Some details of the Harris Plan

About Covid inflation

It was largely price fixing.

For years, there has been a debate between macro-economists [...] about the source of post-Covid inflation. Many economists chalked up price hikes to workers demanding more money and saw the way to address it as scaring workers into accepting less money by throwing a bunch of them out of work. “We need five years of unemployment above 5% to contain inflation,” said Larry Summers.

[...]

By contrast, [...] CEOs were routinely telling investors that they were raising prices to increase margins, not to meet wage demands. Or it might have been because they experienced large and unexplained price increases in meat, rent, hotels, groceries and restaurants.

[...]

One software and consulting pricing firm for landlords, RealPage, specialized in telling its clients to hike rents more than they otherwise might. As of December of 2020, RealPage had nearly 32,000 clients, including “10 largest multifamily property management companies in the United States”. There are multiple antitrust suits accusing the private equity-owned firm of organizing a massive price-fixing conspiracy to inflate rents across the board.

Beyond rent, the Biden administration or private plaintiffs now have credible antitrust claims against firms engaged in price-fixing in meat, hotels and large online sellers like Amazon.

[...]

Rent, meat, oil and hotels are big sectors, so criminal activity in the form of price-fixing to boost profits should bust through the illusions economists have about how our markets really work. There are also a number of concrete steps policymakers can take to respond to this price-fixing.

The first is to arrest or sue the offending executives for criminal activity.

The second is to strengthen price-fixing and merger laws, allow more private class-action suits, force judges to speed up cases and increase the budget of antitrust enforcers to make collusion more difficult.

  Guardian

It won't happen with a Republican Congress, and I'm skeptical it would even happen with a Democratic one.

...but hey, do what you want...you will anyway.

We don't need another bank failure

But we got one. Let's hope it remains limited.  Makes you want to put your money in a mattress.

The Federal Deposit Insurance Corporation announced Friday that they had closed down the California-based Silicon Valley Bank, the 16th-largest federally insured bank in the country.

[...]

Its remaining assets were moved to the newly created Deposit Insurance National Bank of Santa Clara.

[...]

SVB's collapse represents the biggest bank failure since the 2008 financial crisis, which is notable because it appeared to be doing fine until recently.

[...]The emergency effort on Wednesday to save the bank failed, and it was declared dead on Friday.

[...]

The fact that most of SVB's assets were seemingly secure — they were mainly longer-term government bonds — led many investors to feel the bank was secure. [...] The bank suddenly announced Wednesday that it needed to raise over $2.2 billion, sending its stock plunging by more than 60% in a matter of days.

The government securities bought by SVB pay a fixed rate, so when market interest rates were raised, a gap began to grow between how much the securities were worth on the open market and what they were valued on the bank's books.

[...]

The effect of SVB's collapse was immediately felt among other large banks. First Republic Bank, PacWest Bancorp, Signature Bank, and Silvergate Capital Corp all faced significant hits from the fallout.

Though the true impact of the collapse may not be felt for some time, it raises questions as to which banks are misjudging the cost and lifespan of their deposits, as SVB did, and of the yield and duration of their assets.

  Washington Examiner

Maybe the banking industry needs to be overhauled? More highly regulated?

[Banking took a hit from] the fallout across the start-up ecosystem from the failure of Silicon Valley Bank. Entrepreneurs raced to get loans to make payroll because their money was frozen at the bank. Investors doled out and asked for advice in memos and on emergency conference calls. Lines formed outside the bank’s branches. And many in the tech industry were glued to Twitter, where the collapse of a linchpin financial partner played out in real time.

The implosion rattled a start-up industry already on edge. Hurt by rising interest rates and an economic slowdown over the past year, start-up funding — which had been supercharged by low interest rates for years — has shriveled, resulting in mass layoffs at many young companies, cost-cutting and slashed valuations. Investments in U.S. start-ups dropped 31 percent last year to $238 billion.

[...]

The bank, founded in 1983 and based in Santa Clara, Calif., was deeply entangled in the tech ecosystem, providing banking services to nearly half of all venture-backed technology and life-science companies in the United States.

[...]

Silicon Valley Bank was also a bank to more than 2,500 venture capital firms, including Lightspeed, Bain Capital and Insight Partners.

[...]

The bank was a “systemically important financial institution” whose services were “immensely enabling for start-ups,” said Matt Ocko, an investor at the venture capital firm DCVC.

  NYT

That does not sound good. Where does the fallout stop? We've seen bank failure recently, and it was ruinous for millions of people.

On Friday, Roku, the TV streaming company, said in a filing that roughly $487 million of its $1.9 billion in cash was tied up with Silicon Valley Bank. The deposits were largely uninsured, Roku said, and it did not know “to what extent” it would be able to recover them.

[...]

On Friday, the Federal Deposit Insurance Corporation took control of Silicon Valley Bank’s $175 billion in customer deposits. Deposits of up to $250,000 were insured by the regulator. Beyond that, customers have received no information on when they will regain access to their money.

[...]

Non-tech start-ups were also grappling with the fallout. Vox Media, the publisher of New York Magazine and The Verge, has a substantial concentration of cash at Silicon Valley Bank. [...] The company’s credit cards, which Silicon Valley Bank issued, stopped working on Friday.

[...]

Many venture capital firms had also used lines of credit with Silicon Valley Bank to make investments quickly and smoothly, Mr. Ocko of DCVC said. Those lines of credit are now frozen, he said.

[...]

Other start-ups were benefiting from the bank’s collapse. On Friday afternoon, Brex, a provider of financial services to start-ups, unveiled an “emergency bridge line of credit” for new customers migrating from Silicon Valley Bank.

[...]

To stave off any taint from Silicon Valley Bank, some venture funds blasted updates to their backers. Sydecar, a service that facilitates venture capital deals, shared a list of the banks it uses that were not affected. Origin Ventures promised to help companies “create contingency plans around working capital.”

[...]

Josh Butler, the chief executive of CompScience, a workplace safety analytics start-up, said he was unable to get his company’s money out of the bank on Thursday or before the bank’s collapse on Friday.

[...]

[He] said he had been prepared for a big crunch, given the doom and gloom swirling around the industry.

But “did I expect it to be Silicon Valley Bank?” he said. “Never.”

[...]

Mr. Ocko added that he did not foresee systemic collapse among start-ups and tech, but predicted “pain and friction and uncertainty and complexity in the middle of what’s already a painful macro environment for start-ups.”

I expect the Biden administration is all hands on deck right now. And I expect Trump is crowing that he alone can fix it.

UPDATE 09:21 am:  Speaking of regulating...Yes.  That could help.  Jesus, these fuckers.

UPDATE 03/12/2023:

UPDATE 03/14/2023:

And then we got another one.  Signature Bank in New York has folded.

UPDATE 03/16/2023:  The latest Republican talking point on SVB is that it failed because it's "woke".

What's the big deal about the debt ceiling?

Here's a relatively short, understandable (and even entertaining) explanation of the country's debt and the debt ceiling controversy for people who are not economists...

Do yourself a favor and listen.

...but hey, do what you want...you will anyway.

About that inflation...

After-tax corporate profits stood at 8.1 percent of the economy at the beginning of 2020 but have since shot up to as high as 11.8 percent of the GDP.  [...] These higher corporate profits have been the cause of over 50 percent of recent price increases.

[...]

[T]he key issue right now would be how to lower inflation while keeping employment and worker power high. Such a tack would include full-bore attempts to lessen supply chain issues and reduce the pricing power of big corporations.

  The Intercept

One reason to think the pandemic is the root cause of the recent inflationary surge is empirical. The inflationary shock has occurred in essentially all rich nations of the world—it’s very hard to find any country-specific policy that maps onto inflation.

Another reason is to look where this inflation started: the rapid run-up of prices in the goods sector (particularly durable goods). The pandemic directly shifted demand out of services and into goods (people quit their gym memberships and bought Pelotons, for example) just as it also caused a collapse of supply chains in durable goods (with rolling port shutdowns around the world).

[...]

In short, the rise in inflation has not been driven by anything that looks like an overheating labor market—instead it has been driven by higher corporate profit margins and supply-chain bottlenecks. Policy efforts meant to cool off labor markets—like very rapid and sharp interest rate increases—are likely not necessary to restrain inflationary pressures in the medium term.

Other tools that would be less damaging to typical families—like care investments to boost expected growth in labor supply or a temporary excess profits tax—could be effective in tamping down inflation over the next year and should be a bigger part of the policy mix.

[...]

The inflation spike of 2021 and 2022 has presented real policy challenges. In order to better understand this policy debate, it is imperative to look at prices and how they are being affected.

  Economic Policy Institute

Continue reading.

...but hey, do what you want...you will anyway.

Joe Manchin is actually a Republican

Here's proof:

...but hey, do what you want...you will anyway.

A reminder that the money flows from blue states to red

Observers couldn’t help noticing, however, that some of the Kentucky politicians asking for aid — notably Senator Rand Paul — had in the past not only opposed aid for other disaster-struck states but sneered at their pleas. What should we make of this hypocrisy?

The truth is that it runs deeper than “aid for me but not for thee.” Remarkably, if you look at how the federal budget affects U.S. regions, there’s a consistent pattern in which conservative states that preach the importance of self-reliance are in fact heavily subsidized by liberal states.

[...]

Topping the list of net beneficiaries was, yes, Kentucky, where residents received an average of $14,000 more from Washington than they paid in taxes. To put this in perspective, Kentucky’s 2019 net inflow of federal funds — $63 billion — was roughly 30 percent of the state’s G.D.P. that year.

[...]

And that’s OK! The main reason Kentucky is such a large net recipient of federal funds is that the state is relatively poor — it’s in a region that has to some extent been economically stranded as production and wealth concentrate in large, highly educated metropolitan areas. As a lower-income state, Kentucky receives the full benefit of federal programs like Medicare, but pays relatively little in income or payroll taxes, so it gets much more than it pays in. And that is actually how the social safety net is supposed to work. We want individuals who for whatever reason are hurting financially to receive support from the more fortunate, which necessarily implies large transfers from rich states like New Jersey to lower-income states like Kentucky.

What’s not OK is when states that are huge net beneficiaries of progressive taxation and the social safety net preen and posture about self-reliance and the evils of big government. It’s even worse when they assert some kind of moral superiority over the metropolitan areas that pay their bills.

  NYT

...but hey, do what you want...you will anyway.

A voice in the wilderness

Economist John Kenneth Galbraith once dubbed it the “horse and sparrow” theory: “If you feed the horse enough oats, some will pass through to the road for the sparrows.”

We know it as trickle-down economics.

  The Guardian

And I can't believe anyone still buys that shit.

Mainstream economists are already talking about a “K-shaped” recovery – the better-off reaping most gains while the bottom half continue to slide.

[...]

The president-elect has rejected a wealth tax, but maybe he should be even more ambitious and seek to change economic thinking altogether.

INCLUDING a wealth tax.

Build-up economics reached its zenith in the decades after the second world war, when the richest Americans paid a marginal income tax rate of between 70% and 90%. That revenue helped fund massive investment in infrastructure, education, health and basic research – creating the largest and most productive middle class the world had ever seen.

When you're talking to the middle classes, always stress marginal tax rate. Nobody's trying to take 70-90% of the uber-rich's "hard earned" money. Not even a fraction of that.  (They earn it the way I earn wrinkled skin.)  

[S]tarting in the 1980s, America retreated from public investment. The result is crumbling infrastructure, inadequate schools, wildly dysfunctional healthcare and public health systems and a shrinking core of basic research. Productivity has plummeted.

Hmmm, you mean, with St. Ronald Reagan as president?

Studies show an average return on infrastructure investment of $1.92 for every public dollar invested, and a return on early childhood education of between 10% and 16% – with 80% of the benefits going to the general public.

The Covid vaccine reveals the importance of investments in public health, and the pandemic shows how everyone’s health affects everyone else’s. Yet 37 million Americans still have no health insurance. A study in the Lancet estimates Medicare for All would prevent 68,000 unnecessary deaths each year, while saving money.

If we don’t launch something as bold as a Green New Deal, we’ll spend trillions coping with ever more damaging hurricanes, wildfires, floods and rising sea levels.

The returns from these and other public investments are huge. The costs of not making them are astronomical.

The problem to solving the problem is that the cost accrues to future generations.

In a new study, David Hope of the London School of Economics and Julian Limberg of King’s College London lay waste to the theory. They reviewed data over the last half-century in advanced economies and found that tax cuts for the rich widened inequality without having any significant effect on jobs or growth. Nothing trickled down.

Just look around you. You don't need a "study".

...but hey, do what you want...you will anyway.

An under-discussed issue in governmental economics is economics of government

With a Democrat now in charge, fiscal conservatives will be hitting hard on the claim that it's irresponsible to deepen the nation's already-hefty debt. So it's more important than ever for people to understand why some of the more emotionally appealing of those arguments are specious.

  Bloomberg

...but hey, do what you want...you will anyway.

Scared of a little girl

Donald Trump’s treasury secretary has dismissed Greta Thunberg’s call for immediate fossil fuel divestment, saying the 17-year-old activist should go to college and study economics.

[...]

Asked whether calls for public and private-sector divestment from fossil fuel companies would threaten US growth, Mnuchin jibed: “Is she the chief economist? Who is she, I’m confused” – before clarifying that he was joking.

  Guardian

He's more than confused. He's an arrogant asshole.

“After she goes and studies economics in college she can come back and explain that to us,” Mnuchin added, at a press conference at the World Economic Forum in Davos.

I'm betting she could do a better job explaining it than he could. How about a debate?

...but hey, do what you want...you will anyway.

UPDATE:

Should there be a reverse emoluments clause?

According to a federal procurement filing reviewed by Quartz, the State Department recently booked 45 rooms at Riyadh’s Burj Rafal Hotel in support of the two “VVIP visitors [Steven Mnuchin and Jared Kushner]” taking part in the kingdom’s third annual Future Investment Initiative, as the event is officially known.

  Quartz

There's a quid pro quo in that.

...but hey, do what you want...you will anyway.

About that "crazy inverted yield curve" Trump wants to blame on the media (and the Fed) ...

...or...Recession coming!

Heidi N. Moore on Twitter

But what if the bond market's apparent malaise, the deepest curve inversion since 2007 (remember what happened then?) were signaling something darker and potentially longer lasting than a turn in the business cycle?

Indeed, the yield curve's alarm bells may be global markets' awkward attempt to put a price on the rapid loss of an intangible but deeply valuable asset: global trust in the United States as a trading partner and more generally as a leader in the pursuit of democracy and human rights.

Take note of one irony: Yes, the yield curve's inverted pattern shows a strong appetite for US government bonds when confidence in the country's political stability is waning. That shouldn't offer any comfort, however: It's merely a sign that frightened investors don't see any other safe investment alternatives to Treasury bonds yet. When Standard & Poor's downgraded US Treasuries in 2011, for instance, bond prices rallied.

The US-driven trade war, which went from counterproductive to just plain bizarre over the last week, is both a reflection of Trump's scorched-Earth strategy and a driver of the yield curve's inversion, because the longer the now multi-pronged conflict lasts, the higher the chances of an economic contraction.

Just as he was purportedly trying to negotiate a cumbersome, wide-ranging deal with China, Trump obliterated whatever smidgen of confidence might be left in his team with a single tweet, threatening new tariffs on Mexico despite a pending trade deal between the US, Mexico and Canada. He then abruptly revoked India's special trading status with the United States, further confounding the outlook.

The trade wars are arguably hitting Trump's vaunted base hardest as farmers across the US suffer the brunt of disruptions and poor consumers suddenly face higher prices on key basic goods, ranging from avocados to autos.

And trade is just one of countless policy areas where chaos itself appears to be the strategy.

  CNN

Continue reading.

...but hey, do what you want...you will anyway.

UPDATE:

He knows economics better than anyone

...but hey, do what you want...you will anyway.

NB: This is from Fox News

Of course, I can't remember when the last time was that anybody in Washington cared what the voters favor.

Whaaaaa whaaaaa

It's not fair!






Pathetic fool.  Other countries should be handling their economies to favor the US.  Sure, why not?




Rise and whine.  I'll have to remember that.  He does it so consistently.

Trump knows economics

President Donald Trump on Thursday fired a new broadside against the Federal Reserve under Chairman Jerome Powell, blaming the central bank for the economy's failure to exceed 4 percent economic growth last year.

Trump’s attack signals that he has no plans to let up on the Fed despite its announcement Wednesday that it doesn’t expect to raise rates at all this year, given muted inflation and slowing global growth. The central bank also said that later this year it will stop shrinking its multitrillion-dollar bond holdings, a process dubbed “quantitative tightening” that can make it harder for borrowers to obtain credit.

“The world is slowing, but we’re not slowing, and frankly if we didn’t have somebody that would raise interest rates and do quantitative tightening, we would’ve been at over 4 [percent] instead of at 3.1 [percent],” Trump told Fox Business.

[...]

Fed officials project that the economy will grow by 2.1 percent this year, indicating that some of the boost from the 2018 fiscal stimulus might start to wear off — feeding the central bank’s decision to hold off on further rate increases.

[...]

Ultimately, the Fed and Trump have fundamentally different views of the economy. While the administration’s goal is to achieve sustained 3 percent growth, the central bank doesn’t think the economy is productive enough to sustain that pace without stoking inflation.

So if growth approaches the administration’s target — as it did last year — the Fed is likely to cautiously raise rates.

[...]

The president said he didn’t know if his repeated criticism of the Fed had played a role in its decision to pause the rate hike campaign.

“I hope I didn’t influence, frankly, but it doesn’t matter,” he said. “I don’t care if I influenced or not. One thing: I was right.”

  Politico

He doesn't care whether what he says wrecks the economy. He just needs to be right.

...but hey, do what you want...you will anyway.

Dems have finally figured it out

With a national $15 minimum hourly wage still out of reach, blue states are mounting an offensive to fill the void.

New Jersey this month joined three other states in raising its hourly minimum wage to $15, Illinois is poised to follow next week, and more states are waiting in the wings.

It’s all part of an effort to leverage Democratic midterm election gains to advance the so-called Fight for $15 and increase pay for some of the lowest-paid workers even if the federal government won’t.

  Politico

I can't give them too much credit, nor any for "doing the right thing", because Dems could have done it before Trump and didn't. They're not simply leveraging midterm gains. That would suggest some federal push. They're doing it in the states where they could have done it at any time. I'm sure they see it now as a way to pull more votes from independents and maybe even win over some Republican votes. If red state voters are suffering financial hardships while blue state voters are gaining, then it's a very good bet.

The New Jersey law, signed this month by Gov. Phil Murphy, will gradually raise the state’s minimum wage for most workers from the current $8.85 an hour to $15 by 2024 (the first increase, to $10, takes effect in July).

[...]

In Illinois, the state Senate approved legislation Feb. 7 to raise the state’s minimum wage from $8.25 to $15 over six years. Conservatives balked, wanting a lower wage for more rural parts of the state, where the cost of living is less. But with Democrats controlling the Legislature and a newly elected Democrat in the governor's mansion, the House passed the bill just seven days later. It heads to Gov. J.B. Pritzker’s desk Tuesday — a day before his first state of the budget address on Feb. 20.

[...]

New Jersey’s approval of $15 after a year of wrangling has Democrats in other states taking notes on how the Garden State got it done. Party leaders in Illinois fast-tracked a $15 minimum wage bill this month, and in Connecticut, legislation is expected to reach Democratic Gov. Ned Lamont’s desk in the coming months.

While the effort by individual states is a patchwork approach, it could be the best recipe for achieving a $15 minimum wage. With President Donald Trump in the White House and Republicans controlling the Senate, the odds of enacting a federal $15 minimum hourly wage remain slim.

Not if McConnell feels the pressure. The odds become considerably greater when he sees GOP power slipping in the states. His only move then would be for red states to lure employers out of blue states. And I have no doubt they'll attempt that first.  The GOP doesn't even care that higher wages mean more spending (and more taxes for the state coffers).  Forget optimization economics, they want to allow their corporate donors to pocket the maximum profit.

...but hey, do what you want...you will anyway.

We just don't care

Actually, in my recollection, which admittedly doesn't go back terribly far, it's the Democratic administrations that have reduced debt and actually built surpluses, and the Republican ones that have sunk us.  I don't understand how it's always the conventional wisdom that the Democrats are the spendthrifts.

...but hey, do what you want...you will anyway.

Trump's philosophy

Since the 2016 presidential campaign, Donald Trump’s aides and advisers have tried to convince him of the importance of tackling the national debt.

Sources close to the president say he has repeatedly shrugged it off, implying that he doesn’t have to worry about the money owed to America’s creditors—currently about $21 trillion—because he won’t be around to shoulder the blame when it becomes even more untenable.

  The Daily Beast

Aside from being narcissistic and obscene, that's a seriously ignorant idea. People are still (rightly) blaming Ronald Reagan for the mess.

The friction came to a head in early 2017 when senior officials offered Trump charts and graphics laying out the numbers and showing a “hockey stick” spike in the national debt in the not-too-distant future. In response, Trump noted that the data suggested the debt would reach a critical mass only after his possible second term in office.

“Yeah, but I won’t be here,” the president bluntly said, according to a source who was in the room when Trump made this comment during discussions on the debt.

He's gonna deny this as soon as he gets out of Bush's funeral and they give him his phone back.

Stephen Moore, a conservative economist at the Heritage Foundation and an economic adviser to Trump’s 2016 campaign, recalled making visual presentations to Trump in mid-2016 that showed him the severity of the debt problem. But Moore told The Daily Beast that he personally assured candidate Trump that it could be dealt with by focusing on economic growth.

“That was why, when he was confronted with these nightmare scenarios on the debt, I think he rejected them, because if you grow the economy… you don’t have a debt problem,” Moore continued. “I know a few times when people would bring up the enormous debt, he would say, ‘We’re gonna grow our way out of it.’”

[...]

As Moore recalled, a belief that robust economic growth would solve all problems was the way Trump—starting in 2016—justified the cost of his ambitious proposals to slash taxes, pursue big infrastructure projects, and simply avoid massive cuts to Social Security and Medicare. Since then, the president has continued to show indifference over the national debt, to the consternation of more traditionally conservative associates.

[...]

Moore has since championed this approach to tackling the debt as a key part of “Trumponomics,” and has co-authored a book supporting it.

Just as plausible, and he can be saying both things. The other thing is: he doesn't have a clue how to deal with it.

Economic growth increased over the past year—including a robust 4.1 percent in the second quarter of 2018—but the federal deficit has ballooned as well, in part because the government has taken in less revenue because of the tax cuts. Current forecasts are not too rosy about the future economy.

If that were our only worry.

...but hey, do what you want...you will anyway.

If you had Gary Cohn in the office pool, you win

Abandon ship!



Was that really only this morning? This must be Munchkinland.

President Donald Trump's top economic adviser Gary Cohn is resigning, the White House announced on Tuesday.

Cohn, who had been rumored just weeks ago as a potential next chief of staff, will leave the White House in the wake of his fierce disagreement with the President's decision to impose tariffs on steel and aluminum imports. Cohn is expected to leave in the coming weeks, the White House said.

[...]

Cohn's resignation sounded alarm bells in establishment circles in Washington and on Wall Street, where many viewed the former Goldman Sachs executive as a steadying influence on economic policy inside the Trump White House.

  CNN

Unfortunately, the problem is that anybody who wants the job is going to be on the caliber of HUD director Ben Carson and Energy director Rick Perry.

Abandon hope!

...but hey, do what you want...you will anyway.