Category Archives: Austerity

Excellent Video (2:51) On How CO2 is Acidifying & Warming Oceans

Without healthy oceans the food supply for future generations and their very existence are at risk. And we know that even if all carbon being released today from fossil fuels were to halt, the climate would continue to warm for some time. Kind of like how just because you see an iceberg it doesn’t mean that you have time to steer the ship clear.

A False Choice: Either Jobs or Clean Water, Air, and Healthy Forests

Robert F. Kennedy presents a strong case that King Coal is by and large criminal given the massive amounts of regulatory violations and thus damage to local water, air, and geologic resources it wrecks. To this all one must add coal mining concerns’ repeated and ongoing attempts to mislead and falsely report low to no violations of numerous federal and state laws.

As usual several commenters complain about loss of jobs caused by efforts to restrict and ultimately ban strip-mining. Oh, and subsidies for renewable energy are bad. These arguments are nothing more than a bunch of hot, soot-filled air.

Most mining has been automated over the last decade or so — by the coal mining concerns (which receive tax subsidies and other benefits themselves). So we’re talking about very few jobs — that King Coal would happily eliminate if it could. They should be required to pay for re-eduction/re-location for miners as opposed to plying the line that its a choice between jobs and clean water, air, and intact forests. Its not, at all.

As Paul Krugman wrote the war on coal mining jobs was fought by the mining firms themselves:

“There used to be a lot of coal miners, but not any more — strip mines and machinery in general have allowed us to produce more coal with very few miners. Basically, it’s a job that was destroyed by technology long ago, with only a relative handful of workers — 0.06 percent of the US work force — still engaged in mining.”

Here is the key graph in the Paul Krugman post cited above:

Solar Power Usage in US and EU Builds, Policy Innovation Falters

By Walter Borden

Here at the midpoint of 2014, solar power technology continues its advance while its marketplace momentum builds. Economic policy and commercial efforts designed to induce commercial innovation must keep apace.  And there are pockets of progress in the political economics of deploying solar. Take for example this post from Clean Technica: “Solar Energy’s Quiet Invasion Into Professional Sports“. Or consider the Regional Greenhouse Gas Initiative (RGGI), a market-based regulatory program in the United States that reduces greenhouse gas emissions.

And in Germany, one of the world’s most important economies, reports, “The Fraunhofer ISE research institute has announced that Germany set a record high for solar use on June 9—on that day the country’s solar power output rose to 23.1 GW—50.6 percent of all electricity demand. The record occurred over a holiday, which meant less demand, but it still marks a major step forward for the world’s solar power leader.”

Key aspects of the report from our perspective:

  • Despite not having a generally sunny climate, Germany has been pushing solar energy, but not from the huge solar farms as seen in other countries. Other nations, like the United Kingdom, report the same.
  • The German government is on track to reduce greenhouse emissions from electric power generation from coal fired power plants while at the same time retiring its fleet of nuclear power plants (scheduled for closure by 2022).
  • The FRG aims for an energy mix of solar, wind and biomass; though solar has become the national leader according to most reports.


Yet challenges remain, as also notes:

The move to solar has not been without its problems, of course. The government plans to lower or remove subsidies as soon as possible, and the demand for batteries to store all that home-grown electricity is outstripping supply causing a rise in prices. Also, it’s not clear what sort of role utilities will play going forward. Currently, many homeowners are reporting surplus energy production on sunny days which they sell to electric companies, which now find themselves having to store it for use during cloudy stretches.

There’s another problem though it’s not as obvious: the German government noted recently that almost seven million households in the country are living in energy poverty (defined as having to spend more than 10 percent of income on energy bills). The national energy program, Energiewende, has resulted in some transfer of wealth. Economists note that even with subsidies, it’s generally the wealthy and sometimes the middle class who can afford to put solar panels on top of their houses.  The poor continue to live off the grid paying taxes that provide the funds for the subsidies. There’s also some evidence that the country’s energy program is pushing energy costs higher overall, resulting in more electricity being produced by cheaper fossil fuels.

Energy poverty is also a problem in the US.  As states like Ohio abruptly suspend widely popular solar power policies, working poor, middle class families, and businesses see expenses rise. Manufacturers like Honda and Whirlpool joined consumers in opposing Ohio Governor Kasich’s executive order to freeze its program. Additional side-effects weigh on taxpayers.  As more coal is used public health suffers resulting in rising health care costs, and water treatment costs increase too which is also true of  fracking for natural gas. These costs are passed along disproportionately to small businesses hurting them as well as working families. Continue reading Solar Power Usage in US and EU Builds, Policy Innovation Falters

Sustainable Ecologics and Economics At The Outset of 2014

fund-balance-logo-smallSustainable Economics and Ecologics

At The Outset of 2014


Section I: Impact Investing 2013 Overview/2014 Outlook

THE Intergovernmental Panel on Climate Change reported in September 2013 that it is “extremely likely” that human activity was the dominant cause of global warming or about 95 percent certain — typically the standard of rigor in scientific accuracy.

Accordingly, in 2014 the principle that environmental and development issues are inseparable from business will continue to integrate with global commercial and social functions. Impact investing in 2013 was characterized by a sense of urgency for adapting precepts of wealth creation and stewardship to 21st century realities. This matched up with the year’s abundant, rational exuberance in asset markets. We expect a cautious optimism to persist in 2014 though much of the reality based upside from 2013 is likely already priced into market values.  A correction then should not be ruled out, and those with short term objectives should consider capturing some profit. Looking further ahead, markets and society will increasingly reject notions that a Faustian bargain holds between employment and shared prosperity on the one hand and fresh air and healthy water supplies on the other.

There is, of course, more work to do. It became clear to many in 2013, in Shanghai, China for example, that regions with little to no regulation of pollution suffer poisoned water, air, and thus economic inefficiency. Wholesale deregulation of energy extraction then are at best short term fixes to long the term economic challenges of mitigating climate change and renewable resource stressors within the context of exploding energy demand across the globe. More troubling news issued from China at the turn of 2014 where the results of the world’s largest natural experiment in unsustainable economics are coming in, and they are nothing short of tragic.

An alarming glimpse of official findings came on Monday, when a vice minister of land and resources, Wang Shiyuan, said at a news conference in Beijing that eight million acres of China’s farmland, equal to the size of Maryland, had become so polluted that planting crops on it “should not be allowed.”….

One-sixth of China’s arable land — nearly 50 million acres — suffers from soil pollution, according to a book published this year by the Ministry of Environmental Protection. The book, “Soil Pollution and Physical Health,” said that more than 13 million tons of crops harvested each year were contaminated with heavy metals, and that 22 million acres of farmland were affected by pesticides.

A signal moment came in May, when officials in Guangdong Province, in the far south, said they had discovered excessive levels of cadmium in 155 batches of rice collected from markets, restaurants and storehouses. Of those, 89 were from Hunan Province  {, where Ms. Ge farms.}

Given the above outcomes and outlooks we share the that view bringing electricity to developing nations is a key goal for sustainable economics for a host of reasons. Xi Chen and William Nordhaus have found that luminosity is a strong predictor and proxy of economic growth rates. As GDP per capita rises quality of life improves and more often than not environmental degradation lessens. Fund Balance sees such considerations as essential for economic planning and maintenance in the US and EU as well.
US vs. China CO2Carbon Footprints: US vs. China
With these principals in mind we look back on the Fund Balance practice in 2104 and its plans for 2014. Continue reading Sustainable Ecologics and Economics At The Outset of 2014

The McCovery: Can low wage jobs sustain US infrastructure and middle class culture?

By Walter Borden

Copyright: Cartoon Network
Copyright: Cartoon Network

Building an equitable work environment in our nation is not about ensuring equal outcomes for all, as often claimed. Its purpose is to create equal opportunities for all citizens. The financial press makes frequent note of the slow, steady increase in employment in the US as ex ante proof of a recovery and thus cautious optimism. Yet looking at the matter simply as aggregate jobs created is downright myopic. Attention to the low and stagnant wages paid to almost all of these new work force participants and taxpayers. Further, even in an era of low inflation, these low wages represent income losses when adjusted for inflation. Is this the context and function of a truly recovering, resilient and sustainable economy for all but rather only a precious few? For the vast majority of US labor force participants, here are the salient realities:

  • If the $7.25 federal minimum were had simply been adjusted with inflation since 1968, it would be  ~$10 an hour.
  • If linked to average U.S. productivity growth, it would be over $18 an hour.
  • Between 1948 and 1973, the productivity of U.S. workers  rose 96.8 percent and wages rose 93.7 percent.
  • Between 1973 and 2011, productivity rose 80.1 percent but wages rose only 4.2 percent.
  • Median household income today, adjusted for inflation, is at 1989 levels.
  • During that same time, union membership dropped from about 1/3 of the private sector workforce to about 6.5 percent today.
  • The majority of gains in our economy have thus almost all of the growth in income, has gone to the top 2 percent, and especially the top .1 percent.
  • We are richer as a country than ever — with these riches concentrated in amongst a .1% of us and to an extent not seen in a century or more.

The reality of this type of labor whether its temporary, part-time, or full time is that one can start minimum wage and work a decade to even gain an $1 more per hour. In the warehouses where Amazon and Wal-Mart fulfill their online sales employees are mostly temp, allowing these firms, that do not contribute to the communities in which the operate, to nonetheless take advantage of the local infrastructure and  the means-tested/public services most of the employees at these operations require.

What if more people earned wages that allowed them to live a bit beyond subsistence? Would these wages be more likely to spent in the community? Or would they export most their earnings to offshore investments as management does? Would the local and state tax bases not grow, enabling public funds for desperately needed infrastructure improvements and transitions to clean economies that don’t compromise air and water quality for its inhabitants? Many of these jobs are not easily easily replaced with automation and algorithms. One other thing we know, states and nations with higher minimum wages and unions have stronger economies and better health and education outcomes.

The Model-Detroit: Bail Ins For Main Street, Bail Outs for Wall Street

Corporate Profits as a share GDP. Grey bars indicate recessions. Source: St. Louis Fed.
Corporate Profits as a share GDP. Grey bars indicate recessions. Source: St. Louis Federal Reserve.

By Walter Borden

MANY US cities like Detroit face pension and general service funding shortfalls. Yet for over 5 years the corporate sector has recorded historic profits as a share of GDP. In none of these years however, did they choose to undertake the simple, incremental steps that would have met pension reserve requirements. Even the debt ratings, presented as legitimate third party analysis in support of more pain for retirees and the working poor, are in fact made by firms owned and beholden to Wall Street titans, and as such are dubious. For example, some downgrades appear suspiciously right after a heavyweight firm has taken a position which would gain on a downgrade. Other cities in the US may soon follow as targets for the Model-Detroit. How to help main street? Continue reading The Model-Detroit: Bail Ins For Main Street, Bail Outs for Wall Street

Whither Generational Theft? A Tale of Two Decouplings: Profits and Pensions, Investment and Productivity

By Walter Borden

Does it make sense to tell someone that doesn’t have health insurance to go to the doctor? Does it make sense to expect jobless and underemployed citizens to save more? Many of the most profitable corporations across the US perennially underfund their pensions while simultaneously funding campaigns for privatization of social security paired with cuts to the program.

Pension shortfalls. Click to enlarge.
Pension shortfalls. Click to enlarge.

Yet, these same corporations oppose raising the cap on payroll taxes or asking Wall Street financiers to sacrifice via minimal financial transaction taxes common in the US during many a bull market and still common in the EU and Asia. All of this set against a backdrop of historically high corporate profits, S&P record highs, and stratospheric ratios of CEO pay to that of middle management and wage earners.  The term generational theft is popular argot for corporate bureaucrats and their funding recipients in Washington, DC. Many of the CEO’s and hedge fund managers recommend pain of the majority and none for themselves. Yet, US taxpayers currently fund corporations at an historical scale via low interest rate loans and subsidies. This is the real generational theft: draining the the US middle class so financial speculators can ship away jobs, keep cash in tax havens, and speculate on Asian markets.

Gillian Tett writing in the Financial Times makes notes of a statement by a top executive of a consumer goods conglomerate:

We see a pronounced difference between how people are shopping today and before the recession,” the executive explained. “Consumers are living pay cheque by pay cheque, and they tend to spend accordingly. Then you have 50 million people on food stamps and that has cycles too. So for our business it has become critical to understand the cycle –when pay [and benefit] cheques are arriving.

Hence, the mostly austerity driven so-called recovery further reveals another deteriorating economic indicator for the middle class. Compare and contrast this with austerity champion the Walton Family and its Walmart. Without accounting for its massive local and federal tax breaks and subsidies, Walmart receives even more welfare from US taxpayers by paying its workers so little that they cannot afford healthcare and so must utilize social programs funded by their neighbors and fellow Walmart customers. In short, the world’s largest employer, after the US Department of Defense and the Chinese Military, relies on taxpayers rather than participation in the general welfare of the communities in which it operates and generates huge profits for its small group of majority shareholders (5% of of its owners possess 50% of its shares). Is this an example of good corporate citizenship?

Click to Enlarge.
US Profits and Investment 1929 — 2012. Click to Enlarge.

Nevertheless, the most economically secure in our society mostly talk of deficits and are enabled by our nation’s highly consolidated media to dominate the public debate thereby granting them disproportionate exposure. Yet, their arguments that austerity and fiscal contraction will resolve the unemployment crisis fail logical and evidentiary tests time and again. Sequestration is projected to shave a point off GDP this year. As GDP shrinks consumers have less money to spend and consequently labor demands falls. Further, low-paying and low-to-no benefit jobs, which are the bulk of jobs now being created in the US, threaten a generation’s retirement security and access healthcare (health services as opposed to health insurance need disintermediation). Furthermore, corporations and the super affluent pay lower taxes than ever.  Supporters for this program argue that it frees up capital to be reinvested in the economy. But, this not the pattern of the past 30 years. In the last decade the pace of reinvesting these perquisites into the economy or funding pensions has all but completely lapsed. Rather, these windfalls are shipped to hedge funds and tax havens. Additional study finds deeper problems.

From a recent blog post by James Kwak:

That was my goal in my first law review article, “Improving Retirement Options for Employees”, which recently came out in the University of Pennsylvania Journal of Business Law. The general problem is one I’ve touched on several times: many Americans are woefully underprepared for retirement, in part because of a deeply flawed “system” of employment-based retirement plans that shifts risk onto individuals and brings out the worse of everyone’s behavioral irrationalities. The specific problem I address in the article is the fact that most defined-contribution retirement plans (of which the 401(k) is the most prominent example) are stocked with expensive, actively managed mutual funds that, depending on your viewpoint, either (a) logically cannot beat the market on an expected, risk-adjusted basis or (b) overwhelmingly fail to beat the market on a risk-adjusted basis.

Furthermore, how can someone that works full time outside of Wall Street understand the complexity of 21st century markets? For example, this animation shows what happens inside of the one half-second of trading in Johnson and Johnson shares: more than 1,200 orders and 215 actual trades occur again, in a half a second. (The colored boxes in the video represent exchanges, and the dots that go flying represent individual orders.) Such behavior takes place roughly 100,000 times a day according the animation’s creator, Nanex. Many professionals in the industry within the financial industry understand its mushrooming supercomplexity:

Could this meltdown have been avoided? Should rating agencies have spotted it? Well, this is how it would work with the rating agencies when we were building a new CDO. They would tell us their parameters and criteria; if you meet this requirement, you get that rating and so on. And they gave out a free model so we could test our product and tweak our portfolio for the CDO until it fit, I mean get the rating that we wanted. We would do a lot of stress-testing ourselves too, of course we would. We’d pretend the market changed and run the models to see how our products would hold.

But what happened during the financial crisis was like a perfect storm. In our tests we would assume the market moved, say, 10% – while in reality it rarely moved more than 1%. Now the crisis happens and suddenly the market moves 30%. Our models were based on what we saw as normal. Now we saw numbers behave in ways barely conceived possible.

Consequentially, a quartet of corporate sector driven storm clouds hang on the horizon:

 Nanex ~ Order Routing Animation ~ 02-May-2013 ~ JNJ .Click to Enlarge.
Nanex ~ Order Routing Animation ~ 02-May-2013 ~ JNJ .Click to Enlarge.
  • Underfunded pensions from corporations with record amounts of cash and an investment climate skewed towards insiders and Wall Street
  • Their ongoing failure to hire new employees and consistent blockage of publicly funded programs to fund infrastructure investment
  • A largely fossil fuel derived economy that requires large scale degradation of  our present and next generations air and water resources
  • Over-priced/under-performing privatized healthcare drives healthcare inflation at unsustainable rates all the while forcing the good neighbors in US society to pick up the tab for the uninsured, many of whom are employed by highly profitable firms

Whats going on?

Why are record profits and CEO pay more and more divergent from the economic well being of the society’s whose labor and resources they use?

Continue reading Whither Generational Theft? A Tale of Two Decouplings: Profits and Pensions, Investment and Productivity

The Road To Serfdom Is Paved With Austerity OR The Interest Rate Bubble That Isn’t Yet

By Walter Borden

Have low interest rates formed an economic bubble? They are significantly lower than their 10 year average measured against similar conditions. Stephen Schwarzman of the Blackstone Group thinks so. He and others predict the next great fortunes will arise from precise timing of its bursting. Yet, fortunes and reputations have diminished over the past four years or so as a consequence of betting on its collapse ex ante. The markets continue to signal low, unchanging default risk for U.S. debt in both Credit Default Spreads (CDS) and the Exchange Traded Funds (ETFs) which short US debt.  Economist and housing market expert Robert Schiller sees a cloudy outlook for mortgage rate increases. Paul Krugman, who correctly called the housing bubble in 2005, doesn’t see any evidence for a rate rise in the short and mid-runs.

CDS Spreads US.Brazil, Russia, China, Source:  Deutsche Bank Feb. 2013
CDS Spreads US, Brazil, Russia, China, Source: Deutsche Bank Feb. 2013. Click to Enlarge.

Keynes famously said that in the long run we’re all dead. And, this is not only an Apres Moi, la Deluge argument. Time scales for ending our employment crisis matter to our children and grandchildren as well. History shows that economic policy and social policy timescales are often not commensurate. In policy circles and television talking head broadcasts, conventional wisdom categorically assumes sans empirics, interest rate trajectories with a strong upward bias. Yet, this bias distracts us from the real problem: the national U.S. employment problem and the long term damage of which seriously threatens our economy, our infrastructure, and our children’s future. How to bend this curve downward?

Further, ample evidence shows that debt stabilization comes more surely from economic growth at ~4%. Unemployment will definitely come down, as will the federal debt, if we grow the economy by this 4% benchmark just as we did in the last four years of the Clinton Administration. For example, in 2000 the unemployment rate averaged 4% per month and the U.S. had a budget surplus.

Two caveats–first, a contemporary growth path must be a sustainable one focused on infrastructure investment, education investment, and clean energy. Growth need not require a trade-off between pollution and high carbon emissions. Much is made of the high growth in India and China and their resultant carbon emissions. Less oft mentioned is that both have nascent Cap and Trade programs to offset their rampant pollution of vital natural, economic resources. Financial deregulation, fossil fuel extraction subsidies, and privatization schemes — such as selling our roads to Australian speculators — need to be put on hold because we have no evidence that they create sustainable jobs. Secondly, health care costs are driving our deficit, and while the ACA, or Obamacare is already bringing healthcare inflation down, more needs to be done such as preventing rampant regulatory capture that leads to $28,000 per vial drugs to reworking Medicare Part D to allow US taxpayers to negotiate with drug makers on price just like the VA and Medicaid. An NIH study states:

Extension of existing price setting mechanisms to Medicare could save tens of billions of dollars if prices similar to those already achieved by other federal programs could be reached. Whether or not this is a political or economic possibility, the magnitude of these savings cannot be ignored.

Low unemployment and reasonable wage growth will signal the time for focusing on national debt.

Logic dictates that simply because two things can happen, their probabilities aren’t equal. And, key economic and social indicators signal little inflation and interest pressure on the horizon, even if low rates can lead to bubbles. So the government can borrow now at historically low interest rates and invest the money in an infrastructure for a clean economy with a low probability of inflating a bubble in the short to mid runs. This in one of the ways a government that controls the world’s reserve currency is significantly unlike a household budget.

Prediction markets probability of US Recession in 2013. Source: PredictWise. Click To Enlarge.
Prediction markets probability of US Recession in 2013. Source: PredictWise. Click To Enlarge.

Many observers point to how Federal Reserve policies have kept interest rates low since 2008.  However, the Federal Reserve announced during their December meeting that it will begin reversing its easing policies when the job market improves substantially, when the unemployment rate falls to 6.5%, or when inflation exceeds 2.5% per year. Current forecasts call for ~2% growth in the US in 2013 and ~15% chance of a recession — admittedly not an immaterial probability. So here again, 2013 likely will not vindicate interest rate speculators and bond short sellers.

In 1946 the debt was 120% of the GDP. It went straight down to about 32% in 1973. We had increased spending and deficits almost every year. The debt in dollars almost doubled. Real median household income surged 74% while CEO’s earned 50 times what their workers earned; it is 500 times today. The GDP averaged 3.8% growth. The U.S. resolved a debt crisis with more debt. Interest rates will rise eventually. That is not all bad. This would likely mean the unleashing of pent-up demand.  And, the resultant weak dollar would boost exports of solar panels and the produce of sustainable agriculture for which there is strong demand in Europe and Japan. So, household books balance and run surpluses while the government takes on debt as the lender, consumer, and with QE, even borrower, of last resort.

Why is spurring demand and high employment more critical than deficit

Federal Minimum Wage. Source New York Times. Click To Enlarge.
Federal Minimum Wage. Source New York Times. Click To Enlarge.

reduction in 2013?

Most Baby Boomers will be hard pressed to fund retirement either by both having saved too little and suffered poor investment advice, or perhaps simply needing to draw down funds in a prolonged down market. A cursory look at the math gives us numbers that seem to fall into place like a game of Tetris. By 2030,

Taking these numbers into consideration with the fact the consistent austerian policies very likely mean the U.S. faces a multi-decadal drop in aggregate demand — the main driver of growth which is in turn the most tried and true process for debt reduction — serious policy challenges face the US.  This underscores the need to create jobs first and build a strong revenue base around a clean economy so that pollution does not eat away the gains via increased healthcare costs and decreased land values. Austerity mostly leads to more lay-offs, comparatively weak job creation (with low wages and benefit packages requiring taxpayers to pick up the costs, and a environment where wages stagnate or fall. Stunted wage growth may bode in the short run for the Oligarchy, but not the well being of the the majority of U.S. citizens whose labor and tax-dollars are used to finance its mighty military and Too-Big To-Fail-or-Jail banks.

Continue reading The Road To Serfdom Is Paved With Austerity OR The Interest Rate Bubble That Isn’t Yet