Economics – Page 5 – The Wrongologist

Can Biden Whip Inflation?

The Daily Escape:

Lone Rock, Lake Powell – November 11, 2021 photo by Ron Broad. This shows how dramatic the loss of water has been in the lake. One commenter said it was possible to boat completely around the Rock in July 2021!

The country is facing a series of problems that, if unresolved, point towards a bloodbath for Democrats in the 2022 mid-term election. An ABC poll, released this weekend should be a wake-up call. Here’s a chart showing early mid-term voting preferences by Party:

On a generic ballot, it shows that the Democrats and Republicans have swapped places since 2017. Today the Dems are supported by just 41% of those surveyed, down from 51% in 2017.

It’s true that relying on polls conducted of just 882 registered voters via landlines, as this poll was, isn’t the only thing Democrats should build their political strategy on. But ABC’s result is similar to others.

People are frustrated with the economy, because they see how everything is getting much more expensive, and they’re blaming the government and politicians. They’re not blaming the Federal Reserve’s expansive policies, because the polls never ask about the Fed, and because most people don’t understand how it works.

Consider this: 62% said the Democrats were out of touch with the concerns of most Americans. One dimly positive note was that Americans didn’t rate Republicans much better, with 58% considering them out of touch. The economy was among the key factors: 70% said the economy is in bad shape, up from 58% in the spring. About half blamed Biden for inflation. And his approval rating of handling the economy plunged to 39%, with 55% disapproving.

Biden doesn’t control prices, but try telling that to consumers. People who make a living by selling their labor have seen recent wage increases get eaten up by higher rents, home prices, food prices, gasoline prices and higher new and used-vehicle prices.

But you can always find an economist or a political writer who minimizes an impending political problem. That’s the kind of thing that Wrongo said yesterday was a bad strategy for Democrats. Here’s Dean Baker: (emphasis by Wrongo)

“The October Consumer Price Index data has gotten the inflation hawks into a frenzy. And, there is no doubt it is bad news. The overall index was up 0.9% in the month, while the core index, which excludes food and energy, rose by 0.6%. Over the last year, they are up 6.2% and 4.6%, respectively. This eats into purchasing power, leaving people able to buy less with their paychecks or Social Security benefits….While the stretch of high inflation has gone on much longer than many of us anticipated, there are still good reasons for thinking that inflation will slow sharply in the months ahead.”

Needless to say, if inflation continues at rates not seen since the 1970s until the 2022 election, no voter will see it as transitory and that won’t be good for Democrats.

Biden has signed his $1 trillion infrastructure bill, hoping that the legislation will help jump-start a Democratic political recovery. His infrastructure plan may not add to inflation, but inflation in the most important things that consumers either notice and care about – food, gasoline, cars, and houses – doesn’t seem transient.

Biden has a few tools at his disposal. He’s doing what he should to address the microeconomic aspects of inflation: trying to increase capacity at ports, expanding microchip production and he’s considering a release of raw materials from the National Defense Stockpile. The biggest lever he hasn’t pulled is a tariff reduction, especially on goods from China.

Richard Nixon instituted price controls in 1971, They were the first and only peacetime wage and price controls in US history. After a 90-day freeze, increases would have to be approved by a “Pay Board” and a “Price Commission,” with an eye towards lifting controls, conveniently for Tricky Dick, after the 1972 election. His action led to greater inflation, not something any of us should want to see.

From Jason Furman in the WSJ:

“Ultimately inflation is a macroeconomic problem. It’s the Fed’s job to keep it under control….Policy makers at the Fed need to recognize that tools like asset purchases can’t solve the supply-side problems constraining US labor markets and output. They have a dual mandate. They have to take inflation into account even if the economy isn’t yet at maximum employment.”

Biden can pick a different Fed Chair, and there’s an additional vacant seat on the Fed’s board.

Biden can also be jawboning America’s CEOs about gas and food prices. Otherwise, he has no cards to play. All he can do is wait for supply and demand to turn back toward equilibrium, and hope that it happens in the next six months. If inflation turns around, Biden will get some credit.

If it doesn’t, you could see President Trump waddle back into the White House in 2024.

Saturday Soother – October 16, 2021

The Daily Escape:

Sunset paints a Truro barn and marsh – October 2021 iPhone photo by Wrongo

Following on Wrongo’s article about the missing people who economists say should be looking for jobs in what is otherwise a vibrant economy, comes the news that there is a huge and sustained explosion of new businesses being launched in America.

This means that many individuals are striking out on their own. From Wolf Street:

“New business formations, based on applications for an Employer Identification Number (EIN) with the IRS, exploded in June and July last year…then this year exploded again and remained far above the historical range.”

In September 2021, 431,381 EIN applications were filed with the IRS, 49% above September 2019, according to data released by the Census Bureau. For the first nine months of the year, EIN applications were up by 58% from the same period in 2019. Here’s a chart:

These are monthly totals! We seem to be forming a ton of start-up companies since 2020, way above the historical trend. These new businesses surely must reduce the total number of people looking for work as reported by the Department of Labor.

More from Wolf Street: (parenthesis and brackets by Wrongo)

“…the historic high level of new business formations every month is part of the bizarre puzzle that this economy has become: The strange phenomenon of labor shortages, the enormous stimulus payments that went out, the federal unemployment payments that are now ending, the $800 billion in forgivable PPP loans (Paycheck Protection Program loans) that went [out] earlier this year, the 3.2 million people who still haven’t returned to the labor force…”

Some commentators felt that last year, EIN applications were spiking because fraudsters were creating businesses to try to get their hands on those forgivable PPP loans. But a quick check would have shown that an EIN wasn’t required for PPP loans. Further, businesses had to have been “in business” for some time to qualify. And while the PPP ended in May, business applications have continued to be strong every month since then.

Most new businesses create at least one job for the owner and maybe a few for other people, but most never become large employers. Even though many new businesses eventually fail, the number of new business formations seems to be large enough to explain the puzzling numbers on job participation rates, unemployment and job quits that we’ve been seeing since the pandemic started.

That’s something to think about.

It’s Saturday, and time to kick back and forget about whether Steve Bannon will ever see justice. It’s time to spend a few moments contemplating Wrongo’s Saturday Soother.

Here at our temporary (and rented) global headquarters for the Mansion of Wrong in Truro on Cape Cod, we’ve had a busy week. Several family members live on the Cape, and we’ve had family from off-Cape come and stay for a few nights, so it’s been a busy and rewarding time with family.

But even Wrongo needs some downtime, so let’s all settle back and grab a comfy chair by a big window. Now, listen to Fauré’s “Cantique de Jean Racine” performed with a large choir that is conducted by Sofi Jeannin, and recorded in October 2016, at the Auditorium of Radio France.

This composition based on Jean Racine’s poem, won Fauré a prize before he was twenty. If you watch the video, the choir is a perfect mix of adult and young voices.

The Coming Wealth Transfer

The Daily Escape:

Storm at North Clear Creek Falls, CO – April 2021 photo by mattbnet

Our current economic worries tend to overlook that Baby Boomers are retiring in increasing numbers, and quite a few are beginning to die. They’re leaving a giant pile of money to their heirs, what the media have called “the greatest wealth transfer” in modern history. OTOH, we should remember that it will probably cost $500,000 to pay the projected private college tuition in 20 years.

From the WSJ: (emphasis by Wrongo)

“Baby boomers and older Americans have spent decades accumulating an enormous stockpile of money. At the end of this year’s first quarter, Americans aged 70 and above had a net worth of nearly $35 trillion….That amounts to 27% of all US wealth, up from 20% three decades ago. Their wealth is equal to 157% of US gross domestic product, more than double the proportion 30 years ago…”

It gets better: In a 2019 report, Cerulli Associates projected that older generations would hand down some $70 trillion between 2018 and 2042. Roughly $61 trillion will go to their Millennial and Gen X heirs, with the balance going to philanthropy.

Millennials, (at least, some Millennials) are one day soon going to be a lot richer than they are today. A key question is whether this new-found wealth will change them. Looking at Millennials’ voting patterns, they gave Biden about 60% of their ballots in 2020, while voters over 45 gave him 48%. In Blue America, it was even more striking. Voters under 40 voted overwhelmingly for Bernie Sanders in both of his Democratic nomination bids.

Turning to wealth, Millennials’ have relatively meager financial assets. The St. Louis Fed calculated that in 2016:

“…the typical older Millennial family was 34% poorer than we would have expected”

Millennials’ home ownership rate trails their predecessors at the same point in their life cycles, with roughly half of millennials still paying rent. Such statistics have led a few headline writers to declare Millennials “one of the poorest generations ever.”

Many in politics think that the Millennials will remain political lefties and that they will soon be the most politically influential generation. But if Millennials do retain their leftist leanings, it won’t be because of their lack of wealth. When the Boomers finish their wealth transfer, Millennials will go from the poorest to “the richest generation in human history.”

Will this change their politics to be more like those of their Boomer parents? Will the family “trickle down” of wealth redraw the lines in American politics? That’s doubtful. The impending wealth transfer will be regressive: A Federal Reserve study of intergenerational transfers in the US found that Americans in the top 10% of the income distribution were twice as likely to receive an inheritance as those in the bottom 50%.

But even though the wealth transfer is concentrated at the top of the pyramid, some of it will reach a broader base. Capitol One estimates that more than half of the estates that will transfer over the next 30 years will go to low or middle-income households.

That means a substantial group of lower income Millennials are going to get some money from their parents.

About 48% of Millennials own their homes. Those who secured homeownership early have generally seen their net worth rise: Between 2015 and 2020, the median sales price for a US house increased by 14.5%. And of course, one Millennial’s rising home equity is another’s rising rent.

College-educated Millennials are much closer to matching the Boomers’ rate of saving than non-college-educated Millennials. And the racial divide in Millennial wealth is huge. White Millennials lag White Boomers in wealth accumulation by just 5%. Black Millennials, meanwhile, own 52% less wealth than previous generations of Black Americans had accrued by their age. Worse, Black Millennials have been losing ground on their predecessors in recent years.

The “great wealth transfer” will exacerbate all these inequities. Wealthy, White Millennials will claim a massively disproportionate share of the impending inheritances and gifts. And as familial wealth is transferred, the Millennial rich and upper-middle class will be the wealthiest generation that America has ever known. While working-class Millennials, meanwhile, are poised to enjoy less economic security than their parents, as their wages fail to keep pace with the rising costs of housing and health care.

Wrongo’s and Ms. Right’s kids stand to inherit a significant chunk of change if we were to die today. The missing piece of this analysis is that we don’t know how long we will live, and what long term care will cost to keep us going. That may eat up a significant amount of the money we’ve saved in our lifetime.

But let’s hope that whether it’s a little money or a lot, it won’t stop them from fighting for universal health care and an expanded right to vote.

Let’s also hope that they won’t suddenly start voting for a death cult peopled by morons and Ted Cruz.

Yellen Says Higher Interest Rates Are OK

The Daily Escape:

La Jolla, CA – photo by Russ Harris photography

Janet Yellen made news for a second time, announcing on Sunday, in an interview with Bloomberg, that higher interest rates would be a “plus” for America. She probably has a fairly good idea of how the Federal Reserve is thinking, since she was its Chair prior to becoming Treasury Secretary.

The issue in her interview was whether inflation would continue growing if Biden’s infrastructure bill is passed, and we spend an additional $4 trillion over the next 10 years. Yellen said that it wouldn’t create enough inflation to cause economic concern. She said that the current spurt in prices powered in part by the Covid stimulus, is just temporary, and would fade next year.

But Yellen also said that if current price increases turned out not to be temporary, and it triggered more persistent inflation, the concomitant higher interest rates wouldn’t be a bad thing:

“We’ve been fighting inflation that’s too low and interest rates that are too low now for a decade….We want them to go back to a normal interest rate environment, and if this helps a little bit to alleviate things then that’s not a bad thing – that’s a good thing.”

Current Fed Chair Jerome Powell must surely see this as political cover for any near-term rate hikes, but opinions differ today on whether we’re in for a new run of inflation. We have some data that’s worrisome. Economic theory explains why we probably should be worried. And yet, we have plausible-sounding explanations as to why things are actually okay.

The younger generations may have trouble believing how dark things seemed in 1979 when President Carter appointed Paul Volcker Fed chairman. Some of us remember inflation that hit 14% in 1980. Unemployment trended up to 9.7% in 1982. Oil prices had jumped off the charts.

Volcker took dramatic steps to rein in the runaway inflation by tightening the money supply, which drove the Prime Rate to 21%. His actions led to not one, but two recessions before prices finally stabilized.

Nobody wants to see that type of inflation recur now, but low interest rates have increased wealth inequality in the US. Soaring stock and housing prices are a direct consequence of interest rates that remain reliably low. When this happens, people can borrow money for less than they can make by investing, and newly printed dollars that continue to pour into the markets ensure that prices will continue to rise.

And this low-rate scenario benefits those who already have lots of stock and real estate.

How could Elon Musk make $142 billion in 2020 when total revenues (not profits) at Tesla and SpaceX were less than half that number? Share prices in both companies rose with demand from investors with too much cash in their pockets. The growth in Musk’s fortune is based on the inflated share prices of both firms.

Yellen’s underlying message is that if the Fed maintains its low interest rate policy, more cheap money will flow into the pockets of people who really don’t need it. She’s correct when she says rates have been too low for a decade. It’s created an asset bubble, particularly in stocks and real estate. Today’s prices are no longer grounded in reality.

As for how to unwind the bubble? Good luck: Very few people will be happy if the stock market drops, or if the value of their home drops, say, just before retirement.

And like all things, inflation is political. House Republicans are working to undermine Biden’s economic agenda by zeroing in on voters’ latent fear of inflation. They are circulating a memo with the subject line: “Tie Biden Agenda to Inflation.” It tells members to “explain to voters how inflation is Democrats’ hidden tax on the Middle Class.”

The GOP is attempting to stir up fear of an impending economic downturn just as businesses are beginning to reopen after a year of being impeded by Coronavirus restrictions. They’re also saying that taxpayer dollars being put toward Covid relief and unemployment benefits will tank the economy.

The GOP is also using a WaPo op-ed by Larry Summers. Summers was Clinton’s Treasury secretary, and he was a former director of the National Economic Council for Obama. The article warns of the risk of sharply rising inflation expectations.

Ultimately, we’ll see if the inflation scare-mongering by Larry Summers is real.

What should we believe about inflation and interest rates? It doesn’t matter what we believe. What matters is what the market thinks. And if the market suddenly stops believing the explanation as to why these inflationary pressures are temporary, we’ll see rates rise bigly.

Saturday Soother – April 3, 2021

The Daily Escape:

Spring snow in Grand Canyon NP – March 2021 photo by indieaz

Here’s some good news amidst all of the negative DC political punditry. US manufacturing activity hit its highest level in 37 years last month. Manufacturing’s biggest problem right now is the same one that Wrongo’s new treadmill company had: making products fast enough to satisfy all of their current demand.

A little more detail: The overall ISM manufacturing index rose from 60.8 to 64.7, the highest reading since 1984. The new orders sub-index, an important leading indicator, also rose from 64.8 to 68.0, the highest reading since 2004.

The Economist says that CEO worries about weak demand for products has been replaced by fear of supply bottlenecks, from worldwide chip shortages to the freak traffic jam in the Suez Canal. They quote Chad Moutray, chief economist of the National Association of Manufacturers:

“…90% of members surveyed recently by the trade association were bullish about their businesses’ outlook for the next 12 months, the highest in two years. Two-thirds foresee revenues returning to pre-pandemic levels by the end of the year, as new orders, production and employment all pick up.”

The optimism is being backed by investment. Intel announced that it would spend $20 billion on two factories in Arizona. More from The Economist:

“Scott Davis of Melius, a research firm, reckons that capital expenditure at several dozen leading American industrial companies he follows, including icons such as Caterpillar and Stanley Black & Decker, are set to rise by 20% on average this year.”

Goldman Sachs forecasts that capital spending at S&P 500 firms will reach $740 billion this year, slightly above the $731 billion in 2019. For the first time in a while, Goldman Sachs says big American firms will spend more on capital goods, research and development than on dividends and share buy-backs.

Three factors are driving this positive news. First, America will be largely vaccinated by the summer, so the level of those unemployed should continue to drop, like it did last month, when 916,000 new jobs were added. This means that Americans will have more money to spend on cars, electronics and other goods. It’s not all roses, manufacturing jobs increased by 53,000. But, since February 2020, manufacturing is still down 515,000 jobs, or 4% of the total. As of now, over 60% of the total manufacturing jobs loss of 10.6% has been regained.

Second, much of the Biden infrastructure plan’s spending will wind up in the hands of private companies who will be performing all of that new infrastructure building. That’s the kind of trickle-down that causes economic growth.

Third, companies went to school on the impacts of tight, non-resilient supply chains. Some were surprised that bad Texas weather could slow production. Or, that Covid could stop their orders for PPE, and strain port capacity in Los Angeles. Stranded container ships in the Middle East and geopolitical tensions with China are making CEOs think more seriously about building networks that can withstand such shocks.

In the short term, this involves stockpiling components. In the longer run they are looking to bring production closer to home, which would also bolster American suppliers. More from the Economist:

“General Motors is hoping to build…a second battery factory in America. Intel’s planned Arizona [factories]…are a way both to guarantee deliveries of chips to customers in Detroit and beyond, and to “near-shore” the semiconductor giant’s own production.”

If people can just hang in there a little bit longer, we might just be able to avoid a whole lot more Covid deaths, and then have a very good year. Fingers crossed.

Time to put down your phones and settle in for a Saturday Soother, where we spend a few minutes escaping from the perils of the world. Here at the Mansion of Wrong, we had snow flurries on Friday, and the temperature barely got into the high 30s. That means a break from more spring yard work for a few days.

Let’s start by brewing up a yuuge cup of Dirty South – (As Dark As We Will Go) coffee ($14.99/12 oz.) from Atlanta’s Peach Coffee Roasters. Given the voting repression in Georgia, it seems certain that the outlook in the state for free and fair elections is substantially darker than this coffee.

Baseball’s opening day was Thursday. Some games were cancelled, while some played in snowstorms. When baseball has both indoor stadiums along with many in the warmer south and west, why are teams playing outdoors in 40°weather?

And, in honor of opening day, take a seat by a window and listen to “Field of Dreams” from the movie, performed live at the Tenerife International Film Music Festival. The music is composed by James Horner. The orchestra is conducted by Diego Navarro, artistic director of the festival. It is performed by the Tenerife Symphony Orchestra. This is a very nice way to remember an iconic film:

Remember the line: “Is this heaven? No, it’s Iowa.”

Saturday Soother – March 27, 2021

The Daily Escape:

Stinson Beach, Marin County, CA – photo by Merrill Dodd

A single-point-of-failure in the global economy failed last week when the Ever Given, one of the world’s largest container ships, ran aground in the Suez Canal shutting down traffic in both directions. It’s now stuck sideways in the Canal.

And the Suez Canal isn’t just any waterway; it links the factories of Asia to the customers of Europe. It’s also a major conduit for crude oil. The WaPo reports that 12% of the world’s cargo travels through the Suez Canal. That this vast flow of cargo could come to a halt because a gust of wind blew a ship off course makes the brittleness of our global system of trade apparent.

That one mishap could spread chaos from Los Angeles to Rotterdam to Shanghai underscores the extent to which commerce today is tightly intertwined with the global supply chain. From the WaPo:

“By Friday, more than 160 ships were anchored in the Mediterranean and the Red seas. Egyptian officials appeared confident the canal could reopen within days, while salvage engineers cautioned that freeing the stuck ship might take weeks.”

A delay of two weeks could strand at sea one-fourth of the supply of containers that would normally be in European ports.

The NYT reports that a surge of Covid-related goods orders for items like exercise equipment has exhausted the supply of available containers at ports in China. The cost of shipping a container from Asia to North America has more than doubled since November. And on the US west coast, container unloading has been slowed as dockworkers and truck drivers were infected with Covid-19 or forced to stay home to attend to children who are out of school.

For decades, economists have lectured us about the virtues of “economic efficiency”. But, as the initially poor response of the global supply chain to the Covid-19 showed, economic resilience is also particularly important. We couldn’t get PPE for essential workers because we followed just-in-time inventory management and relied on China as our primary supplier. We’ve also seen shortages of computer chips for cars.

From the NYT: (brackets by Wrongo)

“It [just-in-time] has also yielded a bonanza for corporate executives and other shareholders: Money not spent filling warehouses with unneeded auto parts is, at least in part, money that can be given to shareholders in the form of dividends.”

Once again, we’re learning that the neo-liberal economic solution fails the people. So the economists and the CEOs have gotten it wrong. And the canal blockage, like the PPE shortages, show that they can be spectacularly wrong sometimes. More from the WaPo:

“And the grounding of the Ever Given has exposed how complex ownership structures in global shipping make it difficult to hold anyone accountable: The Ever Given is operated by Taiwan-based shipping company Evergreen Maritime. Evergreen charters the ship from a Japanese firm; a Dubai-based company acts as the agent for the ship in ports; and the ship flies the flag of Panama.”

So, accidents will happen, and they’re nobody’s fault.

The challenges presented by the Suez blockage come directly from the ‘just-in-time’ mantra. While a crisis cannot be predicted, it can be prepared for. Corporations and nations need to stop sticking their head in the sand about long-term planning, and get back to doing what the MBA’s call “resilience planning.”

Resilience planning’s been devalued by our push for short-term profits and stock market gains. If you doubt that, read about the massive cyberhack of US government agencies and major corporations, perhaps the biggest in history, that was discovered in early December by the security firm FireEye. Much of that was preventable by better management and planning.

Globalization isn’t our only problem. Add to it our short-term mindset which, when combined with greed, has endangered America.

It is unclear how long it will take for the Ever Given to be refloated and the flow of the canal traffic can resume. CNN reports that it may be freed over the weekend. But to do that, more than this level of effort will be required:

Credit: Reuters

As the clock ticks, Egypt isn’t collecting tolls for ships’ passage. And many ships, including some operated by Evergreen, have begun to re-route around the Cape of Good Hope. Multiple shipping firms have contacted the US Navy for protection against pirates on their rerouted trip, according to the Financial Times (paywalled).

Enough of the world’s problems for now. It’s time for our Saturday Soother, when we take a break and either watch the Sweet Sixteen if so inclined, or do more spring yardwork, since today is supposed to be the better of the weekend days.

Before pulling on the gloves, let’s take a few moments and listen to “Cloudburst” by George Winston, from his album, “Plains”. The video is of springtime in the northern Idaho plains. It’s a meditation on a few of our feathered friends in spring:

Japan’s Botched Response to Fukushima

The Daily Escape:

Winter’s end, NH – photo by Betsy Zimmerli

Today marks ten years since a tsunami rolled over the Fukushima Dai-ichi nuclear power plant on Honshu, Japan’s main island. The disaster was bad enough that the event is still known as 3/11 in Japan.

The tsunami and the earthquake that triggered it killed nearly 20,000 people, destroyed over 100,000 homes, and threw Japan into turmoil. The estimated remediation costs so far are about $300 billion, larger than that for any other natural disaster the world has seen.

We remember it largely for the core melt-down at the nuclear plant. That was caused by poor design: The tsunami easily topped the plant’s sea walls, flooding the underground bunkers that contained its emergency generators. The earthquake had cut any outside source of electricity, meaning that water couldn’t be pumped in to cool the reactor cores. The nuclear fuel began to meltdown.

In 2011, nuclear power provided about one-third of Japan’s electricity. Today, only four of 33 commercial nuclear reactors are operating, and only nine have met safety standards set after the disaster.

Across Japan, 53% are opposed to restarting the nuclear power plants. Naturally, that number is worse for people who opted not to return to Fukushima: just 16% said they were in favor of further restarts.

Overall, the Japanese think that both Fukushima plant’s operator, the Tokyo Electric Power Company (Tepco), and the government have lied to them. At the time of the disaster, a botched response cost then prime minister Kan his job, opening the way for Shinzo Abe.

Tepco didn’t even confirm that the meltdowns had occurred until two months after the disaster. At the time, the government and Tepco said it was a natural disaster, but a 2012 inquiry found that it was a “profoundly man-made disaster”, in part due to the chummy relationship between the Japanese regulator and Tepco.

Credibility hasn’t improved. There are 1,000 metal tanks that store contaminated water used to cool the still-hot molten cores of the three reactors. The tanks contain nearly 1.25 million tons of spent cooling water, that’s still radioactive. Tepco and the government are running out of space to build more tanks, so they want to gradually release the water into the sea (after it is decontaminated and diluted) over the next 30 years.

However, in 2018, Tepco acknowledged that 70% of the water stored at the site contained extremely dangerous radioactive contaminants such as strontium-90, rather than just the tritium Tepco said it contained, another huge black eye for the state’s and Tepco’s credibility.

Tritium is a naturally occurring isotope of hydrogen that isn’t considered dangerous to human health. It’s routinely released into the ocean by nuclear power plants worldwide.

So, just like in the US state of Texas, Japan has favored the utilities over public health, and still is doing so today. This is important since Japan’s new prime minister, Yoshihide Suga, has committed to carbon neutrality by 2050. Japan’s renewable energy sector currently produces nearly 24% of its electric needs, but the government thinks that nuclear’s contribution will need to rise from today’s 6% to 20% within 10 years to meet the goal.

But growing nuclear’s contribution to Japan’s energy needs will require rebuilding public trust in nuclear energy. There needs to be more straight talk about how to expand safely, along with clear thinking about the very cozy government-business relationship.

Japan’s handling of the immediate crisis and the long-term solutions makes any discussion of adding additional nuclear power difficult. A survey by Edelman, a public-relations firm, found that the percentage of Japanese expressing trust in their government plunged from 51% before the disaster to 25% after. It now stands at 37%. As Azby Brown of Safecast, a Tokyo NGO says:

“Trust is not a renewable resource. Once you lose it, that’s it.”

Nuclear’s weakness is that it’s expensive and dangerous, which makes new nuclear power a hard sell. It is increasingly being deployed in autocratic nations; exactly where careful regulation is least likely. Russia is exporting nuclear power plants.

China’s nuclear plants are growing as part of an effort to reduce reliance on coal. China produced four times as much nuclear energy in 2019 as it did in 2011 and has 16 reactors under construction.

Countries wanting new nuclear plants now look to China and Russia as suppliers.

Skeptical people always ask nuclear power utilities one simple question: “What will you do with the radioactive waste?” Radioactive waste has always been, and remains, an intractable problem.

And now here we are, wanting zero-emissions power. But we’re faced with the intractable problems of what will resolve the after-effects of the Fukushima disaster, and how to store the radioactive waste from other power plants.

Are the Wrong People Manipulating the Market?

The Daily Escape

Green River covered bridge in Guildford, VT photo by jackalatch

Out of nowhere, we’re all hearing about “GameStop”. From The NYT:

“Traders on the Reddit message board, r/wallstreetbets, a community known for irreverent market discussions, made GameStop their cause du jour and rushed to buy out-of-the-money GameStop options.”

GameStop (GME) is a struggling, mid-size retailer stuck in a legacy business. They sell physical video games in a world where you buy and play them online. The financial fundamentals for GameStop suggest that its price should be below $20. It’s a real company, with about 53,000 employees, but it’s not worth anything close to its current valuation. It began the year at $19, got as high as $350, and is currently dropping like a stone, at about $196 right now.

Here’s how the r/wallstreetbets crowd made it happen: A hedge fund shorted GME — betting the price would go down — and thousands of retail investors banded together on Reddit to buy the stock, driving the price up. That caused the hedge funds to lose money, since they had to buy the stock for more than they had sold it for.

The r/wallstreetbets crowd numbers about 2 million subscribers. They realized that GME’s float (the number of shares physically available to trade) was very small, small enough that any large order or volume of buy orders would greatly affect its share price.

They knew that GME’s stock could be driven up to the point where the hedge funds that shorted the stock would have to panic-buy them to cover their short positions and contain their losses. They also understood that this could seriously damage those hedge funds.

This is known as a short squeeze, and Wall Street players do it all the time. What’s different is that a bunch of day traders got in on the action. A well-executed short squeeze is a thing of beauty, and in this case, it’s out in the open, and probably legal.

No one seems to be managing this effort. It’s a self-organized campaign with people using message boards to communicate with each other. What’s interesting is that this time, it’s the institutions that were caught with their pants down.

R/wallstreetbets is drawing on techniques used during the 2016 presidential election. Over the course of that campaign, a loosely organized community of alt-right meme pushers and their followers, located on sites like 4chan and Reddit, used social media to barrage Hillary Clinton with an endless flow of memes targeting her supposed inauthenticity and corruption.

They exploited social media to disrupt the normal workings of the US political system, just like these traders are doing this week to the pros on Wall Street. Interestingly, the traders on r/wallstreetbets, describe themselves as “Like 4chan found a Bloomberg Terminal”. It’s a remarkable testament to the internet’s ability to facilitate collective action.

From Bloomberg:

“This is all fascinating. In the space of 12 years, the role of the short-seller has turned on its head. Back in 2008, it was the shorts who upset the status quo, revealed what was rotten in the state of Wall Street, and brought down the big shots. They were even the heroes of a big movie. It was the Wall Streeters who attacked them.”

Now, short-selling hedge funds are seen as part of a corrupt establishment (as they should). And there is a deep generational divide: those unable to own their own home, who have student debt up the wazoo, and are forced to plan retirement without a pension have a stunningly unfair deal, compared to those of an older generation. That percolates into anger, in this case, partly directed at hedge funds.

Anger, at least as much as greed, has the capacity to make us throw caution to the winds. Many of us have a lot to be angry about. It’s impossible to foresee the consequences of similar angry bubbles driven by social media.

It also made a few titans of Wall Street angry. Here’s Leon Cooperman:

This is hilarious! Short positions get squeezed all the time, but the fact that he’s losing to a bunch of losers, who are “sitting at home getting their checks from the government, trading their stocks.” is unacceptable!

For God’s sake these people didn’t even go to Wharton!

And early on Thursday, Wall Street got a measure of revenge, when the trading platform Robin Hood suspended trading in GME. More than half of all Robinhood users own at least some GameStop stock.

No shortage of irony when you’re named Robin Hood, but you protect the rich by blocking everyday citizens from trading.

It’s almost as if capitalism is a tyrannical system arranged to benefit a select few.

2020 Election Shows Our Economic Divide Worse Than Our Political Divide

The Daily Escape:

Faery Falls near Mt. Shasta CA – November 2020 photo by Gary German

(There will be zero to light posting for the rest of the week. We all need a break from the Turkey of an administration that we’ve endured for the past four years, and this Turkey of a Year.)

The presidential transition is officially underway, nearly three weeks after the election. Despite all of our anxious uncertainty, with almost all the votes counted, it’s safe to say the Biden vs. Trump contest wasn’t close. The Electoral College appears to be holding at: Biden 306 vs. Trump 232, a 57% to 43% win.

There are apparently still about 1.3 million votes to count, mostly in NY. Imagine the drama if NY was the state that winning the election hinged on – we’d all be too drunk to carve the turkey!

If we extrapolate the current margins to the votes that remain, it will look like this: The total Biden vote: 80.6 million; the total Trump vote: 74.4 million; the total minor party vote: 3 million, and the total national vote: 158 million. That means nationally, turnout was about 66%, up from 59% in 2016 and that Biden’s popular vote margin will be 51% to 47%.

There was a more interesting margin of victory: Brookings Metro, part of the Brookings Institution, graphed the roughly 500 counties Biden won against the roughly 2,500 counties Trump won, comparing them by economic output. Here is their map of America’s voting, shown as a chart of relative economic output:

This is pictured as a typical Red vs. Blue breakdown, but it’s not about voting. It’s about that portion of the US economy that voted for the two candidates. Seventy percent of America’s economy is generated in the 500 counties Biden won; the 2,500 counties won by Trump produce just 29%.

Back in 2016, Brookings found that the 2,584 counties Trump won generated 36% of the country’s economic output, while the 472 counties won by Hillary Clinton were about 64% of the nation’s economy.

So there are two conclusions: First, the concentration of economic power has increased significantly in the past four years. Second, a real polarization in America is between its two economies.

Blue and Red Americas reflect two very different economies: The Blue one is oriented towards diverse, often college-educated workers in professional and digital services occupations, while the Red leans whiter, less-educated, and more dependent on “traditional” industries, such as mining, manufacturing and farming.

From Brookings Metro: (brackets and emphasis by Wrongo)

“…notably, Biden flipped seven of the nation’s 100 highest-output counties, strengthening the link between these core economic hubs and the Democratic Party. More specifically, Biden flipped half of the 10 most economically significant counties [that] Trump won in 2016, including Phoenix’s Maricopa County; Dallas-Fort Worth’s Tarrant County; Jacksonville, Fla.’s Duval County; Morris County in New Jersey; and Tampa-St. Petersburg, Fla.’s Pinellas County.”

Still, Trump’s winning of 74 million votes suggests that 47% of us continue to feel little connection to the nation’s core economic future. This may also help explain why Democrats lost all of the 27 toss-up races in the House and Senate.

If this pattern of one Party attempting to confront the social and economic challenges of a majority of Americans while the other Party stokes the hostility and indignation of a significant minority being left behind, we’ll continue to have not just gridlock, but sustained harm for people and towns throughout America.

The Brookings map shows that wealth and power are not only concentrated, but that the concentration is continuing to grow.

If we fail to build an economy for all, it’s possible that at some point the inequality will reach an extreme. What plays out after that is anyone’s guess.

Sunday Cartoon Blogging – August 30, 2020

WaPo’s Alexandra Petri restates Trump’s re-election strategy:

“Donald Trump has made America great again, and he will make it great again, again, if reelected, but right now, Joe Biden and the Democrats are ruining America and filling it with chaos. So don’t you think it’s time for a change?”

Her piece is pretty funny, you should read it. The internet is also asking: Why is vigilante murder an appropriate response to property damage, but property damage isn’t an appropriate response to vigilante murder?

We can’t let Trump highjack the narrative away from our other major problems: Consider that stocks in the US hit all-time highs this week, but another 1 million Americans filed for unemployment benefits. This shows that employers continued to eliminate mind-boggling numbers of jobs, five months into the pandemic. One result is that 12 million people have lost employer-sponsored health insurance since February due to losing their jobs.

Our economy remains far worse than it was in January. The Fed’s weekly economic index suggests that the economy is still more deeply depressed than it was at any point during the 2008 financial crisis. The stock market rise is driven by only a small number of technology giants (Apple, Google, Amazon, and others). And the share prices of these companies have very little to do with their current profits, let alone the state of the economy in general.

Trump has not offered a solution for any of this, because he doesn’t need an answer if you think rioting and looting are more important. On to cartoons.

Why the stock market’s up when everything else is down: