Revolted Colonies

U.S. Politics and Culture

Category: Economy

Are You Tilting at Windmills or Can You Handle the Truth?

We at the Colonies welcome people of all beliefs, including those who believe in alternative facts; even those who tilt at windmills.  The phrase, alternative facts, was coined by Kellyanne Conway, to explain why the new administration had claimed its inauguration crowd was bigger than that of the 2009 Obama inauguration.  The National Park Service tweeted a side by side photo comparison showing the claim couldn’t possibly be true.  The Department of the Interior promptly shut down the NPS twitter account. 

For example, one of our readers who I will call Sasquatch (the mythical hairy, upright-walking, ape-like being)  did not agree with the latest post about the impact of the Michael Cohen investigation moving to New York.  Sasquatch concluded that I was a loser and a whiner. Now, I did lose a pair of gloves over the winter, but Sasquatch could not have known that.  Furthermore, I never whine, although sometimes I rhyne. That’s rhyme.

I decided to see who Sasquatch was and whether there were other “facts” which Sasquatch believed, but in fact were false.  I went to Sasquatch’s Facebook page and found this meme: 

The meme, with a quote by Thomas Homer-Dixon, a Canadian ecologist, allegedly concludes that the windmill pictured above requires so many hydrocarbons to build that it could run indefinitely and never generate enough power to save the hydrocarbons discharged in construction.  Is that the truth?  No, it’s not, unless the windmill is set down in a windless spot.

If the windmill is erected in a place that is windy, it will recoup the carbons in clean energy savings in as little as 3 years. If poorly placed,  it may never recoup its carbon cost. 

The meme based on the quote from Dixon’s book, Carbon Shift, purposely left out an important sentence.  According to fact-checking site, https://www.snopes.com:

In August 2015, a meme posted to the Google+ group “The Secret Society of Anti-AGW-ACC Cultism,” an organization that claims climate change is a hoax, started circulating online. While that meme (shown above) does reproduce the words of Thomas Homer-Dixon, the Associate Director of the Waterloo Institute for Complexity and Innovation, it elides a crucial section of the passage to significantly change its meaning.

“In his book, “Carbon Shift: How Peak Oil and the Climate Crisis Will Change Canada (and Our Lives),” Dixon wrote that some windmills might not recoup their energy construction costs, a windmill at a good location could pay back the energy costs of creating it in under three years. That section was omitted from the above-displayed version of the quote:

‘The concept of net energy must be applied to renewable sources of energy, such as windmills and photovoltaics. A two-megawatt windmill contains 260 tonnes of steel requiring 170 tonnes of coking coal and 300 tonnes of iron ore, all mined, transported and produced by hydrocarbons. The question is: how long must a windmill generate energy before it creates more energy than it took to build it? At a good wind site, the energy payback day could be in three years or less; in a poor location, energy payback may be never. That is, a windmill could spin until it falls apart and never generate as much energy as was invested in building it.’

The meme distorts the truth. By example, drilling an oil well that turns out to be dry will be a net loser, just like a windmill set up in a windless place. The meme leaves out this critical fact, and Sasquatch, who didn’t bother to question it, is none the wiser and in fact propagates the lie by reposting it.  Alternative facts are lies—untruths and half-truths, told to advance a false agenda.  Really, Sasquatch, you also need truth-tellers on that wall.

Amazon’s Right on Target

In his effort to become the only merchant left in the world, Jeff Bezos is now planning to acquire Target. What a surprise.  Bezos not so quietly has assembled pieces that enlarge Amazon’s sales and distribution system.  Assembling is not the right word, though.  More like the Anaconda indigenous to the namesake river – I say, River – Amazon is swallowing companies whole.  If you think it’s an accident that in 1994 he named his startup after the world’s longest river, think again.  Bezos has created the biggest stream of commerce ever assembled, and he is not done. It will make the Silk Road look like a two-lane blacktop.

Investors might have been surprised when Amazon picked off Whole Foods in June. Afterwards, the acquisition made sense.  Whole Foods had assembled a blue-ribbon inventory of store locations; for which it was paying top rents and charging the top prices needed to pay said rent.  Amazon is perhaps the only company whose supply deals, distribution and marketing could create the efficiencies and volumes to make good on Whole Foods’ costs.

Just the other day, some friends were sounding the death knell for Target.  The Minnesota-based retail giant had effectively pulled down premium department stores on clothes and grocery chains with competitive food prices. But Target is in trouble now; has been for a couple of years. Target’s first big problem was that it outgrew its supply chain, hampering sales growth.  The shelves, once expelling goods at customers like projectiles , were merely groaning and bursting at the seams. 

After Target got back on its feet, it felt Amazon’s breath on its neck and Wal-Mart squeezing in from the side.  Target began to falter. Its e-commerce division, rebounding from the 2013 credit card breach, was being dwarfed by Amazon. Wal-Mart, a head to head competitor, is viewed as a cheaper alternative to Target, even if that is not the case across all product categories.  However, Wal-Mart pulled ahead decisively in its online business. In fact, Wal-Mart supposedly was clogging up Amazon’s rear view mirror.  

Once the limping Target became separated from the herd, it was time for Amazon to pounce.  In October Target was a rival; in November it was prey.  Target will be Amazon’s brick-and-mortar general retail arm to go with the Whole Foods grocery appendage.  Home Depot, anyone?  You can almost feel the stock accelerating and pulling away from Wal-Mart till they are out of sight.

So. Another Johnny Rocco moment. More, Bezos?  You want more? Will you ever have enough?  No, I don’t suppose he will.  However, this market consolidation doesn’t create jobs.  At best it’s job-neutral. At worst, there will be redundancies in the management system.  Prices?  Consolidation doesn’t help prices; efficiencies should. But if Amazon pulls down Wal-Mart too, it will have no effective competition.  Once there is no competition, there is no pressure on prices.

The net net of this deal is that jobs don’t increase on higher sales volume and the consumer dollar, shrinking through inflation predicted in several core sectors for 2018, won’t stretch as far with the new behemoth.  In the current environment, only media companies are vulnerable to antitrust claims by the government.  Amazon’s acquisition might not even pass muster as anti-competitive for purposes of the the antitrust law.  It sure feels like Amazon will be the General Store on Main Street in Everyplace, USA.

How Many Sorcerers Need Apprentices?

Job

Future Ex-President Trump has rolled out his jobs plan, and he’s proposing – wait for it – an apprenticeship program. I could squeeze two pages of jokes out of that alone, but I wouldn’t respect myself in the morning. In TV land, Trump’s apprentices were actually untrained and lacked the mentoring of a successful apprenticeship. The candidates were treasure hunters without a map – or a clue. But if it worked on TV, he reckons, it must work for the inspiration for all reality shows – the American Dream.

Apprenticeship was a great innovation for the Middle Ages. Bring back artisanry and the trade guilds – wait, no organized labor – and you’d really have something. Good-paying jobs will require skills that so far robots can’t improve upon. Apprenticeship will help in certain industries but will be a hopeless mismatch in others.

The apprentice program targets the retail, health care and hospitality industries, where reprogramming – pardon, retraining – would work. But, this week, Amazon swallowed up Whole Foods like an anaconda inhales a jaguar. The gist is, the prospect of job growth in the retail sector is not especially rosy. Jeff Bezos will automate checkout, and cashiers will go the way of the carrier pigeon. Retail is among the ripest targets for job attrition.

Aside from his treatment of US allies, women, American media and people of color, Trump does know something about hospitality. At  entry level, those jobs are not well-paid. Besides, assuming mining jobs could be turned into hospitality jobs, people would need to move to the jobs (the need for portability of health care). Apprenticeship can help some step up into middle-management roles and better pay because there are relatively few technical demands.  But not every stripped-out mine can be turned into a golf course and resort. How many convention centers will we need when robots are running the meetings?

Health care is a non-starter.  Beyond entry level, good healthcare jobs require skill and education,  even some college.  And college, well, we’ve had enough of that! A semester or two at Clackamas Community College is one thing, but a four-year program to a Bachelor’s Degree is a different covfefe altogether.  Even in the higher reaches of healthcare, artificial intelligence is expected to take over routine diagnosis and treatment.

There is no fast, cheap way to better jobs. We need new industries. More than ever, job seekers will need education, not on-the job training, to acquire the necessary skills.  People’s needs and entrepreneurial innovation will prompt new industries.  Let’s hope people will be needed to run them. 

Opening Move

Following his inauguration, President Trump signed two executive orders. One of them canceled an upcoming premium cut on borrower’s insurance for FHA mortgages. The premium cut, of 25 basis points, would have lowered borrower’s costs at a time when mortgage rates are rising. For the borrower, the premium cut would have held down overall monthly costs on new loans. For the FHA, however, the cut would’ve reduced the amount of the insurance fund held by the government to cover borrower defaults.

The fund must be at least 2% of the government’s mortgage obligations. The insurance fund right now stands at 2.32%, slightly more than the minimum. By canceling the premium cut that was to take effect next Friday, the administration has made a conservative move to increase reserves against defaults.

For the new homeowner, rising rates will push up the entry cost of home ownership. The homeowner will have less buying power with a higher mortgage rate and no reduction in the insurance premium.

This is not a sexy issue, not the kind of thing that ever would’ve been discussed during the campaign, even if the campaign had been normal. It reflects conservative thinking about government-backed obligations. It may reflect administration thinking about the strength of the housing market and the underlying strength of employment. By canceling the cut on the mortgage insurance premium, Trump has provided the government with a greater cushion against defaults by borrowers. You would expect this move to have a slight dampening impact on new home purchases. On the other hand, if you believe that new home sales were artificially stimulated by keeping costs down, this move would prevent a bubble in housing starts.

Because the insurance rate can be cut later, this move does not figured to be a very big deal. It reflects conservative thinking about government obligations relative to the minimum requirement And the rate environment. If employment figures remain strong and real wages hold or increase, a cut in the insurance premium rate could be warranted in the future. As a lender or a guarantor, there is no reason for the federal government to cut its cushion to the minimum.

A buyer would be wise to put borrow less — buy a less expensive home or put up a higher down payment. That would lower the carrying cost, making the loan less risky from a lender’s point of view.

Hoosier Daddy? Carrier Will Keep Half of Jobs Slated to End

CarrierLater today, P/E Trump and Carrier will announce that 50% of the 2,000 jobs set to be outsourced to Mexico will be retained. There are no details available yet, but there appears to be a defense-budget stick used on United Technologies, the corporate parent, and some Hoosier carrots, delivered by Indiana. VP/E Pence remains the Governor. Kudos to Trump for saving these jobs.  

There are special factors at play here: the defense contract tie-in, Pence’s ties to the state, and the fact that keeping the jobs will mean only $.02 on Carrier’s profits of $6.50, less than half of 1%. In other words, the Carrier “deal” is a one-off. 

The jobs saved are high-paying, with hourly rates in excess of $20.00. Even with high-paying labor costs, Carrier shares are earning $6.50. Carrier is profitable without moving any of the jobs. 

 So why the impetus to move?  Wall Street earnings, competition, the lack of effective collective bargaining.  All but forgotten is the fact that disappearing jobs mean disappearing consumers. But that is beyond the horizon of the next quarterly earnings forecast. No need for this manufacturer to think about it. 

 

 

 

Health Care Costs Top The New President’s Agenda

img_143When the new President takes over the executive branch of the U.S. government in January, she must place health care costs at the top of her domestic agenda.  Considering Hillary Clinton’s  handling of health care reform in her husband’s administration, this would make an interesting parallel. In 1993 President Bill named the First Lady to lead a task force to reach the goal of universal health care.  The only thing universal was opposition to the plan. The new President will face a changed environment but the cast of characters is largely the same.  So, the administration must develop new approaches to succeed this time around.

Insurance Carriers in Retreat

The administration announced that policy holders will receive substantial premium increases on upcoming policy renewals in the Obamacare exchanges. The rate increases are set by state regulation. Thus, they are not arbitrary price hikes. Health care costs continue to increase at a rate that has overwhelmed health care budgeting. United Healthcare, the nation’s largest insurer, is withdrawing from some markets where the company is booking losses. UHC’s action signals that the insurance companies are maxed out.  An insurance company needs policy holders to do business.   By leaving the market, they are saying that they cannot get enough premium dollars to turn a profit after paying legitimate claims.

Causes of Increased Costs

When health care advocates line up the usual suspects, the insurance companies are often first on the list. If the insurers aren’t the cause, what is?  In America’s Bitter Pill, a book on the creation of Obamacare and its shortcomings, Steven Brill pointed out that the Affordable Care Act failed to address the cost aspect of health care. Obamacare expanded coverage without tackling the tougher issue of cost control. The pharmaceutical and biotech industries are the principal engines driving health costs.

Prescription Medicine Costs

The Obama administration agreed not to tackle drug prices in exchange for Big Pharma’s cooperation in expanding coverage. The government has no legal means of holding down prices for specialty or generic drugs.  It lacks an effective bargaining position even in Medicare, where the size of the purchasing unit would compel large discounts. 

The next President must engage the pharmaceutical industry meaningfully if she hopes to sustain Obamacare. There are good strategies available but the White House must be able to form a broad enough coalition in Congress to back its strength in negotiations with the drug lobby.  Consequently, a new approach to control costs must win over Congress. As a result, the administration  must count votes and negotiate with individual Members, not solely with leadership.

Biotech Costs 

Significant advances in genetic and cellular research generate new diagnostics and therapies, broadly described as  Biotech. Some of this research carries the promise of meaningful progress in combatting and preventing a number of cancers, as well as other diseases that are activated at the cellular level.  The cost of these advances is massive. The procedures take enormous time to develop, and there is no assurance that one will result in effective treatment. The rewards of success must justify the attendant costs and risks.  

As these therapies have become available, the cost has become a significant booster in overall healthcare benefits. Therefore, it is unrealistic to place the costs fully on the backs of policy holders  because it will price out people who cannot afford to bear that cost. The expansive nature of the field requires forward-looking approaches, such as public “sharing” in the fruits of publicly-funded research. The technology becomes a public-private asset, in which the ownership of patents  benefits the public in part.  Public participation can result in an overall cost reduction in health-care while providing seed-capital for  education and medical technology. Furthermore, the programs should be able to pay their own way.

Partnering with Providers

Engagement with the drug and biotech industries must be  mutually beneficial to be successful.  Policy holders won’t benefit from a punitive approach or one that threatens to disenfranchise the industries.  

© 2016 The Revolted Colonies

 

Third Rate Romance

low rent rendevousLow Rent Rendevous

This week, Hillary Clinton’s campaign launched Together for America, formalizing its recruitment of Republicans who are defecting from its nominee. The website so far consists of a list of Republicans and Independents who have officially declared for Clinton. The common fear and loathing of Donald Trump have made for strange bedfellows, but no one is calling this a love match. Hillary has been reviled by the right as much as President Obama and for a longer period of time.

Long-time National Security advisor Brent Scowcroft, Bush 2 Treasury Secretary and former Goldman Sachs Chairman Henry Paulson, Nixon and Reagan EPA administrator William Ruckelshaus, and Bush I National Security Advisor and Intelligence Director John Negroponte are the best-known names on the Leaders list.   They have thrown their support to Hillary Clinton this one time as a vote against Trump.   Her foreign policy approach, although criticized by Republicans, does not scare them the way Trump does.

This Who’s Who is dominated by foreign policy experts, who are appalled by Trump’s unabashed lack of information, experience, temperament or curiosity. Global politics are far too complex to be handled like a hotel acquisition. Clinton is not their domestic dream. Her economic policies will get the typical Republican rebuff.

Clinton’s economic speech delivered this week in Michigan was predictably Middle of the Road. The far-right National Review crowd called it a disaster, and policy wonks correctly called it lacking in specifics.  Left-leaning economists and pols have been quiet with good reason. The plan satisfies some of the main Progressive goals. She has protected her left flank sufficiently. More importantly, she signaled that she would not abandon her economic plan for a short-term marriage of convenience.

© The Revolted Colonies 2016

Randolph and Mortimer Sit This One Out



Paramount Pictures 
The infamous Duke Brothers of the eponymous Philadelphia commodities firm will not be endorsing Republican nominee Donald Trump, according to a press release issued by the firm and read aloud this morning by Curtis Biddle Rittenhouse IV, the firm spokesperson.  “Mr. Randolph and Mr. Mortimer have decided that they do not like the cut of Mr. Trump’s jib.  In fact, they wonder if he even has a jib.  Accordingly,” the release continued, “the firm of Duke & Duke cannot in good conscience support or endorse Mr. Trump.”  In responding to a follow-up question, Mr. Rittenhouse  was unable to recall when either of the Dukes last had done anything in good conscience.  “They seem to be quite serious about this, however.  They were refining their announcement over brandies.”
The Dukes decided that a Trump Presidency would be “déclassé.  Furthermore, Mr. Trump presents a threat to the survival of the Republic, perhaps a greater one than we do ourselves.”  The Dukes, who shorted the subprime mortgage market “quite by accident,” according to Mr. Mortimer’s memoir, were able to recoup a portion of their catastrophic losses from the Frozen Orange Juice Hoax of 1982, working their way up from rock bottom due to the charity of a visiting African Prince. “Damned lucky, that,” Mr. Mortimer was quoted at the time.  They were able to parlay the small sum of $10,000.00 into a portfolio estimated at $850 million, considerably less than their original stake but enough to pay up their dues at the Union League.
The Dukes had been unaware of the Trump candidacy, or of Trump himself, until a Biddle nephew informed them that the Harvard Republicans had spit the bit. Mr. Randolph, stumbling into the press conference while looking for the men’s room, joined in briefly. “Chip Biddle, Grace’s boy, is working in the firm this summer,” he said in reference to Charles Rittenhouse Biddle II. “Well now, he let slip that their little campus club had had a serious talk about this Trump fellow.  They don’t like him one bit. A Wharton man, it turns out.” Trump is a graduate of Philadelphia’s Wharton School but does not hold its prestigious M.B.A.  “It wouldn’t have changed a thing,” Mr. Randolph added. Only 10% of Harvard GOPs are supporting Trump.  The Dukes are paired off with the 90% who have decided not to vote for either party.
“We’d asked Mitt to give it another try but he thought we were just chatting him up. Then we had lunch with that nice Grover Norquist.  He suggested that we become familiar with this Fiscal Cliff fellow, but we declined.  We don’t know the family.”
© The Revolted Colonies 2016

  

Playing Defense

I was startled that fifty-one State Department officials called for US military intervention in Syria. Most are mid-level career diplomats. The State Department is for Diplomacy! They should be negotiating, waging peace. Here they are complaining that Syrian President Assad is violating the ceasefire and must be stopped. They are acting like the Defense Department. Startled I say!

Well, maybe not so startled.  The apparatchiks are looking at current events through a dusty spyglass. They harken back to a time when the US government gave a damn about the Middle East. We don’t much care now, as long as we don’t get dragged into another war. And we won’t get into another war as long as we don’t need the oil.  Energy independence has everything to do with it. The old hands at State don’t seem to understand that the game has changed. To them, Russian and Syrian aggression still means Freedonia’s Going to War! – but we’re not.  Either they didn’t read the memo or maybe they’ve heard the rumor that the Middle East Bureau is being downsized.

We’re inching toward Defense First. In the old days that was called Isolationism, and it was considered bad for business; military business at any rate. Those were the days when a war could create jobs for the entire workforce. These days, a domestic contract for new fighter jets is hardly a blip on the radar. Besides, we don’t have the money for a robust globe-striding fighting force, and we’re running low on soldiers.

World domination just isn’t what it used to be. Still, we can make America great by providing for and taking care of our own, as long as our own can get a living wage. Energy independence opens up a world of possibilities, with new industries popping up with the technology. Who knows, maybe in my lifetime, Americans will be driving Chevy’s again.

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