The Return of the "Shorts"

Reading about Wall Street shenanigans in the 19th and 20th century often included discussions of "bears" and "shorts". It's easy to think those tactics are just a part of history, long since outmoded by federal regulation and modern finance.

Not so, according to this. Though to give the modern age it's due, it doesn't appear that there were underhanded things going on--just the ups and downs of a company pushing the envelopte.

Interest Rates and Savings Rates

Saw a chart showing the US savings rate over the years today.  It's interesting.  Here's the wikipedia page, which only goes to 2010. (Is wikipedia losing its oomph?)  It shows the savings rate dropping to about 4 percent in 1998 and 2 percent in 2005, recovering to about 7 percent in 2010. Since then the rate has been in the 7 percent neighborhood.

Some of the discussion, at least on one site, is how low the rate is, when considering how much people should be saving for their retirement.  But the article where I saw the graph was emphasizing the positive, the revival of the rate since the recession, noting how low the interest rates are currently.

That caught my attention.  I know just enough about economics to know that interest is the price of money.  So my (maive) assumption is that the higher the interest rate the higher the savings rate. But that doesn't appear to be the case.  I must be missing something.

(It is interesting the fluctuations of savings--in my young adulthood it was around 10 percent, from 1975 to 85 it declined to 7 percent before its most recent drops.

Corporate Profits Up 66 Percent?

I think it was Kevin Drum who noted a big rise in US corporate profits--maybe 66 percent as a percentage of GDP.. If I remember right it was from 6 percent to 10 percent of GDP.  Don't find it now but here's  a chart from the St. Louis Fed showing after tax profits in non-adjusted dollars.

A Circuitous Route to Farm Survival--Cather, Stephens, and Somerby

Among the books in our house when I was growing up were three or four by Willa Cather, including My Antonia..  I've read it several times, but unlike some people I know, my wife for one, I don't have a great memory for the contents of what I've read.

Bob Somerby has his blog, The Daily Howler, which I follow.  He's often repetitive and usually idiosyncratic, predictably criticizing journalism and liberal pieties, although from a liberal background.  (He was a roommate of Al Gore and Tommy Lee Jones at Harvard who has never forgiven some journalists for their criticism of Gore.  Also taught school in Baltimore for years, leading to sharp criticism of educational panaceas and the misuse of statistics.)

Yesterday he wrote a piece picking up on a Brett Stephens op-ed in the Times, in which Stephens uses My Antonia to discuss immigration.  The book is based on Cather's childhood, spent in Nebraska among immigrant families, mostly Czech, with the central character the "Antonia" of the title. It's a rich picture of immigrant and farm life on the Nebraska plains which I recommend. I also recommend both the Stephens piece and the Somerby piece.

Somerby has a quote from the book, which reads in part:

"There was a curious social situation in Black Hawk [the local market town] All the young men felt the attraction of the fine, well-set-up country girls who had come to town to earn a living, and, in nearly every case, to help the father struggle out of debt, or to make it possible for the younger children of the family to go to school..

What I'd point out is it's the 1880's, not now, and farmers are being supported by off-farm income! Most people don't realize that most American farmers do rely on off-farm income today.   Usually, when that's discussed, it's treated as a revelation and an indicator of how bad the farm economy is. But maybe it's time to reconsider.  (BTW, back in the day most FSA clerks (program assistants) were the daughters and/or wives of farmers, or former farmers.)  I think what's going on is the same logic as my father used when he notoriously came home and told my mother she was going to have a flock of chickens (mom held that grudge until she died).  The logic--diversification reduces risk.  That's true whether you're talking investments in stocks and bonds, or agriculture. Hens and dairy have different economic cycles. But an even better diversification is a nice steady income in town, whether it's 1880 or 2019.

Aging, Savings and "Crashed"

Reading "Crashed" raises questions about interest rates and the amount of capital in the world.

I'm sure it's been observed before, but the world is getting older.  Japan and the US are examples, but China's another one.  I'll be foolish and apply my own experience to the rest of the world.  The older I get the more I save, partly because it's more important to have security for the future and partly because my desires are less.  Or in other words, I'm more set in my ways.

Extrapolate that pattern world wide and maybe we have more savings, more capital than investment opportunities and thus lower interest rates. 

The Problem of Gig Workers, Farm Workers

Strikes me that the infamous "gig workers" and farm workers share some problems, though their situations are different. (Before I proceed, apparently there's at least confusion or  doubt over how significant the sign economy is.)

As I understand gig workers, they may be working for larger companies, like Uber or Lyft, or for smaller ones.  Farm workers, except in the case of the large fruit and vegetable outfits, are usually working for smaller employers.

In both cases, the worker is unlikely to get fringe benefits--health and disability insurance, minimum wage protection, etc.  The problem for farmers is the paperwork burden.  The problem for the workers is the power situation--almost impossible to organize.

I wonder if a state-mandated broker setup might work. 

On Reading Adam Tooze's "Crashed"

I'm currently reading Adam Tooze's "Crashed, How a Decade of Financial Crises Changed the World". The Amazon blurb is:"An intelligent explanation of the mechanisms that produced the crisis and the response to it...One of the great strengths of Tooze's book is to demonstrate the deeply intertwined nature of the European and American financial systems."--The New York Times Book Review."

That's the aspect of the book I'd highlight--I've read Bernanke, Paulson, and Geithner's books on the crisis, but they give a US -centric view of the Great Recession and its aftermath.  So Tooze provides a more complete picture. 

He's not a great stylist, and I was disappointed by the Introduction, but he does the narrative well, and the book grows on you.  Some of the discussions are over my head.  Lots of the financial details go by too fast for me to deeply understand, but I get enough out of it.  Tooze is critical of decisions made by many of the leaders,  but I think fairly so. I recommend it.

But all that's not why I'm moved to post about it.

Tooze reminds me of the turmoil and tension of those days, the uncertainty over how things would turn out.  And that brings me back to today, and our current President.

Bottom line: we should thank our stars and stripes that Obama was president then and not Trump.  It's impossible to imagine the damage he would have done.

On the other hand, the existence of the crisis and perhaps the mistakes made in handling it and the aftermath might well have been a necessary condition for Trump's victory in 2016.  A question to consider in the future.

Economist Discovers Social Norms

The issue Scott Irwin, an economist, is considering is how farmers decide(d) either to plant corn late or to go with prevented planting.  The earlier tweets in this thread all considered rational calculations of return, but this tweet is his final thought:

13. Last, but not least, I don't think we can discount the social norm of not leaving ground bare here in the Corn Belt. I can't tell you how many emails and messages I have gotten from farmers considering PP who were absolutely in personal anguish about doing so.

— Scott Irwin (@ScottIrwinUI) June 24, 2019

I view myself as a rational human being, but over my life I've often not acted as such.  I'm not sure whether social norms, habit, or psychology were at work

The Market in Farmer's Markets

The market in farmer's markets is not good, according to this NPR story.  Too many markets chasing too few buyers.  Another case where the free market in agriculture is overly productive.

The Cost of Glasses

I've worn glasses since second or third grade, I think.  After I got my first pair I remember the revelation it was to see leaves and twigs on trees rather than a green blur. 

Now glasses are a technological marvel so obviously they are and should be relatively costly.  I think my last pair, with all the coatings and stuff were three or four hundred dollars.  But it's my eyesight, so I paid.

So I'm flabbergasted by this Vox piece drawing from an LATimes article.

"This week, the Los Angeles Times spoke with two former executives of LensCrafters: Charles Dahan and E. Dean Butler, who founded LensCrafters in 1983. Both admitted that today, glasses are marked up nearly 1,000 percent.
“You can get amazingly good frames, with a Warby Parker level of quality, for $4 to $8,” said Butler. “For $15, you can get designer-quality frames, like what you’d get from Prada.”

They attribute the high prices to having one big company which controls the industry.

Why Is Uber Like Farming?

Megan McArdle had an op-ed this morning arguing that Uber and Lyft were losing money because they weren't charging enough for rides.

Boosters of the ride-share revolution like to point out that most of the nation’s cars spend most of their time parked; there ought to be money in liberating all that unused capital. True enough — except that someone has to drive the car, including the time spent circling as they wait for rides.
In 2014, journalist Timothy B. Lee spent a week driving for Lyft. He drove for 50 hours but spent only 14 of those hours actually ferrying passengers. All that circling wears out the car and burns both gas and the driver’s valuable time.

The other day I noticed someone tweeting, I think, defending the usefulness of Uber.  The woman was divorced, supporting kids and with an odd work schedule (might have been an adjunct academic, I forget).  The point is that not only did she already have a vehicle, she had free time but at odd hours, odd enough she couldn't work a regular job, but she could drive for Uber and make money.

In a way she was similar to a farmer, someone who has land and equipment available and the decision is whether to use it to the fullest or not.  She, like the farmer, did, because that's what the market provides incentives for. When you look at what the farmer or driver is earning with the extra work, it may be very little, but as long as it covers the extra expenses incurred, if there's positive cash flow, the farmer or driver will likely work the hours.

A side issue:  I think cars are more reliable these days and last longer.  And in some cases, like mine, there's a mismatch.  All of my cars have become obsolete before they really became uneconomical to drive.  Repair bills were creeping up, partly because of age issues, not so much wear issues.  To the extent that's true for many people, Uber and Lyft will enable fuller usage of assets.  At least until the advent of self-driving cars which may change the paradigm again.

What's the Market Dynamics for Hearing Aids?

Starting to get a hearing aid.  The process raises questions about how the market works.

Apparently, from Consumer Report reviews there's little difference among the leading brands. But the prices seem high, particularly when you look at some of the personal devices being hawked on the Internet.  How do audiologists get away with charging so much and why doesn't competition drive the price down?

 Probably part of it is an information disparity, such as we often feel when dealing with doctors, etc.  The audiologist selling the hearing aids knows a lot more than we do as a first-time buyer.  And once we have a good experience with her/him, we'll keep going back to them. 

So it's rather like buying a car--once you've bought the first one you're likely, all other things being equal, to keep going back to the same dealer and manufacturer.  There's also the age factor: I suppose most aids are sold to older people and, while I wouldn't say we're gullible, I would say we're easier marks than younger types.  (Note the "we"--while theoretically I could experiment with online devices, I won't--I'll go with the flow.)

One of the Mysteries of the Economy Is Solved

Economists are moaning about how the U.S. economy isn't increasing in productivity as fast as it used to.

There's an observation, given a name I don't remember at the moment, that increasing productivity in services is difficult: it takes roughly the same number of people and time to perform Beethoven's Emperor piano concerto now as it did 200 years ago.

But some critical areas of the economy are declining in productivity.  Back when I was young one reporter would write one article in a newspaper.  But these days, as described here, on the recent rash of stories on Alan Dershowitz,  it takes two reporters to write an article.  In the good old days, the subject wouldn't have rated one story.

Disaster Averted? --EU

I was struck by the chart below  (stolen from a tweet fussing about the fact only the US is predicted to see an increase in government debt over the next years, but what's more interesting to me is the fact that Greece and Italy stand next the top of the list in reducing their ratio.  This is how many years since we were all worrying about the nearly inevitable Greek exit from the EU, the collapse of Spain (also doing ok) and Italy and the resulting disaster for the European Union.  That didn't happen--there's still problems now and in the future for the EU, but on a sunny Friday afternoon it's worth noting the bad news which didn't happen.


From a tweet: 

Berkshire Hathaway and the Pay of Bigshots

From vox, in a piece on "pay ratios" the comparison of the pay of the CEO and the pay of the median employee in the company.  Some ratios are over 1,000.

Not all of the pay ratios released so far are so gaudy. Warren Buffett, the CEO of conglomerate Berkshire Hathaway, makes less than twice his company’s typical employee. 

[Updated:  Jeff Bezos earns 59 times the median Amazon employee according to this article.]

Farm Consolidation: First They Came for Poultry

In the 1940's our family farm was small, small dairy (12 cows), small poultry (1,000 hens), but with our garden we got by. I remember my mother fussing, she was a good fusser, about people from the city (a milk deliveryman, IIRC) buying a nearby farm and building a two-story henhouse.  This must have been during a peak in egg prices, possibly tied to a war, WWII or Korea. (This has a chart of inflation and deflation in egg prices since 1947.  Note how the prices vary from year to year.)  She'd gripe that people would see good prices and would jump into farming, expanding production (of eggs, in this case), resulting in overproduction and low prices.  This would hurt the established producers, like us, while proving the naivete of the city  folk.

My mother had German ancestry, so when she experienced schadenfreude when Hurricane Hazel in the 1950's came through and caused the collapse of that henhouse, she was doing what Germans do.  By then egg prices had dropped. Our neighbors never rebuilt.  After dad died, mom kept on with the hens into the 70's, but the infrastructure, the trucker, faded away.

I think poultry  was the first agricultural commodity where there was a turn from small farms to vertical integration through contract farming and large operations. The first, but not the last.  Dairy has followed, as have hogs.  Don't know about beef.  In field crops there's been a somewhat similar process of consolidation, though I think not with vertical contracts. Instead I think there's been a move to more sophisticated marketing, futures, etc.

What's the trigger for this post?  This dailyyonder piece discusses the impact of these trends in Iowa, including the observation that hog farms have decreased by 90 percent since 1977.

My title is from the mantra about the Jews from Martin Niemoller. He was saying to act early.  I'm pretty sure there was little or nothing anyone could have done to stop these trends. 

Inflation and Rising Interest Rates

After the events of 2008, as Congress passed the stimulus bill and the Obama administration took charge, conservative bloggers such as those at Powerline started to worry about inflation.  Liberals such as Kevin Drum and the liberal economists mocked the concerns.  I have to admit that while I mostly agreed with the liberals, my memory of the inflation of the 1970's caused occasional qualms.

Turns out the liberals, and Bernanke and Yellen were right--we didn't have inflation over the Obama years.  Interest rates remained low.

But, with today's news of the stock market fall, there's more discussion of inflation.  Maybe finally inflation will hit and pass the 2 percent a year benchmark the Fed has used.  I'm no economist and I'm not panicking about the stock market.  But I do want to point out something I've not seen mentioned.

The federal deficit is projected to rise very significantly this year.  Trump's tax cut will hit revenues, and even if he's correct it will stimulate the economy, any increase in revenues will take a while to show up.  But what if it doesn't?  And what if inflation is at the door, and the Fed raises rates faster than expected?  The net result of higher interest rates is greater budgetary pressure and a larger deficit.  (We know that from Clinton's early years.)  That's not a good formula.

(A parenthetical note: I've not seen the Powerline bloggers raise any concerns about the deficit since January 19, 2018.)

Economic Creativity: New Occupations

How many words do you need to discuss an Amish farmer, deer farms, the production of deer urine, bowhunters and the need to disguise their scent, the problem of chronic wasting disease, and good/bad government regulation?

See this short New Yorker piece.

I'm more impressed by our the market economy and human desires endlessly create new jobs, particularly in a context of fearing the loss of jobs to AI.

The Magic of the Free Market

Legalizing pot means lowering the barriers to entry and creating a more open market.  The result, as Kevin Drum links, is lower prices.  With producers' energies now focused on more efficient production, rather than evading law enforcement in distribution, I predict this trend will continue, at some point driving the least efficient startups out of business.

Contra Free Market From Israel?

Conservatives tend to be more supportive of Israel these days.  The nation has long since put the kibbutz behind them and is now a booming economy, with particular expertise in IT, high tech and military equipment.  The World Bank has a piece on how that's happened, including this:

Hasson highlighted the key role played by public-private partnerships over the last 40 years. Those partnerships have resulted in the establishment of an innovation infrastructure — including educational and technical institutions, incubators and business accelerators —anchored within a dynamic national innovation ecosystem built around shared social goals.

Specifically, to reduce the risk for investors, the government has focused on funding technologies at various stages of innovation — from emerging entrepreneurs and start-ups to medium and large companies. Strengthened by that approach, the Israeli ecosystem is maturing: according to Hasson, mergers and acquisitions have increased and exit profits have almost tripled over the last three years, with more and more new projects being started by returning entrepreneurs.