The View from Right Field

Inequality, Social Mobility, and a “Fair Go”

A new post on the New Zealand idea of a “fair go” is up on my other blog, “A Different New Zealand.”  You can find it here.

If “What’s the Matter with Kansas?”, Then What’s the Matter with Me?

In 2004, Thomas Frank wrote a book entitled What’s the Matter with Kansas?¹  The main idea of the book was that Republicans had used issues like abortion, school prayer, etc., to get working class and other Kansans to vote Republican, against their economic interests.

I thought about this book over the weekend when I did the monthly review of our 401(k)s.  I am lousy at investing, so we just own index mutual funds (some in stocks and some in bonds).  The thing I noted was how high the stock market is.  It is amazing to me, but the stock market has seemed to take off since Donald Trump was elected.  I don’t understand it, and I don’t know why it keeps going up,² but it has.³

Government Subsidies – Programs That Never End

There is a saying that the only things certain in life are death and taxes.  And the only thing permanent is a government program.  The inability of the federal government, and state and local governments, to terminate programs that don’t work is proof of the latter.  Instead of getting rid of the old programs that don’t work, governments just set up a new program – again and again.  Which results in four or five (or more) programs all trying to solve the same problem, and none of them doing it well (if at all).

Overseas, the forever programs are often subsidies: for food, fuel, etc.  In theory, the subsidies are set up for good purposes: to help the poor.  (Of course, they are also set up to help politicians – get votes.)  The problem is that, over time, the subsidies become more and more expensive, as costs go up and prices don’t.  And corruption seeps in: subsidized fuel, for example, is sold to neighboring countries where prices are subsidized.

The Purpose of a Corporation. I’ll Go with Milton Friedman.

Last Monday, the Business Roundtable, a group of chief executive officers of big U.S. corporations, announced that it had changed its statement on the purpose of a corporation and had issued a new “Statement on the Purpose of a Corporation.”¹  This was a big deal:

“The leaders of some of America’s biggest companies are chipping away at the long-held notion that corporate decision-making should revolve around what is best for shareholders. …

No longer should decisions be based solely on whether they will yield higher profits for shareholders, the group said.  Rather, corporate leaders should take into account ‘all stakeholders’ – that is, employees, customers and society writ large. …

Confidence and Predictability. Words You Never Hear in Connection With Donald Trump

I have talked before about the importance of certainty and confidence, in both foreign affairs and the economy.  In an editorial yesterday on the possible upcoming recession (the ‘Trump recession,” the Democrats will call it), The Wall Street Journal said this:

“[W]e never said tariffs would produce immediate recession.  We said they – and the climate of uncertainty they were creating for business – would chill global trade and undermine the surge in capital investment spurred by tax reform and deregulation.  The growth momentum from tax cuts and a strong labor market were able to mask the impact of helter-skelter trade policy for a time.  But that old economic disciplinarian, Adam Smith, sooner or later exacts a price for policy blunders.

The Stock Market: Real or Addicted? – A Follow Up

This is a follow up on last Friday’s post, “Is the Stock Market for Real or Just Addicted to Low Interest Rates and Easy Money?”  In writing it, I realized I have been saying the same thing for years.  In looking back at my past posts on the economy, I found I even used the “Christiane F.” analogy, about the problems the stock market would have trying to kick its addiction to low interest rates, before. 

Which gets to the first point of this post: Maybe I’m wrong about the economy.  Maybe things have changed.  Maybe low interest rates are appropriate, and maybe the stock market is for real.  You would have lost a lot of money betting against the stock market over the last ten years.

Is the Stock Market for Real or Just Addicted to Low Interest Rates and Easy Money?

Federal Reserve chairman Jerome Powell indicated in Congressional hearings on Wednesday that the Fed could be cutting its benchmark interest rate later this month – and the stock market promptly went up.  So, a “Powell Put”?  (See here.) 

In addition to a possible U.S. rate cut, interest rates in Europe remains at historic lows.  The European Central Bank’s rate for overnight deposits by banks is -0.4% (where it has been for over three years), which means you would get back less than you put in.  In June, five-year bonds issued by mortgage banks in Germany were priced at -0.2%, which means you would have to pay the bank in order to lend them money.¹  And in Denmark some banks are even offering mortgages at negative rates,¹ which means … well, you get the idea.

Making Inequality Worse By Lowering Interest Rates?

While the Federal Reserve did not lower interest rates on Wednesday, they did indicate they might do so later this year.  Which caused interest rates on bonds to go down, and stock prices to go up.  Once again, making those who are already well off (and have money in the stock market) better off.  And perhaps making inequality an even bigger problem?

Is “Tariff Man” Messing Up the Economy?

At one point in his dealings with China (which continue), President Trump called himself “Tariff Man” – apparently because he likes tariffs and thinks they are good things to impose and/or to threaten other countries with.  Which brings me to the tariffs that President Trump threatened to impose on Mexican imports into the United States if Mexico didn’t do more to stop people from entering the U. S. illegally. 

I have commented previously on President Trump’s arguably rogue or unilateralist approach to foreign policy.  I am not a fan of it.¹  I don’t think it’s good in the long run – or the short run – but I also don’t think it does any good for me to complain about it again and again.  And it gets tiring.  Therefore, this post.

But I think President Trump’s threat to impose tariffs on imports from Mexico in this case causes a different kind of problem that I haven’t commented on before, at least with respect to President Trump, so I wanted to do so. 

Fine-Tuning Probably Works Better on Pianos Than the Economy

The Federal Reserve has shifted course recently.  Previously, it indicated that interest rates would stay the same for a while (which was itself a change from indications last year that rates would going up this year).  Now, however, the Fed is signaling that, if the economy weakens because of “trade wars,” it might cut interest rates.

Some are calling this shift the “Powell put,” in memory of the “Greenspan put” in the 1990s/early 2000s, when then-Federal Reserve chairman Alan Greenspan cut interest rates, and kept them low, to try to keep the economy growing.  While Alan Greenspan’s low rates may have worked in the short run, some see those low rates as one of the factors causing the 2008 financial crisis.