Sunday, January 22, 2017

The New Economy

As a new president begins handling the economy, my take on where we stand now....

The US stock, bond and RE markets are near all time record highs, with low inflation, and about 8 years of economic expansion and the world's best economy at nearly full employment. Most importantly, this has been achieved through great innovation - the Cloud, Big Data, Mobility, Robotics, the Energy Revolution, etc. And, geopolitically, a minor amount of American casualties. Thus, a solid economy.

Unfinished business, so to speak, is large income inequality and a high number of underemployed workers. Plus, about $20T of national debt.

As it looks now, the new president offers reduced corporate income taxes including repatriation of foreign income, reduced personal income taxes, reduced corporate regulations, an infrastructure program, a protectionist trade policy, a restrictive immigration policy, repealing/replacing ACA, and cutting federal programs except the military

With nearly full employment and a proposed restrictive immigration policy, there will likely be a shortage of workers for any large, new infrastructure program. Already there is a shortage of low end agricultural and construction workers. It seems the biggest need for whatever slack there is in our workforce is for retraining many for the new, more technology advanced economy. Thus, no short term benefit can be expected from such a new infrastructure program. Plus, with our aging demographics, we should be facilitating greater immigration and legalizing not deporting illegal residents. On top of that, repealing/replacing ACA could throw our healthcare workforce, an important part of our growing workforce, into disarray. So, overall, a questionable worker program.

In conclusion, tax cuts and less regulation would likely stimulate the economy short term, but longer term, they are of questionable worth since there is no certainty how long or how much our economy can expand until the next recession, plus with such a large national debt, we are in terrible shape to handle the next recession. So, seems with a healthy economy, instead of continuing our slow and steady progress, we are introducing massive uncertainty, not to mention a major expected foreign policy reset.

Saturday, August 06, 2016

My Review of "The Fix"

4 out of 5 stars.

The book, by Jonathan Tepperman, excellently looks into the world situation, as many describe as hopeless, but sees many examples of extraordinary success in tackling big problems and presents them as ways which might also be used elsewhere. The common denominator of the successes is using pragmatism, not looking for perfection, but moving positively.

First, he sees the Terrible Ten problems being income inequality, immigration, corruption, Islamic extremism, civil war, the resource curse, energy, the middle income trap, gridlock I, and gridlock II.

As for possible improvements, I will cover these.....

Brazil's poverty.

Rather than lots of social programs, Lula introduced Bolsa Familia, just giving poor families cash  with certain rules, like having the kids attend school so that future generations will have greater chances for success in addition to making the parents better consumers. And being cheaper for the government. Basically combining left wing goals with right wing, Milton Friedman  economics......pragmatism.

 Canada's need for more people, but white resistance, even from existing minorities.

So, rather than an incremental approach to immigration, mass immigration with strict vetting for those most likely to help the economy, resulting in a true multicultural nation. And with strong government support for multiculturalism, it made the nation more Canadian, not less.

Mexican gridlock.

Since the winning party had no majority, it created a plan to have all three major parties participate.

America's shale revolution

It really could only happen in the US because of such things like its bankruptcy laws which encourage risk taking, RE laws which sometimes allow residential land owners also mineral rights thus encouraging investment returns for average people, Wall Street lending/investment, environmental costs effectively managed, lesser population density than Europe, etc.

Other topics include Rwanda's overcoming its genocidal past, Indonesia overcoming terrorism, Singapore overcoming corruption and lack of natural resources and Botswana overcoming conflicts over new diamond riches.

Sure, it takes special situations, like good leaders or just good luck, but all counties or governments could gain insights from the book, hence I recommend it.

Thursday, July 21, 2016

My Review of "California Comeback"

California Comeback

4 out of 5 stars.....

The author, Narda Zacchino, is well-qualified to analyze what is happening in California, both by growing up and having a long, distinguished journalism career in California.

And I, having lived in California since 1973, think she has done a fine job in concluding that this is not just a comeback, but as her subtitle states, a model for the nation.

The book starts with the California Dream beginning with the 1849 Gold Rush and the hope for anyone striking instant wealth, but just story-like until 1963 when CA overtook NY as the most populous state, signaling the Eastern elite better take notice. Governor Pat Brown, inspired by FDR's New Deal, basically had brought about a CA New Deal,

Then CA turns Right, the Reagan Revolution, all leading up to the 2008 crash, where CA was ridiculed.

Enter Jerry Brown, Pat's son, as governor in 2011. Having been governor from 1975 to 1983, plus having served in many positions like Secretary of State, Attorney General and Oakland mayor. Always socially liberal and fiscally conservative, plus with such experience, pragmatic, he set CA on a remarkable path, just passing France as the world's 6th largest economy and distancing itself from the previously heralded Texas model.

The book covers many more details and history, such that I do recommend the book.

Saturday, July 09, 2016

Negative Interest Rates

Negative interest rates spreading around the world are a result of globalization and technology, a unique combination in history, resulting in powerful deflationary effects.

But, rather than the deflationary effects being all bad, not only are many good because of increased productivity, but even many of the bad like reduced income in nations or localities with inefficient economies, can improve efficiencies by investing in things like education, healthcare, technology and infrastructure.

This is a unique time in history in that because of low or negative interest rates, such investments are a no brainer for wise economies.

As for misappropriation of capital, that is possible whatever interest rates are. The US housing bubble behind the 2008 crash was mostly due too poor lending standards and lax regulation on complex new securities and derivatives. Now, Denmark is mitigating a housing bubble by restricting foreign money into Danish housing and other restrictions/regulations.

The resultant large income inequality is an opportunity to redistribute some of the wealth for investments mentioned above, including increasing minimum wages or earned income tax credits. This even helps the wealthy long term.

Friday, June 17, 2016

The Economy

The US Economy

The US economy is doing fine. Financial crashes take longer to recover from, than cyclical recessions. The faster 1980's recovery was not preceded by a financial crash.

We have had the longest consecutive months of job growth in history, with both unemployment and underemployment about 1/2 than before the recovery began. And inflation is contained, while energy costs and borrowing costs are at bargain levels. And wages are starting to increase. We have the world's best economy.

As for presidential candidates blaming trade deals for less well-paying jobs, they are wrong. We are in the middle of the latest industrial revolution, brought on by globalization and technology. It's called progress.

There are plenty of high-paying jobs available, plus, part of this new industrial revolution is an Enterpreneurial Age. Other than professional jobs (doctors, lawyers, even blue collar ones like electricians, etc), starting/investing in businesses is now easier and more lucrative than ever.

Plus, government sponsored infrastructure jobs, with interest rates at historically low interest rates, are an easy way to good jobs and affordable higher education.

As for the "disappearing middle class," that is just misreading economic history. 1950-1970 was an aberration, the result of post ww2 industrial world hegemony.

1970-mid 1980s was both a readjustment of our industry brought on by Japan beating us with manufacturing. Plus, inflation brought on mostly by the 1973 Arab oil embargo.

1990-present started the new Renaissance, the end of the Cold War, globalization and the digital revolution, together meant a growing world prosperity, but our middle class struggling because of foreign competition. Meanwhile, higher wage people in the US grew from about 14% in 1971 to 21%, resulting in record income inequality.

But, with rising wages, ACA, and improving education (Common Core, expanding community colleges, and online learning including MOOCs, and election of the right president, it is reasonable that a new US middle class will emerge.

Saturday, May 28, 2016

My Review of "Age of Discovery"

5 out of 5 stars.....

A must read! The authors, Ian Goldin and Chris Kutarna, brilliantly describe in detail how we are in a new Renaissance, starting in 1990, much like the original one of 1450-1550, initially centered around Florence and Venice, Italy.

A Renaissance, because it affects things worldwide, even seeing parallels with Gutenberg and Zuckerberg, both the printing press and digitization freeing speech. And Columbus discovering the new world with the falling of the Berlin Wall, spreading culture.

This is the most prosperous time in history (% above poverty), literate (estimated more alive today with college degrees than all before 1980), longest average life expectancy, most peaceful (% dying from war), due mostly from spreading of democracy and trade, etc.

And with both come great income inequality and great resistance from established thoughts, seeing parallels between Copernicus' heliocentric proof and today's scientists' proof of climate change. And back then, the Inquisition, now al Qaeda and ISIS, also here in the US, religion based resistance to same sex marriage, transgender civil rights and Planned Parenthood.

So, with all these advancements, come massive job losses and other distresses. The book even uses the Renaissance's Michelangelo's sculpture of David as both an example and metaphor for the advanced skills of a Renaissance versus the dullard brutish Golliath, culminating in our choices now, which will we choose.

The book goes into how there has been a paradigm shift from cause and effect to quantum superposition. Also, nanotechnology and its future are mentioned. Complexity is covered, how it advanced finance, yet also brought new risks.


I strongly recommend the book.

Sunday, May 01, 2016

My Review of "5 Easy Theses"

What differentiates this from just being a very good book to what I think is an excellent one, is the background of the author, James M. Stone. Not only does he have an excellent financial academic start, but then in high level government positions, to starting and managing a decent size financial (insurance) company. So, a well diversified background to write about the  challenges America must face, all depending heavily on understanding finance.

He sees 5 main areas to tackle. Following each are some items covered.

 1.  Fiscal Balance

 Fix Social Security (adjust for life expectancy), Medicare (too generous) and Government pensions (defined contribution and matches for new enrollees), eliminate home mortgage interest tax deduction, eliminate corporation debt interest tax deduction.

 2.  Inequality

Both income and wealth distribution need to be addressed, in tax law especially looking at tax dodging by the wealthy and corporations via trusts, etc, also favoring long term investing and reducing speculating. The author also favors an annual tax on unrealized capital gains and also repealing the "step-up" cost basis for inherited assets.

3. Education

More money into poor areas, more use of charter schools and more vocational education - better tracking of kids, also a national service program, increased early childhood education, longer school hours.

4. Healthcare

Lots of changes here - drug negotiating and other things plus a single negotiator, tackle end of life care, single payer and regulator, reduce excessive testing, reduce overuse of specialist doctors, salary more doctors, more use of specialized nurses and physician assistants.

5. Financial Reform

Break up big banks - basically incentivize them to break up, less bank leverage, more disclosure, less use of derivatives, hedge funds regulated like mutual funds, reduce finanialization of our economy - it reduces productivity.

I recommend the book.