Monday, November 30, 2015

Insulated Higher Ed

Well, the years start coming and they don't stop coming
Fed to the rules and I hit the ground running
Didn't make sense not to live for fun
Your brain gets smart but your head gets dumb
--Smash Mouth

Article discusses core problems of higher education, including rising costs and lower student outcomes. One economist suggests that "The American university is a grand political accommodation," meaning that institutions seek to appease all key stakeholders.

This is classic resource dependence theory in concert with institution theory. Create 'negotiated environments' to stabilize resource flows from outside entities and bow to institutional forces that prompt compliance and isomorphism rather than innovation and change.

The author proposes four "obvious and reasonable" changes:

1) Cap administrative costs. Data indicate that, at large research universities, administration costs are growing much faster than costs related to core processes such as teaching and research. I doubt the findings would be different at smaller, teaching oriented schools. Overhead costs have reached epic levels.

2) Operate five days per week, year round. Most schools grossly underutilize their facilities. Friday capacity utilizations are usually below 40% (while about 70% for the rest of the week). I'd guess utilization rates are below 30% during the summer. Paradoxically, institutions have been busy adding more capacity despite the low URs.

3) More teaching, less mediocre research. Citation data that suggests most published research has little or no intellectual or social impact. Many articles are never cited (98% arts and humanities, 75% social sciences, 25% hard sciences) with average number of citations in the 1-2 range. Meanwhile, universities have been incentivizing more research and less teaching via lower teaching loads and use of cheap grad students/adjunct faculty in the classroom. The proposal is to tilt the incentive system toward rewarding more and better teaching.

4) Cheaper, better gen ed. Gen ed options are proposed as largely worthless in their current form, and should be structured around relevant problems of the day. Use of technology to teach large sections of more 'commodity' subjects is also proposed.

Most of these recommendations make sense but they do little to address underlying causes of the problem. Availability of cheap students loans has subsidized demand for higher ed. Higher tuition, underqualified incoming students, excess supply of college grads, delinquent loans, money for expansion are all consequences of these subsidies.

Moreover, by definition, institutions are built for stability--not for change. For example, reward systems do little to incentivize key groups such as faculty for acting entrepreneurially. Instead, rewards favor the status quo. Such systems serve to insulate faculty and other actors from external forces that would otherwise be driving changes essential for adaptation.

Until these underlying causes are addressed, then changes such as those enumerated above will have marginal impact.

Sunday, November 29, 2015

Eliminating Cash

Hey, think the time is right for palace revolution
But where I live the game to play is compromise solution
--The Rolling Stones

Calls for eliminating physical cash can be heard with increased frequency. Statists are attracted to this idea for several reasons.

No cash means that all transactions are 'digitized,' thereby making it easier for authorities to track the economic activities of individuals. Cash, on the other hand, leaves no obvious marker, which essentially privatizes transactions.

Absence of cash also enables central banks to better enact monetary policies. For example, programs of negative interest rates that encourage consumption and punish saving are easier to implement if people cannot keep cash outside of financial institutions and avoid paying negative interest rate fees.

Another advantage of eliminating physical cash is that it makes it easier for the State to silence its critics. If dissidents can be sanctioned simply by freezing their bank accounts, the State is more capable of keeping people in line.

Cash is a friend of freedom and an enemy of the State.

Saturday, November 28, 2015

Institutional Plunder

Should five percent appear too small
Be thankful I don't take it all
--The Beatles

Bastiat understood that people do not want to view themselves as thieves. They therefore legitimize a system for forcibly taking property from others, complete with euphemisms that deflect culpability, so that they do not have to face the psychic pain of knowing that they are engaging in criminal behavior.

While that institutional fantasy might last a while, it will certainly cease. If not before, then on Judgment Day.

Friday, November 27, 2015

Minimum Wage, Maximum Pain

I try so hard not to get upset
Because I know all the trouble I'll get
--'Til Tuesday

Informative graph here that shows who is most hurt by minimum wage laws: the younger and less educated.

Paradoxically, this is the demographic that policymakers purport to be helping when they raise legal minimum wages.

Thursday, November 26, 2015

Rightful Thanks

"Six bucks and my right nut says we're not landing in Chicago."
--Del Griffith (Planes, Trains & Automobiles)

Life, liberty, and the pursuit of happiness. God's three greatest gifts.

Grateful for each on this day.

Wednesday, November 25, 2015

Stop and Think

"All this time I keep askin' myself, when, O Lord, when's it gonna be our time? Gonna come a time when we all gonna have to ante up. Ante up and kick in like men. LIKE MEN!"
--Sergeant Major John Rawlins (Glory)

Similar to Walter Williams, Thomas Sowell observes the faulty thought processes espoused by progressives w.r.t. the socioeconomic problems of many blacks. They market a "legacy of slavery" as the primary cause of the problems.

Yet, data show measures of economic and social well-being such as youth employment, marriage, out-of-wedlock births have deteriorated only over the past 50 years for blacks. Prior to that, data for blacks were comparable to whites.

To synch up with the data, progressives need to argue that the 'legacy of slavery' is worse now than it was 100+ years ago when slavery was initially outlawed.

Such a claim, of course, is a tough sell to anyone who, as Thomas Sowell suggests, is willing to stop and think.

Tuesday, November 24, 2015

90% Tax Rates

Let me tell you how it will be
That's one for you, nineteen for me
--The Beatles

Interesting review of the infamous 90% top marginal tax rate imposed during the 1950s--something many progressives would like to reinstate today. After accounting for tax deductions and loopholes available during the period, studies suggest the effective top tax rate paid was about 45%--not far from today.

Moreover, few earners actually made it to the top bracket (which actually made it to 91%)--given that there were a mind boggling 24 different tax brackets (there are seven today). Only earners bringing in an inflation adjusted $3.5 million found their way into the 90% bracket.

An important result of the '90%' period is that total tax receipts did not increase. In fact, total receipts have not changed appreciably since 1950.

The author also links to a study that includes a graph of fraction of total taxes paid by group. Analysis indicates that the highest quintile of earners have increased their share of total income taxes paid from 55% in 1980 to nearly 70% today.

Unfortunately, this is unlikely to discourage progressive from wanting to take more.

Monday, November 23, 2015

Junk Sale

All you got is this moment
The twenty-first century's yesterday
You can care all you want
Everybody does, yeah, that's ok

While stocks party on, junk bonds have been reluctant to join the fun.

In the old days, bonds were viewed as 'smarter' than stocks. Movement in bonds often served as harbingers for stocks. The riskiest of bonds thus served as canaries in the coal mine.

Whether that pattern comes to fruition here remains to be seen, of course. The current divergence between stocks and junk is noteworthy nonetheless.

position in SPX

Sunday, November 22, 2015

Edible Gold

"Gold, gentleman, can be melted down and recast, is virtually untraceable...making it, unlike diamonds, ideal for smuggling...attracting the biggest and most ingenious criminals."
--Colonel Smithers (Goldfinger)

"You can't eat gold," some say. Well, you can't eat $20 bills, either. The issue is not the nutritional value of gold, but whether it serves as a better medium of exchange and store of value than paper currency.

On that basis there should be little doubt. Paper currency can be printed until there are no more trees. In fact, in the era of digital currency, there is no limit as to how much is 'printed.'

The supply of gold, on the other hand, is limited. It is also divisible, recognizable, portable, and durable. These are all desirable characteristics of money.

This is why people have always fallen back on gold as a reliable money for thousands of years.

The more accurate statement is that, over time, you can eat more of what gold will buy than what that $20 bill will buy.

position in gold

Saturday, November 21, 2015

Unaffordable Care Act

I need you to soothe my head
Turn my blue heart to red
--Robert Palmer

Growing awareness that the 'affordable' aspect of the Affordable Care Act is a myth. Obamacare is pairing higher deductibles with higher premiums--a feat that only a government-sponsored insurance program could achieve.

Sadly, this was completely predictable.

Friday, November 20, 2015

Drying Up

The moon looks mean
The crew ain't stayin'
There's gonna be some blood
Is what they're all sayin'
--Jay Ferguson

Report shows Baltic Dry index, a composite of international cargo shipping rates, marking all time lows.

The message here is clear: weakening global demand, with China on point.

Thursday, November 19, 2015

Taking in Strangers

I see you on the street and you walk on by
You make me wanna hang my head down and cry

Individuals who voluntarily take strangers into their homes and care for them do so presumably for humanitarian reasons. They peacefully open their hearts to others because believe that it is the right thing to do.

Individuals who want to force others to take strangers into their homes and care for them are not humanitarians. They are oppressors, autocrats. They seek to impose their will on others thru use of threat of violence.

Perhaps this oppression is justified by use of some form of greater good accounting. Nonetheless, the principle of Do No Harm is violated.

Wednesday, November 18, 2015

Getting Physical

I've been patient, I've been good
Tried to keep my hands on the table
It's getting hard this holding back
If you know what I mean
--Olivia Newton-John

Despite paper gold prices hitting recent lows, sales of physical gold, such as US gold eagles, are at levels not seen since the credit market meltdown.

Have also noticed premiums widening between spot gold price and price of gold products at dealers such as APMEX.

Combine these data with observations that COMEX bullion is leaving warehouses around the world and you have an increasing divergence between the paper and physical markets.

position in gold

Tuesday, November 17, 2015

Alternatives to Militarism

"You seem to be the very thing you set out to destroy. Giving evil for evil. Hatred is turning you to stone."
--Esther (Ben-Hur)

Ron Paul prescribes the correct alternatives to militaristic retaliation against the Paris terrorism last weekend. Focus on free trade and friendly relations. Abandon 'regime change' and other forcible manipulations in foreign lands. Respect sovereign borders of other nations.

Develop self-defense capacity at home to repel aggression. But do not turn that capacity around and use it offensively.

Promote and exemplify peace and freedom. This is the true leadership position.

Monday, November 16, 2015

Hawk Heaven

"This business will get out of control and we'll be lucky to live through it."
--Rear Admiral Joshua Painter (The Hunt for Red October)

In light of the Paris terrorist attacks, watch campaign rhetoric turn hawkish. Should a bomb subsequently go off on US soil, watch candidates trip over themselves to push the DEFCON button.

My first thought was that organized terrorist groups would not want such escalation to happen in a US election year. My second thought is that this might be precisely what these groups want.

Sunday, November 15, 2015

University of Juvenilization

"You can't handle the truth!"
--Col Nathan R. Jessup (A Few Good Men)

Captures the current state of affairs on many campuses throughout the country pretty well.

A free mind cannot develop unless it sheds the protection of juvenile thought in pursuit of truth.

Saturday, November 14, 2015

Liberal Meaning

In your world, I have no meaning
Though I'm trying hard to understand
--John Waite

Nice video to complement a previous post on GMU econ prof Dan Klein's analysis of the evolution of the word 'liberal' from meaning 'presumption of liberty' to 'governmentalization.'

Klein attributes Scotish historian William Robertson with originating the use of liberal in the new liberty-oriented way in the late 1760s. Adam Smith subsequently adopted it in his seminal work Wealth of Nations.

Use of liberal in the libertarian sense grew throughout the 1800s. Klein suggests that a generational shift in an era where ideas of large government were gaining traction enabled the hijacking of the word near the end of the 19th century.

Because much of the world still uses the word liberal in its libertarian sense, Klein argues that people in the US should not use it when referring to people or ideas associated with big government. Instead, more appropriate terms for these people and ideology include:

social democrat

Calling those calling for more oppression liberals desensitizes many to the violence that leftist/progressive policies threaten. I, for one, intend to be more precise with my use of this term in the future.

Friday, November 13, 2015

Short Story

It's alright if you love me
It's alright if you don't
I'm not afraid of you runnin' away, honey
I've got a feeling you won't
--Tom Petty

Some technical types are seeing a breakdown in a short term head and shoulders top as evidence of a failed rally.

Could be. Am starting to eye additions to my admittedly small short side position (index short, INTC puts).

Next meaningful support below appears to be good ole SPX 2000.

position in SH, INTC

Thursday, November 12, 2015

Journalist Political Affiliation

"A journalist makes himself the hero of the story. A reporter is only a witness."
--Ed Cleary (Deadline U.S.A)

2013 study by two Indiana University journalism profs found (#9) that of 1080 full-time U.S. journalists surveyed, 28% claimed to be Democrats, 7% claimed to be Republicans, and 50% claimed to be independents. In the broad US population, political affiliations estimated to be 30%, 24%, and 40% respectively.

Past studies have produced similar findings on a relative basis, many of them summarized by Groseclose (2011). Generally, journalists who identify as Democrats outnumber those who identify as Republicans by large margins--in this study 4:1.

btw, it is likely that political affiliations are likely to be under-estimated in studies that employ self-reported measures, as many journalists elect the 'independent' box to provide an appearance of neutrality. Indeed, the authors note that journalists self-identifying as independent has been increasing.

Wednesday, November 11, 2015

Investment Shorts vs Trades

The times are tough now
Just getting tougher
This old world is rough
It's just getting rougher
--Bruce Springsteen

Every market cycle offers new lessons learned by doing (often with steep tuition). For me, the most important lesson learned since the March 2009 lows is that short positions cannot be treated as long term investments.

Instead, as Fleck notes in his Ask Fleck section today, "When it comes to shorting, all positions are always trades (it is the nature of the beast)."

When shorts aren't working, it is better to cover and await further developments. Again from Fleck, "I often have to cover and reshort several times before I get the trade right, though sometimes I just walk away."

Took a while but I get it now.

position in SPX

Tuesday, November 10, 2015

Capital and Income

"Live long and prosper."
--Spock (Star Trek)

Nice graph showing the relationship between capital/worker and income/worker.

Any country wishing to improve its standard of living should be doing all it can to free markets and encourage capital formation (i.e., saving). It should avoid policies that deter capital formation--such as lowering interest rates to boost spending and consumption as well as taxing capital and gains from capital.

Unfortunately, this is precisely what the US and other 'developed' nations are doing.

Monday, November 9, 2015

Voter ID and Fraud

"Look at that. That's a complete fucking fraud, and it looks one hundred percent real. It's the best work I've ever done in my life, because it's so honest."
--Stanley Motss (Wag the Dog)

Nice point made by Prof Williams. Laws requiring voters to show ID have been deemed racist by many progressives. Yet, progressives rarely challenge other ID requirements as racists (e.g., boarding a plane or cashing a welfare check).

It is therefore straightforward to conclude that progressives support voter ID in order to gain an unfair advantage in democratic elections determined by majority vote. Stated differently, progressives favor processes of voter fraud, which is more likely to occur when no ID requirement exists, to sway elections.

Sunday, November 8, 2015

Walker's Wilderness

In a big country, dreams stay with you
Like a lover's voice fires the mountainside
Stay alive
--Big Country

Years ago, former head of the General Accounting Office David Walker launched a campaign to increase public awareness about fiscal responsibility in the US. He's still at it. As in the past, he observes that unfunded liabilities substantially increase the 'headline' federal debt number.

Today's $18.5 trillion in federal debt is really closer to $65 trillion when future social security and health care liabilities are factored in.

Like a few other voices in the wilderness, people heed not his message.

Saturday, November 7, 2015

Yield Sign

Life is demanding
Without understanding
--Ace of Base

End of week sell of in govies finds 10 yr yields above recent resistance at 2.3%.

Next near term level above is ~2.5%.

Friday, November 6, 2015

Printing Tax Cuts

"One thing is true of all governments. Their most reliable records are tax records."
--Finch (V for Vendetta)

These pages have long posited that a primary way for central banks to circumvent the deflationary credit money system is to send people money directly (i.e., 'drop money from helicopters'). The tax cut and stimulus rebate checks a few years back were examples of this.

This article suggests that a less direct approach could be have government issue a tax cut citizens, but then finance federal spending that would otherwise have to be cut by printing money.

Same end effect, of course, but by using means more prone to deceive.

Thursday, November 5, 2015

Forced Rates

"But, again, truth be told, if you're looking for the guilty you need only look into the mirror."
--V (V for Vendetta)

Few instruments of force are more damaging than forced interest rates. Markets distorted. Resources misallocated. Standard of living compromised. 

And people generally have no clue about the mechanism.

Wednesday, November 4, 2015

Tax Receipts and Stocks

Now my advice for those who die
Declare the pennies on your eyes
--The Beatles

Interesting observation that state and local income and sales tax receipts seem to align with stock market extremes.

Intuitive, as economic activity and equity performance should be correlated to some degree, whether through fundamental or sentimental reasons.

For completeness, fed tax receipts should be included as well.

position in SPX

Tuesday, November 3, 2015

Producer-led Price Declines

In the paper today
Tales of war and waste
But you turn right over the the TV page
--Crowded House

ECON 101 tells us that lower prices occur when supply increases relative to demand. What policy decisions of producers drive prices lower?

One is improving productivity. Implementing projects that create more output per unit of input means that dollars are spread across more goods, thereby reducing price per unit.

Another is adding more supply than necessary to meet demand. By building more capacity than is needed, capacity utilizations fall, causing operators to reduce price in order to move more units.

Improving productivity increases social welfare because it more fully utilizes productive resources to alleviate scarcity. Adding unnecessary capacity is wasteful to the world because it ties up resources in unproductive endeavors.

In unhampered markets, lower prices achieved by improving productivity are rewarded while lower prices stemming from adding unnecessary capacity are penalized.

Monday, November 2, 2015

Obama's Lawlessness

"Gentlemen, whenever you have a group of individuals who are beyond any investigation, who can manipulate the press, judges, members of our Congress, you are always going to have in our government those who are above the law."
--Nico Toscani (Above the Law)

These pages have discussed the lawless behavior of the Obama administration before (e.g., here, here, here). Here is another list of some this president's most egregious acts of lawlessness--although I think Judge Nap offers a more comprehensive list.

An interesting aspect of executive lawlessness is that partisans are prone to look the other way when their administration suspends law, while arguing that "it's the law" when seeking legal compliance from opposing administrations.

Sunday, November 1, 2015

Kelo Takings

Our house, was our castle and our keep
Our house, in the middle of our street
Our house, that was where we used to sleep

Kelo v. New London was a Supreme Court ruling that significantly expanded the scope of government authority for forcibly taking real estate from private owners. Essentially, it legitimized government expropriation of eminent domain rationale for taking property for private--not public--development if it is deemed that the community at large would benefit from the development.

This can be viewed as another expression of greater good accounting.

One study estimates that a million homes have been taken since Kelo. Unfortunately, the precise reason for each taking was not measured in the investigation, although most of them are presumed to have been taken using eminent domain justification. Another limitation is that the study does not compare pre Kelo to post Kelo takings.

An important observation is that eminent domain rulings are biased toward the poor and blacks, whose households are being taken at about twice the rate of the general population.

Developer identifies some prime real estate currently occupied by low income people...developer uses the Kelo precedent to influence government to evict the occupants and score the land for its project...another mechanism for distributing wealth by force.