The Funny Man

Today is the centenary of Ernie Kovacs’s birth. I recall watching his short-lived program on television back in the early 60s. It was brilliant. There was nothing else on television like it.

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What Goes Up

On the website of Grantham, Mayo, Van Otterloo, Peter Tarlie has an interesting white paper that, essentially, makes two points:

  1. The stock market was in a bubble in 2017-2018; and
  2. The bubble is bursting.

Assume he’s right. Whatever breast-beating there has been about public pensions to date, you ain’t seen nothing yet. If this is start of a prolonged bear market, quite a number of city and county governments will go bankrupt. May even a state. Maybe even Illinois.

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Chicago Mayoral Election

The first round of Chicago’s mayoral election will take place on February 26, like the aldermanic election that I wrote about earlier. I’m preparing a round-up post on the candidates but I barely have the heart to do it. Even assuming you can trust the candidates to attmpt to do what they’re promising, more than anything else they give me the impression that they’re running to preside over Chicago’s “Going Out of Business” sale rather than to put the city on the path to a resurgence. It won’t be done through wishful thinking or driving all of the actual taxpayers not to mention the businesses they work for out of the city.

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A 70% Marginal Rate

I wonder if those who are touting a 70% marginal personal income tax rate for the highest earners realize that such a thing would cement the very inequality and influence of the wealthy they claim to oppose? As was the case 60 years ago, very few would pay it. They would lobby to get exemptions and get them. Pay to play, baby.

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What’s An Acceptable Compromise?

If you do not think that the deal that President Trump offered to the Democrats to reopen the government was an acceptable compromise, what would be? If you oppose any compromise, please indicate that.

I think that a reasonable potential counter-offer would be a longer extension or even requiring that the legalization of the status of the so-called “Dreamers” be made permanent. They don’t have a mens rea. Demanding that they pay a fine or that citizenship be permanently foreclosed to them is not reasonable. Contrariwise, demanding that the deal be extended to the parents of the “Dreamers” is wrong, too. They do have a mens rea and there should be substantial consequences.

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Subsidies for the Rich

I basically agree with Ross Marchand’s post at RealClearPolicy about Tesla:

But when the going gets tough, Tesla knows it can at least count on subsidies from various governments. The company, for instance, is only midway through a gargantuan ten-year $1.25 billion tax credit deal with Nevada, and can continue to pay far lower taxes than its competition as long as it maintains some manufacturing and properties in the state. The state hoped to pay for the tax credits by ending tax credits for the film industry, but due to overly rosy projections on how much business the film credits were supposed to bring in, the revenues didn’t nearly offset. According to data from the Nevada Department of Taxation, the film tax credit wind down has so far only offset around half of Tesla’s use of $173 million in tax credits thus far.

But Tesla is at least having some production success in Nevada, in stark contrast to their failed Gigafactory 2 project in New York. Musk promised that, if New York agreed to give Tesla $750 million to build a solar panel plant in Buffalo, Tesla would create 1,500 jobs for the region. Yet only one production line has been set up, and the factory employs less than 1,000 workers, according to Tesla’s head of energy operations. The deal was originally inked for Musk-owned SolarCity, which then had nearly $3 billion in debt and was eventually folded into Tesla. The consolidation came amidst a huge downturn in solar installations. Bloomberg reports that, “The company’s solar deployments are down more than 60 percent from their peak under SolarCity, and Tesla has laid off thousands of solar employees around the U.S.”

When dealt a bad hand, Tesla doubles down and…departs for China. While it’s difficult to estimate how much money Tesla is receiving from the Chinese government, Teslarati reports that the company “does enjoy the favor of the Chinese government,” including the benefit of an uncontested bid for the 860,000 square meter plot of land needed for their new Shanghai car factory and special, low-interest loans to defray 30 percent of factory costs.

There is, of course, nothing wrong with setting up shop in new states or countries in response to market conditions. Over the past several decades, the liberalization of international commerce has amped up the pace of globalization, lifting billions of people out of poverty. But in Tesla’s case, relentless subsidy shopping has left taxpayers high-and-dry, ensuring that few jobs are created in exchange for sky-high bills. While it is too late for tax and subsidy bills to be taken back, policymakers should learn from the sorry case of Tesla and keep sweetheart deals to a minimum. If Tesla can’t thrive in an area without relying on government largesse, then the best company offering the best services to consumers should win the day.

Whatever the sales pitch we shouldn’t be subsidizing the purchase of status symbols by the well-to-do and I feel confident that relatively few of the lower middle class or working poor are buying $100,000 automobiles. I don’t know the precise terms of the subsidy but the sticker prices of the vehicles for which they are available should be capped at something closer to $30,000 than to $100,000.

My view of Tesla is that it is and always has been a rent-seeking company with a sideline making and selling stylish EVs to the well-to-do. I see no reason for it to exist if it can’t make it on its own.

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Do “Disruptive” Companies Have a Lifecycle?

At Forbes Stephen McBride makes some thought-provoking observations about Apple. The lowest price for the latest iPhone is $1,149—500% of what you would have paid for an iPhone eight years ago. Each year for the last several years Apple has been selling fewer phones. iPhones are two-thirds of Apple’s overall sales. Cutting prices won’t help them.

A publicly traded company that makes most of its money from selling phones is no longer telling investors how many phones it sells!

And its other business lines can’t pick up the slack for falling iPhone sales.

Twenty percent of Apple’s revenue comes from iPads and computers. Those segments are also stagnant.

Which means 86% of Apple’s business is going nowhere.

Could Apple go the other way and slash iPhone prices?

I ran the numbers.

If Apple cut prices back to 2016 levels, it would have to sell 41 million additional phones just to match 2018’s revenue.

The larger point that he raises is that there may be a lifecycle to these disruptive tech companies. Back in 2007 Nokia was cock of the smartphone walk. Its stock has declined 80% since then. Is it Apple’s turn now?

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About That Chinese Slowdown

A lot of people are remarking on the reported slowing of the Chinese economy. Here’s the Washington Post’s reaction:

The slowdown in the final quarter of the year was not quite as bad as many economists were expecting, reaching 6.4 percent.

But many economists take official Chinese figures with a large pinch of salt. Using a range of data to come up with a more reliable figure, Julian Evans-Pritchard, a China analyst at the Capital Economics consultancy, said that the growth rate probably slowed to 5.3 percent in last three months of the year.

Regardless of the number, the direction is clear, and the slowdown is being felt nationwide.

A few quicktakes:

  1. As noted, if the official number if 6.4%, the actual growth rate is probably lower.
  2. We’d be pretty happy with a 5.3% growth rate.
  3. It has been widely speculated that the Chinese authorities believed that a very rapid growth rate was necessary to preven unemployment and subsequent unrest. China’s working age population is declining and will do so for a number of years moving forward. Do they need as much growth as they did, say, ten years ago?
  4. There will be run-on effects. Expect the economies of South Korea, Japan, Vietnam, and Taiwan to slow as well.

Will China’s slowing economy spark a global recession? Will it spark an Asian recession? Stay tuned.

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My Only Remark on the Covington Story

We shouldn’t have to re-report stories.

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Kamala Harris Announces

California Sen. Kamala Harris has just announced her candidacy for the presidency. I will not vote for her.

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