Friday, March 31, 2017

Trump and FDR

How many times can a man turn his head
And pretend that he just doesn't see
--Bob Dylan

One thing in common between Donald Trump and Franklin Roosevelt appears to be lack of guiding ideology.

As superbly recounted by John T. Flynn, FDR built his political career on saying one thing and doing another. His campaign platform in 1932 was planked in promises to reduce the size of government, balance the budget, and keep the US out of war.

Subsequently, of course, FDR did the opposite. His New Deal programs made all previous government interventions in private affairs seem small. His spending resulted in the greatest non-war federal debt levels that the country had yet experienced. His provocations sparked US involvement in a world war that made the previous Great War seem tiny.

Trump's behavior also blows with the wind. Like FDR, he is prone to quickly changing his mind. A person that Trump publicly welcomes as an ally today might be chastised as an enemy tomorrow. His positions are often inconsistent, sometimes channeling getting government out of people's lives while at other times fostering more government intrusion.

Rather than shaping his actions according to an ideological framework, Trump's actions, like FDRs, appear grounded in political expedience.

This is not to say that ideologies might not play roles in administrations where the president possesses no core principles himself. FDR populated his 'braintrust' with ideologues--many of them with communist or fascist socialist leanings. Many believe that Trump has also inserted ideologues into his administration, some of whom lean toward the fascist end of the socialist spectrum.

It came to pass that policies of FDR's administrations were shaped by the socialist beliefs of his brain trust. Those beliefs filled the ideological vacuum inside the Oval Office at the time.

If a similar vacuum is created inside the Trump White House, what ideologies might rush in to fill the void?

Thursday, March 30, 2017

Regulation and Population

All the old paintings on the tombs
They do the sand dance don't you know
If they move too quick
They're falling down like a domino
--Bangles

After President Trump signed orders that roll back Obama era environmental regs, leftist media jester Michael Moore tweeted that "Historians in the near future will mark today, March 28, 2017, as the day the extinction of human life on earth began, thanks 2 Donald Trump."

Ignoring the logical problem, if we take Moore's statement literally, of how historians would be capable of accurately marking time related to human extinction unless they somehow survive the event, let's consider a pertinent general question. What is the effect of government-imposed regulation on human population?

Mises explained it well. Prior to the industrial age, primitive production processes were highly regulated by government primarily for the benefit of the wealthy. Because the distribution of wealth was highly skewed, far more people were being born into poor conditions than into rich conditions. Productivity, or output per person, declined as the denominator grew faster than the numerator. In time, a significant fraction of the world's population lived on the edge of death.

Facing extinction, entrepreneurs began defying law and tradition by marshaling economic resources in order to produce goods for the masses ("mass production"). This was the onset of capitalism. As Mises observed, capitalism can be seen as "everyone's having the right to serve the customer better."

By definition, capitalism's growth was inextricably linked to deregulation. Markets rewarded societies that lifted restrictions on production. As restrictions on production were lifted, more was produced. As more was produced, scarcity was alleviated. As scarcity was alleviated, population growth dramatically increased throughout the world.

But don't markets foster unpleasant externalities such as pollution that hurt standard of living and require government regulation? As Rothbard observed, government regulation has not been a proven solution to pollution problems. For example, two areas of society where private property rights have generally not been permitted to broadly function, air and waterways, have been primary grounds for pollution. Since government permits the pollution of air in some regulated fashion, entrepreneurial actions have focused on technologies that enable pollution at the regulated rate, rather than on air pollution-free technologies.

The more appropriate role of government is to help people protect their property against invasion. If, for instance, air pollution from production sends unwanted substances through the air and into the lungs and onto the property of innocent victims, then it is the role of government to stop these acts of aggression. Unfortunately, as Rothbard noted, government long ago altered laws away from protection of private property and toward the permitting of aggression via pollution.

The general proposition is this. When governments impose regulations of any kind on production, then production is restricted. When production is restricted, there is less wealth available to sustain life. Standard of living declines as does population growth. As regulatory burden grows, so does scarcity. At extremely high regulatory burdens, extreme conditions of scarcity, such as famine and disease, threaten human existence.

Rolling back government-imposed environmental regulations serves to increase production. More prosperity associated with increased production moves the human race further away from extinction. Government's proper role is to protect people against harm demonstrated to be done to their personal property from production externalities of any kind. Such policy would focus entrepreneurial attention on innovations that eliminate those externalities and further increase prosperity.  

Wednesday, March 29, 2017

Consumer Confidence and Income

Chuck Scarett: How you feelin' today?
Joe Scheffer: Confident!
--Joe Somebody

Big divergence between Conference Board measures of consumer confidence and income growth. We should note that this divergence was widening even before last fall's presidential election.


Interestingly, confidence has a better correlation to stocks than income.


Over time, however, the divergence between confidence and incomes are likely to disappear. If this means that confidence aligns more with current trends in income, then this resolution would not bode well for stocks.

no positions

Tuesday, March 28, 2017

Section 702

Now did you read the news today
They say the danger's gone away
But I can still the fire's still alight
There burning into the night
--Genesis

Ron Paul reinforces observations previously made by Judge Nap that the NSA is conducting mass surveillance on all Americans. He highlights Section 702 of the FISA Act. Passed in 2008 as an amendment to the original 1978 bill, Section 702 gave the green light to the federal government to spy on all Americans through massive digital data collection programs.

As the story unfolds about 'wiretapping' of Donald Trump and his associates, Paul wishes that the president would see this as a teachable moment. As we learn that all of us are vulnerable to government abuse of power, Trump could stand up for liberty and work to take down FISA, Patriot Act, and other unconstitutional intrusions on privacy.

Section 702 is set to expire this December. Perhaps current events will open our eyes to the law's unjust nature and drive its repeal.

Monday, March 27, 2017

Teller Line

It's not in the way that you hold me
It's not in the way you say you care
--Toto

Banks putting on their brave face this am to avoid near term technical breakdown.


Mr Valentine has set the price at 90t.

No positions

Sunday, March 26, 2017

Keeping Enemies Close

One day it's fine and next it's black
So if you want me off your back
Well, come on and let me know
Should I stay or should I go?
--The Clash

Soon after Abraham Lincoln stepped into the Oval Office he immediately fired over half of the employees working under the executive branch. After a highly contested election, Lincoln wanted to reduce the chance that those partisan to someone or something else were in a position to hurt his administration.

Many wonder why Donald Trump has not done similar. Yes, he recently fired several federal attorneys appointed by his predecessor, but thousands of Obama appointees and others who are ideologically opposed to Trump remain as his employees. For an individual who achieved celebrity status by uttering the words "You're fired!" on weeknight television, one would think Trump would have been dealing out pink slips in size by now.

It is possible, of course, that Trump just hasn't gotten around to it yet. Perhaps, based on his previous experience as a manager, he thinks it prudent to better familiarize himself with the current situation before making decisions about who should stay and who should go.

His managerial experience might also be telling him that diversity in terms of political ideology will help his administration make better decisions. Trump might achieve better long term results with a varied crew.

There is also the political argument that he wants to project an image of bi-partisanship when it comes to personnel. By keeping people on his staff that others know he doesn't like, he demonstrates restraint and tolerance that might win him cooperation from various factions over time.

A further possibility is that Trump is heeding age old advice of keeping friends close but enemies closer. Keeping enemies in his administration enables Trump to accumulate knowledge about his opposition. He might better understand strengths, weaknesses, and tendencies of his foes when they are working for him.

By keeping his enemies close, Trump could use them as bait. If, for example, Trump suspects that progressives will stop at nothing to get him out of office, then perhaps he keeps partisan operatives around in hopes that progressive leadership recruits them as agents for illicit activities. Agents, say, in intelligence agencies could illegally leak classified information designed to hurt the Trump administration. If Trump is prepared, then he might catch the agents in the act, and use them to trace back to the principals of the crime.

Perhaps the unfolding story about Spygate exemplifies this approach.

Saturday, March 25, 2017

Stay the Course

"Stay with us. Stay the course!"
--Col. Harry Burwell (The Patriot)

When the Tea Party first came about, these pages posited that its partnership with the GOP establishment would be fleeting. A couple of years later, the inevitable clash between Tea Party libertarianism and mainline Republican statism found collegiality fraying.

The infighting hit epic proportions this past week when a small group of Tea Party-oriented members of the House, called the Freedom Caucus, refused to bow to pressure and support the poorly designed Trumpcare health bill. The bill was pulled from the floor on Friday when it became clear that, without Freedom Caucus buy-in, Republicans did not enough votes for passage.

Predictably, GOP bureaucrats and pundits were pointing figures at the Tea Party reps even before the bill was pulled.

For lovers of liberty, the Freedom Caucus stand is cause for celebration. Because these people refused to compromise on first principles, they kept an enormous piece of big government legislation from moving forward...at least for now.

Here's hoping that Tea Party reps continue to stay the course. Perhaps they will influence their colleagues to do what truly needs to be done at this point to move American healthcare back toward its roots in voluntary exchange: full repeal of Obamacare.

Friday, March 24, 2017

Cash Healthcare Markets

And if I should falter
Would you open your arms out to me?
--Erasure

Statists have indoctrinated Americans into believing that healthcare is not a cash business. Healthcare prices are too high and often unknowable, thereby requiring cashless transactions and claims forwarded to insurance companies to work out payments with policyholders and providers.

The pages have discussed examples of viable healthcare market alternatives, some grounded in cash payments, evolving as conventional approaches worsen. Now, as Obamacare has pushed insurance-driven markets to the brink, alternative cash-based markets continue to coalesce.

One is called direct primary care. Instead of accepting insurance for routine visits and medicines, practices composed of one or more primary care docs charge monthly membership fees that cover most of what patients need--including office visits and lower priced drugs.

The allure to patients is cost effectiveness and simplicity. Monthly fees are often about $50. There are no copay snarls with insurance companies or bickering with claims adjusters about what gets reimbursed. There are also no pre-existing condition hurdles to overcome.

Physicians are attracted to the idea of eliminating insurers as well. Less bureaucracy frees time to spend with patients. In direct primary care practices, docs can return to being their own bosses.

But wait, isn't this model fundamentally equivalent to the insurance model? After all, patients still pay a monthly fee that looks like an insurance premium for access to an array of services. The answer is no. The key difference is that the system is not based on third party payers. Consumers are buying healthcare services with their own money, but they are prepaying for them. Doctors are pricing their services to customers, but in bundles rather than one-at-a-time. If a customer appears to be overusing services, then docs have incentive to do something about it. If care pricing or quality deteriorate, then patients have incentive to do something about it.

Stated differently, direct primary care is not an 'other people's money' arrangement.

Direct primary care does not cover specialized services or catastrophic care. As such, it does not eliminate markets that insure against large, unanticipated healthcare expenses. But that is proper function of insurance. Car and home insurance policies do not cover routine maintenance. They insure against tail risk. Properly functioning health insurance markets would do the same.

The evolution (actually, the re-evolution) of cash health care markets is but one example of entrepreneurship sure to occur as Obamacare and its statist healthcare ilk inevitably falter.

Thursday, March 23, 2017

Healthcare and Other People's Money

Drawn into the stream
Of undefined illusion
Those diamond dreams
They can't disguise the truth
--Level 42

Current debate about government's role in healthcare once again took me back to my industry days, when a grandiose healthcare plan developed by a corporate quality improvement team was presented to one of our VPs. "It won't work," the VP told me.

The plan subsidized nearly all employee expenditures related to healthcare. As long as someone else was picking up the tab, he argued, buyers would not be motivated to shop for value, and our ultimate goal of curbing costs would not be realized.

This memory jogged another, more recent lesson learned. Milton Friedman posited that there are four ways to spend money. You can spend your own money on yourself. You can spend your own money on someone else. You can spend someone else's money on yourself. You can spend someone else's money on someone else.

Spending your own money on yourself is the condition that promotes the most economizing (conservation of resources) while attaining highest value (maximizing utility of the purchase). This is what the VP was seeking. Get consumers to do what they do best and costs will go down while utility is maximized.

All third party payer plans, corporate run as well as government run, operate in the bottom two quadrants. Consumers whose behavior is insured by someone else are spending someone else's money. They will care little about the price paid for healthcare services while trying to consume as much healthcare as they can. Plan administrators essentially spend other people's money on someone else. Not only do they have little incentive to economize, but they are likely to arrange services that do not provide high value for the insured. Higher costs, lower quality, and shortages are certain.

While Trumpcare in its current form may move the needle a bit away from the 'other people's money' conditions, it still subsidizes a great deal of consumer healthcare spending. Unless it is considerably revised, Trumpcare looks too much like its Obamacare predecessor that it seeks to repeal-and-replace.

Wednesday, March 22, 2017

Ideological Diversity in Higher Ed

Interviewer: What you've got is college experience. Not the practical, hard-nosed business experience we're looking for. If you'd joined our training program out of high school, you'd be qualified for this job by now.
Brantley Foster: Then why did I go to college?
Interviewer: You had fun, didn't you?
--The Secret of My Success

My niece is among many contemporary high school juniors preoccupied with looking at colleges. One factor on her want list is a diverse student body.

I hope that she also considers the ideological diversity of the institution itself.

It can be argued that a primary benefit of a college education is to learn how to think critically. Critical thinking requires exposing the mind to various points of view. Thought processes must also be developed for sifting through those various perspectives to get closer to the truth.

On the surface, universities would seem to offer an effective platform for advancing critical thought. A student body drawn from various backgrounds helps attendees learn from each other in this regard. However, it can be argued that a more important factor is the capacity of the primary engines of the instructional platform--i.e., that of the faculty and others who convey knowledge in classrooms and other learning forums--for stimulating students to expand their minds and probe issues in search of truth.

Unfortunately, this part of the higher ed learning platform has been deteriorating to the point where potential for developing critical thought process has been severely diminished and, in some institutional environments, completely eliminated. A primary cause of this breakdown has been increasingly homogeneous ideology among faculty and administrators, particularly as related to politics and its spillover into economic and social issues.

It has been known for some time that the academy is skewed politically left. One consequence of the lack of political diversity in higher ed is that it has biased hiring of instructors. In some disciplines, preference for hiring faculty with like-minded, left-leaning ideologies is so strong that capability for honestly offering alternative views in the classroom is virtually non-existent.

Another consequence of the left skew in higher ed is that has fostered cultures of intolerance on campus. Speakers who offer competing perspectives are seen as threats and chased off campus by protesting faculty and students. Those incapable of coping with heterogeneous viewpoints are granted 'safe spaces' and language controls from 'microaggressions' committed by individuals perceived as posing ideological threats.

Several prominent academics have recognized the problems that lack of ideological diversity pose for higher ed. For example, a former Stanford provost discusses 'the threat from within' presented by ideological sameness and its consequential intolerance. The president of the University of Chicago has been outspoken about how and why his institution seeks to avoid policies that stifle diversity and freedom of thought.

Rising tuitions and and cheap credit (which are not unrelated) have increased the supply of college grads and made pursuing a college degree a riskier proposition now than in the past. All the more reason why inbound students should carefully assess the ideological diversity of prospective institutions. Attending a school rich in ideological perspectives increases the likelihood of securing the critical thinking skills commensurate with a valuable college degree.

I hope my niece does so.

Tuesday, March 21, 2017

Banks and Rising Rates

I'm at the car park, the airport
The baggage carousel
The people keep on crowding
I'm wishing I was well
I said it's no occasion
It's no story I could tell
--Squeeze

There is a theory out there positing that banks like higher rates brought about by recent short term rate increases by the Fed. The primary thrust of the argument is that higher rates should improve bank margins by allowing banks to charge more for loans.

Any positive impact, however, should be transitory. As noted at the end of this piece, banks will need to increase what they pay to borrow funds from depositors as short rates move higher. Moreover, higher lending rates result in less demand for credit (ECON 101) and, by extension, less economic activity in general.


From the above chart, does it look like bank stocks have been helped or hurt by ultra easy ZIRP/NIRP central bank policies over the past decade? Those easy policies are now in the process of reversing.


Over the past few days, perhaps investors have started to grasp what higher rates actually mean longer term for this sector.

no positions

Monday, March 20, 2017

Tantrum Era

I staggered back to the underground
And the breeze blew back my hair
I remember throwin' punches around
And preachin' from my chair
--The Who

Column compares behavior of the left post Brexit/Trump to that of a tantrum-throwing child. It is hard not to. Arm flailing meltdowns that lay off blame to others is what children do before they learn how to reason and control their emotions.

Russia interfered, Trump is Hitler, they're all racists..., populist rubes shouldn't be allowed to vote, Trump is a madman who must be thrown from office. The litany of excuses continue.

Coping with their cognitive dissonance in this case has found many progressives banding together and returning to the playpen.

Sunday, March 19, 2017

Ignore It

Jake Lo: What judge is going to believe that?
Agent Westey: My judge.
--Rapid Fire

After a district judge in Hawaii once again issued a temporary restraining order on President Donald Trump's revised travel ban, I heard several opinions this week suggesting that Trump should simply ignore the TRO and implement his executive order. If Trump would defy the absurd and ridiculously worded ruling of this judge, then he would be engaging in nullification.

In the context of constitutional law, nullification means ignoring a law or ruling deemed to be unconstitutional. Nullification was frequently employed prior to the Civil War. For example, it was used by states to combat oppressive federal laws such as the Sedition Act of 1798 and the Tariff of Abominations of 1824.

Should Trump choose to ignore the judge's TRO, then his nullification would challenge the legal principle of judicial review. Judicial review is a term concocted by Chief Justice John Marshall in the case of Marbury v. Madison. Judicial review is the power of the Supreme Court and all federal courts to examine statutes and presidential behavior, and to declare them void if found to be inconsistent with the Constitution. Of course, it is debatable whether contemporary judicial review regularly contemplates the constitutionality component.

The concept of judicial review carries some intuitive appeal. Courts should be independent, anti-democratic entities that preserve the constitutional rights of individuals when legislative and executive force intrudes. Viewed in this manner, the Courts are the last line of defense for liberty.

On the other hand, notable individuals such as Thomas Jefferson saw judicial review as an intrusion on liberty. In Jefferson's view, the Supreme Court's opinion on constitutionality should carry no greater weight than the legislative or executive branches, and in fact the Constitution does not grant the Court such interpretive authority. Moreover, Jefferson questioned, did it make sense that the people of the United States would fight a bloody revolution only to put the fate of liberty in the hands of nine (five, really) tenured-for-life judges?

Tom DiLorenzo suggests that we have become such a 'lawyereaucracy' today. Find judges friendly to your point of view and have them issue decrees that institutionalize it and put down dissent. DiLorenzo suggests nullification as a way to counter lawyereaucracy.

As an example of a president defying the Court's wishes, DiLorenzo offers Andew Jackson's veto of the recharter of the Second Bank of the United States. While Jackson's veto was in response to a Congressional bill (not a court order), Chief Justice John Marshall had himself vociferously opined that the central bank was constitutional. In his veto response, Jackson (about half way down) argues that it is the duty of Congress and the Executive to decide on the constitutionality of bills that they introduce and approve, and that the opinion of judges on this matter has no more authority over the other branches than the authority that the other branches have over the Court.

Jackson, further channeling his inner Jefferson, also states, "The Congress, the Executive, and the Court must each for itself be guided by its own opinion of the Constitution. Each public officer who takes an oath to support the Constitution swears the he will support it as he understands it, and not as it is understood by others."

DiLorenzo suggests that if Donald Trump does defy the district judge's TRO then he would be acting in accordance with his presidential role model.

Saturday, March 18, 2017

Media Crowds and Madness

Not what the teacher said to do
Making dreams come true
--Oingo Bingo

Prior to the 2016 presidential election Nate Silver was a media darling of the left. A political analyst with a background in statistics, Silver's stock increased with progressives when, based on his analysis of polling data, he assigned a higher degree confidence to a Barack Obama victory over Mitt Romney in the 2012 than many other 'experts.'

The allure for many Democrats seemed to be that not only did Silver predict that their side would win, but that he did so 'scientifically.' Like most people, Democrats tend to like the idea of scientific process when it supports their view.

The value of Silver's equity recently declined after his blog's analysis of 2016 presidential polling data suggested a high degree of confidence in a Hillary Clinton victory. Progressives who leaned on that prediction like they did in 2012 were sorely disappointed. Silver's 'science' let them down.

Silver, of course, would say (and I'm sure he did) that he was forecasting a probability, not a certainty. Although his forecasts suggested, say, a 75% percent chance of a Clinton win, there was still a one in four chance that she wouldn't.

Post election, Silver has written a series of pieces, including this one, that autopsy the phenomenon of the mainstream media's gargantuan miss of the 2016 presidential election. He concludes, per the title, that "there really was a media bubble." The use of past tense 'was' is interesting, as if the 'bubble,' better known as bias or slant, was a temporary condition not in place before or since the 2016 election cycle.

Drawing from Surowiecki's Wisdom of Crowds which. incidentally, follows a volume written 150 years earlier by Charles Mackay on Extraordinary Popular Delusions and the Madness of Crowds, Silver cites Surowiecki's argument that crowds tend to make good predictions when four conditions are in place. Crowds are 'smart' when there is diversity of opinion among participants, when people's opinions are independent of those around them, when knowledge is decentralized and local, and when private judgments can be aggregated into collective decision.

Silver suggests that political journalism scores poorly on the first three conditions. American newsrooms are not diverse. Over 92% of journalists have college degrees, up from 58% in 1971. More importantly, there seems little in the way of political diversity. Voting research suggests, for example, that journalists who vote Democrat outnumber those who vote Republican by at least four to one margins. Of the 59 major newspapers that endorsed presidential candidates in 2016, only two endorsed Trump.

Silver argues that independence among political journalists is also low. They attend the same conventions and debates, and gather in the same room for discussions among themselves. This facilitates "conventional wisdom being manufactured in real time." Reporting of conventional wisdom via social media leads to information cascades that reinforce how issues are framed through millions of impressions.

Political journalism is highly centralized, with most political news manufactured in NYC and DC. National reporters fly into local areas with pre-baked narratives and seek facts that support their point of view. That local newspapers are failing and media outlets with broad reach are gaining market share reinforce centralization of opinion-making.

In terms of improvement, Silver suggests that increased decentralization and improving diversity would be difficult. I am not so sure, particularly with respect to diversity. For example, why couldn't newsrooms intentionally hire reporters in a manner to achieve greater diversity from a political ideology standpoint? Outlets could market this diversity and reveal their ideological mix--perhaps as audited by an outside source. Outlets that want to be forthright about their bias would require journalists to disclose their voting and political contributions as part of their reporting.

Silver thinks there is more short term potential in changing the independence condition. He suggests that journalists could 'recalibrate themselves' to become more skeptical of consensus opinions and open to other viewpoints. Good luck with that. However, his recommendation does bear some similarity to Groseclose's idea that journalists could hang with others who are not like themselves in order to better understand other points of view.

There is also the view, of course, that the current state of media bias is just supply following demand. Consumers of information do not want diverse, independent, decentralized media coverage. Instead they seek out viewpoints that confirm their own viewpoints and minimize negative psychic income associated with realizing that their viewpoints may be wrong.

Cognitive dissonance w.r.t. things political facilitates and reinforces media bias among both producers and consumers.

Friday, March 17, 2017

Jacksonian Trump

"And now we are free. I will see you again. But not yet...not yet."
--Juba (Gladiator)

Tom DiLorenzo discusses similarities between Andrew Jackson and Donald Trump. Since his inauguration, Trump has been connecting to Old Hickory. A few days after moving in, Trump hung a portrait of Jackson in the Oval Office. He recently visited Jackson's grave during a swing thru Tennessee. Trump likes to compare the populist movement that supported him to one that supported Jackson and infuriated the entrenched elites of Jackson's day.

Of course, even if they know nothing about Andrew Jackson, Trump's affinity for Old Hickory is enough to cause many NeverTrumpers to dislike Old Hickory.

On the other hand, some people who confess to knowing little about our seventh president might be drawn toward Jackson upon learning that today's statists, including those of the leftist history profession, tend to belittle Jackson.

Stated differently, if he was and still is regarded as an enemy of the State, then it can be surmised that Jackson was probably a pretty good president.

As recounted by Rothbard, Jacksonian populism favored free enterprise. It opposed subsidies and monopoly privileges doled out by government. It supported minimal government at federal and state levels.

Perhaps most importantly, Jacksonians were sworn enemies of central banking. They sought to separate government from the banking system, and to ditch inflationary paper money and fractional reserve banking in favor of gold/silver money and 100 percent reserves.


Jackson vetoed the recharter of the Second Bank of the United States and, in 1833, pulled all federal funds from this precursor to the Federal Reserve--thereby leading to its complete demise.

Not unexpectedly, Jackson's presidential tenure was not without warts. For example, he threatened the use of military force on states such as South Carolina who sought to nullify tariffs viewed as unfairly penalizing Southern trade. Statists, naturally, are prone to consider this as one of Jackson's few positives while in office.

Is Trump another Jackson? DiLorenzo notes some similarities. Trump has called for tax cuts, for firing thousands of government bureaucrats, and for stripping regulations from markets--all of which are consistent with the free enterprise, small government Jacksonian mentality. He has also spoken out against the Federal Reserve at times, although the extent to which he would act against the Fed is certainly questionable. Moreover, Trump seems to attract hatred from the entrenched Washington establishment to an extent similar to Jackson.

On the other hand, Trump is in favor of government sponsored infrastructure spending. Jackson opposed federal spending on such 'internal improvement' projects. Moreover, Jackson actually paid off the national debt--something no president has done since. Trump, with his grandiose spending plans, will likely avoid bringing up this fact when drawing self comparisons to Old Hickory.

DiLorenzo concludes that a good case can be made that Donald Trump is a Jacksonian. I agree that the degree of rancor that Trump has inspired among statists and Washington elites seems on par with Jackson. Trump also enjoys a populist backing that perhaps few presidents since Jackson have had. And, yes, Trump's early actions suggest he wants to shrink government bloat, regulation, and taxes.

However, Trump's stated positions on trade and on government-sponsored infrastructure spending are decidedly anti-Jacksonian. In addition, it will be interesting to see how Trump responds to crises that are certain to arise during his tenure. When the SHTF, Trump's small government Jacksonian side may take a powder.

Donald Trump as a modern day Andrew Jackson? Not yet...

positions in gold, silver

Thursday, March 16, 2017

Spygate II

"What can I say? I'm a spy."
--Harry Tasker (True Lies)

Following up on the question of whether then President Obama spied on Donald Trump during the recent presidential campaign, Judge Nap reiterates (video here) that Obama would have needed no warrant to access Trump communications. Because the NSA is tapped into all US telecommunications on a 24/7 basis, and because the NSA effectively works for the president, then the NSA would have been duty bound to provide Obama with transcripts of Trump phone calls made at any time.

In other words, raw capacity for a contemporary president, including then President Obama and now President Trump, to spy on citizens at will is certainly in place.

However, if Obama did order the NSA directly to provide such transcripts, then there would be a record of such an order. Being the smart bureaucrat that he is, Obama would have known to use a source that would leave no fingerprints of his request.

Such sources exist. For example, those knowledgeable with the situation have suggested that the British foreign surveillance service, Government Communications Headquarters (GCHQ), would have been well positioned to provide transcripts of Trump communications without a paper trail. Incredibly, NSA has given GCHQ (and other foreign intel units) full access to its computers, meaning that GCHQ has digital versions of all communications made in America, including Trump's. Plausibly, Obama could have bypassed all American intel agencies to access the information that he wanted sans his administration's fingerprints.

As such, American intelligence officials would be telling the truth that they did not know about an Obama request for intelligence because the request was made outside US channels. An added twist to this scenario is the fact that the head of GCHQ abruptly resigned three day's after Trump's inauguration, citing a desire to spend more time with his family.

Whether the spying allegations lead to discovery of the truth remains to be seen. What is completely visible, however, is a government sponsored system that tramples our natural right to privacy and, by extension, our right to be free.

Wednesday, March 15, 2017

Markets, Intervention, and Moral Hazard

If you leave, don't leave now
Please don't take my heart away
Promise me just one more night
Then we'll go our separate ways
--OMD

Nice points made here regarding the late Nobel laureate Kenneth Arrow's work on moral hazard. In a 1963 AER paper involving healthcare economics, Arrow theorized that doctors act as agents of insurance companies. Because agent behavior cannot be perfectly monitored, an agency problem is created where doctors will offer more treatments to patients. Because their behavior has been insured, patients will be likely to demand these additional services either by taking more risks or over consumption of treatments.

Insurers bear the cost of this moral hazard. Because they operate with incomplete information that prohibits them from pricing their services accurately, Arrow argued that insurers will be prone to reduce insurance coverage to 'suboptimal' levels. To rectify the situation, Arrow suggests that governments intervene using taxes or subsidies to stimulate desired forms of production. Or, of course, government itself could step in as an insurer.

However, Arrow's logic ignores the moral hazard problem from the standpoint of the entrepreneur. Previous scholars such as Frank Knight posited that it was the entrepreneur's job to deal with situations of incomplete information, particularly with respect to customer and employee (agent) behavior, in order to work out the best uses of society's scarce resources.

In the context of the health insurance problem, there is no predetermined 'optimal' level of coverage as Arrow suggests. Instead, there is a moment-to-moment best guess that constantly changes as entrepreneurs seek to satisfy customer needs under conditions of uncertainty and resource scarcity.

If government intervenes in this entrepreneurial pursuit then it is the one that creates moral hazard by socializing the costs of risky behavior. Entrepreneurial actions seek to reduce moral hazard thru innovation and thru focusing the consequences (positive or negative) of risky behavior on the people who take the risk.

Rather than being impartial referees that reduce moral hazard, governments encourage it. Markets work to reduce situations of moral hazard while intervention institutionalizes them.

Tuesday, March 14, 2017

Policy Uncertainty, VIX, and Equity Valuation

Live those dreams
Scheme those schemes
Got to hit me, hit me
Hit me with those laser beams
--Frankie Goes to Hollywood

These pages have considered Princeton economist Robert Shiller's CAPE (cyclically adjusted price to earnings) ratio as one of the better measures of overall market valuation. This Bloomberg piece includes Shiller's warning that markets according to CAPE are at nosebleed levels.


The piece also notes the divergence between measures of 'economic policy uncertainty' and the VIX--a popular measure of fear in the marketplace (labeled 'equity uncertainty' in the graph below). The VIX can also be viewed as a measure of equity market complacency.

Precisely how 'economic policy uncertainty' is not explained in the piece. One might consider it a dimension of the broader construct of regime uncertainty.


That being said, time series plots show it on the rise over the past few years (not just since Trump's election, btw) while the VIX has been creeping lower. Prior to the past few years, measures of policy uncertainty and the VIX were well correlated.

Currently the divergence between the two series is near record highs. Couple that with record high equity valuations and it is easy to conjure future bearish scenarios.

no positions

Monday, March 13, 2017

Glycerin Truck of Leverage

"A toast to Mama Dollar and Papa Dollar. If you want to keep this building and loan in business, you'd better have a family real quick!"
--George Bailey (It's a Wonderful Life)

Bill Gross recounts a discussion he had recently with his own kids about the complexities and risks associated with investing. In particular he focused on explaining the concept of financial leverage as created by the banking system. "It still mystifies me," he told them, "how a banking system can create money out of thin air, but it does."

His subsequent example of how your one dollar deposited at the Bank of USA becomes two dollars is well worth reading a few times...and sharing with your family members in pay-it-forward style. It helps explain how the US financial system has multiplied, as Gross estimates, $3 trillion in 'base credit' into $65 trillion in 'unreserved credit.'

The obvious risk, as recognized by his son, is the situation where depositors collectively become risk averse and simultaneously demand the dollars back that they think are theirs. This is, of course, the essence of a bank run. We were on the verge of a massive run in 2008 and other countries including Greece and Cyprus have provided previews since then.

The bad news is that the US has created more debt relative to GDP than at the beginning of the credit market meltdown nearly 10 years ago. China and other countries are in the same boat.

Gross concludes that, "our highly levered financial system is like a truckload of nitro glycerin on a bumpy road." One mistake could set off a credit implosion and bank runs of epic proportions.

Sunday, March 12, 2017

Federal Republic

"Now, you're not naive enough to think that we're living in a democracy, are you, Buddy?"
--Gordon Gekko (Wall Street)

When quizzed about the form of government put forth by our founding ancestors, many people reflexively call it a democracy. This is mistaken. The United States was designed as a federal republic.

Federal refers to a system of government where states unify (the United States) and delegate some authority to a central (federal) government. The states retain all powers not expressly delegated to the central government so that they can remain independent in their own affairs.

Republic means that the people hold the supreme power of the land. They exercise that power through elected representatives, through laws and a legal system that represent them, and the right to secession. Representation via elections does not necessarily mean that all citizens of a republic are allowed to vote, that all votes count equally, or that decisions are based on simple majority (50%+) vote.

Classically defined, democracy is a system of government where decisions are made by the faction who can marshal the most votes. It its purest form, democracy constitutes discretionary rule. Laws are determined by the dominant faction and change when the faction changes.

One way of thinking about the difference between a republic and a democracy is that in a republic, sovereignty rests with the individual while in a democracy, sovereignty rests with a group.

Our founding ancestors were famously skeptical of pure democracies. The word 'democracy' does not appear in the Declaration, the US Constitution, or any of the original state constitutions.

The founders did, of course, envision that much of the power vested in the people of the United States republic would be enacted through voting and elections. But few decisions regarding federal government representatives were specified to be made by classic democratic majority rule-type voting. The president was to be elected via an Electoral College that, while requiring more than half of its votes to be cast for the winning candidate, overweighted the votes of smaller, less populated states in order to increase their voice in the matter.

Senators were to be chosen by state legislatures (subsequently modified by the 17th Amendment). The six year senatorial appointments (subsequently elections) were staggered so that 1/3 of the Senate would change every two years. Supreme Court justices were to be nominated by the president with the approval of the Senate.

Only the House of Representatives (house of 'commons') was to be composed of representatives "chosen every second Year by the People of the several States." But even in this case, because there is no constitutional specification for a majority vote, it can be assumed that each state has discretion in deciding how the voting process would work.

It should also be noted that the framers specified several situations requiring super-majority votes. Treaties proposed by the president, for example, required 2/3 approval by the Senate. Constitutional amendments required 2/3 approval from both the House and the Senate followed by ratification of the amendment by 3/4 of the states.

Indeed, our founding ancestors seemed intent on avoiding, and in some cases confounding, pure democratic majority vote decision making processes in order to preserve the federal republic design.

Saturday, March 11, 2017

Hyde Park Tornado

"You've never seen it miss this house, and miss that house, and come after you."
--Dr Jo Harding (Twister)

Today marks the 100th anniversary of the Hyde Park Tornado. On the evening of March 11, 1917, a quarter mile wide tornado with 75 mph winds touched down south of Observatory Ave and east of Michigan Ave. Moving east, it destroyed or damaged over 100 homes and took three lives before leaving Hyde Park just east of Herschel Ave near today's Kilgour School.


The March 13, 1917 Cincinnati Enquirer lists the following homes as among those damaged or destroyed (tracking from west to east):

Michigan: 1268, 1285, 1288, 1289, 1382
Morten: 1268, 1270, 1311
Linwood: 2837, 2878, 2890
Duncan: 1306, 1310, 1317, 1318, 1319, 1330
Meier: 1306
Observatory: 2983, 2991, 2995, 3001, 3003, 3025, 3047, 3229 (all south side of street addresses)
Grace: 1279, 1301, 1302, 1305, 1308, 1309, 1312, 1317, 1320, 1325, 1329, 1339, 1352
Griest: 2940, 2944, 3048, 3050
Delta: 1211, 1213, 1240, 1302, 1311, 1312, 1323, 1324, 1331, 1342, 1351, 1357
Herschel: 1332, 1334, 1340, 1342, 1345, 1354, 1360

The street address pattern clearly defines the tornado's glide path thru streets south of Observatory.

Strangely, no damage reported on my street, Paxton. One reason could be that tornadoes are known to jump around. After wrecking the street directly to the west, Duncan, perhaps it jumped over Paxton and nicked Meier directly to the east (note only one address reported with damage on Meier) before tearing into Grace and Griest.


Another reason could be that most current houses on my block of Paxton were built after 1917. My house was built in 1925. Of course, that could mean that previous structures on the plats were blown down by the twister. Too bad the Victorian house adjacent to mine built in 1890 can't recount events for us.

Given my street address, however, it is evident from the damage pattern implied by the above data that my homestead, if it were standing at the time, would have been squarely positioned in harm's way of the Hyde Park Tornado one hundred years ago today.

Friday, March 10, 2017

Bond Maginot

Don't you forget about me
I'll be alone
Dancing you know it, baby
--Simple Minds

After creeping back to the top of the recent channel, Ten Year yields broke thru the 2.6% Maginot before retreating after this morning's jobs data indicated lower wage growth than some bond traders apparently expected.


Still, yields are flirting with the level some people think defines a new bear market in bonds.

Thursday, March 9, 2017

Spies Like US

"The government's been in bed with the entire telecommunications industry since the forties. They've infected everything. They get into your bank statements, computer files, email, listen to your phone calls... every wire, every airwave. The more technology used, the easier it is for them to keep tabs on you. It's a brave new world out there. At least it better be."
--Brill (Enemy of the State)

A growing theme of political discourse involves complaints about violations of what is commonly called 'right to privacy.' Concerns are being voiced about spying, surveillance, hacking into the private affairs of others. On the back of last week's accusation by President Donald Trump that his predecessor was tapping his telephones during the 2016 presidential campaign, Judge Nap explains how we have arrived at this point.

A key driver of the American Revolution was liberal use of general warrants by the British. At their discretion, British soldiers could write up an order that authorized them to search the property of any colonist. After the revolution was won, the framers wrote the Fourth Amendment to expressly prohibit the use of general warrants.

The Fourth Amendment clearly states several requirements for valid warrants. Warrants must be specific as to the person and place to be searched. Warrants must be accompanied by evidence of 'probable cause' to justify the search. Warrants must be issued by a judge who weighs the evidence and decides whether the probable cause evidence justifies a warranted search.

A major blow to right to privacy occurred in 1978 with the implementation of the Foreign Intelligence Surveillance Act. The act, introduced by Senator Ted Kennedy and signed into law by President Jimmy Carter, placed a secret judiciary (now known as a 'FISA court') between the nation's spies (e.g., the NSA) and foreign agents. The original theory was that the NSA would have to demonstrate to the secret FISA court probable cause that individuals to be spied upon were agents of foreign powers. By employing the FISA court as intermediary, it was thought that the NSA would be restrained from spying on ordinary Americans.

But even in its original form and intent, the FISA act constituted a dramatic federal government rejection of the constitutional standard that probable cause of crime must be apparent for the issuance of a warrant. Simply put, foreign agency, by itself, is not a crime.

Thus began the trip down a slippery slope that was all too predictable. Probable cause of foreign person hood morphed to probable cause of talking to a foreign person which morphed to probable cause of being able to talk to a foreign person which morphed to dropping the probable cause standard altogether.

The twisted logic became anyone who speaks to anyone else who could ultimately speak to a foreign person should be subject to surveillance. By extension, the NSA argued that it would be more efficient to spy on everyone in the United States than to isolate people deemed as 'bad.' The courts bought that argument.

As such, FISA warrants have become consummate general warrants. They allow intelligence agents to listen to whomever they wish and to retain whatever they hear.

Subsequent extensions of Owellian FISA laws, such as the Patriot Act and other programs done in the name of national security, have multiplied the number of jackboot prints on the Fourth Amendment.

The digital nature of modern communications permits the NSA to capture all keystrokes made on networked computers in or linked to the US. NSA also captures all phone conversations made within the US or to someone in the US. The NSA can download any phone conversation, text, or email at will. The NSA captures the digital equivalent of 27 Libraries of Congress each year.

Let's return to accusations that Obama was behind a FISA warrant to obtain Trump phone conversations during the presidential campaign. The accusations are absurd because he doesn't need a warrant. The NSA already has digital copies of all Trump phone conversations for the last 10+ years. Because the NSA is part of the Department of Defense, it is subject to the orders of the president in his capacity as commander in chief.

If the commander in chief wants something that a military custodian already has or can create, such as transcripts of an opponent's phone conversations with political strategists during a presidential campaign, he merely has to ask for them.

After fighting wars to preserve our right to privacy, we have allowed our elected representatives to crush that right.

Wednesday, March 8, 2017

Norse Up

"There's a...tradition in tournament play to not talk about the next step until you've climbed the one in front of you. I'm sure going to the going to the finals is beyond your wildest dreams, so let's just keep it right there."
--Norman Dale (Hoosiers)

When I first joined the faculty of Northern Kentucky University over sixteen years ago, the school was bidding for more legitimacy among institutions of higher ed. Although we had grown into the third largest Kentucky state school by enrollment behind UK and Louisville, NKU was still seen by many as a commuter school with little on-campus life after the classroom doors closed.

NKU's sports programs lent to the stigma. Although various men and women's teams had achieved championship status, NKU's athletic prowess was confined to the Division II classification. By the time I arrived at NKU, conversations about how to elevate NKU athletic programs to DI status were well underway.

About a decade later the day finally came. NKU announced plans to begin a four year re-classification process to NCAA Division I athletics beginning in the 2012-13 competition year. After three years in the Atlantic Sun conference, NKU joined the Horizon League in Fall of 2015.

In August of last year, the NCAA granted NKU active status as a Division I institution. Practically, this meant that NKU athletic teams now had full opportunity to compete for berths in NCAA championships.


Among the programs least likely to reach championship status quickly seemed to be men's basketball. Yes, NKU had a fine new 10,000 seat arena. Plus it had hired a bright young coach and sported a roster that included some Mr Kentucky basketballers. But we're talking about the most prestigious and competitive of all NCAA championships--a tournament affectionately known as 'March Madness.' To get into the Big Dance, NKU men's basketball, like most other newly anointed DI programs, would likely have to wait in line a while.


Last night, NKU defied the odds. A fourth seed in the conference tournament, NKU beat UW-Milwaukee to win the Horizon League championship. The 24-10 Norse have thus secured a birth in the NCAA Division I tournament in their first year of eligibility.

It goes without saying what this means to both the athletic program and to the school at large. In the process of legitimation, this event marks a significant advance.

Tuesday, March 7, 2017

Healthcare is No Right

Who would be the fool to take you
Be more than just kind
Step into a life of maybe
Love is hard to find
In the church of the poison mind
--Culture Club

Like its predecessors Medicare and Medicaid, the Affordable Care Act has propagated the falsehood that healthcare--stated more precisely, access to healthcare goods and services regardless of ability to pay--is a right. Properly defined, a right is something that exists simultaneously among people that imposes no obligation on others except for the requirement of non-interference.

Access to healthcare regardless of ability to pay is not a right because it interferes with peaceful production and exchange. If people seek to acquire healthcare goods and services without paying what producers ask, then they must either a) force producers to discount or work pro bono, or b) force a third party to pay for their healthcare. This approach, also known as socialized medicine, is akin to slavery, and tramples the natural rights of individuals to live their lives as they see fit.

Rather than a right, healthcare benefits conferred on some at the expense of others are more appropriately viewed as a privilege.

That government is seen as a means to enforce this privilege compounds the wrong. The only rights that we can legitimately delegate to government are ones that we possess as individuals. None of us has the right to forcibly take property from one person for the benefit of another.

Because as individuals we cannot forcibly take healthcare goods and services from others, we cannot legitimately delegate authority to do so to government.

Monday, March 6, 2017

Anti-Democratic

But if you leave
Don't look back
I'll be running the other way
--OMD

Savvy point made by Judge Nap near the bottom of his essay: "The whole purpose of an independent judiciary is to be anti-democratic."

What this means is that the court's job is to protect people from unconstitutional behavior that may emanate from the two branches of the federal government that are elected by democratic means.

It is the judiciary's responsibility to ensure that government installed by democratic process cannot run roughshod over an individual's life, liberty, or property.

Sunday, March 5, 2017

Innuendo

To the heart and mind
Ignorance is kind
There's no comfort in the truth
Pain is all you'll find
--Wham

One form of cognitive dissonance frequently displayed among political partisans is the tendency to support unsubstantiated and disparaging remarks directed to the other side while being completely intolerant of similar innuendo conveyed by the other side.

Social identity theory predicts such behavior. We will be less critical of actions associated with the 'in' group and more critical of behavior associated with the 'out' group.

As is the case with all affiliations, political partisanship clouds judgment. The stronger the political affiliation, the greater the inconsistency when it comes to innuendo.

Saturday, March 4, 2017

Populism Math

'Cause the simple man, baby, pays the thrills
The bills, the pills that kill
--John Mellencamp

In 1992 Murray Rothbard mathed out the concept of populism. He proposed that we are ruled by a coalition of Throne and Altar. Throne represents a mixture of politicians, bureaucrats, and various big business groups. Altar represents technocrats and intellectuals, including academics and media establishment who constitute the opinion molding class in society.

Throne and Altar have, thru the redistributive operations of big government, privileged and elevated a parasitic Underclass. Through their political alliance with strong armed government agents, the Underclass effectively loots and oppresses the bulk of middle and working class America.

These exploited people are the populists (which resemble Sumner's Forgotten Man).

The math looks like this: (Throne + Altar) - Underclass = Populists

Friday, March 3, 2017

Walls as Deterrents

"We defend this city, not to protect these stones, but the people living within these walls."
--Balian of Ibelin (Kingdom of Heaven)

A common argument against Trump's Wall is that walls do not keep people from crossing borders. People can climb them, go around them, etc.

An underlying assumption in this train of thought is that all border crossers are equally talented and motivated. But they are not.

Similar to locks, safes, et al,, walls deter crime--particularly crimes committed by 'low level' criminals. When we lock our car doors, for instance, we deter less sophisticated thieves who possess neither the know-how, patience, and/or desire to break the security system.

Even when criminals are 'enthusiastic' in nature, deterrents buy time for potential victims. The longer it takes to break the lock, crack the safe, or scale the wall, the more likely that the criminal gets caught. That prospect alone might turn away capable criminals. If perps decide to proceed, then they realize that they are on the clock and exposed to detection.

Survey questions to those who oppose Trump's Wall. 1) Do you lock your car doors when leaving your vehicle unattended? 2) Do you lock your home at night? 3) Do you have a exterior fence or wall on your property? 4) Why do you do 1), 2), or 3) when you know that there are individuals out there who are capable of breaking your security?

There may be other reasons why Trump's Wall is truly a bad idea. But arguing that it will not serve as a deterrent to illegal border crossings is a red herring.

Thursday, March 2, 2017

Channeling Yields

Stand up in a clear blue morning
Until you see what can be
Alone in a cold day dawning
Are you still free?
Can you be?
--Steve Winwood

While stocks party, Ten Year yields have quietly crept back to the top of the multi-month channel.


As noted previously, a decisive break higher creates a big wind in the face of both stocks and the economy at large.

Wednesday, March 1, 2017

Dow 21K

I keep a close watch on this heart of mine
I keep my eyes wide open all the time
--Johnny Cash

Another milestone this am as the Dow crossed 21,000 on this morning's gap and go. Markets woke up enamored over President Trump's speech to Congress last night including, I'm sure, his renewed promise of $1 trillion in infrastructure related stimulus spending.


'Twisty' stochastics suggest that this rally could turn on a dime. On the other hand, we're in uncharted territory where optimism abounds. A blow off higher is not out of the question.

no positions