Stability Leads to Instability

"Look, we just want the money. You guys can walk away. We won't kill you."
--Jim (Hard Rain)

Snippet from a hedge fund CIO that views central bank policy as grounded in the stability motive. In the name of stability, CB actions have focused particularly on avoiding price declines. To the extent that they been successful, these policies have encouraged investors to sell vol at every opportunity.

As the author acknowledges, Minsky theorized that 'forced stability' thru policymaking distorts economic systems and creates moral hazard as investors take more risk than they should.

At some point, the illusion of stability lifts and the walls come tumbling down.

Intervention in the name of stability merely postpones future instability. That future instability is likely to be far more severe as well.

Big, Bold, Simple

Took a ride, I went downtown
The streets were empty, there was no one around
To the place that we used to know
Been all the places that we used to go
--The Plimsouls

Rand Paul outlines some features of a big, bold, simple tax cut plan.

-->Cut corporate tax rates to 15% or less. Eliminate corporate deductions and loopholes. Make the tax simple.

-->Allow repatriation of capital held in foreign countries at a 6.5% tax rate. Direct tax revenue from repatriated capital into an infrastructure fund.

-->Cut taxes for all Americans. Eliminate 'revenue neutral' tax plans that merely shift taxes paid from one group to another.

As Paul submits, to truly 'drain the swamp,' money must be taken away from Washington and returned to the people.

Promoting Resentment and Envy

"The devil himself?"
--Mary Rafferty (The Valley of Decision)

On the back of yesterday's post, here's a classic headline courtesy of NYT:

"Trump Tax Plan Would Shift Trillions From U.S. Coffers to the Richest"

The dishonest headline implies that the rich are getting some sort of gift or transfer payment. The truth is that those 'trillions' were originally owned by the 'rich.' A tax cut essentially returns property to its rightful owners.

Headlines like the above promote pathologies of resentment and envy.

Tax Cut Bias

And so we turn on the TV one more time
And see that everything is fine
--Flesh For Lulu

One way bias is revealed is by how a situation is framed. Take a tax cut proposal, for instance.

If you are government or a recipient/supporter of forcible redistribution of economic resources, then you are prone to view a tax cut as a cost. Fewer taxes collected reduces state power.

If you are a taxpayer or a non-recipient/opponent of forcible redistribution of economic resources, then you are prone to view a tax cut as a benefit. Fewer taxes collected increases social power.

Environmental Hoodwinking

"A toast...to the end of the world."
--David Levinson (Independence Day)

Prof Williams reviews various doomsday predictions served up by environmentalists over the past few decades. It goes without saying that they have been spectacularly wrong.

Williams suggests that "hoodwinking Americans is part of the environmentalist agenda." He quotes an environmentalist from the late 1980s saying that dramatic, scary statements that strike a balance between "being effective and being honest" were necessary for the movement.

A senator from Colorado added that policymakers had to "ride the global warming issue. Even if the theory of global warming is wrong...we will be doing the right thing anyway in terms of economic policy and environmental policy."

Spoken like true watermelon socialists.

Viewpoint Discrimination

Teach the children quietly
For some day sons and daughters
Will rise up and fight while we stand still
--Mike & the Mechanics

Judge Nap discusses Cal Berkeley's recent cancellation of a speech to be given by Ann Coulter. Coulter had been invited to speak on-campus by a Republican student organization.

Because it is a state institution, Berkeley is obligated to respect the First Amendment. It cannot discriminate against viewpoints that fall beyond the campus political orthodoxy.

"She [Coulter] has the right to speak there because she has been lawfully invited by a group that has the right to invite her. That triggers an affirmative obligation on the part of the school to make sure that the people who want to listen to her can do so."

Berkeley cannot permit opponents to drown her out (known as the 'Heckler's Veto'). They cannot permit adversaries to scare her away. The school cannot stop her from speaking because it does not like her message.

Students groups in a public university have the right to bring whom they want to speak on campus. Campus administrators are obligated to provide a forum that permits students to listen to the speaker. Universities have to "bend over backwards to allow this to happen."

If violence ensues, and it is not commanded by the speaker, then the school is responsible. If a speech causes haters of a speech to interfere with the proceedings, it is not the speaker's fault that the haters are there. It is the university's fault for allowing the haters to interfere.

Despite the school's cancellation of the event, Coulter has indicated that she will speak to the group on-campus anyway later this week.

Unearned Prosperity

I bought a toothbrush, some toothpaste
A flannel for my face
Pajamas, a hairbrush
New shoes and a case
I said to my reflection
Let's get out of this place
--Squeeze

Dan Mitchell discusses the unearned prosperity enveloping Washington DC. Unearned in that burgeoning household incomes of DC residents come not from their own production, but from forcible wealth transfer.

In some cases the wealth transfer is direct in the form of tax payments lining the pockets of Washington bureaucrats. In other cases it is indirect in the form of lucrative privileges going to cronyist principals and their lobbyist agents.

The thing about such unearned prosperity is that it is never permanent. Forcible wealth transfer lasts only until the system breaks (which can happen in various ways).

DC's gilded class should enjoy the spoils while they last.

Never Settled

Fantasy and microchips
Shooting from the hip
--Oingo Bingo

A motto of the global warming crowd is that 'the science is settled.' As noted here, those who think scientifically know that science is never settled.

Whether due to the uncertainty associated with probabilistic analysis, blatant manipulation of data, or new discoveries that smash old paradigms, science is always on the move.

I heard it said recently that if the global warming thesis were presented in a courtroom, then the case would lose miserably on its merits. It should come as no surprise that partisans have not presented global warming 'science' to the public at large as many would not find it credible. Instead, they trot out 'experts' who merely endorse the concept in order to lend an air of legitimacy to the cause.

When science is claimed to be settled, be wary--particularly when the proposed solution is more government power and less liberty.

Academic Victimology and Snowflake Culture

I'll be your savior, steadfast and true
I'll come to your emotional rescue
--Rolling Stones

Heather Mac Donald argues that the soft totalitarianism aimed at silencing dissenting views on college campuses is not a psychological disorder as some have diagnosed. Instead, it is merely aggression inspired by perceived threat to a dominant institutional ideology.

Steps that many institutions have been taking to preserve that ideology, such as establishment of 'safe spaces,' policies against 'microaggressions,' and diversity oaths, reinforce a culture of academic victimology where sensitive students, i.e., 'snowflakes,' see themselves as the ones being aggressed upon.

This is nonsense. Because people can generally avoid speech that they do not like by walking away or tuning it out, speech cannot be considered aggression. People have no right not to be offended. Mature human beings are capable of controlling their feelings.

On the other hand, when speech that challenges dominant institutional ideology is chased off campus thru violence or threat of violence, then that is physical aggression being employed by individuals who rationalize themselves as victims.

School administrators who enact policies aimed at preserving dominant institutional ideology through the establishment of a culture of academic victimology are partners in crime. In fact, it seems straightforward to craft a sociological model that specifies school administrators as principals who contract with snowflake students as strong-armed agents in order to preserve institutional sameness.

Buyers of Last Resort

Jump back, got to get out of here
Been too long this time
Jump back, got to get out of here
When will, when will we fall down?
--Toad the Wet Sprocket

Extending our recent thoughts, ZeroHedge cribs from a recent BofA report to observe that asset prices are being supported by central bank buying.

In Q1, central banks, primarily BOJ and ECB, bought nearly $1 trillion of assets ($3.6 trillion annualized).

Bulls (and policymakers) better hope that these buyers of last resort to keep buying.

no positions

Income Tax Slaves

'Cause I'm the taxman
Yeah, I'm the taxman
And you're working for one but me
--The Beatles

Yes, as Judge Nap states, income taxes can be viewed as theft.

But a situation in which a perpetrator routinely takes production (income) Iin a forcible manner is more appropriately called slavery.

Discriminatory Shakedown

Don't ask me what I want it for
If you don't want to pay some more
--The Beatles

The deadline to file federal income taxes was yesterday. Many, however, are not subject to the annual shakedown. Studies estimate that about 44% of US households will not pay any taxes to the feds this year.

Less than one in six of non-payers earns no income. Most of the rest do but take advantage of legal tax breaks.

Of course, all is not equitable in the 56% of households that pay taxes. Those earning more than $500,000/yr, which amounts to 1-2% of all US households, pay about 45% of all federal income tax.

The tax man chooses his targets with discrimination.

Few Lifting Many

Nights in white satin
Never reaching the end
Letters I've written
Never meaning to send
--Moody Blues

WSJ article observes that over one third of SPX gains so far this year come from 10 large cap stocks.

The article fails to mention that stock market gains on narrowing breadth is a common characteristic of late stage bull markets.

no positions

IP Laws

With a little perserverance you can get things done
Without the blind adherence that has conquered some
--Corey Hart

One argument for intellectual property laws is that, without them, innovation would be curtailed. But doesn't this position--that patents, copyrights, etc. need legal protection--admit the opposite? That, absent legal protection, these ideas will form and/or be put to use elsewhere?

In fact, there seems a strong argument for the opposite proposition: The stronger the intellectual property regime, the lower the innovation.

He Has Risen

Judah Ben-Hur: He gave me water, and the heart to live. What has he done to merit this?
Balthasar: He has taken the world of our sins onto himself. To this end he said he was born, in that stable, where I first saw him. For this cause, he came into this world.
Judah Ben-Hur: For this death?
Balthasar: For this beginning.
--Ben-Hur

Once again, He has given us life.

Happy Easter.

Kids Opening Day

"The game doesn't stink, Mr Wheeler. It's a great game."
--Billy Chapel (For Love of the Game)

Couple of the pics posted this morning of the first Kids Opening Day happening at GABP.

This is how to build the game.

Well done, Reds.

It's About Leverage

"The mother of evils is speculation--leveraged debt."
--Gordon Gekko (Wall Street: Money Never Sleeps)

Many market participants are scratching their heads, wondering how stock (and bond) prices continue to levitate at what by conventional measures seem nosebleed levels. They also wonder why technical indicators of trend reversal don't seem to be working as they have in the past.

Maybe it's all about the truly historic amount of leverage in the system. Note the correlation between Fed balance sheet holdings and the SPX:

Longer term, look at the correlation between total system leverage and SPX:

Leverage is a function of credit price and risk appetite. Cheap credit prices and high risk appetite have driven stock prices higher.

Higher credit prices and risk aversion will do the opposite.

no position

Diversity Oaths

All in all it's just another brick in the wall
All in all you're just another brick in the wall
--Pink Floyd

Prof Williams likens today's 'diversity statements' required of university professors to post WWII loyalty oaths that were eventually struck down by the Supreme Court.

While they take various forms depending on the institution, diversity statements amount to pledge of allegiances to collegiate diversity agendas. Unfortunately, such agendas to not promote diversity at all, Rather, they foster ideological and political conformity among faculty.

As these pages recently noted, such conformity limits capacity of higher ed to develop critical thinking skills among its student body.

Prof Williams suggests some ways to assess an institution's ideological diversity. Inquire about the political party balance among the faculty--particularly among liberal arts faculty. Check to see whether the school has diversity mandates for faculty. Must they take diversity oaths? Have campus speakers been disinvited or chased off campus by protesting faculty and students?

Williams quotes Lenin: "Give me four years to teach the children and the seeds I have sewn will never be uprooted."

Diversity oaths reinforce the iron cage.

Gold Shoots

Tomorrow looks unsure
Don't leave your destiny to chance
What are you waiting for?
--Swing Out Sister

Following up on yesterday's observations, gold is sprouting thru resistance from a cup-and-handlish pattern.

Looking for near term follow-thru. If we get it, then a quick march toward the election highs of $1300-ish.

position in gold

Edge of Night

Ain't nothing gonna save you
From a love's that blind
Slip to the dark side
Across that line
--John Cafferty & the Beaver Brown Band

Could be wrong, of course, but am getting the feeling that equity markets could be on the verge of a major breakdown. Indexes are settling back down on near term support with little below until election rally lift off levels.

The banks in particular seem to be teetering on the cliff's edge.

Meanwhile, Treasuries have caught a bid and are doing work at intermediate term support. A breakdown in yields here would signify flight toward risk aversion.

And gold is chewing thru upside resistance in the 1250 area.

The stage seems set for some real fireworks.

position in gold

Trade, Interdependence, and Peace

They gave you life
And in return you gave them hell
As cold as ice
I hope we live to tell the tale
--Tears for Fears

An extension of yesterday's post is that it is trade, not restriction of trade, that fosters peace and security. At first, this may seem counter intuitive. After all, when individuals specialize in production of particular goods, then they become more dependent on their trading partners for other goods that serve to maintain and improve standard of living. Doesn't this leave specialists vulnerable to their trading partners should those partners decide to cut off trade?

Generally speaking, no.

Because both sides of the trade specialize, they are not just dependent. They are interdependent. Should either side pull away from peaceful trade, then their standard of living declines. They are well motivated to maintain trading relationships in order to advance their standard of living as much as possible.

It has long been said that when goods don't cross borders, armies will.

The interdependence fostered by free trade promotes peace. Restrict trade and listen to the war drums beat.

Essential Industries Fallacy

Well we're living here in Allentown
And they're closing all the factories down
Out in Bethlehem they're killing time
Filling out forms, standing in line
--Billy Joel

Nice example toward the bottom here of what might be called the 'essential industries fallacy.' It is often argued that certain domestic industries, such as steel, require protection from foreign competition to protect standard of living or to preserve national security.

The story goes something like this. Suppose that China seeks to drive US steel companies out of business. The Chinese government subsidizes steel production in its country, enabling Chinese steelmakers to 'dump' product in US markets much cheaper than domestic producers. Over time, US steel producers drop out of the market because they can't compete with subsidized Chinese steel. Once US steel production has been reduced to zero, China suddenly refuses to sell steel to America, leaving many industries high-and-dry with no supply of a critical input. With their large appetite for steel, American military sectors would be particularly vulnerable as, in turn, would national defense capability.

In short, because China exploits the dependence inherent to specialization and trade, this industry needs to be shielded to ensure a high degree of US self-reliance.

There are several problems with this argument. One is that China must subsidize its steel industry for some time--perhaps decades--which drains its public coffers and diverts steel from home base use. China can't build battleships, for instance, if it is subsidizing production of battleships in the US. All the while, the US enjoys an increase in standard of living from cheap steel--as well as a nice build-up in military capacity courtesy of the Chinese.

Meanwhile, US buyers of steel become aware of Chinese steel dumping and its logical endpoint. They begin to diversify their supply base. They begin placing orders with steelmakers in thirty or so other countries throughout the world who are eager to do business after being shut out of US markets by the subsidized Chinese steel.

Importing subsidized products increases standard of living--including self-defense capacity. Domestic consumers spend less for the same level of value and can plow their savings into more consumption or into productivity improvement projects. Meanwhile, the subsidizer gets comparatively weaker.

GDP of Regulation

Come out of things unsaid
Shoot an apple off my head, and a 
Trouble that can't be named
A tiger's waiting to be tamed
--Coldplay

Study by the Mercatus Center at GMU estimates that the cost of regulation in the US amounts to about -0.8% of GDP annually. Might not sound like much, but the cumulative drag from 1980 thru 2012 adds up to about $4 trillion, or a loss of about $13,000 per capita.

That $4 trillion would have made the regulatory state the 4th largest economy in the world by 2012.

Because the study focused on the cost of lost investment for productivity/innovation purposes as resources are diverted for regulatory compliance, my sense is that the study's estimates are conservative. They may not adequately capture, for example, the effects of lower entrepreneurial entry into industries with high regulatory hurdles, or transfer of productive resources to less fruitful countries to avoid high regulatory regimes.

The actual cost of regulation could be double these estimates.

Big Mistake

You've gone too far this time
And I'm dancing on the valentine
I tell you somebody's fooling around
With my chances on the danger line
--Duran Duran

Nearly four years ago citizen Donald Trump warned President Obama that bombing Syria without congressional approval would be a big mistake.

Last night President Donald Trump committed his own Big Mistake when he authorized a missile attack of several Syrian military installations in retaliation for the Assad regime's alleged use of chemical weapons to combat in-country rebels. Collateral damage included many women and children deaths due to poison gas.

Trump thus joins many decades of predecessors in engaging in war without the approval of Congress--a blatant violation of the Constitution.

Heinous crimes against humanity frequently provoke quick, reflexive response. Unfortunately, as we should have learned by our collective reaction to the 9/11 attacks, forcible overseas responses executed in the heat of the moment frequently have consequences well beyond the obvious.

As Senator Rand Paul observes, our founding ancestors understood this. Their intent was to slow it down--i.e., provoke deliberate, thoughtful foreign policy and, when military action is needed, careful debate and authorization by Congress.

Let's hope that the president will heed the calls of Rand Paul and others (e.g., here, here) to approach Congress for proper debate over the US role in Syria. Such action would mark a leader, and set a worthy presidential precedent.

Spying for Political Purpose

The deception with tact
Just what are you trying to say?
--The Fixx

Reiterating points made in yesterday's post, Judge Nap discusses the concepts of unmasking and leading and their criminality in the context of emerging Spygate news.

He adds that wrongful exposure of top secret material is the same crime committed by Hillary Clinton when she exposed top secret emails in non-secure venues. However, if allegations against former national security adviser Susan Rice are true, her crime is arguably worse. While Clinton appeared to have acted with gross negligence, Rice's behavior may have been intentional.

The judge argues that mass spying without cause for political purposes blows a hole in the Constitution, and is far worse than anything that the government of King George III did to the colonists.

King George's violations were deemed so heinous that the colonists declared their independence and fought a war to reclaim their rights.

What happens this time?

Unmasking and Leaking

It's easy to deceive
It's easy to tease
But hard to get release
--Billy Idol

As news about the extent of the US surveillance state slowly (and in the case of many mainstream media outlets reluctantly) unfolds, American citizens are getting a lesson about unmasking and leaking. As these pages have discussed, the NSA collects all digital communications made in the US and by US citizens, purportedly for purposes of national security.

If government officials can provide justification for doing so, then they can obtain transcripts of conversations collected by the NSA. However, the identity of US citizens remains hidden, or 'masked,' to protect their rights. A snippet of a conversation might look look like this:

Foreign Ambassador: Hello. How are you doing?

Citizen1: I am fine.

If government officials wish to "unmask" Citizen1, then they must submit rationale as to why it is vital that this person's identity must be revealed from a national security standpoint. If that request is granted, only government officials with top secret clearance are permitted to review unmasked transcripts, and under no circumstances are the names of people who have been unmasked to be shared, or 'leaked,' with outsiders. Doing so constitutes a felony.

The bulk of conversations collected by NSA are between everyday citizens (a.k.a. 'incidental' information collection). For example:

Citizen1: Hello. How are you doing?

Citizen2: I am fine.

Unless government officials can submit substantial rationale on grounds of national security, then they should have difficulty merely accessing the above transcript. And, if they cannot justify doing so for national security purposes, government officials are under no circumstances permitted to unmask the identities of Citizen 1 and/or Citizen2. Doing so constitutes a felony.

Subsequently leaking those unmasked names obviously constitutes a felony as well.

Negative Forces

"A king may move a man. A father may claim a son. But even if the men who move you be kings or men of great power, your soul is in your keeping alone. When you stand before God you cannot say, 'But I was told to do thus,' or that 'Virtue was not convenient at the time.' That will not suffice. Remember that."
--King Baldwin IV (Kingdom of Heaven)

Two negative forces work against seeking truth and doing the right thing. One stems from the axiomatic need to economize. Resources that advance standard of living are scarce. Material things are scarce, but so are intangible resources such as time an energy.

In order to get the most standard of living at the lowest cost of scarce resources, people are tempted to use aggression to satisfy their need to economize. Aggression enables people to take production from others, which allows the aggressors to economize their time and energies on other endeavors. Individuals might do the taking directly, or they might employ strong armed agents to do their bidding for them. Either way they are principals of violence and forcibly acting on others in order to get more for less.

The other force is bowing to social pressure. Because people accrue self esteem from group affiliation, they will bend their behavior to comply with group norms. Individuals are tempted to engage in activities for 'the greater good' or similar rationale. Social pressure to compromise one's morals and beliefs is often intense and difficult to sidestep.

Economizing via aggression and bowing to social pressure. Much evil in the world is driven by these negative two forces.

Play Ball

"And so it begins."
--Charlie Grimes (High Crimes)

Like every year, seemed like it would never arrive. But is has.

Spring is here.

Opening Day 1963

"The one constant through all the years, Ray, has been baseball. America has rolled by like an army of steamrollers. It has been erased like a blackboard, rebuilt, and erased again. But baseball has marked the time. This field, this game...it's part of our past, Ray. It reminds us of all that once was good, and could be again. Ooohhh...people will come, Ray. People will most definitely come."
--Terence Mann (Field of Dreams)

Love this pic of the Reds running out onto field for Opening Day 1963. Note a smiling rookie Pete Rose heading up the dugout steps for his first major league game. Frank Robinson, Vada Pinson, Gordy Coleman, Leo Cardenas, Gene Freese, and Johnny Edwards are also visible among the starting nine that day.

My Dad was up and to the left in the pressbox covering the game. My Mom, who had season tickets behind the Reds third base dugout for many years, was very likely close by as well.

WSJ Slant

I'd be running up that road
Be running up that hill
With no problems
--Kate Bush

When reading UCLA (now GMU) prof Tim Groseclose's fine book on media bias several years back, I was surprised that his estimated slant quotient for the Wall Street Journal pushed the publication significantly to the left side of his bias scale. Although I had never read the WSJ regularly at the time, I had always assumed that its business-oriented content would position neutrally or to the right on a scale that accurately measures degree of political bias.

Groseclose (p. 156) explains this seemingly anomalous result as consistent with long recognized differences between the Journal's editorial and news functions. He cites numerous sources that characterize the WSJ editorial department as conservative and the news department as progressive. In his study, Groseclose gathered data only from the news pages of the WSJ.

Since late last summer, I have been reading the web version of the Wall Street Journal on a daily basis as a function of school-related activities. My experience corroborate's Groseclose's findings. The two web pages that I most frequently visit, the front page lander and the logistics report, regularly feature content that is skewed left and in many cases openly hostile toward the current administration. News at the WSJ is not well balanced.

Although I am not a big consumer of opinion pages, my periodic excursions into WSJ editorial columns suggest that this function may not be as conservative as Groseclose assumes, either. Left leaning views are well represented on the Journal's editorial pages.

It should be noted that my personal experience with the WSJ is relatively recent and coincides with a presidential election that upset not only progressives, but also many in the GOP establishment. Plausibly, some of the imbalance currently displayed in news and editorial pages reflects anti-Trump hostility emanating from main line Republican partisans.

It would be interesting to apply Groseclose's slant quotient analysis in a longitudinal study of WSJ news content to learn how bias may have evolved over the past few years.