UK Election Results Capture Political Schism

In under two years since the country stunningly voted to leave the EU, the same electorate shifted yet again and leant away from the idea of a clean break with Europe and threw the whole thing now into chaos. The youngest of voters sided with Labour, who were selling polices in a throw-back to those last seen in the 70s that, if followed, would lead the country to financial ruin. Corbyn’s plan is not even realistic; yet the youngest among us just have no memory of such irresponsibility. Only the old do, and so they voted Conservative.  

Now hostage to a 10-seat minority of the DUP, Theresa May will be saddled with a back-seat driver at negotiations with the EU. Decision making responsibility will not fall to May; she will have to keep ‘calling home’ to get approval.

Worse of all, the result of this election shows how the entire political system is corrupted. We have the worst of both worlds: a disenfranchised and ignorant electorate (e.g. Most of the young) that falls for platitudes and made-up promises. Of course, the left calls such things as false truths or fake news if the right puts such things out.

Britain will now have a much riskier time with Brexit. All we can hope for is a bank run that requires a bail-out or for the IMF to drop Greece ‘in it’ and a run on the Euro. It’s a matter of time. But now we need it sooner rather than 

The Madness of Student Loans

I read an amazing article in today’s US print edition of the Wall Street Journal. The article was titled, ‘Parents are Drowning in College-Loan Debt‘. The front page article explored data that suggests new record levels of delinquency on college-loan debts associated with a government-managed program called Parent Plus. 

Apparently this program allows parents to borrow money to support educational costs over and above the maximum a child can obtain from federal aid. The article suggests that there is no limit to what can be borrowed via Parent Plus (created by Congress in 1980 when Jimmy Carter was president); and that the most information needed to qualify is a social security ID. Apparently there is no credit check or any other required qualification.

Excuse me? I had to read that part again. What idiot approved this policy? Talk about idiot. This is just the kind of lunatic policy that contributes to unsustainable price increases in secondary education that the droves demand for more subsidies, loans and debts. This is as close to nuts as the same socialist and left-leaning policies that suggested expanding home ownership for those that cannot afford it was a good thing. This is madness.

Not every child needs to go to college. But every child should have the opportunity. There is a distinction between those two points; and the result should not lead to governments controlling access by funneling loans to those that cannot afford it. Attendance should be based on merit. Thus fewer would attend and so prices would not rise as fast and so fewer loans would be needed. But socialism informs uneducated parents that they have a right to a college education and so Uncle Sam has to bend over and make crap up and print more money and screw everyone as a result. Nice.

Now we are again in another financial pickle. But I can’t stop and write about how to fix it. I am going to rush off to go apply for my free Parent Plus loan.

What is Wrong with Capitalism

Finally some data is coalescing around a real problem that is hindering capitalism and specifically that part known as creative destruction. For without creative distruction we end up with a pilloried version of capitalism that undoes itself via a painful transition (in our future) rather than peaceful adaptation (what we really want).

You have to connect several dots here in order to discover the twisted position of capitalism today. The data points are these:

– The vast and growing majority of profits are created by fewer and fewer firms (see ‘Tech ‘superstars’ risk a populist backlash‘)

– There are fewer and fewer publicly listed organizations (see ‘Why America should worry about the shrinking number of listed firms‘)

– Start-ups are starting up at record low levels (see ‘Where are all the start-ups?‘)

– Competitive sprit is running at all time lows (see ‘Bright Minds in Chicago worry about the state of competition in America‘)

It seems the success of capitalism, the ability to create wealth, has been twisted into a beast that seems out of control and likely to garrote itself out of spite. The populist movement will put this into sharp focus when it notices the situation and then takes aggressive political action to counter it.  This will cause more pain than the current monster we call capitalism.

However this is not capitalism run riot. The issue is that socialist policies have twisted the capitalist model into a hybrid and it’s now a grotesque mess.

In some economic circles there is talk of a ‘winner takes all’ mentality. This is another way to capture what is happening. As firms got larger and more successful, perhaps enabled by globalization, they created the environment that helped protect them. This environment has evolved over a number of years and was partly enabled by lobbying politicians in order preserve change and limit impact of any rules that would undermine their firms’ position. This led to ‘crony capitalism’ and spending on lobbying is at record levels.  This form of capitalism has been transforming for over 20 years.

As an adjunct to this various polices driven from a left-of-center belief have gouged the economies natural ability to re-create itself from the waste of want and failure. Start-ups are running at near all time lows. Regulation, taxes and even social stigma has all but weeded out the individuals’ desire to better oneself and create something for oneself. Socialist policy embedded in every thing we do, now commonplace and taken for granted, suggests we simply reallocate money through taxes rather than seek to grow the size of the pie first.

And finally new data shows that the number of privately listed firms continues to decline and this suggests that the chances for expansion of the investor class is limited, even declining. This just accentuates the ‘winner take all’ body that we now see before our eyes.

If you overlay this with the situation of inequality and the declining level of home ownership (record levels in the US again) and the hollowing out of the middle class, you can see what is happening and it’s not good. But the problem is not easy to fix. For twenty years socialist policies have been adopted and due to the lack of any real capitalist alternative, these left-leaning policies have become standard and even accepted as normal:

  • Higher taxes
  • Larger and larger government (and) spending (with leads to increased regulation)
  • Which leads to emphasis and ability to focus on redistribution over growth

These polices lead socialist and the average less-well educated voter to assume that capitalism is broken and it needs extra help. This all stemmed from the ‘Third Way’ that was promulgated by Tony Blair and his ‘market-based socialism’ that was concocted as a populist message to beat Thatcherism in the 90s. It has now come full circle, feeding a monster that even the socialists cannot control. 

So now we have an odd situation. Left wing populism of the 90s gave way to cronyism in the 00s and now have a neo-right wing populist uprising. What a pickle. What we need is a down to earth shop-keeper or house- keeper to run for office with solid, no-nonsense ‘do unto others’ centered polices. A return to a real capitalist system will rebalance much of what has gone wrong. Too big to fail? Yes. Let’s let the failures start. It is through failure we learn (sometimes). This crony-based maladroit system of today is killing the golden goose.

The EU – Creaking at 60

The title of this blog is the title of the Economist Special Report last week. The title refers, of course, to the 60th anniversary of the Treaty of Rome, the founding of the EU at its source, being celebrated by EU members, less the U.K., last week. Oddly the U.K. is still a member but since she wants out, political correctness prevents Albion from upstaging proceedings.

The Economist special report is really good. It is well balanced and actually concludes that Europe needs a multi-speed system to respect all the differing political and economic challenges across the EU. What is irksome though is that while a two-speed or multi-speed approach has been proposed before, why is it now that the Economist has finally woken up to reporting it and making it the basis of its views regarding the success of the EU?

It is as if the Economist has woken up just in time to see the final deck chair arrangement on the titanic. Correctly the special report calls out the weakness and fallacy of the EU’s monetary policies for all members and now current monetary union is flawed. We all knew this a while ago. If this had been addressed perhaps the U.K. vote for Brexit might never have happened!

But ignoring my cryptic criticism, the article is very up to date and very down to earth. It’s just a shame that it took Brexit and the near break up of the EU, and continuing mess in Greece and Italy to come to the conclusion we needed four years ago.

Trump One Step Closer to Quitting

Reference:

I believe Donald Trump will quit the Presidency of the United States. I forecasted Trump would win (see April 2016: Trump Will Eat Clinton Alive), and in that article last Spring I suggested that he would quit. He will quit due to the inability for politicians in Washington to be rational and negotiate. He will quit with acrimony and bolshiness. About the only thing that will prevent this situation from taking place is tax reform.

Let me first state that I think that Obamacare was the wrong tool for the job. It was a rushed, Ill-focused, partisan and socialist effort to undermine the best parts of America. Its namesake and his supporters suggested that the Affordible Care Act (ACA) it helps those that need most help (the uninsured), and it does (in some way) but at a system-wide cost that is unacceptable and unaffordable.

The free market is anything but that; regulation is like a strangling vine; prices remain untouched and high; big pharmaceutical remains unfettered; patient outcomes remain anathema to healthcare. This country continues to spend ever more on healthcare, more than any other developed nation per capita, and yet our outcomes and their improvement reman poor and lacking, even on a good day. Obamacare was the wrong tool for the job.

The bad news is the Republican approach to Obamacare has split its own party. Worse, the repeal and replacement was in their reach. Yet last week the chance for correction was thrown out.  

There were even votes against the Republican policy from folks like Ron Paul who didn’t want the ‘Obamacare Lite’ but who wanted a full repeal. So he withheld his support. The Freedom Caucus, apparent fiscal hawks, had a chance to budget-fence Medicaid, yet they withdrew support in the mad hope of a perfect policy sometime in the future.  

This is madness. This is political suicide. The Democrats have been handed a free ticket and Trump must be mad. This is Washington at its worst. There will likely never be a perfect policy or time enough to develop it.

Now the movement shifts to tax reform. If an overhaul is not executed Trump will feel like quitting and he may yet do so. The Republicans need to realize that they have a rare opportunity but only if they unite. If they play party politics and splinter again, change will not be forthcoming. The Democrats, not in power of any sort, will be in power in all but name.

Obama won on the promise of change and socialists alike all rammed through their left-leaning, redistributive, anti-business and anti-free market policies. We are slowly bleeding to death now under the weight of ignorance and self feeling. Our polices cannot be paid for without printing money since we are all too happy to free-ride the masses and garrote the rest. The rest who are free and employed folks who work for a living, who want to improve their lot with their own blood, sweat and tears, not from hand-outs from Uncle Sam.

Trump also won on an argument for change. Alas the Republicans have forgotten how to govern.    

US Economy Not Out of the Woods – Beware the Hype that Says Otherwise

You would think that, given the press coverage, much of the US economy is making great progress.  Apparently interest rates will continue to rise in response to the Fed’s feeling that the economy is doing well; near-full employment, GDP recovery, stock market growth, bond and dollar strength and all that jazz.  But these data points mask some other troubling items that suggest any recovery will likely be lopsided and even short-term based.  You only have to look under the covers at, say, unemployment, credit, or housing.  

  • Unemployment: despite low levels of reported unemployment many economists are concerned that the participation rate is at very low levels.  In other words, there is a lot of unemployed that is not being reported in the official KPI.  Some economists suggest that real effective unemployment maybe nearer 6 or even 9 percent.  Thus the result of economic growth may not lead to wage price pressure so soon, since the participation rate may improve the so pick up some of the slack.  This is good news overall but not if the Fed believes that they need to head off wage inflation likely to appear due to pressure on a really tight labor market
  • Consumer Credit:  Student and auto loans are running ahead at full steam, and mortgage debt continues apace.  While many firms have cleared their balance sheets of bad debts, consumers – which drive a massive part of the US economy – are amassing debt easier than looking for a hot meal.  On February 27th the US print edtion of the Financial Times carried an article, More US car owners behind on loan payments than at any time since 2009.  What is realy funky here is that if you go into the market now to look for a new or used car, you will be offered a loan for repayment now past the 5 year window.  It used to be that 5 years was the maximum and this was only a few years ago.  Now you can get a loan over 6 years or longer.  So the consumer part of the market is building up a nice bad-debt situation.
  • House prices: Yes, house prices have recovered, so we are told, to near pre-crisis levels.  So that part of the market is secure, right?  Wrong.  Home ownership is a its lowest levels in years.  It turns out that the buyers that are driving up prices are investment firms and conglomerates that are snapping up property then leasing them to. So first time buyers are being squeezed out.  The housing market has not recovered in the way we would want it or need it to for effective sustainment.

So we have a very lopsided economic recovery.  It is not stable and even the strong shoots are some challenging weeds hiding just under the covers.  Even if Trump can delivery on +2% GDP growth, I am not altogether sure that woudl mask the issues that are building up today.

Obamacare – The Gift that Keeps on Taking

I thought it was interesting the angle taken by two Opinion pieces in the Wall Street Journal on Matvh 17th and 15th.  Both pieces highlighted what for me is not well known or reported in the wider press.  The point being that the regulation that comprises the Affodible Care Act (ACA) was going to continue to drive a greater wedge into public finances long into the future.  According to the two articles, increased taxed and transfer payments from the federal governance were baked into the regulation or required as a result of how the regulation was to be sustained.  In other words, ACA did way more than “tackle” the problem of offering healthcare to those that did not have it; it really did tinker with the entire system on which it relies nourishment.

The perspective offered by the Wall Street Journal goes some way to explain the Republical delight in how repealing and replacing Obamacare will in fact eliminate or significantly reduce this socialist wedge that woudl have other driven our Governmetn on to ever larger formats.  We really do need to figure out how balance increasesing demands of an aging population with the need to fund a smaller government.  If the government were a business, it would long have gone out of business.  And it does not help to hear others say, “the governmetn is not a business” since, at the end of the day, it has to be funded.  We cannot just borrow forever and print money when we feel like it.  Every nation on earth that has gone this route has ended up in revolution or disaster.  We all beleive the US is different.  Let’s hope so.

 – March 17th, How to Repair Obamacare’s Fiscal Damage

 – March 15th, The Health Bill’s Fiscal Bonus