Category Archives: Truth and Trivia

$15 Reality In Seattle

From a paper by UW professors on the effects of raising the minimum wage:

Our preferred estimates suggest that the Seattle Minimum Wage Ordinance caused hours worked by low-skilled workers (i.e., those earning under $19 per hour) to fall by 9.4% during the three quarters when the minimum wage was $13 per hour, resulting in a loss of 3.5 million hours worked per calendar quarter. Alternative estimates show the number of low-wage jobs declined by 6.8%, which represents a loss of more than 5,000 jobs. These estimates are robust to cutoffs other than $19.45 A 3.1% increase in wages in jobs that paid less than $19 coupled with a 9.4% loss in hours yields a labor demand elasticity of roughly -3.0, and this large elasticity estimate is robust to other cutoffs.

Importantly, the lost income associated with the hours reductions exceeds the gain associated with the net wage increase of 3.1%. Using data in Table 3, we compute that the average low-wage employee was paid $1,897 per month. The reduction in hours would cost the average employee $179 per month, while the wage increase would recoup only $54 of this loss, leaving a net loss of $125 per month (6.6%), which is sizable for a low-wage worker.

Fitzgerald Update

Latest press reports are that the container ship was on autopilot with no-one on the bridge, and did not even notice that a collision had occurred for quite some time. Illegal, of course, but not in the least unusual with a crew of only 20.

More worrisome is that the USS Fitzgerald is reported to have failed to detect the container ship. Seriously? With a crew of nearly 300 and many millions of dollars worth of the most sophisticated radars in existence? What about, oh, lookouts?

Money Isn’t Everything (Any More)

Last night’s special election in Georgia was interesting in that the Democratic Party attempted to buy the election. Their candidate spent $22 million, largely raised in California, against the Republican candidate’s $3.1 million. The most expensive Congressional election in history, and a spending ratio of 7 to 1.

But it didn’t work. Wow. I draw no conclusion other than that there’s something interesting going on here. And that’s a good thing.

Inconceivable

Sorry, I just watched “The Princess Bride” again. What? How on earth did the crew of the USS Fitzgerald allow the billion-dollar vessel to collide with a container ship?

Not only is the Fitzgerald stuffed full of super-sophisticated radars (note the phased-array antenna right above the collision damage), it has a large crew trained to keep bridge watch and should have been doing so. From the position of the damage, it appears likely that the Fitzgerald was the give-way vessel.

In addition, the container ship was, as required by law, squawking its identification, position, course and speed over AIS. The track is recorded, it appears that the ship made a slight turn to port a few minutes before the collision but simply resumed that new course after the collision, implying it was on autopilot, holding a steady course and speed. Whether or not anyone was keeping watch or on the bridge is an open question. Container ships tend to believe in Bahamian rules “The big boat has the right of way.”

Most military vessels do not squawk on AIS. Understandable in wartime, highly questionable in peacetime. The container ship would have a collision alarm driven by AIS, which would not have been activated. But surely the Fitzgerald would have an AIS receiver which would have set off an alarm.

The only possible explanation I can think off was that the Fitzgerald was stopped and unable to move for mechanical reasons, and could not contact anyone on the container ship. We’ll see.

Long Distance Travel

One of the implications of self-driving vehicles that I had not thought about is the impact on airlines.

Let’s say I’m traveling from here to, say, New Orleans. Google says it is nine hours by car.

Expedia says it is four and a half hours by plane from Orlando. Plus I need an hour and a half to drive to Orlando, then another hour and a half to navigate TSA, etc. Then at the other end probably an hour to get downtown. Looks like eight and a half hours, except that the car leaves whenever I want, with no hassle, as much baggage as I want, far more comfort, and my food, drink, communications and entertainment of choice. Cost looks about the same for a single passenger, but half for two and so forth. I would say, advantage car. And this is a non-stop airline route.

For even longer trips, a fully autonomous car can keep driving while its passengers sleep – there is no driver, of course. So at least notionally I could make the trip overnight without giving up a night’s sleep, assuming the car had the necessary comforts for sleeping. Which they will.

Looks to me that the autonomous car will disrupt airline transport.

 

 

Fake News

You can’t go anywhere on the web without seeing mention of “fake news,” on which Mrs Clinton blames her defeat. If you go to Google trends, you will find negligible use of the term until September of this year (2016). Then the meme is disseminated and the rate of searches for the term soars.

Obviously this term was promoted by someone although I see no evidence for specific attribution. But it is amazing how a meme can spread like wildfire. Regardless of who originated it, the traditional media pushed hard to promote it, presumably with the idea of discrediting the internet sites that are now their competition.

This should be a real lesson in the power of propaganda. Very scary.

Going Out On A Limb

I think the end of this bubble is beginning, as yields spike and the dollar soars:

“Our revels now are ended. These our actors,
As I foretold you, were all spirits and
Are melted into air, into thin air:
And, like the baseless fabric of this vision,
The cloud-capp’d towers, the gorgeous palaces,
The solemn temples, the great globe itself,
Yea, all which it inherit, shall dissolve
And, like this insubstantial pageant faded,
Leave not a rack behind. We are such stuff
As dreams are made on, and our little life
Is rounded with a sleep.”

― William Shakespeare, The Tempest

The economy is not strong. There are 100+ million adults not working (“not in the labor force”) out of a total population of 325 million, to say nothing of the myriad of government employees who are employed, but not contributing any value to the economy.

Consumption is being sustained by debt, both private borrowing and government money-printing. By January 2009, the United States had accumulated $10.6 trillion in debt. The gross national debt – just federal government debt – stands at $19.7 trillion as of the end of FY2016. Spending is on a pace to add another $2.4 trillion this fiscal year (2017), surpassing $21 trillion by next September. Krugman applauds, and of course this is Obama, not Trump. Yet.

Debt-funded consumption in excess of income has crowded out savings and therefore investment. As investment has declined, so, logically enough, productivity growth has fallen (see previous post). Simultaneously, government has been growing, making a lethal cocktail for real household disposable incomes, which have been declining for years. Pensioners who think they are in good shape are not noticing that defined-benefit pension funds are already starting to cut benefits and many, especially state and local government funds, are woefully under-funded. Social Security is in negative cash flow, and drawing on the general tax revenue pot to make up the difference. The stock market is ludicrously over-valued and promises zero or negative returns to pension funds for years to come. As Margaret Thatcher notably said “Socialist governments traditionally do make a financial mess. They always run out of other people’s money. It’s quite a characteristic of them.”

Powerful deflationary forces are being unleashed. The world is awash in oil and efforts to keep the price up will eventually fail. OPEC in aggregate will not cut supply because its governments (as well as the non-OPEC ones) depend on the flow of oil money to stay in power. I expect oil to reach the lower $20s if not below. Most of the world is engaged in a race to the bottom, cutting interest rates to devalue their currencies and boost exports. They are therefore exporting deflation to the US. I expect to see CAD in the 0.60s and the EUR in the 0.80s. Consumer price inflation in the US appears comparatively strong due to the inclusion of OER¹ in the CPI, which is not done elsewhere, and due to the uncontrolled rise in healthcare and education prices, funded by government subsidies and debt. These prices end up being a form of taxation by the 0.01%, who are on the receiving end. The protest vote in the US election should be no surprise.

OER, a completely fictional number to start with, is high as a result of low interest rates financing housing bubbles. These will end as badly as the previous lot. I choose not to be a homeowner, largely because I don’t want to face a huge capital loss.

In short, the economy is a Potemkin village. Things are not as they are made out to be. Even a fractional increase in rates may trigger a deflationary crisis, especially considering the shortage of dollar liquidity outside the US.

¹ OER, Owner’s Equivalent Rent, is weighted about 25% of the CPI basket. It is estimated by a telephone survey of selected homeowners, asking them how much they think it would cost to rent their a property like theirs.It has nothing to do with what it actually costs them to own and live in their properties.  I am not kidding. Now do you think CPI means anything?

End Of An Era?

Well, justice finally caught up with Hillary Clinton yesterday. Massive spending on advertising and conspiracy with a heavily biased journalism community weren’t enough to overcome her history of “carelessness,” corruption, incompetence and contempt for the “deplorable” ordinary citizenry. The steady drumbeat of Wikileaks releases must have been very damaging.

Anyway, one can only hope that all those celebrities who promised to leave the country if he were to be elected are packing their bags.

To understand what is happening, one only need read this outstanding article – “Trump, Clinton, And The Culture Of Deference.” I’m not including an extract because it is not long, but needs to be read in full.

Courage

Apple claims that removing the headphone jack from the iPhone7 was intended to improve its water resistance and took “courage.” So now you must either use Bluetooth or the Lightning connector.

Please. *BS*

1. Apple owns the largest maker of Bluetooth headphones (Beats).
2. The Lightning connector is proprietary and Apple receives a royalty from every sale of any product using it.

If you buy an iPhone7 you are, in my opinion, a sucker.

Edit: You may also be an idiot if you are one of those who have been drilling holes in their iPhone’s case to make a headphone jack.

It Does Not Compute

Jeremy Grantham’s discussion of the economic issues behind the immigration crises facing the world stunned me. Somewhat hypnotized by the religious and cultural issues, I simply had not realized the magnitude of the problem. Over to Jeremy:

The truth about immigration to the EU, in my view, is bitter. As covered in earlier quarterlies, I believe Africa and parts of the Near East are beginning to fail as civilized states.

■ They are failing under the pressure of populations that have multiplied by 5 to 10 times since I was born; climate for growing food that is deteriorating at an accelerating rate; degraded soils; insufficient unpolluted water; bad governance; and lack of infrastructure. Country after country is tilting into rolling failure.

■ This is producing in these failing states increasing numbers of desperate people, mainly young men, willing to risk money and their lives to attempt an entry into the EU.

■ For the best example of the non-compute intractability of this problem, consider Nigeria. It had 21 million people when I was born and now has 187 million. In a recent poll, 40% of Nigerians (75 million) said they would like to emigrate, mostly to the UK (population 64 million). Difficult. But the official UN estimate for Nigeria’s population in 2100 is over 800 million! (They still have a fertility rate of six children per woman.) Without discussing the likelihood of ever reaching 800 million, I suspect you will understand the problem at hand. Impossible.

To which you have to add the countries whose economic viability is based entirely on the sale of their energy reserves.