Category Archives: Economics

Are You Ready for a Real Shutdown?

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Sometime in the next few weeks Congress, as divided and intractable as ever, will begin its annual (or is it monthly?) confefe over increasing the Federal debt limit, bringing with it the usual hand-wringing over the possibility of a government shutdown.  In spite of a barrage of dire warnings from Congressional leaders and media pundits, the reaction of most of the public seems to have been a collective raised eyebrow.  Perhaps this has to do with the thick layer of unconcern that we have built up over the years regarding Congressional gridlock and media wolf-crying.  But there is also the inordinately small ripple of national disruption that occurred the last time the government ostensibly ran out of money.  Remember the year?  Me neither, so I looked it up.  It was 2013, during the fight over funding for Obamacare.

Why the blank in our memory banks?  Maybe because, for the 95% of Americans who neither work for the government nor were trying to get into Yellowstone National Park that week, this shutdown, like the 18 previous ones, had almost no immediate effect.  There are several reasons for this, the principal one being that the government didn’t really run out of money and most of it didn’t really close down.  Tax revenue continued to come in and Social Security checks continued to go out, as did welfare payments.  Medicare and Medicaid reimbursements were a little later than usual – no big deal, doctors and hospitals are accustomed to such.  Some Federal employees were furloughed, but none lost a dime of pay.  So-called vital services were unaffected.  On the scale of imminent disasters soon to befall the Republic only the Y2K Bug has been a bigger flop.

True, an extended shutdown (or an actual government bankruptcy, such as might happen unannounced on, say, next Tuesday) would have some dire consequences. Luckily, the 5% of Americans (the ones Congress really pays attention to) who are most directly affected when the Feds stop answering emails have always managed to scream loud enough to keep shutdowns brief.  The longest so far, during the Clinton Administration, lasted three weeks.  Apparently tourists upset at being turned away from the Smithsonian have a lot more clout than those silly economists worried about our existing $20 trillion obligation.

This time, however, the string of abbreviated interruptions may be broken.  President Trump recently mused that “what the country needs is a good shutdown”, which taken literally (as almost everyone loves to do with Mr. Trump’s pronouncements) is like saying somebody needs a good heart attack.  But there is occasionally a particle of sense in the President’s blatherings, and what he might be trying to say here is that a prolonged absence of government assistance (as well as the absence of government interference) might prod citizens to recognize what elements of the Federal bureaucracy we might be able to do without.  Or he might just be flipping a Tweet at Chuck Schumer.  What is certain is that if he is serious about confronting Congress over the debt ceiling, the 21-day Clinton/Gingrich shutdown record will be in real jeopardy come September.  Because when it comes to intractability, nobody in Congress is in Trump’s league.

Former New York Mayor Michael Bloomberg has said that cities and states don’t need the Federal government to fight climate change, that they can do it on their own.  This Fall we may get a hard look at what else cities and states can, or can’t, do on their own.  It will most certainly be a learning experience.

Book Review:  Concrete Economics, by Stephen S. Cohen and J. Bradford DeLong

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This isn’t a normal book review, because I’m not going to plug this book.  More the opposite, actually.

Concrete Economics is in most respects a traditional work in that field.  For openers it is literally a cure for insomnia.  I read at night before bed – in bed – a practice most sleep experts say is likely to ruin your nocturnal regimen, and I have had more than a few nights “ruined” by the likes of Michael Lewis and Oliver Sachs.  After a few pages of Cohen and DeLong I was usually more than ready to turn out the light.  At 170 pages, this tome that should have been a one-sitting read for me took nearly a month to finish.  Even by the standards of the Drear Science, this book was a slog.

The authors’ style is heavy with one paragraph sentences, multi-syllable words and overly formal vernacular.  For example: “The East Asian Economies were eager to build up their manufacturing capacity and capability, and our ideologically motivated redesign of the American economy told us that we didn’t really care, because we didn’t really want those sectors.”  Did I mention the mixed metaphors?  “Alexander Hamilton: the only individual who may have been more than the tip of the spearhead of the heavy shaft of an already-thrown, near-consensus view on pragmatic economic policy.”  I nearly fell asleep typing that.

The book came highly touted by Paul Krugman, Nobel laureate and oracle of Progressive economics, so I expected to disagree with much if not all of the content.  I was (mostly) wrong.

Lost style points aside, the authors make a fair case that some economic planning by the Federal government is essential to the success of the Republic (italics mine, certainly not Krugman’s).  Early on they discuss the formative post-Revolutionary policies of Hamilton, who pushed the fledgling US government to assume the colonies’ war debt, establish a central bank and, most crucially, pass a series of tariffs designed to protect America’s emerging manufacturing sector.  The only way the country could gain real economic independence, argued Hamilton, was to industrialize. The plan worked well.  US makers were soon thriving and the tariffs protecting them were the government’s main source of revenue until the advent of the income tax.

Hamilton’s protective tariff model was adopted by Japan and, later, China as those countries struggled to join the Industrial Revolution.  Contemporary fans include our current president, who would also appreciate the authors’ use of words like “huger.”  I think they meant, “more bigly.” Continue reading →

Flood Insurance Needs Tough Love

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I’m going to say something that may sound heartless – it’s time to stop insuring properties that repeatedly flood.

This morning I listened to a report on NPR from Marketplace. The Federal flood insurance program is $20 billion in debt and Congress must take up reauthorization next year. It’s time for a change.

A mere 0.6% of properties have received 10% of payouts. These are properties that flood repeatedly – one property had flooded – and received payment – 40 times. It’s insane to keep paying owners to build in high risk flood plains. And taxpayers must also cover the costs of emergency responders and infrastructure repair.

Now I’ll sound a little less callous. There is a proposal for the Federal government to simply buy an insured flooded property at its pre-flood value. Demolish structures, remove expensive utilities, and return it to whatever sort of landscape nature intended – this last bit is from me. This would save money in the long term and keep faith with owners whom we – the government speaks for us – lured into building in flood plains with below-market-priced insurance.

I propose the buy-out and get-out approach be extended to all Federal flood insurance, and I’d include wildfires – allow private insurance companies to charge whatever they want to re-insure properties that burn. I say this as a person and volunteer firefighter living on the edge of the Gila National Forest, in the wildland-urban interface (the WUI or woo-e as it’s called.) I could be one of those people forced out if a wildfire sweeps through my area – though I do practice Defensible Space.

I can hear my liberal friends saying what I propose would destroy neighborhoods – it would be cruel to allow circumstances to force people away from the homes they love. I can hear my right-wing friends, too – the government wants your land – they want to force everyone into high density cities. I hear these concerns and an honest debate can address them. Just keep in mind that at some point nature will win, and it will be better for everyone if we plan ahead of disaster.

As sea levels rise and droughts intensify, marginal locations become more dangerous. Here’s where I’ll claim some moral high ground. Artificially low insurance premiums lure people into harm’s way. Recovering from a flood is painful and stressful as well as expensive. And people die in floods and fires.

We need to find a decent way to back out of the problem we’ve created.

BTW – There’s a second meaning of Defensible Space that has more to do with urban neighborhoods. It’s interesting enough that I have to mention it, even though it’s off topic: https://en.wikipedia.org/wiki/Defensible_space_theory.

Decline or Rise of a New Prosperity?

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Manufacturing is dying in America, and the middle class that was built on post-WWII GI bill education and manufacturing is going with it. Jobs move overseas to cheap labor markets thanks to trade deals that favor a powerful elite. Millions around the world are rising from extreme poverty at the price of the Western World’s middle class – which might look like a good tradeoff to aliens watching from space, but isn’t so good if you happen to be losing. We should all be sad and angry.

I’ve heard that a lot and I guess I believe it. Just look at the tags in my tee shirts – all manufactured overseas.

I also tend to think of the Christian Science Monitor as a reputable news source, so I read their recent article carefully.

The surprising truth about American manufacturing

“United States manufacturing output is at an all-time high, worth $2.2 trillion in 2015, up from $1.7 trillion in 2009. And while total employment has fallen by nearly a third since 1970, the jobs that remain are increasingly skilled.

“Across the country, factory owners are now grappling with a new challenge: Instead of having too many workers, as they did during the Great Recession, they may end up with too few…

“In western Michigan… unemployment here is low (around 3 percent)… For factory owners, it all adds up to stiff competition for workers – and upward pressure on wages.” CSM

The situation isn’t all rosy: “Employment in manufacturing has fallen from 17 million in 1970 to 12 million in 2015. The steepest declines came after 2001, when China gained entry to the World Trade Organization and ramped up exports… In areas exposed to foreign trade [like my tee shirts], every additional $1,000 of imports per worker meant a $550 annual drop in household income per working-age adult.” CSM

Despite job openings, lots of young workers don’t want to work in manufacturing. They watched their parents shoulder large amounts of overtime only to get laid off in the Great Recession, see the overall downward trend, and are being pushed into college instead of trades by parents, schools, and the government.

I checked Wikipedia, which seems like a decent place to get an overview.

“In 1990, services surpassed manufacturing as the largest contributor to overall private industry production, and then the finance, insurance and real estate sector surpassed manufacturing in 1991. Since the beginning of the current economic downturn in 2007, only computer and electronic products, aerospace, and transportation have seen increasing production levels…

“A total of 3.2 million – one in six U.S. factory jobs – have disappeared since the start of 2000. The manufacturing sector of the U.S. economy has experienced substantial job losses over the past several years.” Wikipedia

Continue reading →

Water from the Sky, Water from the Ground

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I grew up in New York State. If a stream ran through my property there, I could pump water out of it.

Not so in Colorado or many other states. Every drop of water out west belongs to someone: As it falls from the sky, as it runs across the land, as it sinks into aquifers. There’s a saying in Colorado that “whiskey’s for drinking and water’s for fighting.” In Colorado, people still shoot each other over water. The Great American Desert never disappeared and may be coming back with rising temperatures and increased drought.

I had to learn that it’s illegal to have a rain barrel in Colorado – illegal to collect the rain that fell on my roof. Not that county sheriffs spent a lot of time searching for scofflaws – but it was unexpected for many transplant like myself.

But that’s about to change.

Danielson of Wheat Ridge and state Rep. Daneya Esgar of Pueblo sponsored a bill in the Colorado Legislature, House Bill 16-1005 (pdf), that would allow homeowners to collect rain from a residential rooftop. The bill passed the state House with overwhelming bipartisan support on Feb. 29, and passed the state Senate 27-6 on April 1. It’s now waiting for Gov. John Hickenloope to sign it into law.

Homeowners will be limited to 110 gallons of storage capacity, but this represents a change in the state. It represents some compromises – a bad word in some people’s mind these days. But Colorado is not alone:

Record droughts and a host of other water-supply worries have prompted numerous other states [15!] to enact laws that impact the use of rain barrels

Climate change, drought, and population growth is impacting the land we love. This will force us to confront water issues whether we like it or not. I live in southwest New Mexico now, with no irrigated “yard” at all and only container-raised herbs and one or two tomatoes each year. But I still own Colorado water rights, still marvel at how cheap it is to lease water for alfalfa and how expensive it is to buy water for a home.

We have some hard choice to make in the future, some choices about priorities – lawns vs food vs hay vs tradition vs cities vs… I don’t know what. There will be losers and winners, but it’s a topic we must address.

Savers and Interest Rates

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My father lived through the Great Depression and was forever nervous about whether he had saved enough to pay his bills after he quit working. He always saved all he could and put his savings into safe Certificates of Deposit (CDs). He had to move to assisted living and then began to fret that the interest he was earning wasn’t enough to keep him from beginning to use up the principal. I can’t imagine how upset he would be with the miniscule rate of return available to savers for the past few years. There must be millions of older Americans trying to figure out how to stretch their retirement savings to pay their bills while they earn less in interest than the rate of inflation.

The financial crisis resulted in the government intervening by “increasing the monetary supply” and reducing the interest on loans to near or at zero. It has struck me as beyond baffling that the result was a boom in the stock market while elderly savers suffered. I know I wasn’t the only investor who decided to take the additional risk of buying stocks with dividends that were higher than anything to be found in CDs. While politicians were railing against people who have money (the “investor class”), they supported policies that enriched those same “evil Capitalists” to the detriment of elderly savers.

I wonder when the millions of elderly savers who are voters will rebel against the economic policies that have punished them. I acknowledge that the current stock market has begun to look risky for the “investor class” that has been willing to take risks for higher returns. My father would probably say something such as “Learn from this and stick with CDs.”

The Federal Reserve has actually introduced negative interest rates into their recent discussions of the economy. Perhaps the “saver’s revolt” will happen when the message is that you will receive less than what you put in your CD when it matures?