Real estate, cybersecurity and other risks, economics, & more: links & commentary for April 28, 2019

Buildings Damaged, 2 Killed as Tornado Tears Through Northern Louisiana:

Communications director for the Louisiana Governor’s Office of Homeland Security and Emergency Preparedness Mike Steele said a mother and son in Lincoln Parish, which Ruston lies in, were killed when a tree fell on their home overnight.

Tesla Versus the World: First Musk Takes on Chips, Now Insurers:

Musk has bristled for years at how some Tesla customers have paid higher insurance rates. Costlier coverage undercuts the case the company frequently makes that its cars are the safest in the industry, and that its Autopilot system is deft at helping drivers avoid crashes.

I didn’t care for the following article because it is extremely redundant and doesn’t discuss the negative impacts of greed at the top and low wages at the bottom.

Has the U.S. economy stagnated because its work force aged?


… monopolists drive down wages …. [Source: Restoring Antimonopoly Through Bright-Line Rules]

Facebook investigated by New York AG over email harvesting:

In its statement, the attorney general’s office claimed that “the total number of people whose information was improperly obtained may be [in the] hundreds of millions.”

“It is time Facebook is held accountable for how it handles consumers’ personal information,” state Attorney General Letitia James said in a statement. “Facebook has repeatedly demonstrated a lack of respect for consumers’ information while at the same time profiting from mining that data.”

Don’t give tech giants your user name and password to anything.

Mozambique came up with a solution, and the US is well behind the curve.

… André Tenreiro was called into a meeting between the chief technology officer of the phone carrier he worked for—one of the largest in Mozambique—and an executive of the country’s largest bank. The latter had seen an escalating pattern of fraud based on so-called SIM swap attacks, where hackers trick or bribe a phone company employee into switching the SIM card associated with a victim’s phone number. The attackers then use that hijacked number to take over banking or other online accounts. [Source: The SIM Swap Fix That the US Isn’t Using]

Measuring populist anti-elitist views

Academic studies of populism consistently identify a few key ideas as underlying the concept: The people’s will is the main source of government legitimacy; “the people” and “the elite” are two homogenous and antagonistic groups; and “the people” are good, while “the elite” are corrupt (Stanley, 2011; Akkerman, Mudde, & Zaslove, 2014; Schulz et al., 2017).

The populism measure used throughout this report is based on combining respondents’ answers to two questions: 1) “Ordinary people would do a better job/do no better solving the country’s problems than elected officials,” and 2) “Most elected officials care/don’t care what people like me think.” Both measures are meant to capture the core ideas that the government should reflect the will of “the people” and that “elites” are an antagonistic group that is out of touch with the demands of “the people.” The second measure is a traditional question asked regularly over time on political surveys to measure efficacy and dissatisfaction with government responsiveness. This measure, or ones that are similar, are used by scholars studying populism to capture attitudes about an antagonistic relationship between elites and the people (Stanley, 2011; Spruyt et al., 2016; Schulz et al., 2017).

Those who answered that elected officials don’t care about people like them and who said ordinary people would do a better job solving the country’s problems than elected officials were considered to hold populist anti-elitist views. People who say the reverse – that elected officials care and that ordinary people would do no better – are considered to not hold populist anti-elitist views. Everyone else, including people who refuse to answer one or both questions, is considered to hold mixed views. In France, 40% of adults hold these populist anti-elitist views, 16% do not hold these views, and the remaining 44% hold mixed views. [Source: Views of the news media in France]

I was thinking about this very thing when Trump ramped up sanctions on Iran by withdrawing any waivers for those importing Iranian oil while he also doubled down against Venezuela. My thought was he was not simply looking to OPEC and specifically the Saudis but also Russia (now that the Muller report came back with no collusion to report) and finally US frackers. This following linked article doesn’t mention those possibilities but is an interesting read.

We may see a US recession over this if Trump holds.

The Fed certainly doesn’t think quickly in this sort of situation. They’ll only be reactive after the economy tanks at the rate they seem to go.

This time OPEC is going to wait until Mr Trump is irreversibly committed and the market is as tight as a drum. The fiscal break-even price of oil for the Saudi regime is $US88. That is the target.

The deeper problem does not go away when OPEC does finally match lost Iranian barrels. The more the Saudis produce, the more they erode the world’s safety buffer.

Westbeck’s Mr Le Mee says global spare capacity will fall to 1.2m barrels a day by the third quarter. This will not be enough to cover demand even if nothing goes wrong, and a great deal is likely to go wrong.

Mr Trump has taken the biggest economic gamble of his presidency. He has set in motion a potential oil crunch. [Source: Trump has just taken the biggest economic gamble of his presidency]

Was first-quarter GDP growth really at a 3.2% annual rate?

Growth in the first quarter smashed expectations, fueled in part by strong inventory building. According to the government, $32 billion of goods were added to inventories this quarter, or $128 billion annualized.

This stockpiling of goods boosted first-quarter GDP growth by about 70 basis points and helped propel growth to a 3.2% annual rate, well above forecasts.

The problem is that it is not at all obvious where these inventories came from.

Top White House economic adviser Larry Kudlow said the inventory build was mainly in autos, and wouldn’t be a problem because consumers would be opening their wallets.

Another White House economist, Kevin Hassett, seemed to suggest that the extra production wasn’t picked up in the Fed’s report on industrial production.

“People built new factories last year. This year they’re turning them on and are beginning to produce output. In the first quarter, I think a lot of that new output from the new factories went into inventories,” Hassett told CNBC.

The inventory mystery has key implications for the outlook. If the inventory build is real and unwanted, it might slow production. [Source: The big mystery in the GDP report — where did the inventories come from?]

… inventories rose, and rising inventories, which are considered an investment and add to GDP, are eventually followed by a decline in inventories when companies whittle them down again, and there is a price to pay for it. [Source: I Just Hope the Fed Won’t See This: US Economy Has Blowout First Quarter]

A Guide to Plastic in the Ocean

“Multifamily permitting activity has been high in recent years, but the reality is that as much as it feels like we’re building abundant rental units, it’s not enough to make up for a decade-long shortfall experienced during the housing boom, bust and early recovery,” Olsen said. [Source: Median rent reaches all-time high]

Here’s how climate change magnifies homeownership costs and leads to saving money if handled properly.

Here’s Marxist Paul Mason calling out MMT for not having worked everything out in advance. This is the typical approach to trashing MMT. Meanwhile, MMTers have no problem with wanting to workout the details, the models, etc.

Bill Mitchell, a prominent MMT theorist, argues that there is no need for government to issue bonds at all, since borrowing is inefficient compared to the Fed simply supplying money to the private sector at zero interest rates via the banking system. Again if you think I’m oversimplifying his position you only need to read the headline: “There is no need to issue public debt” writes Mitchell. Stephanie Kelton, prominent MMT advocate and a former adviser to Bernie Sanders, recently suggested that the Fed could pay off the USA’s $16 trillion debt “tomorrow”.

As far as I know, I wrote both things publicly before either of them went public with these ideas.

What can we agree on?

I want the US Federal government to spend money fast, running into extra trillions per year, because as the 2018 IPCC report says, humanity has just eleven years left in which to halve carbon emissions.

Since governments can today borrow at historically low rates, it should be financed through a mixture of running a deficit, hiking the tax take from US corporations and getting maximum bang for your buck in terms of the multiplier effects of government spending. I see no big problem for the Federal Reserve to finance some of the deficit by buying government debt directly — a process known as monetisation.

Mason trots out the “bondholders won’t like it” argument. Look, when all national debt is paid off and everyone is lifted up and saved from global warming through a war footing, who’s going to complain and be taken seriously? Yes, they need convincing, but MMT is finally getting a hearing. That had to come first, as I’ve said before.

Look, Marxism has had how long to convince the American masses? Did it succeed? No. Was it crushed and driven from the public square in terms of economic debate? Yes. Let’s not expect MMT do convince everyone overnight. Besides, MMT is democratic. Marx was a militant revolutionary who had no problem with the workers being the armed dictators. I don’t think that will sell here in the US. I’m sure not buying it. I’m a democrat, not a Bolshevik. Maybe Paul is a bit miffed that his “side” didn’t win. He’s not a Stalinist, but he comes across as still rather hardline.

MMT will prove that the government can create the money needed without borrowing, without owing anything to anybody. That money can be created democratically. The People can decide where it should be spent. What’s not to like?

Furthermore, Paul is arguing with strawmen. FDR didn’t use MMT perhaps because he didn’t know the economics. Keynes said FDR was relatively economically illiterate. Lincoln did, however, use a type of MMT and won the Civil War with it (read about the Greenbackers). Some people argue he was assassinated on account of it.

The additional problem this creates for MMT is that, because of the potential to automate 40%+ of all jobs or tasks in the next two decades, the “jobs guarantee” becomes like pushing a piece of string. It is why I and others advocate the creation of a universal basic income combined with universal basic services out of taxation to finance the one-off rapid automation that will significantly reduce the hours worked on the planet.

I agree with that. I’ve been saying it for years now. Although, I don’t say “basic” but “living.” Basic is the term of the laissez-faire, who want to eliminate government as much as possible. Living is the term of those who want everyone to have a high quality of life, not just be barely making it at the poverty line.

I don’t ask academics who have made their careers out of perfecting MMT to give up their theory. I just ask them to collaborate in the creation of a challengeable macroeconomic model where we can test the actions we’re going to take, understand the risks and mitigate them.

Paul writes as if he’s asked and been rejected.

Risks are ‘a thing’…and so is the death of capitalism: A contribution to the debate on Modern Monetary Theory

… it was obvious that the global rules of the game were tilted — not against, but in favor of the United States and other advanced countries at the expense of developing countries. The trade agreements were unfair — to the benefit of the U.S. and Europe and to the detriment of developing countries.

The idea that our trade negotiators got snookered is laughable: we got almost everything we wanted in late-twentieth-century trade negotiations. Over the opposition of those from developing countries, we secured strong intellectual property protections — which protected the intellectual property of the advanced countries, but not that of developing countries. We’ve succeeded in forcing countries to open up their markets to our financial firms — and even to accept those highly risky derivatives and other financial products that played a central role in our own financial collapse.

It’s true that American workers have been disadvantaged — low-skilled workers in particular have seen their wages reduced, in part because of globalization. But that is partly because American negotiators got what they asked for …. [Source: Joseph Stiglitz: US trade deals were designed to serve corporations at the expense of workers]

“Retail sales haven’t been this low for the past two years with the exception of the last few months where in December it went to its lowest reading since 2009.”

That decade low coincided with the historic plunge in the stock market. [Source: Chart shows glaring economic risk that could wipe out record highs]

This was the first time in recorded history that the southern African nation has been hit by two cyclones in one season, again raising concerns about climate change. [Source: Serious flooding in Mozambique in wake of Cyclone Kenneth]