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A Rebuke to Readers of The New York Times

The inspiration for this piece was collective inanity of comments posted by Times’ readers in response to Gary Johnson’s editorial — Take a Deep Breath, Voters.  There is a Third Way — which appeared in the September 28th edition of the The New York Times.

The Roman political philosopher Marcus Tullius Cicero quipped, “Any man can make mistakes, but only an idiot persists in his error.”  I suggest my fellow Americans are wise to consider this piece of wisdom from the ancients as they weigh the choices for President in the upcoming election.

Judging from the comments posted in response, many readers of the NY Times are, alas, all too ready to repeat past mistakes by declining to consider alternatives to the status quo.  Although many of these same commentators are likely to congratulate themselves on their open minds, the uniformity of their comments, however, reveals a disturbing inability to question their own beliefs.  It is this rigidity of thought and hardening of worldviews that poses the greatest threat to American democracy.  Long gone is the pragmatism of earlier days that allowed for political compromise.

On no subject is this more apparent than the collective reaction to Gary Johnson’s statement that, “Changes to Social Security and Medicare must also be considered.”  Advocating reform and change of the two programs has been called touching the third-rail of American politics; the overwhelmingly negative reaction to his declaration shows this sadly remains the case.  Gary Johnson is frankly the only candidate with the honesty to face unpalatable facts.  For this he should be lauded and not pilloried.

One of the greatest lies ever perpetrated on the American electorate has been the fiction of the of the Social Security and Medicare trust funds.  The only assets either fund possesses are the ability of the federal government to levy taxes or to borrow money.  There are no other assets.  There is no portfolio of stocks, bonds or real estate which can be drawn down to pay future benefits.  The notional balance of Treasury bonds owned by the trust funds is an accounting illusion:  it just reflects the surplus of tax revenues to benefit payments in prior years allowing the government to borrow from future generations today.  All we have accomplished is to have written an IOU on ourselves payable tomorrow.

And, when the IOU falls due (and, that time is soon to come) we have but two choices: either borrow more money from the markets or tighten our belts.  The first option is not a viable alternative.  Borrowing to fund current consumption is the shortest road to insolvency.

The second option provides a wider range of policy alternatives.  If the past is any guide we will chose to make the programs more burdensome on the economy by raising contribution rates and income ceilings.  Alternatives such as eliminating the COLA or making retirees bear the full cost of Medicare Part B premium increases are deemed benefit cuts and so are beyond the pale.

But as we raise contribution rates and income ceilings we increase the tax on labor relative to capital, providing a further incentive to businesses to automate.  Since 2001 the payroll tax rates have exceeded the marginal cost of debt capital for most large American businesses.  This is another reason why job growth has been anemic over the past decade.  It is not though a fashionable topic to be discussed in liberal or academic circles.

A vote for Clinton is a vote for the further sclerosis of the U.S. labor markets.  If you have any compassion for your children or grandchildren – for their futures — than, maybe, you will appreciate Gary Johnson’s courage and honesty.

School Daze

I suspect, like many others you are bewildered by the August Employment Situation Report, released by the Bureau of Labor Statistics on Friday last, just in time for the long Labor Day weekend. The hedge fund set I am certain has spent the last three days pondering what the report portends for a shift in Federal Reserve policy.

Will they? Or, Won’t they? Raise the Federal Funds rate in the coming weeks?

Well I have bad news for any and all who believe the answer is in the employment numbers. At this juncture, the forces compelling the Fed to reverse course have a twisted logic that a bad employment report may be incapable to deter.

My view: the August report was poor. Inclement weather for a change is not the culprit. And, I do not expect a significant upward revision.

 

20150906 Aug Public Education

My reasoning is based on the seasonal patterns in employment in public education. If I am correct, a portion of the job gain may thus prove illusory when the September report is compiled. Because of a late Labor Day holiday, many school districts across the country have resumed classes two weeks or more earlier in the season. Thus, some of the August rise may reflect the recall of temporary and seasonal workers, who in other years with an earlier Labor Day weekend, would have first reported back to work in September.

Click here to read the full text.   I hope you find the analysis insightful and informative.

The Woes of the Managerial Class

Yes it has been awhile – a long while – since my last publication. I trust your patience will be rewarded by this new commentary.

The monthly Employment Situation Report issued by the Bureau of Labor Statistics offers much grist for the mill for the media. Alas for the educated and informed part of the public, most talking heads are unable to separate the wheat from the chaff in each month’s report.

20150725 Opportunitys Ladder Full Small

Headlines tell us the labor markets are on the mend and, using the unemployment rate as a barometer, declare assuredly conditions have returned to pre-crash levels. The political class is also quick to trumpet this message.

The reality though is labor markets remain frail. While job growth, as measured by the firm payroll survey, has accelerated, the acceleration has been tepid by the standards of past post-war recoveries. Then there is the mystery of the disappearing middle-aged male from the labor force. At 85.4 percent, the ratio of men aged 45 to 54 in the labor force remains near its all time lows. If men in their most productive and highest earnings years have left (or been pushed out of) the labor force then something is clearly amiss.

20150727 Mid-Life Crisis Small

The recent decline in the proportion of managerial staff on the payrolls of private industry parallels the decline in middle-aged male participation rates. A coincidence? Perhaps. Or, not. You can make up your own mind by reading my commentary and analysis.

Click here to read, The Woes of the Managerial Class

The Blackboard Jungle

It is good to return from my enforced hiatus. Alas, the pause was not voluntary but health related. I am happy though to report I am on the mend and feeling better with each passing day.

Now I have not been completely idle. I have begun to contribute my two cents, when I believe I can add to the debate, in the readers’ comments of various articles appearing in the New York Times. Today I have been quite active commenting on the piece, Cuomo Fights Rating System in Which Few Teachers are Bad.   My observations, comments and rebuttals can be found below in order of appearance under the pseudonym, my muse clio.

I strongly urge one-and-all to read the piece and provide your insights. Education reform is too critical to be left solely to teachers, bureaucrats and union officials.

This is my first shot across the bow.

20150323 NY Times 2

Another shot to challenge the union cant.

20150323 NY Times

Some thoughts on the challenge of breaking lock the teachers’ union on reform.

20150323 NY Times 3

And, last of all.

20150323 NY Times 4a

The full text of my comment follows.

20150323 NY Times 4b

That Stagnating Feeling

The financial markets sloughed off the sharp downward revision in real gross domestic product (GDP) for the 1st quarter. The news — released last Wednesday, June 25th — that the economy contracted by almost three percent annualized was greeted a collective yawn.

Media pundits and talking heads blamed the weather.  How convenient:  the weather always offers a ready explanation needing no hard analysis.

20140627 Empty Wallets -- Small Graphic

Wall Street types dismissed the report as an anomaly, citing the 4.3 percent (year-over-year for May) gain in the Federal Reserve Board’s (FRB) Index of Industrial Production or the Institute for Supply Management’s (ISM) Purchasing Managers’ Index (PMI) which remains above the 50 mark.

Both are true but both are not necessarily valid points in interpreting the GDP revision. One, manufacturing and other goods producing activities are a comparatively small part of the overall economy. And, the details suggest a spike in oil and gas extraction may be the reason for the strong gain in the overall index. Second, the PMI is a diffusion index; as such, small firms receive the same weight as larger entities. So while the PMI receives much media attention, it is not necessarily the best yardstick to measure the economy’s overall wellbeing.

20140629 Seeing Red -- Small Graphic

If one peers into the GDP numbers the pictures which emerges is one of stretched and strained household balance sheets. The real news in the revision was not the continuing economic drag of a slowdown in inventory investment; no, the real news was the large reversal (from the flash report to the final revision) in health care spending coupled with higher than normal winter energy costs.

Viewed through this prism the narrative is one of households straining to make ends meet. If this is so, we cannot rule out future periods of stagnation in the nation’s economic growth.

Click here to read the commentary:  20140627 That Stagnating Feeling

The Thin Gray Line

This is another piece from the archives. The commentary was first released for Memorial Day 2012. I re-issue the piece semi-annually — in May for Memorial Day and in November for Veterans’ Day. The piece is as written with only minor edits. In a few years, I will update the graph.

With the Iraq War over and a draw down in US forces in Afghanistan under discussion, and deep cuts planned for the military, I fear many Americans in time will forget the sacrifices made by the men and women from all walks of life who rallied around the flag in the days, weeks, months and years after the September 11th attack.

To them, and, to those who served before, this is my salute to their service, bravery and devotion.

Click here to read my tribute, 20140522 The Thin Gray Line

Ipse Dixit

Something is afoot in Washington. Newspapers yesterday (May 13th) contained a tidbit regarding the Internal Revenue Service’s (IRS) decision not to file an appeal with the Supreme Court. The adverse ruling in question was delivered in February by the U.S. Court of Appeal.

The subject of the case, Loving v. IRS, concerned the agency’s authority to regulate paid tax-preparers. In its decision, the appeals court argued the IRS overreached when it decided tax return preparers are representatives of their clients; and, so could be regulated by the IRS.

The court disagreed, citing the circular logic of the agency’s brief — they are, because the IRS claims they are. Its ruling was based, in part, on the fact that tax preparers have no independent authority to act on their client’s behalf before the IRS or to bind their clients to a settlement with the agency. Paid tax preparers are thus not representatives in the intended sense of the word.

What may be pure coincidence, but, I suspect is not, were hearings on Tuesday April 8th, by the Senate Finance Committee on the matter incompetent and unethical tax preparers. With all due respect to that august assembly, has the kitchen been spiking the Senate Bean Soup with sherry again? Otherwise, I am at a loss to explain why the Senate Finance Committee wasted precious time when more urgent matters are before it.

Okay — the hearings provided for good press and engendered comradely among committee members. After all, who will openly admit to advocating incompetence or unethical behavior in any profession? But let’s face facts — the hearings were a sideshow. The most urgent task confronting the committee is the reform, reduction and simplification of the US tax code.

Furthermore, I contend, a radical overhaul of the nation’s tax code will effect, as a desired consequence, a reduction in fraud and incompetence by paid tax preparers.

The reason for my confidence? A less prolix and complex tax code will deter fewer Americans from completing their own returns. Second, a streamlined, transparent tax code will be easier for the IRS to administer, enabling it to deploy more resources to fraud prevention, tax payer assistance and compliance. And, finally, tax preparers will be free to devote more time and energy to helping clients with the remaining complex tax situations. Given the tax code’s current length, its minutia and opacity, I contend only an exceptional few are able prepare a range of moderately complex tax returns without error.

Until root-and-branch tax reform is carried to completion, more regulation is not the prescription for the problem. Only when we have winnowed down the tax code’s length and parsed away the unnecessary complexity, then, and only the, should legislation be considered.

To read the entire essay, please click here:  20140513 Ipse Dixit

Belabored Reporting

Anyone familiar with my work knows I have not been optimistic for some time on a sea change for the better in the U.S. labor markets.

But that said, I disagree with the assessment of media and financial pundits on the latest Employment Situation Report. On balance, I do not believe the April report was any better or any worse than prior months. Yes, expectations had been stoked. But those expectations have been and remain unrealistic. Nothing has dramatically changed in the political and economic arena to warrant an optimistic reassessment of the economy’s ability to create new jobs.

Year-over-year (from April 2013 to April 2014), non-farm payrolls increased by 1.7 percent. Total private payrolls — excluding the government sector — rose by 2.1 percent. Strained government finances — at the federal, state and local levels — continue to retard hiring.

Compared to the same statistics in April 2013, the current twelve month pace is actually an improvement. Based on revised numbers, non-farm payrolls rose 1.6 percent, while private payrolls increased 2.0 percent. Broadly we have seen a slight acceleration in hiring over the past twelve months.

If I see a dark cloud in this silver lining it is the persisting slump in private sector managerial hiring. In the twelve months ending April 2014, such positions have grown by just 1.4 percent. And, they now account for just 14.6 percent of all non-farm positions; a level down from a January 2004 high of 16.2 percent.

The past fifteen years have not been kind to white collar professionals. First the dot.com bust, then the financial crisis. The combined one-two punch has induced firms to shed the very jobs the 21st Century American middle-class depends on.

Their disappearance possibly explains some of the recent anomalies in the labor force participation rate. The consolidation and elimination of white collar professional positions, through business failures, cost reduction initiatives and merger and acquisitions may account for a significant share of the decline in the labor force participation rate of men between the ages of 45 and 54. For most men, these are their prime earnings years. Historically such rates have exceeded 90 percent. Today the proportion hovers just above 85 percent. So, unless, he has hit the proverbial financial jackpot, it is hard to explain why a man would voluntarily exit the work force just when retirement is just over the horizon and the children are going off to college.

The culling of the ranks of the white-collar, managerial class may also go a long way to explaining the stagnation in real wages and salaries (that is, adjusted for inflation). As a hypothesis, it is worth further exploration. Unfortunately, the patchwork of statistics frustrates arriving at a conclusive answer.

Forgive me for what may seem a digression, but given current labor market conditions, I sense a merger and acquisition boom is the last thing the economy needs. While it may be welcomed by investment banks, I expect it will further hinder final demand growth. If so, this is yet another case where the interests of Main Street and Wall Street diverge.

Why? Another round of business consolidation will accelerate the continued contraction of the nation’s managerial class.

A culprit driving companies to merge or acquire their competitors has been the Federal Reserve Board’s low interest rate policy. Historically low nominal and real interest rates have induced firms to issue debt not just to buy back their shares, but to gobble up other businesses as well.

Each deal completed often leads to consolidation of the combined firms’ ranks, and, largely those of white-collar professionals in what are deemed support functions or non-revenue producing roles.

As Federal Reserve Board chairwoman Janet Yellen considers the central bank’s next moves in its monetary policy, she should consider the unintended consequences of the Fed’s keeping interest rates so low, for so long.

To read more about the disappearance of the American managerial class click here, 20140507 Belabored Reporting

Commonsense is not so Common

The inspiration  for reissuing this piece from the archives (it first appeared in February 2012) was an article appearing in the April 24th edition of The Economist. Entitled, “Because Men are Not Angels”, the article explores the new found interest in James Madison. Among other occupations, including being a member of the Tidewater gentry and 4th President of the United States, he is most famous as the key architect of the Constitution as well as its foremost proponent.

Two hundred and twenty-five plus years later, Madison remains the country’s most important (and influential) political theorist. That club is small. I count (Thomas) Jefferson, (Alexander) Hamilton, (John) Marshall and (Daniel) Webster as the other seminal and important voices in the American constitutional dialogue. But Madison’s contribution stands head-and-shoulders above his contemporaries. And, far above those who have followed.

It was Madison — along with Hamilton, and to a lesser extent (John) Jay — who so eloquently (and prolifically) advanced the case for a stronger central government as envisioned in the then yet to be ratified Constitution. Many scholars cite his oft quoted observation, “If men were angels, no government would be necessary.” (The Federalist No. 51), as evidence of his sympathy for a strong, interventionist, federal government.

Yes, Madison realized the central government would need the power and authority to contain the centripetal force of a federal structure composed of individual, sovereign states. But the same Madison in The Federalist No. 62, avers,

“It will be of little avail to the people that laws are made by men of their own choice if the laws be so voluminous that they cannot be read, or so incoherent that they cannot be understood.”

So Madison was hardly a proponent of unbridled government.

Today, a counter-argument made to a literal interpretation of the Constitution, and, the intent of Founding Fathers, is the world has changed in the intervening time. The argument proceeds along the lines that society has grown ever more complex, requiring a central government (and, laws) to deal with this complexity.

True. Yes, the world has indeed evolved. But certain constants — human psychology — prevail. Madison, like so many of our nation’s Founding Fathers, was influenced by his study of classical antiquity. He, like other educated and erudite men of his age, were familiar with the surviving works of Herodotus, Thucydides, Sallust, Livy, Tacitus and Suetonius.

He would have known how the incessant squabbling among the Greek city states and regions allowed their subjection by Rome. He would have also known how the Roman Republic was ultimately subverted by civil war to become the Imperium. Naysayers of his age though did not use the naive argument the world of Antiquity was two thousand years in the past; that, Romans would not recognize the world of the 18th Century with its printing presses, muskets, potash process and loom, as a reason to reject the proposed Constitution. The rationale: the lessons of Antiquity are thus foreign to the current age. No. This argument was not made. Probably because Madison’s opponents recognized the verity of human constants.

Madison I am certain was familiar with Tacitus’ observation (the Annals),

“Now bills were passed, not only for national objects but for individual cases, and laws were most numerous when the commonwealth was most corrupt.”

 I sense Madison, knowing his Tacitus (among other classical historians), would be appalled at the idea of the prolixity of a legal code as a measure of its utility. So much so, that if today, his spirit were to walk along the corridors of Congress, I believe Madison would invite the British to set Washington to the torch for a second time.

Author’s Note:

My preference when resurrecting a piece from the archives is to present it to the reader unaltered from its original form, save for matters of grammar or spelling. The commentary offered thus differs only slightly from the original.

In the intervening period, it should be noted approximately 239 Thousand pages were added to the Federal Register. The volume of additions is so large, dwarfing other measures, that the only comparison is past additions.  Alas, the pace has hardly slowed.

And, likewise, the intervening period (the years from 2011 to 2013, inclusive) have seen a 5.4 percent increase in licensed lawyers. Over the same period, the U.S. population rose by just 2.2 percent. Consequently, the ratio of the U.S. population to licensed attorneys has decline further to 250 citizens to every lawyer.

In comparison, average non-farm payrolls over this period rose 4.7 percent. So the legal profession may be, despite the lamentations of its elders, a recession-proof industry.

Click here to read the commentary, 20140506 Commonsense is not so Common