Category: Economics

Auto Loan Delinquencies Are Rising

The Daily Escape:

Tetons twilight from Snake River overlook, WY – November 2019 photo by timtamtoosh. Ansel Adams once shot a picture from this spot.

From Wolf Richter:

“Serious auto-loan delinquencies – auto loans that are 90 days or more past due – in the third quarter of 2019, after an amazing trajectory, reached a historic high of $62 billion, according to data from the New York Fed today….”

Total outstanding balances of auto loans and leases in Q3, according to the New York Fed, rose to $1.32 trillion. That $62 billion of seriously delinquent loan balances are what auto lenders, particularly those who specialize in subprime auto loans, are now attempting to either get to current status, or to repossess. If they cannot cure the delinquency, they’re hiring specialized companies to repossess the vehicles, which will then be sold at auction. And the repo business is booming!

The difference between the loan balance and the proceeds from the auction, plus all of the costs involved, are what a lender stands to lose on each delinquent loan.

Worse, lenders are still making new subprime loans, and a portion of those loans will also become delinquent, and a smaller portion of them will default. Wolf helpfully adds a chart that shows today’s level of delinquencies as a percentage of the auto loan portfolio is the same as it was in 2009, when we were in the middle of the Great Recession:

It’s useful to remember that in 2009 and 2010, the US was confronting the worst unemployment crisis since the Great Depression. People were defaulting on their auto loans because they’d lost their jobs. That isn’t the case today, we’re near full employment.

Let’s differentiate “Prime” auto loans and leases from “Subprime”. Prime auto loans have minuscule default rates. Of the total of $1.3 billion in auto loans and leases outstanding, according to Fitch, Prime auto loans currently have a 60-day delinquency rate hovering at a historically low 0.28%.

That means that most of the delinquencies are in the subprime category. In fact Wolf says: (emphasis by Wrongo)

“Of the $1.32 trillion in auto loans outstanding, about 22% are subprime, so about $300 billion. Of them roughly, $62 billion are seriously delinquent…around 20% of all subprime loans outstanding.

We know that the subprime delinquencies are not caused by an employment crisis or, by the brutal recession we endured during the 2008 financial crisis. Employment is still growing, and unemployment claims are near historic lows. But subprime auto loans are defaulting at very high rates.

What’s going on? It’s car dealers’ greed. They’re striving to sell more cars. Customers with a subprime credit rating have already been turned down when they try to buy things on credit. But, when they walk on a car lot, their bad credit rating is magically no longer an issue.

The dealers know they’re sitting ducks, who won’t negotiate. They accept the price, the monthly payment, and the trade-in value. They’re just happy to be in a new car. When they drive off the lot, they have a high monthly payment, which, since they already have trouble making ends meet, will soon be late, or in default.

The subprime car buyers really have little choice if they need a car to get to work. Poor people are smart about doing what it takes to survive: If you don’t have a down payment or a good credit rating, and need a car to keep your job, it means a bad deal is better than no deal.

They take the bad deal because if things get worse, they probably will only lose the car.

The kicker is that auto loans aren’t the loan category with the highest delinquencies. Student loans have even higher delinquencies:

  • Outstanding student debt stood at $1.50 trillion in the third quarter of 2019, an increase of $20 billion from Q2 2019
  • 9% of aggregate student debt was 90+ days delinquent or in default in Q3 2019

The student loans total of about $1.5 trillion, is higher than the $1.32 trillion of auto loans.

The system is broken. Someday soon, the job market will deteriorate. We’ll be back listening to why we should bail out lenders and investors who lend, securitize, and sell these loans to investors who are chasing yeild.

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Monday Wake Up Call – June 3, 2019

The Daily Escape:

Mont Rotui, Moorea, French Polynesia – 2019 iPhone photo by mystackhasoverflowed

Time to wake up America! Donald Trump has proven once again that he has no understanding of economics. From the Wall Street Journal:

“President Trump will award the Presidential Medal of Freedom to economist Arthur Laffer, one of the pioneers of the idea that tax cuts can boost government revenue, the White House said Friday.

Mr. Laffer is one of the founding theorists of supply-side economics, a school of public economics that rose to prominence during the Reagan administration and returned to the fore in the run-up to the 2017 package of tax cuts that Mr. Trump signed into law.

The White House described Mr. Laffer as “one of the most influential economists in American history,” and said his “public service and contributions to economic policy have helped spur prosperity for our Nation.”

Laffer is famous for his drawing his Laffer curve on a napkin, illustrating his idea to Dick Cheney and Donald Rumsfeld at a dinner in 1974. His curve showed that increases in tax rates will eventually cause government tax revenue to decrease, because people will begin to work and earn less. This was then taken to its theoretical limit, saying that tax cuts could pay for themselves by spurring economic growth.

The WSJ calls Laffer “one of the pioneers of the idea that tax cuts can boost government revenue”. Isn’t it weird that the fact that his “idea” has been completely disproven in the real world, doesn’t seem to matter?

Conservative economics is not a branch of economics, it’s a branch of Conservatism.

The Laffer curve was successful at its real purpose, providing a basis to funnel more money to corporations and the rich. Republicans traffic in propaganda, not knowledge.

Last year, Laffer co-wrote a book titled “Trumponomics: Inside the America First Plan to Revive Our Economy.” Laffer’s co-author was Stephen Moore, another conservative who styles himself as an economist. Earlier this year Trump nominated Moore to serve on the Federal Reserve Board of Governors. Moore had to withdraw, amid bipartisan opposition from Senators.

Laffer was the advisor behind the notorious Kansas state income tax plan that ruined the state’s finances. In 2012, Then-Kansas Gov. Sam Brownback passed a package of tax cuts based on Laffer’s ideas. The result was that Kansas lagged behind neighboring states with similar economies in nearly every major category: job creation, unemployment, gross domestic product, and taxes collected.

In 2017, the Kansas legislature repealed the Laffer/Brownback tax cuts. After the repeal, state taxes were boosted by $1.2 billion.

Laffer has spent years preaching his idea that almost any tax cut for businesses and the rich could potentially pay for itself. That idea has become the bankrupt conceptual backbone of the Republican Party’s entire economic theology.

For the 2017 Trump tax cuts, his administration also borrowed Laffer’s idea. Treasury Secretary Steven Mnuchin and National Economic Council Director Larry Kudlow, have repeatedly claimed that the Trump tax cuts will pay for themselves. But, a new report finds that the tax cuts were responsible for less than five percent of the growth that is needed to offset the revenue loss from the Trump tax cuts.

We must point out here that Larry Kudlow does not hold a degree in economics. He was once fired from an investment bank for doing cocaine. Imagine just how much cocaine you’d have to do to get fired on Wall Street in the 1980s.

Trump’s now added the Presidential Medal of Freedom to the American traditions he’s debasing. Other economists awarded the Medal of Freedom include Gary Becker, Milton Friedman, John Kenneth Galbraith and Robert Solow. Laffer can’t carry their briefcases.

There may be no man alive who has done more damage to America’s understanding of taxes and their effect on economic growth than Art Laffer.

Evidently, Trump is grading him on a curve.

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The Long Battle to Reform Capitalism

The Daily Escape:

Poppies in bloom, Southern California – March 2019 photo by Leslie Simis. This annual explosion of color is enhanced this year by extraordinary rainfall

You can call the period in US history from FDR to Nixon “America’s social democratic era”.  A collection of politicians had hammered out the policies and regulations that became FDR’s New Deal in America. It became a period of post-war prosperity during which inequality narrowed, economic growth boomed, and optimism reigned.

The characteristics these policies shared were reciprocity and generosity. For the citizen, there was some form of social support that grew from Social Security in 1935 through the 1960’s with Medicare and Medicaid. In 1970, Nixon implemented the Environmental Protection Agency. There was also a willingness to care for the disadvantaged. Our Marshall Plan and our commitment to foreign aid are both great examples. The success of social democracy in the postwar era weakened the market’s power to act independently within our society.

But then things changed. Our government’s role became a helpmate for corporations, financial institutions, and their lobbyists. The result has been growing inequality between suppliers of capital and the suppliers of labor, even of highly educated labor, like teachers and professors. Economic growth slowed, and we have developed a permanent underclass that seems impervious to repair.

Yesterday, we talked about Economic Dignity, and how focusing on it might help solve inequality. Today’s market economics is partly based on the ideas of Jeremy Bentham and John Stuart Mill, economists who viewed human beings as supreme over the state. As individuals who would make rational decisions to maximize utility. It turned out to be incomplete, since it left out key dimensions of human psychology, like the individual’s need for social esteem or respect. In other words, they ignored economic dignity.

Couple that with Milton Friedman’s idea, that the mission of the firm is to solely maximize profits, that any responsibilities to its employees, consumers, or society should be ignored. Profit maximization at all costs has done great damage to American society. And conservatives and free marketers have married the ideas of these three economists, making the removal of government from markets their primary mission.

But what they call “the market” is really a bundle of regulatory (and non-regulatory) rules by which market activities operate. The mix of free and regulated market activities can be changed, even though capitalists say we shouldn’t change the rules, because it adds uncertainty to markets.

Just because in baseball, three strikes and the batter is out, or with four balls, there is a free pass to first base, doesn’t mean it has to be that way. It could be five strikes and you’re out, or three balls is a walk.

As an example, we tend to fight unemployment with “trickle-down” solutions. That means we bribe the rich and corporations to hire more. But, the bribe is always bigger than the payrolls that are generated.

We could fight unemployment with fiscal policy, such as infrastructure spending by the government. It would employ many, possibly hundreds of thousands, and there would be no need to pay any entity more than was warranted by the tasks at hand.

America needs a return to what economist Paul Collier calls the “cornerstones of belonging”— family, workplace, and nation, all of which are threatened by today’s market driven capitalism. That means capitalism has to return to the ethics of the New Deal. Joseph Stiglitz, Nobel laureate in economics, says: (parenthesis and emphasis by Wrongo)

Over the past half-century, Chicago School economists, (including Milton Friedman) acting on the assumption that markets are generally competitive, narrowed the focus of competition policy solely to economic efficiency, rather than broader concerns about power and inequality. The irony is that this assumption became dominant in policymaking circles just when economists were beginning to reveal its flaws.

Stiglitz says we need the same resolve fighting for an increase in corporate competition that the corporations have demonstrated in their fight against it. We’ll need new policies to manage capitalism.

It means higher taxes on profits.

It means paying workers more.

It means rebuilding public assets like roads.

It means teaching students to be both technically capable, and grounded in their values.

Speaking of needing to teach our students, if you think we’re not in a rigged game, think about one “USC student” who is part of the admissions fraud scandal, Olivia Jade Giannulli. She was on the yacht of the Chairman of USC’s Board of Trustees when she heard about it.

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Monday Wake Up Call – December 3, 2018

The Daily Escape:

Boston Public Library – photo by joethommas

The NYT’s David Brooks:

We’re enjoying one of the best economies of our lifetime. The GDP is growing at about 3.5% a year, which is about a point faster than many experts thought possible. We’re in the middle of the second-longest recovery in American history, and if it lasts for another eight months it will be the longest ever.

So everything’s good, no? Not really. More from Brooks: (emphasis by Wrongo)

Researchers with the Gallup-Sharecare Well-Being Index interviewed 160,000 adults in 2017 to ask about their financial security, social relationships, sense of purpose and connectedness to community. Last year turned out to be the worst year for well-being of any since the study began 10 years ago.

And people’s faith in capitalism has declined, especially among the young. Only 45% of those between 18 and 29 see capitalism positively, a lower rate than in 2010.

Brooks’ conclusion? It’s not the economy, we all just need more community connections.

His is another attempt to dress up the now-failing neoliberal economics. Things look good today from some perspectives, but our economy is crushingly cruel from others. Brooks seems to think that millions of Americans are struggling to pay their rent or mortgage, education loans, health care insurance or buy groceries because they have failed to master the art of networking in their neighborhoods.

Alienation is behind the rise of Trumpism, and the rise of populism across the world. In that sense, Brooks is correct, but the leading cause of people’s alienation is economic inequality.

And the leading cause of economic inequality is corporate America’s free rein, supported by their helpmates in Washington. Last week, Wrongo wrote about the exceptional market concentration that has taken place in the US in the past few years. He suggested America needs a revitalized anti-trust initiative. In The Myth of Capitalism, authors Jonathan Tepper and Denise Hearns write:

Capitalism without competition is not capitalism.

For decades, most economists dismissed antitrust actions as superfluous, so long as consumers were not the victims of price-gouging. Monopoly capitalism is back, and it’s harmful, even if a company’s core product (like Google’s and Facebook’s) is free to consumers. As we wrote last week, there’s excessive corporate concentration in most industries, including air travel, banking, beer, health insurance, cell service, and even in the funeral industry.

All of this has led to a huge and growing inequality gap. That means there is little or no economic security for a large and growing section of the American population. People see their communities stagnating, or dying. They feel hopeless, angry, and yes, alienated.

One consequence is that we’ve seen three years of declining life expectancy, linked to growing drug use and suicides. We seem to be on the edge of a social catastrophe.

But our real worry has to be political. People could become so desperate for change that they are willing to do anything to get it. The worry then, is that few vote and a minority elects a strong man populist leader, simply because he/she tells them what they want to hear. That leader can then go out and wreak havoc on our Constitutional Republic.

After that, anything could happen.

Despite what Brooks thinks, we don’t have a crisis of connections. It’s a crisis of poorly paying jobs, job insecurity, and poverty. When people look at their economic prospects, they despair for their children. Doesn’t it matter that in America, health care, education, and transportation all lag behind other developed countries?

The unbridled ideology of free markets is the enemy. Our problem isn’t that individual entrepreneurs went out and took all the gains for themselves, leaving the rest of us holding the bag. It’s more about how neoliberal economics is used both by government and corporations to justify an anti-tax and anti-trust approach that has led to extreme wealth and income concentration in the top 1% of Americans.

The reality is that the nation’s wealth has become the exclusive property of the already prosperous.

We need to wake up America! We have to stop for a second, and think about how we can dig out of this mess. When America bought in to FDR’s New Deal programs 75 years ago, we entered an era we now think back on nostalgically as “great”.

And it isn’t enough to talk about how we can look to Sweden or Norway as economic models. Both have populations of under 10 million, and our society is far less homogeneous than theirs.

We need a uniquely American solution to this problem. It will involve reforming capitalism, starting with tax reform, and enforcing anti-trust legislation.

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Capitalism Must Be Reformed

The Daily Escape:

Mt. Fuji, Japan at sunset – November, 2018 photo by miles360x

From the Economist:

In 2016, a survey found that more than half of young Americans no longer support capitalism.

One reason that young people have lost faith in capitalism is the exceptional market concentration that has taken place in the US in the past few years. US firms have gotten bigger, often by acquiring their competition. This is true across many markets. Vox reports that: (parenthesis by Wrongo)

Four companies…control 97% of the dry cat food sector: NestlĂ©, J.M. Smucker, Supermarket Brand, and Mars. According to the report, NestlĂ© has a 57% (share of)…the industry, owning brands such as Purina, Fancy Feast, Felix, and Friskies. Altria, Reynolds American, and Imperial have a 92% market share of the cigarette and tobacco manufacturing industry. Anheuser-Busch InBev, MillerCoors, and Constellation have a 75% share of the beer industry. Hillenbrand and Matthews have a 76% share of the coffin and casket manufacturing industry.

On November 26th, the Open Markets Institute, an anti-monopoly think tank, released a data set showing the market share of the largest companies in each industry. Pulling the data together was a challenge, because the FTC halted the collection and publication of industry concentration data in 1981, during the time of Ronald Regan. Now, David Leonhardt of the NYT has turned it into a table:

As you can see, big companies are much more dominant than they were just 15 years ago. More from Leonhardt:

The new corporate behemoths have been very good for their executives and largest shareholders — and bad for almost everyone else. Sooner or later, the companies tend to raise prices. They hold down wages, because where else are workers going to go? They use their resources to sway government policy. Many of our economic ills — like income stagnation and a decline in entrepreneurship — stem partly from corporate gigantism.

Sarah Miller, deputy director of the Open Markets Institute, told Vox: (brackets by Wrongo)

… [When] you go to the store, you see all of these brands, but guess what? They’re all being operated by the same companies…She called the system a scam economy where competition is an illusion, and choice is an illusion.

The primary issue with corporate concentration is its potential to drive up prices. The fewer sellers, the fewer choices consumers have for goods and services, and thus, there is less pressure for the big competitors to hold prices down.

Even if many consumers don’t immediately realize they are victims of concentration, it’s visible when millions of homes only have one internet provider. Or, when four cellphone providers control 98% percent of the market (Verizon, AT&T, T-Mobile, and Sprint). And if the T-Mobile and Sprint merger plan goes through, there will be just three.

Ultimately, monopolies aren’t just an economic problem. They are also a political one. Democrats believe that anti-monopolism can be a political winner. It’s a way to address voters’ anxiety over high drug prices, digital privacy, and low wages.

We have been at this rodeo before. At the start of the 20th century, we broke up monopolies in railways and energy. In 1984, we broke up AT&T, only to see the “Baby Bells” recombine in the 1990s. We’ve simply stopped enforcing our anti-trust laws over the past 40 years.

Meanwhile, the public has been manipulated to believe that ever larger companies are in their best interests. We celebrate the “right” of large corporations to operate in unfettered ways.

But, Econ 101 shows that the trajectory of a monopoly starts with economies of scale, and ends with economies of exploitation. And remember that six corporations own 90% of the media. We won’t hear much about wrongdoing at Amazon from the Washington Post.

The required anti-trust laws are already on the books, but interpretation of them has changed over the years under Republican administrations. Eventually, we will have to break up existing giants, like we did before. One obvious candidate is Amazon, a company that will soon dominate the supply chain and all logistics in the US.

Facebook, which has gobbled up Instagram and WhatsApp, may be another candidate.

America is very late in addressing the negative outcomes of free markets, so there’s no time like the present to begin to Make America Love Small Business Again.

Voters need to push for anti-trust enforcement, which can only be done by the federal government. We have to insist that the protection of citizens is more important than protecting the 1%.

Let’s close with this quote from Louis Brandeis: “We may have democracy, or we may have wealth concentrated in the hands of a few, but we can’t have both.”

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We Saved GM For This?

The Daily Escape:

Redfish Lake, ID – 2018 photo by potatopatriot

From the Guardian:

General Motors announced yesterday that it will halt production at five North American facilities and cut 14,700 jobs as it deals with slowing sedan sales and the impact of Donald Trump’s tariffs.

The cuts will also hit 15% of GM’s 54,000 white-collar workforce, about 8,100 people. And some 18,000 GM workers have already been asked to accept voluntary buy-outs. By next year, it will no longer make the Buick LaCrosse, the Chevrolet Impala, or the Cadillac CT6 sedan. It’s also killing the Chevy Volt plug-in hybrid. GM’s CEO Mary Barra:

We recognize the need to stay in front of changing market conditions and customer preferences…

“Changing market conditions” means that GM’s sales are down despite offering enormous cash incentives to potential buyers. GM’s new-vehicle deliveries in the US plunged 11% in the third quarter, and are down 1.2% for the year. In Canada, GM’s sales have dropped 1.6% so far this year.

GM’s goal in restructuring is to save $6 billion in cash flow a year by year-end 2020. But saving all this money will cost a lot: GM estimates it at $3.0 billion to $3.8 billion, including asset write-downs, pension charges, and up to $2.0 billion in employee-related and other cash-based expenses.

GM will have to borrow this money. They said they expect to fund the restructuring costs through a new credit facility. The money has to be borrowed because GM blew through $13.9 billion in cash on share buybacks over the past four years:

Source: Wolfstreet.com

Despite spending $14 billion on share buybacks, the price of GM’s shares fell 10% over the same period.

You’d think that GM, a company that went bankrupt not too long ago, would be conservative in how it uses its cash. Nope, they wasted their cash on stock buybacks, and now they have to take out loans in order to reposition the company in its market.

Failing to anticipate where their market is going isn’t a new GM story. It had a 46% share of the car market in 1961, and now has a 17.6% share. They emerged from bankruptcy in 2009, only to be laying off workers and shutting plants in 2018.

Some history: Through the Troubled Asset Relief Program, the US Treasury invested $49.5 billion in GM in 2008 and recovered $39 billion when it sold its shares on December 9, 2013. We lost $10.3 billion. The Treasury invested another $17.2 billion into GM’s former financing arm, GMAC (now Ally). The shares in Ally were sold on December 18, 2014 for $19.6 billion netting $2.4 billion.

Net, GM has cost taxpayers $7.9 billion, while the top decision-makers spent $14 billion largely to enrich themselves.

How were they enriched? Share buybacks boost stock prices. Usually the salary and bonus plans for top executives in public companies are keyed to share price, so the incentive to prop up the share price includes a personal reward. The Chairman and Board set the compensation plans for the CEO and C-suite. The composition of Boards is strongly influenced by the major shareholders, including the large stock funds, who want share price gains, along with a few buddies of the CEO.

We’ve just witnessed a decade of stock buybacks by large firms. They are doing that as opposed to investing in R&D, plant efficiency or market expansion. But companies can only go so far with financial engineering before they actually have to improve their businesses, and now GM has been burned by share buybacks.

This is more corporate greed that leads to the little guy facing real suffering when jobs are lost.

GM is a shot across the bow. The auto industry will follow with additional capacity reduction. Volkswagen has already warned that the shift to Electric Vehicles (EV’s) will drastically cut employment at its plants that manufacture internal combustion (IC) components. EV vehicle production is far less costly than IC vehicle production, so this will be a real and ongoing issue.

OTOH, car manufacturers all have an EV option, but people are still buying Toyota’s, Honda’s and Mazda’s, even though only a few are EV’s.

This new GM “plan” seems more like a smoke screen for being caught AGAIN behind a market that is moving away from them.

America: A sucker for saving GM in 2008.

And possibly, a sucker-in-waiting when the latest, greatest plan to make GM great again only works out for GM’s executives.

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Sunday Cartoon Blogging – July 29, 2018

They found water on Mars. It appears to be salt water. Maybe we’ll build a giant desalinization device, and a few survivors of this hell on earth can give a fresh start to humanity on Mars. Also, Russian scientists found nematodes in Siberia that have been frozen for nearly 42,000 years. With climate change, they were visible to scientists. A few came back to life in the lab:

After being defrosted, the nematodes showed signs of life, said a report today from Yakutia, the area where the worms were found. ‘They started moving and eating.’ One worm came from an ancient squirrel burrow in a permafrost wall of the Duvanny Yar outcrop in the lower reaches of the Kolyma River….Another was found in permafrost near Alazeya River in 2015, and is around 41,700 years old….They are both believed to be female.

Both of those news items are more believable than much of what we hear from Washington, DC these days. For example, Trump’s speech to the Veterans this week included his caution about believing the news media. That led to this cartoon by Darin Bell:

And consider the gloating about “historic growth” in GDP by Trump. John Harwood schools us on the data:

If you think that’s fake news, check out the data.

Trump went off on Iran. What could be behind President Rouhani’s provocations?

Michael Cohen stayed in the news again this week. He’s gonna get a TV series:

Tariffs are always a tax on consumers. Donny is here to collect:

Americans no longer have unlimited voting rights, or election security in the US. This is believable:

Establishment Democrats always react the same way:

Wrongo isn’t on board with the democratic socialism platform, but he believes that corporations should be subjected to tighter regulations. They should pay more in taxes. They should be forced to reimburse the people for the deleterious impacts of their activities, like cleaning up factory sites that have polluted the land.

And every American should have access to healthcare, childcare, and some form of employment. We could make the choice to provide a free education to every American if it were a higher priority than new bombers, or aircraft carriers. ICE should be reformed, not abolished.

Establishment Democrats are trying to scare voters away from candidates who support the democratic socialism agenda. They should relax, democratic socialism isn’t about taking everything what you have away, and making it government-owned.

When you consider the perils and benefits of democratic socialism, you should think about Europe. Five of the top 10 happiest nations in the world (according to the UN) are Scandinavian: Finland, Norway, Denmark, Iceland, and Sweden. And they are all democracies.

Ever since Alexandria Ocasio-Cortez upset the 4th ranking House Democrat by running on a democratic socialist platform, Dems worry that what worked in the Bronx won’t work in Kansas. They’re right, it won’t work in Kansas. That’s why candidates need to run on issues that are important to their districts. A voter in Kansas is probably more concerned over the price of wheat than he is about gay marriage.

But, running on the economy and jobs works everywhere.

Ocasio-Cortez campaigned with Bernie Sanders in Kansas. James Thompson, a centrist Democrat running for Congress in Kansas, said she might as well come out, because the local Republicans were going to call him a socialist anyway.

Democrats were called socialists in 1992 when Bill Clinton won. They shouldn’t panic – they should own the accusation.

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Saturday Soother – November 25, 2017

The Daily Escape:

Blue Mosque, Istanbul -2013 photo by Wrongo

Wrongo planned on taking the rest of the week off, but couldn’t resist this:

We live in a time when inequality of wealth, income and influence is thought to be greater than at any time in history. Inequality strengthens social injustice and with it the existence of The Privileged and The Disadvantaged. Of those who have influence and feel they are entitled to everything, and those who expect little, receive even less but need most. Government policies are fashioned by The Privileged for their own benefit. The Disadvantaged, having little or no voice, are ignored, allowing the Cycle of Containment to be maintained, change to be suppressed and social divisions to deepen.

This is from a post entitled What Price Humanity? at Dissident Voice, and it is a pretty accurate description of where we are in America. More:

Sitting at the center of this socio-economic tragedy is an economic ideology that is not simply unjust, it is inhumane. Compassion and human empathy are pushed into the shadows in the Neo-Liberal paradigm, selfishness, division and exploitation encouraged. The system promotes short-term materialistic values and works against mankind’s natural inclination towards unity, social responsibility and cooperation, inherent qualities that are consistently made manifest in times of crisis, individual hardship and collective need.

Graham Peebles is asking what are We the People entitled to in 2017 America? And his answer is grim.

Wrongo thinks nothing is more appropriate to this discussion than FDR’s Second Bill of Rights as stated January 11, 1944 in his message to the US Congress on the State of the Union:

  • The right to a useful and remunerative job in the industries or shops or farms or mines of the nation;
  • The right to earn enough to provide adequate food and clothing and recreation;
  • The right of every farmer to raise and sell his products at a return which will give him and his family a decent living;
  • The right of every businessman, large and small, to trade in an atmosphere of freedom from unfair competition and domination by monopolies at home or abroad;
  • The right of every family to a decent home;
  • The right to adequate medical care and the opportunity to achieve and enjoy good health;
  • The right to adequate protection from the economic fears of old age, sickness, accident, and unemployment;
  • The right to a good education.

FDR could foresee the end of WWII when he gave this speech. He concluded that: (emphasis by the Wrongologist)

All of these rights spell security. And after this war is won we must be prepared to move forward, in the implementation of these rights, to new goals of human happiness and well-being.

Sadly, on this 2017 Thanksgiving weekend, we remain very far from these goals.

The inequality and sense of entitlement we see today won’t be turned around without work. Financialization is a poisonous monster. It dictates government policy, and makes the rules about how our businesses and governments at all levels engage with our people and our environment.

People are little more than sources of revenue: Their capacity to spend, to invest and consume determines how they are valued. Driving virtually every decision within the suffocating confines of the ideal is an addiction to profit.

FDR’s ideas seem quaint in 2017. The US cannot even ensure basic civil rights such as racial equality, much less “life, liberty, and the pursuit of happiness.” Most Americans have freely indentured themselves to the financial sector so that they can pretend to own a house in which to raise their kids, and a car to drive to work in order to earn income so they can make loan payments on the house and the pick-up.

Enough! Let’s forget about life for a while. Grab a cup of Climpson & Sons Signature Espresso that is 100% Adamo Sasaba from Ethiopia, and stay away from the turkey Tetrazzini at lunchtime.

Now, watch and listen to Narciso Yepes interpret Joaquin Rodrigo’s Concerto d’Aranjuez (Adagio) on his 10-string guitar. The 10-string was conceived in 1963 by Yepes, who ordered it from JosĂ© RamĂ­rez [III].

The conductor is Raphael FrĂŒbeck de Burgos with the Radio Symphony Orchestra of Frankfurt. It’s a lovely piece with a remarkable guitar:

Those who read the Wrongologist in email can view the video here.

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Here’s Who Benefits From Trump’s Tax Cuts

The Daily Escape:

Floating Village in Lan Ha Bay, North Vietnam – photo by Son Tong

Nobody knows what the final shape of the GOP tax plan will be, but we can see the financial implications of the current bill. Jill Schlesinger has a handy quick and dirty look at who benefits from the proposed cuts posted on her web site. Of the expected $1.5 trillion in tax cuts, only 15.2% will be for individuals. Schlesinger’s conclusion is that Republicans mainly want to help corporations:

  • $1 trillion will accrue to Corporations and Pass-through businesses
  • $228 billion accrues to Individuals
  • $172 billion accrues to Estates

Of the GOP’s $1.5 trillion government handout, corporations get two-thirds. Pass-through businesses are S-Corporations, LLCs, partnerships and sole proprietors. About 95% of businesses fall into this category. Many of these are professional service organizations (lawyers, doctors, accountants, consultants and architects) who otherwise are wealthy individuals, and those infamous hedge funds.

Estates will receive a Republican tax handout that is nearly as large as that provided to individuals. Today, roughly 5,000 people pay estate taxes under current law, but about 3,200 Americans would not have to pay the estate tax next year if the Republican tax bill is passed.

Think about that: 5000 individuals will split up $172 billion in tax relief due to Trump’s largesse!! In 2000, 52,000 estates had to pay the tax. Now it is down to 5,000.

Individuals include everyone who files a tax return. But even here, the WaPo says that the wealthy will do better:

Households with annual incomes over $1 million would see their after-tax incomes increase by 3.2%, 16 times the percentage increase for any income group in the bottom half of the income distribution. . . . (The disparity in average tax cuts measured in dollars would be even larger.)

About 45% of cost of the bill’s tax cuts would go to households with incomes above $500,000 (fewer than 1% of filers). About 38% of the bill’s cost would go to tax cuts for households with incomes over $1 million (about 3 out of every 1,000 filers).

What should the response of Democrats be? Democrats are correct in saying that the Republican plan is tilted too much toward the ultra-wealthy. They propose tilting it more toward the middle class.

Bruce Bartlett was a domestic policy adviser to Ronald Reagan and a Treasury official under George H. W. Bush. Bartlett says that Dems:

Should counter with a $1.5 trillion infrastructure plan and no tax cuts for anyone.

Bartlett points out that since the Clinton administration, Dems have tried to show fiscal responsibility, supporting tax increases and spending cuts. Meanwhile, Republicans abandoned any pretense of concern for the deficit, as their new budget shows.

Bartlett argues that a big infrastructure program will provide a payback for decades to come, just as Eisenhower’s highway program did. Importantly, he points out that building infrastructure will create vastly more jobs than any kind of tax cut, especially given the Republican proposal that largely benefits the wealthy, while providing no incentives for job creation or investment.

The Congressional Budget Office (CBO) has routinely provided estimates to Congress showing that direct spending by government on infrastructure has a bigger multiplier effect on economic growth than any tax cut. Their February 2015 report showed that purchases of goods and services by the federal government raises GDP by as much as $2.50 for every $1 spent.

The report also says that a temporary tax cut for the wealthy, such as Republicans are now proposing, would create at most 60 cents of GDP for every $1 of foregone revenue. Corporate tax cuts are the worst, creating 40 cents of GDP for every $1 of revenue loss.

Our government is starved for revenue. This is not the time to even consider a tax cut for the wealthiest.

A true conservative tax policy would raise taxes to balance the budget, reduce deficits and debt, while investing in basic infrastructure, education, job training, research, technology and other drivers of growth.

That is the kind of conservatism we should get behind.

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Where Can The Working Class Afford To Live

The Daily Escape:

Quilotoa Crater Lake, Ecuador. You get there by bus, and it takes six hours to walk around it. 

The Senate is trying to pass their worst possible health care idea. They have already passed a $700 billion military budget, more than even Trump wanted. And they are trying to pass a $1 trillion tax cut for their buddies. Will any of that help you? No.

They should be focused on improving the lives of working class people, but they can’t be bothered with that, because they have no desire to accomplish it. Things are just fine the way they are for Senators.

Wrongo has been remiss by not turning you on to howmuch, a site that creates visualizations about money, and in-depth tools about what things cost in the US. You should spend time checking them out. They created this very interesting chart about where working class people can afford to live in the US:

Source: howmuch

Each bubble represents a city. The color corresponds to the amount of money a typical working-class family would have left over at the end of the year after paying for their living costs, such as housing, food and transportation.

The darker the shade of red, the worse off you are. The darker the shade of green, the better off you are. The size of the bubble has meaning — large and dark red means the city is totally unaffordable. Bigger dark green bubbles indicate a city where the working class can get by. So, where are the best places from a financial perspective for a working-class family to live? These are the top five cities with the net surplus remaining after living expenses:

  1. Fort Worth, TX ($10,447)
  2. Newark, NJ (($10,154)
  3. Glendale, AZ ($10,120)
  4. Gilbert, AZ ($9,760)
  5. Mesa, AZ ($7,780)

The worst five cities are:

  1. New York, NY (-$91,184)
  2. San Francisco, CA (-$83,272)
  3. Boston, MA (-$61,900)
  4. Washington, DC (-$50,535)
  5. Philadelphia, PA (-$37,850)

Yes, a typical working-class family would need to make an additional $91K+ per year in NYC just to break even on a reasonable standard of living. And most job creation is taking place in cities, so the challenge for anyone, working class or higher, is how to afford living in one of them. There are exactly zero affordable cities on the West Coast. More from howmuch:

Of the ten most populous cities in the country, the only place where you can enjoy a decent standard of living without taking on debt is San Antonio. Out of the top 50 largest cities, only 12 are considered affordable. Low-wage workers are better off in smaller cities.

Kevin Erdmann, who blogs at Idiosyncratic Whisk, says the problem is that most coastal cities have closed access to housing, while inland cities have open access. Open access cities have relatively liberal housing and zoning codes that allow for new building, including relatively low-cost housing. Houston is the most prominent example. Closed access cities artificially reduce supply of housing, driving prices up. NYC is the most prominent example. From Erdmann:

You can tell what type of city it is just by looking through the newspaper. In open access cities, people complain that poor people are moving in and taking away jobs, pushing down wages. In closed access cities, people complain that rich people are moving in and bidding up rents.

People in red states have experienced high in-migration of low income people, both natives and immigrants. Poor people are leaving the closed access cities.  So, to someone living in a closed access city, it seems racist for people to focus their ire on Mexican immigrants.

And think about what happens if folks in a bad neighborhood manage to do the hard community work to make it somewhat livable. In New York or Los Angeles, the minute that a neighborhood becomes safe, the plots that hold those $100,000 duplexes will be worth $500,000, and the neighborhood will gentrify.

Rinse, lather and repeat, and the cycle starts again.

Can a working-class family live comfortably in your town? If so, can they find work?

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