The transition was a lot of work (for one guy to manage, at least) and went off as smoothly as I could have hoped. The only thing that really irked me about the process was Facebook not letting me carry over fans of our old page into the new one. They wouldn’t let me rename that old page, either.
I probably should have guessed that Facebook would be so inflexible about stuff. At the very least I would have liked to have more time to develop a contingency plan for that. Oh well. My fault.
So! We have to start from scratch. Thanks to you early adopters, we have enough people on the page to get our own URL. From that, we can now get our own like button as well.
Let’s be friends. Give it a click.
I hate Facebook app spam as much as you do. So I only post one Facebook update per week. I try to make it funny and informative. But if you’d rather that not show up in your feed or if your feed is cluttered enough as it is, just hide our updates. Like us first, then hide us. That’s what I usually do with sites I want to support but consume via separate channels like email or RSS.
I’m hesitant to add any further Facebook integration beyond this. But if they do succeed at taking over the internet, my resistance may ultimately prove futile.
For a change, the last week has been a rather eventful one for market news.
We finally got a little correction, a reminder that 1) the market doesn’t move in a straight line forever and 2) it goes down a lot quicker than it goes up.
I’m not tremendously concerned at present. The bull trend still appears intact and I see very little on the horizon that could cause a panic. The worst case scenario is that the economy slows down more than everybody was projecting and flirts with stagnating GDP for a few quarters. But the market probably would have caught a whiff of that by now. Keep an eye on this latest move and if it does start to trend lower, it may be a harbinger of the type of economy we’ll see this summer and fall.
And on the political front, there were two huge developments.
The first is that Rick Santorum officially dropped out of the race. I, for one, will miss all the daring, double entendre copy-editor in-jokes. But this is the best thing in the world that could have happened to the Republican party. The dysfunctional campaigning and media circus surrounding these clowns can finally stop and the party can instead focus on the real objective. Despite what you may have inferred during the last 12 months, the party objective is not to stage their own version of the Hunger Games, but to get a Republican in the oval office.
Romney is the nominee. Now the official battle can begin. Paint your faces, don your red/blue caps, and prepare your tribal war chants.
It’s going to be a bloody affair.
As a strategist, I’ve been dying to see what kind of campaign Obama is going to run this time around. His 2008 campaign was a thing of brilliance and legend. My ears perked up after a story that more or less broke simultaneously with Santorum’s exit; Obama tipped his hand at what might be one of the pillars of his upcoming campaign.
Rich vs. poor.
For what it’s worth, I think this is a pretty good strategy.
2008 was not the environment for class warfare. 2012 is. The theme of “change” was perfect for the last election, but with so little meaningful endogenous change in the last 4 years, the new strategy needs to both distance itself and clearly define a new theme. This year seems like no better time to whip the public into a populist fever. Between Occupy Wall Street and public response to reforms like the “Buffett Rule,” there’s clearly more animosity between the haves and have nots than our country has seen in a while.
If you were the incumbent, what strategy would you employ?
Remember, Obama will be fighting a tricky battle along two different fronts. He has to find a new way to appeal to independents while simultaneously encouraging moderate, disenchanted Democrats to actually get out there this November and vote. He’s gotta figure out a way to light an another fire.
Romney’s strategy is far easier to design and execute. He just has to convince people that four more years of the same is an unappealing prospect.
The Rational Fringe
On the fringe, there are pragmatists like me. We are the ones who are only superficially interested in ideals, talking points, and political narratives. Instead, our deep interests lie in actual policy. The problem with actual policy is that it’s boring. It’s nuts and bolts stuff. It’s all very technical.
Ultimately, though, it’s what matters most.
I can’t say for sure when this reality will finally dawn on the world, but I’m reasonably confident that at some point it will.
All of you regular readers know I hardly ever climb up on the soapbox. That isn’t what this newsletter is about; there are a million other places on the internet to listen to that sort of thing. But in accordance with the philosophy of our newly rebranded website, we need to look honestly at the data to achieve mental harmony.
Democrats, listen up: there is no way out of this policy jam without reneging on the promises made to the American public and reducing the awesomeness of programs like Social Security and Medicare. Sorry. These programs will always exist because they are good programs. A strong social safety net is part of what makes us, us, and China, China. But these programs are, for all intents and purposes, broken in their current state. They cannot be sustained.
I recognize that this makes for unpopular politics. Barack Obama will not get elected with a campaign that features straight, honest talk about entitlement programs and what we need to do to fix them. And so he is going to tell you stories. He’s going to try and convince you that these programs can be saved, preserved, and enhanced. But the reality is that at some point benefits will go down, either in absolute nominal terms or through indirect methods such as increasing the age for eligibility.
Republicans, your turn: there is no way out of this policy jam without a new tax structure. And when I say “new tax structure,” what I mean is “higher taxes” in aggregate. Sorry. The problem today is sufficiently large that it cannot be addressed through spending cuts alone (cuts which also need to include defense). There is a revenue side to the equation, and in coming years, that will have to be addressed in order to reconcile our fiscal dilemma.
I recognize that this, too, makes for unpopular politics. Mitt Romney cannot run a campaign that features talk about how people, particularly the wealthy, are going to have to pay more in taxes. And so he is going to tell you stories. He’s going to try and convince you that we can navigate a path out of here by preserving or even lowering our current tax structure. But the reality is that at some point, taxes will rise. Almost certainly, they’ll rise on the wealthy. Most likely, they’ll rise across the board.
The data is unbending. The math doesn’t work. Our nation is spending something like $3.7 trillion per year. We’re taking in just over $2 trillion. And there isn’t anything really in place to reconcile that gap. Just smoke, mirrors, hope, and promises.
I know that there are a lot of factors that goes into running a campaign. Politics is a fascinating, complex world. That’s all well and good. But if you are interested in actual policy, this is where you have to start.
If you want an honest, objective road map of what the future may look like, check out the Bowles-Simpson findings. Don’t worry so much about the specific details of their report. What matters are the broad strokes.
- A reformed tax policy that broadens the base of income, lowers the rate, and adds a few extra consumption taxes to increase overall tax revenues.
- Revisit the Affordable Care Act and install polices that actually control long term costs.
- Reducing federal pensions and student loan subsidies. Defense spending, too.
- Raising the retirement age for Social Security and also increasing the payroll tax.
You can read about more of their policy ideas directly from the commission.
As I said, this kind of policy is bad politics. Just a couple of weeks ago, the House shot down a Bowles-Simpson based budget 382-38. They shot down Obama’s budget, which wasn’t really that different, 414-0. I guess every once in a while you see something from Washington that’s clearly bipartisan. In this instance, seems that both Democrats and Republicans seem united when it comes to ignoring these major structural imbalances.
I completely understand that an election year is not the time to have this type of discussion. 2012 isn’t the year for this. So maybe next year will be.
For the record, I don’t believe this will all play out catastrophically. I’m optimistic that all of these changes will eventually get made and we’ll get back on the right course. I think it’ll be long and slow and measured. We won’t wind up with this new policy overnight or at the conclusion of another short-term crisis. In fact, that was one of the major points in the Bowles-Simpson report. These cuts begin very gradually and play out over the next decade.
It will be painful and it will require sacrifice, but let’s be as honest with ourselves as we are with the data: we can endure it.
Update on jobs
Last Friday’s jobs report was the big story in the markets. March came in substantially under what was expected, with about 120,000 jobs added. That was about half of what we were seeing in the three months before march. The unemployment rate held constant at 8.2%.
Now, if you seriously believe that the economy created 120,000 jobs in March it’s time for a reality check. The BLS’s monthly nonfarm payrolls report is quite possibly the the least accurate economic data point out there. There are 150 million people in the labor force. Roughly 13 million of those are unemployed. A number like 120,000 is rounding error when dealing with these types of figures. On top of that, the number of jobs created/lost is subject to wild revision.
None of this is to say that the monthly unemployment report should be ignored. It contains a lot of interesting and useful data. The problem is that you have to look deeper into the report and read the data beneath the headlines. So while you can safely disregard the absolute value of the jobs report, you should always pay attention to the context and the vector.
In the period between December and February, the story was one of better-than-expected job creation. That was a legitimate story. There were reasons, of course, as to why job creation was generally stronger than most were projecting. And the context of March’s report essentially confirmed it.
It sounds silly, but this was the argument that labor market bears were making at the beginning of the year about why we shouldn’t get too excited about the monthly payroll figures. The weather around the country was much warmer than normal. Warmer weather means more people out and about, spending money on goods and services. That means more jobs, too, especially in sectors like retail or leisure & hospitality. Those were the sectors that led the way earlier in the year and those, particularly retail, were the sectors that gave it back in March.
March was essentially “payback” for the weather-related surge in job creation at the beginning of the year. We got a little bit ahead of ourselves, and we spent March (and will probably spend April or May) giving some of that back.
I should mention that it was Mark Zandi who I thought made this point about the weather most eloquently. He’s usually one of the more optimistic economists out there, and this is exactly why I listen to him. I am aware of few others who can lay out the case for “cautious optimism” as convincingly as he.
The backdrop that matters
There’s another bigger-picture story to all of this. Let’s all take a big step back together and get above these little details. Ready?
1… 2… 3…
This little phenomenon serves a reminder that these surges above or below trend always revert. We have to pay the piper. It doesn’t always happen right away. But we always have to do it.
Against the backdrop of the post-crisis recovery in the labor market, an abnormal surge above the normal rate happens for a reason. Weather, stimulus, manipulation, whatever. When those factors drop out, it swings the other way through or beyond the established mean.
I think this micro-phenomenon should serve as a strong reminder that, at some point, the U.S. is going to have to pay for all the wild, abnormal policies it has adopted in the days since Lehman Brothers blew up.
Forcing interest rates well below what the market would set if operating independently?
Borrowing trillions of dollars from future generations to pay for short-term stimulus programs and bailouts?
Flooding the capital markets with mind-boggling amounts of liquidity?
Those things were not free. There is no such thing as a free lunch. We’re going to have to pay for that lunch. It was a tasty lunch, too, which means the tab won’t be cheap.
I wish more than anything that I knew exactly what price we’ll eventually have to pay for all that. In my opinion, that’s one of the only questions in all of economics that matters right now. What is the cost associated with everything we did as a nation to prevent another massive depression?
That cost is by no means limited to simple dollar amounts. What was the emotional cost of all this? What was the psychological cost? How does a nation of 300 million people change their long-term behavior when they see their government act in the way it has? How do we change our behavior after we’ve seen the things that Wall Street, or even our next door neighbors have done?
What costs are associated with all that? How will that alter the way that our economy grows and the way that we create and destroy jobs? How does that change the way that other nations interact with our economy?
When I was a kid I used to stare up at the night sky. In the summertime we’d roll out a tarp and a bunch of blankets in the backyard and sleep out under the stars. Like a lot of precocious, curious youngsters, I wondered just what the heck was up there. All that space. All that blackness. There’s so much up above that remains a mystery and probably always will.
Thinking about these things make my head hurt. They make me feel small. They remind me of my cosmic insignificance.
This is the existential truth: we simply do not know.
We don’t have a clue about what the future of our economy is going to look like. Anybody who’s telling you that they can say for sure should be disregarded outright. Like the vast blackness of outer space, we just don’t know what that payment to the piper will ultimately look like.
This is a scary thing.
We all feel it, of course. It’s why retail investors are skittish about re-entering the market. It’s why giant corporations are sitting on gigantic piles of cash, crossing their fingers that these record profit margins last for just a little longer. It’s why small businesses are nervous about expanding and hiring.
This is still the big picture story. One of action and consequence. One of movement above and below average trends.
At this point, there’s little doubt that the path we’ve adopted was the correct one. It was difficult. It was messy. And we made a lot of sub-optimal decisions along the way. But the decision to stimulate, bail out, and avoid chaos will, when it is all said and done, probably cost us less in the long run. In fact, Mark Zandi himself with Princeton’s Alan Blinder, another of the industry’s most respected economists, penned the authoritative paper on that a couple of years ago. Check out “How the Great Recessions Was Brought To An End” if you still need convincing that the alternative scenario was much worse.
The problem is that, yes, we may have avoided a second Great Depression, but we have still have incurred tremendous costs in doing so. And it isn’t clear yet exactly what those costs are going to be.
They’re out there, though, lurking. Like a hungry, hidden black hole. Or a fussy Red Giant on the brink of going supernova.
What would really help is if we had a Captain Kirk at the helm. Now more than ever we need someone bold, honest, charismatic, and most importantly of all, fundamentally good.