Chart of the Day #27

There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.  -- Ludwig von Mises

Economists and the New Numbers Racket

At one time I thought about being an economist. It seemed like a good path with much fertile ground for doing useful work. There is a definite need for economic characteristics and forecasting. The basic principles were simple to understand, and a talent for pattern recognition and curve fitting could be put to good use. Where it seemed to fall apart is in three key areas:

One, economic modelling can be swamped by economic policy making, such that distortions introduced by external factors would render any model or forecast unusable and misleading. 

Two, an economic model demands assumptions which depend on people doing everything they do in a predictable manner, and over an indefinite period of time. While all of us can be sure the sun will rise tomorrow, we can't be sure our brother-in-law will pick us up at the airport at 9:30. So, any forecast is doomed to failure on the human action front anyway.

Three, since economics involves money, there is incentive on the parts of many to distort the numbers further to gain a financial or political advantage. This makes economics akin to associating with thieves. Thieves with calculators, using flawed models, and applying gross misapplications of data.

As most of you know, I returned to product development instead. When you design something that doesn't depend on your brother-in-law, it can also be done without sleeping with the enemy.

The Sad State of the Economics Profession

"Although some will receive a higher minimum wage, many others will simply be thrown under the bus. "

Frank Hollenbeck

Introducing (?) Wizercare

While legislation can stimulate and encourage, the real creative ability which builds up and develops the country, and in general makes human existence more tolerable and life more complete, has to be supplied by the genius of the people themselves. The Government can supply no substitute for enterprise. - Calvin Coolidge

Governments have a tendency not to solve problems, only to rearrange them. - Ronald Reagan

The people who conceived of The Affordable Care Act typically defend it by saying its detractors offer no alternative. My first reaction to that is a better alternative to a government program is almost always "no" government program. But I think the point needs to be amplified, especially now that we know Obamacare is a failed system.

I think it is helpful to examine the whole matter on the basis of the constitution. The constitution, you may have heard reserves almost everything to the states. this it does implicitly in the Articles, and explicitly in the Bill of Rights. There. I had to say that, because it's something they don't teach in school any more.

I have trouble getting past that in the evaluation of a federal program, nevertheless I'm willing to set that aside for the remainder of this discussion. Let's pretend that the constitution does not exist, and address the question: How do you evaluate this health care program vs. the problem it was trying to solve? To examine that, we have to deconstruct a little further.

What might make sense in a free country is that we as a people might delegate certain activities to the federal government. As a free people, we may assess our certain risks, such as risks of organized invasion or of common enemies like disease and pestilence. We might reasonably allow a government to provide these essential services, and to proscribe a fair method to pay for them. So far so good.

Is it necessary to have a government for defense? No, it could be funded by merchants, like it was before the revolutionary war. But is it better to consolidate our defensive resources and deploy them in a more efficient way? Sure! Is the government the best way to do that? Debateable. But I'm going to concede that point too, to get to the end of this.

I usually come down on the side of the value added angle. Does the government provide a useful activity, or is it a net loss in value to the people.

If the idea was to get more people on the insurance rolls, this did not happen. In fact, as Jonah Goldberg points out, the number of people uninsured increased as a direct result of the plan. For this, we need a trillion dollar program?

If the idea was to reduce the overall cost of health care, well, chapters and verses are written on the increased costs medical centers are dealing with:

"The Affordable Care Act is basically insurance reform—eligibility and access—and basically, they are going to pay for that by reducing the reimbursement. It doesn't modernize how we drive to higher quality care," Dr. John Noseworthy said in a "Squawk Box" interview.

If the problem is health care for all, the reduction in doctors and nurses in the system surely makes that goal unachievable in the long run.

So, depending on what the problem was that they were trying to solve, it's clear that the opposite is happening. So, since we are reconstructing the "shouldas" with a blank slate and a beneficial unrestricted government, what could the government conceivably do to help the problems noted.

The solutions are very simple. Not easy, but simple.

1. Reduce regulations on medical care. 
1. Deregulate most medical services, such that service can be provided at low costs. 
2. Revamp certification medical requirements to reduce the cost of medical school. 
2. Tort reform. Limit malpractice benefits.
3. Reduce regulation on medicines, and allow self-prescription for most remedies (penicillin, pain meds, etc..
4. Make medical insurance a private market.
1. Eliminate medical benefits provided by government.
2. Replace with like amount in worker salaries, and have workers contract their own insurance.
5.  Consider giving tax benefits to corporations that eliminate insurance plans, thereby putting health insurance back into a free market.
6. Allow experimental medicines to proceed on the basis of a willing buyer signoff

These steps would reduce the cost of medical care to the point where insurance costs would naturally fall, and more people would seek health insurance. The remainder who are in genuine need can be subsidized at a very small fraction of the cost for the current program.

To proceed the way we are is proof that either our elected officials are incompetent or that they are disingenuous about their intent. Giving them the benefit of the doubt, they must be idiots.

Wizer One-Liner # 31

Why should anyone be comforted by the term "bipartisan agreement"?

Can't Raise the Bridge? Just Lower the Water..

What's the best way to ensure that we get a gee-whiz-largest-decline-in recent-history number for weekly jobless claims?

First, you go with seasonal adjustments, which make it possible to over-ride any inconvenient trends. Then, you bump up the number from the previous week so it looks like there's some daylight..

The newspapers helpfully report it as a huge decline. Merry Christmas everyone.

Uh course the numbers aren't all that great, when you see them side by side, but hey, it's the buzz phrase that counts.

In related news, I had the least amount of turkey on record in my Christmas ham dinner yesterday.

Chart of the Day #26

We should probably be somewhat relieved that the bucket gets filled at $10 billion less a month; but lest anyone thinks this is a big improvement, take a look at this chart from ZeroHedge.

Market Players are happy to take this as a sign that they can run free and easy in the market for a long while before A: a real taper happens, or B: something unforeseen happens.

Odds and Ends

People often make rational economic decisions, even with large numbers. Take the Powerball lottery for example. The  chances of getting the top prize is understood to be one in 175 million. Many people are willing to play whenever the top prize exceeds that. After all, only when it is over 175 large is it a fair bet; and you are playing then with other people's money -- other people being the ones who played the previous 5 weeks and didn't win. But wait, there's more: the odds are greater than 50-50 that by the time the number rises to 175 million, you will be splitting the pot with someone else. This is because more players dive in.

You see, the Powerball market wants you to believe there is a rational play here, but there really isn't. Game theory aficionados will all see the fallacy of the numbers, and the play is limited to those who are bad at math.

Which brings me to the stock market. There are big numbers there, too, but the same people who rationally play when they believe the odds are in their favor are now jumping into a market after the odds of continued gain have clearly worsened. Like the Powerball game, there is only so much money to go around. Unlike Powerball, the prices of the tickets continues to rise, as the Fed stretches the asset bubble one more step.

Stock prices can continue to rise, in concert with the Federal Reserve moneyprinting. At some point, however, there has to be earnings that stay up with the valuations. This is where the game tops out. Earnings for the nation's corporations in the recent past are due to the fact that they haven't hired anyone or invested any money since 2009 (thanks to the uncertainty of Obamacare). Further growth from here depends on total wages going up. The Fed's strategy for that is to keep the printers going. However, the fiscal policy is to maintain uncertainty, so we sit and wait. Meanwhile, the price of a pound of bacon is $5.00.

One indicator of stock market valuation is Cyclically Averaged Price to Earnings ratio or Shiller P/E after the Yale economist who first reported it.

One figure to keep in mind. The average stock price to earnings ratio over the decades is 16.5. Today it is 25.4. If the earnings begin to fall faster (as I expect they will), we will be back up to 2000 dotcom numbers in a jiffy. Note that Wikipedia defines a jiffy as 3 × 10⁻²⁴ seconds.
When this snaps back, how is everybody who plays going to get their gambling money back? Answer: They're Not.

Chart of the Day #25

Groundhog Day Observance in Washington

There is no way that this winter is *ever* going to end as long as this groundhog keeps seeing his shadow. I don't see any other way out. He's got to be stopped. And I have to stop him. Phil Conners, Groundhog Day, 1993

If you haven't seen the movie, then this is your spoiler. As the plot line develops, we get to the same start of every day (read: debt cycle), and every day it turns out to be the same things, the same people, and the same events. This is why there are 116,000 hits so far on the search string "Groundhog Day in Washington". Might as well add one more.

Did you know that the debt ceiling has been raised 100 times since 1941? The Republicans and Democrats like these little gatherings. It allows them the illusion that they are working (but not in cooperation, mind you) to resolve the financial difficulties of our government.

This time there was a twist. Some Republicans wanted to be on record, once again, in opposing Obamacare; like this needed to be restated somehow. Look, people already know whose program Obamacare is (hint: starts with an "O"). So why did they feel they needed to add this to their little wish list? I can think of two reasons:

One is that they really do fear on behalf of their constituents for the consequences of Obamacare, and this was the last opportunity to save us. I really would like to think this is the case, a possibility that proves that someone is still there in DC who sees what the rest of us do...the looming creation of a bureaucratic and stagnating health care system patterned after the post office and dozens of other bureacracy. 

The other is they are afraid that it might work, and they had to try to kill it. Of course, the "might work" theory was proved wrong on the same day as the shutdown happened, due to the failure of the exchange. 

At the end of the day (or is it the start?) the Republicans tagged Obamacare once again to the Democrats, and then caved. Did they really use this news cycle only to score some cheap political points? It would appear so.

They both wanted exactly the same thing in the end. They wanted to position themselves for re-election. And I say that without even a trace of cynicism. Neither side cares what effect of their latest can kick has on the economy. People are watching closely, because, and this is exasperatingly so: everything the government does now affects us financially. Think about that for a moment. Why does what happens in Washington affect us at all? How is it that billions, now trillions of dollars flow one way or another as a result of what our elected representatives do? Is that natural? Is that right? Most importantly, is it slavery?

That is the problem. In my opinion, The government should have little, perhaps no impact on an economy. John Tamny writes today, summing up why I will never watch another debt ceiling Groundhog Day cycle, at least while either Republicans or Democrats are in charge.

Considering the possibility of ‘default' whereby the feds would cease paying bills, it's already been well covered by the commentariat that this wasn't going to happen. Indeed, it's shooting fish in the barrel to point out that a self-interested political class would never knowingly do that which would be inimical to its own interests. Political types in D.C. love to borrow cheaply, this is true no matter party affiliation, so there was no way a default was ever going to happen. They'd sooner cut programs altogether, and as they should, than potentially imperil their ability to borrow.

The Victim in Chief

There's no one who wants this over more than I do. I would like my life back.   - BP CEO Tony Hayward, May 31, 2010

There are a whole bunch of things that I'd like to see pass through Congress that the House Republicans haven't passed yet. - Barack Obama, October 1, 2013

The public didn't like the BP CEO's characterizing himself as a victim. Why, then, does the press give Obama a pass every time he acts like one of the victims instead of the guy who is supposed to lead us through it? As president of the United States, his role is to work with the Congress and other policy makers, and find a successful solution to the country's problems. Instead, there's no room for negotiation with this guy.

It's no wonder the government is this dysfunctional if the president can't sit at the same table as the lawmakers. Fine, I am okay with Obama's dereliction of duty; because his involvement adds heat, not light.. However, when he acts like an aggrieved heckler with a microphone, it hardly advances the dialog.

We have Tony Hayward running this country, and this time the people are cheering him on