Monthly Archives: February 2014

“If Adam Smith Were Alive Today, He’d be Spinning In His Grave”

SONY DSCThe title of today’s article is based on a quote from the recently departed Ralph Kiner, a member of baseball’s Hall of Fame, and a long time broadcaster for the New York Mets.    Mr. Kiner was knowledgeable.   He was  also entertaining, though often unintentionally.  Substitute “Branch Rickey” for “Adam Smith,” and you have one of the more famous Kinerisms. 

The Wall Street Journal (WSJ) published a story a short while ago about a mind boggling technological advance providing some stock traders with critical information a nano second ahead of the competition.  The latest chapter in the quest to reduce trading times to zero, involves laser beams mounted on roofs of buildings and towers in New Jersey,  linking the New York Stock Exchange with the NASDAQ trading center.

This story received just mild attention because the quest for warp speed trading has been proceeding at considerable speed itself since at least the late 1990s. Speed as a factor in trading is not new.  Adam Smith recognized the advantages of higher speed trading. As far back as the late 1700s, the most ingenious and best equipped traders used carrier pigeons to gain an edge.

High Speed Trading (HST), and its companion, Algorithmic Trading (AT)  — am going to abbreviate this as HST_AT — have received enormous attention.  Most of the attention has been around issues of fairness (how are the “little guys” in the market affected?); and stability (the potential for HST_AT to cause trading meltdowns). These are very important issues. But lost in most of the coverage are questions around the efficient and intelligent allocation of capital. 

Classic capitalism, or at least the version I was taught, starting with the “investment clubs” we joined in high school, stressed the intelligence and efficiency of free markets in channeling capital – directing it to the best ideas; the best (new) products;  the furtherance of high demand products and services; and rewarding businesses which are managed well; have already achieved a degree of success, and deserve a chance to grow.

This has always been the core appeal and reason for capitalism. This is how capitalism is contrasted with horribly inefficient methods of capital allocation, like Soviet Five Year Plans; or even (as many argue), European social-democrat, welfare states.  

SONY DSCEquity markets of course have never functioned in total accord with this ideal.  From the start, there has always been some form of “technical trading.”  That’s where investors look more to statistical patterns in stock prices to make trades, instead of looking to the underlying fundamentals of companies — the kind of information found in quarterly financial reports. The technical traders “progressed” to mathematical algorithms (much more complex than anything you learned in Stat 101).  HST, in turn, can be considered a type of algorithmic trading. 

Altogether, the intelligent allocation of capital seems to be an after thought, or a happy by-product (maybe) of HST_AT.  Anywhere from 50 to 70 percent of trading in equity markets is based on HST_AT.    And this doesn’t include the “small investor” using technical tools and rules of thumb furnished by Charles Schwab or Motley Fool, which are often short on financial and business fundamentals. In fairness to Schwab and Motley, they also give small investors some tools and information to conduct trades the classic way.

Before we jump to the conclusion that, in practice, hardly any investment is driven by conscious deliberation about the best ideas, products, services, and most effective companies, remember that a great deal of capital investment happens outside of equity markets.   A venture capitalist; a small business entrepreneur; or an existing business investing profits in new ventures, are not using mathematical algorithms or Cray computers (for the most part) to drive their decisions.  (Unfortunately, I don’t know what proportion of total capital allocation is accomplished via equity markets; and have not been able to find the answer).

The reminder that a lot of investment is still driven by classic concepts of capitalism, may be soothing; but we still don’t know how much better (or worse) capitalism might function if HST_AT were more highly regulated, or even banned, as Stanford, Nobel Laureate economist, Michael Spence,has proposed.

Even more worrisome – today, a lot of deliberate, “intelligent” capital allocation is channeled to high tech toys, like consumer shirt button cameras, which have a lot of entertainment value, but don’t add much to productivity or materially improve lives.  (I posted on this earlier).  Still, I am more worried about practices like instantaneous trading, which don’t appear to help anyone but the highest speed traders, than I am about the tiny cameras or instagram, which have value beyond being toys.



When More is Less in Photography

greg_band3As in any of life’s endeavors, in photography, more is sometimes less.  Here are 12 examples.

1. More is less when the weight, size and complexity of the gear makes you less aware of your environment, less spontaneous, less able to capture the serendipitous moment. Of course, if you are shooting Cathedral Rock in Sedona or patiently waiting under camouflage to get the perfect swarm of shore birds in flight, then bring all the gear.

2, Learning more and more photographic styles and editing techniques, and stretching yourself all the time, can be less,  if you never master anything or don’t develop a style. When you try acquiring advanced pano skills while you’re still trying to perfect the straight-on shot of Mount Rainier, then more can be less.

3. If you are not totally familiar with your high end, professional or prosumer camera, then photographing with more custom settings can be less. If you haven’t yet “become one” with your machine, keep it relatively simple. There are happy mediums between total custom and total auto. That doesn’t mean the money you’ve spent on the camera is wasted. You still have a superior sensor, more megapixels, image stabilization, and many other features that add great value in any mode.

4. More is less when you try so many types of photography and subject matter that you never have a body of work that can fill up a solo show, or a book, or provide an even modest legacy. This obviously overlaps with #2.

5. Seeking out criticism from more and more photographers and experts, thus crowding out feedback from ordinary lovers of art, is often less. The same image will elicit vastly different reactions from a room full of photographers, a gathering of diverse artists, or a group of art lovers (who are not artists).

6. Doing more conceptual/narrative (as distinguished from decorative) photography may be less, if the concept has been well worn. There are precious few new or “aha” photographic narratives. This is of course a matter of taste. When I’ve seen the one thousandth image trying to remind me how small and inconsequential I am as a human being, a grain of sand , it leaves me cold. (Cold as in “yawn,” not cold as in “depressed”). I’d much rather be looking at a pretty flower.

7. More edgy can be less if you’re doing it just to be edgy. Faux edgy looks contrived. Even casual viewers will notice, now that all of us are inundated with edgy photographs. Much of edgy ceased being edgy a long time ago.

8. The pursuit of more pixel perfection can be less, if it makes you discard works with great color or composition. Most “ordinary” (not meant condescendingly) viewers don’t see or care about the imperfections you see as a professional photographer.

9. More cohabitation with Contemporary Art (e.g., as reviewed all the time in the Art section of the L.A. Times), may be less, if it moves you, for example, to appropriate other people’s Facebook posts, print them sloppily on a low end Epson, punch holes in the center of each, and display all 12,000 of them on a stick. Sorry, I can’t get past that one.

10. Taking more pictures on a photo shoot or expedition, like 8000, rather than 200, may be less,  if it  dissuades you from sorting and editing soon (as in “Oy, I can’t get myself to plunge into that morass), or leads to boredom once you do get off the dime. Have more confidence in the first two takes.

11. Seeing more and more photos can be less, if the sheer volume of great shots out there makes you feel hopeless about distinguishing your work. Or, if it desensitizes you to what’s really good in your own work.

12. Too much analysis of photography may be less, if it’s paralyzing or takes up too much of your time. Reading more articles like this one, can be less.

I hope reading this will aid your journey, even though it caused you to miss the wonderful shot of your cat flopping off the fire place mantle.

Why Can’t the Olympic Games Be Healing?

No More Olympic Baseball - Enjoy Curling

No More Summer Olympic Baseball – Learn Curling

The Olympic Games, for as long as we’ve known them, don’t merely reflect nationalistic fervor, but feature it, as central to the quadrennial spectacle.  Instead of allowing the Games to serve as a pause in national, ethnic, religious, and racial discord, we are reminded of them every day, and at each event

This critique isn’t unique, but hard to find in mainstream reporting, which of course has a vested monetary interest in the Games.  Two recent pieces by Jay Greene and Jonah Goldberg present a different view than you’re likely to get from Meredith Vieira.

I don’t “hate” the Olympic Games the way Mr. Greene does, nor consider it to be the worst enabler of evil in the global culture, the way Goldberg presents it, but such views are worth a look.

Yet even Greene and Goldberg miss one part of the Games’ toxicity —  its natural promotion and goading of nationalistic fervor.   (I emphasize “natural”).   Ultra nationalism has been central to the Games for so long, and is so pervasive, that it’s now just part of the ambient light and noise. Why do I consider this a big problem?  After all, I too enjoy the ritual of standing to the national anthem before baseball games; and am not ashamed to be tearing-up when operatic voices intone God Bless America at Yankee Stadium.

But I was also raised to believe that an integral part of the Olympic Spirit involved emphasizing the commonalities between Americans and Russians, not provoking wider differences.  The ancient Olympics were supposed to have brought together the (constantly) warring city-states of Greece, for a few days every four years, in truce and harmony, with real cease fires enabling the athletes to safely travel to the games. These cease fires, according to Greek historians, had half lives much greater than the ones we commonly hear about today in the middle east.  And the athletes originally came as individuals, not team members; though I’m sure they didn’t hide the names of their city-states.

Even if the Olympic Spirit is a myth, and the Greek historians are wrong, why have we fostered a tradition that adds to discord, rather than healing?  I’d settle for just “neutrality” on this scale.   Even if you believe the games were never a vehicle of peace or brother (and sister) hood, their embrace of nationalism is toxic and perverse.

Yes, I know, the answer, as always, is “money,” but I am going to suspend or assume it out of the equation for the course of this blog post, as economists are wont to do, so we can carry on.  In what manner do the Games take every opportunity to feed and fuel nationalist fervor? Here are the most obvious ways, and some (partly tongue-in cheek) proposed reforms.

The Games always open with a grand procession of the countries. The athletes march in together, closely knit, joined at the hips, under national flags and colors.  Sometimes they salute their leaders in the viewing stands with gestures not too different from the genuflections seen in their homeland military parades.

It doesn’t have to be that way.  What if they marched in groups organized around their athletic specialties:  all the runners together; the weightlifters in one group; and so on.  That would make for an interesting contrast in body types.  And we would also see how old and out of shape a lot of the equestrians are.

Why not do it that way?   Each athlete could still dress in native garb to celebrate their culture.   Maybe even carry a little flag; they would certainly wear the national pins they like to exchange with other athletes.   But the Russians, Algerians, Chinese, and Brazilians would march in together.  The rainbow of colors, both the clothes, and faces, would be gorgeous.

The Games feature team sports with nations clashing in rinks, courts, and in water; and with athletes pumping fists in the air after every score.  These events aggravate national tensions; they surely don’t heal them. Riotous flag waving rooters in the stands add to the hostilities.

What if they got rid of team sports altogether?   The earliest games didn’t have them.  Ok, that’s way too radical because we’d be throwing out entire (team) sports, not just the toxic parts of nationalism.   Lets try another idea: What if the teams were all multinational, organized by continents, sub-continents or other regions?   I realize that sounds utopian, even silly.  But that’s only because we’ve been doing it one way for so long.

Sure, regional teams would require basketball players, for example, to train with hoopsters from other nations for at least half a year before the games.  (That would be five months and 29 days more than the NBA all star teams trained together).  That might force Americans to learn Czech passing and defensive techniques, and vice versa.  Maybe David Stern would frown on that.

Yes, there are aspects to this which seem impractical, if not impossible.  Can you imagine an Israeli point guard playing alongside an Iranian center on a Middle East basketball team?   I myself can barely envision that.  But, It has a zero chance of happening if you won’t even think about it.   Something like this could happen if it was entirely separate from the Olympics, perhaps a venture which George Soros and Ted Turner could put together, with advice from Mitt Romney.    Or another Clinton-Pappy Bush collaboration.  Would it sell?

In today’s Games, the medal winners always stand on platforms while the anthems of their homelands are played.  Why is this necessary?  The orchestra doesn’t play the Italian national anthem at the Academy Awards when an Italian director wins an Oscar, though they may play a few notes from Nel Blu Dipinto Di Blu, as the winner wends his way to the stage.

Okay, maybe the Oscars are a bad counter example, because Hollywood is so far to the left that anything patriotic (on behalf of any country) might be scorned.  Consider, then, the Nobel Prizes. You don’t hear the three national anthems played when Russian, U.S. and French chemists share a Nobel.   (Yes, the Nobel folk also have a reputation for leftist politics, but much more so in areas like literature, peace, and economics; not chemistry).   So, why not dispense with the flag waving and anthems, which only make some viewers more prone to take a course in suicide bombing?

Then, of course, when you tune into ESPN , FOX, or NBC, the first thing they report are the national medal totals.  What’s missing is a John King type analyst with a giant ipad screen which shows whether the Americans still have a chance of over-taking Norway and Russia in the medal competition, given the precincts that still haven’t reported……..I  mean the events still to be held.

The media of all countries dwell on the national standings. Of course, I understand they need to do that for the ratings.  Or to sell newspapers.  OK, so what if the lead stories were about great accomplishments from athletes no matter where they come from?  Or, if they reported on those regional or continental teams I proposed earlier.  Remember, I didn’t say this was practical; and I assumed away the need to sell advertising minutes.

A lot of today’s billions are made by Google (or a company that Google eventually buys), which identify customers or niche markets to feed just about any interest or fetish.  Surely there are enough of us who can’t stand the Olympic fueling of international discord, who could be identified by Google, and are willing to pay a little to watch sports coverage that made the national medal standings in the Olympics an after thought.  I would still go to Petco Park every summer to see the Padres, and experience goose bumps when they sang God Bless America; especially if it was Kate Smith’s great grand daughter singing it, together with Kate,  like Nat and Natalie.

Sure I get the goose bumps and sometimes cry when I hear the U.S. anthem on TV during the medal ceremonies.   But I have plenty of other times to experience that.

Droning On: Is This Tech Revolution Different From All Others?

Get that degree in black-smithing

Get that degree in black-smithing

Government officials in the United Arab Emirates (UAE) announced that within a year, drones will be enlisted by government to provide routine services, such as license renewals and delivery of official documents and packages to citizens.  In the U.S., Amazon is experimenting with drones for delivery of retail goods, but has said it would take at least four to five years to perfect the technology and process. 

This story did not receive much attention.  I came across it in a Reuters online publication.  Here is the story:  It has numerous implications and raises many questions.   Let me list just a few (some real, others facetious).  I elaborate only on the last set, dealing with job loss. Some implications:

1) Places around the world condescendingly regarded as “third world” or “developing” not very long ago, are beating us to the punch now all the time with applications of complex technologies in daily and industrial life.  2) The opportunities for more government spying and voyeuristic photography using drones in hard to reach places seem almost endless. 3) And, what about the risk of drones becoming targets for recreational shooting, or disrupting roof top pigeon racing?   

The most serious and long term implications of popularized drones concerns how many human jobs will be eliminated in government, retailing, and delivery services?  Will those job losses be offset by ones needed to manufacture, maintain, and operate the drones?  Some new drone manufacturing jobs will surely be created, but where will they be located?  In San Diego or Phnom Pehn?

Since the Industrial Revolution, pundits have been wringing hands about machines replacing humans, permanent loss of jobs, and idleness in epidemic proportions, as we continuously innovate.  So far they have been wrong.  Thus far – at least up through the late 20th century —  industrial economies have adapted to technological change and produced new jobs, to more than offset the old ones lost to innovation.  Not that there weren’t big time losers and hardship with each change and adjustment.  And governments have interceded to make life a little less harsh for the losers, 

My weasel words (“at least through the late 20th century”) are critical.  The feeling creeps-in that “this time it is different.”  Check out the article on this notion in a recent MIT Technology Review.. The reason for pessimism is that workers (as now well documented) have fared poorly over the past forty years.  And, the past two or three “recoveries” from recession have been distinguished by slow job growth.  The expression “jobless recovery” has now been around since at least 2000. 

The possible reasons for this have been subject to endless debate. That is good, because for years the problem was hardly recognized.  But consensus about the causes, much less what to do about it (if anything), is still lacking, which is very frustrating. In the mean time, numerous Nobel Prizes in economics have been awarded for solving (clarifying) issues of seemingly much less importance.

All of that is easy for me to say.  I don’t have the answers either.  The one observation I’d like to add, and it’s not a really new thought, but one that doesn’t get enough attention, concerns the volume and velocity of innovation. 

I of course agree that light bulbs replacing candles was a good thing for the greatest number, even though it hurt a few people.   But, the volume and rapidity of such change appears now to be so great (and unprecedented), that economies, societies, and individuals are not adjusting; at least not very fast. And just when we think we’ve adjusted, Microsoft issues another upgrade to their operating system.  What we go through trying to avoid buying a new computer with Windows 8!!!

We will always have a minimum of about 4 to 5 percent unemployment. There is always some mismatch between workers and jobs.  It takes time for employers and the right workers to find each other, as technology and other factors change the nature of work.  Economists call this unemployment floor “frictional unemployment. ”But if the high volume and sheer speed of change is now a permanent feature of economic life, what we used to call “frictional unemployment” has a whole new look, and dimension.

How many students do you know who enrolled in a training program to prepare for a “high demand job,” only to find the occupation had disappeared before the ink was dry on the degree?  On the bright side: The hard copy degree can be delivered by a drone built in Phnom Penh; and the student loan invoice can be sent real fast by piggy-backing on laser beams used by Merrill-Lynch for high speed, algorithmic trading.   



The CBO Blew It This Time: The ACA and Labor Force Dropouts


Taking It Easy on Obamacare, CBO Style 🙂

As you probably know, the Congressional Budget Office (HBO), a respected, non-partisan research arm of the U.S. Congress, recently issued an economic projection related to the effects of the Affordable Care Act (ACA); a.k.a Obamacare. Here is the complete study.   Stories about the study were hardly buried; but accurate accounts, with context, have been scarce

The CBO has been dragged into “scoring” ACA right from the start. I don’t envy their position.  Their work has angered and elated parties on both sides of the health reform issues, suggesting they’ve probably been as fair as can be trying to score a policy change with many moving parts and unpredictable outcomes. This latest effort by the CBO, however, appears gratuitous, and stretches economic forecasting almost to the point of silliness. The results were also poorly communicated by CBO, and then mangled further by the mainstream press. Of course the results were molested by partisan propagandists.

Even in an enterprise inherently prone to large errors   – forecasting long term fiscal and economic impacts of new policies — the CBO could have handled this a lot better (or touched it more lightly). They are now in recovery and walk back mode.  That said, organizations like CBO have enormous value.  If they didn’t do the scoring, the job would go by default to partisan propagandists, or to competent and well meaning “private” or academic economists who, alas, often don’t understand the policies, the government data, and the budget environment very well.  Without the CBO, our information would be a lot worse.    

Here is (a perhaps dangerous) effort at a concise capture of the CBO report as it applied to the ACA; it won’t do it full justice. But we have to start somewhere.  The report says that, by 2024, the equivalent of 2.5 million workers in the U.S. will choose not to work, i.e. withhold their labor, because it makes more sense for them to quit working so they can qualify for subsidized health insurance.  The predicted labor force change number is a net figure, already reflecting unemployed workers who would fill some of those relinquished jobs.  In other words, according to the CBO, there won’t be enough able and willing replacements for people leaving the job market.  Thus, there is a net loss equal to about 2.5 million workers. (The reasons for the lack of replacements is not clear  from the report. That’s what the CBO model produces).

After a few days of vetting and debate, it is now better understood that there is a very big difference between people choosing not to work, and people being laid off because their company’s revenue and profits are down.  But the problems with the CBO report go further than this (vital) distinction.

I read parts of the report, but not its entirety, most of which has absolutely nothing to do with the ACA.  That in itself is noteworthy, but was hardly reported anywhere.  The CBO is charged with periodically providing long term U.S. economic and fiscal projections, reflecting numerous factors and policy changes. The ACA was just one part of the stew this time. My overall impression is that the CBO really blew it in the way it handled the ACA as part of its much broader economic and fiscal outlook.   Here is why. 

I used to direct a small (about 25 staff) group located in the Washington State Budget Office which had responsibilities very similar to those of the CBO, though it was in the executive branch, and not quite as insulated from partisan pressures as the CBO.  We also produced long term budget, economic and fiscal projections.  Here are a few things I (painfully) learned about this type or work:

1) Its down-right silly to try to be too precise.  This is commonly called false precision.  And it makes economists or demographers look bad.  (I did insist that our 30 year population projections have zeros in the ones, tens, and hundredths columns). 

2) Stick with a few really big picture factors which are known to have material impacts on the economy, and where trends are clear, or departures from trend already underway and discernible. 

For example: the age composition of the workforce, large population movements (in and out migration), changes in the cost of energy, availability of water resources; trends in productivity from technology; personal savings behavior; the amount of government and household debt.   The CBO of course totally understand this, and uses all these perspectives, but it’s often pushed (sometimes chooses) to get more refined.

3) Stay away, as best you can, from attributing economic growth or decline to any highly specific, lightning rod policies,  unless you are on very firm ground.  I know, that’s easy to say.

4) Due to pressures from the people you work for, you often can’t avoid that. So, if you have to get in the middle of the fight,  state the results in a way that partisan propagandists (of both sides) have to sweat a little to distort your findings.  Let the toxic opposition researchers earn their keep.

5) When you’re forced to touch radioactive issues, provide as much context as possible. Today’s media is not equipped to do that.

For example, in this case:  How large is a 2.5 million swing in the labor force?  Is it bigger than a bread box?  What other features of the ACA, which can have a material effect on the economy, have you not examined?   At least mention them.   What are the labor force participation rates in countries which, for decades, have had truer socialized medicine, and larger welfare safety nets, than the U.S.?   Is the CBO projecting even lower labor force participation for the U.S.  That should at least raise a red flag.

So, how does the CBO report. as it involves the AC. fare on some of these grounds?

By 2024, the U.S. labor force, according to the Bureau of Labor Statistics (BLS), will number about 164 million.  Today it’s about 155 million. Thus, the CBO’s projected drop in the labor force “due to ACA work disincentives” would be about 1.5% of the total workforce in 2024.  To borrow an old phrase made (more) popular recently by John Boehner: “Are You Kidding Me!”  Are CBO models really able to discern a 1.5% change in the U.S. workforce 10 years out, and pin it on the ACA?   Can anything that small on a base that large, ten years out, other than perhaps predictable deaths (and the futility of the Seattle Mariners), be forecast with an acceptable expected error?

What about numerous (equally unfathomable, but equally plausible) impacts in the other direction?  One possibly big one: The gains in labor productivity when workers are not forced to stay in jobs they hate or where their skills are being underutilized?  Almost everyone agrees ACA will have some of that effect.  The amount is not calculable.  But I do know it is a positive number; and potentially very large.  Even modest productivity gains due to increased labor mobility would have a material impact on the size of the U.S. economy.  

Is there any illuminating context in the report for the predicted drop in labor force participation?   Perhaps it is not the CBOs job to range very far in offering useful context?  But it is the job of the mainstream media.  Yet, no where in the news did I see a chart, for example, showing the labor force participation rates (LFPR) in countries that have, for decades, had a truer form of socialized medicine than ACA. 

The CBO’s projected LFPR for the U.S. in 2024, after adjustment for the putative effects of the ACA, is about 60%.  Here are the LFPRs for the “socialized medicine/welfare state” poster children in 2012 after many years of social-democrat policies, based on World Bank data.

Canada, 66%
Denmark, 63%
France, 56%
Finland, 60%
Germany, 60%
Israel, 64%
Japan, 59%
Norway, 66%
Sweden, 64%
United Kingdom, 62%

With the exception of France and Japan, all of these countries with more socialized health care systems have labor force participation rates at or above what CBO projects for the U.S. in 2024 under ACA.  Now, I of course know there are many factors affecting LFPR.  But it should be of some interest that most countries which provide people with large (not always wise) incentives to withhold their labor, don;t seem to have lots of people whiling away days at the beach.  That;s not what the CBO said; but they sure made it (unnecessarily) easy for others to draw that conclusion,































Explaining Poor Job Growth in January: You Can’t Have It Both Ways

Sledding Instead of Shopping

Sledding Instead of Shopping

The monthly jobs report for January from the U.S. Bureau of Labor Statistics (BLS) was disappointing for the second straight month.  It said employment grew by 113,000 in January, well short of what is needed to just keep pace with population growth. This wasn’t a buried story. Hardly! But in depth, thoughtful coverage addressing causes of the disappointing report, without partisan blame, was not easy to find, as is the case these days for just about anything.  Here is one good effort by Wall Street Journal (WSJ) reporters (as distinguished from WSJ editorialsts), which has some useful insights.  Today’s post amends some of the WSJ point.  Lets look at four aspects of the January jobs report:

Freezing Weather.  BLS officials are now saying that weather was a big cause of the poor job growth numbers for December, but not a factor in January.  So, now BLS is not only in the game of revising numbers all the time, but it’s now revising explanations. Nothing necessarily wrong with that. In fact its refreshing to see an umpire change a call when it’s wrong.  

But this flop flop does bring into question the BLS assertion that weather was not a factor in the January job numbers at all,  an unusually definitive call by the cautious BLS.   That argument is based on the monthly household survey conducted by the Census Bureau indicating that 260,000 people said they couldn’t go to work in January due to bad weather.  That is not unusual for January, thus the argument that weather was not a factor in low job growth for the month.

Fair enough.  Except that it doesn’t take into consideration other, fairly obvious, reasons why poor weather might have inhibited hiring.   When temperatures are sub zero, mobility is severely impaired, not just for folks traveling to work, but for everyone else, including consumers. You postpone elective shopping when roads are dangerous. If it feels like the freeze will continue for awhile, are you inclined to hire more workers?  Are job candidates even able to reach your store or factory for the interview?  None of those behaviors  affected by weather are probed in the Census Bureau survey, just whether or not you stayed away from work due to poor weather conditions.  

2) Austerity.  Even though we backed into it, the U.S. has — no mistake about it —  pursued considerable “austerity” to address the nation’s debt problems.  We have not gone as far as Republicans proposed or as many European countries have tried (with mixed results), but we have been (materially) austere.  We surely haven’t adopted the prescriptions of economists like Paul Krugman who believe the “Obama stimulus” was half of what it should have been,  and that this is the time to ramp up government spending, not dampen it.

In January, total public sector employment (across all levels of government) dropped by about 30,000.  Normally, without an austerity policy, government jobs would grow by about 40 to 50 thousand each month, which is a swing of up to 80,000 from the normal.   Add that to the 113,000 job gain figure for January, and you have a respectable jobs number for the country, about the amount economists were predicting.

Of course, Republicans say it’s a good thing we shed another 30,000 government jobs, just what’s needed to bring down the debt. Democrats say the shrinking of the public sector ought to proceed more gradually; and that the U.S. sovereign debt problem is due as much (or more) to soaring health care costs (in the past), imprudent tax cuts, and a bloated military, than to growth in government sector jobs. 

So, Republicans can’t say, on the one hand, that it’s good to shed public sector jobs;  but on the other, that the Democrat’s economic policies are (entirely) responsible for weak job growth.  But they say it anyway.   Democrats can’t blame the bad job numbers entirely on the other side either – i.e., on Republican forced austerity. Even at 200,000, monthly job gains have been a slow recovery. 

3) Drop in Health Sector Jobs.  One of the big contributors to the booming economy in the 1990s, was sky rocketing growth in health care related jobs.  Jobs in this sector grew even during the “ crash” and the Great Recession, providing a crutch (covered only by good insurance plans)  for the collapsing economy. 

While the overall economy was practically in free fall during the 2007-09 period, the health care sector added over 400,000 jobs.  That’s amazing.   But, recently, and particularly in January, the BLS reported an absolute employment decline in that sector.  Both Republicans and Democrats agree that health care costs needed to be reigned in.  So, if the Affordable Care Act (ACA) is causing hospitals to shed jobs that were not truly essential for patient care, that’s what everyone said they wanted.  So, you can’t decry weak job growth and applaud higher productivity in the health care sector at the same time.  Again, as in the case for shedding government jobs to reduce debt, you can’t have it both ways.   That said, there is still much that is unclear about the loss of health care jobs in January.

4) The ACA and Business Uncertainty.  There are plenty of anecdotes, but no hard data, on whether businesses are keeping a lid on hiring, while waiting to see how their costs are affected by ACA.  There are lots of anecdotes. 

There are also many examples of robots and software replacing human workers, because businesses don’t have to buy health insurance for machines or computer code, or pay a penalty for not doing so.  But using technology to perform tasks that humans would normally do has been happening since well before the ACA.  Indeed, technological change is probably an even bigger reason for the loss of manufacturing jobs in the U.S. than outsourcing,  or other manifestations of free trade and globalization.  U.S. production in manufacturing has budged little over several decades, while job losses in those sectors have been steep.  That’s due to technologically induced productivity gains.

I don’t have any hard data to refute the possibility that ACA contributed materially to the poor December and January job numbers.  But, even the WSJ analysts didn’t go there.  And why did jobs fall off the cliff suddenly after November, when panic has been spread for several years about the “catastrophic effects” of ACA on business?   The ACA may help explain why the recovery, prior to December, was slow, but not why we fell off a cliff the last two months.

The equity markets, and smoke signals from the Federal reserve, have mostly shrugged off the weak job numbers as blips, data anomalies, or a temporary pause in an otherwise improving economy.  I’m not entirely sold on that, but its always heartening to hear your doctor say he’s not worried about the latest uptick in your cholesterol numbers. That five minute consult will cost you (or your insurance carrier) a thousand bucks. 

Is California’s Rainy Day Fund A Pipe Dream?

California Rainy Day Fund

When It Rains in California

Revenues are not “going gangbusters,” as we used to say in the heady days of the housing market bubble. Rather, moderate revenue growth is exceeding the cautious forecasts of economists. It’s good the economists have erred on the low side. This is an important distinction, not understood (or reflecting feigned ignorance) by interests who want to either spend the extra money, or “give it back to the people” as tax cuts, as soon as possible.

California’s Governor Brown apparently doesn’t want to do either. He’s out front, advocating a “rainy day fund” to help the state smooth out its boom and bust cycles. “Good government” politicians, and the fiscal wonks advising them, have been advocating sound rainy day funds since feudal lords started collecting taxes in the middle ages, and realized their armies still needed to be fed and clothed when the crop was bad.

All states have something they call a rainy day fund, accompanied by some sort of spending or revenue limitation that’s designed to make money available for a reserve fund. Practically all such mechanisms have failed or fallen short. At best, they’ve worked well for two or three budget periods, before collapsing.

By proposing a limit on revenue, rather than a spending limit, Governor Brown is off to a good start. Spending limits are much more porous, leaky, and easier to game, than revenue limitations. Revenue limits work a lot better, simply because, as former Federal Reserve chief, William McChesney Martin, once remarked, “our main job is to take the punch bowl away just as the party is getting good.”

But, writing the full proof revenue limit isn’t easy either. Which of the vast array of state revenues are covered by the limit?  Does it apply only to “new” revenue?  What if the federal government increases it’s grants to the states, freeing up state revenue for other uses?  Indeed, what is “revenue?” Or, what is a “tax?”

You can ruin a revenue limit pretty quickly by just calling a new tax “Gertrude” (or “Irving”) instead of a “tax.” Or you can tinker with the complex formula that’s supposed to channel excess revenue to the rainy day fund. A really easy way to undermine a revenue limit is to go on a tax cutting binge, as soon as the amount in the reserve becomes material. Or you can send the extra money back to the taxpayers. How many politicians can resist announcing that “a check is in the mail,” rebating your property taxes for the last year?

Tax rebates are actually better than cutting taxes, because tax reductions erode the tax base permanently. Then, using the reserve when its raining becomes irresponsible, because it’s not sustainable. Of course, why even go through all these maneuvers. All you have to do is suspend the formula that directs extra revenues to the reserve……”just this one time.” “Not to worry, we won’t do it again.”   Or “we’ll do it till we need glasses.”

Easier still, is repealing the annoying revenue limit. After all, its just a law, like any other; there’s nothing to bind future Governors or Legislators. But how many voters will really care about the reserve when they’re getting more services or lower taxes? And, if your state has a really “progressive” initiative and referendum” process, any well funded interest group can gain voter approval to demolish the revenue limit or steal money from the rainy day fund.


If You Know How to Fish, You Don’t Need an Umbrella

1) The revenue limit, needs to be backed up by a simple requirement that a small percent (maybe 1%) of all forms of revenue — user fees, interest earnings, money from unclaimed properties, and even “Gertrude” monies – need to be deposited quarterly in the rainy day fund, no matter what, even during bad times. During bad times, you can take the money right out again, but it needs to go into reserve first, just like the automatic deposits you set up for your daughter’s college fund.

2) The 1% requirement, along with a (simple) rule governing when and how the money can be removed from the reserve and spent, also needs to be enshrined in the state constitution. Placing this sort of thing in the constitution is dreaded by some and laughable to others. But the whole point is to make it hard to evade.

3) Because the rule for when the money can be accessed needs to be relatively short and simple — you want to avoid a 10,000 word amendment to a constitution — it needs to be backed by a constitutionally enshrined body which interprets and applies the rule. Sure, that can make it porous again, but if this commission has equal membership from the two top caucuses in the state legislature, with the tie breaking member appointed by this initial group, there are a lot of protections.

 4) And, the amount in the reserve needs to be capped – perhaps, at 5%, 7% or 10% of total revenue, so the politicians can experience the joy of sending a (one time) check in the mail (with their names on the signature line) back to the taxpayers.  There’s got to be something in this for the politicians.

Is all of this hard and nerdy? It sure is. But it’s the only approach that has a chance of working. It just might provide a real reserve, if you can keep it.