Saturday, April 21, 2018

Equitable Solution to Urban Decay

When you said goodbye
You were on the run
Tryin' to get away from the things you'd done
Now you're back again
And you're feeling strange
So much has happend, but nothing has changed
--Glenn Frey

How to prevent or reverse accumulative decay in cities? Walter Williams suggests the officials skew provision of city services toward neighborhoods that house the highly productive. Keeping the best and brightest increases the likelihood of 'net positive fiscal residual' necessary to fund city services.

As Prof Williams notes, some people might find this type of discrimination distasteful or unfair.

A far more equitable solution would be to cut back on city services altogether. No public education or libraries. Allow local residents to contract with private providers for services such as street and park upkeep.

Less 'positive fiscal residue' would be required to fund city services. Plus, the highly productive would have greater capacity to shape their urban environments. The positive spillover from productive activity would once again create opportunity in cities for lower income individuals.

Friday, April 20, 2018

Paul's Penny Plan

"How many are left?"
--Col Robert Gould Shaw (Glory)

Senate rules say that if leadership and the Budget Committee do propose a budget by April 1st, then any senator can do it. Because no budget has in fact been put forward by the hierarchy, Senator Rand Paul plans to do so.

Paul's proposal is based on a 'penny plan' design. The penny plan idea is that small cutbacks in spending--just a penny on each dollar spent--add up to big savings over time.  His version of the penny plan proposes annual spending reductions of one percent annually over the course of the next five years, at which point a balance should be achieved between revenues and spending. Where precisely those one percent cuts would come from would be up to Congress.

Paul's budget also includes reconciliation instructions to provide for expanded Health Savings Accounts (HSAs) to lower health care costs. Health care is by far the fastest growing category of federal spending.

Perhaps the most intriguing part of Rand Paul's proposal is that it promises to smoke out hypocrites--those who talk smaller government but act like statists. One he puts the proposal forth, Paul intends to force a vote on the Senate floor.

Will anyone stand with Rand?

Thursday, April 19, 2018

TIPping Off Higher Yields

Ah you're breathing faster
Silence the only sound
There's no need to be nice on the way up
'Cause you're not coming down

After a pullback lasting about two months, 10 Year yields are suddenly striding back toward previous highs. Perhaps the recent pullback has been a classic rest period in order to build energy prior to a new leg higher.

Here's an interesting chart below that suggests motivation for the persistent 'bid' in yields. The red line plots the ratio between the TIP and IEF bond ETFs. Because TIPs (Treasury Inflation Protected Securities) are adjusted for inflation, higher inflation expectations increase demand for them, thus elevating the price. Unprotected Treasuries, such as those in the IEF basket, should not benefit from higher inflation expectations and in fact may experience outflows under such circumstances. Thus, uptrends in the TIP:IEF ratio should signal higher inflation expectations among bond investors.

The white line in the graph is crude oil. Note the trend higher in the TIP:IEF ratio since early 2016. More importantly, note the strong correlation between this ratio and the price of crude. Although the price of crude can change for many reasons, one important factor is the extent to which investors think a depreciating dollar will require more greenbacks to be surrendered to purchase a barrel of oil.

If expectations of lower purchasing power of the dollar is increasing prices of commodities like crude, then perhaps bond investors are beginning to demand higher yields to fairly compensate them for holding Treasury paper.

no positions

Wednesday, April 18, 2018

Accumulative Decay

The city desert makes you feel so cold
It's got so many people but it's got no soul 
And it's taken you so long
To find out you were wrong
When you thought it held everything
--Gerry Rafferty

Many US cities that were major population centers in the early 20th century are less so today. Some, such as Detroit, Cleveland, and St Louis, sport less than 50% of their previous pops. People have left these cities in droves, primarily for the suburbs where schools were better and property was more secure.

During the 1960s, civil rights advocates claimed that urban decline was due to racism--'white flight' to the suburbs. However, as Prof Williams notes, blacks were fleeing many of these cities at higher rates than whites.

Central to this phenomenon is a process Williams terms 'accumulative decay.' When schools, neighborhoods, and city services become run down, the first people to leave are those who care the most about their quality of life and have the resources to move. Because this inaugural group tends to be the most productive, they tend to put more to city coffers than they take out.

Once this group leaves, it is replaced with people who care less about things like schools and city amenities. Moreover, since the city has lost tax resources from the productive group that has left the area, officials must either raise taxes or allow city services to deteriorate further. This the next round of people who can do better to leave.

And the downward spiral of accumulative decay gains momentum...

To reverse the cycle, Williams suggests that city officials must recognize that their first order of business is to retain what economists call 'net positive fiscal residue.' This means creating conditions that makes the most productive people want to stay in city environments. This might mean discriminating when it comes to the provision of city services. For example, provide better lighting, libraries, schools, and other amenities in more affluent neighborhoods.

Although some might argue that city service discrimination is unfair, Williams counters that it is even more unfair for cities, once magnets of opportunity for low income individuals, to devolve into economic wastelands.

Tuesday, April 17, 2018

Taxpayer Mind Trick

Storm Trooper: Let me see your identification.
Ben Kenobi: You don't need to see his identification.
Storm Trooper: We don't need to see his identification.
Ben Kenobi: These are not the droids you're looking for.
Storm Trooper: These are not the droids we're looking for.
Ben Kenobi: He can go about his business.
Storm Trooper: You can go about your business.
--Star Wars

As another Tax Day looms over us, many people maintain the charade that we live in a free country. When government can forcibly take the fruits of one's labor, then people are not free.

It is often said that taxation is theft. But theft is generally a one-off event, and is usually unanticipated by the victim.

Taxation involves routine expropriation of production. It is more akin to slavery. Taxpayers are today's slaves.

That many of these taxpayers believe that they live in a free land is a mind trick worthy of Jedi status.

Monday, April 16, 2018


"So, here's to the men who did what was considered wrong, in order to do what they knew was right...what they KNEW was right."
--Benjamin Franklin Gates (National Treasure)

Murray Rothbard elaborates the concept of radicalism in the libertarian sense. Radicalism can be seen as:
  • "being in total, root-and-branch opposition to the existing political system and to the State itself."
  • "having integrated intellectual opposition to the State with a gut hatred of its pervasive and organized system of crime and injustice."
  • "deep commitment to the spirit of liberty and antistatism that integrates reason and emotion, heart and soul."
Statism has been the default condition of social life. It is the status quo, and demands conformity and compliance.

The radical idea continues to be liberty. Its institution, by definition, will require the work of radicals.

Sunday, April 15, 2018

Letters of Hypocrisy

All for freedom and for pleasure
Nothing ever lasts forever
Everybody wants to rule the world
--Tears for Fears

Right on cue, Justin Amash shares letters warning two different presidents about commencing offensive strikes against Syria. The first letter was written in 2013 to President Obama:

The second letter was written last week to President Trump:

The first letter was signed by 119 Republicans and 21 Democrats. The second letter was signed by 15 Republicans and 73 Democrats.

There are few repeat signatures.

Saturday, April 14, 2018

Constitutional Convenience

And the parting on the Left
Is now parting on the Right
And the beards have all grown longer overnight
--The Who

How Democrats and Republicans evoke the Constitution only when it is convenient is well demonstrated when war is in the air. The constitutional requirement is that approval for war must come from Congress.

Both Democrats and Republicans know this. Unfortunately, each party prefers to evoke the requirement only when the other party occupies the Oval Office. Thus, Democrats generally call for congressional approval when a Republican administration is in place, and Republicans call for congressional approval when a Democrat sits in the big chair.

We observed the hypocrisy once again this week during the Senate confirmation hearing of Secretary of State nominee Mike Pompeo. Responded to questions from Senator Rand Paul, Pompeo said that the power of the president to authorize military strikes "has not been disputed" for some time.

In addition to observing that this power was well disputed by our founding ancestors, Paul observed that Pompeo himself, when a member of Congress, claimed that then President Obama needed congressional approval to strike Libya in 2011.

Demonstrating once again that, when your guy is in charge, you tend to put that nagging set of restrictions called the Constitution away.

Friday, April 13, 2018

Government Spending and GDP

We decided that we would have a soda
My favorite flavor, cherry red
I sung my song to Mr Jimmy
And he said one word to me, that was "dead"
--Rolling Stones

Dan Mitchell shares some graphs from a recent empirical study of the relationship between government spending and economic output. Various countries, regions, etc all show same thing. The higher the government spending, the lower the GDP.

R-squares, ranging from .24 to .67, are quite high considering other factors that could be at work.

Just one more brick for the Keynesian crypt.

Thursday, April 12, 2018

Don't Dream It's Over

There is freedom within
There is freedom without
Try to catch the deluge in a paper cup
--Crowded House

Bulls breathing another sigh of relief as their defense of the 200 day moving has held once more. Several pundits seem to think that the battle is over.

I wouldn't let my guard down so quickly. Perhaps this lift is merely relieving some oversold pressure on the stochastics before the bears muster another assualt.

position in SPX