Odd Assertions from the Economist

Two editors from the Economist have an Op-Ed in the WSJ today.  It starts with the strangest assertion

Few political parties have been better at reinventing themselves than the Republicans. 

That is the very first sentence.  No justification for it.  Just a bald assertion.  I suppose the authors would argue that when the Democrats  from being segregationists to affirmative action zealots that they continued to be the party of racial spoils.  Every major party is involved in shifting alliances.  I wish that the GOP was successful in reinventing themselves but I don’t see it.

Then they wander off into a list of traditional GOP/conservative topics about promoting growth.  I’d use Coolidge rather than Gladstone but almost every conservative pundit is nodding his head.  Making the economy market driven with clear tax and regulatory expectations is so obvious.  Of course, the problem is doing it.  We need a Coolidge or Gladstone to take away to the benefits that bureaucracies and businesses enjoy.  How is Silent Cal going to do with today’s electorate?

Then they reverse themselves twice in one paragraph:

Fifth, put yourself on the side of business creation. Visit Silicon Valley, and you’ll find that Republicans are regarded as being out of touch, not least because of their approach to immigration. Gladstone was the ally of the new economic forces that were reshaping Britain, but he encouraged them by creating a level playing field. He was one of the architects of the great legal reforms that allowed anybody to form a limited-liability company. American conservatives should fight to make it easier to take companies public too, partly because that spreads popular capitalism.

Let’s give into the biggest item on crony capitalism’s list: unlimited immigration.  Perhaps they felt they needed to put a hook like that in for the WSJ to accept it.  Then they go to little cronyism.  Let’s make it easy to go public.  How?  Why on earth should market oriented folks fight for that?  Are conservatives going to revise the laws of all 50 states?  What is the evidence that raising capital is a problem?  We have Kickstarter.  Renaissance Capital concluded that 2013 was the best year for IPOs since 2000.  There are lots of areas when regulation needs to be hewn back but capital formation seems the least useful area to work on.

A number of things suggested by the Economist duo makes sense but they will still upset the applecart.  Eliminating tax benefits for large groups of people will have the attack ad folks in full voice.  I would love to eliminate the income exemption for fringe benefits but it is going to be a hard sell.  The who is more important that the what.


Kansas, Bloody Kansas

Kansas has a new law restricting speech at public institutions of higher learning.  It came after a faculty member blamed the NRA for a shooting and expressed the hope that it would be their sons and daughters next time.

The new policy says that faculty and staff of the state’s six universities, 19 community colleges and six technical colleges may not say anything on social media that would incite violence, disclose confidential student information or release protected data. But it also says staffers are barred from saying anything “contrary to the best interests of the university.”

Charles Cooke takes the Republican dominated Kansas legislature to task for acting like the left.  An interesting issue is if social media falls under academic freedom or freedom of speech, the former being much more restrictive.  We don’t want to talk about that technicality but to consider the conundrum facing public universities.

Public university funding is in decline for a number of reasons but one of the contributing caused is the things that faculty and staff say and do.  The recent spate of rejected commencement speakers is a current example.  To be bold about it, faculty often act unprofessionally.  The Board of Regents in Kansas is just trying to set up a process to reel in the unprofessional actors.  We take no position exactly where the line is drawn but surely an employer has the right to discipline and fire an employee for unprofessional behavior.  For example, if an employee used racial slurs in social media then he would surely be fired.  The faculty member’s comment surely had a negative impact on the Kansas brand even if it wasn’t a firing offense.

In a public issue of free speech the answer is more speech.  Here is where public universities have not protected their brand enough.  When faculty member X or a group of faculty do something questionable folks at the university need to fight back with reasoned arguments.  The problem is that the ox being gored matters.  Hoping that NRA children die is controversial but rules on triggering traumas is only controversial outside of the university. We need to be brave about academic freedom by protecting from those that try to expand it without recognizing the responsibilities of academic freedom.

Serious Matters Related to Jill Abramson

Joy has broken out on the right as NYT and their editor end their relationship in a messy manner including arguments that she was paid less than pervious male editors.  Matthew Continetti at NRO describes it as a defenestration.  It must be the slowest one ever.

Part of the situation is that there seems to be clear case of gender discrimination by the NYT against Ms. Abramson.  The serious matter we should discuss is that the case is not clear cut.  The facts of the case are in dispute but let’s agree for the sake of discussion that fired party was paid less than the previous editor.  One critical problem is the arc of the newspaper business.  Carpe Diem’s most recent report on this concludes:

A 2011 IBISWorld report on “Dying Industries” identified newspaper publishing as one of ten industries that may be on the verge of extinction in the United States.

So we need to ask, do you think that salaries in the newspaper business are falling?  This is the basic problem with any statistical or individual analysis.  Whether it is a person to person comparison or a bunch of variables are used to adjust for differences, there are still differences.  It is not hopeless but there can be many different answers.  We academics can produce many versions of these responses but r-squared will never be one.  Any solution that is not a market solution is going to be arbitrary.

Which of these is not like the other?

John Hinderaker approvingly quotes Jeff Sessions list for improving the economy:

* Produce more American energy

* Eliminate all costly and wasteful regulations

* Make the tax code more globally competitive

* Ensure fair trade so our workers can compete on a level playing field

* Adopt an immigration policy that serves American workers

* Turn the welfare office into a job training center

* Streamline the government to make it more productive, and

* Balance the federal budget to restore economic confidence

And concludes that

It strikes me that Sessions has identified the economic principles that all Republicans should make their platform in this year’s elections.

As they say on a children’s show, one of these things are not like the others.  One item says to eliminate all wasteful regulations while another item says to promulgate them to create the moving target of fair trade.  Without free trade the list is an non-starter for us.


Turning Down Six Million Dollars

The biggest news at the Derby was not that California Chrome won.  He was the favorite, and although the Derby is the graveyard of chalkers, he was still expected to win.  The biggest news was that Steve Coburn revealed on the walk over to the race that Dumbass Partners (DAP) had turned down $6 million for 51% of the horse before the Derby.  Steve could still be in the winner’s circle and pocket his share of the money but he decided it was his dream.

The question is can our models explain Steve and Perry’s behavior?  We think yes because DAP was risk loving enough to invest in an $8,000 broodmare.  Almost any improver of the breed would have referred to them by their partnership name.  It is an amazingly risky investment.  Not only would they surely lose the $8,000 but much more in operating costs.  Assuming California Chrome was properly insured, DAP’s risk at the Derby was large in dollars but much smaller in percentage.  If the horse runs last he might be worth $3 million as he had won several stakes races.  If he wins, as he did, he might be worth $30 million to pick a number.  So in comparable numbers (50%) the choice was $1.5 worst possible case, $6 certain, $30 best possible case.  Obviously, the exact numbers would be set by the market but for folks that prefer risk and diminishing marginal utility, it seems rational given their previous actions.

Most important graph

Interpretation of graphs is important.  Today LinkedIn connected to the “The most important charts from the fantastic April jobs report.”  Really!  The analysis below the first chart tells us that the US is only 120,000 jobs from recovering all the the losses from the Great Recession.  Another way to say it is the economy has not yet recovered all the jobs from the recession that ended five years ago.  A later graph in the same post shows that the employment to population ratio for men 25-54 faltered [it went down] in April.  

It is not a fantastic jobs report in April.  It is one month of not too bad in a long series of uninspiring reports on growth and jobs.  It is certainly true that the administration has limited influence on the US economy but the data is not supportive of the administration leading the economy to success.

The administration remains an enigma.  There are many takes on what they are really focused on.  MWG believes that jobs and growth are, at best, a constraint for them.  Our working hypothesis is that they are trying to insure that Pikerty’s assertion, r>g, comes to pass where r is the return on capital and g is growth.  Keeping g under control should do that.  Then they think they can win the argument that rather than make everyone an investor that policy should lay waste to investors.  See “Assault on the Chilean Miracle” to see that such an attack might be successful.  We see the possibility for success in such an political attack in the US where seven years of uninspired economic performance has the voters edgy.