Thursday, December 31, 2015

Sunstein's Sophistry

"That's right. Brantley is Whitfield; Whitfield is Brantley."
--Brantley Foster (The Secret of My Success)

If you're proponent of political correctness, then you need to counter criticisms of PC to keep the herd in line. Enter Cass Sunstein, propagandist-in-chief of the Obama administration. Using a recent paper grounded in signaling theory as a backdrop to provide an air of legitimacy, Sunstein argues that political incorrectness is actually politically correct when viewed in certain circles.

Thus, Republicans who take politically incorrect positions with respect to Democratic policies and ideologies are doing so in order to be popular (i.e., politically correct) with prospective voters.

This is classic propagandist strategy. Take a term and, using some type of expert support, try to reverse or obscure its meaning. Those in the herd, observing that the argument seems to have the backing of experts, slurps it down without thinking it through.

Work oriented toward truth begins by defining key terms and explaining why those definitions are valid. Notice that Sunstein offers no definition of political correctness at the outset. That's because he wants to roll his own. Bernaysian propagandists know that they must control meaning rather than cede it to outsiders.

Individuals seeking to hone their critical thinking skills should have little trouble dismantling Sunstein's sophistry.

Wednesday, December 30, 2015

Middle Class Shrinkage

Play the tape machine
Make the toast and tea
When I'm mobile
--The Who

In his discussion of why the middle class is shrinking, Prof Steve Horwitz shares an interesting graphic developed by the Financial Times using data from a recent Pew Research study.

The theme of both the FT and Pew pieces is that the middle class is losing ground--a message that is popular at the present time.

However, the graph indicates that since 1971 the distribution of wealth has gradually become less skewed to the right, meaning that the middle class has generally moved up, rather than down, the income ladder. Watch the graph and observe an overall increase in the fraction earning more than $80,000 and an overall decrease in fraction earning less than $80K.

Prof Horwitz suggests that this progress should be expected. Indeed, while all will not realize the benefit equally, incomes should generally improve as productivities and income mobilities increase.

What he misses, however, is that, as indicated by the FT graphic, nearly all of the reduction in the income distribution skew occurred in the first 25 or so years of the graphic. By the early 2000s, little further improvement in income can be observed--save for the extreme right end $200K+ wage earners (which, naturally, captures the attention of the envious).

Why the slowdown in progress? Because interventionary forces have been applied at increasing frequencies and magnitudes, and since the early 2000s have been building to extreme levels. These forces hamper markets and serve to skew incomes and wealth in unnatural manners. Monetary policies and other interventions have impaired general economic progress and granted windfalls to the wealthy.

In unhampered markets, the middle class becomes more mobile and gets richer. In hampered markets, the condition of the middle class stagnates and declines.

Tuesday, December 29, 2015

Political Correctness

"You see, according to Cacteau's plan, I'm the enemy. Because I like to think. I like to read. I'm into freedom of speech, freedom of choice. I'm the kind of guy who would sit in the greasy spoon and think, 'Gee, should I have the T-bone steak or the big rack of barbequed spare ribs with the side order of gravy fries?' I want high cholesterol. I want to eat bacon, butter, and buckets of cheese, alright? I want to smoke a Cuban cigar the size of Cincinnati in a non-smoking section. I wanna run around naked with green jello all over my body reading a Playboy magazine. Why? Because maybe I feel the need to, okay pal? I've seen the future. You know what it is? It's made by a 47 year old virgin in gray pajamas soaking in a bubble bath drinking a broccoli milkshake and thinking 'I'm an Oscar Meyer Wiener.' You wanna live on top? You gotta live Cacteau's way. What he wants, when he wants, how he wants. Your other option: come down here, maybe starve to death."
--Edgar Friendly (Demolition Man)

Article proposes that political correctness is about control rather than politeness. Political correctness (PC) is defined as "the conscious, intentional manipulation of language intended to change the way people speak, write, think, feel, and act, in furtherance of an agenda." Use of positive substitute symbols is a common tool of those seeking to foster political correctness.

Political correctness can be considered propaganda. However, unlike other forms of propaganda, PC tends to be all-encompassing, seeking to mold individuals into submissive beings with no capacity for critical thinking. In a politically correct world, natural law is diverted and rerouted. Truth is not absolute, and can be bent to serve the purposes of those who manipulate language.

The author credits much of 19th century Austrian Edward Bernays with much of the basis of political correctness. Bernays was a press agent. He was employed by the Wilson administration to gin up popular support for US entry into WWI. He was also employed by the private sector to direct several successful advertising campaigns for consumer products such as Ivory soap and Lucky Strike cigarettes.

Central to Bernays approach was the exploitation of herd psychology in the "manufacturing of consent," a term used by British psychologist Wilfred Trotter in his work Instincts of the Herd in Peace and War published in 1919.

Herd instinct relates to concepts in social identity theory and involves deep seated desire to win the approval of social groups. Through the herding lens, the desire to fit in is seen as paramount and overwhelms most other human urges.

Bernays viewed herd instinct as volatile, irrational, and unpredictable. To control it, herd psychology must be steered by 'smarter people' in many small, imperceptible ways. Imperceptible because it is important that the people being herded do not realize that their thoughts are being influenced.

As such, Bernays employed techniques designed under the basis of several assumptions. One was that people are generally not creative and individualistic at heart. Instead, they are malleable and desperate to fit in with groups. He also understood the importance of third party authorities (e.g., athletes, actors, politicians, wealthy elites) to promote causes and products. People take their cues from positions of authority. Finally, he understood the role that emotion plays in tastes and preferences. It is not the substance of the political candidate or consumer product that we deem important, Bernays believed, but rather the emotional content that affects us.

Today, PC campaigns are designed with similar assumptions in mind. People who permit statists to frame debates and control narratives are likely to cede power over their lives.

Monday, December 28, 2015

Central Banks, Manipulation, and Risk

"Looking good Windsor. Now watch it. 30 knot crosswinds and the runway is icy. Attaboy. We've got ya...we've got ya...we've got ya."
--Col Stuart (Die Hard 2)

Good explanation of how central banks have manipulated markets and elevated risk. Suppressing interest rates has enabled leveraged speculation and forced more risk taking in search of yield. Moreover, bailing out market participants during price declines has erected an enormous moral hazard.

Near term cycles siphon off some confidence in central bank capability to keep the charade alive. At some point, the residual CB confidence will be insufficient to coil the risk spring back after it has been let go. by natural rebalancing forces

It seems unlikely that the majority of market participants will be able to correctly anticipate when this will be.

position in SPX

Sunday, December 27, 2015

Legitimizing Plunder

You, telling me the things you gonna do for me
I ain't blind, and I don't like what I think I see
--Doobie Brothers

In this recent missive concerning forcibly taking from some for the benefit of others, the always insightful Walter Williams makes this observation about democracy:

"A majority consensus does not does not make acts that would otherwise be deemed immoral moral."

Indeed. Many people like to use majority rule to legitimize plunder. Robbing a person on the street is deemed illegal. But forcibly taking people's property indirectly via strong armed tax collectors that have been approved by majority vote is deemed legal.

In this way, democracy becomes an instrument of offensive force.

Saturday, December 26, 2015

Signaling Theory

Destroyed by ABC
I hate to bite the hand that feeds me so much information
--Duran Duran

Prof Tim Groseclose discusses signaling theory in the context of controversy surrounding Prof Richard Sander's work on mismatch theory at UCLA. One implication of signaling theory is that the credibility of a message depends in part on the tastes and values of the person conveying the message.

If a conservative criticizes affirmative action, stating that it often puts minorities at a disadvantage in environments such as higher ed, then many observers would discount the message's credibility because it is generally assumed that conservatives oppose affirmative action regardless of the logic and facts at hand.

However, if a progressive (such as Prof Sander) similarly criticizes affirmative action, then that criticism is likely to be seen as more credible because people generally expect progressives to support such programs unilaterally.

Groseclose suggests that this helps explain why the left has attacked Sander so viciously and tried hard to suppress discussion of his research. Progressives realize that arguments against affirmative action, particularly those backed by solid research, that are advanced by one of their own are of great danger to their ideological position.

Friday, December 25, 2015


"The child of imagination is the child I fear."
--Herod (The Greatest Story Ever Told)

He is with us once again.

Thanks be to God.

Thursday, December 24, 2015

Capability and Capacity

And maybe you'll go away and never call
And a taste of honey is worse than none at all
--Smokey Robinson & the Miracles

Capability is skill or talent for doing something. Thinking, observation, doing, repetition build capability.

Capacity is the maximum amount of output possible from production. The upper limit, threshold for production volume.

While often related, capability and capacity are not the same. A process can be capable of producing something while have limited capacity. On the other hand, a process may be able to produce high volumes but have little skill for delivering valuable output.

It is usually desirable, of course, to possess both capability and capacity.

Wednesday, December 23, 2015

Regulation and Prices

My creation
Is it real?
--Oingo Bingo

Graphic of price changes in select product categories over time. Many of the categories that show price increases are highly regulated, while those showing price declines are less regulated.

The implication is that unhampered markets encourage higher productivity. Higher productivity (more output per unit of input) drives prices lower.

Tuesday, December 22, 2015

Strong Manufacturing

Well we're living here in Allentown
And they're closing all the factories down
--Billy Joel

Common wisdom has it that US manufacturing is on the decline. Data to support such claims are usually percentages of US GDP tied up in manufacturing--which indeed indicate that the fraction of US output attributed to manufacturing has been declining for years.

On an absolute basis, however, the value of US manufacturing output has been increasing. Currently, America produces more manufactured output than any other country (with the exception perhaps of China). And the value of US output exceeds the total output of most other countries ($2 trillion+).

When viewed in this manner, US manufacturing can be seen as very strong rather than weak and getting weaker.

Monday, December 21, 2015

Narrow Mindedness

There's a storm on the loose
Sirens in my head
I'm wrapped up in silence
All circuits are dead
--Golden Earring

A few Muslim extremists commit acts of terror. Calls go out to limit the liberty of all Muslims. A few criminals with guns commit acts of murder. Calls go out to limit the liberty of all gun owners.

Many who oppose the former support the latter. And vice versa.

Funny how the human mind works.

Sunday, December 20, 2015

Gathering Intel

"Figured you'd gather your intel from up here."
--Nelson Fox (Above the Law)

Have been watching Intel (INTC) as a tell for the Teflon-like big-cap tech group. With Friday's drop of a bone, INTC appears to have broken the recent uptrend line on high volume.

Will be interesting to see how the trend chasers react to this--particularly if the stock drops below its current perch on the 50 day moving avg. Not much support below that--200 day at 31-ish and previous reverse head-and-shoulders neckline at 30-ish.

position in INTC

Saturday, December 19, 2015

Wishing for Noncompliance

I've had enough of being trodden on
My passive days are gonna be long gone
If you slap one cheek
Well, I ain't gonna turn the other
--The Who

It would be wonderful if the below cartoon reflected reality this Season.

Imagine a time where the people do not bow down and comply with wishes to pull the statist sleigh.

A worthy wish this Christmas.

Friday, December 18, 2015

Trannie Tell

"We're going after the majors."
--Bud Fox (Wall Street)

Trannies have been providing a useful tell here. Continuing to diverge from the major indexes, the transports are marking a 20 month low here.

Will the majors follow?

position in SPX

Going Down

I'm sick and tired of you setting me up
Setting me up just to knocka, knocka, knocka me down
--Bruce Springsteen

The Fed raised rates for the first time in a decade on Wed and the market rallied a percent and a half. Yesterday, the SPX gave back those gains with an 'outside day.'

Today we're seeing follow thru to the downside with another -1%+ midday.

SPX now faces the 2000ish Maginot where it should find some intuitive support. If not...

position in SPX

Thursday, December 17, 2015

Evidence Based Ignorance

We are matching spark and flame
Caught in endless repetition
--The Fixx

Socialists always ignore theoretical arguments against government programs. Then, when the programs do not deliver as hoped, these partisans ignore the evidence as well.

Welfare, Keynesianism, education, healthcare, gun control, et al.

None of the condemning evidence stops socialists from not only supporting existing programs but escalating them.

Always in motion toward the chaos endpoint.

Wednesday, December 16, 2015

Freedom is Inequality

Benjamin Martin: May I sit here?
Charlotte Selton: It's a free country. Or at least it will be.
--The Patriot

Frank Chodorov understood that freedom is not about equality.

It is a condition of inequality grounded in the natural differences inherent to man. No law can force those differences away.

Tuesday, December 15, 2015

Outdated Self-Defense?

Bud Fox: It's called pasta now, Dad. Spaghetti is out of date.
Carl Fox: Yeah? Well, so am I.
--Wall Street

Piggybacking on this recent Washington Post editorial, this article dispels the laughable notion that the right to bear arms is no longer relevant as put forth by the framers. Since the Constitution was ratified, there have been myriad marquee examples of private violence and public tyranny.

Slavery, Jim Crow, racial violence, wartime concentration camps, Indian removals, land confiscation, wars. While they could not possibly foresee their specific form, the framers well understood that threats to person and property would be inevitable, and that those state-of-the-art threats would require state-of-the-art self defense.

It can't happen here, they say.

Nonsense. It has and it will.

Monday, December 14, 2015

Climate-Inspired Terror

Matthew Hollis: Last night never happened.
Jennifer Lyons: I know. I was there when it didn't.
--Blame It on Rio

Since the Paris shootings last month, watermelon socialists have piled into the fable that global warming is driving increased terrorism worldwide. Polluters are altering climate in manners that drive desperate, aggressive responses from third world countries, particularly Islamic ones, don't you know.

Capitalists, naturally, become drivers of terrorism in this latest narrative of delusion.

More Junk

All you got is this moment
Twenty first century's yesterday

More heaviness in junk bonds this am.

We'll see how it manifests...

position in SPX

Sunday, December 13, 2015

Specialization and Adaptation

There's a room of shadows that gets so dark brother
It's so easy for two people to lose each other
--Bruce Springsteen

Following up on the previous post, specialized operations, while enjoying productivity advantages in stable environments, face adaptation challenges in turbulent environments. Narrow task portfolios contain less activities applicable toward doing new things necessary for adaptation.

Diversified operations, on the other hand, have broader task portfolios that are likely to contain skills that can be converted into novel, innovative activities that facilitate adaptation in uncertain situations.

Specialization should be preferable in predictable environments but potentially a liability as instability grows.

Saturday, December 12, 2015

Make or Buy

Are young but getting old before our time
We'll leave the TV and radio behind
Don't you wonder what we we'll find
Stepping out tonight
--Joe Jackson

The make or buy decision involves whether to produce a good or service internally (insourcing) or to buy that good or service on the market (outsourcing).

Outsourcing, of course, has been increasing in popularity over the past few decades. There are several reasons why this has been so. Outsourcing increases degree of specialization which has long been recognized (e.g., Smith 1776) to increase efficiency and innovation thru learning-by-doing effects and lower switching costs.

Outsourcing, however, comes with some negatives. When a good or service is contracted out, the buyer loses control. Costs, quality, access becomes less predictable and subject to undesirable outcomes. Transaction costs also increase and come sometimes be substantial.

Outsourcing might also reduce adaptive capacity as task portfolios are less likely to include activities that enable the sensing the need for change, unlearning old habits, and learning new skills. As environments become more uncertain, then this lack of adaptive capacity is likely to matter more.

Insourcing, on the other hand, alleviates negatives of outsourcing. Of course, it takes on the burden of not featuring the positives of outsourcing.

Friday, December 11, 2015

Broken Down Junk

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

Heavy day in the market with junk bonds leading the way lower.

Ominous sign if you believe high risk leads markets...

position in SPX

House Calls

You had me down 21 to zip
Smile of Judas on your lip
--Robert Palmer

Discussion of the decline in physicians house calls over the past 50 years. Studies estimate that house calls comprised about 40% of doctors's visits in the 1940s before slipping into decline in the 1960s. Today they make up less than 1% of consultations.

Author proposes that subsidized healthcare via private insurance and Medicare et al have distorted market signals. Namely, docs are less likely to sense customer satisfaction signals w.r.t. house calls if they longer make house calls since patients no longer vote with their wallets.

Wednesday, December 9, 2015

Watch List Guns

"Ladies and gentlemen, this is your captain speaking. I have the only gun on board. Welcome to Con Air."
--Cyrus Grissom (Con Air)

As part of his ongoing efforts to marshall increased support for gun control, President Obama has stated several times recently that people who have been placed on 'no-fly lists' assembled by the federal government should not be allowed to purchase firearms.

Implied, of course, is that such 'no-fly lists' are legitimate.

Ron Paul observes the fallacy of such a position, as government generated watch lists of any kind are prone to mischief and subject to error. The constitutionality of such lists is certainly questionable.

RP suggests that gun control energy is better placed disarming the government, particularly the military, who has been wrongly utilizing firearms for offensive rather than defensive purposes.

Tuesday, December 8, 2015

Inversion Increase

I've had enough of the falseness
Of a worn out relation
Enough of the jealousy
And the intoleration
--REO Speedwagon

Study examines the increase in US corporate inversions. Inversions are buyouts of a foreign entity in which the combined company moves to the foreign jurisdiction. A recent large example in the US is Pfizer's (PFE) merger with Ireland's Allergan.

The study indicates that US inversions have been on the rise since the late 1990s.

The primary motivator, of course, is the high US corporate tax rate which pushes 40%. That coupled with declining corporate tax rates in other parts of the world has many US corporations eyeing greener pastures.

An unfortunate consequence of higher taxes is capital flight.

no positions

Nonconfirmation Continues

Open up
Everything's waiting for you
--Fleetwood Mac

Trannies continue to be a fly in the mud as they continue to diverge from the major indexes.

If/when this nonconfirmation matter remains to be seen, of course. But it does constitute a technical headwind for stocks at the moment.

position in SPX

Monday, December 7, 2015

Media Consumption and Political Ideology

Laura McNeal: What's the matter, won't the pieces fit together?
P.J. McNeal: Some of them, but they make the wrong picture.
Laura McNeal: Pieces never make the wrong picture. Maybe you're looking at them from the wrong angle.
--Call Northside 777

Interesting study by Pew Research Center on media consumption of political ideologies as modeled by the unidimensional 'left/right' scale. Several accompanying charts visually display the differences in media preferences between left and right.

Top media outlets:

Trust/distrust of various media outlets:

Pew also placed various media outlets on a scale according to the average political ideology of a respondent who got information from the outlet in the last week:

It strikes me how closely the positioning of media outlets here, particularly the skew, compares to Groseclose and Milyo's (2005) slant quotients.

The findings here are consistent with the proposition that individuals prefer to consume media that reinforces, rather than challenges, their ideological beliefs.

Sunday, December 6, 2015

Compartmentalized Freedom

No more running down the wrong road
Dancing to a different drum
Can't you see what's going on
Deep inside your heart?
--Michael McDonald

While walking the neighborhood recently, I saw a sign posted in the rectory yard at my church which read "Support Religious Freedom," likely in reference to pro-life or Obamacare issues. Why just religious freedom? I wondered. Why not all freedom?

It is interesting that people tend to compartmentalize freedom. Freedom of religion, speech, assembly, association. Economic freedom. Freedom to protect person and property against invasion.

By thinking about freedom along various dimensions, it makes freedom more tangible as we can relate the construct more directly to activities and issues close to us in our daily lives.

The danger of such conceptual compartmentalization, however, is that it may make some people willing to sacrifice one dimension of freedom for another, or more willing to compromise the freedom from others in order to obtain more of the freedom that they desire. Currently, for example, Catholic church policymakers promote religious freedom while expressing willingness to restrict economic freedom.

I have yet to encounter a well-reasoned argument for why a particular dimension of freedom is more valid or more important than others. Why religious liberty but not economic liberty, for instance?

It is more straightforward to argue that, by their nature, the dimensions of freedom are inseparable. Limiting any dimension of freedom not only makes people less free, but ultimately restricts those dimensions of freedom that they preferentially value.

Saturday, December 5, 2015

Gun Violence and Emotional Capture

Mandy's in the back room handing out the Valium
Sheriff's on the air waves talking to the DJs
Forty-seven heartbeats beating like a drum
Got to live it up, live it up
Ronnie's got a new gun
--Escape Club

There may be no event more capable of eliciting emotional capture than mass shootings similar to the San Bernandino shootings earlier this week. Gun grabbers use the event to gin up support for stricter gun control laws. Pro-gun entities use the event to rally their base. The actions of both sides serve to goose gun sales in the near term.

The media plays their part as well, as reporting of events, often in a slanted manner, serves to elevate popular perceptions of gun violence to unrealistic levels. Think tank Pew Research Center recently reported that a majority of people believe that gun violence in the US is on the rise even though it has been, as these pages have similarly observed, declining for two decades.

Perceptions about the frequency of mass shootings (definitional issues notwithstanding), which have not meaningfully changed for 25 years, are similarly skewed.

All of this against a backdrop of increasing gun ownership and concealed carry.

An environment fertile for System 1 thinking and for those willing to exploit it.

Friday, December 4, 2015

Citation Slant

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

One of the more obvious expressions of confirmation bias involves citing sources that individuals believe lend more 'objectivity' to their side of an argument (e.g., a research study, 'expert' opinion) without explaining why those sources are legitimate and without bias while at the same time questioning or dismissing sources cited by those on the other side of the argument as obviously biased.

This practice provides the basis for Groseclose's research on media bias using 'slant quotients.'

For arguments to be taken seriously, individuals must demonstrate both why their cited sources are valid and why sources cited on the other side of the argument are not.

This is a tall order for most people.

Thursday, December 3, 2015

Profits and Prejudice

"Greed in all of its forms--greed for life, for money, for love, for knowledge--has marked the upward surge of mankind."
--Gordon Gekko (Wall Street)

"All they care about is the bottom line" is a claim often uttered by people who oppose free markets and capitalism. Many of those same people also claim that those same unhampered markets discriminate and are in need of regulation in the name of equality.

Well, which is it? It is difficult to be both profit oriented and bigoted in free markets.

As observed here (and on these pages as well), prejudice is expensive in unfettered competitive environments. Bigots who turn away customers because of their skin color, for instance, or refuse to hire talent of a particular gender will pay dearly by leaving money and productivity on the table for rivals to exploit.

In unhampered markets, bigoted operators get weaker while those who care about the bottom line get stronger.

Stated differently, capitalism tempers prejudice in the name of self-interest.

Wednesday, December 2, 2015

Hedgie Herd in Gold

"You know why fund managers can't beat the S&P 500? Because they're sheep, and sheep get slaughtered."
--Gordon Gekko (Wall Street)

ZeroHedge reports the record hedge fund short positions in gold and other commodities. At 1.4 million oz net short, it constitutes the most bearish short position since the CFTC began tracking the data in 2006.

ZH also observes that epic bearish sentiment in 'paper' gold coincides with increasing demand for physical metal.

Does history suggest that hedgies are leaders or followers of movements such as this?

position in gold

Tuesday, December 1, 2015

Global Warming Fiddlers

Fantasy and microchips
Shooting from the hip
Something different
We're makin' weird science
--Oingo Boingo

Article discusses the manipulation of temperature data by global warming proponents in order to show that the earth has warmed more than the data actually indicate. One of the first posts on these pages questioned the validity of temperature time series data. Any series that is 'adjusted' for myriad concern is open to mischief.

It's a good bet that watermelon socialists are among the chief fiddlers here.

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.

Saturday, October 31, 2015


"And, Lenny, you will have saved the lives of millions of registered voters."
--Dr Peter Venkman (Ghostbusters)

Every day is Halloween in Washington DC. People seeking to trick others in order to treat themselves and their interests.

Th marquee trick this week involved increasing the debt ceiling to over $19 trillion so that some may enjoy their treats.

The real scare occurs when the bill comes due.

Friday, October 30, 2015

Breadth Still Declining

Some try to tell me
Thoughts they cannot defend
Just what you want to be
You will be in the end
--Moody Blues

In a pattern evident for months, stock market breadth continues to weaken despite the current rally. For example, on an an equal weight basis, the SPX is marking near 3 year lows.

The implication is that a few mega cap names are propping up the major market cap weighted indexes.

Support dwindling toward fewer names is typically bearish--sometimes severely so.

position in SPX

Thursday, October 29, 2015


"You gotta get with the program if you wanna catch this guy."
--Luther Whitney (Absolute Power)

Consumers of mainstream media last week were largely led to believe that Hillary Clinton made a mockery of the House Benghazi hearing last week and strengthened her presidential position. Judge Nap thinks otherwise.

In particularly, he suggests that Clinton ignored an important audience to the hearings: the FBI and federal prosecutors. That audience was looking for evidence of perjury, misleading statements, and federally defined 'bad acts.' The judge thinks that they found such evidence. He believes that Clinton perjured herself by saying that she didn't know that the US was supplying arms to Libyan rebels. In several related questions, he thinks that she uttered misleading statements to Congress.

In times of trouble, the Clinton family strategy has been to lie as long as possible and hope that a) its mainstream media minions get behind the cause, and b) that the public attention span tires of the process.

Such a strategy ignores the specter of federal investigators who may be unwilling to play along.

Wednesday, October 28, 2015

Raising the Debt Ceiling (Again)

In violent times
You shouldn't have to sell your soul
In black and white
They really, really ought to know
--Tears for Fears

Despite Jacob Hornberger's fine argument as to why the debt ceiling should not be raised, the House jammed thru a budget bill that would raise the debt ceiling for the 79th time. The new debt ceiling would be $19.6 trillion.

Rand Paul says that he will filibuster the bill when it hits the Senate floor. Paul does have some experience with this practice.

However, absent a miracle from RP or others, the mortgage on our future is getting more burdensome once again.

Tuesday, October 27, 2015

Canada Spending

I took it all for granted
But how was I to know
That you'd be letting go
--Bryan Adams

When measured as a % of GDP, federal government spending in Canada has trended lower vs the US. Since the mid 1990s, the Canadian government has cut spending programs, privatized government activities, reduced tax rates, and slashed debt. In 2015 Canadian government spending had fallen to 14% of GDP compared to 21% of GDP for the US.

Perhaps the gap will narrow now that a new Liberal regime was elected last week in Canada. The Liberals have promised to raise taxes on high earners, spend more on infrastructure, and run deficits to stimulate the economy.

It would be a shame to see the progress made by our northern neighbors wiped out in a shift from prudence to profligacy.

Monday, October 26, 2015

Producitivity and Price

I'm not expecting to grow flowers in the desert
But I can live and breathe
And see the sun in wintertime
--Big Country

Nice example of what happens to price as productivity improves. Price of a bushel of corn has declined as productivity (bushels of corn produced/acre) has gone up.

We have been conditioned to believe that the natural direction of prices is higher. Nothing could be further from the truth. As long as productivity improves, there should be downward pressure on prices.

If prices are going up instead of down, then it is either because a) productivity is declining, or b) someone is interfering with market pricing mechanisms (e.g., price ceilings/price floors, increasing money supply).