Mike Shedlock - House Subcommittee on Economic Growth Demands Answers From Bernanke on Fed's Exit Strategy; Fed Must Reply by March 5
Posted: 2/21/2013 1:23:00 PM EST
In a long overdue, yet surprising move, Jim Jordan, chairman of the House Subcommittee on Economic Growth demands answers on Bernanke's exit strategy.
Rep. Jim Jordan (R-Ohio) is demanding that Federal Reserve Chairman Ben Bernanke explain exactly how he plans to wind down the Fed's massive portfolio once its run of bond buying comes to an end.

In a letter sent to Bernanke on Wednesday, Jordan asked for any research the Fed has done on unwinding its burgeoning portfolio, which recently topped $3 trillion — three times its size in 2008, the lawmaker noted.

Minutes of the Fed's January meeting, released Wednesday, showed Fed officials were struggling with when exactly they should stop the bond buying. Several members of the Fed's policy-setting committee warned that the central bank may have to begin varying the amount of bond purchases in response to economic conditions, while some warned that the Fed might have to halt the purchases before the labor market is back to the desired strength.

Jordan asked Bernanke to provide all "public and non-public" research done on possible approaches to unwinding. The Fed must provide answers by March 5.

Full Text of Letter

Fox Business News has the Full Text of Letter to Ben Bernanke From Jim Jordan.

The letter is in image form. Here is a snip that I typed by hand.
Dear Chairman Bernanke:

...As the Federal Reserve System continues its bond-buying program into 2013, I am troubled by the corresponding effect that the Federal Reserve's expanding portfolio could have on current and future growth...I am especially concerned that the historically low interest rates brought on by the Federal Reserve's monetary policy have hampered economic growth by distorting traditional financial incentives. Younger Americans who have been working to save their income have faced meager returns in bank accounts slowing their overall accumulation of wealth. Likewise, older Americans living off interest-bearing accounts have been forced to move to riskier investments to maintain their standards of living. Most strikingly, by maintaining low interest rates, the Federal reserve has distorted the real cost of the national debt, effectively incentivizing the U.S. government to borrow and overspend. ....
Inquiring minds may wish to read the entire letter.

I wholeheartedly applaud this effort by Jordan, and I also applaud the action date of March 5.

I especially endorse two ideas above

  1. Fed policies have "distorted traditional financial incentives"
  2. By maintaining low interest rates, the Federal reserve has distorted the real cost of the national debt, effectively incentivizing the U.S. government to borrow and overspend.

Fed policies have destroyed those on fixed income for the benefit of the banks and wealthy, as I wrote on Wednesday in Reader Asks Me to Prove "Inflation Benefits the Wealthy" (At the Expense of Everyone Else).

Inquiring minds may also wish to read Hello Ben Bernanke, Meet "Stephanie", my response to a reader on fixed income attempting to live on Social Security plus interest on a $16,000 CD.

Any clear-thinking person realizes the Fed has no exit strategy and thus will hold on to all or nearly-all of those assets for the full duration of their term. Thus, it will be interesting to see what lies Bernanke comes up with in response.

Mike "Mish" Shedlock

"Wine Country" Economic Conference Hosted By Mish
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Mike Shedlock - Hot Air and No Substance; Obama's Plans to Destroy Jobs "Won't Cost a Dime"
Posted: 2/13/2013 9:22:00 AM EST
When it comes to political lies that cannot and will not be met "It won't cost a dime" is right at the top of list. Not unexpectedly, that was central thesis of numerous Fantasyland projections in Obama's State of the Union Address Tuesday Evening.

Here are a few ideas from his state of the union address and my comments on them.

On Health Care Quality

In reference to health care costs, the president claims "medical bills shouldn't be based on the number of tests ordered or days spent in the hospital – they should be based on the quality of care that our seniors receive."

Mish says good luck with charging healthcare based on quality, because quality is impossible to define.

On Closing Loopholes

Obama says we can hit deficit targets and "save hundreds of billions of dollars by getting rid of tax loopholes and deductions".

Mathematically speaking, one cannot save a dime by closing loopholes. Closing loopholes may be more fair, but that has nothing to do with "saving money". Rather, closing loopholes simply spreads costs around in a different fashion.

On Tax Code Changes

Obama says "The American people deserve a tax code that helps small businesses spend less time filling out complicated forms, and more time expanding and hiring."

I certainly agree with that, and a flat tax with no deductions would do just that.

Would Obama be willing to implement a flat tax structure and close "loopholes" like the mortgage interest rate deduction?

Of course not. The Real Estate industry would scream bloody murder. Obama is not really interested in closing loopholes per se, just the selected ones that he wants.

Hot Air and No Substance

Obama says "The greatest nation on Earth cannot keep conducting its business by drifting from one manufactured crisis to the next."

I certainly agree with that.

The solution is to get rid of the Fed, end fractional reserve lending, and implement a balanced budget. Unfortunately, the president did not mention any of those action items. He is all hot air and no substance.

It Won't Cost a Dime

Obama wants "Congress to help create a network of fifteen [manufacturing] hubs and guarantee that the next revolution in manufacturing is Made in America. He says "nothing I'm proposing tonight should increase our deficit by a single dime."

That certainly would be excellent news (if only it was true). In reality, new manufacturing hubs in one city will come at the expense of existing manufacturing somewhere else unless more money is thrown at the problem.

Yet, if more money is thrown at the problem, why should anyone expect results different from Obama's disastrous entry in various clean energy schemes that went bankrupt?

Climate Change Nonsense

Obama says "For the sake of our children and our future, we must do more to combat climate change."

I suggest that if we want to do something for the sake of our kids, we should eliminate the deficit, get rid of the Fed, and back the dollar with gold.

Regardless of whether or not anyone believes the hype over global warming, the notion that governments will do anything sensible about it is complete nonsense. Certainly every cap-and-trade proposal to date has been preposterous.

Obama speech got downright scary when he said "If Congress won't act soon to protect future generations, I will. I will direct my Cabinet to come up with executive actions we can take, now and in the future, to reduce pollution, prepare our communities for the consequences of climate change, and speed the transition to more sustainable sources of energy."

And somehow that will "not cost a dime".

"The states with the best ideas to create jobs and lower energy bills by constructing more efficient buildings will receive federal support to help make it happen."

Apparently, federal support to construct more buildings will "not cost a dime" either.


President Obama proposes a "Fix-It-First program to put people to work as soon as possible on our most urgent repairs, like the nearly 70,000 structurally deficient bridges across the country."

Supposedly that will not "cost a dime either". Wait a second on that. His next sentence was "And to make sure taxpayers don't shoulder the whole burden, I'm also proposing a Partnership to Rebuild America that attracts private capital to upgrade what our businesses need most: modern ports to move our goods; modern pipelines to withstand a storm; modern schools worthy of our children".

I have a simple question: What part of the burden will taxpayers shoulder?

This "partnership" sounds suspiciously like a plea for tax hikes with the money going to overpaid public union workers.

If the president really wanted to insure we rebuild America at a reasonable cost, he would scrap Davis-Bacon and all prevailing wage laws, implement national Right-to-Work laws, and end collective bargaining of public union workers.

Instead, the president appears willing to tax the rest of the county to death to help the unions who elected him.

Still More Tax Hikes

The tax hikes don't stop with "Fix-It-First" either. Obama says "Right now, there's a bill in this Congress that would give every responsible homeowner in America the chance to save $3,000 a year by refinancing at today's rates."

If that does not add to the deficit, then it must be achieved by tax hikes.


The president's free money ideas roll on and on. Obama proposes "working with states to make high-quality preschool available to every child in America". Supposedly that pays for itself.

Job Destruction

The surest way to destroy jobs is for government to mandate businesses pay labor costs in excess of a natural rate. Yet, Obama pledges to do just that. Specifically, Obama wants to "raise the federal minimum wage to $9.00 an hour". 

He claims "This single step would raise the incomes of millions of working families. It could mean the difference between groceries or the food bank; rent or eviction; scraping by or finally getting ahead."

Minimum Wage Seen and Unseen

The president ignores the "unseen" effect of those who do not get a job because companies choose to hire a software or hardware robot instead on overpriced human.

The problem is not a minimum wage, but rather how much the dollar buys. If Congress did not debase the dollar with massive deficits, the dollar would buy much more than it does.

The irony is Obama complains of "Factory towns decimated from years of plants packing up. Inescapable pockets of poverty, urban and rural, where young adults are still fighting for their first job."

The US lost jobs because US wages were too high. Manufacturing is now returning, but to robots, not humans.

The president concluded "Thank you, God bless you, and God bless the United States of America."

I conclude the president's entire speech was one proposal after another that will destroy jobs, add to the deficit, and increase taxes.

Mike "Mish" Shedlock

"Wine Country" Economic Conference Hosted By Mish
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Mike Shedlock - Spoiled Brat Syndrome
Posted: 2/5/2013 2:05:00 PM EST
Here we are once again. In spite of $trillion deficits as far as the eye can see, neither Obama nor the Democrats want to do anything about it.

Please consider Obama to Urge Congress to Delay Automatic Spending Cuts
President Barack Obama will urge Congress to postpone automatic spending reductions scheduled to begin March 1 as Senate Democrats debate options for replacing part of the $1.2 trillion in across-the-board cuts.

Obama will ask Congress to delay “deep, indiscriminate cuts to domestic and defense programs” in remarks scheduled for 1:15 p.m. today, according to a White House statement. “Uncertainty around the sequester is already having a negative impact on our economic growth,” according to the statement.

“The challenge we face right now is the fact that government spending is completely out of control,” Senator Mitch McConnell of Kentucky, the Republican leader, said yesterday on the Senate floor. “So to focus on a tax of any kind is to miss the point entirely.”

In an interview on Bloomberg Television today, House Majority Leader Eric Cantor said Democrats and the president have been “absent” in working toward fiscal discipline. “All we hear from this president is ‘we’ve got to raise people’s taxes.’ That’s just not the answer,” said the Virginia Republican.

Boehner of Ohio and House Budget Committee Chairman Paul Ryan of Wisconsin, both Republicans, have said they expect the full spending cuts to take effect.

While Defense Secretary Leon Panetta once called the automatic cuts a “doomsday mechanism,” Deputy Defense Secretary Ashton Carter said in a Jan. 29 interview that it is “more likely than unlikely” they will take effect.
Defense Cuts

Defense programs would be cut by 7.3 percent, or $42.7 billion, during the last seven months of fiscal 2013. Non- defense budgets would be trimmed by $42.7 billion.

Many programs that Democrats care most about would be reduced. Obama’s Office of Management and Budget said the plan would make reductions of 2 percent to Medicare providers and 7.6 percent to non-defense programs such as temporary assistance for needy families.
Will Republicans Wimp Out Again?

Notice the talk of doomsday cuts even though the war in Afghanistan is winding down and the war in Iraq is over.

Pray tell what's wrong with going back to a level of military spending in 2008, 2004, or even long before that?

What I fully expect is for Republicans to cave in on social spending cuts in return for Democrats caving in on military cuts, effectively kicking the can down the road again.

Cookies, Candy, Spoiled Brats 

The political process is similar to the way spoiled mothers treat spoiled brats whining for candy bars and cookies. The brats are of course Republicans (whining for cookies),  with Democrats (whining for candy bars).

Cookies represent increased military spending of course, and candy bars represent social spending.

The prudent thing would be for neither brat to get anything because they are seriously obese already. However, the whining babies are willing to placate each other (temporarily forever), and Mother (Obama) is willing to placate both of them to get them to stop whining.

Yet, in the end, after stuffing themselves with more cookies and candy, neither brat will be happy.

Republicans will be upset Democrats got candy bars, and Democrats will be upset Republicans got cookies. Nonetheless, whining for more cookies and candy bars will continue, once again, temporarily forever. Taxpayers who cannot afford the party will ultimately have to pay the bill.

Mike "Mish" Shedlock
Mike Shedlock - Obamacare in Action: Retail Workweek Hits 3-Year Low
Posted: 2/4/2013 1:53:00 PM EST
Hooray! The economy is adding jobs (supposedly). However, few look at the quality of the jobs, and whether or not they are part-time.

Jed Graham has a nice post on Investor's Business Daily that describes what I have been saying for months: Obamacare has accelerated the trend towards part-time jobs. There are more jobs, but fewer hours in them.

Please consider Retail Workweek Hits 3-Year Low In ObamaCare Shift by Jed Graham.
The fly in the ointment of January's jobs report was the apparent shift to part-time work ahead of a key ObamaCare deadline.

Although retail payrolls grew by 32,600, total hours worked in the industry dipped, Labor Department data out Friday showed.

The explanation? Rank-and-file retail workers logged the shortest workweek since early 2010: just 30.1 hours, on average, vs. 30.4 in December.

Remarkably, aggregate hours worked in the retail sector fell below their January 2012 level, even though industry payrolls are up 200,000 over that period. A similar trend showed up in leisure and hospitality: January payrolls rose by 23,000 even as aggregate hours dipped 0.3%.
Not Unexpected

This is certainly not unexpected in this corner.

Last Hurrah?

I challenge the notion the economy added 157,000 jobs last month. I also challenge 23,000 leisure and hospitality jobs, and I challenge the claim that retail payrolls grew by 32,600.

For three straight months the household survey is way out of line with the payroll survey. This past month the household survey showed a net gain of only 17,000 jobs (please see Last Hurrah for Jobs? for details)

Yes, many prior months were revised up. But where are we now, going forward?

If the economy really did add 157,000 jobs on the "strength" of part-time hiring, then this was the last hurrah. If not, then I expect those BLS revisions to be re-revised away and October or November was the last hurrah.

Mike "Mish" Shedlock
Mike Shedlock - Government Expenditures Plus Transfer Payments Equals 30.7% of GDP; GDP Shocking Downward Surprise; Don't Worry It's Transitory
Posted: 1/31/2013 9:05:00 AM EST
Inquiring minds are digging into the 4th Quarter and 2012 Annual GDP Advance Estimate.

Heading into the report, the WSJ Economists' GDP Forecasts were
+1.6% for Q4 2012 and +1.7% in Q1 2013

"Shocking" Contraction

The GDP report was a shocker, coming in at an annual rate of negative 0.1%.

Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- decreased at an annual rate of 0.1 percent in the fourth quarter of 2012 (that is, from the third quarter to the fourth quarter), according to the "advance" estimate released by the Bureau of Economic Analysis. In the third quarter, real GDP increased 3.1 percent.

Choice Comments From Consumer Metrics

Rick Davis at Consumer Metrics had some choice comments via email (also in the preceding link).
We have mentioned before that the BEA is notoriously poor at recording turning points in the economy in "real time." The first quarter of 2008 was a classic example, initially being reported in "real time" as yet another quarter of sustained growth before being revised downward several times over some 40 months to become the first quarter of contraction leading into what we now call the "Great Recession." We fully expect that ultimately the surprising economic upturn seen in the 3Q-2012 data will largely vanish in future revisions.

It is hard to look at these new numbers without at least some cynical thoughts about the reported numbers for the prior quarter. We were frankly astonished when the final numbers for the third quarter came in at a 3.09% "full recovery" growth rate, driven largely by unexplained increases in Federal spending, particularly in the Department of Defense (DOD) -- the timing of which was completely controlled by an Administration in serious need of positive pre-election economic headlines. The annualized rates of growth for defense spending rose to over 15% in 3Q-2012, only to magically reverse to a -15% annualized contraction rate in 4Q-2012 -- after the polls had closed.

To that last point: arguably the DOD was simply moving materiel acquisitions forward in anticipation/avoidance of "fiscal cliff" sequesters, with the economic impact of the contracting binge a mere side effect of bureaucratic hoarding. We should all hope that the context of any such timing shenanigans were more budgetary than political in nature.
Real GDP

Inquiring minds may want to further investigate the above comments, with a look at actual BEA data from the top link.

click on chart for sharper image

Note the highlights in yellow for Federal and defense spending, quarter by quarter. Now lets' turn our  attention to personal income.

Table 10. Personal Income and Its Disposition

click on chart for sharper image

Personal Transfer Receipts

I highlighted line 12, "Personal current transfer receipts". Those are social security payments, disability payments, Medicare, unemployment insurance, etc.

In spite of a falling unemployment rate, transfer payments go up and up.

More people are retiring of course, but much of that is involuntary. Simply put, many people of retirement age want a job and need a job, retired involuntarily to have some money coming in. Moreover, Disability Fraud is rampant.

In 4th quarter of 2012, $2.4 trillion went into "transfer payments".

From Table 3 of the BEA report (not shown) we see that nominal GDP for 4th quarter was $15.829 trillion. Thus personal transfer payments accounted for 15.16% of GDP.

In the 4th quarter of 2012 we also see that government spending (federal, state, and local) added an additional $2.46 trillion to GDP.

Thus government spending + personal transfers (more government spending) was $4.86 trillion, 30.7% of the stated GDP.

Don't Worry It's Transitory

For those looking for a sugar-coated thoughts, I offer soothing comments from the Fed from today's FOMC Statement.

Information received since the Federal Open Market Committee met in December suggests that growth in economic activity paused in recent months, in large part because of weather-related disruptions and other transitory factors.

Yes, indeed. Let's blame hurricane Sandy for the rapid drop in military spending.

However, if it's not transitory (and I suggest it isn't), Bernanke will be tossing massive hints to Congress begging for more fiscal stimulus.

Here is a formula for measuring GDP.

GDP (Y) is a sum of Consumption (C), Investment (I), Government Spending (G) and Net Exports (X – M).

Y = C + I + G + (X - M)

G (government spending) is the sum of government expenditures on final goods and services. It includes salaries of public servants, purchase of weapons for the military, and any investment expenditure by a government. It does not include any transfer payments, such as social security or unemployment benefits.

Always remember: Government spending and government giveaways (regardless of how stupid or unproductive) add to nominal GDP, by definition.

Mike "Mish" Shedlock
Mike Shedlock - Debt Grows at Astonishing Rate Even in Texas; A Roadmap to Better; "It's Your Money"; Infinite Amortization Periods
Posted: 1/28/2013 9:06:00 AM EST
"It's Your Money"

Susan Combs, Texas Comptroller of Public Accounts says “Texas, It’s Your Money”.
At the Comptroller’s office, we’ve long championed the importance of transparency — giving the Texans we serve the information they need to make informed decisions and hold their government officials accountable.

That’s why our office launched the Texas, It’s Your Money series of reports, which spotlights issues that hit Texans in their wallets: local taxes, government debt, education debt and public pension obligations. We’re committed to keeping the state’s books open, accessible and understandable for our citizens.
A Roadmap to Better

With that introduction lets dig deeper into one of the reports "A Roadmap to Better"
click on any chart for sharper image
Sales Taxes and Property Taxes

Since 1993, special purpose districts that levy sales tax have increased by more than 1,900 percent, which means that more entities are taxing you. In that same time period, the number of special purpose districts that levy property tax has grown by more than 45 percent, with the creation of more than 500 new districts of this type.

While local sales taxes increased by almost 170 percent from 1993 to 2011, property taxes grew by 188 percent from 1992 to 2010. Compare that to slightly more than 120 percent growth in combined population and inflation during those years.

Local Obligations

Our local governments more than doubled their debt load in the last decade, amassing more than $7,500 in debt for every man, woman and child in the state. Between 2001 and 2011, the outstanding debt of Texas local governments rose more than twice as fast as inflation and population growth rates combined.

Total Local Outstanding Debt

Local Debt - Where We Fall Short

New debt often is approved by a small percentage of voters, who must make vital decisions about new debt with little information about its implications. And a large share of local debt — totaling $12.7 billion since 2005 — is issued through “certificates of obligation,” generally, without any voter approval.

Combined State and Local Debt

How Texas Can Do Better

You have a right to a full and complete disclosure of public debt. All government
entities should reveal all debt obligations on a public website, including the debt’s original stated purpose, the total amount of debt authorized, the issued and unissued amounts of authorized debt, spent and unspent amounts of issued debt and the per capita debt burden on taxpayers. Any ballot for new debt should be accompanied by a similar

You have a right to approve debt issued in your name. Texas should significantly narrow public governments’ authority to issue debt without voter approval, and revise the petition process to make it easier for taxpayers to compel a public vote on proposed debt.

Education Debt

In fiscal 2011, our public school debt was $63.6 billion, or $13,530 for every Texas student in a school district carrying debt. And while state college and university debt is lower, at $12.5 billion, that debt rose nearly eight times faster than enrollment in the last decade.

College Debt vs Enrollment

The bulk of Texas’ education debt supports the construction or renovation of school facilities. Yet Texas has no centralized source for information on current public school facilities, such as total square footage, square footage per student and total cost. To obtain such information, every district must be contacted individually. Construction costs also are not reported to any single entity, making it almost impossible to identify unreasonable costs on individual projects.

In addition—as with other debt—new debt often is approved by a small percentage of voters. It also is difficult for taxpayers to learn the full dimensions of debt in their area.

How Texas Can Do Better

You have a right to full and complete information on education debt. Every Texas school district should disclose on its website the cost and details of all construction and renovation projects, including actual square footage, total cost per student, total cost per square foot and square footage per student. Each district should also post an online inventory of all existing facilities, detailing available square footage, total student capacity and current student enrollment for each campus.

All ballots for new education debt should reveal all current and proposed debt obligations, including the amount of outstanding debt, existing debt service, amount of  new debt and the average length of proposed debt obligations.

Pension Obligations

Too little public information on public pension finances is readily available. Many plans do not report their actual investment returns to the state’s Pension Review Board.

Several of the state’s largest pension plans also have “infinite amortization periods,” meaning that they can never eliminate their unfunded liabilities as currently structured.

Texas public pension plans cover 2.3 million active and retired members. As with most other investments globally, Texas public pension program earnings fell during the recent recession. Although plan assets have rebounded since 2010, overall they are still below pre-recession levels.
Will Work to Pay Debt

The following image shows precisely what the current Ponzi scheme looks like.

The number of workers is shrinking dramatically compared to the number of retirees collecting Social Security or disability checks. Meanwhile state and local taxing bodies want still more debt and forever increasing taxes to keep the Ponzi scheme going longer.

This state of insanity is frequently described as being "Progressive".

Instead, I support the common sense proposals of Susan Combs, Texas Comptroller of Public Accounts.

Mike "Mish" Shedlock
Mike Shedlock - Gallup Poll on Obama's Proposals to Address Gun Violence; Republicans and Democrats Agree on 7 of 9 Items; Is Now the Time?
Posted: 1/24/2013 9:20:00 AM EST
Gallup has an interesting poll on Gun control. Republicans, Independents, and Democrats are in agreement far more than one might have thought.

Of course I am talking about the population in general, not the extremists on both sides of the aisle in Congress.

Poll questions were specifically worded by Gallup to follow President Obama's "Now is the Time" gun control agenda.

The results are in: Americans Back Obama's Proposals to Address Gun Violence.
Most Proposals Have Bipartisan Support

Although Democrats show more support than Republicans for each proposal, majorities of both partisan groups favor seven of the nine proposals. That includes nearly universal support among Republicans and Democrats for requiring criminal background checks for all gun sales. A majority of Republicans also favor a ban on armor-piercing bullets and increasing penalties for straw purchasers, as well as the various school security, police funding, and mental health funding proposals tested.

The two proposals favored by majorities of Democrats, but not Republicans, relate to enacting bans on the sale of guns or ammunition.
Support for Proposals by Political Affiliation

click on table for sharper image


My personal check list is sure to disappoint some Republicans, some Democrats, some Independents, and some Libertarians. So be it.

  1. Requiring criminal background checks for all guns is a seemingly reasonable thing to do. Overall, 92% of the people favor such an action. Checks will not stop a desperate criminal, but it may stop others. Nonetheless, I have reservations as explained below.
  2. The proposal to increase mental health programs for youth will not be affordable. What would likely start out as a modest program will end up costing tens if not hundreds of billions of dollars down the road once bureaucrats get behind it. Ask taxpayers if they support increasing taxes to pay for the program and I bet the answer is different. The same applies to other funding questions.
  3. Similarly, we do not need funding to increase training. Police departments have ample money already. Money is wasted in union graft, overpaid officers, and untenable pension programs. There is nothing wrong with increased training. However, there is everything wrong with assuming extra funds are needed.
  4. Increasing penalties for straw purchasers may not help a lot. However, it cannot hurt either. In conjunction with item 1, there may be a modest benefit. If not, at least item 4 will not cost anything.
  5. Funding 15,000 extra police is of course ridiculous. Having an extra officers may not be. The solution is getting rid of collective bargaining of public unions to drive down costs, not to throw more money at the problem.
  6. By now you should be tuned into my line of thinking. Funding school emergency response plans is also ridiculous. This is not to say I oppose having a plan. Rather, I simply oppose spending additional taxpayer money on the idea. Schools ought to be doing this already. All it takes is for schools to schedule time with police departments to go over some common sense ideas. Do this for one school and it will apply to thousands. Throw money at it, and every school will seek 1000 times more money than they need.
  7. There is absolutely no need for anyone to have an assault weapon to protect themselves. Nor do citizens need hand grenades, nuclear missiles, or any other such devices. It is beyond idiotic to ascertain assault weapons are constitutionally protected.
  8. A ban on armor-piercing bullets is of course a no-brainer. There is no legitimate use of armor-piercing bullets for private citizens.
  9. A ban on magazines with over 10 rounds is also a common-sense proposal. No one can possibly need more than 10 rounds in a clip to defend themselves in public or in their homes. 

Cost Effective Analysis

From a cost-effective standpoint, the items that would likely do the most good, at the least cost, were the items that had the least support. Items 7, 8, 9, and 4 would not cost a dime. I solidly support all four.

I support preparing emergency plans (item 6), but that should not cost a dime either. As worded, I have to vote no.

I am fearful that the most supported idea (item 1) will end up costing too much in relation to the benefit. I voted yes, for now, but I  need to see details of the plan as well as realistic measures of the cost.

As it stands, I am solidly in favor of 4 things that will not cost a dime. Those 4 items will not trudge on any conceivable rights either. I support an additional item, with reservations.

Once again, if Gallup asked taxpayers if they support increasing taxes to pay for these program, I bet the answers would be different and the order of priorities would be different.

How Helpful Are Concealed Weapons?

Inquiring minds may be interested in a post by Barry Ritholtz How Helpful Are Concealed Weapons?

Click on the link to see a couple of interesting videos.

Note that Barry took a lot of flak for his post. Read the comments and see for yourself. I side with Barry.

The most sensible comments came from Disinfectant and GreenTom.

Disinfectant says ...
It is amazing, but not at all surprising, that so many watch these videos and utterly fail to understand the message. The point is simple and should be uncontroversial – unless you are well trained, defending yourself with a gun in a live scenario is very difficult; your body and mind are not prepared for this. It doesn’t matter how often you go to the gun range or how heroic you imagine yourself to be. Going through the motions of protecting yourself, getting the gun out, then firing at the target (and ONLY at the target) does not happen naturally.

To the critics: nowhere does it imply that a gun will never be useful in defense. Obviously, if you are not in the immediate line of fire and can take cover, you will have more time to prepare yourself. But if the shooter is standing right in front of you, your odds are likely much lower than you think. And as far as anecdotal evidence goes, I’m sure 0% of you can actually say that you have been in such a situation and performed as flawlessly as your imagination would have you believe.
GreenTom says ...
I’d agree this is kind of staged, but more rigorous studies show the same thing. Study below reports that people carrying weapons are about 5 times more likely to be shot than those who don’t carry. It’s funny, I predict a lot of negative reactions to this comment, but does anyone really claim that escalating a robbery to a gunfight isn’t a risky move?
Investigating the Link Between Gun Possession and Gun Assault

Here is the study cited by GreenTom: Investigating the Link Between Gun Possession and Gun Assault
...Individuals in possession of a gun were 4.46 times more likely to be shot in an assault than those not in possession. Among gun assaults where the victim had at least some chance to resist, this adjusted odds ratio increased to 5.45.

Among a long list of issues facing the American public, guns are third only to gay marriage and abortion in terms of people who report that they are “not willing to listen to the other side.” In concert with this cultural rift, scholarly discussion over guns has been similarly contentious.1 Although scholars and the public agree that the roughly 100 000 shootings each year in the United States are a clear threat to health, uncertainty remains as to whether civilians armed with guns are, on average, protecting or endangering themselves from such shootings.
I commend Barry for taking a controversial stand on a controversial topic. Most bloggers stay away from controversial subjects, generally out of fear of offending readership. As my readers know full well, I will not shy away from controversial topics either.

By the way, gun control may not seem like an economic topic but it is. Many of Obama's proposals will require significant expenses to implement down the road (even if hidden initially).

Reflections on Libertarianism 

I am certain to be charged by some of violating Libertarian beliefs.

However, libertarianism is not anarchy. Rules exist to protect property. Reasonable legislation will prevent some of these incidents, and no amount of legislation will stop all of them.

Moreover, common sense says that encouraging average citizens or teachers to walk around with assault weapons or concealed guns (the actual remedy proposed by some gun advocates) would cause a lot of needless deaths and property damage as a result would-be John Wayne types trying to be heroes, but accidentally killing innocent bystenders. 

Reflections on the Constitution

As passed by Congress, the Second Amendment reads "A well regulated Militia, being necessary to the security of a free State, the right of the people to keep and bear Arms, shall not be infringed."

As ratified by the states, the Second Amendment reads "A well regulated militia being necessary to the security of a free state, the right of the people to keep and bear arms shall not be infringed."

Notice the dispute over commas. Also note how the concept of a "well regulated militia" is completely dropped by gun advocates.

The Supreme Court did rule the Second Amendment protects an individual's right to possess a firearm, unconnected to service in a militia.

Regardless, the rights to bear arms to protect oneself certainly can and should have limits.

To clarify that its ruling does not invalidate a broad range of existing firearm laws, the majority opinion, written by Justice Antonin Scalia, said:

"Although we do not undertake an exhaustive historical analysis today of the full scope of the Second Amendment, nothing in our opinion should be taken to cast doubt on longstanding prohibitions on the possession of firearms by felons and the mentally ill, or laws forbidding the carrying of firearms in sensitive places such as schools and government buildings, or laws imposing conditions and qualifications on the commercial sale of arms."

One does not need bazookas, hand grenades, missiles, assault weapons, armor-piercing bullets, or 10-clip magazines to defend one's person or one's house. Those items all need to be outlawed.

Gun advocates argue we need to enforce existing laws, while arguing against every law on the books. Meanwhile, state-to-state variations in laws make enforcement a nightmare, at best.

Now Is The Time

Obama says "now is the time". I agree but only where costs are low and benefits high. There are four (perhaps five) items out of nine on the president's agenda that meet that criteria.

My top three ideas are 7, 9, and 8 (pretty much in that order, but possibly 9 ahead of 7 which I will leave to the experts). Unfortunately, Republicans are likely to fight 7 and 9 (if not 7, 8, 9, and 1).

Given the sad state of Congressional compromises, Republicans may even agree to waste taxpayer money on programs simply to appease voters who clearly want something done.

Unfortunately, the end result is highly likely to be a combination of the most money spent for the least benefit.

Mike "Mish" Shedlock

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Mike Shedlock - Top Gaining and Losing Jobs in the "Recovery"
Posted: 1/23/2013 2:47:00 PM EST
This is part three in a series of articles on jobs gained and lost since December 2007.

The first article was an interactive map from Tableau: Job Gains and Losses in the Recovery by Job Type (Healthcare, Education, Mining, Construction, Finance, Real Estate, etc).

The second article Job Gaining and Job Losing Industries 2007-2012 displayed data in an interesting pie chart fashion by Salil Mehta who has a blog on Statistical Ideas.

This article contains another look at the data, but focus is on jobs gained or lost in the recovery.

Data for all three posts is courtesy of Economic Modeling Specialists.

The recession ended in June of 2009, but the data I have is annual. Data in the following charts uses December of 2009 as a proxy for the start of the recovery. Once again, pie charts are by Salil Mehta.

Click on any chart for sharper image.

Top Losing Jobs in the Recovery

Top Gaining Jobs in the Recovery

For comparison purposes here are the December 2007 thru December 2012 charts once again.

Job Gaining Industries 2007-2012

Job Losing Industries 2007-2012


  • From 2007 thru 2012, 12 industries lost jobs.
  • Since December of 2009, there were only 5 industries that lost jobs (and utilities only barely).
  • As far as government jobs go, we can certainly afford to lose more.
  • Information was a solid job loser every period

Gainers vs. Losers Analysis

If one listens to all the ads from for-profit schools as well as retraining hype from President Obama, one might actually think we need more IT training. As I have stated repeatedly, one cannot retrain a brick-layer into a programmer. Besides, there is a vast sea of skilled programmers (already trained) who do not have a job.

I don't have a breakdown of healthcare and social services jobs, but the distinction between nurses, social workers and temporary care givers in terms of pay is without-a-doubt dramatic. I expect the economy added far more lower paying jobs than it did high-paying registered nursing jobs.

Accommodation and food service jobs certainly tend to be low-paying jobs. Indeed, many food service jobs are part-time only, with no benefits at all. I suspect most waste management jobs are low-paying jobs as well.

Compare the job gains in the recovery with job losses since 2007.

Construction, manufacturing, and information tend to be relatively high-pay jobs. In the period 2007-2012 the economy shed roughly 2.36 million construction jobs, 1.98 million manufacturing jobs, and 380,000 information jobs (a total of 4.69 million high-paying jobs). Note that construction and information lost jobs even in the recovery. 

Simply put, the US shed more high-paying jobs in the recession than the economy gained jobs of any kind (high or low-paying) in the recovery.

Involuntary Part-Time Employment

Part-Time Job Analysis

Its better to have a part-time job than no job. However, it's certainly better to have a full-time job than a part-time job if one is seeking full-time employment.

Roughly an additional 5 million workers went to involuntary part-time employment during or shortly after the recession. Only about one million of those jobs are now full-time, not necessarily in the same field, or at the previous pay scale.

Unemployment Rate Artificially Low

The official unemployment number is artificially low because it does not include any of the following:

  • Involuntary retirement to collect social security
  • Involuntary part-time-employment
  • Involuntarily education (e.g. kids remaining in school because there are no jobs)

My simple definition of unemployment is anyone who wants a jobs, is physically able to work a job, and does not have a job. By that definition, unemployment would certainly be North of 10%, and likely North of 11% (not even counting involuntary part-time employment).

Mike "Mish" Shedlock

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Mike Shedlock - Meet "Baxter" the Robot Out to Get Your Minimum-Wage, No Benefits, Part-Time Job, Because He's Still Much Cheaper; Fed Cannot Win a Fight Against Robots
Posted: 1/22/2013 8:54:00 AM EST
The federal Minimum wage in the US is $7.25 per hour. Ten states have higher minimum wages with Rhode Island clocking in 50 cents higher at $7.75.

Costs to the employer are higher of course, even if the employer ducks benefits by using part-time workers.

For starters, employer contributions to Social Security are 6.2% of hourly wages which adds another 45 cents to employer costs. That brings employer costs up to $7.95 per hour minimum, not counting training costs, vacation (if any), sick-time disruptions, and other such costs.

Of course, employers must also factor in the cost of Obamacare.

Small businesses do not have to provide health-care, but under employer responsibility provisions of the affordable care act, businesses that employ more than 50 workers will pay a steep penalty in 2014 if they don't.

Click on the preceding link to see a nice flow chart of the penalty process.

What IF?

What if companies, small or large, did not have to worry about Obamacare? What if they did not have to worry, about training, sick-leave disruptions and weather-related disruptions? What if companies only had to pay $3.00 per hour, rivaling wages in China?

Meet Baxter

Baxter - The Automation Robot

MIT Technology Review discusses Baxter in Small Factories Give Baxter the Robot a Cautious Once-Over.

Chris Budnick, head of Vanguard Plastics, a small injection-molding operation in Southington, Connecticut is considering the use of Baxter for one process that is not yet automated: stacking and packing textured, plastic cups, which Vanguard sells for 2 cents apiece to a medical company.

It currently costs Budnick $9.00 an hour to have a staffer from a temporary agency to do the job.

Budnick is now considering Baxter to replace that agency job.

Let's tune in to the MIT story for additional details about Baxter and the job Baxter will replace.
Baxter was conceived by Rodney Brooks, the Australian roboticist and artificial-intelligence expert who left MIT to build a $22,000 humanoid robot that can easily be programmed to do simple jobs that have never been automated before.

Brooks’s company, Rethink Robotics, says the robot will spark a “renaissance” in American manufacturing by helping small companies compete against low-wage offshore labor. Baxter will do that by accelerating a trend of factory efficiency that’s eliminated more jobs in the U.S. than overseas competition has. Of the approximately 5.8 million manufacturing jobs the U.S. lost between 2000 and 2010, according to McKinsey Global Institute, two-thirds were lost because of higher productivity and only 20 percent moved to places like China, Mexico, or Thailand.

The ultimate goal is for robots like Baxter to take over more complex tasks, such as fitting together parts on an electronics assembly line. “A couple more ticks of Moore’s Law and you’ve got automation that works more cheaply than Chinese labor does,” Andrew McAfee, an MIT researcher, predicted last year at a conference in Tucson, Arizona, where Baxter was discussed.

Baxter comes with two arms, a vision system, and 360° sonar (which it uses to detect people nearby), but for the cup-stacking job it will also need a specially designed gripper, which Rethink is now developing. Rethink is also developing software so that the robot can communicate with other machines, such as a conveyor belt, telling it to move forward or stop.

So how important will Baxter really be to Vanguard? Budnick couches his answer in baseball terminology. “Baxter is a potential double,” he says. “Maybe a home run if it can use both its arms.”
60 Minutes Discusses Baxter

Inquiring minds are listening to a 13 minute video on 60 Minutes that discusses "The Age of Robots", and Baxter.

Link if video does not play: 60 Minutes on Robots

Please play the video. It's well worth your time.

60 Minutes Quotes and Idea

  • Percentage of Americans with jobs is at a 20-year low
  • Routine middle-skill jobs are being eliminated fastest
  • Software robots and physical robots replace wanted jobs
  • There are heavily automated warehouses where there are no human workers, right now
  • "You'd think the robots would run into each other but it never happens"
  • One robot saves 1.5 people
  • New Categories of jobs are in the sights of automation
  • eDiscovery replaces legal jobs
  • US manufacturing is making a comeback, but without the jobs
  • Investment in robots has increased 30% since the recession ended
  • Baxter costs $22,000 and can be trained in a matter of minutes
  • Baxter costs $22,000 and lasts 6,500 hours, about $3.40 per hour
  • Buying a robot is like hiring a Chinese worker
  • "Workers in China and India are more in the bulls-eye of the automation tidal-wave than the American worker"
  • Even if manufacturing returns to the US most of the jobs will go to robots
  • "Work as we currently think of it will be largely done by machines"
  • What people will do is the $64,000 question

Email Exchange With Friends

Here is an interesting Email exchange I had with a few friends, one of which sent me the MIT article.

"Bob" writes "Buy American is a big theme with the robotics guys. My future son-in-law won't even buy his tux from a Hong Kong tailor. He refuses to buy anything from China. They view themselves as abolishing Chinese slave labor by making it uneconomic."

"John" responded "What do those people then do to feed themselves?"

"Bob" replied "The easy answer is that it isn't our duty or problem to keep a slave state prospering and fed. You are not going to wipe out China's slave labor overnight. If China's elite sees that its low wage slave labor will no longer reap profits, they will do what other slave masters have done: educate its people so that they can compete in an economy where there are no slave conditions."

In Praise of Cheap Labor

"Mish" says, I fail to see where the above line of thinking goes.

We have come to a point where the minimum wage is 200% too much. How does hiring Baxter at $3.40 per hour prevent slave labor in China? Is no job better than some job?

Baxter is a hugely deflationary force. Increasing the minimum wage only exacerbates the problem.

Oddly enough, Paul Krugman agrees, or at least he once did before he became the "Conscience of a Liberal".

Want proof? Please consider In Praise of Cheap Labor; Are Bad Jobs at Bad Wages Better than No Jobs at All?

Taxing Robots Cannot Work

Economist Paul Krugman and others are now pondering heavy taxes on robots. Is that the answer?

How can it be? Paying more people to do nothing (or to do jobs robots can do cheaper) cannot possibly solve anything. Such practices encourage the birth of more people when there are fewer jobs to be had.

Two Realities

Either technology creates jobs long-term or it doesn't. I believe it does, and on that score I am an optimist (I just cannot say when it will happen).

Let's assume I am wrong. Then taxing robots to meet some artificial living-wage standard can hardly be the answer. Encouraging the birth of more unneeded, unproductive people is a sure-fire way to start a major war.

In either reality, Krugman is wrong.

Fed Cannot Win a Fight Against Robots

The problem is not that wages are too low. Rather, the problem is expenses are two high.

The remedy then is certainly not higher minimum wages (which previously encouraged more outsourcing and now encourages more robots), but rather making the dollar go further.

In that regard, it's a mad world in which the central bankers and the Keynesian clowns are both hell-bent on forcing wages and prices up, when every attempt to do so accelerates the use of more robots.

There is nothing wrong with falling wages provided costs fall as well. Who (other than Keynesian clowns and misguided union activists) does not want lower prices?

Moreover, falling prices as a result of increasing productivity over time is the natural state of affairs. For example, one farmer today produces as much goods as 100 farmers a few decades ago.

Certainly the price of agricultural goods is up over that time frame, but far less than the corresponding increase in money supply and credit (the true measure of inflation).

Robots an Invincible Force

Central banks are powerless to stop the advance of technology. Robots in particular are an invincible force.

Resistance is futile.

The Fed, central banks, and governments around the globe need to embrace technology and its deflationary forces. Otherwise, the result will be a sad combination of fewer jobs, rising population, higher prices, and a ultimately a major war.

Mike "Mish" Shedlock

I am hosting an economic conference in April, in Sonoma.
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Mike Shedlock - House Republicans Wave White Flag Without a Battle; Three Month Extension Approved, Threats Withdrawn; Ryan's Cop-Out
Posted: 1/19/2013 1:05:00 PM EST
A friend of mine just emailed a story regarding a Republican budget cave-in with a message "you nailed it". To be honest, I didn't. Let's review my precise call.

Politics of the Debate

  1. Obama will chastise Congress with talk of financial Armageddon if Congress does not raise the debt ceiling.
  2. Congress will pretend to hold the president hostage
  3. The secretary of the Treasury will get into the act with its own version of the default debate
  4. Perhaps a few payments on non-critical budget items will be temporarily skipped
  5. Wall Street will feign panic
  6. Constituents will pressure Congress to approve a new debt ceiling
  7. Congress will raise the ceiling with another useless warning about next time

House Republicans Wave White Flag Without a Battle 

Like clockwork, steps 1-3 fell in order. However, Republicans bypassed steps 4-6 and skipped straight to step 7 without a fight.

Bloomberg reports House Republicans Plan Three-Month Debt-Limit Increase.
House Republicans plan to vote Jan. 23 on a three-month extension of U.S. borrowing authority in an effort to force the Democratic-led Senate to adopt a budget plan.

“We are going to pursue strategies that will obligate the Senate to finally join the House in confronting the government’s spending problem,” Speaker John Boehner of Ohio said in a statement today at the end of the party’s private policy retreat at a resort near Williamsburg, Virginia.

A leadership aide said Republicans are dropping their insistence that a short-term extension be accompanied by a dollar-for-dollar spending cut.

A leadership aide said Republicans are dropping their insistence that a short-term extension be accompanied by a dollar-for-dollar spending cut.

Senate Republican leader Mitch McConnell of Kentucky said in a statement that the lack of a Senate-passed budget in the last several years was a “shameful record that needs to end this year.”

Political divisions in Congress pose limits to the ability of Republicans to achieve their long-term goals of deep cuts in spending, Budget Committee Chairman Paul Ryan of Wisconsin told reporters at the retreat yesterday.

“No one is talking about default, no one wants to default,” South Carolina Republican Mick Mulvaney, who voted against the 2011 debt-ceiling deal, said in an interview today with Bloomberg Television. There is a “lot of support growing” among the rank and file for a short-term debt limit, he said.

The comments by Mulvaney and Ryan reflected the new political realities following President Barack Obama’s re-election that are spurring House Republicans to reassess their goals.
Ryan's Cop-Out

Look at that pathetic statement by Paul Ryan "Political divisions in Congress pose limits to the ability of Republicans to achieve their long-term goals of deep cuts in spending".

Excuse me Paul, can I ask a simple question? I hope so because it is really simple: Who is the majority party in the House?

Time's up. I think you know the answer.

House Republicans should be able to pass anything they want and block anything they don't.

And it gets worse. “No one is talking about default, no one wants to default,” said South Carolina Republican Mick Mulvaney.

Lovely. That goes against the message we heard last week. What changed?

Check out this complete nonsense from House Speaker John Boehner: "We are going to pursue strategies that will obligate the Senate to finally join the House in confronting the government’s spending problem."

Really? How? More importantly, when did the House EVER "confront government spending problems". What a bunch of horse-hockey.

Why stop there? Take a look a statement by Senate Republican leader Mitch McConnell of Kentucky: Lack of a Senate-passed budget in the last several years was a “shameful record that needs to end this year.

Yes indeed.

Shameful Flag Waving

So, no I didn't "nail it".  Republicans did indeed wimp out as I predicted. However, I fully expected a pretend-battle first. This was nothing but a pathetic, shameful-waving of the white flag by Republicans up and down the line.

What's next? Foot massages for Obama by Boehner, Ryan, and McConnell?

Mike "Mish" Shedlock

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