasteful government subsidies. (Why should I help rich people get subsidies to buy premium electric vehicles?).

Regardless of Trump's efforts, coal as an energy source is decreasing fast. It was recently surpassed by natural gas, which is cheaper and cleaner.

Domestic use of coal for energy generation is down because we have cheap NG coming out of our butts, but coal exports have increased to some markets. Japan is burning more coal to replace shut in Nuclear generation, and even europe is buying US coal (Germany shut down nuke plants too).  But transportation cost is a factor with coal so cheap australian coal has the edge for selling coal to china, not to mention that china is trying to clean up their air quality (cough).

My local very expensive "clean coal" plant (thank you tree huggers and regulators who kept changing the rules) is burning NG and likely to always burn gas because it's cheaper than "clean" coal, even though we have local coal seams next to the plant. So that massive expense to build a still experimental technology clean coal power plant was a total waste of me any my neighbor's (utility ratepayers)  money. 

JR

PS: this thread about the economy seems chock full of politics.  :

 

[Script]

One unintended consequence I do not like is that this would in effect subsidize large employers of below subsidy threshold workers […] Forcing the employer to pay the subsidy is indistinguishable from higher minimum wage, that kills entry level jobs.

Yes, I agree, companies don’t need more subsidies. Higher minimum wage could nonetheless be a logical consequence. It might kill some entry-level jobs (maybe even some smaller business operating slightly above zero profit), but if you look at Japan, for instance, there is a clear tendency of so-called ‘entry-level jobs’ turning into ‘lifetime careers’ (need to redefine what proper full-tme work is).

Another ‘negative’ consequence is that NIT would make quite some administration staff dispensable. So I guess we won’t see anything remotely resembling NIT anytime soon. In Japan the administration is the biggest employer of the less-abled and challenged. Nobody could want them to lose jobs.

 

[Script]

A trade war does not commonly refer to competition, it refers to protectionist measures that would seem to benefit one side initially, but when responded to, just hurt both sides.

+1

Read that Trump’s plan even goes against WTO regulations. Could it be just another instance of being big-mouthed up front? Maybe not. Guess he’s planning on taking the tariff money and give it to the other moribund patient, the car industry.

 

[JohnRoberts]

+1

Read that Trump’s plan even goes against WTO regulations. Could it be just another instance of being big-mouthed up front? Maybe not. Guess he’s planning on taking the tariff money and give it to the other moribund patient, the car industry.

President Trump's actual specific plan has not been announced yet. As he (too) often does he spoke out of school blurting out some tariff numbers when he was in front of reporters for a different announcement.

This is most likely an opening round of negotiation where he throws out unrealistic demands to move the needle then settles on something much more reasonable.  I wouldn't take the media  analysis very seriously. They have been in chicken little (the sky is falling) mode since he was elected.

Demanding reciprocal trade does not sound that radical (to me).  While we have historically tolerated asymmetrical trade for a long time. That doesn't mean we should continue. This was a campaign promise. For some reason it still surprises media when he moves toward fulfilling yet another campaign promise.

Stock market is fearful now, but that is probably a reasonable response when this elevated (still a long term buy IMO, and priced better now than it was even 2 months ago). Note: I am not saying to buy stock this morning but do not stop buying for retirement accounts and averaging into long term positions.  There are many companies that don't use steel or aluminum.

JR

 

[dmp]

+1

Read that Trump’s plan even goes against WTO regulations. Could it be just another instance of being big-mouthed up front? Maybe not. Guess he’s planning on taking the tariff money and give it to the other moribund patient, the car industry.

To me it is interesting that he's taken this long to make some real progress on his protectionist views, which he campaigned on so strongly. When he took office, it was one of the few things he could do without waiting for Congress.
I expect he wants to go pretty far on tariffs and dropping out of "unfair" trade deals. I think he's has been held back from severe policy mistakes only by the GS execs in his inner circle. But the staff is in in such disarray and infighting, with people leaving, under indictment, coping plea deals, I expect the chaos will only ramp up.
It will be interesting how he responds to the market tantrum. A high stock market seems important to his shallow ego.  Will he reverse course when ever the market throws a fit? What's being said on Fox news today? Trump seems to listen and parrot them on a daily basis.

 

[dmp]

In sidenote on how corrupt the Trump administration is (remember his 'drain the swamp' BS?)

One of Trump's confidants, Carl Icahn,  who was on Trump's economic advisory council, dumped a massive amount of stock in a company heavily dependent on steel last week. What good timing.

This Icahn was a trump "special adviser" until he resigned last year after investigations of how he was using his position to influence policy to benefit his investments. 

When a rich POS does stuff like this, it steals money from other people.  For every seller there is a buyer.

Funny how it's called class warfare when you point out the evil that rich scumbags like this are doing. But yeah, let's let them run the country.

 

[JohnRoberts]

To me it is interesting that he's taken this long to make some real progress on his protectionist views, which he campaigned on so strongly. When he took office, it was one of the few things he could do without waiting for Congress.

The recent tariff move on washers and dryers was well telegraphed to the market, with Samsung and LG building new factories here. Coincidence perhaps, or perhaps leveraged negotiation to bring more factory jobs here. One european manufacturer has announced they are rethinking US factory plans in response to tariff comments, but this may be negotiation too. 

I expect he wants to go pretty far on tariffs and dropping out of "unfair" trade deals. I think he's has been held back from severe policy mistakes only by the GS execs

??

in his inner circle. But the staff is in in such disarray and infighting, with people leaving, under indictment, coping plea deals, I expect the chaos will only ramp up.

This sounds like media spin (wishful thinking). Anyone remotely aware of Trump's reality TV persona should know that he thrives on chaos and disruption.

It will be interesting how he responds to the market tantrum. A high stock market seems important to his shallow ego.  Will he reverse course when ever the market throws a fit?

He was wrong to tout the market rising as a personal report card, and would be wrong to read dips in kind.

The tariffs drama may be the proximate cause for this recent dip, but do not ignore more bearish comments from new fed chief Powell (suggesting 4 interest raises instead of 3), and even other international fed chiefs likewise making bearish commentary. The market was just looking for an excuse to sell off.

What's being said on Fox news today? Trump seems to listen and parrot them on a daily basis.

I can't answer this but maybe I should start watching them. CNBC has been getting almost difficult to watch in recent years since ownership changed (were owned by GE, now owned by comcast/NBC).

The fox talking heads like to brag that President Trump watchs and claim correlation between his tweets and their discussion. Maria Bartiromo spoke about his campaigning over reciprocal trade deals, and he tweeted about unfair trade shortly afterwards. Another commentator called for a larger market drop today  "to influence" Pres Trump to back off from aggressive tariff increases.

I prefer to wait for actual news to happen, while I watch stock market pundits to see what they are touting.

JR 

 

[JohnRoberts]

In sidenote on how corrupt the Trump administration is (remember his 'drain the swamp' BS?)

One of Trump's confidants, Carl Icahn,  who was on Trump's economic advisory council, dumped a massive amount of stock in a company heavily dependent on steel last week. What good timing.

This Icahn was a trump "special adviser" until he resigned last year after investigations of how he was using his position to influence policy to benefit his investments. 

When a rich POS does stuff like this, it steals money from other people.  For every seller there is a buyer.

Funny how it's called class warfare when you point out the evil that rich scumbags like this are doing. But yeah, let's let them run the country.

The tariff discussion is not exactly news. If Icahn traded on actual inside information that is already illegal.

Sadly congress has given themselves an exemption for trading on inside information.  President Obama passed a law against trading on congressional knowledge with great fanfare (2012), then a year later congress quietly gutted large sections of that law. President Obama signed that one too, with a one sentence emailed announcement (2013). No photo op for that.  :

Yes, drain the swamp. Why are there so many congressional millionaires who became wealthy while in office?

JR 

 

[dmp]

Sadly congress has given themselves an exemption for trading on inside information.  President Obama passed a law against trading on congressional knowledge with great fanfare (2012), then a year later congress quietly gutted large sections of that law. President Obama signed that one too, with a one sentence emailed announcement (2013). No photo op for that.  :

Yes, drain the swamp. Why are there so many congressional millionaires who became wealthy while in office?

JR

Really?

The STOCK bill in 2012 of Pres Obama made insider trading illegal and it applied to the President and Congress.

From Wiki:
"The bill prohibits the use of non-public information for private profit, including insider trading by members of Congress and other government employees."

The amendment affected the transparency aspects of the bill, but did not change law prohibiting insider trading.  The transparency requirements seem to still apply to The President, Congress and anyone running for Congress though, but the amendment changed all the reporting requirements of staff as it raised privacy concerns.

From wiki:
"The STOCK Act was modified on April 15, 2013, by S.716. This amendment modifies the online disclosure portion of the STOCK Act, so that some officials, but not the President, Vice President, Congress, or anyone running for Congress, can no longer file online and their records are no longer easily accessible to the public. In Section (a)2, the amendment specifically does not alter the online access for trades by the President, The Vice President, Congress, or those running for Congress.[11] The reasoning for this change was to prevent criminals from gaining access to the financial data and using it against affected persons. "


HOWEVER, actually investigating Congress for insider trading is thorny, bringing up separation of powers issues. A divided government of separate but equal branches is great in principle, but difficult and messy in practice.