Category: US business

Rail strike update, but …

Erick Erickson updates this morning’s post:

Railroad companies and union leaders averted a national strike that would have sent fragile supply chains into disarray and hiked energy prices. The negotiations were concluded early this morning with a tentative handshake agreement that is expected to hold. While Labor secretary Marty Walsh handled the negotiations, Transportation secretary Pete Buttigieg was touring the Detroit Auto Show.

Buttigieg’s habit of missing important moments on the job was previously highlighted when he took an extended paternity leave and no know noticed he was gone.

The Hill claims you need to know five things, but only one really applies:

Rail workers will soon vote on the tentative deal, and if any of the unions reject it, the nation will once again brace for a railroad strike.

Workers had largely opposed the presidential board’s contract recommendations, which ignored their demands for better quality of life and working conditions.

A recent survey from the SMART Transportation Division found that 78 percent of the union’s railroad workers would have rejected that contract. Another survey from grassroots group Railroad Workers United found that 9 in 10 railroad workers opposed it.

The International Association of Machinists and Aerospace Workers said Wednesday that its 4,900 railway workers voted to reject the Biden administration-appointed board’s contract. It delayed a strike until Sept. 29 to allow more time for negotiations.

It’s unclear whether the revamped contract announced Thursday does enough to win over workers, who eagerly awaited the specific terms of the deal.

Meanwhile, speaking of the Detroit auto show, Road & Track reports on this tweet:

President Joe Biden paid a visit to the Detroit Auto Show floor Wednesday, taking the time to see the latest from America’s automakers up close. Among the most interesting parts of his stroll was when he got behind the wheel of the new 2023 Chevrolet Corvette Z06, started it, and gave it some revs. Later that day Biden’s official Twitter account published a tweet talking about the electric vehicles he saw firsthand that gave him “so many reasons to be optimistic about our future,” alongside a picture of the Z06. Unsurprisingly, car Twitter went mad.

In case you’re unaware, the Corvette Z06 is not an electric vehicle. It’s far from one, actually. Behind the cabin sits a 5.5-liter naturally aspirated flat-plane-crank V-8 that can rev all the way to 8600 rpm while making 670 hp and 460 lb-ft of torque. Unlike an electric car, it burns gasoline and makes a wonderful noise

That is an egregious mistake. Biden’s tweet also claimed “As you know, I’m a car guy.” That is a lie given his administration’s policies that made gas prices skyrocket and made everything, including, cars, more expensive and less affordable. Biden’s Federal Reserve Board’s increasing interest rates, an effort to stop inflation that hasn’t been this bad in four decades, will make vehicles even less affordable by increasing borrowing costs.


The next Democratic disaster

Jim Geraghty:

We live in a country where the (currently) ruling political party and most of the national media have a symbiotic relationship. (Jen Psaki started work at NBC News this week.) One of the problems with this dynamic is that when the ruling class decides something is important — say, emphasizing the issue of abortion as the midterm elections approach — it tends to squeeze out everything that the ruling party doesn’t want emphasized. …

But there are a lot of other things going on in this world, and one issue that seems spectacularly under-covered — a ticking time bomb, if you will — is that starting at 12:01 a.m. Friday, about a day and a half from now, if there isn’t a new labor deal between freight-rail unions and employers, the U.S. economy will be . . . derailed.

Maybe there will be an eleventh-hour deal; I suspect many casual observers simply assume that a deal will get done because the consequences of even a brief work stoppage would be so far-reaching. But freight companies are already halting certain shipments in preparation for a potential strike, so in some ways, the consequences of a strike are already here.

The American Association of Railroads said this week that it’s begun taking steps to secure the shipments of hazardous and security-sensitive materials, such as chlorine used to purify drinking water and chemicals used in fertilizer. It also warned that “other freight customers may also start to experience delayed or suspended service over the course of [this] week, as the railroads prepare for the possibility that current labor negotiations do not result in a resolution and are required to safely and securely reduce operations.”

At noon [Wednesday], Norfolk Southern will close all gates to intermodal traffic — that means anything using multiple modes of transportation such as rail, ship, aircraft, and truck. BSNF Railway, one of the largest freight railroads in North America, stopped accepting intermodal traffic as of 12:01 a.m. this morning.

Amtrak has already suspended most cross-country routes and announced that, “It will only operate trains that can reach their final destination by 12:01 a.m. on Friday, when a freight rail strike or lockout could begin.” Without a deal, most Amtrak operations in California will be suspending operations starting on Thursday.

A freight-rail strike will also bring commuter-rail services to a halt in some areas: “Virginia Railway Express said if there is a strike it would immediately stop all of its commuter train service because Norfolk Southern owns the tracks for VRE’s Manassas Line, and CSX owns the tracks for its Fredericksburg Line.” Across the Potomac in Maryland, “Since CSX owns and maintains the Camden and Brunswick lines in addition to dispatching MARC trains, any labor strike would result in the immediate suspension of all MARC Camden and Brunswick Line service until a resolution is reached.” It’s the same story for Metra, the commuter-rail system serving the city of Chicago and its surrounding suburbs, and Metrolink, the commuter-rail service that serves southern California.

The U.S. Department of Transportation estimated that a freight-rail strike would cost the economy about $2 billion a day, but that’s just a big, abstract figure in most people’s minds. What Americans will notice is all kinds of products getting scarcer and more expensive (again).  As our Dominic Pino notes, crude oil, natural-gas liquids, refined products, petrochemicals, and plastics are transported by rail, meaning that a disruption in freight-rail service is likely to spur a gas-price increase (again). The average price for a gallon of regular unleaded gas nationwide is currently $3.70, which is better than the $5 per gallon price of mid June, but it’s still high by historical standards.

Once again, if you read local press or trade publications, you realize how many things in this country grind to a halt if there’s a freight-rail strike. From EnergyWire:

Chemicals make up the second-largest category of rail freight after coal — 55,000 carloads a week — and there aren’t enough trucks and barges to handle the volume, said Jason Miller, a professor in the department of supply chain management at Michigan State University.

A prolonged strike would have a bigger impact on the economy than the shutdowns during the Covid-19 pandemic, Miller said.

“At least during Covid, you able to keep [chemical] production going, oil production going,” he said. “You can’t do that with a rail strike.”

Farmers have a limited window to get their harvested crops to buyers before the food spoils, and for many crops, this is harvest time; farmers are now wondering if the usual rail options will be available after Friday:

A painful example of supply chain concern can be found in soybean farming. Hungry markets in Asia and elsewhere count on soybeans to make the ships in the Gulf of Mexico and the west coast.

“It’s gonna be devastating because just about all of the soybeans that are produced here go to a crush plant, and that crush plant is in Hastings, and they send two unit trains of soybean meal per week to the Pacific Northwest,” Greving said. He sits on the USDA United Soybean Board. “That is loaded on bulk vessels there and shipped to Southeast Asia.”

The price of oil affects everybody, farmers included. A rail shutdown would also stop the delivery of corn to most ethanol plants.

Remember, many of the world’s food markets are still reeling from the effects of the Russian invasion of Ukraine and the near-complete shutdown of Ukraine’s food exports.

[Tuesday], I briefly mentioned that a strike could disrupt the flow of coal to power plantsGrist lays out why there aren’t any realistic alternatives to get coal to those plants:

Because the fuel is so heavy and takes up so much space, rail is the only economical way to transport it from mines to power plants: The average coal train consists of 140 cars that each hold about as much coal as could fit on ten trucks. Even if coal could be shifted onto trucks, the trucking industry itself has also been experiencing labor shortages, and there’s not much excess truck capacity to absorb rail freight. . . .

“Coal stockpiles are already at historic lows in the United States,” said [John Ward, the executive director of the National Coal Transportation Association, a trade group representing coal shippers and buyers]. “Any further interruptions could be disastrous for power generation.

In the good old days, it wasn’t uncommon for utilities to have a 60- or 90-day supply of fuel, but I don’t know anybody who has that luxury now. If it became an extended strike, the consequences could be dire.” Should utilities burn through their stockpiles, they’ll have to slow down generation to save supply, which could lead to power shortages during times of peak demand. Prices would jump for as long as the supply backlog lasted.

The worst-affected places would be states like West Virginia and Missouri, which generate around 90 percent of their electricity from coal and don’t have the opportunity to switch to natural gas on short notice. Even states with large gas supplies will struggle, though, since gas markets are also tight as producers export large quantities of gas to Europe.

In case you’re wondering, no, trucks cannot pick up the slack. The American Trucking Association says it simply doesn’t have the spare trucks or manpower. “Idling all 7,000 long distance daily freight trains in the U.S. would require more than 460,000 additional long-haul trucks every day, which is not possible based on equipment availability and an existing shortage of 80,000 drivers,” ATA president and CEO Chris Spear wrote in a letter to Congress. “As such, any rail service disruption will create havoc in the supply chain and fuel inflationary pressures across the board.”

In other words, the strike scheduled to begin in, what, 36 to 40 hours after you read this, would be a far-reaching economic calamity.

And, in the eyes of some analysts, the country is in this spot because of the Biden administration’s decision-making, which aimed to maximize the leverage of its union allies:

“That this might occur right before the midterm elections is entirely self-inflicted by the Biden administration, where two of President Biden’s National Mediation Board [NMB] members took the bizarre step in June of terminating board-guided mediation two months early and starting the 90-day countdown to a possible rail strike,” Scribner told FOX Business, calling the move “unprecedented.”

If the NMB had stuck to the original schedule, Scribner says, the cooling-off period would have ended in mid-November. But instead, the board decided to cut things short.

If this was indeed some deliberate Biden administration strategy, you must wonder how well it thought this through, or whether the administration’s plan counted on a deal being reached by now. Because if there’s anything we know Joe Biden is loath to do, it’s suspending Amtrak service.

By the way, the potential railroad strike is mentioned in the 29th paragraph of today’s newsletter over at Politico. Today’s Axios newsletter does not mention the potential strike at all.

Dominic Pino:

Here’s how we got to the precipice of a nationwide freight-rail strike: These negotiations began in November 2019. The Railway Labor Act is a special set of rules, separate from the National Labor Relations Act that most industries operate under, which applies to railroads and airlines. Contracts under the RLA do not have set deadlines, and negotiations are open-ended.

There are, however, mechanisms within the RLA that can be used to force deadlines. After over two years of negotiations, the unions requested that the National Mediation Board, an independent federal agency, get involved to help settle the dispute earlier this year. They got what they wanted — the NMB got involved — but it was still unable to yield a resolution. The NMB offered arbitration as an option, which the carriers accepted, but the unions rejected.

On June 17, the NMB, which has a 2–1 Democratic majority, released the parties from mediation without an agreement after only two months. The NMB’s two Democrats are a former flight-attendants-union president and a former Teamsters attorney, respectively. (Two of the twelve unions covered by national freight-rail bargaining are Teamsters affiliates.) The board’s lone Republican voted against releasing the parties from mediation.

Once the parties were released, which is what the unions wanted, deadlines under the RLA started to come into effect. There’s a 30-day cooling-off period after mediation, during which strikes and lockouts are illegal. The president then has the power to appoint a presidential emergency board (PEB) to help resolve the dispute. President Biden did that on July 18. Both the unions and the carriers thought Biden’s appointees were fair and experienced.

The PEB, on August 17, issued a report containing non-binding independent recommendations, which started another 30-day cooling-off period for parties to negotiate a deal. Carriers wanted a 17 percent raise, unions wanted a 31.3 percent raise, and the PEB recommended a 24 percent raise. Carriers wanted to significantly restructure health benefits, which are very generous for rail workers; the PEB recommended largely keeping the benefits status quo. Unions requested three additional holidays; the PEB recommended against them, though it did recommend on additional personal day of paid leave.

The day after the report came out, carriers said they would accept deals that followed the PEB report’s recommendations. They have kept their word, and they have made agreements with nine of the twelve unions.

The agreements include the 24 percent pay increase (the largest in the history of national bargaining), maintaining the status quo on health benefits, the additional day of paid leave, and, in the case of maintenance-of-way workers, a more generous travel-expenses policy that the union president praised in glowing terms. Even unions that had previously voted to approve strikes, such as the American Train Dispatchers Association, saw the PEB’s recommendations as reasonable and made deals with the carriers based on them.

But SMART-TD and the Brotherhood of Locomotive Engineers and Trainmen (BLET), the two largest unions, are still unsatisfied. The cooling-off period that started when the PEB report was released has almost expired, and strikes and lockouts are permitted beginning at 12:01 a.m. on Friday.

SMART-TD and the BLET say they are more concerned about working-conditions issues, not wages. But the unions have essentially asked for concessions from carriers through national bargaining that are not typically part of national bargaining. The PEB addressed this multiple times in its report.

Unions asked for a minimum of 15 days of paid sick leave. The PEB said that would be “best resolved in the grievance and arbitration process, not by an overly broad and very costly proposal.”

SMART-TD and the BLET asked for changes to attendance policies and meal allowances. The PEB said, “We agree that updating is needed, but the submissions do not clearly indicate the particular update that we should recommend.” It remanded the issue back to the parties to negotiate.

SMART-TD and the BLET asked for changes to rules pertaining to scheduling. The PEB found merit both in their arguments and the carriers’ arguments to the contrary, and it did not make a recommendation. Instead, the members of the board said, “We believe that a six-month period for bargaining, beyond which time any Party may invoke arbitration, is sensible.”

Some issues are negotiated locally, not at the national level. The PEB said the issue of crew size, for example, should be negotiated at the local level. Local unions can negotiate with individual carriers to secure concessions for their members regardless of what the PEB says about national bargaining.

In other words, accepting the recommendations from the PEB report would not preclude the unions from getting what they want in further negotiations and possible arbitration. What it would do, however, is avoid a crippling rail strike.

The recommendations can’t be all that bad for labor since nine of the twelve unions have already made deals based on them. Remember: It was the unions that wanted to be released from mediation; it was the unions that rejected arbitration; and it was the unions that wanted the PEB.

Also remember: It was the two Democrats on the NMB who released the parties from mediation after only two months; it was President Biden who appointed the PEB, with his appointments praised by unions and carriers alike; and it was Secretary of Labor Marty Walsh who was supposed to have a handle on this situation and coax the unions to an agreement.

If there’s a nationwide freight-rail work stoppage on Friday and the economy grinds to a halt, sending gas prices up and stranding cargo all over the country, remember that the ball has been in labor’s court to accept independent recommendations from a board appointed by President Biden.

That board recommended a 24 percent pay increase over five years, which would be the largest such increase ever. It recommended the preservation of platinum health benefits. It recommended an additional day of paid leave and the preservation of eleven paid holidays, which is two more than the average union-represented worker receives and four more than the average transportation-sector worker receives. And it allowed parties to continue to negotiate or go to arbitration on other issues that were still outstanding.

Congress can step in and prevent a strike. Senator Roger Wicker (R., Miss.), the ranking member of the Commerce, Science, and Transportation Committee, has been calling for the adoption of the PEB’s recommendations. Senator Richard Burr (R., N.C.) has introduced a joint resolution that would adopt the recommendations of the PEB as binding and avert a strike. All Congress has to do is pass it.

Democrats control both houses of Congress and the White House. An eleventh-hour deal is still possible, and parties could elect to extend the cooling-off period again, but if unions and carriers are unable to make a deal, and Congress doesn’t step in to prevent a strike, the economic consequences that follow will be on the Democrats and their union allies.

Curious, isn’t it, that labor unions misbehave while Democrats in charge. (Except for the air traffic controllers strike, which Ronald Reagan ended by firing the strikers, and the Act 10 protests, which Gov. Scott Walker should have responded to by firing state employees.)


The manufacturing tax increase bill

Preston Brashers:

Where will President Joe Biden and congressional Democrats get the money to finance their large expansion of subsidies for green energy and extension of Obamacare subsidies for the upper middle class?

The simple answer is: “From hardworking taxpayers.”

Taxpayers across the income spectrum should expect they ultimately will pay for the left’s deceptively named Inflation Reduction Act.

But the new taxes would fall more heavily across specific industries and parts of the country. The largest tax in the bill, the new “book minimum tax,” accounts for $222 billion of the more than half a trillion dollars of expected new tax collections. The book minimum tax would hit manufacturing disproportionately.

According to recent government estimates by the Joint Committee on Taxation, manufacturing would bear 49.7% of the book minimum tax, despite accounting for only about 11% of the economy.

More specifically, the nonpartisan committee estimated that 16.1% of the tax would fall on chemical manufacturers and 6.9% on transportation equipment (mostly automobile) manufacturers.

Since the committee released those estimates, Senate amendments to the legislation likely have reduced manufacturing’s share of the tax somewhat. However, even using a conservative estimate, manufacturing likely still would bear at least 2.5 times as much of the burden of the tax, relative to the sector’s size as a share of the economy.

Foreign manufacturers would not be subject to the new tax unless they have significant U.S. operations. Therefore, to remain globally competitive, U.S. manufacturers would face pressure to cut labor costs or scale back their U.S. operations. This would mean fewer jobs and lower wages in U.S. manufacturing.

Due to their states’ large manufacturing bases, workers in Indiana, Wisconsin, Michigan, North Carolina, and Kentucky would endure the biggest economic hit from the new tax. Manufacturing accounts for about 26.6%, 18.9%, 18%, 17.1%, and 17.4% of the economies of these five states, respectively.

Employment in U.S. manufacturing dropped by about 33% between 2000 and 2010. Since then, manufacturing’s steep decline has reversed slightly, but manufacturing jobs remain more than 25% below 2000 levels.

Indiana, Wisconsin, Michigan, North Carolina, and Kentucky combined have lost over 1 million manufacturing jobs since 2000. Largely because of deep losses of manufacturing jobs, total private sector employment in Indiana, Wisconsin, and Michigan fell 7.5% in this period.

A new tax won’t help America’s manufacturing states.

The proposed book minimum tax is a parallel tax system imposed on mostly larger companies based on their financial statements’ “book income.”

Business taxpayers would have to calculate their tax liability not once, but twice. First, based on their regular taxable income and second, based on financial statement income—and they’d pay the higher liability of the two.

The book minimum tax would be at a lower rate (15%) than the federal corporate tax rate, but the book minimum tax would not allow businesses to claim certain business deductions allowed under the normal corporate tax.

Because of its income threshold, the book minimum tax disproportionately would hit capital-intensive sectors such as manufacturing, where large-scale operations often are necessary to achieve the economies of scale needed to compete in a global economy.

Differences between financial statement accounting and regular tax accounting in the timing of the “realization” of income and when deductions could be claimed also would cause business taxpayers to arbitrarily owe the book minimum tax in some years.

As just one example, under the book income tax, companies would not be able to use net operating losses accrued before 2020. There are, of course, many reasons that companies experience tax losses in a particular year—including anything from high initial startup costs to pandemic-related government lockdowns. And so the tax code allows taxpayers to carry forward losses from previous years to offset current taxable profits.

Consider a company whose purchase of costly factory equipment in 2018 and 2019 pushed it into a taxable loss for those years. That company would hope to offset the cost of that investment eventually with higher profits in subsequent years.

COVID-19 shutdowns may have delayed those future profits, and now under Biden’s book minimum tax, the company could have to start paying tax even if it is still at a net loss since its 2018-2019 investment.

Many manufacturers expanded investment in 2018 and 2019 specifically because of federal tax legislation that removed impediments to business investments. The full expensing provisions of the 2017 Tax Cuts and Jobs Act allowed businesses to fully deduct expenses for things such as machines and equipment in the year capital was purchased and placed in service, instead of over a period that could last for two decades.

Or at least these manufacturers thought they’d be able to fully deduct those expenses.

With Biden’s book minimum tax, Uncle Sam would snatch away a portion of the deduction for capital expenses incurred by companies with unused net operating losses.

The timing of the new tax is unfortunate. The looming phaseout of full expensing between 2023 and 2027 only will worsen the U.S. tax environment for capital-intensive businesses such as manufacturers and conventional energy companies. Rising interest rates and borrowing costs also will make it more difficult for manufacturers and other businesses to invest and grow.

It’s not all bad news for manufacturers, though. Although many manufacturers would be hammered with new taxes under the Biden legislation, companies manufacturing components for solar panels, wind turbines, batteries, and electric vehicles would receive a windfall of new tax subsidies and access to dramatically expanded federal loan programs courtesy of the Inflation Reduction Act, their industry’s Washington lobbyists, and ultimately, your wallet.

It’s long past time for the federal government to get out of the business of picking winners and losers. Over the past couple of years, success or failure in America has depended far too much on what the government is doing for you or what it’s doing against you.

Sadly, this latest legislation is more of the same. More government handouts for some. More taxes, lost jobs, lower wages, and more IRS audits for the rest.

How to make things worse

Tim Nerenz:

Up until three weeks ago, a recession was defined as a contraction in the economy lasting two consecutive quarters and inflation was defined as too much money chasing too few goods.

Economists, Presidents, Federal Reserve Chairmen, academics, and legislative leaders have held for decades that you do not raise taxes in a recession, and you don’t throw new spending on top of runaway inflation. It is not a partisan thing – Obama knew it and said so.

Three weeks ago, Sen. Joe Manchin reiterated his understanding of those two principles when he refused to go along with the third attempt to force “Build Back Better” through Congress before the Democrats lose their majority in the House this fall. The spending is inflationary and tax increases recessionary.

This week, three things happened that are not unrelated.

First, the administration sent out its economic advisors in an absurd media campaign to re-define “recession”; the day before the official GDP print was announced, Wikipedia changed its definition and locked that page. Twitter was bot-swarmed to give the impression of unanimity.

Second, the Biden coms team touted the recent slight easing of retail gasoline prices, implying that inflation was subsiding, the corner had been turned.

Third, Joe Manchin reversed himself and signed onto the same tax and spend bill he had opposed for nearly a year, cynically renamed and rebranded as an anti-inflation bill to give him cover – Build Back Blather.

It now seems pretty clear what the subject of those “intense” behind the scenes negotiations were: scripting the flip to save some Democrat Senate seats in peril. No surprise there.

You can change words, but not numbers. The energy industry relies on economic forecasts to plan future production, distribution, and inventory levels of crude oil and refined gasoline.

They do so because there is a tight correlation between the “P” in GDP and the consumption of gasoline – we drive to work, to shop, to meet medical appointments, to dine out, to vacation, to attend concerts and shows and theme parks, to go boating and trail-riding. We spend money at our destinations.

The same correlation works in reverse; gasoline consumption is a reliable indicator of a growing or shrinking economy, a proxy. The U.S. Energy Administration publishes weekly data on price, production, and consumption of refined gasolines in all blends by region – it’s a two-minute Google search.

From November of 2020 to July of 2021, the average daily consumption of gasoline rose by 12%, a clear indication of economic growth in the continued recovery from the pandemic lockdown crash that was confirmed by two consecutive quarterly GDP prints.

From November of 2021 to July of 2022, the average daily consumption of gasoline fell by 8%, a clear indication of economic contraction that was confirmed by two consecutive quarterly GDP prints.

And there you go. The industry sector hardest hit (so far) in this recession is overnight lodging…duh.

Anyone can gargle words and spit a lie into the sink. Yesterday’s flash poll found 65% of us aren’t buying recession-not-recession scam. As layoffs continue at 250k per week, the 35% might come around, but maybe not until their number is called – you just never know about these things.

I wrote Thursday that the Presteblog Misery Index — inflation plus U6 unemployment minus economic growth — is now at 17. There are those who claim that inflation is understated, and would be higher by the measure that was changed in 1990. The rationale then was that, for instance, cars are more expensive but better equipped and perform better (gas mileage, reliability, etc.), so direct comparisons are difficult with some products.

Nerenz adds that “business people look at economic data differently than economists do. They have to make forward-looking decisions with consequences, rather than backward looking analysis with no consequences.”


The Bidencession, quarter number three

Tim Nerenz:

And there it is: the economy contracted again in the second quarter, by -0.9%, nearly twice the shrink expected by “the consensus”. Recession confirmed.

They tried their darndest, with “adjustments” from the July 19 Atlanta Fed forecast of -1.6%; but there is only so much lipstick that can put on a pig.

Q1 was first printed at -1.1% and later (quietly) revised to -1.6% and is more likely than not this will happen again as investment analysts digest and tear into the gory details of the adjustments; time will tell.

There is an old maxim that a recession is a depression if you lost your job or your business or can’t make rent, and GDP is the aggregation of billions of individual exchange contributions with winners and losers both numbered in tens of millions – your mileage will certainly vary.

Nothing will change until someone changes it and it not clear who that someone might be since the folks who could change it simply deny the recession is real – this year’s Big Lie.

An increase in interest rates depresses growth and the Fed just increased them 75 basis points with another 50 expected in September.

And it appears that Manchin and Schumer have struck a trillion dollar spending deal cynically called the Inflation Reduction Act after weeks of tense negotiations over what to call it.

And so it goes…

Meanwhile, inflation in June reached 9.1 percent, thanks in large part to gas prices being $2 or more per gallon more than they were before Biden’s reign of error began (graphic from the Wall Street Journal):

The most accurate unemployment number, the U6 (unemployed plus those not working as much as they want to) at the end of June was 7 percent. The Presteblog Misery Index (inflation + U6 unemployment minus economic growth) is now at 17, a ;evel that ended Gerald Ford’s political career. It should end Biden’s career, especially since it will get worse.


Pot and kettle, or something

USA Today has an ironic editorial that starts with frenetic back-self-patting:

Did you hear about the rape – and subsequent arrest in the case – of a 10-year old Ohio girl?

Did you see the stunning failure of police – who ran away as children were being killed – in the hallway of Robb Elementary School in Uvalde, Texas?

What about the harrowing details of Jayland Walker’s death in Akron, Ohio, where officers fired 90 or more rounds at the 25-year-old Black man?

Do you know why you’re aware of these stories?

Local journalists. Men and women who live and work in the communities they cover.

In each of these cases, those journalists are part of the USA TODAY Network, a family of more than 200 newspapers in 45 states committed to covering their communities. They are among scores of journalists in every state, at companies big and small, profit and not-for-profit, covering local news for their communities.

They’re also somewhat of an endangered species.

Nearly half of all U.S. counties have only one newspaper, reports the News Media Alliance, which advocates for the media industry. Since 2005, according to a new report from Northwestern University, “the country has lost more than a fourth of its newspapers (2,500) and is on track to lose a third by 2025.”

The pandemic, which devastated so much, was not kind to the industry, leading to job losses and the closure of local media outlets, according to Columbia Journalism Review.

The financial struggles of news organizations focused on local and regional coverage, including broadcast as well as newspaper journalism, stem from the sweeping shift of readership, viewers and advertising to online platforms, and a subsequent dramatic reduction in the revenue that has supported local reporting.

Even if – and perhaps especially if – you are skeptical of the news media, this is a devastating trend.

In all regions of the country, Americans need a local free press that produces vigorous and independent journalism for all – and Congress can help. This week, movement is expected on a bipartisan bill called the Journalism Competition and Preservation Act (JCPA). It could pave the way for local publishers to reap the revenue they deserve from the content their journalists create.

Also called the JCPA or Safe Harbor Bill, it would provide a four-year antitrust exemption that would allow small and local news organizations to work together to negotiate an agreement with Google and Facebook on fair compensation.

“Strong local news helps us understand those whose experiences and attitudes are different from us, and, in the process, brings us together to solve our most pressing political, economic and social problems,” the Northwestern study says. “It binds our vast nation of 330 million people together, nurturing both democracy and community. Everyone in the country has a stake in the future of local news, in whatever form it is delivered.”

Congress must be prompted to finally act on this bipartisan proposal to help stop the hemorrhage in local newsrooms and provide tools for long-term stability. America’s democracy depends on it.

On the one hand, few Republicans are fans of Big Tech, which is why this bill has so many Republican cosponsors, including Reps. Glenn Grothman (R–West Bend) and Tom Tiffany (R–Ashland) and U.S. Sen. Rand Paul (R–Kentucky).

However, few Republicans are also fans of Big Media, and no one in Wisconsin should be a fan of Gannett, which puts out horrible daily newspapers. (That is unless you like regurgitated USA Today content and hardly anything that counts as “local” news or sports anymore.) The argument could be made that media owners like Gannett have contributed mightily to the news media’s business problems.

To the majority of media consumers this probably seems like inside baseball anyway. Better arguments need to be made to generate support for this bill.


Bidenflation strikes again

Tyler Durden around sunrise Wednesday:

The US CPI report will be the main highlight tomorrow, and will also serve as what JPMorgan calls a “market clearing event.”  While the BBG median consensus expects +8.8% YoY vs. +8.6% in June, Goldman and JPM expect 8.88% and 8.7% respectively, with whisper numbers at, or above, 9.0% …

So paranoid is the market, and so gullible about “bad news” tomorrow, that none other than the US government’s Bureau of Labor Statistics had to ease traders’ nerves, saying that the “leaked” report was indeed a forgery.

“We are aware of a fake version of the June 2022 Consumer Price Index news release that is being circulated online,” BLS spokesperson Cody Parkinson told Bloomberg said in an emailed statement.

Which of course is not to say that tomorrow’s CPI print won’t be 10.2%, although that would be especially cruel. As a reminder, a on Monday we showed why a case for a sharply higher 9% headline CPI print tomorrow is possible, but that most likely will also be the peak as numbers grind lower afterwards, at least until gasoline prices soar again.

Then, the Wall Street Journal reported:

U.S. consumer inflation accelerated to 9.1% in June, a pace not seen in more than four decades, adding pressure on the Federal Reserve to act more aggressively to slow rapid price increases throughout the economy.

The consumer-price index’s advance for the 12 months ended in June was the fastest pace since November 1981, the Labor Department said on Wednesday. A big jump in gasoline prices—up 11.2% from the previous month and nearly 60% from a year earlier—drove much of the increase, while shelter and food prices were also major contributors.

The June inflation reading exceeded May’s 8.6% rate, prompting investors and analysts to debate whether the Fed would consider a one-percentage-point rate increase, rather than a 0.75-point rise, later this month. Slowing demand is key to the Fed’s goal of restoring price stability in an economy that is still struggling with supply issues, but raising interest rates also elevates the risk of a recession.

Core prices, which exclude volatile food and energy components, increased by 5.9% in June from a year earlier, slightly less than May’s 6.0% gain, the Labor Department said.

On a month-to-month basis, core prices rose 0.7% in June, a bit more than their 0.6% increase in May—a sign of inflationary pressures throughout the economy.

There is little that is believable about what the feds report about the economy. They don’t report, for instance, the U6 unemployment rate — those without jobs and those working less than they want — which is 7 percent. Nor have the feds admitted yet that we have been in a recession since the beginning of this year. I bet the actual inflation rate is probably higher than the 10.2 percent, which means the 9.1 percent report is a lie propagated by bureaucrats afraid of losing their jobs.

What the government tells you about the economy is garbage

Tim Nerenz:

When we talk about the strength of “the economy”, we think in terms of jobs, personal incomes, inflation, GDP growth, business starts, balance of import/export trade, corporate profits and resulting stock market returns.

The Bureau of Labor Statistics publishes the official jobs numbers each month, and its statistical modeling relies on two separate surveys that measure two different things.

One is the Establishment Survey, which polls employers (and self-employed), which gives us data on trends in industries, sectors, locations, professional categories and the like. It tells us about jobs and job openings.

The other is the Household Survey, which polls households and gives us data on who is working and how many hours at what rate of earnings, full or part time, unionized or union-free, race, age, and gender breakdowns – things like that.

The jobs numbers for June were released [Friday], and for the fourth month in a row the two surveys tell two different stories about the strength and health of the labor markets in the United States.

The Establishment Survey produced a respectable 372k more jobs – 100k higher than expectations. The Household Survey showed a 315k drop in the number of people with jobs. That is a record gap of 677k. Pick your number; both are reasonably accurate.

The difference is largely explained by the increasing number of people working two jobs. With household incomes rising 2-5% (by quintile) and inflation at 8 plus, many have had to work a second (or third) job to make ends meet.

The economic recovery from the Covid lockdowns of 2020 continues to be erratic and full of dysfunctions localized by industry, by state, and by size of employer. 23 states gained jobs in June, 21 lost jobs in June, and six stayed flat.

We are two years into the re-opening of the economy from the national lockdown and have yet to recover to pre-pandemic levels of GDP, employment, and workforce participation. In recent months the still large number of open positions has fallen for lack of people able and willing to fill them. New unemployment claims are rising again and the list of major corporations downsizing is growing daily.

The rapid recovery in the second half of 2020 slowed in the first half of 2021, stalled in the second half of 2021 and turned back to recession in Q1 of 2022.

The return to normal – i.e. pre-pandemic economic efficiency – is more distant today than it was two years ago. We now face a new recession to recover from before we can fully recover from the old one. Federal boat anchors (regulatory drag) are longer-lasting and harder to lift than the state-by-state lockdown measures of Covid panic. It is hard to stay optimistic.

Consumer spending is down, inflation is up, corporate profits are down, the equity markets are way down, labor market participation is falling and the number of workers forced to work two jobs is rising. That is not a strong economy to me.

The economy is not a partisan thing – there isn’t a “democrat” economy and a “republican” economy, and an “other” economy – there is just the one. The laws of markets are not subject to amendment by government.

The size and scope of interventionist government greatly expanded with the pandemic response, and the nature and breadth of government interference has increased with an administration who believes in “demand-side” central planning and control, quite different than the approach of the previous “supply-side” administration’s team. A year is long enough to test results of major policy shifts.

The previous administration inherited an economy growing at 2% in Q4 of 2016 and posted 3.8% growth in Q1 of 2018. The current administration inherited an economy growing at 4.5% in Q4 of 2020 and posted a negative 1.4% in Q1 of 2022. Q2 GDP will come out next week and will show further contraction.

The teleprompter typists can spin and puff as much as they want, but when it comes to matters of economics and commerce, my favorite quote comes the 1978 movie The Deer Hunter:: “This is This; this ain’t something else.”

Welcome to This.

The purpose of business

George Will:

Semantic infiltration is the tactic by which political objectives are smuggled into discourse that is ostensibly, but not actually, politically neutral. People who adopt a political faction’s vocabulary also adopt — perhaps inadvertently, but inevitably — the faction’s agenda. So, everyone who values economic dynamism, and the freedom that enables this, should recoil from the toxic noun “stakeholder.”

The Oxford Reference definition is “all those with interests in an organization,” including “shareholders, employees, suppliers, customers, or members of the wider community (who could be affected by environmental consequences of an organization’s activities).” Which means: everyone. “All” in the “wider community” who claim an “interest.” Anyone can make such claims; no one can refute them.

A former governor of the Bank of England (Mark Carney), the head of the world’s largest investment firm (Larry Fink of BlackRock) and the CEO of the largest U.S. bank (Jamie Dimon of JPMorgan Chase) have joined forces to make capitalism “sustainable” through “ESG” (environmental, social and governance) investing. Although fashionable, this is of dubious legality. (See below: fiduciary duty.) The Economist’s “Schumpeter” columnist notes that sanctimony accompanies such “financial do-goodery.” Of course: ESG appeals to people for whom mere business — the creation of wealth and opportunity — lacks the cachet of politics.

Although progressivism presents itself as modernity on the march, its stakeholder doctrine echoes feudalism. Phil Gramm, a former U.S. senator, and Mike Solon, president at US Policy Strategies, writing in the Wall Street Journal, note that in feudalism’s “communal world,” workers had obligations to the church, the local aristocracy, the guild and the village: These “stakeholders” leeched away portions of what workers produced.

Today, Gramm and Solon say, about 70 percent of corporate revenue goes to labor, and 72 percent of the value of publicly traded U.S. companies is “owned by pensions, 401(k)s, individual retirement accounts, charitable organizations, and insurance companies funding life insurance policies and annuities.” So, the wealth of workers, and of current and future retirees, is diminished when “stakeholders” get corporations to sacrifice the goal of maximizing economic value to noneconomic, generally political goals.

Stakeholder capitalism violates fiduciary laws that require those entrusted with investors’ money to employ it “solely in the interest of” and “for the exclusive purpose of providing benefits to” the investors. (Emphasis added.) Sen. Marco Rubio’s proposed Mind Your Own Business Act would enhance shareholders’ power to sue corporate management for breach of fiduciary duty when corporations take actions “on a primarily non-pecuniary” (usually political) basis, or use primarily non-pecuniary public reasoning to justify corporate actions

Although progressives are especially disposed to break all private entities to the saddle of politics, factions of all persuasions can infuse politics into this and that: A Texas law, itself a political gesture, requires banks that underwrite the state’s municipal bond market to certify that their political gestures do not include forbidding transactions with the firearms or ammunition manufacturers and retailers. One affected bank: Dimon’s JPMorgan Chase.

The New York Times recently interviewed two advocates of ESG investing. One said, in effect, that only such investing fulfills fiduciary obligations because the welfare of those whose money is being used depends on “a planet that is livable.” Meaning: Politically enlightened ESG advocates know what unenlightened investors would want if they were as intelligent and virtuous as the advocates.

The other ESG enthusiast the Times interviewed said “social justice investing” is “the deep integration of four areas: racial, gender, economic and climate justice.” And the “single-issue CEO” — the kind focused on maximizing shareholders’ value — is “not the way of the future.” This is often the progressives’ argument-ending declaration: Non-progressives are on the wrong side of history, so they can be disregarded until history discards them.

The Times’s interviewer observed that “defining justice seems messy these days.” These days? Actually, justice has been a contested concept since Plato wrote. For today’s ESG advocates, however, the millennia-long debate is suddenly over: Justice is 2022 American progressivism, period.

In a dynamic society, resources are efficiently disposed by corporate managements whose primary duty, which other corporate activities do not compromise, is to maximize shareholder value by profitably supplying the demand for goods and services. Furthermore, in a congenial society, boundaries are respected: Most people say about most things, “This is none of my business.”

Self-proclaimed stakeholders, parasitic off others’ labor and accumulation, assert that everything is their business. Actually, although everyone has a right to advocate progressivism, no one has a right to insist on a stake in deploying others’ property for the stakeholders’ political ends.

The concept of an investor society — expanding investment opportunities to the roughly 30 percent of Americans not investing now — is something that Republicans should be focusing on instead of things that will never happen (i.e. undoing the 2020 presidential election).

Republicans should also be pointing out that the problems of today’s economy — rampant and worsening inflation led by spiraling energy prices — were the result not of the flaws of capitalism (which is flawed only because every single human institution is flawed since humans are involved), but by the flaws of government — specifically, Biden’s crappy energy policies, as noted by U.S. Rep. Dan Crenshaw (R–Texas):
There are (at minimum) 5 things that Biden can do right now to increase production. First, he can lift the development restrictions on federal lands and waters, and reinstate any canceled sales and leases that took place on them. Second, the admin can fix the NEPA permitting process by establishing agency uniformity in reviews, limiting reviews to two years, and reducing ridiculous burdens placed on projects. Third, accelerate LNG exports and approve pending LNG applications. Fourth, end permitting obstruction on natural gas projects by stopping any efforts to overstep its permitting authority by the Federal Energy Regulatory Commission. And finally, Biden needs to roll back the 30+ regulations that this administration alone has put on the entirety of the oil and gas industry since taking office.

The 70% society

Former U.S. Sen. Phil Gramm (R–Texas) and Mike Solon:

No one appreciated the power of capitalism more than its greatest antagonist, Karl Marx. Born of the Enlightenment, embodied in the Industrial Revolution, capitalism, according to Marx, “accomplished wonders far surpassing Egyptian pyramids, Roman aqueducts, and Gothic cathedrals . . . achieving more massive and colossal productive forces than have all preceding generations together” in “scarce one hundred years.”

Based on the erroneous notion that all value comes from labor, Marx assumed that the financier, entrepreneur and manager were noncontributing claimants on the fruits of the worker’s labor and that government could displace them and then “wither away” as growth occurred spontaneously. Most subsequent collectivists have assumed the same thing. In this utopia, workers would then receive all value created in society.

Government was never able to replicate the efficiency and innovation of private finance, entrepreneurs and managers, and it was freedom and prosperity, not government, that always withered away. But because of the misery Marxism has imposed, the world has a living memory and therefore some natural immunity to a system in which government takes the commanding heights of the economy.

No such immunity exists to the older and therefore more dangerous socialism of the pre-Enlightenment world. In the communal world of the Dark Ages, the worker owed fealty to crown, church, guild and village. Those “stakeholders” extracted a share of the product of the sweat of the worker’s brow and the fruits of his thrift. Growth stagnated as the rewards for effort and thrift were leached away.

The 18th-century Enlightenment liberated mind, soul and property, empowering people to think their own thoughts and ultimately have a voice in their government, worship as they chose, and own the fruits of their own labor and thrift. As Enlightenment economist Adam Smith put it, “the property which every man has in his own labor, as it is the original foundation of all property, so it is the most sacred and inviolable.”

The British Parliament repealed royal charters, permitted businesses to incorporate simply by meeting preset capital requirements, and established the rules of law governing private competition. Most important, laws were made through a process of open deliberation with public votes. This democratic process replaced the intimidation of medieval stakeholders, who under the communal concept of labor and capital took a share of what others produced.

These Enlightenment ideas spawned the Industrial Revolution and gave birth to the modern world, as described by Marx. As people sought their own advancement under a system of private property and the rule of law, as if guided by Adam Smith’s “invisible hand,” they promoted the public interest without intention or knowledge of doing so. Freedom and self-interest unleashed the world’s greatest productive effort and continue to drive progress to this day.

The pre-Enlightenment world was dominated by the powerful, who defined the public interest to benefit themselves and imposed their will on productive members of society. When labor and capital are forced to share what they produce with stakeholders, the reward for working and savings is plundered.

In the post-Enlightenment world, people were empowered to pursue their own private interests. Private interests and free markets accomplished what no benevolent king’s redistribution, no loving bishop’s charity, no mercantilistic protectionism, and no powerful guild ever did—deliver broad, unending prosperity.

Remarkably, amid the recorded successes of capitalism and failures of socialism rooted in Marxism, pre-enlightenment socialism is re-emerging in the name of stakeholder capitalism. These stakeholders claim that “you did not build your business” and that your labor and thrift should serve their definition of the public interest.

The initial target of this extortion is corporate America. Stakeholders argue that rich capitalists who own big businesses already get more than they deserve. But since roughly 70% of corporate revenues go to labor, the biggest losers in stakeholder capitalism are workers, whose wages will be cannibalized. And of course, the idea that rich capitalists own corporate America is largely a progressive myth. Some 72% of the value of publicly traded companies in America is owned by pensions, 401(k)s, individual retirement accounts, charitable organizations, and insurance companies funding life insurance policies and annuities. The overwhelming majority of involuntary sharers in stakeholder capitalism will be workers and retirees.

The mantra that private wealth must serve the public interest has been boosted by one of capitalism’s great innovations, the index fund. What investors gained in the efficiency of the index fund’s low fees, they are now losing as index funds use the extraordinary voting power they possess in voting other people’s shares. Whether their motives are promoting the marketing of their index funds, doing “good” with other people’s money, or, as Warren Buffett’s longtime partner Charlie Munger claimed, playing “emperor,” they have empowered the environmental, social and governance (ESG) agenda. Other stakeholders are sure to pile on, as evidenced by Sens. Bernie Sanders and Elizabeth Warren’s effort to get BlackRock to use its share-voting power to pressure a private company to yield to union demands.

Stakeholder capitalism imperils more than prosperity, it imperils democracy itself. Self-proclaimed stakeholders demand that workers and investors serve their interests even though no law has been enacted imposing the ESG agenda.

The fiduciary laws require those entrusted with the investors’ money to use it “solely in the interest of . . . for the exclusive purpose of providing benefits to” the investor. The index funds that enable stakeholders to intimidate public boards are violating federal fiduciary requirements and those government agencies that enforce stakeholder capitalism are engaged in an unconstitutional takings under the Fifth Amendment of the Constitution.

In our post-Enlightenment world, public interests beyond the confluence of private interests are defined by the public actions of a constitutionally constrained government. By overturning the Enlightenment, stakeholder capitalism not only endangers capitalism and prosperity, it endangers democracy and freedom as well.

Let’s repeat a paragraph for emphasis:

But since roughly 70% of corporate revenues go to labor, the biggest losers in stakeholder capitalism are workers, whose wages will be cannibalized. And of course, the idea that rich capitalists own corporate America is largely a progressive myth. Some 72% of the value of publicly traded companies in America is owned by pensions, 401(k)s, individual retirement accounts, charitable organizations, and insurance companies funding life insurance policies and annuities. The overwhelming majority of involuntary sharers in stakeholder capitalism will be workers and retirees.

That means Democrats lose in stakeholder capitalism too.