Tag Archives: economics

Central Banks’ Unconventional Policies

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Richard Barley had a piece in Monday’s The Wall Street Journal concerning the confidence gap that’s growing between Central Banks’ unconventional policies and the realities of the market place and the economy that underlies both.  He closed his piece with this:

But there are more valid worries. One is that while central bank efforts are proving enough to keep the economic show on the road, they aren’t doing more than that; the persistent downgrading of growth expectations and the constant refrain from policy makers themselves for politicians to take measures to boost growth sustainably are testament to that.

But, meanwhile, they are producing asset-price inflation. The fear is that the gap between asset prices and reality will close sharply as markets correct. It isn’t clear what might cause that or when: markets are still dancing to the tunes being played by central banks.

Unconventional policy in the immediate wake of the financial crisis undoubtedly helped to boost confidence in markets. But the longer unconventional policy persists, the less confidence it inspires.

That last paragraph introduces the point I want to make.

Unconventional policy helped in the immediate wake because it was new, and so novel, and came in the face of a strong and already discouraging economic dislocation—much like Keynesian stimulus is supposed to help in such a circumstance when it’s new, and so novel (I won’t here get into whether Keynesian stimuli actually do help in their necessarily zero-sum applications).  However, when the policy is no longer novel, when it becomes the steady-state condition, it loses its stimulative capacity—whether the policy is unconventional or Keynesian stimulus.

A Propos Missing Devices

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A report from cloud access security firm Bitglass analyzing all breaches of financial services firms since 2006 found lost and stolen devices [behind a registration wall] accounted for 25.3% of breach events

These missing devices only emphasize the incredible “excessive carelessness” of Democratic Party Presidential candidate Hillary Clinton’s utter negligence in her handling of her own devices.  The damage to which we’re exposed and the damage done by…careless…handling isn’t limited to national secrets or even to politics.

Employment and Interest Rates

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The US economy added 151,000 net new jobs in August, below consensus expectations for 180,000. Meanwhile, the labor force participation rate remained stable at 62.8%, as did the jobless rate at 4.9%, though it was expected to tick slightly lower to 4.8% for the month. The closely-watched U6 rate, or “underemployment” rate, which measures unemployed workers and those working part time for economic reasons, remained stuck at 9.7%.

The unemployment rate and the jobs numbers are misleading when taken out of context.  The context of importance here is the historically low labor force participation rate, from folks having given up looking for work, even though they’re perfectly viable potential employees rather than boomers who’ve retired (a number of whom actually have retired earlier than they wanted to and still would work, were there jobs).

Then there’s this, from Dan North, of Euler Hermes North America:

The most important part [of the report] is the weakness in hours and wages. That slammed the door on September [rate-hike chances].

I’ve said it before, and here I am saying it again: if the Fed wants 2% inflation, then it needs to stop chasing the market; it needs to stop focusing on jobs numbers, per se; and it needs to stop holding out for 2% inflation before it moves.  It needs to set its benchmark interest rates at levels historically consistent with 2% inflation and then sit down and watch.  Watch the economy recover, watch folks who’ve given up come back into the labor force, watch wage growth reappear, watch the labor participation rate, from that, recover to more normal levels; and watch the unemployment rate, still low, actually mean something.

And watch prosperity and productivity resume growing.

Some Labor Day Questions

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First published in 2015, I’ve updated it for today.  In an ideal world, I’ll be able to update it again next year, with a more optimistic tone.

The Wall Street Journal asked some questions on Labor Day 2012, and supplied some answers.  Here are some of those questions and answers, which remain as valid this Labor Day.

  • Q: How are America’s workers doing? Not good. Over the past decade, over the ups and downs of the economy, taking inflation into account, the compensation of the typical worker — wages and benefits—basically haven’t risen at all. … The Labor Department recently said that 6.1 million workers in 2009-2011 have lost jobs that they’d had for at least three years. Of those, 45% hadn’t found work as of January 2012. … Federal Reserve Chairman Ben Bernanke said Friday that unemployment is still two percentage points higher than normal….
  • Q: Things ARE getting better, though. The US economy is creating jobs, right? Back in December 2007 when the recession began, there were about two jobless workers for every job opening.  When the economy touched bottom in mid-2009, there were more than six unemployed for every job.  At last count, the BLS says there were 3.4 jobless for every opening.
  • Q: How much of this elevated unemployment is because the unemployed just don’t have the skills that employers are looking for right now?  …the bulk of the evidence is a lot of the unemployment really is the old-fashioned kind: the kind that would go away if the economy was growing at a stronger pace. Mr. Bernanke said as much at the [2012] Jackson Hole conference….

The Democratic Party President has taken a bad situation and done little to improve it, even though he’s had four more years in which to do so.  He has, though, actively attacked businesses—the hirers—demonizing them, (over)regulating them, demanding to raise taxes on them.

At least as importantly, the current Democratic Party Presidential candidate has vowed to continue these Democratic policies, and to extend them.  Even with nearly eight years of empirical data demonstrating the bankruptcy of these policies.

Happy Labor Day.

The EU and Tax Invasion

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Notice that: invasion.

EU antitrust regulators ordered Apple on Tuesday to pay up to 13 billion euros ($14.5 billion) in taxes plus interest to the Irish government after ruling that a special scheme to route profits through Ireland was illegal state aid.

The problem, in the EU’s eyes, is that Apple headquartered its European operations in Ireland, which has one of the lowest corporate tax rates in the EU (and which EU Know Betters keep hammering on the Irish to “correct” because its tax rates are, somehow, unfairly low), and then Apple funneled most of its European revenue through that Irish branch so as to pay—legally in their and Irish eyes—low taxes.

“Ireland granted illegal tax benefits to Apple, which enabled it to pay substantially less tax than other businesses over many years,” said Competition Commission Margrethe Vestager….

Ireland agrees with Apple and will appeal the EU’s demand.  As Finance Minister Michael Noonan said,

This is necessary to defend the integrity of our tax system; to provide tax certainty to business; and to challenge the encroachment of EU state aid rules into the sovereign member state competence of taxation.

Ireland is quite clear on the invasion matter.

The EU may well be on the right side of its law, but it’s on the wrong side of morality and the wrong side of economic principle.  It’s not the EU’s money.  It’s not even Ireland’s government’s money.  It’s Apple’s money, and it’s the money of the 6,000, or so, Apple employees in Ireland, which they allocate to the Irish government (not the EU governance) as taxes.  If Ireland is charging Apple a lower tax rate than continental members of the EU, the latter should compete, not run from competition by presuming to dictate to a fellow member what that member must do.

It’s also the case that the lower tax rate leaves more money in the hands of those who earned it—those Irish employees and the Apple corporation—which means those employees have more money with which to take care of their families and to spend generally and Apple has more money with which to hire employees and to engage in product development—all of which are good for the Irish economy.

How Ireland takes care of its domestic economy is of no legitimate concern to the rest of the EU, and that Apple paid all the taxes required by Ireland is just a bit of too bad for the EU Know Betters.