Tuesday assorted links


3. A remarkable confluence of events and factors produced the election of Donald Trump, but it was actually the culmination of an even larger confluence of events in the 1980s that produced hostility to government and taxes, enormous deficits, globalization, stagnant wages, rising health care costs, rising inequality, financial instability, and both low inflation and low rates of return on productive capital. Which of the two will have greater long-term significance is impossible to say, although the election of Trump may prove the winner if he continues to promote chaos nationally and internationally.

The embrace of free lunch economics with the election of Reagan and conservatives in the GOP. The people who essentially argue that slashing costs, by which the only cost to be slashed is labor costs, will make workers better off.

Health care is a huge labor cost, both as part of labor costs, and in delivery of health care.

Note, cost cutting is never cutting "profits" because paying $1 to workers to make a days worth of pills is a huge cost burden, but not the $50 profit on those same pills, which ends up being recycled into various subsidies to pay the $51 a day, by way of rebates of 17 kinds.

Trump considers it unfair that the rest of the world pays $1 a day for the labor costs of generic drugs, generics being 95% of all drugs, arguing they need to pay huge profits to subsidize the recycling of profits to pay the $51 price subsidy rebates.

Of course, cutting labor costs hurts workers, contrary to free lunch economic theory.

And until repeal of the 13th allows putting doctors and nurses in chains to cut health care labor costs, health care costs can only be cut by also killing the people in need of medical care. Somehow, creative destruction never is allowed in health care when it's needed most. Creative destruction has rendered many GOP governed States into vast tracts of wasteland, eliminating costly people who were costly workers. Unless doctors and nurses are put in chains, free lunch economics demand death panels to implement cost cutting.

Yet, Reagan signed the free lunch EMTALA to eliminate creative destruction death panels.

Deming by the 80s had sold Japan on his ideas and seen the the way to cut costs was by focusing on quality, which required spending more up front. Conversely, focusing on cost cutting always degraded quality leading to higher and higher costs, often to creative destruction in bankruptcy. While Reagan and the GOP almost praised bankruptcy as a great sign of progress, when it came to health care, cost cutting early led to exploding costs later.

We do have a natural experiment.

The coastal elite States spend a lot on health care, especially for those still healthy. Their economies have higher GDP because of the higher labor costs, and higher living costs. They spend a lot on education, too.

The State's that voted for Trump keep trying to cut costs, with these States seeing communities experiencing creative destruction. Health is one of the aspects creatively destroyed. The creative result is mostly criminal as far as the GOP is concerned. E.g., cooking meth, importing fentanyl from China mail order. Or bad and costly getting on Social Security disability, to get access to Medicare+Medicaid. Prisons to boost the economy are another form of costly creative destruction.

The best way to cut health care costs is to eliminate funding for EMTs while legalizing sale of fentanyl and oxy, and calling every overdose death a good death and example of individual liberty.

The cost of the pills is not the cost of the labor used to make them, or the chemicals, or the marketing, or the delivery. It's the cost of all the failed research and development that led to one particular pill not failing, and being useful and safe and allowed to come to market.

1. I'm all in favor of corporations operating in a socially responsible way (above and beyond their legal duties), so long as Donald Trump and the Republicans get to define socially responsible. I'm guessing that's not what Yosifon wants or thinks he's getting.


Your supposed president is Temer, who is vying for the title of being the most corrupt and unpopular president in S. America (though there's always plenty of competition for that title in S. America).

1) President Temer is not corrupt. Twice, corruption charges against him were voted down by Congress. https://www.theguardian.com/world/2017/aug/03/brazil-michel-temer-president-corruption-charges-vote
Actually, on his watch, Brazil experienced the greatest offensive against corruption in its history. One-third of Congress and ALL living former presidents are under federal investigation. Former President Lula, a former ally of President Temer's, is already behind bars. Meanwhile nothing came from Trump's solemn promise of "locking her up".
2) President Temer is not unpopular. More than one-fourth of Brazil's population support his government. He re-establish investors' confidence in Brazil. His First Lady has been praised for having jumped into a lake to save the family's dog, which was drowning. President Temer has introduced free market measures at neckbreaking speed. It is morning in Brazil again. Jobas are coming back. Our economy is growing again after four years of recession. Meanwhile, American-backed Argentina is collapsing...

A porn star in every payoff!

I never had relations with that slush fund?

Who is the Dem 2020 candidate? NY AG Schneiderman? Carlos Danger? Mrs. Carlos Danger? Hillary? Bernie? Fauxcahantas? David Hogg? Stormy Daniels? Harvey Weinstein?

Keep America Great

Trump 2020

We knew exactly who he was and why we voted for Trump.

No Defense Contractor Left Behind.

Novartis begs to differ - they aren't being left behind either.

1. The confluence of events in the 1980s also produced the prevailing view of corporations, which elevates profits and shareholder value above all other considerations, legal, economic, and social. Yosifon believes that the prevailing view "should be replaced by a new standard that compels directors of our largest corporations to manage firms in a socially responsible way". Not happening, at least not unless economic and social instability force it to happen. The U.S. and China, with very different models for governance and economic growth, are on a collision course. Of course, it's possible one of the two will win by default, the U.S. winning because China's model of relying too much on government and not enough on markets causes economic and social instability, or China winning because the U.S. model of relying too much on markets and not enough on government causes economic and social instability. May the best model win.

>The confluence of events in the 1980s also produced the prevailing view of corporations, which elevates profits and shareholder value above all other considerations, legal, economic, and social.

This isn't really true so far as I can tell. I think the CEOs who are beholden to their shareholders act this way because it's the revealed preference of 'the shareholders'. No one seems to want hold stock in an ethical company, when there's an owner willing to pay 2x more for your stock to make it unethical and more profitable. I don't see any view or legislation that would have changed this in the 80s. It's just the nature of arbitrage. The 80's just happened to be a time when the US stopped really growing, and financial professionals started paying more attention to maximizing value of existing assets, rather than funding the creation of new ones.

Did you live through the 1970s as an adult? To use a technical econometric term, they SUCKED if you were trying to make a living: consumer prices doubled, growth was sometimes strong and sometimes sharply negative, unemployment was high, and youth unemployment was astronomical. The Volcker-Reagan revolution got inflation under control (yes, Carter deserves credit for appointing Volcker), the economy started growing steadily again, and (the personal is political) I was finally able to get a good job.

What "corporations" are we talking about here? Do we really believe corporations are this homogeneous blob that always behave the same way??? One corporation I work for has decided to openly announce hires that are "women only". Do shareholders agree with that? I bet not all of them! You can see this all across the board, from corporations that clearly identify with one ideology while others identify with their opposite. This whole discussion is really silly in my opinion.

Good points. I see some issues with a book of this kind, which I assume by the description ultimately ends up advocating a German model where the shareholders only elect a portion of the directors and the rest represent other societal stakeholders. In no particular order:

- Corporate law is old, and directors managing in the interests of shareholders is basic capitalism: literally private ownership of the means of production.
- There is a very big difference between large, publicly traded corporations and small ones, and argumentative/academic discussions about corporate law almost always miss the difference, because it isn’t there on the face of the laws themselves; you’ve got to work with actual corporations. So for example, in a small venture funded company, the directors are at the mercy of particular shareholders. Less so with large corps. Every corporation is a different ballgame.
- the big change in corporate law didn’t take place in the 80s, it took place in 1933 and 1934. Liberals can thank FDR and the new deal progressives for giving us the short-termism of modern publicly traded companies. Focusing on the quarterly bottom line to the detriment of all else, even the corporation’s own future best interests, is the direct result of mandatory reporting and very liquid public markets.
- when you hear the words “citizens united,” you can be sure mood affiliation is afoot.
- directors have a lot more autonomy to pursue an agenda that won’t maximize the bottom line than this type of discussion usually suggests. Google “business judgment rule.” So I get annoyed when I hear whining about corporate directors managing corporations exclusively in the interests of the shareholders. In public companies, they do this because the market will sell their stock if they don’t maximize profit, not because of corporate law. If you have a problem with that, take it up with your fellow citizens, not the corporate law. Small and closely held corps often pursue agendas other than maximizing profit, like employing friends and family, or donating lots of money to charity. Again, thank FDR & co. for the exclusive focus on short term earnings. Markets would look a lot different if we never institutionalized freely transferable stock.

In short, most of the problems people attribute the rule that directors must manage the corporation in the interests of the stockholders are in fact the result either to capitalism itself or the securities acts. These people would be making the same argument against agency law if corporate law was never invented, and they’d be wrong then, too. A much more interesting gripe would be corporate limited liability for shareholders. I think John Cochran has opined (I could be wrong) on the effect of limited liability on the banking system. Or maybe that was an Austrian. In any case, that’s where the interesting questions are. Nothing to see here.

"is the direct result of mandatory reporting"
Sunlight is the best disinfectant. If you have nothing to hide, you have nothing to fear.

Not the point. Fraud prevention is a laudable goal. But requiring periodic disclosures causes the market to focus on short term results. Fraud can be prevented in other ways without this side effect. Such as investing through institutional investors who have deeper, personal knowledge of the companies and their managers, rather than buying into the myth that individuals investing in the market is anything other than gambling.

"But requiring periodic disclosures causes the market to focus on short term results."
Only if investors only care about short term profit. It is the market reaching its equilibrium point. It is their money after all.

Why do Proggers revel in Seattle implementing a tax on workers? I guess because Proggers have never learned what tax incidence is. They think by simply making a company physically pay the tax that is the party that will be affected. Ignorant anti-math Proggers.


Well, if the result is Amazon moves the high income workers to other cities reducing housing demand, destroying real estate "wealth", won't the homeless end up better off? When no one can afford the $5000 A month loft, it will be chopped up into 6 apartments renting for $800. Repeating what happened in the 70s and 80s as high income residents fled cities for new suburban towns.

Gentrification in many cities is reversing that 70s era dividing high income housing units into small apartments for low income workers, reducing the number of housing units. Even tearing down old apartments and building a taller building cuts units by replacing 100 800 sq-ft units with 60 2000 sq-ft units.

Funny that you bring up "high-income workers", because if you used basic math you would realize that a flat $0.14 per hour tax on a percentage basis has a very minimal impact on those making more than $40 an hour but has much bigger impact on those making the minimum wage. And while I agree wages are sticky, the minimum wage is $15 an hour in Seattle and 2% inflation is a $0.30 an hour raise that will be cut in half next year for the lowest paid workers in Seattle because of this tax on workers that the brain-dead media believes is a tax on businesses.

Looks to me like an attempt to tax people who work in Seattle but live outside city limits.

Is that a good idea?

Yes. They take jobs from Seattle.

How will this tax correct that? (And what is wrong with someone working in the main city but living in a suburb?)

It will take money from people exploring the city and will make them less competitive.

Except for the fact that it is a flat $0.14 per hour tax. So the C-suite employees pay the same tax as the minimum wage worker - where they work the same number of hours per year.

It’s mostly signaling. Much easier than actually addressing the problem.

Will be interesting to see how much of the spending is absorbed by administrative overhead.

The tax is expected to be borne by about 500 companies, accounting for 3 percent of the city’s private sector. Healthcare companies are exempt, as are non-profits.

Now I know it's a bad idea. You need a particularly mushy head to think that for-profit companies can distort your housing market but that if the company is set up to distribute producer surplus to executives instead of shareholders that it's not.

4. ESPN had a video up yesterday in which Draymond Green and Steve Kerr adopted the same perspective as the researchers in the article. They were impressed by the degree to which Lebron has perfected his situational memory, but didn't see it as something different in kind from what other great players do. http://www.espn.com/video/clip?id=23503559

#4 - the reason TC cited this article, besides his love of b-ball, is this passage: "The original research was with master chess players in the 70s, looking at how they can recall or recognise patterns of play," he says.

Bonus trivia: on my 'To Read' list is this work of fiction, only because of the absurdity of the title and abstract: Jewball by Neal Pollack (2011) - "At the turn of the 20th century, basketball had been more like rugby with no fouls, huge pileups at center court..."

"James is a workhorse as well as a genetic lottery winner.'
Anda rare combination of LeBrawn and LeBrain.

1. If charities don't work for you, by all means dream up some new alternative socially conscious framework for corporate law and see how well it goes with investors. Go your own way. The farther the better. But don't even think about stealing value from investments that have been made under the existing framework of shareholder rights. Once upon a time socially conscious investment funds were going to be the next big thing too. Consistently underperforming both conventional investment funds as well as market indices, their primary source of funds are public retirement programs. If one really wanted to start on introducing social responsibility in organizations, a better place to start would be tax-exempt charities such as the Clinton Foundation which appear to operate in open defiance of law, regulation, and any objective notion of social responsibility.

5. I have not used cash since 2015. Yesterday I saw a colleges 2 Krona coin and noticed that I had never seen that kind of coin before, and that one was made in 2016.

I am not in Sweden but I have almost given up using cash. I didn't think things like touchpay would be significant (I mean how hard is entering a pin), but it significantly reduces the burden for small payments enough that it has replaced cash for me. I don't think we need to legislate the removal of cash, I suspect in a few years shops and restaurants will simply refuse to accept it as the customer base who use cash becomes so small it is not worth their while having cash management systems.

#5 - the owl thieves story in cashless Sweden contradicts GM Ken Rogoff's assertion in the book "Curse of Cash" (which I think is a play on the chess book "Curse of Kirsan") that eliminating paper money will reduce crime.

Bonus trivia: is everything I write related somehow to chess, or does it just seem that way?! 1. e4 e5 2. Nf3 Nc6 3. Bb5!! what's in a name??

"Thieves may be emboldened by the fact that police are already stretched thin, thanks to surging burglaries and gang violence in Swedish cities. "

You don't say.

I blame the notorious Lutheran influence.

Switching away from cash is theoretically possible to be causing an increase in crime, but it would mean the thieves were, er, leaving money on the table by not engaging in this specialty crime before.

Like I said, it's possible, in that maybe none of them ever thought of it until the idea was forced upon them, and it turns out their new strategies are better for them. But thieves explore their market space like any other entrepreneur and should have already discovered this on their own.

Much more likely is the lede they buried.

Couldn't they just be moving up the risk curve/reward curve - i.e. more risk and less reward? If you posit a certain number of criminal hours fixed per year then those hours are going to spent on the highest reward/lowest risk activities. Remove some of these more attractive opportunities and then you will see less attractive options being done.

Speaking of owls, one of those too cute things. An owl and a kitten.


Anyone even slightly interested in reading David Yosifon's book should first take a look at his paper abstracts: https://papers.ssrn.com/sol3/cf_dev/AbsByAuth.cfm?per_id=672900

#3. Perhaps it took a while for the moral hazard problems with the employer-based system to work their way into effects on the price of insurance. First, the insured would have to start realizing that they could utilize healthcare to the greatest extent they desired without feeling a significant impact on premiums (and premiums at the time were mostly covered by employers too). Second doctors would have to realize that there was no reason why their patients would care about the cost of anything, and would have to start dropping upfront pricing and start jacking up the "retail" cost of everything. Third, insurers would have to respond by increasing premiums.

Do note that it took about 30 years from the 1980s for premiums to rise to the point that employers were starting to bail. So it wouldn't be unrealistic to imagine that it could have taken 20 for the employer-sponsored system to start manifesting the perverse effects that we see.

1. One has to wonder about Americans' knowledge of history. Of course, Cowen et al. encourage the study of the ancient philosophers, but history? Not so much. Especially if it conflicts with their ideology. Following the 1929 financial crisis, the Fed and the government did not intervene and allowed asset prices, including the prices of stocks and bonds, to collapse, resulting in a deep trough form which it took a generation to recover. The collapse of asset prices also resulted in the collapse of wealth inequality (the wealthy owned most of the assets), with inequality not reaching the level in 1928-29 until 2007-08. Following the 2008 financial crisis the Fed intervened, and intervened like never before, and flooded the markets with liquidity and , thus, stopped the collapse of asset prices, which in a relatively short time recovered to the pre-crisis level and beyond. Which is the better approach? It's not advertised here, but our Austrian friends prefer to allow assets prices to fall to their natural level rather than for the Fed and government to intervene to prop up and inflate asset prices. The current approach, intervention and rising asset prices, has the advantage of limiting the damage from the financial crisis, but it also has the disadvantage of setting us up for another crisis - asset prices can't rise forever. Be careful what you ask for. And let history be your guide, not ideology.

Please study your history a little more carefully. Treasury bond prices boomed during the Great Depression, as interest rates fell to record lows (records that have recently since been broken).

Off-topic note for the moderator/site admins:
Please consider moving the "respond" link to the right of the username and comment date/time. That's currently empty space and would solve two issues in the layout:
1. A pyramid of "respond" links at the end of a comment thread.
2. Being able to easily find and associate who you are responding to when you are reading their comment, rather than having to scroll down and hunt for the right level of "respond".

4. My father can recall every detail of the sailboat races he was in, even 30 years after the fact. I think it's that many details of the race had a huge significance for him and were filled with meaning, at least compared to his crew (me, for instance). But he doesn't have a good memory in anything else. I'd guess this is typical once you reach a certain level.

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