Like I Said...South and West

As if we needed further evidence that the center of power, economically and politically, in this country is moving slowing south and west. I covered this before here, here and here. This leakage happens quietly every day as residents leave places like New York, Massachusetts, and Pennsylvania for places like Arizona and North Carolina, but once in awhile we get a more visible marker. Unfortunately for the City of Brotherly Love, it is the poster child for this trend. In 1985, Philadelphia was surpassed as the 4th largest city by Houston. Now Phoenix has edged Philly out for the 5th spot. Hmm, corrupt, union-run, over-regulating Philly with its schools in crisis is losing population? Go figure. By contrast, Phoenix is less union dominated and regulates business lightly. Expect more news like this, with the winners being cities like San Antonio, Jacksonville, Tulsa, Oklahoma City, Raleigh, Boise, and Denver and the losers to be cities like Boston, Philly, New York, Baltimore, and Pittsburgh.

Tres Ironique

On the occassion of Frederic Bastiat's 205th birthday, Andy Roth offers up a little mini-celebration of the great 19th century French free-market thinker. Andy offers up some great excerpts from Bastiat, one of which describes legal plunder:

“But how is this legal plunder to be identified? Quite simply. See if the law takes from some persons what belongs to them, and gives it to other persons to whom it does not belong. See if the law benefits one citizen at the expense of another by doing what the citizen himself cannot do without committing a crime.”

This on the very same day that the French government voted to plunder Apple's intellectual property. Oh, the irony is thicker than cassoulet.

America's genius is that it knows a good idea when it sees one, regardless of its origin, and we have become more Bastiatian than France, whose great failing is that they have abandoned the great ideas that flowered right there on their own soil. Our gain doesn't have to be France's loss, Bastiat's influence is open to all...it's not too late mon freres!

Booker's First 100 Days

This blog will track the progress of the new Cory Booker administration in Newark, NJ. People of all political stripes (sane political stripes, I mean) should be rooting for Cory Booker. Anybody who offers their energy and an alternative vision to reverse the tragedy that is Newark, NJ deserves our support. Newark is both a social and political tragedy. Its unfortunate citizens suffer the consequences of lagging the nation in nearly every social well-being index. And politically, Newark represents a triumph of the flaws in our system, a sad example of what our democracy can spawn under circumstances of neglect and misjudgment.

Here is some background and here is some of the latest.

Latest Useless Poll Shows...Well, Natually

OK, all six readers of this blog know well the heavy workload that I endure to expose the laughable bias at Bloomberg News, which caters the the financial services industry. As I have stated many times, we in the financial services business are citizens just like everybody so we have political opinions, but when it comes to business we can't afford to let idealogy or politics blind us to economic reality or cloud our logic in decision-making. We have to be cold-hard, clinically rational or we lose money. As a leading provider of information to the financial world, you would think that Bloomberg would get that, that they would 'know their customer.' Nope and nope.

For some time Bloomberg has been hooking up with the LA Times to do polls. (This reminds me of when CNBC or MSNBC launched a political analysis show hosted by Paul Begala and Jim Carville.) The results of the Bloomberg/LA Times polls have been pretty silly and today that silliness is on display in classic form. Here is the article about the poll, which aims to convince us that the economy is in the tank and, of course, it is the President's fault. Fine, but if you are going to try dupe people about the state of the economy, don't do it on the same day that recent, already stunningly good, GDP numbers are revised upward.

I love the journalistic device they use, they found some Bush voter in Indiana to bitch about high gas prices and stagnant wages to impart the gloss of credibility. Employment is at an historical high, industrial production is at an all-time high, hourly wages have grown at 4.2% in the last six months (highest since 2000), household wealth hit a record high in March. What this article reveals is that Chris Burden of Indiana is a doofus.

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2/3 Full Glass Most Empty Since 2002 !!

I swear, if poverty were eliminated today, Bloomberg would run this headline: "Poverty Rampant As Recently As Yesterday."

Check out this TOP news story entitled, "Pessimism on U.S. Stocks at Highest Since Rally Began." Fair enough, but delve into the article and you learn this: as of the June 23rd survey results, bearishness stood at 35.6% (this you learn in the second paragraph), while bullishness stood at 35.6% (this you learn in the last paragraph). So what happened over the course of a week? Bearishness increased to 36.3%, a 1.9% increase (again, paragraph two). Bullishness increased to 37.4%, a 5.1% increase (you guessed it, last paragraph). Naturally, bearishness gets the headline.

I figured that with elections coming, Bloomberg News would have to kick this sort of slanted coverage into high gear. No doubt they will keep me busy during these dog days of summer.

BTW, kudos to Bloomberg for their website redesign...you can now receive your shamefully slanted news and self-loathing coverage of US capitalism in a vastly more user-friendly and attractive format.

Michigan is a Lesson for the National Economy

I have chronicled the state of Michigan's economic woes here before.

Here is a Bloomberg story about how Michigan's statist and anti-globalist politicians and unions of yesteryear sowed the seeds of their current misery (a bipartisan screw up to be sure). According to the article, Ontario was the big beneficiary of Michigan's misjudgment, but we also now know that numerous other US states, notably Mississippi and Alabama, have benefitted at Michigan's expense. Current Governor Jennifer Granholm has been visiting Japan to plead foreign automakers to reconsider Michigan. News out today would indicate that she wasn't very persuasive.

For anti-globalists and nativists, the good news is at least we have learned to compete with Canada and can now keep our auto manufacturing jobs within the borders of the US. Scant consolation if you ask me. The lessons here should be clear - business investment gravitates to where it is treated well and you can't preserve American competitiveness by demonizing foreign business or walling in your economy. Henry Paulson sounded out the theme of American business competitiveness in his testimony before the Senate Finance Committee yesterday, and he is dead on. We have to realize that the world offers many places to do business and we have to provide a reason for businesses to want to invest here and hire us. It is not our birthright, we have to compete and the first step is to be receptive, to say to all comers that you are welcome here. I hope that this is the 'vision' that Paulson is building to offer as a competitor to Bob Rubin's Hamiltion Project. (The more I get through Ron Chernow's biography of Alexander Hamilton, the more I am disgusted that Rubin has besmirched Hamilton's name by pinning it to a collection of statist economic policies. Hamilton was certainly for a strong executive branch as a matter of political philosophy as the right antidote for the weakness and vulnerability of a fledgling nation, but was adamently against government involvement in commerce and trade.)

Paulson Debuts

Treasury Secretary designate, Henry Paulson, is currently running the confirmation gauntlet in hearings at the upper chamber of the Great Sausage Factory. So far, he's slapped deficit weenies ("The fiscal deficit is in the realm of historical norm" and "It is manageable.") and affirmed the wisdom of the 2003 tax cuts and the need for true entitlement reform. Thus begins the transformation from a highly accomplished leader of the most respected financial institution in the world to politcal hack, idealogue, supply-side toady and ignoramus doofus maximus in the eyes of the MSM. Paulson goes in a beautiful, vivid butterfly, but unless he refrains from talking like this, the MSM will metamorphasize him into a slimy, splotchy catepillar.

Related note: Bloomberg has finally revamped its website. Not only do they relinquish the title of "Worst Information Website Ever" they have actually made a play for some sort of award. Excellent work folks.

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Twilight Zone Time

Every so often the stock market enters the Twilight Zone and you get a headline like this:
"THE DOW INDUSTRIALS FELL more than 75 points as better-than-expected reports on consumer confidence and the housing market raised interest-rate jitters ahead of the Fed meeting." Translation, 'Oh shit, times are too good.' As if investors wanted consumers to be retrenching and key sectors to be disappointing.

Sure rates are going to go up, leading to a higher discount rate for investment returns, but the fundamental driver of stock returns is economic growth, and indications that economic growth is stable or reasonably accelerating is good for stocks. Obsessive Fed-watching snookers investors into taking their eye off the ball, sending them to the Twilight Zone. Strong economic numbers are good for stocks.

SEC Embarrassed and Shamed Again

"The petition for review is granted, and the Hedge Fund Rule is vacated and remanded."

Thus is the the arrogant, illogical, and over-reaching Securities and Exchange Commission of the William Donaldson era smacked down yet again for arbitrariness. Here is the WSJ's take. Here and here are the original posts from deep within the "Now Batting for Pedro Borbon..." archives. Here is the actual opinion.

Bottom line: the SEC pulled some major shenanigans, namely changing the meaning of what constituted "a client" from its well-understood, long-standing definition to another meaning that allowed it to proceed to regulate hedge funds. The court signals its view early in the opinion, "[i]f Congress employs a term susceptible of several meanings, as many terms are, it scarcely follows that Congress has authorized an agency to choose any one of those meanings." The court further notes, in a footnote on page 10, the inconsistency of the SEC that maintains a different view of the meaning of "client" for a different purpose. You have to read the whole opinion to get a sense of just how nutty the SEC's reasoning was, and thus how arrogant they were to pursue the regulatory regime.

Thank you Phil Goldstein, citizen hero saving us from arbitrary governmental regulation, and let's hope that current Chairman Chris Cox takes the lesson and walks away from this regulatory gambit.

C'mon WSJ...Where is the HT Love??

I think someone on the WSJ editorial board is using Donny Baseball for source material. Their spot-on editorial about the Airbus A380 is here, but check out the first sentence:

"With the Concorde now mothballed or in museums, Airbus is fast becoming the current airborne testament to the hubris of state-led industrial policy in Europe."

Hmmmm. Sound like this?

Another Wound for Investors Thanks to SARBOX

Chalk up another company that is retreating from the public markets due to Sarbanes-Oxley. SARBOX is death by a thousand cuts for the US capital markets, brought to you by your friendly neighborhood Sauage Factory, er, federal government.

Restaurant Recommendation / Shameless Endorsement

Last night I joined Mother, Sister, and Brother-in-Law Baseball for a wonderful dinner at an underappreciated outpost of the Poulakakos Restaurant mini-Empire, Bayard's. (Poulakakos is, of course, the lesser known surname of Harry Poulakakos of Harry's at Hanover Square.) You know how I feel about Harry's. Well, let me register a hearty endorsement of Bayard's for anyone looking for an excellent and mature dining experience in downtown Manhattan. Harry's son Peter is running the show now and he has lured stud chef Eberhard Muller, formerly of Le Bernardin and Lutece, downtown. The food is unadventurous but nonetheless divine...in other words classic. Wines? Well, it is a Poulakakos place, so there's plenty of the good stuff and plenty of value as well. The setting is manly and mature...'dignified' is the right word. And it is easy to get a table. Bayard's is an underappreciated gem. Oh, and grab a drink in the bar first...Kate the bartender is beautiful and charming.

Even More Boeing vs. Airbus

Triple Ouch. Quadruple Ouch. Just too painful to watch, even if it is the French.

More Airbus vs. Boeing

Ouch and Double Ouch for Airbus.

Airbus will give civilization a great plane in the A380, but the word is still out on whether they will ever make any money on it. For those who don't get why that is a big deal or not, consider the history of the Concorde program. Sure it was a great achievement, but it wasted billions of dollars ferrying pampered individuals between New York and London or Paris for a couple of decades and only to wind up with a couple of large museum pieces. A colossal waste of resources. Beautiful and thrilling, but a waste nonetheless. In economic terms, all the money spent on the Concorde over the years was merely shuffled around from place to place and person to person, nothing was created. Lets hope A380 is not a repeat, the aviation museums are getting crowded.

Sweet Mother of Happiness...

Could we really be looking at the death of Abu Musab al-Zarqawi and the repeal of the Death Tax in the same day! Wouldn't that be lovely. Next stop, bin Laden and the Flat Tax!

Dead terrorists and tax cuts. Two of the top three things I want from my government right now.

UPDATE: Alas, not to be. So, I will be firing off a check for $250 to Steve Laffey's senatorial campaign today. As for Voinovich, we have to deal with him until 2010.

Revealing Language

A friend was seeking some travel recommendations while visiting Germany for the World Cup. Since I am partial to the Rhine region, I suggested checking out a beautiful little town that I visited years ago, Boppard. Waxing sentimental, I decided to check in on Boppard through the miracle of technology. And this little tidbit caught my eye...

"Two large worldwide well-known firms, BOMAG, producer of road construction machines, and Sebapharma, producer of skin products, safeguard employment in Boppard."

That about sums up the source of the German economy's ills, and Europe's in general. Employment is to be safeguarded. No matter that the essence of employment is a mutually beneficial exchange between two parties, and no matter that the mutually beneficial nature of this exchange is subject to the forces of change that are constant in all aspects of life.

Maybe this is just a bad translation of German where the nuance is lost, but it seems to me this conveys a defensive mentality, a desire to stand against change, which is a difficult way to make it in the world. Sad.

Mallaby's Death Tax Dreck

Suppose your spouse comes to you and states that he/she has just discovered that your near-retirement mother-in-law's finances are in a shambles. She had some money to tide her into old age, but a combination of things like injudicious spending and a moderate gambling habit have whittled down her resources. So your mother-in-law's care is now your and your spouse's responsibility. Let's further suppose that you make an above average living in a stable career and your spouse makes pocket change doing odd jobs, bringing in only enough to cover incidental luxuries like a cell phone or your daughter's gymnastics lessons. Faced with the new liability of your mother-in-law's future expenses, is the absolute dumbest thing that you could be to let your spouse cease doing their odd jobs? Sebastian Mallaby of the Wash Post would think so:

"The federal government faces a future of expanding deficits. Thanks to the baby bust and medical inflation, spending is projected to rise by nearly 3 percent of gross domestic product by 2030, a growth equivalent to the doubling of today's Medicare program. What is the dumbest possible response to this? Take a source of revenue and abolish it outright."

Failing to focus on the real problem, the mother-in-law's finances, both now and how they might evolve. That is not the dumbest thing you could do. Failing to contemplate and explore alternative uses of your spouse's time and skills. That's not the dumbest thing you could do. Obsessing over a measly amount of lost income that has no hope of achieving a solution for you is the dumbest thing you could do naturally. Since Mallaby doesn't shy away from labeling the opposite argument dumb, I won't shy away either. Mallaby is a dope. Regardless of your solution, the necessary approach to addresing a funding gap is to attack the largest sources of the gap first. I think they even teach this in high schools (although one can never be sure just what they teach in high school these days), it's called the Pareto Principal. In business you either attack your largest costs or go after your largest revenue opportunities. With household finances, you get a better job or downsize your living space or sell assets or cut out vacations, you don't waste too much time thinking about the impact of reducing your daughter's allowance from $5/week to $3/week.

Alas this argument can't really hold water, so that is why he supplies a litany of squishy egalitarian platitudes to buttress his position - fostering equality and preserving charitable giving and so forth. I think these arguments are easily rebutted and even reprehensible for other reasons, but at least they are aren't patently illogical like obsessing over medicine drops of revenue that are needed to fill a fiscally empty pool. Greg Mankiw, even displaying his trademark over generosity to policy opponents, points up the large gap.

UPDATE: Well, after I've gone ahead and posted this, Mankiw takes on Mallaby as well. I think it is pretty clear that Mallaby, like Krugman et al., doesn't have much in the way of cogent economic arguments but is more or less in a huff.

Diesel Grand Cherokee Coming

Big player Honda made its move, and now the Grand Cherokee. As much as I personally am waiting for Mercedes or BMW to do diesel, I realize that it is the leading non-luxury nameplates that will propel the new diesel movement. Volkswagen will be making a big push too. Notice the common factor in all this? Foreign companies. I hope this is not yet another area for Detroit to fall behind in.

Bush Appoints Paulson Treasury Secretary

The first reaction I had to this news was extreme annoyance at the WSJ for reporting last Friday that Don Evans was the leading candidate for Treasury Secretary. I had to drink no less than 5 extra Newcastle Browns and a whole bottle extra of Aussie Shiraz beyond normal intake levels over the weekend to deal with the stress of what looked like another Harriet Miers moment. I have no beef with Don Evans except that he would have been an incredibly uninspired choice and another wasted opportunity/clue that GWB has dropped the reins.

We shouldn't delve too deeply into why Bush picked Paulson, it is a relatively easy one - he's the best player in the draft so to speak. Still, the choice is even better than it looks - the economy is about the only thing that the Republicans have going for them going into the '06 elections and beyond. So they need a genuine policy stud to keep the economy on solid footing as long as possible. That means, principally, debunking and demolishing the numerous bad policy ideas that are fomenting around DC these days from windfall profits taxes to price gouging legislation to trade protectionism. It also means, advocating for new ideas that could extend the gains, like Sarbanes-Oxley reform and tax reform. And the Administration also just needs a new spokesman for the economy, Bush is tainted and will never get one drop of credit for the economy and thus is an ineffectual voice for this message. Paulson is both a new face and deep well of credibility. I wouldn't even be surprised if Paulson stays on past Bush if Republicans keep the White House in 2008.

The next critical question is why Paulson even took the job. I think the media's general take is accurate, that Paulson was given the promise of really truly being in charge of economic policy. But is that enough? Probably not. I have the feeling that Paulson sees his role in a larger context than serving Bush. I think he will take on a role much like Robert Rubin where, whether he is serving in office or not, he is the economic poobah of his party's establishment. Rubin is still a huge player and is working behind the scenes, launching the Hamilton Project for example, to craft the economic message that seeks to propel the Democrats in '06 and '08. If the ideas behind the Hamilton Project take root in the soil behind resurgent Democrats, much of the progress that Bush has made in convincing the American people (remember GWB's failure was purely legislative, but the electorate is on board with the idea that Social Security and the tax code need to be reformed) of the need for big entitlement-reducing reforms will be lost. So Bob Rubin's message, and the policy planks embodied in the Hamilton Project, need to be countered and done so in a big and thoughtful way by people with as serious a reputation as a Bob Rubin. That is how I think Paulson sees himself, as the guy to do that. At some point the stars will align and the time will be right for Social Security reform and Tax reform, it just won't be under the Presidency of George W. Bush. It could very well be under the Presidency of some Republican who wins the White House in 2008. Alternatively, if we have four years of a Democrat piloting the economy according to the Hamilton Project and Bob Rubin, entitlement reform and pro-growth advocates will have to fight these battles all over from the beginning. Paulson is here to secure the gains and seek further progress for when the time is right. IMHO.