Sunday, March 18, 2018

Stupid Smart

Professor Jerry Hathaway: When you first started at Pacific Tech you were well on your way to becoming another Einstein, and then you know what happened?
Chris Knight: I got a haircut?
--Real Genius

Professor Bylund notes that recently deceased physicist Stephen Hawking was one of the latest in a line of 'geniuses' to whiff when discussing economics. One of his many mistakes concerned inability to distinguish between factors of production and economic resources.

In recent commentary devoted to 'the robots (and the capitalists that own them) will take over the world' meme, Hawking stated:

"If machines produce everything we need, the outcome will depend on how things are distributed. Everyone can enjoy a life of luxurious leisure if the machine-produced wealth is shared, or most people can end up miserably poor if the machine owners successfully lobby against wealth redistribution."

Hawking erroneously assumes that ownership of factors of production grants economic power. However, owning factors of production is only valuable to the extent that they are employed to produce goods that consumers value. If a single individual buys up all the machinery in the world and does not use it to produce and sell goods to consumers, then that machinery has no economic value.

If we do reach a future state where robots were able to 'produce everything we need,' then the cost of production plummets--as do prices as supply explodes higher. That's good. In fact, this is the proper role of capital--i.e., to improve the productivity of labor.

There are other problems with Hawking's argument that Prof Bylund does not address. For example, why would investors allocate capital to projects that are likely to have no payoff? Stated differently, if machines and their output are horded by producers, then how do they collect the the resources to pay back investors? And knowing this, why would investors fund such projects?

The upshot to ever increasing productivity facilitated by machinery is that people do not have to work as much while enjoying a much higher standard of living. This has been going on since the first machine was employed in production. In the future, wouldn't it be nice to only work a few hours to support a month's or year's worth of consumption?

Apparently not to some geniuses drenched in socialism.

Saturday, March 17, 2018

Home Price Trends

Rory Devaney: These houses are fantastic.
Tom O'Meara: They're pretty old, around 1900.
Rory Devaney: Our new ones are older than that.
--The Devil's Own

Interesting analysis on home price appreciation. From 1891 thru 1996, US home prices only exceeded inflation by 15% on a cumulative, not annual, basis.

In fact, for the 50 year period stretching from 1890 thru 1940, home prices had trouble keeping up with inflation.

That thinking changed, of course, during early 2000s run-up in home prices when it seemed that home values only went higher. Housing became an 'investment' and then a 'speculation.'

Then the bubble popped.

While some home markets once again have that frothy feel, long term data suggest that, from an investment standpoint, home purchases are, at best, an inflation hedge. And likely worse once borrowing and maintenance costs are factored in.

Friday, March 16, 2018

Old Crosley

"I've heard that old men wake up and scratch itchy legs that have been dust for over fifty years. That was me. I'd wake up at night with the smell of the ball park in my nose, the cool of the grass on my feet...The thrill of the grass."
--Shoeless Joe Jackson (Field of Dreams)

Always captivated by old photos of Crosley Field.

Notice the building density.

Almost as if they had to shoe horn the field into the surrounding neighborhood.

By the time I went to my first ball game as a seven year old, much of the neighborhood had been bulldozed over to make room for the freeway beyond the outfield wall:

The wrath of eminent domain strikes again.

Meanwhile, less than 2 weeks till Opening Day!

Thursday, March 15, 2018

Kids as Political Pawns

Another night in any town
You can hear the thunder of their cry
Ahead of their time
They wonder why

Herbert long ago observed that as stakes rise associated with controlling the massive power of a democratic state, factions in competition for that power will become increasingly polarized. Moreover, those factions will become increasingly motivated to use all possible means to capture and retain state power.

This includes employing kids as political pawns.

In many ways, kids are ideal political instruments. Generally speaking, their reasoning powers are not fully developed, leaving them gullible to half baked arguments. They have not yet learned to fully control their feelings, making them susceptible to emotional capture. They are dependent on grown-ups for both tangible and psychic resources, making them open to adult influence in order to obtain what they need.

Perhaps the most desirable feature that kids possess for political operatives is the strong influence that kids, particularly perceived as innocent and victimized, can have on others. A crying child attracts more attention than a crying adult. While kids are prone to being emotionally captured themselves, they also possess tremendous capacity for emotionally capturing others.

Stated differently, kids can serve as excellent marketers for political agendas.

Thus, appeals for passing laws or government programs 'for the children' become increasingly common--as dubious as the underlying logic may be. More recently, those desperate to gain control of state power are trotting out kids as central participants in organized political protests--first on college campuses and now in high schools.

This should not be surprising. In fact, we should expect demand for children as political pawns to escalate as do the stakes associated with control of the state.

That does not mean, however, that individuals should sit idly while kids are being manipulated by political operatives.

Wednesday, March 14, 2018

Gold Price and Daily Closes

Oh, and there we were all in one place
A generation lost in space
With no time left to start again
--Don McClean

Posted yesterday by Fleck, interesting chart comparing recent gold prices to running total of number of upside closes in gold price over the past 30 days.

Like Fleck, I've never seen a chart like this before, but does suggest stability of gold price in midst of a period of down days. Obvious implication is that a few up days have overpowered many down days in order for price to remain this stable.

Seems bullish.

position in gold

Tuesday, March 13, 2018

Protecting God-Given Rights

"Would you like a lesson, sir, in the rules of war? Or perhaps your children would."
--Colonel William Tavington (The Patriot)

Jacob Hornberger reminds us that the Second Amendment does not 'give' us a right. Instead, the Second Amendment, and the rest of the amendments that comprise the Bill of Rights, expressly prohibit the federal government from infringing on those rights.

The origin of those rights is explained in the Declaration of Independence. They are natural and God-given. As such, they are unalienable, meaning that no earthly being can justly take away what God has given.

The proper role of government is to protect the existence and exercise of people's God-given rights. When government steps over its just boundaries and infringes on the very rights that it is supposed to protect, then, as the Declaration observes, people can rightly 'throw off' that government in favor of a more capable design.

Because government is empowered with state-of-the art weaponry to enforce those rights, citizens must be permitted to carry similar arms in the event that the government must be thrown off. As Hornberger observes, our founding ancestors understood this principle well. Hence the Second Amendment.

That so few people, particularly children, seem to understand this thought train reflects an abject failure of our education system in explaining the founding logic of this country.

Monday, March 12, 2018

Buyback Bandwagon

"And with the surplus cash, we implement a major stock repurchase. So Trask is protected and their stock goes up, and everybody's happy...or not."
--Tess McGill (Working Girl)

Once again shaking my head as investors cheer another epic round of share buybacks while stock prices mark all time highs.

At current nosebleed prices, many shareholders would not personally buy more shares. But they're ok with corporate managers spending shareholder funds to buy back shares.

Perhaps they should take a closer look at Friedman's matrix.

What's going on is the furthest thing from 'buying low'...

Sunday, March 11, 2018

Fair Trade

It was thirty days around the Horn
The captain says it's thirty five more
The moon looks and the crew ain't stayin'
'There's gonna be some blood' is what they're sayin'
--Jay Ferguson

As we have noted in the past, Leftists often invoke the concept of 'fairness' when attempting to justify use of government force. Redistribution of income, for example, is often framed as a fairness issue.

But Leftists don't have a lock on fairness as a positive substitute symbol. When it suits their needs, people on the Right like appeal to people's sense of fairness as well.

For instance, President Trump has justified his tariff plan as necessary to foster 'fair trade.' Tariffs help 'even the playing field,' so the argument goes, against countries judged to be giving their firms an unfair leg up via subsidies and other mercantile programs.

Whenever political partisans from either end to the statist spectrum utter the term 'fairness,' take it as a euphemism or justification for use of government force to advance an agenda. When the Right promotes trade that is governed by discretionary rule, and it has a long history of doing so, it is a far thing from true fairness.

Saturday, March 10, 2018

Slow But Sure

"You can't expect an enormous volcano with three tiny bags of explosives. You have to let nature take her course. Give it time. It'll work."
--Miller (Force 10 From Navarone)

Short rates closed the week at their highest levels in nine years.

Higher short term rates serve to curb near term credit markets. They also boost attractiveness of CDs and other low risk, cash-like instruments vis-a-vis riskier yield-bearing securities such as dividend-paying stocks.

Slowly but surely, higher short rates are altering the competition for capital.

position in SPX

Friday, March 9, 2018

Kidding Around

Sometimes I feel I gotta get away
Bells chime I know I gotta get away
And I know if I don't, I'll go out of my mind
Better leave her behind with the kids, they're alright
The kids are alright
--The Who

Federal spending as a percentage of GDP, both historical and projected.

Major entitlements include Social Security and the healthcare triad (Medicare, Medicaid, Obamacare).

Were I to cover the labels and ask my students to identify which of the three categories corresponded to which line, I'm confident that most would associate the red line with military spending.

When our kids and grand kids wake up to what's going on here--that they're paying our way--they're gonna to love us.