Category: Capitalism Reform

Sunday Cartoon Blogging – March 12, 2023

Let’s talk about Silicon Valley Bank (SVB). The tech industry’s go-to lender just became the second-largest bank failure in US history. The bank’s customers withdrew $42 billion from their accounts on Thursday. That’s $4.2 billion an hour, or more than $1 million per second for ten hours straight.

We ancient, moss-covered former bankers call this a bank run. That occurs when a large number of customers of a bank withdraw their deposits simultaneously over concerns about the bank’s solvency.

Nearly half of all venture-backed US companies were SVB customers. We’re unsure why the run started, but on Thursday, several Venture Capital firms started telling their client companies that pulling cash from SVB was prudent, and the run began.

While bank deposits are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000, few of SVB’s deposits, by value, were FDIC insured, since its customers were overwhelmingly corporations with much more than $250,000 in the bank. By Friday, there was no cash left in SVB’s coffers. In fact, the cash on hand was negative, to the tune of $958 million.

Do you remember when Trump and Republicans rolled back some of the regulations Dodd-Frank placed on regional banks?:

“Some banking experts on Friday pointed out that a bank as large as Silicon Valley Bank might have managed its interest rate risks better had parts of the Dodd-Frank financial-regulatory package, put in place after the 2008 crisis, not been rolled back under President Trump.”

Trump signed the bill despite a report from Democrats on Congress’s joint economic committee warning that under the new law, SVB and other banks of its size:

“…would no longer be subject to nearly any enhanced regulations”.

This also affects ordinary people. Wrongo has a California friend who banks with SVB. Here’s a quote from her:

“While I’ve been waiting to sign the purchase contract on a condo, I woke to the news that my lender Silicon Valley Bank has been closed and taken over by regulators. That concludes literally 8 months of working on this….and the end of my effort to buy a home.”

So don’t listen to the pleas for another bank bailout. Wrongo would be okay with bailouts if they were accompanied by personal accountability by management. Like, we’ll rescue your institution, but none of the bank senior management can ever work in finance again. On to cartoons.

Tucker’s mendacity:

It takes two teams to play:

Walmart’s OK with pills for boners, but not for pregnancy:

GOP wants to regulate Trans not Trains:

GOP loves doormats:

Most appropriately named movie of this or any year:

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Saturday Soother – February 25, 2023

The Daily Escape:

Death Valley sunset, Death Valley NP, CA and NV – February 2023 photo by Leila Shehab Photography

From the NYT:

“To Democrats, the train derailment and chemical leak in the hamlet of East Palestine, Ohio, is a story of logic, action, and consequences: Rail safety regulations put in place by the Obama administration were intended to prevent just such accidents. The Trump administration gutted them.

To Republicans, East Palestine is a symbol of something…more emotional: a forgotten town in a conservative state, like so many others in Middle America, struggling for survival against an uncaring mega-corporation and an unseeing government…”

If you follow FOX news you can be forgiven for thinking that the federal disaster relief teams just got around to dealing with the hazardous materials spill in East Palestine, Ohio.

Actually, those federal teams have been on the scene since it happened.

Republicans are trying to make a political meatloaf out of Biden’s visiting Ukraine rather than visiting Ohio. Or why it took Pete Buttigieg three weeks to visit the site. Even the East Palestine mayor Trent Conaway said Biden’s trip to Eastern Europe was “a slap in the face.” But if Biden had visited, you know the mayor would say he had better things to do than shepherd around a bigwig.

Their message is that Democrats are indifferent to working-class voters.

But maybe there’s something under the surface of these politics-as-usual arguments. The derailment presents issues that Republicans rarely like to grapple with: Corporate power and a clear need for government regulation.

What may be brewing is a new and different message by the GOP’s populist wing, one that breaks with Party orthodoxy and targets corporate America. And Norfolk Southern, owner of the derailed train and also behind a clear lobbying effort to keep the government from improving rail safety, is a big and very easy target.

Vox quotes Saurabh Sharma, the president of American Moment, a public policy organization that aims to influence young conservatives to become more populist:

“I think that this tragedy that happened in East Palestine is an opportunity for Republicans that have been looking for opportunities to distinguish themselves from the neoliberal set in the party to do so.”

The execrable JD Vance was in East Palestine with Trump, and told Axios afterwards that figures like Trump, Tucker Carlson and himself recognize that East Palestine residents and those like them were the GOP’s voters:

“The three of us, in our own ways, recognized instantly: This is fundamentally our voters, right? These are sort of our people. It’s a reasonably rural community. It’s been affected by industrialization,” Vance said. “These are the people who really lost when we lost our manufacturing base to China, And these are the people who are going to be forgotten by the media unless certain voices make sure that their interests are at the forefront.”

Wow, Yale grad Vance, trying to speak mid-western English says: “This is fundamentally our voters, right?”

The question is: Can Republicans build an economic populist base within their Party? It’s clear that Trump deserves criticism from the Democrats over the accident, since it’s easy to connect the derailment to Trump’s deregulation of ineffective train braking systems, the cause of the accident. That means Trump wouldn’t be exempt from political attacks by economic populist Republicans.

Conservatives like Jon Schweppe, the director at the American Principles Project, a conservative think tank, tried to link a few ideas together:

“There is a growing sense that all of these corporations are against us — not only are they trying to screw us over on the woke stuff, but generally, they just don’t care about ordinary people.”

The American Principles Project is virulently anti-woke, anti-trans and anti-voting rights. Can they also be anti-corporations? And how close are they to mainstream Republicans?

Can the East Palestine accident cause Republicans to embrace truly populist issues? Would the GOP tie corporate graft and greed to bureaucratic incompetence and Democratic indifference? They seem to fit easily within existing Tucker Carlson messaging.

BTW: All of it also fits very easily into Democratic messaging.

But let’s forget about who’s woke or, how will the second year of the Ukraine war go? It’s time for our Saturday Soother, when we disengage from the world as completely as possible and focus on finding a calm state to prepare us for the week to come.

Here in the Mansion of Wrong, we spent time upgrading our internet service to fiber optic. That wasn’t the promised slick changeover touted by the provider, but it’s finally working.

To get soothed, settle in a big chair by a south-facing window and watch Lang Lang play Debussy’s “Suite Bergamasque, or Clair de lune”. This performance was part of an album launched in Paris on Valentine’s Day, 2019. Listen as Lang Lang performs on a boat cruising along the Seine while you enjoy Paris at night:

 

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A Few Wealthy A—holes Want To Secede From America

The Daily Escape:

Poppy bloom, Picacho Peak SP, Picacho, AZ – February 2023 photo by Leila Shehab

Wrongologist blog commenter Terry McK had this to say responding to Wrongo’s post about Speaker McCarthy and his lieutenant Marjorie Taylor Green’s antics surrounding gifting Tucker Carlson with the J6 videos:

“We lie to ourselves about the nature of our government…..Nor have we a marketplace of ideas. We could have – but the marketplace is dominated by the intellectual equivalent of soda and snacks….Now most speeches are performance art delivered to an empty chamber. ”

He’s correct. Here are a few recent developments that track with Terry’s thinking. First, Joe Perticone in the Bulwark: (emphasis by Wrongo)

“A strange proposal is working its way through the Idaho state legislature that would have that state envelop more than a dozen of Oregon’s most conservative eastern counties—in effect, shifting the border between the states 200-plus miles to the west. While last Wednesday’s vote in the Idaho House approving this “Greater Idaho” idea is nonbinding, it does legitimize the movement that has long been promoting the plan.”

A Bluer Oregon and a Redder Idaho. This movement is by the far-Right members of Idaho’s government. And among the 15 Oregon counties targeted to become part of Idaho, 11 have so far formally expressed their support for the plan. So unlike Taylor Greene’s rantings about a national divorce, this idea has a lot of elected officials on board.

Second, Ars Technica reports that:

“Two Republican lawmakers in Idaho have introduced a bill that would make it a misdemeanor for anyone in the state to administer mRNA-based vaccines—namely…COVID-19 vaccines made by Pfizer-BioNTech and Moderna.”

This probably won’t go anywhere. And state-level politicians everywhere also have tons of bad ideas.

Finally, a sober look how some of the wealthy in the fancy towns across the western US are angling for succession or civil war comes from Vanity Fair’s James Pogue. Writing about Jackson Hole, Wyoming:

“…there was a constant traffic of small jets and private aircraft, humming into and out of a town that has become a modern refuge for people with remote jobs…many of them driven to the Northern Rockies by a worry…that the rest of America is on its way toward environmental, political, or economic breakdown.”

Pogue speaks with Catharine O’Neill, great-great-granddaughter of John D. Rockefeller. She’s a Conservative who worked in Trump’s State Department and after the 2020 election moved to Wyoming:

“She…views the corporate elite as enemies of America and believes that we’re on the cusp of a populist uprising against the brand of transnational capitalism championed by Republicans for most of the last half-century.”

She lives on a 580-acre “vertically integrated cattle operation” she started. Today she’s anti both Parties but would happily vote for Tucker Carlson if he’d step forward. These are the thoughts of the “dissident right”. A few of the wealthy have created secretive groups to help people “exit’ from society and from what they see as a failing American system.

From Pogue:

“Who even needs a civil war,” one…texted me recently, “when the institutions are doing such a good job of delegitimizing themselves?”

This cohort sees the Northern Rockies as one of a few places in America that will be livable once life in much of America is fighting heat waves, floods, storms, and fires. They’re focused on how to live through “managed decline,” the wind-down period after the age of cheap fossil-fuels and rapid economic and technological progress wane.

They’re certain that will also bring about the erosion of America’s “state capacity”, the government’s ability to do things. Then our “real economy” will hollow out, and our political divisions will worsen, even more than currently.

But this movement isn’t only supported by the wealthy. Average American workers are increasingly priced out of housing and better educational opportunities for their kids. Many of these workers have service jobs that support the wealthy from Los Angeles to Jackson Hole, and from Cape Cod to Miami Beach. A Moody’s Analytics report says that for the first time in 20 years, the average American is “rent-burdened”, meaning they put at least 30% of their income towards housing.

This makes many middle class Americans very susceptible to arguments by the dissident right about how corporate elites and modern capitalism are hurting their chances to realize the American Dream. This was the basic thrust of the “Occupy Wall Street” movement in 2011. Now, the right wing is trying to take up their cause.

Will there be a second civil war? It doesn’t need to be a war. People don’t understand how easy it would be to launch an insurgency in America. We should take a lesson from the way the Taliban defeated the American military using small arms, and there are plenty of small arms in America. Insurgencies are less a war than an extended political conflict, in which the insurgents try to get governments to overreact. And when they inevitably do, the insurgents build support. It doesn’t take all that much to create a plausible scenario for conflict.

This is Wrongo’s second wakeup call this week. We can’t do much about the wealthy who tell themselves that they’re better off without America.

But we can and must do a lot to persuade average Americans not to fall victim to their rhetoric.

Jimmy Carter’s 1976 stump speech included this:

“I’ll never lie to you”…and…”we need a government as good as its people…”

Would living his message today help us hold the country together?

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Monday Wake Up Call – February 20, 2023

The Daily Escape:

Oatman, AZ on Route 66 – February 2023 photo by Laurel Anne Lindsay

Some of you may have heard about a study called “The Hidden Tribes of America” by the group More in Common. It’s trying to understand the forces driving political polarization in America today. They classify the American electorate into seven distinct groups, they call “Tribes”.

But their key conclusion is that most people don’t belong on the far left or far right: (brackets by Wrongo)

“…the largest group that we uncovered in our research has so far been largely overlooked. It is a group of Americans we call the Exhausted Majority…representing a two-thirds majority of Americans, who aren’t part of the Wings….most members of the Exhausted Majority aren’t [simply] political centrists or moderates. On specific issues, their views range across the spectrum.”

More:

“But while they hold a variety of views, the members of the Exhausted Majority are also united in important ways: They are fed up with the polarization plaguing American government and society….. [they] are so frustrated with the bitter polarization of our politics that many have checked out completely….. they aren’t ideologues who dismiss as evil or ignorant the people who don’t share their exact political views. They want to talk and to find a path forward.

This chart from the study graphically illustrates the seven tribal groups of the American populace. As you can see, there is a left-wing group that is about 8% of the US population. And there are two right-wing groups that equal about 25% of Americans. That leaves four groups in what the authors call the “Exhausted Majority”. They are 67% of the American populace.

Here are some demographic characteristics of the seven groups:

  • Progressive Activists: younger, highly engaged, secular, cosmopolitan, angry.
  • Traditional Liberals: older, retired, open to compromise, rational, cautious.
  • Passive Liberals: unhappy, insecure, distrustful, disillusioned.
  • Politically Disengaged: young, low income, distrustful, detached, patriotic,
  • Moderates: engaged, civic-minded, middle-of-the-road, pessimistic, Protestant.
  • Traditional Conservatives: religious, middle class, patriotic, moralistic.
  • Devoted Conservatives: white, retired, highly engaged, uncompromising,

Wrongo identifies as one of the Traditional Liberals, their description rings true.

The authors say that in their research, this tribal membership predicted differences in Americans’ views on various political issues better than demographic, ideological, and partisan groupings. You can read or download the whole study here.

An “Exhausted Majority” may be a positive political development. Wrongo spends nearly every day thinking that there are just two opposing camps. And that they each view each other with fear and loathing, refusing to listen to anything that doesn’t fit their existing narrative. As we’re entering the next presidential campaign, it’s good to know that Wrongo’s view of our polarization might be well, wrong.

Is the “Exhausted Majority” merely a new response to our dysfunctional politics? Wrongo isn’t alone in thinking that what’s wrong with our country will take decades to overcome. Faced with that, people start to look for quick fixes, or a way to stop listening to the wrangling. And you don’t have to be unaligned with either Party to share this sense of exasperation.

The people described in the “Exhausted Majority” are similar. It’s also true that for most people, politics isn’t the be-all-end-all of their lives. They’d prefer that the business of government didn’t require their involvement. They’re trying to get their kids educated, and to keep them safe. They prefer to see political compromise happen without needing to be involved.

But if you can walk away from politics when it frustrates you, then you’re in the lucky minority:

  • There are large numbers of parents who have discovered that their child is addicted to opioids.
  • There are many people who had lost their health insurance when they were laid off.
  • Many sent their daughter to college in the South only to learn that she no longer has any reproductive rights.
  • Many are worried that books are being taken from public school libraries.
  • Some fear that they may lose the right to vote.

These people can’t simply throw up their hands and walk away. Only political action will help them. We all know that the political radicals are irredeemable. We also know they make the most noise, but they’re a minority.

The fed-up people on both sides and in the middle have to find a way to take the country back from the radicals, instead of allowing ourselves to be herded into existing opposing camps.

Time to wake up America! We can’t simply drop out. There’s too much at stake. Democrats need to find candidates and a message that can motivate an additional 5%-15% of the “Exhausted Majority” to vote with them. To help you wake up, watch, and listen to the RedMolly band play a very nice cover of Richard Thompson’s “Vincent Black Lightning 1952”. It’s a surprise how beautifully it adapts to a bluegrass idiom, and the dobro work makes it:

“Vincent Black Lightning” is one of the most perfect songs ever written. We saw Thompson perform it live at Tanglewood last summer.

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Saturday Soother – February 17, 2023

The Daily Escape:

Where desert meets mountains, near CA/NV border –  February 2023 photo by Austin James Jackson

Liz Hoffman at Semafor has a short analysis of the value of credit card loyalty programs to airlines. Many of us have them and we use them to purchase our everyday goods in order to earn air miles or points that we later use to get a seat upgrade, or to fly for free.

Everyone knows about this “perk” from the airlines, but few of us know just how profitable these programs are to the carriers. It turns out that they are the most lucrative assets on airlines’ balance sheets. The uncertain profitability of the airline business makes them very important since the airlines often lose money.

The airlines used to be secretive about just how profitable their frequent-flier programs were. But, when they were in deep financial trouble during the pandemic, several US carriers pledged their loyalty programs as collateral for new loans when other financing failed.

That required the airlines to open the books on their loyalty programs. And now we’ve learned that their credit card businesses are more valuable to shareholders than their basic business of flying planes. From Hoffman:

“It turns out that United’s rewards card program with JPMorgan Chase is valued today at $22 billion. But United’s market capitalization is $16 billion, meaning investors are assigning negative value to the part of its business that flies airplanes. The same goes for American and Delta.”

From a market valuation perspective, the basic businesses of the big three US airlines are under water. Hoffman provides an eye-opening chart showing that the airlines’ huge investment in aircraft and ground operations doesn’t produce a dime of market value for their shareholders:

As you can see, none of the big three US carriers get any incremental market value from flying planes. So should they either sell off all of that hardware, or spin off their credit card businesses?

They can’t. They need the flights to create demand for the points/miles. The secret sauce behind the success of their loyalty programs is that the actual value of an air mile isn’t clear. Customers think they’re getting a $3,000 upgrade to first class for a few thousand points, while the airlines know that the upgraded seat is unlikely to sell at all, and if it does, it won’t be for anything like that amount.

Foreign carriers have less reliance on their rewards programs. Many operate with government subsidies, so their flights are more profitable. And they serve consumers who are less comfortable with plastic. So their market valuation is less dependent on loyalty programs:

We have to assume that the board members of the airlines have always known about the value of their loyalty programs. But now everyone is seeing the potential value, and the airlines might be thinking that they can wring even more value from them.

What’s distressing about this is that the airlines needed bailouts only two years ago during Covid. The US airlines received $54 billion in federal aid to pay workers during the Covid pandemic. That agreement prohibited them from share buybacks.

That’s because they had continuously bought back shares in the years prior to the bailout. The four biggest US carriers — Delta, United, American, and Southwest — spent about $40 billion buying back their companies’ stock between 2015 and 2020. That effort to improve their market valuation failed spectacularly, since their loyalty programs are now worth more than the companies themselves.

America added a 1% tax on buybacks excise tax for buybacks this year, passed as a part of the Inflation Reduction Act. This will help reduce the deficit and might dampen American corporations’ appetite for stock buybacks. The largest US airlines are making money again, and labor unions don’t want them to spend it on more stock buybacks. In a public petition, some of the largest airline labor unions — representing more than 170,000 pilots, flight attendants, customer service agents — are urging carriers to stabilize operations and invest in workers before spending on buying back more of their stock. We’ll see if that ever happens.

Enough high finance, it’s time for our Saturday Soother. Here on the Fields of Wrong, we’ve had a few warm days that led to the beginning of our spring cleanup. To settle into your soother, grab a mug of coffee and a seat by the window. Start by forgetting about Nikki Haley’s campaign or what to do now that football is over.

Now listen and watch Renée Fleming sing “Nacht und Träume” (Night and Dreams) written in 1825 by Franz Schubert conducted by Claudio Abbado with The Lucerne Festival Orchestra in 2005:

 

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Ohio’s Airborne Toxic Event

The Daily Escape:

Roan Mountain, NC – February 2023 photo by Spencer Carter. Roan Mountain has the largest naturally growing gardens of Catawba rhododendrons in the world.

Back on February 3, a Norfolk Southern (NS) train carrying hazardous materials derailed near the town of East Palestine, Ohio. Federal investigators say a mechanical issue with a rail car axle caused the derailment. After several days of underreporting, we now know what happened.

Here are some facts: The derailment included 50 cars, 20 of which carried toxic materials, 14 of those contained vinyl chloride. The subsequent fire burned for three days. Then there was a “controlled release” of poisonous gas. And finally, effects of the poison were felt on locals, their animals, and local waterways.

The axle problem is important since it is the cause of all the hardship in East Palestine. Trains use steel wheels on steel rails because they produce 85+ % less friction than rubber truck tires do on roads. The contact point of a wheel on the rail is about the size of a dime. Compared to trucks, trains are cheaper (4 cents vs 20 cents per ton-mile in the US), and more sustainable: One ton of freight can be moved over 470 miles on a single gallon of diesel fuel.

But sustaining that economic advantage requires the railroads to maintain all that steel in good working order. Otherwise if things go wrong with a train that’s 4.5 miles long, they can go very, very wrong. And reporting seems to indicate that NS didn’t maintain its steel wheels correctly.

Also, the derailed NS train was not classified as a “high-hazard flammable train,” despite its hazardous and flammable cargo. Such a classification would have lowered its speed and affected its route. From Lever News:

“Though the company’s 150-car train in Ohio reportedly burst into 100-foot flames upon derailing — and was transporting materials that triggered a fireball when they were released and incinerated — it was not being regulated as a “high-hazard flammable train,” federal officials told The Lever.”

Apparently when current transportation safety rules were first created, a federal agency sided with industry lobbyists and limited regulations governing the rail transport of hazardous compounds. That decision effectively exempted many trains hauling dangerous materials including the NS train in Ohio, from the “high-hazard” classification and its more stringent safety requirements.

Generally, workers want safety and the bosses want money. Safety requires additional time, more workers, and money. Deregulation contributes to the lack of safety. Using vinyl chloride in a chemistry lab requires safety equipment. Tank cars containing thousands of gallons of it should require more than the government apparently thinks is safe.

Wrongo always looks at the politics in these sorts of industrial disasters because they are usually caused by the economics created by politics.

Given how dangerous these chemicals are, and given how they are used and transported, we have to expect accidents like this to happen. But the government should be able to tell us whether the current accident rate is higher or lower than expected, and if higher, what should be done to correct the problem.

We trust the bureaucrats that make the rules to balance safe operations against the risk of an airborne toxic event like this. Wrongo’s brief look into this one incident doesn’t evidence that kind of trust. It appears that the bureaucrats who make the rules on railroad safety were influenced by the industry and wrote a rule that puts the economics for the railroad industry ahead of public safety.

These issues exist everywhere in the relationship between industry and government. There’s always pressure by the industry on the bureaucrats to deregulate. In a man-made disaster, that can place greater burdens on the communities, like just happened in East Palestine.

This is what the Michael Lewis’s book “The Fifth Risk” is about: People who go to school, get extensive training and then work in obscure corners of the government. Lewis talks about how important these people are, and how for decades they’ve been denigrated, vilified, and ignored, largely by Republicans.

This is another area in which the GOP is awful in a completely lopsided way to Democrats.

The existence of corporations who can impose risks on the rest of us is what happens when there is unequal political power. We need a state with a strong regulatory system to protect us. The state must build regulatory regimes for chemical spills that shift the risks back onto those who create them.

NS in this case, has said that they will be fully responsible for the damages caused in East Palestine.

That’s encouraging, but how does that little town with a population of less than 5,000, or even the state of Ohio hold NS to their word?

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It’s Impossible To Buy A $200k Home Anymore

The Daily Escape:

Mt. Hood sunrise – February 2023 photo by Mitch Schreiber Photography

Happy Valentine’s Day for those who celebrate! If you don’t celebrate, find someone or something to give a little bit of love to.

In all of the hype about the Super Bowl and Rihanna’s halftime show, you may have missed that homes selling for less than $200k have basically disappeared in America.

John Burns, a real estate consultant, reports that they are now 0% of the new home market. They were 40% of the market 10 years ago. Burns also says that $500k+ new homes have grown from 17% of the market to 38% of the market during Covid. He provides this handy chart showing how average home prices have changed since 2010:

At the same time, sales of homes going for $500k or more (red line) have shot up from less than 10% to nearly 40% of the new homes market and represent the largest share of new home sales.

This isn’t great for Millennials looking to buy their first homes, or for retirees who have to downsize. It also explains why many first-time homebuyers are angry.

It’s not only the $200k and under segment that has fallen off a cliff. New homes going for between $200k – $300k now make up just 11% of the total, down from 80% of all new home sales in the year 2000.

Ben Carlson shows Federal Reserve new home price data going back to 2000 that breaks down new homes price points more clearly. He says that those being sold for $750k and up have gone from less than 1% to more than 10% of the market.

A few reasons for the shifts: First, we’re not building enough new houses anymore. Second, we’ve seen changing tastes drive demand toward larger homes, helping move the market to a new floor in home prices. Inflation didn’t help either.

We overbuilt in the 2000s housing bubble, and that led to more than a decade of underbuilding ever since. There was a brief spike during the pandemic housing craze but that has abated with mortgage rates rising so rapidly in the past year.

In 2002-2006, we were building around 120,000 new homes per year. In 2022, it was more like 65,000 units per year. Tastes have changed as well. Houses today are substantially larger than they were in the 1950s, 1960s, and 1970s.

In his book The Fifties, David Halberstam talks about how the housing market played a huge role in the rise of the suburbs following World War II. Then houses were about 1,300 square feet. In the 1970s, the median size of a new home in the US was 1,525 square feet. Today it’s around 2,500 square feet.

Tastes have changed. People want bigger houses. They want open floor plans for entertaining, bigger bedrooms with more bathrooms, and more storage space for all of their stuff.

It’s also true that homebuilders aren’t incentivized to build starter homes anymore. In the 1950s the government helped out the troops and their families. With the GI Bill, the federal government took some of the risk that homebuilders wouldn’t be able to find mortgages for all the new houses they were building.

Local zoning regulations have made it difficult to get approvals to build new homes. So builders have moved upmarket in home size to justify those upfront expenses. Starter homes aren’t as profitable as they once were.

There’s a big change in the buyer’s market as well. The WSJ quotes John Burns: (emphasis by Wrongo)

“You now have permanent capital competing with a young couple trying to buy a house.” Burns estimates that in many of the nation’s top markets, roughly one in every five houses sold is bought by someone who never moves in.”

The Atlanta Journal-Constitution in an article last week entitled: “American Dream For Rent: Investors elbow out individual home buyers. Metro Atlanta is ground zero for corporate purchases, locking families into renting’. The Journal says a generational housing shortage, inflated construction costs and a surge in consumer demand all contributed to the historic rise in prices.

But there’s little doubt that a flood of cash from institutional investors has exacerbated it. They quote Maura Neill, a realtor in Alpharetta:

“They go after every listing under $500,000…it’s like clockwork…The property gets listed and, sight unseen, they make offers within an hour.”

This is late-stage capitalism at work. Young working couples are increasingly shut out of buying homes. America is failing them. It would be helpful for families to build equity by purchasing homes instead of renting.

Pricing families out of home ownership carries risks to a cohesive society.

We should have a federal tax policy that disincentivizes ownership of multiple single-family homes, by investment funds. The way to remedy this is to steer investors to other assets that don’t directly impact individual welfare to the same degree as single family housing.

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China’s Population Declines

The Daily Escape:

Dune Evening Primrose, Anza-Borrego Desert SP, CA – January 2023 photo by Paulette Donnellon

From the NYT:

“The world’s most populous country has reached a pivotal moment: China’s population has begun to shrink, after a steady, years long decline in its birthrate that experts say is irreversible.”

Irreversible. It was the first time that deaths had outnumbered births in China since Mao’s Great Leap Forward.

Feng Wang, Professor of Sociology, UC Irvine agrees: (emphasis by Wrongo)

“As a scholar of Chinese demographics, I know that the figures released by Chinese government on Jan. 17, 2023…. is the onset of what is likely to be a long-term decline. By the end of the century, the Chinese population is expected to shrink by 45%, according to the United Nations. And that is under the assumption that China maintains its current fertility rate of around 1.3 children per couple, which it may not.”

China has tried different policies for years in an effort to delay this moment, first, by loosening a one-child policy and then, by offering financial incentives to encourage families to have more children. Neither policy worked. Now, facing a population decline, coupled with a continuing rise in life expectancy, China’s demographics will have consequences not just for China but possibly for the rest of us.

China’s rise as an economic powerhouse is the result of its becoming the world’s factory floor. That created the world’s largest middle class. It moved hundreds of millions of rural Chinese to urban areas and fueled the spectacular growth of its largest cities. It made China the world’s second-largest economy, and also led to the increase in life expectancy.

Both Feng Wang and the NYT worry that China’s declining population will lead to a time when China will not have enough people of working age to fuel its growth. In the short run, there will be fewer workers to generate future growth in their economy. In the longer run, the costs to maintain an aging, post-work population will become very high (like in the US).

But economies don’t stand still for long. That China has a manufacturing-oriented economy isn’t a negative but a positive in this scenario. China has been moving up the manufacturing value chain for more than 20 years. So they are in a good position to use automation to address increasing labor scarcity and (presumed) rising labor costs.

They could also encourage work after normal retirement age, even if part time, with better wages and job environments. And like other countries facing similar issues, they could encourage immigration.

The US may be closer to China’s fate than we think. The US Census says that: (brackets by Wrongo)

“The U.S. population grew at a slower rate in 2021 than in any other year since the founding of the nation….[growing by]  only 0.1%…”

It looks like we’re on a similar trajectory to China as are many other developed nations. Japan is currently dealing with it. South Korea and Taiwan are currently at a crossroads as both are facing a massive demographic crash. But, both are smaller and more economically developed than China, so they also have options. Much of Europe is looking at the same problem.

The solution would seem to be to allow immigration from the less developed world. But that comes with the likelihood that the newcomers will change our social and cultural norms.  With immigration, our norms will change, and control of the politics in each country is likely to evolve as well.

The alternative to permanent economic growth is to allow the population shrinkage to happen. It’s kind of infuriating that big business and their captured politicians fail to recognize that a shrinking population (within reason) is both essential for our future and a good thing in the long run.

It can be scary: But transitioning from an economic model based on a constant input of young, working people to one where, we create fewer jobs, can work. If we make sure that those jobs are extremely productive.

What is the end game of an ever expanding population and perpetual economic growth for the human race? The world population when Wrongo was born was about 2.3 billion. It’s 3.5 times that today. Since resources are finite, it’s an inescapable conclusion that someday we must shrink the number of people. So why not today?

Sure, we can extend the economic life of certain resources by using new technologies. But if we continue to expand the number of humans on earth, we’ll see a global war for those resources, which will be a catastrophe.

Is a commitment to low population/low economic growth even possible at this late stage of capitalism?

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Monday Wake Up Call, MLK Jr Day – January 16, 2023

The Daily Escape:

It’s MLK day, so let’s talk about a topic that was near to his heart: economic inequality. Since 1980, economic inequality has been increasing between the top 1% and the bottom 90% of Americans. It’s become so great that today, America now faces the same level of economic inequality that existed before the Great Depression.

Here’s a chart from Elise Gould and Jori Sandra of the Economic Policy Institute (EPI) showing the percentage change in annual wages by income group for the last 40 years:

From the EPI article: (emphasis by Wrongo)

“The level of earnings inequality that existed in 1979 could have simply continued…to today. Instead, we have seen a growing concentration of earnings at the…very top of the earnings distribution, while the bottom 90% has experienced meager gains. Wages for the top 1% grew more than seven times fast as wages for the bottom 90% between 1979 and 2021. The top 1% now amasses a record share of total earnings, while the bottom 90% share of earnings has hit a historic low.”

Slow growth in real (inflation-adjusted) hourly wages for the vast majority of workers has been a defining feature of the US labor market for most of the last 40 years. Only for about 10 years after 1979 did workers see consistent positive wage growth: in the tight labor market of the late 1990s and in the five years prior to the pre-pandemic labor market peak in 2019.

While some low-wage workers have experienced high wage gains after America reopened from Covid, the truth is that most haven’t even kept pace with where they were in 1979.

Today is Martin Luther King Day in America. We mostly celebrate Dr. King’s birth rather than acknowledging what he was arguing for when he was killed. His focus at the end was on both economic justice, and voting rights. Perhaps more than any other leader in American history, King could see the different strands of political and social injustice. He was able to tie them together to form a coherent narrative, one that was capable of leveraging dissent for concrete policy change.

Those were the enduring lessons of Dr. King’s life.

There’s less than three months between the observance of King’s birthday and his death. The way each is recognized by politicians reveals the contradictions in his legacy. Most politicians extol the virtues of racial equality, while most ignore King’s criticisms of economic injustice.

From his April 30th speech in Atlanta: (emphasis by the Wrongologist)

“A true revolution of values will…look uneasily on the glaring contrast of poverty and wealth with righteous indignation. It will look across the seas and see individual capitalists of the West investing huge sums of money in Asia, Africa, and South America, only to take the profits out with no concern for the social betterment of the countries, and say, ‘This is not just’…this business of…injecting poisonous drugs of hate into the veins of peoples normally humane….cannot be reconciled with wisdom, justice, and love. A nation that continues year after year to spend more money on military defense
than on programs of social uplift is approaching spiritual death.”

As the EPI report above shows, over the last four decades, policies promoted by the GOP have reduced the opportunities for most workers to achieve wage growth at rate similar to the top 10%.

Time to wake up America! Develop your narrative, one that fights against economic injustice and for voting rights. Add any other issues that are pertinent to you. Take your narrative to your neighbors. Then work to get out the vote.

To help you wake up, watch “People Get Ready”, a Curtis Mayfield tune that foretold the turning tide in the battle for racial equality. It topped the R&B charts after its 1965 release by The Impressions. It’s been covered by scores of artists, including Bob Dylan, Bruce Springsteen and by Rod Stewart and the late Jeff Beck, who died last week. Early in their careers, in 1969, Beck and Stewart performed together in the Jeff Beck Group. Here’s Beck’s official music video for “People Get Ready” featuring Rod Stewart:

Jeff Beck was one of one as a guitarist. There was no one better. He had the mindset of a jazz musician playing blues rock. His guitar sound wasn’t anything like traditional jazz guitar. He didn’t cut his teeth playing the old jazz standards, but he could improvise something fresh every time. OTOH, Wrongo didn’t love Beck the recording artist.

Rod Stewart has a secret hobby; he builds model trains. He would take his trains on tour with him, requesting an extra room so he could work on them while staying in hotels. Stewart recently unveiled his 1,500 square-foot replica of post-war Chicago and New York railway systems that took him 23 years to build.

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Monday Wake Up Call – December 19, 2022

The Daily Escape:

Skiing Santas at Sunday River Ski Resort, Newry, ME – Dec. 11, 202, AP Photo/Robert F. Bukat

(As we cruise towards Christmas, each day this week we will feature pictures of Santas and/or Christmas trees, along with loopy songs vaguely representative of the season. You’ve been warned.)

The war in Ukraine has once again reminded policy makers of the importance logistics plays in winning on the battlefield. In reading a Defense One post by Marcus Weisgerber, Wrongo learned that demand for weapons by Ukraine — combined with worker shortages, inflation, and other factors — has made it more difficult and more expensive to produce the most in-demand weapons. This describes the current problem:

“The US has sent 13 years’ worth of Stinger production and five years’ worth of Javelin production to Ukraine…”

That’s in 10 months. And a newsletter by CDR Salamander states the overall problem clearly:

“The Ukrainians would have run out of weapons and ammunition months ago if the former Warsaw Pact nations in NATO didn’t empty what inventory they had left of Soviet Era weaponry and the rest of NATO led by the USA didn’t wander the world trying to soak up as much available inventory money could buy. That and the rapid adoption of NATO compatible equipment by the Ukrainians is helping, but that has revealed other problems – who says the West has enough to give?”

It is said that amateur warriors deal in tactics while professional soldiers deal in logistics. Both sides in this war are burning through their weapons stockpiles at unsustainable rates even though the war seems (at least momentarily) to be a stalemate. The US and NATO had little in stockpiled weapons even before the Russo-Ukrainian War, able to mount only a very limited or short war as they did (poorly) in Libya. This has been true for the past 20 years. Now those limitations are out in the open.

US defense spending could rise 10% percent in 2023. A good chunk of the increase is meant to rush weapons to Ukrainian forces fighting the Russian invasion, along with replenishing the US missiles, artillery and other weapons sent to Ukraine.

But the sad truth is that it isn’t clear that US or European defense companies, along with the thousands of small businesses that supply them, can meet this increased demand. There are plenty of reasons, including worker shortages and supply-chain disruptions that have been exacerbated by the pandemic and the global current economic outlook.

And the Pentagon was slow to award contracts to rebuild weapon stockpiles. Those that were awarded quickly had to be fast-tracked by top-level Biden administration officials. And it gets worse. Many defense firms are short-staffed relative to what’s needed to fulfill anticipated Pentagon orders to replace weapons sent to Ukraine. Defense One quotes Raytheon Technologies CEO Greg Hayes:

“The real question is, can we actually build it?….They can appropriate all the money, but…if we take months and months and months to get on contract, that’s months and months of delay.”

Raytheon builds the Stingers that are so depleted.  They are willing to ramp up, but it takes investment and lead time to grow production. More from Hayes:

“We want to be prepared to meet the demand that’s out there….I wish I could snap my fingers and then all of a sudden miraculously, throw a building up and train 500 people [to build them], but it just takes time.”

American business calls this “Lean Manufacturing“.

A final illustration of how a simple part that gets caught in the supply chain becomes a big problem: The Eurasian Times reports that German ammunition manufacturers have warned about delays in receiving cotton linters. They are a necessary component for propelling charges from small guns and artillery. All European ammunition producers depend on China for cotton linters, even though it is a commodity produced and traded globally. The time to get them to Europe has tripled to nine months.

Much like we learned during the height of the pandemic, our supply chain is only as strong as its weakest link. Lean Manufacturing and “Just-in-Time” supply chains drove the prices of imported goods through the roof, but increased demand meant that we still had to wait months to get what we ordered. Have we learned anything?

Like during the pandemic, the Russo-Ukrainian War is sending a clear warning to everyone throughout the West: We need to ramp up production, capacity, and have a more reliable – if somewhat less efficient, supply chain to support our military. This is a hard lesson, because unlike jets, missiles and ships, ammunition and expendables are hidden away in bunkers. And if your governments and diplomats do their job, they will never be used.

However, if/when you need them, like right now, the need is existential. Time to wake up America! We can’t depend on capitalism only to solve our supply chain problems. To help you wake up, take a moment to watch the Foo Fighters, who closed 2017’s Christmas episode of Saturday Night Live with an extended performance of “Everlong” that morphs into a pair of seasonal classics:

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