| Law of Bad Ideas Posted: 19 Feb 2014 10:35 PM PST A proposal by French president Francois Hollande got me thinking about " The Law of Bad Ideas". I did a search for the phrase and surprisingly, nothing came up. Thus, I get to define the phrase. Law of Bad Ideas: Bad ideas don't go away until they have been tried and failed multiple times, and generally not even then. Key Examples- Keynesian stimulus
- Monetary stimulus
- Price controls
- Wage controls
- Interest rate controls
- Tax hikes of all sorts
- Tariffs
- Abenomics
That list just scratches the surface. I tribute this post to Francois Hollande, following his resurrection of the " Robin Hood" Financial Transaction Tax in a meeting yesterday with German chancellor Angela Merkel. The Financial Times reports France and Germany in Push for 'Robin Hood' Tax Deal. France and Germany have pledged to reach a deal on a European financial transaction tax by the end of May in a bid to give some impetus to efforts to find accord on the issue.
But the two governments have yet to bridge divisions on how the so-called "Robin Hood" levy would be applied in the 11 EU states that have signed up to implement the tax.
François Hollande, the French president, said after a joint Franco-German government meeting in Paris that trying to find the perfect formula for an FTT would only help those who wanted to neutralise it. "I prefer an imperfect tax to no tax at all," he said at a press conference with Angela Merkel, German chancellor.Merkel, German chancellor.
Ms Merkel said setting a target for agreement on concrete proposals before European parliament elections in May could be decisive. "If things move, certain countries may lose their reticence," she said. Important Corollaries Hollande's statement " I Prefer an Imperfect Tax to no Tax at All" gives rise to a couple of important corollaries. Corollary Number One: Left alone, bad ideas get worse over time Corollary Number Two: The overwhelming desire to implement bad ideas leads to compromises guaranteed to make things worse. Ironically, Hollande's statement came just a couple days after he attempted to persuade businesses he would not kike taxes, but rather Harmonize Taxes in Six Years if Foreign Businesses Invest in France NowBad ideas in Europe generally have the endorsement of José Manuel Barroso, European Commission president, and Herman Van Rompuy, head of the European Council. This proposal fits the same pattern. A September 2011 Bloomberg article show Barroso and Van Rompoy were early adopters of the Financial Transaction Tax. European Commission President Jose Barroso said the commission today adopted a proposal for introducing a financial-transaction tax. The fiancial sector must make a contribution back to society, Barroso told the European Parliament in Strasbourg, France.This revelation brings to light corollary number 3. Corollary Number Three: Those in positions of political power not only have the worst ideas, they also have the means to see those ideas are implemented. For a rebuttal to the Financial Transaction Tax idea please see my take on Why the Tobin Tax is a Bad IdeaAs one might suspect, Paul Krugman is in favor of Taxing the Speculators. Corollary numbers four and five stem from the obvious influence of those living in academic wonderland. Corollary Number Four: The worse the idea, the more likely it is to be embraced by academia and political opportunists. Corollary Number Five: No idea is so bad it cannot be made worse RecapLaw of Bad Ideas: Bad ideas don't go away until they have been tried and failed multiple times, and generally not even then. Corollary One: Left alone, bad ideas get worse over time Corollary Two: The overwhelming desire to implement bad ideas leads to compromises guaranteed to make things worse Corollary Three: Those in positions of political power not only have the worst ideas, they also have the means to see those ideas are implemented. Corollary Four: The worse the idea, the more likely it is to be embraced by academia and political opportunists. Corollary Five: No politically acceptable idea is so bad it cannot be made worse Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
| China Manufacturing Deteriorates at "Moderate Pace" Posted: 19 Feb 2014 07:32 PM PST The global slowdown continues. Don't worry, the slowdown is at a "moderate pace". The HSBC Flash China Manufacturing PMI shows China business conditions deteriorate at moderate pace in February. Key points- Flash China Manufacturing PMI™ at 48.3 in February (49.5 in January) Seven-month low.
- Flash China Manufacturing Output Index at 49.2 in February (50.8 in January) Seven-month low.
 Comments From HBSC Asian Economic Research Head Commenting on the Flash China Manufacturing PMI survey, Hongbin Qu, Chief Economist, China & Co - Head of Asian Economic Research at HSBC said: "February's flash reading of the HSBC China Manufacturing PMI moderated further as new orders and production contracted, reflecting the renewed destocking activities. The building-up of disinflationary pressures implies that the underlying momentum for manufacturing growth could be weakening. We believe Beijing policy makers should and can fine-tune policy to keep growth at a steady pace in the coming year" Commenting on the Comments Mish says Hongbin Qu is off his rocker. The idea than central planners can "fine-tune" anything is laughable. Indeed, one should seriously question if they can "gross-tune" anything at all. Even if central planners can "gross-tune" it is at a huge cost of bubble-blowing economics. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
| Spotlight on Ukraine: Riots in Kiev, EU Weighs Sanctions, Emergency Meetings; Fear of Default Contagion Spreads Posted: 19 Feb 2014 04:39 PM PST The situation in Ukraine grows worse by the day. Here is a recap of recent events. Bloody RiotsReuters: Ukraine police charge protesters after nation's bloodiest day Ukrainian riot police charged protesters occupying a central Kiev square early on Wednesday after the bloodiest day since the former Soviet republic, caught in a geopolitical struggle between Russia and the West, won its independence more than 22 years ago.
At least 18 people, including seven policemen, died on Tuesday during hours of violence between security forces and civilians who have staged protests against President Viktor Yanukovich since last November.
Many were killed by gunshot and hundreds more were injured, with dozens of them in a serious condition, police and opposition representatives said.
The riot police moved in hours after Moscow gave Ukraine $2 billion in aid for its crippled economy which it had been holding back to demand decisive action to crush the protests.
Nationwide demonstrations erupted after Yanukovich bowed to Russian pressure and pulled out of a planned far-reaching trade agreement with the European Union, deciding instead to accept a Kremlin bailout for the heavily indebted economy. EU Weighs Sanctions, Emergency Meeting CalledFinancial Times: EU weighs sanctions against 'authors of violence' in KievEurope's top diplomats have been summoned to an emergency meeting in Brussels today after EU leaders called for sanctions against the Ukrainian government in response to a bloody crackdown that killed more than two dozen people.
The push for sanctions against Viktor Yanukovich, Ukraine's president, and his allies marks a significant shift for the EU, which has so far insisted on a diplomatic response to the crisis. But it is not guaranteed the unanimous support required by the 28-member bloc, amid fears from some member states that a harder approach could push the country closer to civil war.
A group led by France and Poland will push for sanctions at an emergency meeting of foreign ministers in Brussels. Although they are backed by Germany and the Czech Republic, several countries – including Italy, the Netherlands and Finland – are reluctant to move quickly. Spain prefers a diplomatic solution rather than sanctions.
The Obama administration said on Wednesday that it had placed 20 Ukrainian officials on a visa blacklist as a result of the violence in Kiev on Tuesday.
In the first sign of the EU's economic pressure coming to bear on Ukraine, the head of the EU's investment bank said that it had halted investments there. Werner Hoyer, president of the European Investment Bank, said that he had suspended activities in Ukraine, where the EIB has pledged to invest more than €1bn since 2011 in ventures such as a metro line and an air traffic control system. Civil War FearedFinancial Times: Ukraine Facing Most Dangerous Hour for Many YearsThe crisis in Ukraine appeared to be spinning out of control on Wednesday, leaving the former Soviet republic facing its most dangerous hour not just since independence in 1991 but for many decades.
While anti-government protesters tore up cobblestones along Khreshchatyk, Kiev's main avenue, as weapons to resist a second night-time assault by riot police, Donald Tusk, Polish prime minister, warned that the world might be witnessing "the first hours of a Ukrainian civil war".
"There is no civil war between the east and west of Ukraine," said Olexiy Haran, a political scientist and member of the protest co-ordinating committee. "There are no people in the east of Ukraine who are going to die for Yanukovich."
But a civil war was under way, he added, between "the people of Ukraine, and the Berkut [special police] and titushki" – the nickname for hired, pro-regime thugs that authorities have used in Kiev and elsewhere to beat up protesters.
With only about 4,000-5,000 Berkut police, and perhaps 15,000-20,000 well-trained and equipped interior ministry troops, analysts say the government would struggle to prevail over widespread and determined opposition, especially in the west. But plenty of blood could potentially be spilled along the way.
"This week we realised it isn't easy to resist when you're not armed and you are facing people who are using real bullets," said Mr Haran. Ukraine Leader Denounces CoupReuters: Ukraine leader denounces coup bid, West readies sanctions. Ukrainian President Viktor Yanukovich accused pro-European opposition leaders on Wednesday of trying to seize power by force after at least 26 people died in the worst violence since the former Soviet republic gained independence.
The White House urged Ukraine to pull back riot police, call a truce and talk to the opposition. But the Ukrainian security services said they were launching an "anti-terrorist operation" across the country after the seizure of government buildings, arms and ammunition dumps by "extremist groups".
Protesters have been occupying central Kiev for almost three months since Yanukovich spurned a far-reaching trade deal with the EU and accepted a $15-billion Russian bailout instead.
The sprawling nation of 46 million, with an ailing economy and endemic corruption, is the object of a geopolitical tug-of-war between Moscow and the West. That struggle was played out in hand-to-hand fighting through the night, lit by blazing barricades on Kiev's Independence Square, or Maidan. As dusk fell on Wednesday, protesters braced for more police action.
After a night of petrol bombs and gunfire on Independence Square, black smoke billowed from a charred trade union building that protest organizers had used as a headquarters.
When fighting subsided at dawn, the square resembled a battle-zone, the ground charred by Molotov cocktails. Helmeted young activists used pickaxes, and elderly women their bare hands, to dig up paving to stock as ammunition.
Amid a tense standoff in the central Kiev square, thousands of protesters, many masked and in combat fatigues, confronted police across makeshift barricades for a second straight day.
Priests intoned prayers from a stage while young protesters in hard-hats improvised forearm and knee pads to protect themselves against baton blows. Others prepared petrol bombs.
"They can come in their thousands but we will not give in. We simply don't have anywhere to go. We will stay until victory and will hold the Maidan until the end," said a 44-year-old from Ternopil who gave only his first name of Volodymyr.
Ukraine has been rocked periodically by political turmoil since independence from the Soviet Union more than 22 years ago, but it has never experienced violence on this scale. Debt Default ContagionFinancial Times: Violence increases fears of debt default contagion The worsening violence in Ukraine is adding to the strains on emerging markets, as investors weigh the risks to neighbouring economies and the potential for a Ukrainian debt default to trigger a renewed sell-off in the assets of other countries.
The chaos unfolding in Kiev hit central and eastern European currencies on Wednesday, with Poland's zloty falling 0.5 per cent to 4.1478 against the euro. Hungary's forint, already under pressure from persistently dovish monetary policy, fell about 1 per cent to 227.43 against the dollar, while the Romanian leu slipped 0.6 per cent. Fears over Ukraine also exacerbated a sharp fall in Russia's rouble.
Donald Tusk, Poland's prime minister, urged the country's parliament "to prepare Poland and Europe for the most dramatic possibilities", in a speech that showed the degree of concern felt in the country most directly exposed to Ukraine's turmoil.
"The implications for neighbouring countries should not be underestimated," said Simon Quijano-Evans, head of emerging market research at Commerzbank," noting that investors had previously underplayed the risks of unrest around the Arab world.
"A default could have a destabilising impact," said Koon Chow, head of emerging markets strategy at Barclays Capital. Ukraine could only be a trigger for a return of gloom to emerging markets – but with emerging markets still fragile after the last month's sell-off, and political crises deepening from Venezuela to Thailand, "we didn't need much". On behalf of Mish readers globally, I send best wishes to the citizens of Ukraine. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
| CBO Report Says Minimum-Wage Hike Will Cost 500,000+ Jobs; Common Sense vs. Research Papers Posted: 19 Feb 2014 10:27 AM PST A new CBO study shows ObamaCare Magnifies Minimum-Wage Job Losses. The Congressional Budget Office weighed in on President Obama's proposed $10.10-an-hour minimum wage, saying it could lead to job losses that range from "very slight" to "1 million."
But in a footnote, the nonpartisan number cruncher explained that near-term job loss may be higher because its analysis didn't factor in the new ObamaCare costs imposed on employers.
"At the same time that the proposed increases in the minimum wage would take effect, the Affordable Care Act's requirement that many employers provide health insurance (or pay a penalty if they do not) will impose an additional cost on employers for some low-wage workers who do not currently have employment-based health insurance," the CBO said.
Over time, the CBO expects that the cost of complying with ObamaCare's employer mandate "will ultimately be borne by (low-wage) workers through lower wages."
Analysts on the left lashed out at the CBO for its analysis that "flies in the face of overwhelming empirical evidence," according to Christine Owens of the National Employment Law Project.
Yet there has been little study of minimum-wage hikes of the scale proposed (39% from the current $7.25 an hour).
Proponents of a large minimum-wage hike also have ignored its potential interaction with ObamaCare's employer mandate, which the CBO suggested may result in a bigger near-term job loss than a wage hike by itself. Loss of 500,000 JobsLet's go straight to the CBO Report on Minimum Wages to get some numbers. Effects of the $10.10 Option on Employment and Income. Once fully implemented in the second half of 2016, the $10.10 option would reduce total employment by about 500,000 workers, or 0.3 percent, CBO projects. As with any such estimates, however, the actual losses could be smaller or larger; in CBO's assessment, there is about a two-thirds chance that the effect would be in the range between a very slight reduction in employment and a reduction in employment of 1.0 million workers
According to CBO's central estimate, implementing the $10.10 option would reduce employment by roughly 500,000 workers in the second half of 2016, relative to what would happen under current law. 10 That decrease would be the net result of two effects: a slightly larger decrease in jobs for low-wage workers (because of their higher cost) and an increase of a few tens of thousands of jobs for other workers (because of greater demand for goods and services).
By CBO's estimate, about 1½ per- cent of the 33 million workers who otherwise would have earned less than $11.50 per hour would be jobless— either because they lost a job or because they could not find a job—as a result of the increase in the minimum wage. Those job losses among low-wage workers would be concentrated among people who are projected to earn less than $10.10 an hour under current law. Some workers who would otherwise have earned between $10.10 and $11.50 per hour would also see an increase in their wages, which would tend to reduce their employment as well, CBO estimates. Politically SpeakingThe Hill chimed in on the issue in its report Minimum wage hike to cost 500K jobs, boost incomePresident Obama's proposal to raise the minimum wage to $10.10 per hour would cost 500,000 jobs in 2016, according to a report released Tuesday by the nonpartisan Congressional Budget Office.
The report also found hiking the wage from $7.25 per hour would raise income for about 16.5 million workers by $31 billion, potentially pulling nearly 1 million people out of poverty.
The White House and economic groups on the left immediately pushed back at the CBO's conclusions on jobs even as they hailed the findings on poverty, saying its conclusions on jobs ran counter to other research.
Democrats are hoping to make the minimum wage a top issue in the 2014 midterms if the GOP blocks passage of a bill, but the CBO report would bolster Republican arguments for stopping a wage hike.
The office of Speaker John Boehner (R-Ohio) was quick to seize on the CBO finding, arguing it shows Republicans are right that the proposal would hurt the economy.
"This report confirms what we've long known: while helping some, mandating higher wages has real costs, including fewer people working. With unemployment Americans' top concern, our focus should be creating — not destroying — jobs for those who need them most," said spokesman Brendan Buck.
The minimum wage findings are the second time in weeks the CBO has stirred up controversy on a high-profile issue.
Earlier this month, the CBO found that over the next decade, ObamaCare would result in the equivalent of 2.5 million fewer workers. It concluded many workers would chose to remain at home due to ObamaCare's expansion of health coverage. Common Sense vs. Research PapersProponents of higher minimum wage laws cite studies that purportedly show hiking the minimum wage does not cost jobs. For example, Barry Ritholtz recently linked to a couple of Minimum Wage: Research Papers that purportedly show higher minimum wages have no effect on hiring. Such reports defy simple economic realities and common sense. Although small differences in local minimum wages may not have much of an effect, I wonder if the studies properly take into account property tax differentials, local tax incentives, and the simple fact that wages generally rise over time regardless of minimum wage hikes. Regardless, such studies cannot show the unseen: what would have happened in the absence of wage hikes. Finally, the proposed minimum wage hike from $7.25 to $10.10 is a massive 39.3% increase. And that would come on top of Obamacare penalties. It is beyond absurd to seriously propose that such whopping increases would not impede hiring. Only economic illiterates and political charlatans can make such statements. Economic RealityIf owners of stores have to pay more for workers, they have less incentive to expand. Here's the critical question: How many stores will Walmart, Pizza Hut, McDonalds, Wendy's etc., not open that they would have otherwise if the minimum wage rockets up to $10.10? Common sense says it's a substantial number. It has to be. Stores that are marginal at one labor price point will be outright unprofitable at another labor price point. That is simple economic reality. No unflawed study can possibly show otherwise. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
| Angela Merkel Backs EU Internet to Deter US Spying; Rand Paul's Proposal vs. Merkel's Proposal; NSA Wants Snowden Dead Posted: 18 Feb 2014 11:23 PM PST Just when it seemed that president Obama had anger over US spying under control, German Chancellor Angela Merkel stepped to the plate with a hard verbal punch aimed straight at Obama's face and the NSA. Please consider Angela Merkel Backs EU Internet to Deter US Spying. Momentum for a radical response to the National Security Agency spy scandal is building after Germany's chancellor backed calls for European internet services that are walled off from the US.
Ms Merkel said she would press François Hollande, the French president, to back a push for EU-based alternatives to the current US-dominated internet infrastructure when she holds talks in Paris on Wednesday.
"We'll talk with France about how we can maintain a high level of data protection," Ms Merkel said in her weekly podcast. "Above all, we'll talk with European providers that offer security for our citizens, so that one shouldn't have to send emails and other information across the Atlantic."
Some tech experts have warned that proposals to build alternative networks in Europe and force internet companies to store data about Europeans locally fail to take account of how the internet operates, or the continued legal obligation of American companies to turn information over to the NSA no matter where it is stored. US tech companies have also warned that a move to build secure regional networks would fragment the internet, turning it into a series of isolated regional data systems.
Ms Merkel's decision to throw her personal backing behind EU-centric internet services reflects how politically charged the issue is in Germany. Mr Snowden gave an interview to state broadcaster ARD saying the creation of a European "cloud" that did not send electronic data to servers on US soil would not defend Europe from espionage.
"The NSA goes where the data are," Mr Snowden told ARD. "If the NSA can pull text messages out of telecommunications networks in China, they can probably manage to get Facebook messages out of Germany."
In her podcast, the German chancellor, attacked Google and Facebook for basing their operations "where data protection is lowest" – an apparent swipe at Ireland, where both companies have their European headquarters. Referring to the two US companies, Ms Merkel said: "That's something that in the long run we can't endorse in Europe."
Ms Merkel's proposal is likely to win support from sections of German industry, where there is widespread concern about the security of intellectual property.
Sensitive to rising distrust among European consumers, some American tech firms have signalled a shift in strategy, with Microsoft saying it would allow overseas customers to have personal data stored on servers outside the US. Other US companies, like Google and Facebook, have opposed such European clouds – which have been championed by the European Commission in Brussels – over fears that they could Balkanise the internet and hamper its operation. Rand Paul Files Class Action Suit Against NSAOn February 12, Politico reported Rand Paul files class-action suit vs. NSASen. Rand Paul on Wednesday officially filed his class-action lawsuit against the Obama administration over National Security Agency data collection, joining with two prominent tea party leaders to make the announcement.
"There's a huge and growing swell of protest in this country of people who are outraged that their records are being taken without suspicion, without a judge's warrant and without individualization," Paul said at a news conference outside the U.S. District Court for the District of Columbia.
"I'm not against the NSA, I'm not against spying, I'm not against looking at phone records," Paul said. "I just want you to go to a judge, have an individual's name and [get] a warrant. That's what the Fourth Amendment says."
The senator also argued that there's "no evidence" that NSA surveillance of phone data has stopped terrorism, even as the agency's proponents say it plays an important role in keeping the country safe.
"Whether you breach the Fourth Amendment 20 percent of the time or 100 percent of the time, it's still not the point," Paul told POLITICO in an interview Saturday. "The point is whether or not you still collect millions of people's information with a single warrant." Rand Paul's Proposal vs. Merkel's ProposalOn every point, I side with Paul. I also side with global hero Edward Snowden who stated " If the NSA can pull text messages out of telecommunications networks in China, they can probably manage to get Facebook messages out of Germany." Alternate ProposalsThere are other strategies worth discussion. What about encrypting every communication and every message with security so tight that even the NSA could not break it? Under that proposal the NSA would not have keys to anything. Is that doable? I am not a security expert, but actually think it is. The problem is massive sets of public-private encryption keys might make it a nightmare for everyone involved. The irony is, for organized crime and terrorists, that effort is well worth the time. That lends credence to Paul's claim "There is no evidence that NSA surveillance of phone data has stopped terrorism." What about disbanding the NSA?I am in favor of disbanding the NSA completely on the theory it is worse than useless. However, even if that were to happen, it would not stop spying by other countries. So, not only do we need to stop useless data gathering, we need cooperation from other countries to do the same. That puts us squarely back at coming up with methods no one can break. Which in turn means that the NSA, nor anyone else, can have access to encryption keys, except by an individual's name and a specific warrant. NSA Wants Snowden DeadJust to show you how much above the law the NSA jackasses think they are, one Pentagon official told BuzzFeed " I would love to put a bullet in Snowden's head". "In a world where I would not be restricted from killing an American, I personally would go and kill him myself," a current NSA analyst told BuzzFeed. "A lot of people share this sentiment."
"I would love to put a bullet in his head," one Pentagon official, a former special forces officer, said bluntly. "I do not take pleasure in taking another human beings life, having to do it in uniform, but he is single-handedly the greatest traitor in American history." All Snowden ever wanted was for US constitutional protections to remain intact. For that, NSA and Pentagon jackasses want him killed. Who are the real traitors here? Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
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