Redemption

It wasn't just about sex.

It was about redemption.

The best sex usually is.

You don't just want to empty your glands; you want to fill your heart, or share part of it with someone else.

She was going to raise this dumb guy up to a higher level.

And sex and affection was only one rung.

-- Marlon Brando with Eva Marie Saint in "On the Waterfront"

Time is just a simple function of gravity

Plus a few ever changing constants

Take a break

If it’s not broken, don’t fix it. 
Even if it is broken, leave it alone, you’ll probably make it worse.

Serial Killers

Most wanted serial killer of the last century.

Taking a stroll

 We’re all just walking each other home.

Options

 The past is never dead. It’s not even past

Sailing along for the ride

 It’s never fifty-fifty. It’s always seventy-thirty, or sixty-forty.

Dinosaurs and Debt

Public Pensions and Social Security

by Michael S. Greve

Public pension systems and Social Security were built decades ago, under very different economic and demographic conditions. Alas, our political institutions are lousy at modernizing the system—even when ruin is just around the corner. A few quick fun facts:

Public Pensions

Andrew G. Biggs (American Enterprise Institute) reports that state and local pensions systems aren’t just woefully underfunded; they’ve also come to pose much graver risks to state and local budgets.

First, pension assets are now about 143% of state and local outlays, up from 49% in 1975. Thus, it’s become three times more expensive for legislatures to amortize funds in down years. Note, in passing, that the system are no better funded than they used to be. Rather, they have “matured.” In the 1970s, there were 4.5 public employees per retiree. Now, the number is 1.75, and falling. Would the last public employee please turn off the lights? Thank you.

Second, as returns in the bond markets have evaporated, pension funds have turned to far riskier investments. Increased volatility means increased risk to state and local budgets. All told, Andy Biggs estimates that the pension risk has increased tenfold over the past four decades.

Social Security

Since 2010, Social Security has been running a sizeable cash-flow deficit, and it will continue to do so from here to eternity. The deficit is covered from a “trust fund,” consisting of something like $2.7 trillion in special-issue Treasury bonds. That money was credited to Social Security in years when the fund ran a surplus, plus interest. When Social Security runs a deficit, Treasury redeems bonds in sufficient amounts and sends the money along. As most everyone knows, this technical account is very misleading: the $2.7 trillion has long been spent; so we’re really talking about new debt. But there you have it.

What happens, though, when the so-called trust fund (or funds—there are two of them, for old age and disability) run out? According to current CBO projections, that will happen around 2031. (It could be sooner—e.g., if something bad happens to the economy.) What then?

What won’t happen is that Social Security stops cutting checks altogether. It will keep collecting payroll taxes and benefit taxes. That will suffice to pay around 77% of benefits. (For details seehere.) What of the rest, though?

It can’t be paid. That’s because the Antideficiency Act (codified in here relevant part at 31 U.S.C. 1341) prohibits the expenditure of money that Congress hasn’t appropriated. So, come to think of it, does the Constitution. That’s what the fictional “trust fund”actually does: it obviates the need to appropriate funds on an annual basis.

 Read the rest at:

http://www.libertylawsite.org/2013/12/23/public-pensions-and-social-security-dinosaurs-and-debt/

Charts of the day, world manufacturing output, 2012

Still, not a zero sum game

By Mark J. Perry

The charts above are based on new data from the United Nations on GDP and its components for more than 200 countries, updated through 2012. Here are some highlights of the UN’s data update:

1. The top chart compares the annual manufacturing output from 1970 to 2012 (measured in current US dollars) for the five countries that produced the most manufacturing output last year: China, US, Japan, Germany, and Korea.  As I reported last year, China officially became the world’s largest manufacturer in 2011, with output in 2011 ($2.34 trillion) that was 20.6% higher than the $1.94 trillion (updated) of factory output in the U.S. In 2012, China’s manufacturing output increased by 9.7% to $2.556 trillion, while factory output in the US increased by 2.6% to $1.993 trillion. For the second year in a row, China was the world’s largest manufacturer and out-produced the US by 28.2%. Previously, China’s manufacturing output exceed German’s factory output in 2000, and Japan’s output in 2006.

2. The U.S. is still a world leader in manufacturing and America’s factory output continues to increase, despite the rise of China to the world’s No. 1 manufacturer. The bottom chart above puts the enormous size of the U.S. manufacturing sector into perspective, by comparing America’s manufacturing output in 2012 ($1.993 trillion) to the combined manufacturing output of Germany, Korea, Italy, Russia, Brazil and India, which are the countries that are ranked No. 4 through No. 9 in 2012 for manufacturing output.

3. It’s also important to remember that China’s manufacturing workforce is estimated to be around 100 million and could be as high as 110 million, compared to America’s manufacturing employment of slightly more than 12 million. Therefore, even though China is producing more manufacturing output than the US, the productivity of American factory workers is so high compared to China, that China needs almost ten factory workers for every one American worker to produce 28% more output. On a per worker basis, the average American factory was responsible for $166,000 of output in 2012, while the average Chinese factory was responsible for less than $26,000 of manufacturing output; the productivity of American factory workers was more than six times that of the average worker in China.

Read more at :

http://www.aei-ideas.org/2013/12/charts-of-the-day-world-manufacturing-output-2012/

Changes in South African Inequality During Mandela’s Life

Income disparity in South Africa is larger now than under Apartheid

BY MARC CHANDLER

This Great Graphic shows how the average income and population by racial group changed during the life of Nelson Mandela. It comes from The Economist.

It illustrates a sad fact. Income disparity in South Africa is larger now than under Apartheid.

There have been joint and distributional gains since the end of Apartheid. The distributional gains have gone disproportionately to white and Asian South Africans.

Economically, the challenge is not racism per se, but governing issues, education quality and a skills shortage among South African blacks. Black empowerment has been modest and appears to be limited to a relatively small group that is politically connected.

Sadly, South Africa, post-Apartheid, is among the most unequal countries in the world. It may be beyond the ability of the one-party rule of the African National Congress, with its weak leadership, cronyism, and rent-seeking incentives. 

The Global Retirement Dilemma

Very Slowly and Then At Once

by Barry Ritholtz

Austere, Devout Ayatollah Is Secretly As Rich As The Shah

All told, Reuters was able to identify about $95 billion in property and corporate assets controlled by Setad

Ayatollah Khamenei, the Supreme Leader of Iran, secretly runs a financial empire that would give the Shah a run for his money. The business interests of Khamenei’s little-known organization, called Setad, include a dizzying array of properties, oil and gas holdings, telecommunications, even ostrich farming. Reuters estimates that Setad oversees assets worth $95 billion.

The first part of an in-depth Reuters investigation shows that Setad habitually confiscates property from ordinary Iranians, including minorities like Baha’is, auctions it off and pockets the proceeds. It owns or invests in farms, energy businesses, stores, and much else. It intimidates Iranians who resist Setad’s efforts to take over their personal assets. Court orders support these shady dealings.

A “small part” of Setad’s operations are philanthropic.

When Khomeini, the first supreme leader, set in motion the creation of Setad, it was only supposed to manage and sell properties “without owners” and direct much of the proceeds to charity. Setad was to use the funds to assist war veterans, war widows “and the downtrodden.” According to one of its co-founders, Setad was to operate for no more than two years. [...]

A complete picture of Setad’s spending and income isn’t possible. Its books are off limits even to Iran’s legislative branch. In 2008, the Iranian Parliament voted to prohibit itself from monitoring organizations that the supreme leader controls, except with his permission. [...]

All told, Reuters was able to identify about $95 billion in property and corporate assets controlled by Setad. That amount is roughly 40 percent bigger than the country’s total oil exports last year. It also surpasses independent historians’ estimates of the late shah’s wealth.

Definitely read the whole thing and look out for parts two and three of the story. A full picture of how Iran’s top leadership operates is not complete without an understanding of how the Ayatollah maintains his upper hand in the society. Fascinating stuff from Reuters.

Why Don’t More People Want a Job?

Share of Americans over age 16 who say they don’t want a job, up to 34.3% from about 30% two decades ago

by John Doe

Americans aren’t just leaving the labor force — those who have left it are drifting further away.

Economists studying the labor market have traditionally focused on two types of people: those who have jobs (the employed) and those who are trying to find them (the unemployed). Together, those groups make up what is known as the “labor force.”

As close observers of the economy already know, the labor force has been shrinking as a share of the population, a trend that began in the early 2000s, accelerated in the recession and has continued during the weak recovery. The so-called “participation rate” — the share of the population that’s working or looking for work — now stands near a three-decade low.

Such measures, however, treat all those out of the labor force as a single group, lumping together retiring Baby Boomers and stay-at-home moms with laid-off factory workers. The Labor Department publishes estimates of “discouraged workers” — those who have given up looking because they can’t find a job — but it uses a narrow definition. Someone who decides to take care of the kids rather than keep looking for work might not count as discouraged — even if the person wants a job and plans to look for one in the future.

But in a new paper, economists Regis Barnichon and Andrew Figura divide up those out of the labor force using a simpler standard: whether or not the person says they want a job. And they uncover an interesting previously unnoticed trend: As a share of all those “not in the labor force,” the number of people who want a job has been generally declining since the early 1980s. Three decades ago, more than 10% wanted a job; on the eve of the latest recession, the share dipped below 6%.

Moreover, Messrs. Barnichon and Figura found, the decline in people who want a job wasn’t driven by people entering the labor force. It was driven by people switching from wanting a job to not wanting one. Long before the recession, in other words, Americans were drifting away from the labor force.

The recession changed the picture: The surge in layoffs and plunge in hiring left millions of Americans who wanted jobs on the sidelines. But even so, the share of those not in the labor force who wanted jobs peaked at around 7.5%, far below its 1980s level.

Capitalism, Socialism or Fascism?

Whatever you call it, it is a very dangerous system

By WashingtonsBlog

What is the current American economy: capitalism, socialism or fascism?

Socialism

Many people call the Bush and Obama administration’s approach to the economic crisis “socialism”.

Are they right?

Well, Nouriel Roubini writes in a recent essay:

This is a crisis of solvency, not just liquidity, but true deleveraging has not begun yet because the losses of financial institutions have been socialised and put on government balance sheets. This limits the ability of banks to lend, households to spend and companies to invest…

The releveraging of the public sector through its build-up of large fiscal deficits risks crowding out a recovery in private sector spending.

How to Enrich or Impoverish a Nation

Without creation, there can be no distribution.

by Selwyn Duke

What has lifted more people out of poverty, charity or economic freedom? It’s not even close.

Charity is wonderful, and I’ll be the first to say we have an obligation to share our gifts, be they material, intellectual or talent oriented. Yet whether our redistributionist endeavor is charity — and charity is voluntary redistribution — or the less noble, coercive, outsourcing of charity known as government programs, there first must be wealth to redistribute. But where does wealth come from?

If we go back to biblical times and beyond, a man might be considered wealthy if he had 70 goats. In point of fact, the standard for wealth was so different that the US’s average middle-class person today — with his car, TVs, computer, refrigerator and many other luxuries — would have been considered wealthy for most of history. And our average “poor” man, who also usually has an old car and various creature comforts, likewise has a material lifestyle that would have been the envy of our forebears. The reason for this is simple: there is far, far more wealth in the world now than in ages past.

The first lesson this teaches is that wealth can be created. This happens when people find more efficient ways of raising livestock (so 70 goats becomes small potatoes) and growing crops, and when they extract raw materials from the Earth and use them to create the manifold necessities and luxuries we enjoy. In a word, it happens when people produce, which is why economists and businessmen will measure productivity. And how will people be encouraged to produce?

They must have an incentive, and this is where the profit motive comes into play. Ah, the much maligned profit motive. Let’s talk about that.

There are two extremes with respect to the profit motive. One is typified by some libertarian Ayn Rand acolytes who seem to treat it as the highest motivation; the other is far more prevalent today and is represented by another brand of “libs,” people who behave as if profit is something dirty (at least other people’s profit, anyway). But the balanced view is a bit different.

There is another kind of incentive. In America’s early Christian communes, for instance, residents’ belief that they were doing God’s will — and perhaps winning His favor — served as a great incentive to be productive; thus did the communal Oneida Colony create renowned flatware. And, truth be known, there’d be no need for profit if we lived in a sinless world, for there would be neither covetousness nor laziness. If there was an unfulfilled need — paper products, for example — people would readily volunteer to create them simply to serve others, and no one would be wasteful or undermine the system by taking more of anything than he needed. But in a sinless world we wouldn’t need a military, police or prisons, either.

Sane people live in the real world, however, where different rules apply. One of them is that since the spiritual/moral motive is the highest reason to serve your fellow man, it is also the rarest. And because of this, it cannot be relied upon to motivate people at the level of population. Enter the profit motive. To paraphrase economist Walter Williams, profit encourages your fellow man to serve you even if he doesn’t give a darn about you. After all, Domino’s didn’t start making pizza to relieve hunger; Ivory doesn’t make soap because “Cleanliness is next to godliness.” To have your needs and wants satisfied, would you rather rely on the charity of your fellow man or his profit-driven self-interest? For the answer, just look at all the wonders of science and medicine, all the luxuries around you, and ponder what percentage of them were created based on charitable motives versus the profit motive. Again, charity is wonderful — but it’s also relatively rare.

The Missing Middle-Class Case

Yes, the middle-class has been disappearing, but they haven’t fallen into the lower-class, they’ve risen into the upper-class

By Mark J. Perry 

The chart above is based on Census Bureau data on “Money Income of Families–Percent Distribution by Income Level, in Constant (2009) Dollars” from 1967 to 2009 (Table 696) for the family income categories: a) $25,000 and under, b) $25,000 to $75,000 and c) $75,000 and over.

The chart and this post were inspired by a comment made by Ken on this CD post earlier today on middle-class incomes over time and the myth of middle-class stagnation. Ken points to Census Bureau Table 696 as evidence that the reason the middle-class appears to be “disappearing” is because that income group is actually “disappearing” or moving into the upper-class, and not falling into to the lower-class as is typically claimed.

Here’s what the family income distribution data in the chart above show:

1. In 1967, almost 62% of American families were earning between $25,000 and $75,000 in constant 2009 dollars, an income range that might accurately describe America’s “middle-class.” Also in that year, fewer than one out of six (16.3%) American families had income above $75,000 (upper-class), and 22% of families were earning $25,000 or less, an income category that might be described as “lower-class.” In 1967, there were almost four American families earning a middle-class income ($25,000 to $75,000) for every high-income family earning above $75,000.  Further, there were almost three “middle-income” families for every one “low-income family,” so the middle-class American families earning between $25,000 and $75,000 clearly represented a significant share of US families.

Here’s what happened over time:

2. The share of lower-income families fell over time by 4.2%, from 22% of all US families in 1967 to only 17.8% of all US families in 2009, while the share of middle-income families decreased by 18.6% during that period, from 61.8% in 1969 to 43.2% in 2009.  So where did those 22.8% of families go that disappeared from the lower-income and middle-income categories in the 42-year period between 1967 and 2009? They “disappeared” into the upper-income category of incomes above $75,000, which increased by 22.8%, from a 16.3% share of American families in 1967 to a 39.1% share in 2009. Whereas “middle-class” families were so numerous that they outnumbered “upper-class” families by ratio of almost 4:1 in 1967, so many American “middle-class” families have moved by the 2000s to the “upper-class” by income, that those two groups have been almost equally represented for their shares of the total number of US families over the last decade (see the convergence of the blue and red lines in the chart above).

Bottom Line: In other words, America’s “middle-class” did start largely disappearing in the 1970s, but it was because they were moving up to a higher-income category, not down into a lower-income category. And that movement was so significant that between 1967 and 2009, the share of American families earning incomes above $75,000 more than doubled, from 16.3% to 39.1%. On the previous CD post, Ken commented that although “Many prominent people like Paul Krugman claim that the middle class has been in decline since the 1970s, that assertion is incredibly and verifiably wrong.” And according to the percent distribution of family income data by income level (in constant dollars) in Table 696 from the Census Bureau, I think Ken is exactly right. 

The Effects Of Real Austerity

Facts Versus Ideology

By Joseph Calhoun

Matthew Melchiorre of the Competitive Enterprise Institute has a new paper, The True Story of European Austerity. The gist of the paper is that cutting both taxes and spending - true austerity - leads to higher growth. 

Austerity in Europe takes many different forms. While countries label their policies with the common term "austerity," their actions are far from similar. Only four countries in Europe have engaged in what can truly be considered austerity-cutting both spending and taxes-Bulgaria, Ireland, Latvia, and Lithuania. Instead, more countries have followed the opposite path-increasing both spending and taxes-than any other option. This does not qualify as austerity in any reasonable sense of the term. Businesses bear all the burden of fiscal consolidation while governments bear none. Contrary to popular belief, austerity is largely absent from Western Europe.

The paper breaks down austerity as practiced in Europe into 9 categories:

The results for the categories with at least 4 countries:

Well, knock me over with a feather. All this does is confirm reams of research on the multiplier effects of spending and tax changes. It also at least partially confirms the research that correlates smaller government with higher rates of economic growth. The vast majority of the research shows that tax changes have a much greater impact than spending changes and this data supports that view. Raising taxes and cutting spending or even holding spending constant is doomed to fail because they both have negative multipliers. The only way governments can raise economic growth and address their deficit problems is to cut both taxes and spending.

Scandinavian Sorrows

Stigende renter? Hvad er det? Hjælp!

by Pater Tenebrarum

If we're not completely mistaken, then the above is Danish for: “Rising interest rates? What's that? Help!”  The recent bond market swoon has been a global phenomenon, and it has afforded highly indebted consumers in Scandinavian countries a brief glimpse of what could be a melancholic future in a place called  'debt slave hell'.

Bloomberg informs us of a beginning 'rate pain' attack in Denmark:

“Danish consumers, who owe banks more than three times their disposable incomes, are about to find out how sustainable that debt load is as interest rates rise.

Signals from the U.S. Federal Reserve that it’s preparing to scale back monetary stimulus have already sent mortgage costs higher as yields rise across global bond markets. The Nykredit Index of Denmark’s most traded mortgage bonds sank this week to its lowest in more than four months after investors sold assets once coveted for their haven status.

Though the government and central bank have long argued Denmark’s private debt burden is backed by some of the world’s biggest pension savings, record consumer borrowing has prompted warnings from the European Commission and the International Monetary Fund. The Systemic Risk Board in Copenhagen said this week it will investigate private debt growth in response to international concerns.

“We have decided to initiate an analysis to see if there is a risk to the systemic stability,” central bank Governor Lars Rohde, who heads the board, said in an interview. Though recent studies suggest a “significant level of robustness,” the board has “noted that others outside the country have a different understanding.” (emphasis added)

Let's see: Denmark's consumers have debt amounting to more than 300% of their income (that sounds like a world record…even Carneyfied Canada is positively thrifty by comparison). Some people say that this debt load just mightbecome a problem (not only for said consumers, but also for their creditors). The solution: we'll let a committee look into it. In that case, obviously nothing can possibly go wrong. Dodged a bullet there!

In Denmark it's Different …

Let us take a look at what arguments are forwarded in terms of 'it's different in Denmark'- as that is indeed the argument made by the central bank. 

“Mortgage holders in Denmark relied on the government’s stable AAA credit grade to finance debt at record-low rates during the fiscal crisis in Europe. While the Organization for Economic Cooperation and Development estimates Danish households owed 310 percent of disposable incomes in 2010, government debt is less than half the euro-zone average at only 45 percent of gross domestic product this year, the European Commission estimates. [….]

The yield on Denmark’s benchmark 10-year government bond soared to 1.96 percent on Monday, its highest since March last year. The yield on the Nykredit Realkredit A/S 3.5 percent mortgage bond due October 2044 soared 10 basis points on Monday to 3.72 percent, according to generic price data compiled by Bloomberg. That yield was as low as 3.33 percent last month.

Health Insurance vs. Food Insurance

People need food, too

By Nathaniel Givens

Imagine if grocery shopping worked like health insurance.  Let’s call it “food insurance”.

First of all, you’d better hope that you’re not self-employed or unemployed. You see, way back in World War II the United States created strict wage controls as part of the Stabilization Act of 1942. Since employers still wanted to compete for the best employees–even in wartime–they had to get creative. Instead of offering higher salaries (which was now illegal), they began to offer fringe benefits. The most important of these was healthcare insurance. Let’s pretend that food insurance started in the same way. That would mean that, today, if you get your food insurance through an employer-provided plan you not only get a nice tax advantage on your own premiums, but you can also rely on the employer to pay some of your costs as a matter of traditional expectations. But if you’re self-employed, you not only lose the tax-advantage, but also the ability to get the lower rates that come with buying insurance for bigger groups.

Now let’s imagine what actually shopping for groceries would look like. Theoretically, insurance is about risk management. That’s why you can insure your car against unfortunate accidents, but not against the need for an oil change. This is also one reason why life insurance policies don’t cover suicide: your death has nothing to do with risk management if you choose to die. So health insurance, which covers not only accidents but also routine care and sometimes elective procedures too, is not at all like real insurance. So let’s say food insurance isn’t either. Instead, your food insurance qualifies you to a specified number of visits to your local food provider. If you visit in-network food providers you pay only a small copay, but if you visit out-of-network food providers, you pay a higher copay. (If you have emergency munchies and need fast food, you pay an even higher copay to get prepared meals handed to you at a drive thru.)

Honor From Our Fathers

Happy Father’s Day! 

"My father gave me the greatest gift anyone could give another person: he believed in me."         - Jim Valvano

Honor is essential to the maintenance of a free society. We learn about honor from our fathers.

When the duties of fatherhood are widely dismissed or rendered poorly, our understanding of honor is diluted… and freedom soon begins to wither.

This is not to belittle the importance of mothers. Many single mothers do a spectacular job of providing their children with an understanding of personal honor. We can respect and celebrate the achievements of extraordinary individuals, without blinding ourselves to the effect of broad trends upon vast populations. Both fathers and mothers are uniquely important. Our society is suffering from a pronounced deficit of fatherhood.

There are many ways to define honor. I suggest viewing it as an expression of faith, in both yourself and others. An honorable man or woman displays honesty and integrity because they believe others deserve such treatment. It is a sign of faith in other people that we deal honorably with them, and presume they will do the same, unless they prove otherwise. Honor is also a gesture of respect we offer to ourselves, because we have faith that we can succeed without deceit and savagery. If you truly respect yourself, you believe you can win without cheating.