Quotulatiousness

October 20, 2017

Why the Lights Are Still Off in Puerto Rico

Filed under: Economics, Government, USA — Tags: , , , , — Nicholas @ 06:00

ReasonTV
Published on 19 Oct 2017

The government set the stage for a post-hurricane catastrophe.
—–
Puerto Rico was set up for disaster well before Hurricane Maria hit. Revoked tax breaks, needlessly expensive imports, and crippling debt all led to a shoddy infrastructure that’s still without power on most of the island.

On the latest “Mostly Weekly,” Andrew Heaton explores: how did Puerto Rico get screwed over well before the lights went out, and how do we get them back on?

Mostly Weekly is hosted by Andrew Heaton with headwriter Sarah Rose Siskind.
Script by Sarah Rose Siskind with writing assistance from Andrew Heaton, Brian Sack, and Justin Monticello
Edited by Sarah Rose Siskind and Austin Bragg
Produced by Meredith and Austin Bragg.
Theme Song: Frozen by Surfer Blood.

October 18, 2017

“Obama is actually the most conservative President since World War II”

Filed under: Economics, Government, USA — Tags: , , — Nicholas @ 03:00

Dan Mitchell does some statistical legerdemain to calculate US government spending increases by presidential terms in office and discovers some surprising results:

I’ve learned that it’s more important to pay attention to hard numbers rather than political rhetoric. Republicans, for instance, love to beat their chests about spending restraint, but I never believe them without first checking the numbers. Likewise, Democrats have a reputation as big spenders, but we occasionally get some surprising results when they’re in charge.

President Obama was especially hard to categorize. Republicans automatically assume he was profligate because he started his tenure with a Keynesian spending binge and the Obamacare entitlement. But after a few years in office, some were arguing he was the most frugal president of modern times.

  • So I crunched the data in 2012 and discovered that he was either a big spender or a closet Reaganite depending on how the numbers were sliced.
  • I then re-calculated the budget numbers in 2013 and found that spending grew at a slower rate the longer Obama was in office.
  • And when I did the same exercise in 2014, using another year of data, Obama looked even more like a tight-fisted fiscal conservative.

Or, to be more accurate, what I basically discovered is that debt limit fights, sequestration, and government shutdowns were actually very effective. Indeed, the United States enjoyed a de facto spending freeze between 2009 and 2014, leading to the biggest five-year reduction in the burden of federal spending since the end of World War II. And it’s unclear that Obama deserves any of the credit since he was on the wrong side of those battles.

Anyhow, I’ve decided to update the numbers now that we have 8 years of data for Obama’s two terms.

But first, a brief digression on methodology: All the numbers you’re about to see have been adjusted for inflation, so these are apples-to-apples comparisons. Moreover, all my calculations are designed to show average annual increases. I also made sure that the “stimulus” spending that took place in the 2009 fiscal year was included in Obama’s totals, even though that fiscal year began (on October 1, 2008) while Bush was President.

Lots of links in the original post that I’m too lazy to re-link, so go read the whole thing. H/T to Rafe Champion for the link.

October 9, 2017

The Centuries-Old Debt That’s Still Paying Interest

Filed under: Economics, Europe, History — Tags: , , — Nicholas @ 02:00

Tom Scott
Published on 25 Sep 2017

In the archives of Yale University, there’s a 367-year-old bond from the water authority of Lekdijk Bovendams, in the Netherlands. And it’s still paying interest.

Thanks to:
Prof. Geert Rouwenhorst for his time and explanation
All the team at the Beinecke Rare Book and Manuscript Library
Michelle Martin (@mrsmmartin) for editing the interview
and Leendert van Egmond for telling me about the bond!

October 8, 2017

Despite the rhetoric, Trump can’t just “wave goodbye” to Puerto Rico’s debt

Filed under: Government, Politics, USA — Tags: , , , , — Nicholas @ 05:00

Megan McArdle on the financial plight that Puerto Rico was facing even before the hurricane season began:

… the fact remains that Puerto Rico is not going to be able to pay all of its debts. Prior to the hurricane, the territory had $73 billion in outstanding debt, and a population of 3.4 million people. That’s approximately $21,500 for every man, woman and child on the island – just about enough to buy each of them a brand new Mini Cooper, provided that they don’t insist on the sport package or the heated seats.

Puerto Rico couldn’t afford to buy 3.4 million Mini Coopers before; they certainly can’t now that Maria has washed out so many roads. Even before the hurricane, Puerto Rico’s GDP was around $100 billion, meaning that repaying its debt would consume nearly nine months of everything the island earned. And while there will probably be a brief bump in economic activity as disaster relief funds pour in and the destruction is cleared away, over the long term the hurricane represents a huge setback: businesses destroyed, people killed or injured, funds that could be generating economic growth instead diverted to simply replacing what has been lost.

So whatever President Trump does, or does not do, investors in Puerto Rican bonds are going to have to take a substantial haircut. The problem is, we’re not going to wipe out the debt entirely. And even if we could, it wouldn’t be enough to get Puerto Rico back to economic or fiscal health.

“If it’s that bad,” you may be thinking, “surely we ought to simply wipe out the debt holders? After all, they’re investment professionals. They can afford to take the loss; ordinary Puerto Ricans can’t.” The problem is that most of the folks holding Puerto Rico’s debt aren’t vulture hedge funds sitting on wads of ill-gotten gains; the overwhelming majority of the debt is held by ordinary folks who buy bonds or bond funds. Like, say, your parents. Or maybe you. And also, a lot of Puerto Ricans, who would be hit very hard if the value of their investments were wiped out.

How did Puerto Rico get so deeply into debt? Step forward the federal and Puerto Rican governments to take a bow:

The operations of the Puerto Rico Electric Power Authority, for example, defy belief: It essentially gave unlimited free power to municipalities and government-owned entities, which used it to do things like operate skating rinks in the tropics. Everywhere you look, you see signs of a government struggling to perform basic tasks: collect taxes, maintain the infrastructure, improve the health system. In the jargon of development economists, the island lacks “state capacity”: It is simply unable to exert the amount of power over its operations that we on the mainland mostly take for granted.

But you can’t entirely blame the Puerto Rican government for the state of the underlying economy, which is what had plunged the island into a bankruptcy crisis even before the hurricane. For that you have to look to the federal government, which eliminated a tax break that had given companies incentives to locate in Puerto Rico, and then oversaw a financial crisis that sent them into an even deeper spiral. We also made sure that a relatively poor island was forced to adopt the federal minimum wage, which was too high for the local labor market. That has contributed to the 11.5 percent unemployment rate. And Puerto Rico uses the U.S. dollar, leaving it unable to adjust monetary policy to overcome economic stagnation.

September 20, 2017

Intro to the Bond Market

Filed under: Economics — Tags: , , — Nicholas @ 02:00

Published on 12 Jul 2016

Most borrowers borrow through banks. But established and reputable institutions can also borrow from a different intermediary: the bond market. That’s the topic of this video. We’ll discuss what a bond is, what it does, how it’s rated, and what those ratings ultimately mean.

First, though: what’s a bond? It’s essentially an IOU. A bond details who owes what, and when debt repayment will be made. Unlike stocks, bond ownership doesn’t mean owning part of a firm. It simply means being owed a specific sum, which will be paid back at a promised time. Some bonds also entitle holders to “coupon payments,” which are regular installments paid out on a schedule.

Now — what does a bond do? Like stocks, bonds help raise money. Companies and governments issue bonds to finance new ventures. The ROI from these ventures, can then be used to repay bond holders. Speaking of repayments, borrowing through the bond market may mean better terms than borrowing from banks. This is especially the case for highly-rated bonds.

But what determines a bond’s rating?

Bond ratings are issued by agencies like Standard and Poor’s. A rating reflects the default risk of the institution issuing a bond. “Default risk” is the risk that a bond issuer may be unable to make payments when they come due. The higher the issuer’s default risk, the lower the rating of a bond. A lower rating means lenders will demand higher interest before providing money. For lenders, higher ratings mean a safer investment. And for borrowers (the bond issuers), a higher rating means paying a lower interest on debt.

That said, there are other nuances to the bond market—things like the “crowding out” effect, as well as the effect of collateral on a bond’s interest rate. These are things we’ll leave you to discover in the video. Happy learning!

September 13, 2017

Our Amazing Debt (Cosmos Parody)

Filed under: Economics, Government, Humour, USA — Tags: , — Nicholas @ 06:00

Published on 12 Sep 2017

The math behind the National Debt is so complex that Reason TV decided to lean on “Cosmos” to explain it.
—-
We are about to begin a journey beyond ordinary human understanding. Lost somewhere between immensity and eternity. Join me, as we explore: Our Amazing Debt

We are all made of star stuff. And in America, we are all born more than $61 thousand in debt.

The collective debt we owe as a country now stands at $20 trillion, a level of debt unfathomable to our contemptible caveman ancestors.

How can we comprehend the sheer magnitude of the national debt? With our starship of imagination.

This is the USS Dumbitdownforme and it cost $12 billion to construct: all financed through debt. We didn’t have the money to build it and we didn’t want to raise taxes to pay for it, but we really wanted it. So, like a fiscal wormhole, we’ve used debt to puncture the reality of financial constraints, connecting what we want now to even more money we promise to pay later.

$20 Trillion is not just a lot of money, it’s all the money, and then some.

If we could round up all the US currency in existence–every dollar bill, every quarter, every penny–we’d still need another $18 trillion. All the gold that has ever been mined couldn’t even cover half of our debt.

Yet our story doesn’t end here.

Like our ever-expanding universe our debt is constantly growing larger. This year we will pay more than $250 billion on interest payments. Not the debt, just the fee for borrowing money.

Much as cosmic expansion will inevitably lead to the heat death of our own universe, the debt, too, is unsustainable. As nature seeks balance, so to will our creditors.

Will the government gut spending? Defund entitlements? Devalue our currency?

One day, perhaps in our lifetime, we will discover the answers and reach the limit of our amazing debt. But for now we can only behold this awesome force that binds all Americans, bewitching us with the fascinating possibility, that maybe, just maybe, we’re all f***ed.

Written and produced by Austin Bragg, Meredith Bragg, and Andrew Heaton. Edited by Austin Bragg.

August 23, 2017

On the most recent figures, people do want to pay more tax … just not many of ’em, and not very much

Filed under: Britain, Cancon, Economics, Europe, Government — Tags: , , , — Nicholas @ 06:00

Last month, I posted an item on the Norwegian experiment in encouraging taxpayers to pay more than they owed in national tax. More recently, Tim Worstall reports an uptick in UK taxpayers voluntarily sending Her Majesty’s government more than they owed:

… the greater publicity of this ability to pay more has indeed led to more people making those extra voluntary payments. Further, to a more regular reporting of how many do so:

    Jeremy Corbyn’s claim that many people want to pay “more tax” to clear the national debt or fund public services has been undermined by official figures.

    Figures disclosed by the Government show that just 15 taxpayers made financial gifts worth less than £200,000 to the Government over the past two years.

15 people is of course more than 5.

    The Debt Management Office said that £180,393 in 2016/17 and £14,558 in 2015/16 was made in these voluntary payments.

    Most of this came from a single bequest of £177,700 in the last financial year. The other donated or bequeathed by the other 14 people were for relatively trivial sums. Someone gave 1p, another gave 3p and a third person handed over £1.84 to the Government.

Although not that much more then if we’re honest about it.

[…]

At which point something economists are most insistent upon. What people say is nowhere near as good a guide to their beliefs as what people do is. Expressed preferences are all very well but the truth comes from revealed preferences. Many might say they will pay higher taxes in order to gain more government. Very few do, so few that we can dismiss the expressed wish as being untrue.

It could of course be true that many would like other people to pay more in taxes, it could even be true that some to many would happily pay more if others did as well. But those are different things, the argument that people wish to pay higher taxes themselves and themselves alone has been tested and been found to be wrong–simply because when the opportunity is made available people don’t.

Once again, for my Canadian readers, it’s totally legal and acceptable to pay Her Majesty in right of Canada any additional monies you might feel are appropriate…

August 13, 2017

Saving and Borrowing

Filed under: Economics — Tags: , , , — Nicholas @ 02:00

Published on 21 Jun 2016

On September 15, 2008, Lehman Brothers filed for bankruptcy, and signaled the start of the Great Recession. One key cause of that recession was a failure of financial intermediaries, or, the institutions that link different kinds of savers to borrowers.

We’ll get to intermediaries in the next video, but for now, we’ll first look at the market intermediaries are involved in.

This market is the combination of savers and borrowers — what we call the “market for loanable funds.”

To start, we’ll represent the market, using two curves you know well—supply and demand. The quantity supplied in the market comes from savings, and the quantity demanded comes from loans. But as you know, we have to factor in price. In the case of the market for loanable funds, the price is the current interest rate.

What happens to the supply of savings when the interest rate goes up? When are borrowers compelled to borrow more? Or less? We’ll cover these scenarios in this video.

One quick note: there’s not really one unified market for loanable funds. Instead, there are many small markets, with different sorts of lenders, lending to different sorts of borrowers. As we said in the beginning, it’s financial intermediaries, like banks, bond markets, and stock markets, which link these different sides of the market.

We’ll get a better understanding of these intermediaries in our next video, so stay tuned!

July 20, 2017

Words & Numbers: The Illinois Budget is a Mess

Filed under: Economics, Government, USA — Tags: , , , — Nicholas @ 05:00

Published on 19 Jul 2017

This week on Words & Numbers, Antony Davies​ and James R. Harrigan​ tackle the disaster that is the Illinois state budget crisis.

Pro-tip: Don’t let it happen to your state.

June 17, 2017

Puerto Rico votes for statehood

Filed under: Government, USA — Tags: , , , , — Nicholas @ 04:00

Andrew Heaton discusses the recent vote by Puerto Ricans to apply for full statehood within the United States and why that might be a good thing for all concerned:

Puerto Rico voted to become a U.S. state this week. Needless to say, we should all be deeply concerned about the island’s engorged debt, destructive fits of socialism, and terrifying chupacabras.

But Puerto Rican statehood also represents a unique opportunity to reform American federalism. Accepting a new state with markedly different problems and programs means acknowledging that states aren’t interchangeable. We should welcome Puerto Rico and, while we’re redefining what constitutes our union, re-examine the power dynamic between Washington and the states.

Puerto Rico is a test case in one-size-fits-all solutions and federal intervention ruining an economy. The island has significantly lower income and productivity than the continental United States, but it is still subjected to a national minimum wage crafted for the mainland. That disparity squeezes entry-level jobs out of the market and ratchets up unemployment rates. The slumping job market is worsened by the fact that federal programs like food stamps, Social Security benefits, education grants, and disability payments aren’t pegged to local cost of living. In a region poorer than America’s poorest state, it’s not surprising that people would opt for generous federal handouts over scrambling for jobs the minimum wage hasn’t yet outlawed. Puerto Rico would benefit from an opt-out clause on the mininum wage — an option that should be available to all states.

Because Puerto Rico is an unincorporated territory and not a state, it’s more vulnerable to federal intervention. The Jones-Shafroth Act exempted Puerto Rican bonds from local, state, and federal taxes. The feds might as well have sprinkled cocaine and cronuts over the bonds. Investors bought dumpsters full of Puerto Rico’s sovereign debt, leading the island to further lurch into exorbitant deficit spending.

Federal trade laws also hobble Puerto Rican prosperity. The Jones Act prohibits foreign ships from moving goods between American ports. That means a foreign flagged vessel can’t stop at Puerto Rico on its way to or from the mainland, but must instead offload and reload goods at another American port so a more expensive U.S. ship can transport them. Peter Schiff explains: “Even though median incomes in Puerto Rico are just over half that of the poorest U.S. state, thanks to the Jones Act, the cost of living is actually higher than the average state.” The Jones Act would be a great issue to bring up when Congress deliberates on Puerto Rican accession. Abolishing it would benefit everyone, most of all Puerto Rico.

April 19, 2017

A graphical representation of the difference between the US federal deficit and the debt

Filed under: Economics, Government, USA — Tags: , , — Nicholas @ 03:00

In USA Today, Jon Gabriel shows why it’s important to know the difference between a deficit and a debt, especially when discussing the US federal government:

It’s an imperfect analogy, but imagine the green is your salary, the yellow is the amount you’re spending over your salary, and the red is your credit card statement. Then tell your spouse, “Don’t worry, dear, I just increased our debt ceiling with a new Visa card!”

The chart is brutally bipartisan. Debt increased under Republican presidents and Democratic presidents. It increased under Democratic congresses and Republican congresses. In war and in peace, in boom times and in busts, after tax hikes and tax cuts, the Potomac flowed ever deeper with red ink.

Our leaders like to talk about sustainability. Forget sustainable — how is this sane?

Yet when any politician hesitates before increasing spending, he’s portrayed as a madman. When Paul Ryan, R–Wis., offered a thoughtful plan to reduce the debt over decades, he was pushing grannies into the Grand Canyon and pantsing park rangers on the way out.

I’m sure that my chart will be criticized. A few on the right will say it’s too tough on the GOP while those on the left will claim it doesn’t matter or it’s all a big lie.

Wonks will say the chart should be weighted for this variable and have lines showing that trend. All are free to create their own charts to better fit their narrative, and I’m sure they will. But the numbers shown can’t be spun by either side.

All the figures come directly from the federal government, and math doesn’t care about fairness or good intentions. Spending vastly more than you have, decade after decade, is foolish when done by a Republican or a Democrat. Two plus two doesn’t equal 33.2317 after you factor in a secret “social justice” multiplier.

And my chart doesn’t mention future projections due to exploding entitlements, which Trump didn’t touch. Turn to the much scarier Congressional Budget Office chart for that.

February 23, 2017

Words & Numbers: The CBO Can’t Count

Filed under: Economics, Government, USA — Tags: , , — Nicholas @ 04:00

Published on 22 Feb 2017

In this episode, Dr. Antony Davies, Professor of Economics of Duquesne University in Pittsburgh, and Dr. James R. Harrigan, Senior Research Fellow at Strata, in Logan, Utah discuss the way the Congressional Budget Office works, and outline its history of failure at accurately forecasting increases in the national debt.

Find out more about the CBO and debt projections here:
https://fee.org/articles/the-congressional-budget-office-cant-count

here:
http://www.usnews.com/opinion/economic-intelligence/articles/2017-02-01/the-cbo-federal-budget-predictions-are-dangerously-optimistic

and here:
http://www.huffingtonpost.com/entry/58a0810be4b0e172783a9daa

Plus, check out this great 360 Video from Learn Liberty with Antony Daves that helps put the massive scale of the current US Federal debt into perspective: https://www.youtube.com/watch?v=ErUZjM16r1M

And track the National Debt in real time here:
http://www.usdebtclock.org/

January 16, 2017

Why do millennials earn some 20% less than boomers did at the same stage of life?

Filed under: Economics — Tags: , , , , — Nicholas @ 03:00

Tim Worstall explains why we shouldn’t be up in arms about the reported shortfall in millennial earnings compared to their parents’ generation at the same stage:

Part of the explanation here is that the millennials are better educated. We could take that to be some dig at what the snowflakes are learning in college these days but that’s not quite what I mean. Rather, they’re measuring the incomes of millennials in their late 20s. The four year college completion or graduation rate has gone up by some 50% since the boomers were similarly measured. Thus, among the boomers at that age there would be more people with a decade of work experience under their belt and fewer people in just the first few years of a professional career.

And here’s one of the things we know about blue collar and professional wages. Yes, the lifetime income as a professional is likely higher (that college wage premium and all that) but blue collar wages actually start out better and then don’t rise so much. Thus if we measure a society at the late 20s age and a society which has moved to a more professional wage structure we might well find just this result. The professionals making less at that age, but not over lifetimes, than the blue collar ones.

[…]

We’ve also got a wealth effect being demonstrated here. The millennials have lower net wealth than the boomers. Part of that is just happenstance of course. We’ve just had the mother of all recessions and housing wealth was the hardest hit part of it. And thus, given that housing equity is the major component of household wealth until the pension is fully topped up late in life, that wealth is obviously going to take a hit in the aftermath. There is another effect too, student debt. This is net wealth we’re talking about so if more of the generation is going to college more of the generation will have that negative wealth in the form of student debt. And don’t forget, it’s entirely possible to have negative net wealth here. For we don’t count the degree as having a wealth value but we do count the loans to pay for it as negative wealth.

October 17, 2016

Hillary Clinton tells us to expect a major US recession shortly after January 20, 2017

Filed under: Economics, Government, Politics, USA — Tags: , , , , , — Nicholas @ 04:00

Fortunately, as Tim Worstall explains, politicians can rarely be believed — especially when it comes to economics:

Hillary Clinton Vows To Slam The Economy Into Recession Immediately Upon Election

This probably isn’t quite what Hillary Clinton intended to say but it is what she did say at a fundraiser on Friday night. That immediately upon election she would slam the US economy into a recession. For what she has said is that she’s not going to add a penny to the national debt. Which, in an economy running a $500 billion and change budget deficit means tax rises and or spending cuts of $500 billion and change immediately she takes the oath. And that’s a large enough and fierce enough change, before she does anything else, to bring back a recession.

[…]

Now, what she meant is something more like this. That she has some spending plans, which she does. And she is also proposing some tax rises. And that her tax rises will balance her spending plans and thus the mixture of plans will not increase the national debt. Which is possibly even true although I don’t believe a word of it myself. For her taxation plans are based upon static analyses when we really must use dynamic ones to measure tax changes. This is normally thought of as something that the right prefers. For if we measure the effects of tax cuts using the dynamic method then there will be some (please note, some, not enough for the cuts to pay for themselves) Laffer Effects meaning that the revenue loss is smaller than that under a static analysis. But this is also true about tax rises. Behaviour really does change when incentives change. Thus tax rises gain less revenue in real life than what a straight line or static analysis predicts.

That is, as I say, probably what she means. But that’s not actually what she said. She said she’ll not add a penny to the national debt. Which means that immediately on taking office she’s got to either raise taxes by $500 billion and change or reduce spending by that amount. Because the budget deficit is that $500 Big Ones and change at present and the deficit is the amount being added to the national debt each year. The problem with this being that that’s also some 3.5% or so of GDP and an immediate fiscal tightening of that amount would put the US economy back into recession.

March 30, 2016

QotD: The spendthrift governor, Nelson Rockefeller

Filed under: Government, Quotations, USA — Tags: , , , — Nicholas @ 01:00

In 15 years as governor of New York, Nelson A. Rockefeller, popularly known as “Rocky,” was as careful with the public’s money as he was with his own — which is to say, he spent lavishly, impulsively, and often indiscriminately. New Yorkers have been paying the bill ever since. As portrayed in Richard Norton Smith’s new biography, Rockefeller believed that there was no problem (least of all a lack of cash) too big to yield to a big-money solution. “As much as I loved Nelson,” Smith quotes the financier Frank Zarb, “his meter didn’t start until you reached a billion dollars.”

Rocky’s meter began to spin soon after he became governor of New York in 1959, and it accelerated as time went on. To be sure, every level of American government was expanding during the 1960s and 1970s. But Rockefeller made an outlier of the Empire State. He quadrupled the state budget and quintupled state debt, including off-the-books public-authority borrowing. He created the nation’s most lavish Medicaid program, designed to draw down maximum federal aid to the state while saddling New York City and county governments with half the non-federally reimbursed cost. He pushed through a collective bargaining law that would bequeath to New Yorkers the nation’s highest level of public-sector unionization. Though New York had been a cradle of open-handed liberalism, its state and local taxes, relative to personal income, were slightly below the national average when Rockefeller took office, according to Census data. By 1974, the combined burden had nearly doubled to a level well above the 50-state norm — where it has remained ever since.

Smith demonstrates that Rockefeller’s profligacy was at least as much a matter of personal disposition as political preference. There’s no small irony in this: Rocky’s grandfather, John D. Rockefeller, Sr., built his Standard Oil mega-fortune on penny-pinching attention to detail. As one story goes, even as a wealthy man, “Senior” was delighted to discover he could eke out a slightly larger profit by encouraging his employees to use one less drop of solder on each tin can of Standard Oil kerosene.

E.J. McMahon, “Hiya, Big Spender! For good or ill, Nelson Rockefeller’s legacy lives on”, City Journal, 2014-12-04.

Older Posts »

Powered by WordPress