Tag Archives: economics

the CFPB

Simon Johnson says the Consumer Financial Protection Bureau has actually been doing a good job up until now of, well, protecting consumer finances.

The CFPB was established by the 2010 Dodd-Frank financial-reform legislation to do exactly what its name implies: protect consumers in their various financial transactions. A new agency was needed because existing regulators, including the Board of Governors of the Federal Reserve System, had manifestly and repeatedly failed to protect consumers from abuses, such as deceptive and fraudulent mortgage-lending practices, some of which were at the heart of what went wrong in 2007-08.

As Elizabeth Warren (then a consumer advocate, now a US senator from Massachusetts) powerfully pointed out, there was a lot more protection for people buying toasters than for someone taking out a 25-year mortgage. Finance is complex, and a lot of devils could be, and were, hidden in the details. The CFPB was designed, above all, to bring greater transparency to consumers’ financial transactions – actually a very pro-market contribution.

And the CFPB has done exactly what Congress designed it to do. So far, the Bureau has arranged for the return of almost $12 billion to 29 million consumers. At the same time, banks are reporting record profits – on the order of $171 billion, according to the latest data. The CFPB is good for business, or at least for the straightforward, transparent business of traditional lending.

Unfortunately, all this seems likely to end as Trump has appointed someone to head the agency who is actually against the agency’s existence, not unlike his approach to the environment, housing, and education. Johnson seems to think the public will catch on to this and punish the Republicans politically when the little guy starts to get hurt by it. I don’t know, it probably depends on the timing. Nobody wants to see another financial blow-up, but if it has to happen mid-2020 seems as good a time as any.

macroeconomic models and tax cuts

The Economist has a piece on macroeconomic models used to evaluate tax policy.

Lurk near PhD economists online or at conferences, and you will hear them talk about “crisis in macro”. They mean that the models and assumptions most dominant among macroeconomists have failed repeatedly since 2007 to predict or even describe what’s happening. A defence, popular among academics, goes like this: we did get it wrong, but as responsible social scientists, we’re busy and fascinated right now, trying to figure out what was broken and how to fix it. It is a fair defence. In particular young macroeconomists have been using bigger datasets and faster computers to more accurately predict human behaviour. Economists are more likely to accept now, for example, that people with and without access to credit or wealth react differently to the same policy, an idea that is slowly working its way into models at central banks and even at the Joint Committee on Taxation.

This progress is unfortunate for Republicans. In the 1990s social science was on their side. Because data and computing power were harder to come by, macroeconomic models relied on thought experiments. The seminal model showing the ideal capital-gains tax rate as zero, for example, dates to 1986. It assumes that the economy consists of only one person. Also, she is immortal. The Wonder Woman economy, if you will. That model is now interesting only for a lecture on the history of economic thought. We’ve moved on, macroeconomists protest. But economists have. And Republicans haven’t…

But if you are going to insist on modeling the future and then planning around it, you have to do it right. The economists at the Joint Committee on Taxation are thoughtful. They read the most recent research. They examine their own models and, when they can, update them—conservatively. If, as Republicans have been insisting for 20 years, we have to assess our tax policies with dynamic scoring, there is no better way to do it than through the JCT. Unfortunately, as modeling has improved, it has not improved in the direction Republicans prefer, which leaves them where they are now. They wanted social science in policy-making, and they got it, in the form of a $1trn tax bill.

I don’t know how any ethical person can support the Republican party right now. They don’t care about facts, logic, or evidence, and certainly not economic growth or raising the living standards of their constituents. They are blantantly and shamelessly committed to lining the pockets of their big-business funders. It’s corrupt, undemocratic and shameful.

Richard Thaler

Richard Thaler has been awarded the Nobel Prize in economics for his work on behavioral psychology.

Limited rationality: Thaler developed the theory of mental accounting,explaining how people simplify financial decision-making by creating separate accounts in their minds, focusing on the narrow impact of each individual decision rather than its overall effect. He also showed how aversion to losses can explain why people value the same item more highly when they own it than when they don’t, a phenomenon called the endowment effect. Thaler was one of the founders of the field of behavioural finance, which studies how cognitive limitations influence financial markets.

Social preferences: Thaler’s theoretical and experimental research on fairness has been influential. He showed how consumers’ fairness concerns may stop firms from raising prices in periods of high demand, but not in times of rising costs. Thaler and his colleagues devised the dictator game, an experimental tool that has been used in numerous studies to measure attitudes to fairness in different groups of people around the world.

Lack of self-control: Thaler has also shed new light on the old observation that New Year’s resolutions can be hard to keep. He showed how to analyse self-control problems using a planner-doer model, which is similar to the frameworks psychologists and neuroscientists now use to describe the internal tension between long-term planning and short-term doing. Succumbing to shortterm temptation is an important reason why our plans to save for old age, or make healthier lifestyle choices, often fail. In his applied work, Thaler demonstrated how nudging – a term he coined – may help people exercise better self-control when saving for a pension, as well in other contexts.

Will robots take my job?

If you want to know if robots will take your job, you can go to willrobotstakemyjob.com. It turns out my job (“environmental engineer” is the closest match) is particularly hard to automate at just a 1.8% chance robots will take my job, so I’ve got that going for me. I typed in ten other other career choices to see what I would get, then ranked them from most to least at risk.

  • auto mechanic: 59%
  • electrician: 15%
  • electrical engineer: 10%
  • mathematician: 4.7%
  • biochemist/biophysicist: 2.7%
  • materials scientist: 2.1%
  • chemical engineer: 1.7%
  • computer scientist: 1.5%
  • mechanical engineer: 1.1%
  • nurse: 0.9%

I won’t bother typing in the obvious ones like taxi driver (89%) or court reporter (50%). Okay, I did and that last one surprised me a little. The ten I picked weren’t random, they were ones I thought would be safe, and it turns out I was right except for auto mechanic. I’m a little surprised at that. Vehicles are merging with computers and getting more complex all the time, which means they are going to require more troubleshooting, updating, and will become obsolete faster than the past. I would also think a car mechanic could cross-train as a robot mechanic pretty easily. So the mechanics of the future will have to be equal parts grease monkey and tech support. Maybe they won’t be called mechanics, but the complicated systems we are creating are going to break in unpredictable ways and skilled troubleshooters are going to be in demand.

Anyway, the bottom line is that most types of engineering, and research positions related to genetics and/or materials, are pretty safe. Nursing is a field where supply just never seems to catch up to demand, and medical technology (and spending) just keep marching forward as the population ages and lives longer. You can still make a living as an electrician or a plumber.

I also learned something about the Standard Occupational Classification system used by the U.S. Department of Labor.

The 2010 Standard Occupational Classification (SOC) system is used by Federal statistical agencies to classify workers into occupational categories for the purpose of collecting, calculating, or disseminating data. All workers are classified into one of 840 detailed occupations according to their occupational definition. To facilitate classification, detailed occupations are combined to form 461 broad occupations, 97 minor groups, and 23 major groups. Detailed occupations in the SOC with similar job duties, and in some cases skills, education, and/or training, are grouped together.

 

what’s new with satellites

What’s new with satellites is there are a lot more being launched lately and they are a lot smaller, according to Bloomberg.

https://www.bloomberg.com/news/features/2017-06-29/the-tiny-satellites-ushering-in-the-new-space-revolution

At 9:28 a.m. on Feb. 15, these animals watched anxiously as an Indian rocket lifted off, roaring through the hot, sticky air. Its payload consisted of 104 satellites, dwarfing the previous world record of 37 set by Russia in 2014. The largest of them weighed 1,500 pounds and was designed to map India’s infrastructure and monitor urban and rural development. Nestled alongside were around a dozen smaller satellites from universities, startups, and research groups. What made the launch a record were the 88 shoebox-size “Dove” satellites built by Planet Labs Inc., a startup in San Francisco.

For the past few years, Planet has been sending batches of its Doves into orbit, each carrying a high-powered telescope and camera programmed to photograph a different swath of Earth. The 88 launched from Sriharikota would join 61 others to become the largest fleet ever put in orbit. Images beamed back by the 61 have been used far and wide: Hedge funds scour Walmart parking lots to measure traffic flows during back-to-school seasons. Farmers assess crop health and estimate optimal harvest times. Activists track Amazonian deforestation and Syrian refugee camps. Spies monitor military buildups and trafficking operations. With all 149 satellites in place, Planet will be able to photograph every inch of Earth’s surface every day—something even the U.S. government can’t do.

This satellite constellation is one of many signs that the relationship between humans and space is changing in ways unseen since Russia and the U.S. began sending rockets into orbit six decades ago. Thanks to modern software, artificial intelligence, advances in electronics and materials, and a generation of aggressive, unconventional entrepreneurs, we are awash in space startups. These companies envision an era in which rockets take off daily, filling the skies with satellites that sense Earth’s every action—in effect building a computational shell around our planet. The people constructing this bustling new economic highway promise it will improve life down below, but the future they describe is packed with wonder and controversy in equal measure—and although few have noticed, it’s coming to pass right now.

Overall, this seems good to me. A lot of the problems we have managing our economy are caused by lags between when things happen, when information is available, and when we are able to take action to respond. Real time information gets rid of the lag between when things happen and when we can know about them. This should help us understand what is going on with the natural environment better too, and maybe we can take some action based on that. Finally, I view any move toward less secrecy as a net positive in an era when governments, corporations, and even individuals are going to have ever more dangerous and ever more accessible technology at their disposal.

The biggest drawback might be that we will grow ever more dependent on this type of technology to the point we forget how to live without it, and then when it has inevitable glitches, that is going to cause new problems even as we are solving some older ones.

HSBC on peak oil

The idea of peak oil is definitely not dead, according to HSBC. While low demand and high supply have pushed down prices over the past several years, the market is headed back for an equilibrium, demand is growing, output from traditional fields is declining while investment in new discoveries and new technologies has dropped sharply in recent years. A crunch could be coming.

  1. The oil market may be oversupplied at present, but we see it returning to balance in 2017
  2. By that stage, effective spare capacity could shrink to just 1% of global supply/demand of 96mbd, leaving the market far more susceptible to disruptions than has been the case in recent years
  3. Oil demand is still growing by ~1mbd every year, and no central scenarios that we recently assessed see oil demand peaking before 2040
  4. 81% of world liquids production is already in decline (excluding future redevelopments)
  5. In our view a sensible range for average decline rate on post-peak production is 5-7%, equivalent to around 3-4.5mbd of lost production every year
  6. By 2040, this means the world could need to replace over 4 times the current crude oil output of Saudi Arabia (>40mbd), just to keep output flat
  7. Small oilfields typically decline twice as fast as large fields, and the global supply mix relies increasingly on small fields: the typical new oilfield size has fallen from 500-1,000mb 40 years ago to only 75mb this decade
  8. New discoveries are limited: last year the exploration success rate hit a record low of 5%, and the average discovery size was 24mbbls
  9. US tight oil has been a growth area and we expect to see a strong recovery, but at 4.6mbd currently it represents only 5% of global supply
  10. Step-change improvements in production and drilling efficiency in response to the downturn have masked underlying decline rates at many companies, but the degree to which they can continue to do so is becoming much more limited

what’s going on with mad cow?

Mad cow disease is scary because there is such a long time between when someone is infected and when they begin to show symptoms, the kind of disease that could spread through large portions of a population before anyone realizes it is there. I am not saying it has, I don’t know. This article in Alternet doesn’t really address the current status, but it goes through some interesting history of the first outbreak in the U.S.

On December 23, 2003, the USDA announced that a Holstein cow, imported from Canada and slaughtered in Moses Lake, Washington, tested positive for mad cow disease. Ann Veneman, USDA secretary at the time and other USDA officials, said the cow was discovered because she was a “downer”––unable to walk—which was how the system screened for mad cows. In other words, the system “worked.” The problem was three workers said the cow had walked just fine suggesting that the entire federal mad cow testing program was worthless. Congressional hearings ensued.

As it turned out, congressional troubles were the least of cattle producers’ problems. Within hours of the mad cow announcement, China, Mexico, Russia, Brazil, South Africa, Hong Kong, Japan, Singapore, Taiwan, Malaysia, South Korea and ninety other countries banned US beef and 98 percent of the $3 billion overseas beef market vanished. (The only reason the EU didn’t ban US beef was it was already banned for its hormones oestradiol-17, trenbolone acetate, zeranol and melengestrol which EU officials said increased breast and prostate cancer risks.)

After the first mad cow, things got worse. Two more mad cows were found in the US in 2004 and they weren’t from Canada. One was born in Texas and the other Alabama. Worse, a USDA export verification report admitted that 29 downers at two unidentified slaughterhouses went into the human food supply and twenty were not tested for mad cow disease.

Most of the countries mentioned lifted their ban shortly afterward, but China apparently is just lifting it now, according to NPR:

Cooked chicken from birds grown and raised in China soon will be headed to America — in a trade deal that’s really about beef…

The Chinese appetite for beef is huge and growing, but American beef producers have been locked out of that market since a case of mad cow disease cropped up in the U.S. in 2003. In response, many countries, including South Korea, Japan, Mexico and China, banned imports of U.S. beef…

Many people long had seen China’s refusal to lift its ban on U.S. beef imports as a negotiating tactic, a tit for tat aimed at allowing Chinese chicken imports into the United States. The negotiations that led to the new trade deal have been going back and forth for more than a decade, stalled at one point by worries in Congress over China’s food-safety practices.

This might be good for the U.S. beef industry in the short term, but an exploding demand for beef can’t really be good for the world in the longer term. Maybe this is not the kind of industry of the future that the U.S. should be focusing on. I’ll admit I’m a hypocrite – I love a good cheeseburger, but I try to treat it as an occasional treat rather than a staple food.

The Retail Meltdown of 2017

The Atlantic has an article about “the retail meltdown of 2017”.

There have been nine retail bankruptcies in 2017—as many as all of 2016. J.C. Penney, RadioShack, Macy’s, and Sears have each announced more than 100 store closures. Sports Authority has liquidated, and Payless has filed for bankruptcy. Last week, several apparel companies’ stocks hit new multi-year lows, including Lululemon, Urban Outfitters, and American Eagle, and Ralph Lauren announced that it is closing its flagship Polo store on Fifth Avenue, one of several brands to abandon that iconic thoroughfare…

So, what the heck is going on? The reality is that overall retail spending continues to grow steadily, if a little meagerly. But several trends—including the rise of e-commerce, the over-supply of malls, and the surprising effects of a restaurant renaissance—have conspired to change the face of American shopping.

A lot of people like the car-dependent suburbs because they are perceived to be quiet, safe, and have good public education. But do people actually like sitting in traffic or have they seen that as a necessary price to pay. I like how the Place Shakers blog talks about this:

So what was the motivation [for the rise of auto-dependent retail]? I’d suggest it was (and still is, really) a desire for the easiest possible access to the stuff we want at the time — a desire so strong, it seems to me, that we began structuring our entire built environment around its fulfillment…

That’s why we built bigger arterials which fed bigger chain stores with more of the items we wanted to get our hands on. And why we built malls, where the variety of available goods seemed to increase exponentially. And it’s also why we established hefty parking minimums. Because you’re not effectively delivering on the promise of easy access to goods if you can pave the way to a warehouse full of stuff but leave no space to park within a few feet of the door. And parking within a few feet of the door is a fundamental part of the need being fulfilled.

But what happens when times and technologies change, and new ways of addressing our needs emerge? Suddenly we’re afforded new opportunities to prioritize how we spend our time and money.

In other words, we can get the stuff we want without spending so much time sitting in our cars, and we have figured out that there are other, better ways to be spending that time. I think something very similar is playing out with the trend of a lot of people working from home, at least on Fridays. By saving that commuting time to and from the office, your free up hours of your day for sleep, family, leisure, or extra productivity.

value added tax

Here is a Fresh Air interview with T.R. Reid explaining how great the VAT is.

This is the most important innovation in taxation in the last 60 years. This is a tax that’s like a sales tax on steroids. It’s a tax – our sales tax is called a retail sales tax. The tax is only collected when the retailer sells you the book. But on a value-added tax, a tax is collected when the paper mill sells the paper to the publisher and when a publisher buys ink from an ink company and then the publisher sells it to a wholesaler and a wholesaler sells it to a distributor, distributor to the bookstore and the bookstore to you.

That tax is collected at every level, and every time you pay the tax to the other guy, you report it to the government to get a credit for the tax you paid which means every penny of tax that’s paid is reported to the government. So the VAT turns out to be a very easy tax for government to collect and a very hard tax for taxpayers to avoid. And so if you put in a value-added tax, they’re very steady collections, and it’s hard to cheat on.

And you could use that money to reduce the rate of the corporate or the personal income tax. So 176 countries have adopted this innovation. It’s a great idea. The only countries that don’t have it are a bunch of countries so poor they have no taxes and the United States of America. So I say in my book in taxation, Americans are still banging out letters on a typewriter and dropping them in a mailbox, and everybody else is texting and using Instagram.

So let’s do it. There are actually some signs the Trump administration might consider it. But instead of eliminating income tax, they may be thinking of going after the Social Security payroll tax.

March 2017 in Review

Most frightening stories:

  • La Paz, Bolivia, is in a serious crisis caused by loss of its glacier-fed water supply. At the same time we are losing glaciers and snowpack in important food-growing regions, the global groundwater situation is also looking bleak. And for those of us trying to do our little part for water conservation, investing in a residential graywater system can take around 15 years to break even at current costs and water rates.
  • Trump admires Andrew Jackson, who I consider a genocidal lunatic and the worst President in U.S. history.
  • Fluoridated drinking water could eventually be looked back on as a really stupid idea that damaged several generations of developing brains, like leaded gasoline. Or not…I’m not sure who to believe on the issue but caution is clearly warranted.

Most hopeful stories:

  • A new political survey says there is a chance that a majority of Americans are not bat-shit crazy. Which suggests they might not be too serious about Steve Bannon, who believes in some bat-shit crazy stuff. There are a number of apps and guides out there to help sane people pester our elected representatives when they fail to represent our interests.
  • South Korean women are projected to be the first to break the barrier of an average life expectancy of 90, with a 50% probability of this happening by 2030.
  • Advanced power strips can reduce the so-called “vampire loads” of our modern electronic devices that are never really off.

Most interesting stories, that were not particularly frightening or hopeful, or perhaps were a mixture of both:

  • This long NASA article first gets you excited about the possibility of life on eight new planets it has just discovered, and then throws cold water (actually, make that lethal X-rays) all over your excitement.
  • Bill Gates has proposed a “robot tax”. The basic idea is that if and when automation starts to increase productivity, you could tax the increase in profits and use the money to help any workers displaced by the automation. In related somewhat boring economic news, there are a variety of theories as to why a raise in the minimum wage does not appear to cause unemployment as classical economic theory would predict.
  • CRISPR could be used to create new crops out of the wild ancestors of our current crops.