Tag Archives: economy

We’re Not Just Reducing Demand For Electricity—We’re Destroying It

by WillUHJbrl Posted on July 31, 2014

Mother Jones

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This story was originally published on Slate.

The Wall Street Journal had a good front-page article this week about the challenges facing the nation’s utilities. For the longest time, electricity sales and consumption went hand in hand with economic growth. In the last several years, not so much. Electricity retail sales peaked at 3.77 trillion kilowatt-hours in 2008, dropped in 2008 and 2010, recovered a bit in 2011, and fell in each of the next two years. The 2013 total of 3.69 trillion kilowatt-hours was down 2 percent from 2008.

The culprits are many: changes in the economy (less industry, more services), higher prices and low wages pushing people to cut usage, more people and companies generating their own electricity on their rooftops, and a renewed focus on efficiency. I’d add another factor, one that the Journal underplays: Utilities are confronting the prospect of significant and widespread demand destruction.

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We’re Not Just Reducing Demand For Electricity—We’re Destroying It

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Fast-Food Workers Just Took McDonald’s Down a Notch

by Edwardo01P Posted on July 30, 2014

Mother Jones

On Tuesday evening, the federal government dealt a huge blow to McDonald’s, which has for over a year and a half been the target of worker protests and lawsuits over its low wages and questionable labor practices.

McDonald’s has long maintained that as a parent company, it cannot be held liable for the decisions individual franchises make about pay and working conditions. On Tuesday, the general counsel at the National Labor Relations Board (NLRB) ruled that this is nonsense, saying that the $5.6 billion company is indeed responsible for employment practices at its local franchises. That means that the company is no longer shielded from dozes of charges pending at regional NLRB offices around the country alleging illegal employment practices.

“McDonald’s can try to hide behind its franchisees, but today’s determination by the NLRB shows there’s no two ways about it,” Micah Wissinger, an attorney who brought a case on behalf of New York City McDonald’s workers said in a statement Tuesday. “The Golden Arches is an employer, plain and simple.”

The Fast-Food Workers Committee along with the Service Employees International Union has filed numerous complaints against the company with the NLRB since November 2012. Most recently, workers filed seven class action lawsuits against McDonald’s corporate and its franchises in three states alleging wage theft. The NLRB consolidated all these complaints into the case it decided on Tuesday, which focused on whether McDonald’s corporate can be considered as a “joint employer” along with the owner of the franchise.

Since the fall of 2012, fast-food workers at McDonald’s, Burger King, and KFC franchises around the country have been striking to demand a $15 minimum wage and the right to form a union without retaliation. The strikes recently went global. Organizers say Tuesday’s ruling will lend workers new momentum in their ongoing battle against the fast-food mega-chain.

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Fast-Food Workers Just Took McDonald’s Down a Notch

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Color Me Skeptical About a Guaranteed Income for All

by HumbertKvy Posted on July 29, 2014

Mother Jones

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Should we have a guaranteed minimum income in the United States? Something nice and simple that would replace nearly our entire current alphabet soup of means-tested welfare programs?1 Dylan Matthews posts about this frequently, and others chime in occasionally as well. It even has some support among conservatives.

I am not so sure, myself. Keith Humphreys makes a couple of good points here, but I want to step back a bit. At a bare minimum, I need answers to four questions:

  1. How big would it be?
  2. Is it a family benefit or a personal benefit?
  3. Is it for adults only, or would children also qualify for a benefit?
  4. How would it phase out with income?

There are many more details to work out, all of them important, but I don’t think you can even begin to talk about this without answers to these four basic questions.

I’m skeptical about the whole thing because I don’t think you can make the details work out. Nor do I think that it’s politically feasible either now or in the future.2 What’s more, I’m always skeptical of ideas like this that haven’t been adopted by any other country, even the ones with far more liberal welfare states than ours. I figure there must be a reason for this.

But I’m happy to be proven wrong. Just give me a policy skeleton to work with. What exactly are we talking about here?

1Proponents usually (but not always) make exceptions for education and health care, which are too variable and too expensive to be handled by a simple minimum income.

2Perhaps it’s feasible in our far-distant robot future. Maybe even necessary. For now, though, let’s stick to the medium-term future.

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Color Me Skeptical About a Guaranteed Income for All

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Why on Earth Are Argentine Bonds So Hot Right Now?

by CoyHargrove Posted on July 28, 2014

Mother Jones

What’s the hottest ticket in the global bond market right now? That’s right: Argentine bonds. They’re on a tear. But why? Didn’t Argentina just lose—once and for all—its court case against vulture funds who own old Argentine bonds and are refusing to accept partial payment of the kind that everyone else accepted after Argentina’s default a decade ago?

Why yes, they did lose. Argentina now has to pay the vulture funds—which is politically unthinkable for any Argentine politician who wants to avoid being tarred and feathered—or else it has to default on all its bonds, including the restructured “exchange” bonds that it issued in 2005. So why are these exchange bonds becoming more valuable? Argentina has always been willing to pay those bonds, so it’s not as if the court ruling has made default less likely. The risk of default was already close to nil. So what’s up?

Felix Salmon, having gotten tired of financial journalists offering up bizarre theories to explain this, tells us today that it’s probably all simpler than it seems. In fact, the odds of default have gotten higher, just as logic dictates, but this might actually be a good thing for bondholders. Normally, he points out, there’s no upside to bonds: you get the coupon payment, but you never get anything more. In Argentina’s case, however, that might not be true.

First off, there’s something called a RUFO clause. This means that if Argentina does eventually settle with the vulture funds, it has to offer the same deal to all the other bondholders.

Obviously, Argentina doesn’t have the money to pay out the exchange bondholders in full according to that clause. But if Argentina is paying out billions of dollars to vultures who deserve much less than they’re getting, and if those payments create a massive parallel legal obligation to the bondholders who cooperated with the country and did everything they asked, then it’s not unreasonable to expect that Argentina might end up paying something to the exchange bondholders, if doing so would wipe out any RUFO obligations.

Then there are interest payments:

The second way that exchange bondholders could get more than 100 cents on the dollar is, paradoxically, if there is a default. The minute that Argentina goes into arrears on its coupon payments, the clock starts ticking. From that day onwards — and actually, that day has been and gone already — bondholders are owed not only those coupon payments but interest on those coupon payments. And the interest accrues at the standard statutory rate of 8% — a massive number, these days.

So there you have it: a paradoxical case in which bonds might be viewed as more valuable if the odds of default are higher. Salmon admits that he’s just speculating here, since no one knows for sure why the market is so hot for Argentine bonds in the wake of Argentina losing its court case. But this is at least a reasonable guess. And a fascinating one.

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Why on Earth Are Argentine Bonds So Hot Right Now?

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Nobody Knows What Makes a Good CEO

by WinnieKinsela Posted on July 23, 2014

Mother Jones

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Bloomberg has done a bit of charting of CEO pay vs. performance, and their results are on the right. Bottom line: there’s essentially no link whatsoever between how well CEOs perform and how well they’re paid:

An analysis of compensation data publicly released by Equilar shows little correlation between CEO pay and company performance. Equilar ranked the salaries of 200 highly paid CEOs. When compared to metrics such as revenue, profitability, and stock return, the scattering of data looks pretty random, as though performance doesn’t matter. The comparison makes it look as if there is zero relationship between pay and performance.

There are plenty of conclusions you can draw from this, but one of the key ones is that it demonstrates that corporate boards are almost completely unable to predict how well CEO candidates will do on the job. They insist endlessly that they’re looking for only the very top candidates—with pay packages to match—and I don’t doubt that they sincerely think this is what they’re doing. In fact, though, they don’t have a clue who will do better. They could be hiring much cheaper leaders and would probably get about the same performance.

One reason that CEO pay has skyrocketed is that boards compete with each other for candidates who seem to be the best, but don’t realize that it’s all a chimera. They have no idea.

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Nobody Knows What Makes a Good CEO

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Blueberries, Gold, Inflation, and Professor Krugman

by BradFinsch Posted on July 18, 2014

Mother Jones

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So Paul Krugman writes a column about all the folks who have been hysterically predicting runaway inflation for the past few years, and what does he get? This:

I know it’s just a coincidence. The other 500 comments are quite likely perfectly sane. Nonetheless, this is what we’re up against.

POSTSCRIPT: In case you’re curious, food prices have actually risen 11 percent over the past five year. In other words, 2.2 percent per year.

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Blueberries, Gold, Inflation, and Professor Krugman

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Who’s Afraid of an Itsy Bitsy Bit of Inflation, Anyway?

by LydaMcCorkindal Posted on July 10, 2014

Mother Jones

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Why are so many people obsessed with “hard money”? Why the endless hysterics about the prospect of inflation getting higher than 2 percent? Paul Krugman, like many others, thinks it’s basically a class issue. If you have a lot of debt, inflation is a good thing because it lowers the real value of your debt. But if you’re rich and you have lots of assets, the opposite is true. Here’s Krugman using data from the Census Bureau’s SIPP database:

Only the top end have more financial assets (as opposed to real assets like housing) than they have nominal debt; so they’re much more likely to be hurt by mild inflation and be helped by deflation than the rest.

Now, it’s true that some of these financial assets are stocks, which are claims on real assets. If we only look at interest-bearing assets, even the top group has more liabilities than assets.

But the SIPP top isn’t very high; in 2007 you needed a net worth of more than $8 million just to be in the top 1 percent. And since the ratio of interest-bearing assets to debt is clearly rising with wealth, we can be sure that the truly wealthy are indeed in the category where they have more to lose than to gain by a rise in the price level.

Brad DeLong isn’t buying it:

It is true that the rich do have more nominal assets than liabilities….But it is also true that America’s rich have a lot of real assets whose value depends on a strong and growing economy.

I find it implausible to claim that the net gain is positive when we net out the (slight) real gain to the rich from lower inflation with the (large) real loss to rich from lower capital utilization. It’s not a material interest in low inflation that we are dealing with here…

I don’t think I buy Krugman’s claim either. He’s basically saying that hard money hysteria is driven by the material interests of the top 0.1 percent, but even if you grant them the clout to get the entire country on their side, do the super rich really love low inflation in the first place? Do they own a lot of long-term, fixed-interest assets that decline in value when inflation increases? Fifty years ago, sure. But today? Not so much. This is precisely the group with the most sophisticated investment strategies, highly diversified and hedged against things like simple inflation risks.

Plus there’s DeLong’s point: even if they do own a lot of assets that are sensitive to inflation, they own even more assets that are sensitive to lousy economic growth. If higher inflation also helped produce higher growth, they’d almost certainly come out ahead.

So what’s the deal? I’d guess that it’s a few things. First, the sad truth is that virtually no one believes that high inflation helps economic growth when the economy is weak. I believe it. Krugman believes it. DeLong believes it. But among those who don’t follow the minutiae of economic research—i.e., nearly everyone—it sounds crazy. That goes for the top 0.1 percent as well as it does for everyone else. If they truly believed that higher inflation would get the economy roaring again, they might support it. (Might!) But they don’t.

Second, there’s the legitimate fear of accelerating inflation once you let your foot off the brake. This fear isn’t very legitimate, since if there’s one thing the Fed knows how to do, it’s stomp on inflation if it gets out of control. Nonetheless, there are plenty of people with a defensible belief that a credible commitment to low inflation does more good than harm in the long run. After all, stomping on inflation is pretty painful.

Third, there’s the very sensible fear among the middle class that high inflation is just a sneaky way to erode real wages. This is sensible because it’s true. There are several avenues by which higher inflation helps weak economies that are trapped at the zero bound, and one of them is by allowing wages to stealthily decline until employment reaches a new equilibrium. I think that lots of people understand this instinctively.

Fourth, there’s fear of the 70s, which apparently won’t go away until everyone who was alive during the 70s is dead. Which is going to be a while.

It’s worth noting that hard money convictions are the norm virtually everywhere in the developed world, even in places that are a lot more egalitarian than the United States. Inflationary fears may be irrational, especially under our current economic conditions, but ancient fears are hard to deal with. As it happens, the erosion of assets during the 70s was unique to the conditions of the 70s, which included a lot more than just a few years of high inflation. But inflation is what people remember, so inflation is still what they fear.

Bottom line: Even among non-hysterics, I’d say that hardly anyone really, truly believes in their hearts that high inflation would be good for economic growth. It’s the kind of thing that you have to convince yourself of by sheer mental effort, and even at that you’re probably still a little wobbly about the whole idea. It just seems so crazy. Until that changes, fear of inflation isn’t going anywhere.

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Who’s Afraid of an Itsy Bitsy Bit of Inflation, Anyway?

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Unions Should Brace Themselves for a Major Supreme Court Loss

by KianHeinrich Posted on June 26, 2014

Mother Jones

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It’s official: The Supreme Court will wait until Monday, the final day of the current term, to issue its decision in Harris v. Quinn. As I explained in May, Harris is a blockbuster case that could, in a worst-case scenario, wipe public-employee unions such as SEIU and AFSCME off the map. And the chances of a damaging decision in Harris just increased—here’s why.

Heading into Thursday, the Supreme Court had Harris and three other cases left to decide. The justices chose to issue their opinions concerning presidential recess appointments (Noel Canning v. National Labor Relations Board) and so-called buffer zones keeping protesters at a distance from abortion clinics (McCullen v. Coakley). Justice Stephen Breyer, a liberal member of the court, wrote the Canning opinion; Chief Justice John Roberts, a conservative, took the lead in McCullen.

This makes it more likely that Justice Samuel Alito, who we’ve yet to hear much from, will write the opinion in Harris, which points to bad news for public-employee unions. “There’s almost no question Justice Alito has this opinion unless he lost his majority along way,” tweets Rick Hasen, a University of California-Irvine law professor. “Anti-union is his signature issue.”

Labor officials can only hope Hasen is wrong. Alito is strongly anti-union. In the 2012 case Knox v. SEIU, Alito essentially invited labor’s foes to challenge the basic model of public-employee unionism, in which non-union employees can be made to pay dues to a union for bargaining on their behalf, representing them in grievance issues, etc. Harris makes such a challenge; it’s what Alito asked for.

Unions like to call those non-member payments “fair share” dues. If it’s the union’s job, they reason, to represent all members and nonmembers in a unionized workplace, then all those workers should pay their fair share for that representation. Conservatives—and Alito—say fair-share fees violate the First Amendment rights of non-union workers.

The outcome in Harris could cut a number of ways. The Supreme Court could uphold the lower court’s decision dismissing the suit—a big union victory. It could strike down fair share fees—the equivalent of Congress passing a national right-to-work bill. (Right-to-work laws ban unions from collecting those fair-share fees from non-members.) Public-employee unions would survive that decision, but it would be a blow. The court could also effectively enact right-to-work nationwide and kneecap a union’s ability to exclusively represent employees in a unionized workplace. That would be catastrophic for public-employee unions.

If there’s any judge who might go that far, it would be Samuel Alito.

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Unions Should Brace Themselves for a Major Supreme Court Loss

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The US Economy Imploded Last Quarter

by GeoffrePutilin Posted on June 25, 2014

Mother Jones

Yikes. In the first quarter GDP didn’t grow by an anemic 0.1 percent. Nor did it shrink by 1 percent. According to the Commerce Department’s final tally, it shrunk by 2.9 percent.

Everyone is brushing this off because other economic signals suggest it was a one-off event. And maybe so. But even if it is, it probably knocks about 1 percent off the full-year figure compared to a more normal growth rate of, say, at least 2 percent. The only way it turns out to be a nothingburger is if this number really is an anomaly and the economy makes up for it with supercharged growth for the rest of the year.

I have my doubts about that. I just don’t buy the tired excuse that the Q1 number was weather related. Something happened.

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The US Economy Imploded Last Quarter

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Economic Scene: Carbon Cuts Now Won’t Stop Climate Change, but Could Limit Damage

by Myrna Posted on June 24, 2014

It’s too late to prevent climate change by reducing carbon emissions now. But it could help prevent even more serious damage 50, 75 and 100 years from today. Visit link – Economic Scene: Carbon Cuts Now Won’t Stop Climate Change, but Could Limit Damage Related ArticlesBipartisan Report Tallies High Toll on Economy From Global WarmingDot Earth Blog: Two Climate Analysts Weigh the Notion of a ‘Good’ Path in the AnthropoceneJustices Uphold Emission Limits on Big Industry

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Economic Scene: Carbon Cuts Now Won’t Stop Climate Change, but Could Limit Damage

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