The answer to the riddle above isn’t “a newspaper” but Chicago’s budget. The editors of the Chicago Tribune in anticipation of Mayor Lightfoot’s upcoming State of the City give her the following helpful advice:

1. Don’t borrow more.
2. Cut spending.
   

   Going hard at city expenses to balance the budget is the responsible strategy. Virtually every city operation will need to be vetted and then trimmed or restructured. Beyond core services, every program Chicago government provides will need to be justified or eliminated. Shrinking budgets and killing popular if unessential programs isn’t fun work for politicians. But it’s crucial and will give the mayor credibility. In tandem — provided she delivers the belt-tightening — Lightfoot can make her second ask: to raise taxes and fees.

3. Get pension reform from Springfield.
   

   There are longer term fixes to pursue. Among them, the mayor can go to Springfield and ring the bell for pension reform. In Rahm Emanuel’s waning days in City Hall, he got on board with the idea of amending the Illinois Constitution’s pension clause to allow changes to government retirement benefits. He came to understand that there’s no viable alternative.

   Lightfoot has said she wants to protect the pension benefits city workers have earned. So do we all. But that doesn’t preclude a constitutional reform that would let City Hall limit pension benefits those workers earn in the future.

What remains unmentioned in the editorial is that Chicago’s population is declining. That Chicago cop in 1985 had three million people to support his pension. Now he has 2.5 million and the 2020 decennial census may reveal that it’s a lot lower than that. Don’t be shocked if Chicago’s population has fallen below 2 million. That means a lot less sales tax and fees than when there were 3 million Chicagoans. Making it up by raising property taxes is a mug’s game. High property taxes is one of the reasons they’re leaving.

Chicago’s teachers, police officers, and firefighters are all working under contracts up for renegotiation and it is not unreasonable to assume that they will want raises that the city simply cannot afford. The new mayor will be tested.

I’m losing track. Is Trump doing the bidding of Israel or is Israel under Trump’s thumb?

Just for the record I don’t care what two freshman Congressmen do or where they go as long as they don’t conduct foreign policy. Then I care. That would be a violation of the Logan Act for which they should be prosecuted. I’d just as soon that no sitting member of Congress travel outside the United States during his or her term of office.

In his column at Bloomberg Noah Smith warns of the potential impact of an economic slowdown in China on the world economy:

In order to weather the Great Recession, China shifted its focus from export-oriented manufacturing to domestic real estate and infrastructure, and from private companies to state-owned enterprises. That probably caused productivity growth to slow. Meanwhile, China’s working-age population is now shrinking and its supply of surplus rural labor has dried up. Retooling its economy to produce less pollution and cut greenhouse emissions will slow growth as well, even if the long-term environmental effect is worth it.

But it’s not just a Chinese recession that threatens the world economy. The trade war, along with looming geopolitical tensions between the great powers, are threatening to open a rift between China and the rest of the world economy. Tariffs have global manufacturers scrambling to move production from China to countries such as Vietnam and Bangladesh. Companies, both Chinese and otherwise, are being forced to decide whether to consolidate their supply chains inside China or go elsewhere.

This decoupling will probably be protracted, and costly. The past 30 years have seen the construction of a global trading system centered around a China-U.S. axis, and now that structure is breaking down. In addition to the cost of reorganizing supply chains and the economic inefficiency introduced by the separation, companies are facing deep uncertainty about where they will be able to source their inputs and sell their products.

Through some creative cherry-picking and proof by innuendo he points to the adverse effect that a Chinese recession would have on the U. S. economy.

The reality is somewhat different. 70% of the U. S. economy consists of personal consumption expenditures, i.e. retail, health care, education, and houses. That’s a much larger role than in Europe or China. Exports just aren’t that important to us. Exports to China could go to zero and its effect on the U. S. economy would be minor.

My story of the last 40 years would be somewhat different from Mr. Smith’s. Since 1979 China’s economy has grown, like the Soviet Union’s before it, by moving labor assets from relatively non-productive agriculture to more productive manufacturing. In the process hundreds of millions of Chinese people have been lifted from the direst of poverty. Due to distortions in the Chinese economy much of that has been at the expense of workers in the U. S. and Europe.

What would have happened without those distortions? I think the Chinese economy would have grown faster and not at the expense of workers here. Mr. Smith apparently believes otherwise.

China has reached the end of its ability to increase productivity using the strategy that has served it for the last 40 years due to limits on its ability to improve agricultural productivity, its policy of food independence, a declining working age population, and other factors. Additionally, both here and in Europe we’ve gotten fed up with China’s misbehavior.

Europe is much more exposed to a Chinese recession than we are. While it is likely true that when China sneezes, Europe, Germany in particular, gets a cold. It is not nearly as true that a Chinese recession will inevitably spread to the United States.

An end to the present U. S. economic recovery is inevitable. We will go into recession again. I don’t know when it will be and neither does anyone else. But a recession here is less likely to be triggered by a slowdown in China than practically anywhere else in the world.

In an op-ed at the Wall Street Journal critical of the Democratic presidential aspirants in particular and the Democratic Party in general, staunch Democrat Alan Blinder points out three “economic truths” that Democrats “can’t handle”:

• Truth No. 1: You can improve and expand health-insurance coverage without going to a Medicare for All plan that bans private insurance.
• Truth No. 2: You can make great strides toward mitigating climate change without embracing the Green New Deal.
• Truth No. 3: International trade is good for the country, even when the U.S. has a large trade deficit.

In response to Dr. Blinder I would like to suggest some mathematical truths that he, apparently, can’t handle.

First, the reason, beyond the neatness of the slogan, for M4A and the abolition of private insurance is that its advocates can’t make their numbers add up without it. The only way they can envision lowering health care spending while increasing coverage is by legislating a single price for medical services—the Medicare reimbursement rate. Any other alternative within the power of the federal government would result in a substantial net increase in federal taxes. Since I don’t believe that the Congress will hold the line on reimbursement rates I am distrustful of Medicare for All.

More importantly increasing GDP or aggregate income is not necessarily “good for the country”. A simple example will prove that for you. Imagine that you increased the income of the Walton family by $1 trillion while holding all other incomes in the country constant. That would increase aggregate income and average income but I think it would manifestly not be good for the country. In the early Aughts the U. S. economy lost more than 2 million manufacturing jobs in very short order, while most job growth was in low-end service sector jobs. I would submit that was not good for the country. Loss of the manufacturing jobs might have been inevitable but losing them that quickly wasn’t.

As for his second point, I think that any carbon tax will inevitably be finessed as has been the case in Europe but that isn’t a mathematical truth, it’s a political one.

I’ve mentioned occasionally that I was once in the antiques business. Never as a full-time job—it was always a hobby but it was a hobby to which I devoted substantial energy. I derived maybe a quarter of my income from it. How good was I? I once asked a question of a highly knowledgeable full-time antiques dealer who scratched his head and said “If anyone other than you had asked me that question, I’d’ve sent them to you.”

Consequently, markets in which end users compete with reseller for inventory interest me. The largest of such markets is housing. At MarketWatch Keith Jurow muses over what is propping up housing prices:

In a recent column, I focused on five key factors which indicate that housing markets may be topping out. Yet one other important factor may be the main reason why housing prices have not already deflated.

Investors have always played an important role in housing markets. I have written extensively about the crazy bubble years of 2004-06. Rampant speculation was one of the primary causes of the buying mania and subsequent collapse. A May 2005 Fortune magazine article described how speculators were descending on city after city in search of making a killing in real estate.

In other words there are three distinct groups in the housing market: individual homebuyers, small investors (those owning between one and ten properties), and large, institutional investors. It is the second group that is keeping housing prices from falling through the floor.

As I have also mentioned before we have lived in those for around 30 years and over that period our real estate taxes have increased ten-fold while our house’s market value has increased three-fold. And I live in one of the best markets in the city. I don’t see how that trend can persist but, apparently, Gov. Pritzker and Mayor Lightfoot do.

It would be interesting to see a breakdown of housing ownership by metro area. The closest I’ve come is here which shows a significant difference between the patterns of owner occupancy and absentee landlords in Chicago by comparison with Los Angeles or New York. I would speculate that institutional investors are practically absent in Chicago.

Let me save you the trouble of reading Jude Blanchette’s piece in Foreign Policy on the likelihood of the Chinese authorities’ using force to quell the protesters in Hong Kong. Self-preservation will impel them to do so. They cannot survive if the protests continue and if they appear weak in face of them. They may bolster the police force or use the PLA but they will use force. What the world thinks of it matters little in their calculus.

At National Affairs Josh B. McGee combines solid analysis with wishful thinking in a piece on public pensions. Here’s an instance of the solid analysis:

In the background, as plans reaped the market gains of the 1980s and ’90s, the economy was shifting, changing the calculus of pension financing. Interest rates, which had reached new heights in the preceding decade, began to fall consistently through the 1990s and into the 2000s. Meanwhile, pension plans’ investment-return assumptions, which had followed interest rates up, did not follow them back down. As a result, plans were expecting the return on their investments to exceed the “risk-free” rate (the return on the relatively safe bet on United States government bonds) by a growing margin over time. To achieve the same return, plans needed to take on more risk or give up some liquidity — and they did both.

Researchers estimate that, to get the same 7.5% to 8% return, pension plans need to take three to four times more risk today than they did 20 to 30 years ago. As risk increases, pension assets become more volatile. As a partial solution to this problem, pension plans began shifting into less liquid, alternative investments like private equity, hedge funds, and real estate. In theory, giving up some liquidity and diversifying will somewhat reduce risk for any given return target. Since 2001, public pensions have tripled the share of their portfolios devoted to alternative investments from 9% to 27%. But based on the available evidence, it’s doubtful that this shift into alternatives has delivered on its promise: Returns have fallen well short of targets, fees are up, and volatility is still a problem.

and here’s one of wishful thinking:

Many governments face daunting amounts of pension debt that can make full funding appear out of reach. Fixing public-pension funding is not technically difficult, but in most jurisdictions, fully funding pensions at this point would require significantly higher contributions or reduced benefits (or both), making a solution politically challenging to achieve. However, failing to take meaningful action to close the funding gap will only make the problem more challenging and painful to fix in the future. No matter the scale of the problem, governments that work with their plans to craft workable solutions and begin down the path to full funding will be better positioned to weather the next downturn.

The recommendations of the Society of Actuaries Blue Ribbon Panel on Public Pension Plan Funding (SOA BRP) make a great starting point for policymakers who wish to tackle the challenge of pension reform. The SOA BRP’s most important recommendations involve investment-return assumptions and pension-debt amortization. The assumption plays a critical role in calculating the current value of promised benefit payments, and thus the adequacy of annual contributions to cover the cost of those benefits. The amortization schedule determines how quickly pension debt is paid off. Together with mortality estimates, the investment-return assumption and amortization policy are the most important elements of pension funding policy. Tightening rules around these three elements would dramatically improve the accuracy of public-pension cost estimates and help ensure the adequacy of annual contributions.

The sine qua non of public pensions is that they must, like private pension plans, be converted from defined benefit plans to defined contribution plans with the attendant political costs that will entail. In Illinois, at least, it is no longer possible to avert a crisis. As people flee Illinois’s taxes, corruption, and high homicide rates (at least on the South Side of Chicago), fewer people will be paying the pensions agreed upon 30 years ago when the assumptions were very, very different and the situation cannot be changed without amending Illinois’s constitution, something that Illinois’s politicians refuse to do. They are presently striving to amend the constitution to allow them to raise taxes but not to reduce expenses.

As Woody Allen quipped:

What’s a three syllable word beginning with “P” that means that you think everybody is against you?

“Perceptive”.

I think it’s too early to draw the conclusions that J. T. Young is reaching at The Hill:

Effectively, there is no establishment candidate but Biden, and his support is not growing. Were there a viable Democrat establishment, it would be logical any supporters he lost would go to another candidate: They are not. Biden’s loss is also the establishment’s loss.

Nor are other Democrats seeking to compete in this space — despite this side of the field being uncrowded. Instead of candidates on the left looking to come here and pick up Biden’s supporters, they are staying on the left — and the establishment’s supporters are coming to them. The undecideds are too.

If two debates have not changed the leftward dynamic of the Democrat contest — but instead, reinforced it — it begs the question: What will?

Despite saying that beating Trump was the top priority, and that Biden was best positioned to capture the moderates needed to do so, Democrats clearly want a nominee from their left.

As candidates on the left drop out, as they surely will, there is no reason to believe that their supporters will go to Biden — much less any of the other establishment nonentities. Biden is the only establishment alternative and he is weakening, not gaining.

Nor are undecideds likely to look in Biden’s direction, because they have not thus far. Their early ennui makes perfect sense. Biden is entirely “known;” he is the most known candidate in the field. Yet, even with a confusing crowd on the left and no other competition in the establishment, Biden is not gaining them. There is a stronger argument that the left’s crowd is the reason for undecideds’ indecision than for a lack of information on Biden.

Democrats may need an establishment candidate to maximize their chances of beating Trump, but they clearly do not want one. One look at 2016 shows how hard they are making things for themselves.

Other than among political junkies and the most committed the 2020 election is drawing relatively little attention and by the time it is the die will already have been cast.

As I have said before I think that black voter turnout will be dispositive for Democrats and, at this point at least, Biden is the only candidate that can produce that for them. Will black turnout alone be enough to secure victory for the Democratic candidate? Stay tuned.