An Unexpected Consequence of the COVID-19 Pandemic

Black Swan events, such as the COVID-19, have numerous unexpected consequences. One such observation, a shortage of COBOL programmers. There have been a series of recent newspaper articles concerning this shortage, now implying that this shortage is a crises. Actually, this shortage has been widely known for many years; but because we were not suffering from a black swan event at the time, the issue was largely ignored.

What captured my attention, was the Verge COVID-19 related article: "Unemployment checks are being held up by a coding language almost nobody knows". In that article, the vacuous statement is made: "States have been starved of modernization funding for years". 

Regretfully, "starving" programs with little public visibility is what governments do, as there is minimal interest in helping them until there is a crisis. This is similar to what happened to the US Army Corps of Engineers with its levee maintenance programs. Funds (over the years) were reallocated to other (manufactured) "crises" that would provide government leaders with media coverage and high visibility. That was until, Hurricane Katrina occurred. Then the hysterical hyperbolic finger-pointing began, demanding to know why the allocated funds "disappeared".

The Verge article goes on to whimsically state: "Without additional funding from the federal government, it’s difficult for states to modernize their COBOL code and invest in hardware that can withstand the mounting number of unemployment requests they’re receiving this year.". Missing from the Verge's article is an acknowledgement that it is the obligation of state governors to provide adequate funding for state programs, such as maintaining COBOL dependent systems. Consequently, the Verge should be pointing the finger-of-blame at the state governors for not providing adequate resources.

Washingtopn Post Editorial Board Once Again Fails to Point the Finger-of-Blame at Obama

The Washington Post ran the editorial Social Security Disability Insurance needs major reform on September 21, 2013. There are two fundamental issues with this editorial.

One this editorial, in isolation, may not seem like much of a story; but it is one of many such stories.  As one example, the growth in food stamps.  USA Today reports: "In 2001, the program served 17 million people at a cost of just over $15 billion. By 2012, there were 46 million people enrolled in the program at a cost of a little under $75 billion."  Another example: Ever-increasing tax breaks for U.S. families eclipse benefits for special interests.

Secondly, Obama was elected to manage the government. Since Obama won the election it becomes his responsibility to fix issues, especially those that indicate rising corruption. Instead of explicitly pointing-the-finger of blame at Obama, the Washington Post Editorial Board lamely points to abstract concepts such as: "They found that technical and demographic factors such as those cited by defenders of SSDI explained no more than 56 percent of the program’s growth, suggesting that a substantial portion — at least 44 percent — is because of the kind of structural defects and perverse incentives that critics have cited." Well, it is the responsibility of Obama who happens to be President to be acting on this corruption. Obama has been in charge for five (5) years now.  The Post Editorial Board should be lambasting Obama for failing to take the initiative to solve the overgrowing Nanny State.

Yes a safety-net is needed.  But the Obama administration has apparently refused to take on the issue of defining appropriate levels of "entitlement".  It easier just to give more money, even though the US is running massive budget deficits. From the conspiracy angle, these are part of the "free" gifts that Obama is tossing-out the electorate to solicit votes. All that Obama sells is populism. Why else would the various entitlement programs be allowed to "explode" without appropriate oversight.

The Failure of Stimulus, Lack of Consumer Demand

Both Obama and Romney have been promising, if elected, to create jobs. Neither of them should be making this type of promise for it will be doomed to failure. This is particularly disingenuous for Romney since the Republican Party claims to want government out of the private sector.

The video below is a CNBC interview with Henry Blodget (Businss Insider CEO).  Mr.Blodget essentially repeats what I have been advocating, that stimulus efforts are failing because we are in an economic  "hangover period" and that the consumer is not buying.  I have previously expounded on this issue in several earlier posts.

As a quick summary Mr. Blodget; for the economy to grow you need three things. Entrepreneurs to create jobs, a good product, and customers. What is lacking, for economic growth, are the customers.

As an aside, what is "missing" (in the good sense) from Mr. Blodget's thesis is the use of tax policy to manipulate the economy.  Again, one of my themes has been that economic policy and tax policy need a "divorce".  The purpose of tax policy is to raise revenue to pay for government programs not to play games with the economy.  As such, the budget needs to be balanced, even if it means making difficult decisions. To borrow from Alexis de Tocqueville: "The American Republic will endure until the day Congress discovers that it can bribe the public with the public's money."

The Hidden Failure of Stimulus

The Washington Post ran an opinion piece "Five myths about Obama’s stimulus" by Michael Grunwald.  Since my response is a bit wordy, I will repeat the much shorter to the point response of Steve Hanna fist: "The stimulus was like trying to run your fireplace with newspaper. Burns for a few minutes then needs more newspaper. The only lasting thing from it is debt."  Below is my response to that article.

"It's a bit more complicated than what Mr. Grunwald suggests. Concerning point 1, the stimulus and job creation. Well blame Bush created stimulus. That created jobs, the economy to initially exploded then crashed. Essentially, we have the drug addict analogy, so why would more stimulus work?

Yes, stimulus can be used for public works projects and I won't dispute that. But the What I will say, is that under blame Bush the US over-consumed. Let me repeat that, we over-consumed. People will only consume so-much. We are in a hangover period. Flooding the market with "free" money has not stimulated the economy because the consumer is NOT buying and the private sector has no need to produce more.

Next Mr. Grunwald ignores the whole issue of stimulus as deficit spending that ads to the National debt. In theory that has to be paid back. Paying it back will mean the need to direct future tax revenues to debt reduction. That will "slow" future economic growth. Essentially artificially stimulating growth now cannibalizes from future growth. Blame Bush essentially proved that.

Finally, there is even the very fundamental question of: "Can economic growth even be stimulated?". Unfortunately, this is an election year and any answer other than "yes" is immediately vilified. I don't have an answer, exactly. A lot depends on demographics - a young growing population tends to buy more than an old "established" population. One can look to Europe and Japan as being examples were the lack of economic growth is not because of "bad" economics (as Romney claims) but simple demographics. Neither Obama nor Romney should make any promises claiming the ability to promote economic growth. The demographics may be well against them. This is a "myth" that Mr. Grunwald failed to delve into."

 As an additional question; some point to the number of jobs created by the stimulus to document its success. But lets take a look at Solyndra, which is one of several failed companies. When it received it's government backed loans, it did create jobs. But it then declared bankruptcy. These jobs have now become "lost".  Have these jobs been subtracted from the supposed success of stimulating the economy? Or are these jobs still being carried forward to disingenuously support the concept that the stimulus program is working?

The Rising Price of the Falling Dollar

Charles Kadlec of Forbes wrote "The Rising Price of the Falling Dollar". Nice to read that someone else has made the same economic observations that I have. Of course his article is better researched and more credible. But then I'm spewing out "casual observations". Unfortunately, I have been unable to convince the masses that inflation is an economic drag. In fact Bernanke views low inflation as an economic "positive" even though the price of a $0.05 candy bar of 1965 is close to a $1.00 now. To summarize the detrimental effects of inflation, Mr. Kadlec wrote: "Our common sense hides this source of higher prices because we view the dollar as fixed and prices as moving."  This attitude resulted in many home-owner viewing their homes as ATM machines spewing out free money.  Well that bubble burst and resulted in an economic crash in 2008.  Eventually the student loan bubble will burst. In conclusion, Mr. Kadlec even throws in the concept that the falling dollar is steadily eroding our liberties.

Romney's Fiscal Promise

In winning the Florida primary, Romney made made several promises.  Three of them are listed below.

1. Taxes will NOT be raised
2. The budget will be balanced
3. The  US will have a BIG military.

Seems that all politicians have  a credibility gap between their lofty campaign rhetoric and the realities of managing the country after the election. But there is a solution.  Romney could prepare a draft budget, for public review, documenting on how he will accomplish these goals. He saved the 2002 Winter Olympics, maybe he can save the country. The electorate deserves to see how a candidate will actually propose to accomplish these goals. Let's see a candidate, for a change, fully disclose how they will achieve fiscal responsibility through a draft budget.

The Ghost of Voodoo Economics

 Republican still push supply side economics.  Yesterday, the Washington Post ran this article: "Supply-side economics at core of Gingrich plan".  Supply side economics is Voodoo economics. It encourages people to recklessness consume before they have earned the money to buy products/services. That is one factor that caused the great economic meltdown in 2008.

Blame Bush was at fault by reducing the tax rate and reducing regulations that stimulated reckless growth. But guess what, after time you pay for that unwarranted stimulated consumption. People will only buy so many refrigerators, houses, cars, etc.. After a wile they STOP buying for a variety of reasons. They run out of credit, they have no need for that tenth car, they can no longer afford overpriced houses. The economy then tail spins. In the meantime, taxes have been cut. The deficit balloons out of control. Supply side economics works till the music stops. Economic devastation then occurs.
 
The purpose of taxation (with a few exceptions) is to provide revenue for Government operations. Tax policy should not be used to manage the economy

Debt Ceiling Travesty

Once again the debt ceiling was raised.  The Washington Post writes: "The latest hike in the debt ceiling will lift the federal borrowing limit from $15.2 trillion to $16.4 trillion, an increase that will see the country through the end of the year." The way this was accomplished was despicable and not what you would want to see from our elected ersatz leaders.  My quickie point, I have seen a short video clip were a congress person solemnly pontificates on how the debt ceiling has to be raised, since the money has already been spent! A totally idiotic comment. If you know that you are approaching the credit limit, stop spending (or raise revenues). A simple economic solution that Congress and the President do not seem to grasp.

CNN Piracy Propoganda - Back in the USSR

CNN's Wolf Blitzer on the Situation Room had a very disturbing segment concerning piracy. The segment was reminiscent of old style Soviet Union propaganda. Unfortunately, it seems that the segment has yet to be posted, so no link. Here is a link to an earlier story: Anti-piracy bill meets Web-freedom backlash.  TechDirt has greater detail and analysis here.  Essentially, today's Situation Room segment was a sob story highlighting how those in the entertainment industry are suffering greatly from wanton piracy that needs to be controlled to protect the starving artists.

I believe in very limited copyright/patent privileges and do not believe in so-called "intellectual property".  However, this post will not be digging into the concern over the legality or non-legality of piracy but of the purposely unstated consequence of what a so-called "war" against piracy will mean. To be fair and balanced, Wolf Blitzer should have delved into the concerns reviewed below.

We are supposed to be a Nation based on laws.  Implicit in that context are things such as "due process" and innocent until proven guilty.  The Fourth Amendment of the US Constitution states: "The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized."  The so-called "war" on piracy will be a nullification of the Fourth Amendment.

Beyond the obvious Fourth Amendment there is the issue that the law should apply equally to everyone.  But the trend in the so-called "war" against piracy is to eliminate the rights of the consumer in-order to protect the revenue stream of the content industry. Simply put, the content industry will be allowed, without a warrant, to monitor you and take whatever unilateral actions they deem appropriate against you.

Update (12/9/2011): Since originally posting TechDirt came out with the following: Constitutional Scholars Explain Why SOPA & PROTECT IP Do Not Pass First Amendment Scrutiny.  Laurence Tribe notes that:"...it delegates to a private party the power to suppress speech without prior notice and a judicial hearing. This provision of the bill would give complaining parties the power to stop online advertisers and credit card processors from doing business with a website, merely by filing a unilateral notice accusing the site of being “dedicated to theft of U.S. property” – even if no court has actually found any infringement.".

In the "old" days, it used to be that the police had to obtain a warrant to search your premises, had to collect evidence, and then had to present that evidence to a court to obtain an arrest warrant. This of course was then followed by a slow irritant of a trial by jury. In the interests of economic efficiency these impediments and the need for courts are being eliminated. Not only that, but if you believe that you are innocent, you will have to go through a tortuous, tedious, and expensive process to prove that!

The content industry is eliminating the consumer's property rights. Funny how the content industry wants to protect their property, but is figuratively "stealing" your property.  The Concept of Sale Is Under Attack.

Then there is the "Broken Window Fallacy".  The content industry claims that pirating costs the industry money and puts people out of work.  It does not. What happens is that people still use that money to buy other things, which other people have to manufacture.  There is no net loss to the economy.  The only loss is to the content industry. And if we are good capitalists (as most people claim to be); if an industry can't make money, too bad. It goes out of business.

As a conclusion, developing research and anecdotal evidence is demonstrating that piracy does not hurt sales! So, if piracy does not actually hurt sales, why must the US public be stripped of their civil rights and live in a police state to supposedly protect the revenue stream of a selected industry?  Time put an end to this onerous "land grab".

Our Bread and Circuses Economy

 The Washington Post, unintentionally, helped me make my case that our politicians are running a  Bread and Circuses Economy. In the article "Ever-increasing tax breaks for U.S. families eclipse benefits for special interests" (along with some nice graphics) the Washington Post writes: "Over the past two years, largely because of these popular benefits in the federal income tax code, the government has reached a rare milestone in tax collection — it has given away nearly as much as it takes in. ... All told, federal taxpayers last year received $1.08 trillion in credits, deductions and other perks while paying $1.09 trillion in income taxes, according to government estimates. ... For those reasons, the tax code is a popular venue for both parties to pursue costly policy goals. ... Policymakers can give taxpayers a government benefit and get credit for lowering their tax bills — a combination lawmakers find “irresistible,” Kleinbard said, because they can portray themselves as tax cutters rather than big spenders."

"The America Invents Act" - Another Non-Solution

Obama just recently signed into law "The America Invents Act", which is another piece of useless legislation that will adversely affect the economy in the long-run. Click here for a brief summary of the "The America Invents Act". My essential concern with this bill is that it is an administrative band-aid; not a fundamental re-thinking concerning what deserves to be eligible for patent protection.  Business plans, software, cloud concepts, and natural products such as genes should not be eligible for receiving patent protection. Eliminate the eligibility for these types of activities to receive patent protection and allow the concept of prior-art to have a a real effect on the decision making process; the workload of the patent office will drop dramatically.

When this type of legislation to protect so-called "intellectual property" is passed into law, it damages the free market system. This type of legislation is essentially designed to protect dying business models that should be allowed to gracefully exit the economy.  Mike Masnick  noted that "Nearly all of the good ideas were excised in the process, and you can tell that's true by the fact that no actual tech company appeared with the President at the signing. Instead, it was chemical and pharma companies -- old school legacy industries that are trying to "protect" old businesses, not innovate with the new."

Lets dig a bit deeper into the Mike's comment that innovative companies weren't at the signing ceremony. By coincidence, the September 26, 2011 issue of Forbes had the following article: "Out Sourced Forever, Why Amazon can't make the Kindle in America" by Stephan Denning. (Unfortunately this article does not yet appear to be available on the Forbes website at this time.)  The significance of Mr. Denning's article is that as we loose our capacity to manufacture high tech product here in the US, that the creators of those products will leave the US to work in the attractive overseas markets. In other words, brain drain.

If innovation is moving overseas, that means that patents will also be moving overseas.  If we continue in the US to pursue a "strong" patent regime it won't take long for the overseas companies to start seeing the monetary benefits of formulating their own "strong" patent system. In the end, we will loose when we have to start paying these companies exorbitant licensing fees. The hand writing is on the wall, neither our politicians nor business leaders seem to be aware that they are pursing a suicidal policy by insisting on "strong" patent protection. Be careful of what you ask for. It may bite you.

As a final jab. The political right taunts the phrase: "“That government is best which governs least.” ( I actually agree with the phrase). Derived from that logic, the political right assets that the government stay out of our personal lives and the economy. The political right then goes on to say that entitlement programs for the poor are "bad", regulations are "bad", and that consumer protection is "bad".  If all these things are "bad" why do we need welfare and protection for private businesses? My take; if a business cannot compete in the free-market without government protection, too bad. It goes out-of-business.

Government Job Creation Is An Oxymoron

The title makes for a good sound byte. The title comes from a CNBC interview with William Dunkelberg,Chief Economist of the National Federation of Independent Business (NFIB). In that interview Mr. Dunkelberg makes it plain that our economic malaise is a debt problem. In the course of the interview (Unknown person at the 6:53 mark), the statement is made that "... this is not a traditional recession. this is a recession caused by too much debt. Debt went from 120% of GDP in the '50s to 360% of GDP now."

Since the consumer is busy paying down debt, they are not buying. Consequently, the stimulus programs being proposed by Obama will not work because businesses will not hire unless there is a demand for new employees in order to increase production. One could even make the case that the recent bankruptcy of Obama's showcase green energy company, Solyndra is a precursor pointing to the stimulus programs eventually failing.

The interview gets to the point at the 3:40 mark. At the 4:40 mark Steve Liesman asks Mr. Dunkelberg if reducing the marginal cost of hiring will help. The answer was essentially no. Mr.  Dunkelberg says that what he needs is customers and they are not buying.  Mr. Dunkelberg does go on to state that businesses would not be interested in hiring since it would not significantly improve the ability of companies to make a profit. Following Mr. Dunkelberg interview, in an unrelated interview Representative Jeb Hensarling (R,TX) made the complimentary statement that temporary tax relief would only bring temporary jobs.

Stimulus programs that provide amorphous "incentives" and "tax breaks" to businesses will not resolve our economic malaise. Government job creation in this manner is an oxymoron.

Solyndra and Green Energy

Solyndra was to be an Obama showcase high-tech job creating green energy business.  Well the company filed for bankruptcy.  Another failure in the use of "incentives".  Today the Washington Post ran this article: FBI searches shuttered Solyndra offices, plant in California.  According to the Washington Post, Solyndra is "leaving taxpayers on the hook for a $535 million government-backed loan".

Below is the comment that I left concerning the appropriate approach for encourageing green energy in a free-market environment.  I will acknowledge that my proposal does not fully conform to my assertion that taxation should be limited to funding government operations, not for economic manipulation.  The distinction that I will draw is that increased taxation will continue to fund government operations and encourage entrepreneurs to create these businesses when the economics are there.

"The "correct" solution would be to make traditional energy sources more expensive through taxation. That would nudge people into green energy and would help to reduce the debt.

Alas the "Bread and Circuses" approach that buys votes is to give tax credits and other incentives. This encourages the establishment of businesses that are unsustainable once the subsidies go away, they increase the national debt, they invite fraud, and place liability on the taxpaying public."

The Source of Our Economic Malaise II

I have been writing that the cause of our economic malaise has been over-stimulation of the economy.  Since posting The Source of Our Economic Malaise, the Washington Post published the following article: "Consumer fears put economy on the brink". A more appropriate title would have been the "Failure of Supply Side Economics.

Below are comments made by the readers of the article that tend to support my assertion that we over-consumed and now we have to under-consume for a variety of reasons.

etronsen wrote: "People used their homes like ATMs. ...  We are now paying the price for that profligacy."

gainsworth wrote: "Its hard to spend what you don't have. The massive consumer credit fueled by the housing bubble artificially inflated consumption in for the past 10 years. Now that the piggy bank is empty and you no longer have a job, its kind of hard to keep buying. It is going to take ten years for people to get out of debt, rebuild some savings, instead of living on credit, and only then will the economy start to recover in a meaningful manner. Hopefully, it will be through manufacturing, infra-structure building and upgrades etc. and not pure consumerism." 

Cossackathon wrote: "For years I've heard economists bemoan the fact that the US public did not save enough. Well, we started to save more, now that's a problem, as well."

HGF78 wrote: "Oh good, we are back to blaming the American Consumer. Let us look at the real causes of people not spending. Jobs have been shipped offshore (Chinese workers cannot drive the American economy) and no pay increases for years for those left with a job. Now add in increasing costs for gas, insurance, food and clothes. I think the problem is not people spending but the fact they have nothing left to spend with after paying for the basics. The corporate cost cutting model is destroying the US economy. They need to stop worshiping at the alter of increasing quarterly profits." (fixed spelling errors)

PennyWisetheClown wrote: "Corporate America wanted it both ways they wanted America as the premier consumer society and they wanted outsourced cheap labor. ...  Problem to stay consumers America needs the jobs to support that lifestyle--something the bean counters neglected to add into their equation and America today is the result."

Iconclass wrote:  "As being unemployed for about one year out of two during the great recession, I payed off my debt I incurred during that time for food. Do you really think I am going to go out and buy a new living room set made overseas so I can bolster the bottom line of the marketers and investors of these factories? ... I repair what I have. God granted me with an awesome mechanical aptitude to do this. I work when I am asked to, putting off family obligations, personal life, etc.. I live below my means, made sure one weeks check covers a mortgage. My car is ten years old and well maintained with a manual transmission. ...  All extra money I have goes to pay off my debt, a mortgage, which I foresee to do in five years." (fixed spelling errors)

The Source of Our Economic Malaise

I suppose it occasionally does not hurt to support my CasualObservations with some punditry.  I have been writing that the cause of our economic malaise has been over-stimulation of the economy.  We can actually blame Bush for this.  Regretfully Obama wants to outdo Bush with even greater stimulus, which I have been arguing is wrong.  I have periodically mentioned that both Fox News and CNBC mention over-stimulation, but they never seem get around to linking it to the failure of Obama to stimulate the economy.  Very frustrating. This time I made a point to get a link to this CNBC interview with Stephen Roach of Morgan Stanley.  Here is a link to a CNBC video Global Recession: Begins & Ends With U.S.?. The interview starts 50 seconds into the video.

The short synopsis, Mr. Roach states: "That's what the markets are telling you right now, David. It all starts with the American consumer. The biggest piece of the U.S. economy by a large margin. [???] biggest consumer in the world. Here's one number that will say it all. over the past 14 quarters, from 2008 q-1 to the second quarter of 2011 average analyzed growth in U.S. consumer spending in real terms 0.2%. never before has the biggest consumer in the world, the American consumer, been this weak for this long and that feeds everywhere, not just in driving jobs in America, but driving external demand for export-led economies in Europe and Asia. and without the American consumer, the global economy's in trouble.  ...  consumers got hammered in a crisis largely because they overspent, they borrowed more than they ever should've. They squandered their [savings] and now they're facing record high unemployment and underemployment, weak income growth. the consumer's going to be in a hole for many years to come." (emphasis added)

My apologies if the cutting an pasting above is crappy.  The CNBC transcript was difficult to read.

Misleading Deficit Reduction

Once again the media fails to disclose that so-called deficit reduction really hides the fact that the deficit spending will continue to increase our total debt.  All that is being proposed is to spend slightly less than originally proposed, not to cut spending.  Note the misleading headline: In tandem: Reducing the deficit to raise debt ceiling. (emphasis added) Below is a Washington Post graph.





The Economist graph from the Cato Institute



Of particular note, I liked the comment by Mr Edward of the CATO Institute:

Wait a minute, those bars are rising! Spending isn’t being cut at all.  The “cuts” in the deal are only cuts from the CBO “baseline,” which is a Washington construct of ever-rising spending. And even these “cuts” from the baseline include $156 billion of interest savings, which are imaginary because the underlying cuts are imaginary...
The federal government will still run a deficit of $1 trillion next year. This deal will “cut” the 2012 budget of $3.6 trillion by just $22 billion, or less than 1 percent.

When will we ever see a graph from the Obama administration showing the claimed [deficit reduction] to demonstrate that the above graphs are somehow "wrong".  Probably when hell freezes over.

PS: Fixed text in brackets/