One Darned Thing After Another

Shortly after I updated the post below, I lost Internet and cable. If anyone has any questions about why I keep my landline, this is it. Throughout our bad weather yesterday power has stayed on. It went down for about a second but came right back up. I lost my cellphone connection briefly. My plain old AT&T telephone service has remained available throughout. I also have a plain old AT&T rotary handset. It’s not plugged in—just there in case of emergency.

My Internet connection on the other hand has been out for nearly 24 hours.

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Microburst (Updated)

My area has just been struck by what I can only conclude was a microburst. We had an enormous frenzy of wind, rain, and hail, lasting about two minutes. Trees and bushes were thrashing wildly. A few minutes later the skies were clear and blue. Here’s the view from my front door:

The only damage to my house or property appears to be a shattered gate, destroyed more by the wind than by flying limbs:

A beautiful black walnut tree belonging to neighbors across the alley, perhaps a foot and a half thick, was sheared in half.

The response from my neighbors was what I would expect. As soon as the wind died down people came out and started checking up on elderly neighbors, making sure no one was hurt, and surveying the damage. Over in the next street two cars were taken out.

A few neighbors had branches across their roofs. I guess we’ll need to wait until they’re cleared before we know the full extent of the damage.

Except for a few seconds we retained power. Farther down the block and in the next street the power is out.

Update

Here’s the view down our alley:

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Understanding the Appeal

The older I get the more I think that Camus and the other absurdist philosophers had a point. The order in the universe is the order we bring to it rather than the order that’s there. I find myself increasingly in agreement with this passage from “The Myth of Sisyphus”:

If the descent is thus sometimes performed in sorrow, it can also take place in joy. This word is not too much. Again I fancy Sisyphus returning toward his rock, and the sorrow was in the beginning. When the images of earth cling too tightly to memory, when the call of happiness becomes too insistent, it happens that melancholy arises in man’s heart: this is the rock’s victory, this is the rock itself. The boundless grief is too heavy to bear. These are our nights of Gethsemane. But crushing truths perish from being acknowledged. Thus, Edipus at the outset obeys fate without knowing it. But from the moment he knows, his tragedy begins. Yet at the same moment, blind and desperate, he realizes that the only bond linking him to the world is the cool hand of a girl. Then a tremendous remark rings out: “Despite so many ordeals, my advanced age and the nobility of my soul make me conclude that all is well.” Sophocles’ Edipus, like Dostoevsky’s Kirilov, thus gives the recipe for the absurd victory. Ancient wisdom confirms modern heroism.

In the ancient world men were the bread of the gods. It is the lovely conceit (definition 1a) of Christianity to turn this on its head and that God has become the bread of men.

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Kaus vs. Schuler On Immigration

I’ve been meaning to get around to posting on this for some time but this is the first opportunity I’ve had. Recently, Mickey Kaus posted a summary of his views on immigration, a topic which is important here but has come close to overwhelming the latest incarnation of his blog, kausfiles. I’m going to post them in parallel to my own because I think my views are different from his in some signficant ways:

Kaus Schuler
The immigrants we get, including illegal Mexicans, are mainly hard-working potential citizens, like waves of immigrants before them; I think that most of Mexican immigrants who enter the country illegally are migrant workers, not particularly interested in becoming citizens. After the amnesty of the 1980s, only a minority of the Mexican immigrants then eligible elected to seek American citizenship. Are today’s illegals more likely to seek citizenship than the previous cohort? I think it’s almost exactly the opposite. I’d like to see some evidence.
The problem, as Mark Krikorian argues, is that we’ve changed, and the world has changed. We don’t need unskilled labor like we used to. Our native unskilled workers are having trouble earning a living. I agree with most of that but would go one step farther. IMO importing unskilled workers has been a conscious strategy to avoid dealing with the problem of racism against blacks. Having a reliable stream of new unskilled workers has also allowed business models that depend on such a stream to prosper.
The main reason to limit immigration flow, then, is to protect wages of Americans who do basic work. We desperately need a tight labor market. We won’t get it as long as millions of people from abroad respond to any tightening by flooding our work force. Once again I agree with that. I would add that the demographics of Latin America and the Caribbean means that those who rely on a steady stream of unskilled workers will need to go much farther afield.
The most important thing, then, is getting control of that number by securing the border — stopping illegal immigration. Once that’s done we can argue about what the legal number should be (and what should be done about current illegals). I think that trying to control the border is nearly futile but, since I think that most of the immigrants who arrive across our southern border are economic migrants, I think that getting control of immigration in the workplace would be much more effective.
But if wages are rising, it could be a reasonably big number! See point 1; I think that increasing the number of work visas by several orders of magnitude, i.e. into the millions rather than the present absurd 10,000, would be a practical approach to the problem.
There are second-order worries about cultural assimilation, especially the huge flow from Mexico, a nation a day’s drive away many of whose citizens (polls show) don’t acknowledge the legitimacy of our Southern border. See my first answer above. While I think they’re not illegitimate, I’m not unduly worried about those “second-order worries”.
One solution is to let in more people from other, non-Mexican cultures — Koreans, Chinese, Africans, Indians, etc. We want diversity! Ha ha. That joke never gets old. I suspect that a million unskilled, uneducated Chinese or Indian peasants would be just as difficult to assimilate in the age of the Internet as a million Mexicans are. And they’ll have the same influence on wages at the low end.

There are other issues, e.g. the incompatibility of mass immigration with our burgeoning welfare state, birthright citizenship, and family reunification as a policy goal, that we need to come to terms with but those are a start.

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The “Turnaround Agenda”

Nowadays you can hardly listen to the news here in Chicago or read any news organ without stumbling across somebody kvetching about Gov. Rauner’s “turnaround agenda” for Illinois, ably summarized here at Illinois Policy by Jim Long:

The Turnaround Agenda addresses those areas of state government that have lead to a sputtering economy and a shrinking population. The major components of the plan include:

  • Transforming Illinois’ workers’ compensation system to bring costs in line with other states
  • Reforming the state’s judicial climate to rein in frivolous lawsuits
  • Adopting common-sense changes to unemployment insurance
  • Empowering voters to choose if workers should be forced to pay money to a union as a condition of an employment

Both houses of Illinois’s legislature have a veto-proof majority of Democrats, i.e. the Democrats don’t need the governor’s help to pass a budget. Nonetheless when the legislature enacted a budget that was $3 billion out of balance, did not include any of the spending cuts the governor had recommended, and Democrats refused to implement any of the governor’s “turnaround agenda”, the governor refused to sign the budget and that’s the impasse we have today. The governor brands the budget as “unbalanced” and “unconstitutional”; the Democrats kvetch that the governor is insisting that they cave on a lot of non-budget issues before giving his support.

You can hardly blame him. He doesn’t have much leverage over the Democratic legislative leadership and forcing them to shoulder responsibility for the consequences of their own folly alone is probably his strongest weapon.

I can add. And I’ve been predicting Illinois’s public pension catastrophe for years. However, I find myself in the position of Dickens’s Oliver: “Please sir, I want some more.” Even if absolutely everything in the governor’s “turnaround agenda” were implemented tomorrow, would that right Illinois’s fiscal ship in anything other geological time? I don’t see it.

Using ideas of formal logic that go back to Aristotle, while reforming Illinois’s public workers’ compensation, reforming the state’s “judicial climate”, changing unemployment insurance, and getting Illinois’s public employees’ unions out of the political contributions business may be necessary are they sufficient? I don’t think so. Even a tax freeze and bringing Illinois’s state minimum wage into line with that of the surrounding states would still leave Illinois very much where it is now which is not in a particularly good place. The “turnaround agenda” linked above does a pretty fair job of articulating the problem.

Left completely unaddressed is the problem of value. Illinoisans are paying a lot of government services but not receiving nearly enough in the way of value for their money. Add actual taxes paid to the corruption tax and you begin to get some idea of the scope of the problem.

I think that we deserve to know more than the necessary first steps. What would be sufficient to reverse Illinois’s decline?

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The Real Problem

I don’t think I buy Hussein Ibish’s take on the real reasons for the animosity between the Israelis and the Gulf Arabs:

Israel is misreading the Arab world in several unfortunate respects. It does not recognise the diversity of strategic thinking and policies among the Gulf states, and treats them as if they had a single, homogeneous perspective and set of interests. And, even more importantly, it does not seem to understand that its conduct in the occupied Palestinian territories remains an insurmountable obstacle to close or open cooperation, even though that might otherwise make some strategic sense.

For one thing I think he dismisses the differences in what Jordan’s and Egypt’s leaders have done by comparison with what the leaders of the Gulf Arab states (not to mention Iran) have done just a bit too airily:

Jordan and Egypt made peace with Israel in their own interests, and those agreements are rock-solid. But Arab states in the Gulf region don’t share the same imperatives. Limited progress might be possible in specific areas. Israel might be able to cooperate with Qatar on reconstruction in Gaza, or with Saudi Arabia on Palestinian national reconciliation and relations between Hamas and Fatah. But despite the diversity in their policies none of the Gulf states will be prepared to enter into anything remotely resembling an alliance with Israel, despite the threat of Iranian hegemony, as long as the occupation continues with no end in sight.

Let me propose an alternative explanation. Elites in Arab countries find it in their interests to foment hatred for the Israelis to distract the attention of their populations from their own illegitimacy and misdeeds. Israeli politicians find it profitable to keep the conflict simmering rather than to defuse it.

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The Problem We All Have

Yesterday I heard an episode of the radio program, “This American Life”, devoted to a topic you probably haven’t thought about in a while, if ever: school desegregation. I’ll link to the program when it becomes available online. I defy you to listen to the remarks by parents in the Francis Howell school district in St. Charles County, a county just to the north of St. Louis and St. Louis County, without deciding that racism is still a problem in the United States. It’s called something different and more polite, e.g. getting away from crime and drugs, looking for better schools, but it’s still racism.

The antecedent article to the radio program appears to be here. There’s also an academic article on school desegregation here.

The gist of the story is that after the Normandy school district in St. Louis County lost its state accreditation under state law the students whose local school district it was had the right to go to other districts. The district selected for the 1,000 kids who elected to do so was the Francis Howell district about 30 miles north. If you’re thinking that there were probably other candidate districts nearer by, you’re right. Normandy was making things as difficult for its students as it possibly could.

Just to put things in perspective over a half century ago I lived just south and east of the Normandy school district, Normandy was majority white, blue collar or lower middle class, and wasn’t anything to write home about. It has apparently deteriorated since then, is majority black, and has joined with the Wellston district which even back then was horrible. Ferguson immediately adjoins these districts.

Parents in the Francis Howell district were clearly horrified at the development and when the school district organized a meeting in which they might air their thoughts, quite a few of them said some pretty awful things, as recorded in the program.

The author of the article and the program has a clear point of view: the solution for poor, mostly black school districts is a return to court-ordered desegregation. That’s a view a I held for many years but I’m sad to say I think it has passed its moment. While that solution might have worked 40 years ago, we chose a different path. We imported a substantial, largely impoverished and unskilled working population to replace the shortfall in young white workers coming into the job market and today just over half of students nationwide are white and today desegregation would take more than bussing—it would take forced resettlement of the population.

Let’s consider the problem a little more critically. As this article should convince you the problem with schools isn’t strictly one of spending. There’s a wide variation in per-student spending in Illinois high school districts all the way from around $29,000 per student (in Rondout, a northern Chicago suburb) to Paris-Union at $6,400 (Paris-Union is in downstate Illinois near the Indiana border). Per pupil spending in Chicago’s high school district is around $17,000 per student.

Differences in achievement can’t be satisfactorily explained based on spending per student, poverty, racial makeup, or geography. We don’t have enough money to spend $29,000 on every student. There aren’t enough white kids in Illinois or California or New York to create schools in which a majority of kids aren’t black and/or Hispanic and it’s hard for me to imagine bussing Chicago school kids to Iowa. Or Iowa school kids to Chicago. Even the academic paper cited above doesn’t tell me that putting a few percentage points of white kids into schools that are otherwise 100% black will solve those schools’ problems.

I think that problem is a cultural one and I mean that in the broadest sense. I don’t see any ready solution.

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Measuring Income Inequality

I have severely mixed feelings about Francis Menton’s post at City Journal. He starts off well enough, pointing out the seeming paradox that the 25 Congressional districts with the greatest levels of income inequality within them all elect Democratic congressmen and have for some time. I think that stands to reason. There’s particular appeal in redistributionist rhetoric in places where the problems are walking right down the street alongside you.

And it also stands to reason that the redistributionist rhetoric never quite seems to become more than rhetorical or, if it does, the effects are never quite what their advocates have assumed. That’s always the case. Good intentions are not enough. You’ve got to have things like a grounded understanding of human nature and human behavior and an eye firmly on results rather than just intentions or, worse, opinion polls.

Which is how I interpret this:

Could it be that progressive policies intended to reduce income inequality actually cause it to increase? Quite likely, yes. The reason has to do with the effect of these policies on the low end of the income distribution. The government doesn’t count the distribution of in-kind benefits as income—and means-tested handouts create incentives for recipients to keep their measured incomes low. Further, where higher minimum wages—another progressive agenda item—cause higher unemployment, we see even more zero-income earners. Having lots of low-earners or zero-earners doesn’t help reduce inequality. Meanwhile, at the high end of the income distribution, taking money from high earners through higher marginal tax rates is not counted in official statistics as a cut in income—which means that income inequality again doesn’t shrink.

I also agree with his point that income inequality should be calculated using after tax income that takes into account both taxes paid and benefits received, either in the form of transfer payments or any of the myriad forms of subsidies. You can’t calculate income inequality in New York City without accounting for the effects of rent control, just to take one example.

But what then? My intuition clearly differs from Mr. Menton’s. I gather that he either thinks there isn’t a problem or that there’s nothing that can or should be done about it in a sort “the poor we shall always have with us” sort of way.

My intuition is that the net result of all of this is a great increase in income inequality between the 90% of income earners and the top 90 to 99.9%-ers. I don’t think it’s an unavoidable accident that Chicago’s police officers, firefighters, teachers, etc. are the highest-paid in the country. Or that physicians becoming wealthy as a side effect of the enactment of Medicare was because they’re so smart and hard-working. I think that those are the rules of the game.

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What If?

What if we’re calculating productivity, GDP, inflation, wages, and unemployment all wrong? That’s James Pethokoukis’s question in this post:

It’s a puzzle for which Goldman Sachs has a simple answer: We are measuring productivity wrong, and therefore we are measuring GDP wrong. A metric devised for America’s 1930s “steel-and-wheat” economy, in the words of economic historian Joel Mokyr, doesn’t work so well for a rapidly growing digital economy. In a recent report, Goldman economist Jan Hatzius and Kris Dawsey note that prices of tech hardware — adjusted for quality improvements — have fallen a lot faster than those for software. This suggests software isn’t improving much.

But Goldman thinks this gap is a “statistical mirage” reflecting the “amorphous” nature of software improvements. Hatzius and Dawsey ask: “How much better are the inventory management systems that retail companies contract out or develop for their own account compared with those of 20 years ago? How much better is Grand Theft Auto V than Grand Theft Auto IV? And how much more value do we now derive from our internet connection compared with a decade ago?”

As the Goldman economists reckon, then, U.S. inflation is lower than we think due to sharply falling, “quality adjusted” IT hardware and software prices — and thus real economic growth and productivity are higher. GDP growth might actually be close to 3 percent right now, which would be more in sync with what’s happening in labor markets and the tech sector. Oh, and it also means real incomes are growing faster than we think, which is why the economists are “skeptical of confident pronouncements” that American living standards aren’t improving as fast as they used to. By the way, new analysis by the Peterson Institute suggests worker incomes have pretty much been keeping up with productivity gains. So perhaps more good news for the 99 percent.

Okay, I’ll bite. What if? Show me the numbers. Don’t just ask hypothetical questions.

In my measly view from here on the ground rather than soaring above at 50,000 feet I see a heckuva lot of unemployment, even more underemployment, burgeoning black markets in practically everything, and an economy that, at least at the local level, is barely holding on by the skin of its teeth. Are we all being sold a bill of goods by a constantly nay-saying press?

But I’m willing to listen to Dr. Pethokoukis’s thoughts. Where’s the evidence?

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I’m Shocked, Shocked

Jeff Cox, writing at CNBC is alarmed at the results of the Fed’s monetary policies:

The central bank printed $4.5 trillion and all we got was a lousy 0.2 percent wage increase.

While that sounds like a T-shirt for policy geeks that one might buy at the shore, it actually pretty accurately describes the plight of the average American worker. After years of easing never seen before in global central banking history, the Federal Reserve’s efforts have amounted to little when it comes to stimulating “good” inflation, particularly in terms of wage increases.

The employment cost index, an otherwise secondary data point that suddenly has taken on more importance, painted a bleak picture for workers in its latest update Friday.

On a quarterly basis, it showed wages and salaries increasing just 0.2 percent, believed to be the lowest three-month move ever for a data set that goes back to 1982. That translated to a 2 percent annualized gain in compensation costs, according to the Bureau of Labor Statistics.

What’s more, the scant growth went mostly to government workers, who saw a 0.6 percent increase, while the private sector was flat. On a 12-month basis, private worker compensation rose just 1.9 percent, which actually was a slight decrease from the 2.0 percent at the same time in 2014. Wages and salaries alone grew 2.1 percent, which actually was an increase from the 1.8 percent a year ago.

He shouldn’t be. As Barry Ritholz explains, the Fed’s policy is doing exactly what it was intended to do:

You probably learned the phrase “moral hazard” during the financial crisis. In short, what it means is that the bailouts rescued leveraged, reckless speculators from the results of their unwise professional folly and gave them an incentive to do it all over again. They were and the intended rescuees.

Do you think I am exaggerating? Consider the U.S. bailout in its manifold forms, from TARP to ZIRP to QE. How many bondholders suffered losses from their poor investment decisions? With the exception of holders of Lehman Brothers’ debt and a handful of banks that weren’t deemed too big to fail, just about every other bondholder was made whole, 100 cents on the dollar.

Thanks to rescue plans such as the Trouble Asset Relief Program, holders of bonds from a diverse assortment of failed and failing companies suffered literally no losses. American International Group? Zero losses. Government sponsored entities Fannie Mae and Freddie Mac? Zero losses. Banking giants Citigroup and Bank of America? Zero losses. Morgan Stanley, Merrill Lynch, Goldman Sachs, Bear Stearns? Zero losses.

The Federal Deposit Insurance Corp.’s actions were rare exceptions to this rule: Its bailouts actually benefitted consumers — savings and checking account holders. When banks such as Indy Mac, Wachovia, Washington Mutual went belly up, the FDIC arranged a shotgun marriages. WaMu went to JPMorgan Chase, Wachovia went to Wells Fargo, Indy Mac went to OneWest Bank.

Once it was certain the account holders were made whole, whatever assets were left went to the most senior creditors — typically bond holders. (Equity holders usually get wiped out). In Washington Mutual’s case, bond owners received between 20 and 28 cents on the dollar. Other FDIC resolutions yielded similar amounts.

Even the Federal Reserve’s zero interest rate policy (ZIRP), in place for so long that there hasn’t been a rate increase in more than nine years, is there to help rescued banks. For years after the financial crisis, their balance sheets remain festooned with so many bad mortgages and soured loans that an early increase in rates would have put those portfolios at huge risk. Now that prices have mostly returned to pre-crisis levels, it is considered safe to increase the fed funds rates, which we all know will have a significant impact on mortgage rates. With foreclosures down tremendously from their peak, the banks can tolerate interest increases. Despite plenty of evidence that the economy could have absorbed interest rates increases almost two year ago — the economy met the Fed’s own parameters at that time — bank mortgage portfolios were still shaky, and not in shape to deal with rate increases. More losses that could have compromised the banking industry’s health were likely.

As I always have, I think that way back in 2007, the U. S. should have done what Sweden did in its banking crisis: nationalized the banks. Liquidate them in an orderly fashion. Let the bankers of insolvent banks go broke or incarcerate them, as appropriate. I don’t doubt that there would have been a period of substantial disruption. It could have been managed as Bill Black has explained over and over again. We’re a big, rich, powerful country and we have lots of ingenuity. Our economy would have returned to something resembling normal much more quickly. The costs would have been borne by people whose profession it is to know better. Instead we’ve provided those same people with every incentive to do it all over again and they’re enormously richer now than they were then. It’s everybody else who’s bearing the costs.

I don’t honestly see how anyone can coherently think that income inequality is a problem and that we’ve done the right things with out banking system over the period of the last eight years.

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