We Lost $10 Billion Bailing Out GM and It Doesn't Really Matter
The Treasury Deparment sold the last of its shares in General Motors today, which concludes the auto bailout portion of TARP with something like a $10 billion loss. The bank bailouts, by contrast, made money. Some people feel this should have a big impact on our thinking:
For the record, government made money bailing out Wall Street, lost money bailing out car industry. But which industry does everyone hate?— Ben White (@morningmoneyben) December 9, 2013
It's a fair point, but I actually think folks are largely right to ignore the profit and loss issues. The basic reason is that due to the federal government's extraordinarily low borrowing costs, it's actually really really easy for the Treasury Department to make money as a value investor when it wants to. Treasury's paying 1.5 percent interest on a 5-year note right now, which is a joke. Anyone could make money with that cost of capital. Just buy a diverse portfolio of high-rated corporate bonds and watch the coupons roll in.
But nobody cares that this would work for the exact same reason that the government's cost of funds are so low: The government can print money!
That means neither the costs nor the benefits of the bailouts are well-summarized by looking at the government's finances. In both cases, action was taken during a panic to prevent firms from being liquidated. In both cases, anti-liquidation action was justified by the concern that liquidation would spill over to other firms (auto parts suppliers, bank counterparties) in a way that would further depress economy-wide demand and cause further losses. You don't need to buy that story in both or either cases (I have mixed feelings about it) but it's just not a story about financial costs. If there's a problem with the bailouts, it's precisely that saving the firms rather than letting them die and be replaced by something else is a problem. The money isn't the issue.
Private Transportation Largess Revealed
For reasons that are not entirely clear to me, Silicon Valley firms providing cushy corporate buses to ferry workers from San Francisco to their offices has become a potent symbol of inequality in America. Meanwhile, in the San Francisco metropolitan area, driving alone in a car remains a more popular commuting option than mass transit of any sort.
Indeed, driving alone is more popular than transit in every American metropolitan area outside of New York and Washington.
And all across America, companies are providing their car-driving employees with subsidized transportation in the form of parking. Either the company owns or leases the parking lot or parking structure outright and makes it available for employee use, or the company pays for employees to get free or discounted parking at a commercially operated garage. This kind of parking benefit is even subsidized by the federal tax code, which allows a parking subsidy to not be counted as income. Indeed, it's the tax deductibility of subsidized parking that help explain why it's such a ubiquitous perk.
Coding Is Great, but Maybe Everyone Should Learn to Read
The president has successfully reignited the conversation over whether in the digital age everyone should learn to code. I think the best way to think about this is as comparable to whether everyone should master Oliver Queen's salmon ladder routine. Which is to say, it'd be pretty awesome if we could all do that, but it's hardly the low-hanging fruit of physical fitness challenges.
According to the National Assessment of Adult Literacy, something like 14 percent of the adult population rates as "below basic" in their English-language prose literacy. Which is to say they can't read. Of those tens of millions of people, about 44 percent didn't speak English until they started school. So some fraction of the 44 percent is probably literate in some other language. Not an ideal situation, but more a consequence of immigration than of educational failure. But 56 percent of America's illiterate population did speak English at an early age. They just never learned to read. And note that the questions used to measure this are not very challenging.
One good reason it would be good if, in the future, we did a better job of teaching people how to read and write properly is that literacy is a good foundational tool for learning how to write computer software. It also helps you understand your credit-card bill. And to write your congressman about the need for political action on some subject useful to you. A lot of the conversation about education in this country seems to me to make this same mistake—ignoring how poorly the kids who are doing the worst are doing and how much good could be accomplished by bringing the worst performers up to par.
Stop Hurting America With Unnecessary Teaser Questions
It is often alleged that the top-performing charter schools in America are operating some kind of scam where they nudge the most problematic students out of their classes, creating an unobserved variable bias through which their demographics-adjusted performance looks great but is actually unimpressive. Whether or not this is actually true is thus of some interest:
And yet even though "There's no empirical evidence that charter schools 'push out' low-performing students" would have made a perfectly good tweet, we got it phrased as a question. Well, the answer is that there is no empirical evidence. Or at least that's the conclusion of the publication that's being teased. If you want more details, then by all means follow the link. But if you just want the headline, the answer is no.
The larger question, however, is are these kind of teasers hurting America and wasting valuable time? The answer is yes. Yes, they are. And I wish people would knock it off.
Why Do Newspaper Reporters Root For Deficit Reduction?
Democrats and Republicans have a very serious, largely unbridgeable gap in their ideas about what to do about long-term fiscal policy in the United States. At the same time, interest rates are currently low, and the budget deficit is falling fast and is projected to stay low in the medium-term. Under the circumstances it is very logical that Patty Murray, Paul Ryan, and other members of Congress are trying to hash out a budget deal that doesn't deal with the intractable budget conflict and instead focuses on reaching a narrower consensus about undoing some of the harm of sequestration and reducing the chance of a harmful government shutdown.
Except Lori Montgomery, who covers budget issues for the Washington Post, is covering this news like someone strangled her kitten:
The deal expected to be sealed this week on Capitol Hill would not significantly reduce the debt, now $17.3 trillion and rising. It would not close corporate tax loopholes or reform expensive health-care and retirement programs. It would not even fully replace sharp spending cuts known as the sequester, the negotiators’ primary target.
After more than two years of constant crisis, the emerging agreement amounts to little more than a cease-fire. Republicans and Democrats are abandoning their debt-reduction goals, laying down arms and, for the moment, trying to avoid another economy-damaging standoff.
The campaign to control the debt is ending “with a whimper, not a bang,” said Robert Bixby, executive director of the bipartisan Concord Coalition, which advocates debt reduction. “That this can be declared a victory is an indicator of how low the process has sunk. They haven’t really done anything except avoid another crisis.”
This reflects what has got to be the single strangest convention in political news today. Journalists who would never think of openly cheerleading for more people to get government-subsidized health insurance or for oil companies to secure a freer hand in drilling regard the goodness of deficit reduction as a kind of nonideological given. But it's not! The whole reason it's so hard for Congress to agree on a long-term fiscal deal is that everyone can agree that a long-term fiscal deal would be great if executed on their terms but not otherwise.
By contrast, there actually is reasonably broad agreement that another government shutdown would be bad for America. Having negotiators focus on an area where they might plausibly reach agreement is great news not a sign of the process sinking low.
Could Puerto Rico Be the Next Debt Crisis?
This is a little bit off people's radars, but something I've heard some quiet buzz about lately is the problematic debt situation in Puerto Rico. You can basically think of this as being a North American version of the story in Spain.
Bond buyers notice that the returns are higher than for lending to the U.S. proper but figure the risks aren't really higher. Local authorities enjoy the influx of cheap capital but don't really manage to spend it in ways that enhance the country's long-term growth prospects. Financial crisis hits, households and firms cut back on their sunny destination travel spending, so the economy takes a blow. Investors also realize that the politics aren't quite what they thought, and actually lending to Puerto Rico is quite a bit riskier than lending to the U.S. Now you enter a bit of a downward spiral, where to cover the costs of past borrowing you need to implement austerity measures that only hurt the growth outlook, and each blow to growth makes investors lose even more confidence. Meanwhile, other vacation destinations hit with a loss of investor confidence suffer currency depreciation, which causes problems of its own but at least makes them attractive places to visit. Now you're in a bit of a death spiral, where the bad economy makes the debt situation worse, and all efforts to cope with the debt situation further kill confidence in the economy.
So who cares? Well, Puerto Ricans for starters. But it's also interesting to wonder what will happen if Puerto Rico were to end up defaulting on its debt. American mutual funds will be exposed to some substantial losses, since some quirks of the tax status of Puerto Rican debt made them very attractive vehicles. But it's not such a big deal that you'd see a mass financial panic.
The real question is about contagion. No American state has ever gone bankrupt, in part because there is no provision in the bankruptcy code for a state to go bankrupt. But a number of states are in a pretty dire fiscal position. Illinois is de facto defaulting on its pension promises, following up on some earlier action in Rhode Island. Insofar as even these solidly blue states choose to stiff pensioners without making bondholders share in the pain, perhaps everything will be fine for holders of state debt everywhere. But honestly while the political and economic logic of pension cuts makes sense to me, the logic of strict bondholder priority does not. "Stiff retired cops and teachers so Wall Street can get paid" doesn't really sound like a sustainable long-term political agenda for me, especially because (unlike in the Spanish context) there's no sweetener in terms of a bailout from Washington. If Puerto Rico manages to make bondholders share the pain, I imagine you'll hear more talk of that option in some other debt-burdened jurisdictions. The market reaction to that would be pretty interesting, in a Chinese curse kind of way.
These Two Photos Show What a Disaster Microsoft Is Today
Steve Ballmer is chief executive officer of Microsoft. He's been in the job for some time, but he recently announced that he's stepping down. The fact that Ballmer's departure was announced without the simultaneous announcement of a successor is a good indication he was pushed out the door by the board of directors. And these photos taken Sunday around noon at the Fashion Centre at Pentagon City in Arlington, Va., show why.
Here's the Microsoft Store:
This is not a trick of the camera. There were zero shoppers in the store. At noon. On a Sunday in December at peak retail shopping season.
And here's the Apple Store:
It is crowded.
Of course Microsoft operated for many years as a fantastic company without any retail stores at all, so it's not as if the failure to build successful stores is the problem per se. The real issue is that there's nothing wrong with the store. It's a great place to shop. Much better than the Apple Store, really, because the Apple Store is crowded, and it's a little hard to get an employee's attention. At the Microsoft Store you get a very pleasant physical environment and a helpful staff. It's just that nobody wants to buy their stuff.
It's still a very profitable company thanks to its enormous strengths in the enterprise market. But enterprises are made of people. If nobody wants to buy Microsoft's stuff, that will trickle up into the enterprise.
About A Quarter of the Decline in Labor Force Participation is Aging
The unemployment rate has been slowly fallowing for years, but a different measure of the labor market, the so called employment-population ratio, has been dead in the water throughout the recovery. This is the conceptually simplest way of looking at the labor market. You take the number of employed people and you divide by the number of people, thus getting a ratio.
But precisely because this concept is so broad and so simple, it can encompass a lot of things other than the business cycle. For example, it's always been the case that a fair number of people in the 55-65 age range are retired. And demographic factors mean that people in that older cohort are now a larger share of the population than they were five or ten years ago. Jan Hatzius, the chief economist at Goldman Sachs, has a chart circulating around that shows the employment:population ratio adjusted for this kind of demographic change.
There are two ways you can look at this adjusted figure. One is to say that relative to peak the vast majority of the decline in work—about 75 percent—is about the business cycle and not about demographics. The other is to look not at the peak but the trough, and say that the appearance that there's been no recovery is essentially all about demographics.
Boeing Will Build a Factory in Your Town If You Pay For The Factory
It's no secret that big companies with lots of jobs to throw around try to strike good deals with state and local governments in exchange for deigning to locate there. But Boeing's wish list for building a 777X factory is extremely ambitious. For example, they would like to build the factory in a city that will pay for the entire building of the factory, with the following three points listed as desirable:
— “Site at no cost, or very low cost, to project.”
— “Facilities at no cost, or significantly reduced cost.”
— “Infrastructure improvements provided by the location.”
That's a little nutty. If your strategy for attracting the construction of an airplane factory to your town includes footing the entire bill for an airplane factory, then you might as well just launch an airplane manufacturing company. You can read the whole list here. They are ideally looking for a highly skilled yet low-wage workforce at a location with a dedicated railroad spur and a seaport. Plus low taxes!
No Sign of a Jobs Liftoff
Not to be Mr Sourpuss or anything, but I think the chart above undercores the fact that some of the celebratory atmosphere surrounding this morning's jobs report is a bit premature. It was a decent number of new jobs and nothing to cry about. But we've seen better months. Not just back in the pre-crash days, but during the disappointing recovery of the past four years.
That's a big part of the reason all this talk of accelerating tapering seems so badly premature to me. If next month is better than this month and the next after that is even better then, sure, maybe. But we're hardly experiencing some amazing boom.