Thought For The Day - 16 August 2019

How's about the USofA swapping Puerto Rico for Greenland? Denmark gets a winter wonderland vacation spot, and we get an air force base to bomb Russia back to the stone age. Not that The Manchurian President, or Moscow Mitch, would consider that. But, they could build a glacial golf course, with an Ice Hotel on the first hole.

And it makes an equal swap: both countries still have the same number of territories.

GE Whiz

OK, so the GE shit has hit the fan. The thrower has face validity, in that he exposed Madoff before anyone. What's odd, at least to me, is this statement:

General Electric CEO Larry Culp released a statement following the release of Markopolos' report, saying, "GE will always take any allegation of financial misconduct seriously. But this is market manipulation — pure and simple. Mr. Markopolos's report contains false statements of fact, and these claims could have been corrected if he had checked them with GE before publishing the report. The fact that he wrote a 170-page paper but never talked to company officials goes to show that he is not interested in accurate financial analysis, but solely in generating downward volatility in GE stock so that he and his undisclosed hedge fund partner can personally profit."
[my emphasis]

One might take that bold text to mean that GE has some non-public information which 'explains' the accounting questions. That statement, in and of itself, might give one pause.

I Still Hate Neil Irwin - part the fifteenth

Neil keeps inching toward the truth, which is, of course, that the CxO class has been shivering in their boots for years. As has been predicted here for years, rate inversion was inevitable, just because those holding all that TARP, QE, and tax cut moolah accumulated over the last decade (and longer, to be honest) have been chasing fiduciaries rather than buying plant and equipment. And, naturally, driving up the price of Treasuries and driving down the interest rate. The Fed has only the most tenuous control of any interest rate, and that is a very short term one. Jawboning by fiddling with the Fed rate only works when doing so makes a modicum of sense. Only the Right Wingnuts foist the pablum of 'investment by business will end income inequality and create more, and better jobs'. Laff my ass off. And so on. Killing off the middle class consumer makes the Masters of the Universe feel better, which is to say, superior, but ends up killing the whole kit and kaboodle. It's been the American way from the get-go.

If you're a corporate C.E.O. making investment decisions, the environment in which operate is shifting beneath your feet. Even with a seemingly bottomless supply of cheap capital available and a very low corporate tax rate, it feels awfully risky out there.

And indeed, through the first half of the year, falling business investment was a drag on American economic growth.

And, by the way, the environment hasn't really shifted. Yes, The Manchurian President's tariffs are stupid and paid for by the USofA consumer, but the assault on the middle class has been ongoing since the start of the Housing Bubble. Hell's bells, the bubble happened just because the Masters sought risk-free (or, at least, risk-nearly-free) returns after the DotBomb. Fiduciaries looked like the best bet, since they didn't depend on finding profitable physical placements. What sort of fiduciaries should they embrace? Well, home mortgages have been rock stable for decades, so why not make lots of high priced ones, and package them up in securities? Just write some paper, and all those strung out lower middle class dopes would keep paying their escalating ARM mortgages and make the Masters rich. They wouldn't all default at once, would they? Of course they won't.

Laffer, where are you? If ever Supply Side Economics would be proven correct, the last decade of super cheap capital should have proved it. The unleashing of massive investment in physical capital by the Masters of the Universe!! Nah. The Masters have all chased Treasuries, happy to take the guarantee of paltry interest (paid for with the taxes of the underclass, of course). Masters, my sphincter.

Researchers from Wall Street financial firms and the Federal Reserve have concluded that companies used repatriated funds mostly to buy back stock.
-- Jim Tankersley/2019

Lots of knuckleheads bought a piece of some bridge over the East River.

The Red and The Blue - part the second

Well, what has been prophesied (there are only three rural-majority/Red) states in these endeavors has come to be recognized by the mainstream pundits. Good on me.

Now if only the Dems can get it through their thick skulls that rabid rural rednecks are never going to be anything but rabid bible thumping (they consistently quote scriptur defending slavery and racism, dontcha know?) racists, and concentrate on the cities/suburbs where somewhat more open minds live. Again, it was a mere 78,900 rednecks that put The Manchurian President on his throne. If the Dems can't find that many recalcitrant voters in Blue Cities even in Red States...

The stakes in the struggle for Texas' big metro areas are rising because they are growing so fast. While the four major metro areas cast about 60% of the statewide votes in the 1996 presidential election, that rose to about 69% in 2016 and 2018, Murray and Cross found. Murray expects the number to cross 70% in 2020.

And the concentration of Texas' population into its biggest metropolitan areas shows no signs of slackening. The Texas Demographic Center, the official state demographer, projects that 70% of the state's population growth through 2050 will settle in just 10 large metropolitan counties. Those include the big five urban centers that O'Rourke carried as well as five adjacent suburban counties; those adjacent counties still leaned toward the GOP in 2018 but by a much smaller cumulative margin than in the past. Overall, O'Rourke won the 10 counties expected to account for the preponderance of the state's future growth by a combined nearly 700,000 votes.

As the report does point out, Southern college education generally and Texas in particular, is more Bible thumping than in the liberal (in the classical meaning of the word) states. So just being educated doesn't strongly mean intellectual honesty. But it's a start. And the simple fact that polyglot cities in due time expose even rednecks to diverse peoples and leads to ever less discrimination.

Just Your Average Joe

A few times over the years of these missives, there's been occasion to point out the difference between average cost pricing and marginal cost pricing. In particular, the differential effect of a high fixed-cost burden on pricing. Well, here we go again, with a report in the NYT about medical tourism.

Of special interest is the part the doctor's fee plays in the scenario:

Dr. Parisi, who spent less than 24 hours in Cancun, was paid $2,700 or three times what he would have received from Medicare, the largest single payer of hospital cost in the United States.
[my emphasis]

Once again, we see the tyranny of fixed cost in action.

In the United States, knee replacement surgery costs an average of about $30,000 — sometimes double or triple that — but at Galenia, it is only $12,000.

So, it's clear that the cost differential isn't labor, since the doctor got triple what he would have in the US. It's support of the hospital that's the devil in the details.

How are the extra dollars spent? Perhaps some group of health economists have/will manage to do a comparative study, although I doubt many hospitals will be willing to spill the beans. Does most of that large difference go to the CxO class of hospital admin? Or does it subsidize useful, but little used, equipment like MRI or hyperbaric?

And, oh yeah, the patient got a check for $5,000 on top of it all.

The unintentional (one hopes) side-effect of syphoning off such patients from US hospitals is that average cost of such interventions here will go up; there's just fewer patients using these interventions. Since total revenue diminishes, other interventions may also be re-priced upward to cover the 'shortfall'. Guess who'll likely be those patients? The poor, of course.

The tyranny of fixed cost visited my household. For reasons best left unsaid, the roof of the house is now covered with solar panels. The local electric company dragged its feet for months in the process of wiring in the panels. So far at least, electric companies are required to permit clients to co-generate. They don't like that, since it limits their revenue. The number of solar houses in any given utility's area is likely just in the noise, but once the number of installations begins to have a measurable effect on defraying the fixed cost of generation, transmission, and maintenance the lobbying to prohibit new installations and disenfranchise existing installations will gain much speed. There's no such thing as a free market when it threatens vested interest.

The utilities have successfully waged battles to squelch rooftop solar in states such as Arizona and Indiana, mostly by wielding political muscle to reduce compensation to customers for electricity fed back into the grid.

And, in yet another case of, if you can't beat 'em join 'em

For all the conflict surrounding rooftop solar, solar energy last year generated just under 1 percent of U.S. electricity, and utility-scale solar farms have three times the generating capacity of residential solar installations. That disparity is likely to grow.

Finally, the coup

And as more and more customers install solar panels, utilities earn less and less revenue, which means that rates for remaining customers must increase — which drives even more of them to rooftop solar. As battery storage becomes cheaper, some customers will be tempted to leave the grid entirely. A paper published by the Edison Electric Institute in 2013 famously warned of this vicious circle, giving rise to the expression "utility death spiral."

Hemmed in by their business model and regulators who expect adherence to it, many utilities have concluded that they have only one alternative: stop rooftop solar. In this battle, utilities have sometimes behaved oafishly, sabotaging themselves.

I Still Hate Neil Irwin - part the fourteenth

FINALLY!!! Mr. Irwin has found a pundit/expert with the gonads to say what needs to be said:

"The dollar being the primary global currency has enormous benefits for the U.S., but with the side effect that when the U.S. tries to depreciate, there are limits on how much it can do that," said Adam Posen, president of the Peterson Institute for International Economics.

FWIW, The Peterson Institute is bigly right of center, so admitting that Bully Uncle Sam is a bad thing means something.

The Peterson Institute has been at the forefront of research on the proposals by the Trump Administration of reforming the tax code.

If you really want something to chew on

Which brings us to the case of the Peter G. Peterson Institute, which, according to SourceWatch, is "founded, chaired, and funded" by Pete Peterson, a conservative Republican billionaire who made his money as a Wall Street hedge fund manager and served as secretary of commerce under President Richard Nixon. He has devoted himself and his billions to promoting deficit hysteria and convincing the public that programs like Social Security and Medicare will destroy the economy.

Boeing Boeing - part the fourth

David Gelles reports on the latest Max news, that a group of survivors have petitioned FAA to fully re-certify the Max, which is to say certify the Max scratch as a new aircraft. I guess that means the Worst Case Scenario. Actually, worse than what I've inferred is needed. Redesigned wing and landing gear is the extent of my Worst Case Scenario, which would not mean a new aircraft cert. We'll see, but it appears the momentum is building.

This could, note 'could', become an arrow in the quiver of whoever is the Dem candidate: the Right Wingnuts favor the Big Corporations over the Little People. The trend to outsource cert to Boeing et al didn't begin with The Manchurian President, but the amended type cert for the Max is in his closet. As recalled in an earlier installment, the signal change to the cert process happened under Dubya.

To earn certification for the 737 MAX 8, Boeing undertook a comprehensive test program that began just over one year ago with four airplanes, plus ground and laboratory testing. Following a rigorous certification process, the FAA granted Boeing an Amended Type Certificate for the 737 MAX 8, verifying the design complies with required aviation regulations and is safe and reliable.

Again, is it possible to fly an inherently unstable aircraft with managing software? Yes, sort of, with the X-29 being exhibit 1. But even in that case, the notion was to exploit instability to generate otherwise impossible maneuvering, which didn't happen.

[T]he whole system as flown (with the flight control system in the loop as well) could not be characterized as having any special increased agility.

It's hard to make the case that the Max design, with engines where they ought not to be, had any benefit to anyone. Just more moolah in Boeing's financials.