GENERAL IRON, BLUE COLLAR JOBS, ALDERMAN SADLOWSKI GARZA, THE RUNGS OF THE ECONOMIC LADDER, AND TALES FROM ST. IGNATIUS

5/30/20

The Chicago papers reported yesterday that Alderman Susan Sadlowski Garcia will join the community organizers and the environmentalists from both inside and outsider her 10^th Ward and oppose the plans of General Iron Corp. to move its metal-shredding operation from the toney 43^rd Ward to the grittier, working class bailiwick of Alderman Garcia.

Given the environmental implications of the metal shredding process, one can understand the reluctance of any neighborhood to welcome with open arms such an operation.   But before signing wholeheartedly onto the environmentalist agenda of people who are not similarly economically situated, the residents of the 10^th Ward might want to consider the economic consequences of saying “No, thanks” to an operation like General Iron.   Given the inherent good sense of people who engage in manual labor for a living, one suspects that many 10^th Ward denizens are not as opposed to General Iron as the activists would have us believe.   These residents, though never having heard yours truly’s lecture on the topic, are doubtless aware of the principle of the first rung of the economic ladder.

As most of you know, one of my jobs is teaching finance and economics.    Since I am very adept at working the “first rung of the economic ladder” lecture into all my classes, all my econ students, and most of my finance students, are, or once were, familiar with the principle, which I learned not in the classroom but in, for lack of a better term, life.

As many of you know, I went to St. Ignatius High School (I still refuse to call it “St. Ignatius College Prep,” even though it had attained that still chichi moniker a few years before I showed up at 1076, the school’s numerical address and the moniker those of us of sound mind would prefer to use for our alma mater.), which was quite a different place back then than it is now.   Ignatius at the time was at least as academically elite as it is now but it was not as, for lack of a better term, sociologically elite as it is today.  It was the place where a working-class kid was sent by his immigrant or African-American parents because he (The school didn’t become co-ed until five years after I graduated.) showed academic prowess and would be challenged to or beyond his ability and consequently could, if he worked hard and did well, do things that his parents never dreamed of for themselves.   That is not to say that the entire student body was composed of such students.   I, for instance, am second generation American on one side and third on the other and, because I lived on the outskirts of Beverly and my dad was a partner in a successful small business, was considered one of the “rich” kids at Ignatius at the time.   Now the “rich” kids at Ignatius come from the Gold Coast, Lincoln Park, and even the North shore and places like Hinsdale; they really are rich, but things change and I digress.

A typical Ignatian at the time was a kid with an unpronounceable last name and a father who worked in the steel mills, in a meat packing plant, on the railroad, or at some non-descript industrial facility bordering one of the expressways.   His mom stayed home, raised the kids, volunteered at church, and made sure the kids did their homework and stayed out of trouble.   The family lived in a neighborhood that was surrounded by factories, warehouses, meat packing plants, or the like that emitted noises and odors that did not enhance the aesthetics of the area.  They lived there not because it was bucolic and aromatic but because that’s where work was. The family’s first language was Polish, German, Spanish, Lithuanian, Ukrainian, or Italian; I had several friends who didn’t speak English until they got to first grade.   The kids were sent to Ignatius so that they could get into, and get a decent scholarship from, a place like IIT (Illinois Institute of Technology) or UIC (University of Illinois at Chicago) and get a degree in engineering.   Why engineering?   Because the only college educated guy that their dads saw at “the plant” was an engineer of some sort.   So, in their minds, an engineering degree was what one got in college if one wanted to move up in life, and the kid was really good in math and science, so why not?

The progress continued as the guys I went to school with and who became engineers or the like moved out of the old neighborhood to the suburbs or one of the neighborhoods on the geographic fringes of the city, like “out by the airport,” which could be either airport (These guys didn’t move to Lincoln Park; they had, for the most part, had enough of the city and moved out of the old neighborhood as soon as they could put a down payment on a house in some place like Lemont or Naperville.  The ironic, and in some ways sad, part of the story is that the homes their parents eventually sold for a pittance are now being featured on Windy City Rehab or House Hunters as 7 figure monuments to their potential new owners, but, again, I digress.), married women they had met in the old neighborhood or at UIC, and had sons and daughters, whom they, in turn, sent to the U of I (University of Illinois in Champaign) or to one of the many U of Is of the east (Harvard, Yale, Georgetown, MIT, or the like) so that they could become doctors, lawyers, software engineers, or investment bankers and move to the Gold Coast, the North Shore, the upper west side of Manhattan, northern California, or perhaps to their grandparents’ old place at a 100 fold premium to what their grandparents paid in what has suddenly become a fashionable neighborhood.

So the process was three steps, and three generations, from factory worker to mid-level engineer to big time investment banker or software gazillionaire.     The pattern, of course, was not identical.   Some of the guys with whom I went to school (How yours truly wound up in the same classroom with these types of guys is beyond me.) were so smart and dedicated, and had such persistent and insistent parents, that they skipped the second step altogether and went right from their parents’ working class bungalow or apartment to the highest reaches of the medical, legal, engineering, or investment banking professions.   And some progeny of the guys with whom I went to school decided that a vertical move up the ladder wasn’t necessary; they were happy to join their dads as mid-management engineers or to pursue teaching, nursing, ground level politics and attendant government jobs, the trades, or the like and are making great livings, and living wonderful lives, doing so.   And, of course, an Ignatius education was not by any means a necessary part of this story; I only mention Ignatius because it was the place from which I saw these stories play out over the years among my fellow alumni of that justifiably proud institution.   And several of those guys read this blog.

The point of this story is that none of these successful and happy lives, and none of these choices, would have been possible without that first step on the economic ladder.  If these guys’ dads hadn’t gotten the jobs in the factory, which could on no planet be described as pleasant, enriching, fulfilling, or the like, and made the inter-generational compact they silently made with their sons, their sons couldn’t have gone to Ignatius (It was expensive even back then…almost $400 per semester, which was a not insignificant amount of money to a lot of my fellow Ignatians’ families.) and hence couldn’t have gotten the scholarships to IIT that enabled them to get the jobs that provided the income necessary to send their daughters to the big time colleges from which they could become partners in  major Chicago law firms or attending physicians at major University hospitals.

One of the biggest problems our society faces today is that the aforementioned first rung on the economic ladder has been yanked away by the forces of, inter alia, the cult (as opposed to the economic principle) of free trade, the transformation to an “information economy,” the sense of entitlement that inevitably accompanies prosperity, and the like.   The steel plants, the meatpacking operations, many of the railroads, and other factories that could provide a decent livelihood to people without much of an education but with the willingness to work hard at unpleasant tasks are gone.   Now a kid growing up in Chicago without much education and without much inclination toward education is not confronted with a choice between a $30 (in today’s dollars) an hour job on a factory floor or a life of crime and/or indolence; s/he is faced with a choice between a $10 fast food job and a life of crime and/or indolence.    This has obvious ramifications not only for the prospects for these kids and their progeny but also for the economy and society as a whole.  

Many of the changes that kicked the first rung of the economic ladder out from under today’s minority and immigrant working class were made inevitable by technological progress and attendant economic transformation and dislocation.   To put too many obstacles in the way of such developments is not only pointless; it is dangerous.   But given that the destruction of opportunity for those looking to grasp that first rung on the ladder can’t be completely stopped, the last thing we need is for politicians to make such opportunities scarcer by insisting that their neighborhoods be environmentally pristine regardless of the economic consequences for their constituents.   The prior generations sacrificed what we would today call a “green” lifestyle because they knew that with the “browning” of their neighborhoods came opportunities that would enable the next generation to have better, or at least wider, choices regarding where they would work and live.

While Alderman Sadlowski Garza is by no means unique in her obeisance to the more elitist forces who insist that the environment remain pristine regardless of the economic consequences, her enthusiasm for such ideas, manifested by her opposition to General Iron, is especially ironic.   Her story reflects the “rungs of the ladder” story I related above.   Her father, Ed Sadlowski, was a hero of the Chicago Labor Movement, a dissident president of Local 65 of the United Steelworkers at the U.S. Steel mega-plant in the 10^th Ward.   He made the same kind of inter-generational deal that I described above, allowing his daughter Susan to become first a school teacher, then a union activist, like her father, and then a Chicago alderman.   If the type of environmental policy currently espoused by Alderman Sadlowski been in place 60 years ago, when her dad started working, there would have been no U.S. Steel South Works and no first rung on the economic ladder for the Sadlowski family.   

ARE THE DEMOCRATS BLOWING IT?

5/21/20

As loyal readers know, yours truly believes that President Donald Trump has little or no chance of defeating former Vice-President Joe Biden in the looming 2020 showdown.  (See PRESIDENT TRUMP WILL NOT BE RE-ELECTED, 4/22/20 in which, as you can tell from the title, I mince few words.)   A friend of mine asked a few weeks ago, though, whether the Democrats might be blowing it with their reaction to the set of circumstances, medical, epidemiological, and economic, that we refer to collectively as the COVID crisis.   He had a point then and the point only gets sharper as the days go by.

While it would be beyond foolish and utterly classless to conjecture, as have some on the fringe, that the Democrats welcome the COVID crisis, there is no doubt that the Democrats initially benefitted from the ravages the coronavirus has inflicted on our country.  Not only does the COVID crisis give the Dems something else to blame on President Trump, it also keeps Joe Biden out of the public eye, which, given Mr. Biden’s propensity to mis-speak and otherwise show signs of what some might interpret as unfitness for the big job he seeks, has a salubrious impact on Mr. Biden’s chances.  (See the later sections of the aforementioned post regarding Mr. Trump’s unelectability.)   However, the Democrats are showing signs of overplaying a very good hand made even better for them by COVID.

For years, the GOP has tried to tag the Democrats with an image that the Dems have done little to dispel.  This image, which is what ultimately got Donald Trump elected, is that the Democrats

·         are insufferable busybodies who are forever injecting themselves into people’s business,

·         feel that, by virtue of holding public office, or being accessories to public office, and immersing themselves in the right way of thinking, they have somehow acquired a state at which they, and only they, have the answers to every problem America faces,

·         believe that knowledge and wisdom emanate from either coast, but from the left coast only by transplantation and pollination, and can’t manage to make its way very far inward due to the density of the intellectual terrain it encounters in such attempts,

·         fervently hold to the proposition that all progress springs from the beneficence of government and the progressive, obviously superior minds that control, or ought to control, it,

·         secretly, and maybe not so secretly, agree with their last presidential nominee’s characterization of much of the American populace as “deplorables,” and

·         will use any crisis, or even difficulty, real or imagined, as an excuse to advance a statist agenda.

  

In the wake of the COVID crisis, we see the Democrats in Congress and their most prominent of governors in the bluest of states ordering us, at least until the political heat gets too intense, to stay home, shut up, eschew work, close our businesses, and let the government take care of us while our philosopher rulers, with the help of “science”  (See the nearly instantly seminal WE MUST “FOLLOW THE SCIENCE”…BUT ONLY IF DOING SO ACHIEVES MY POLITICAL ENDS, 5/12/20) figure it all out.   What about the Dems’ approach to the COVID crisis does anything to dispel the above stereotypes that Donald Trump and the GOP so gleefully promote?    Whether the Democrats are right or wrong in their approach to COVID and its economic aftermath is nearly immaterial from a political standpoint.   What is material is that the Democratic response to the COVID crisis reinforces the image of the Democrats that made Donald Trump president.   And that self-burnished image might manage to elect Donald Trump again.

Though a smattering of polls has emerged that shows the presidential race tightening and President Trump doing especially well in the Midwestern states that will likely decide the election, yours truly is not yet ready to reverse my prediction that Joe Biden will become our next president.   However, I am continually amazed at the unremitting propensity of the Democrats to snatch defeat from the jaws of victory.   So while I just can’t see even the Dems blowing this one, they just might.   And they are so far out of touch with the typical voter that, if they do, they won’t understand why.   See the 2016 election.

LET’S FURTHER HURT THE RESTAURANTS SO THE POLITICIANS CAN SHOW US HOW MUCH THEY CARE

5/19/20

Chicago Mayor Lori Lightfoot last week imposed new rules for food delivery companies, such as DoorDash, GrubHub, UberEats, and the like, that require full disclosure of the fees such companies charge to the restaurants with which they work.    The requirement, which the Lightfoot administration says is the first of its kind in the nation, is designed to show consumers how much of the money they are spending to support local restaurants in these trying COVID times finds its way not to the restaurants themselves but to the companies and people delivering the food.   The alleged demand for this information arose in response to reports of less, and often far less, than 70% of what consumers pay finding its way to the restaurants.  News of discounts and deals touted by the delivery apps but borne nearly entirely by the restaurants for whom they deliver fed fuel to the fire.

Yours truly, while eschewing the worn and trite term “transparency,” is in favor of greater disclosure when such disclosure can be provided at a reasonable cost and provides a benefit that exceeds that cost.   There again is that pesky insistence on reasonable cost/benefit analysis, a concept that goes far over the heads of typical politicians, either because they know nothing of economics and common sense or because the concept of costs that actually come out of their, rather than the taxpayers’, pockets does not exist in their world.   But I digress.  At any rate, full disclosure is a good thing, except when its costs are prohibitive, because information facilitates good decision making, and God knows we need a lot more good decision making nowadays but, again, I digress.

The point of providing such information to consumers is, one supposes, that once consumers see how much of the money they thought was going to their local restaurant is actually going to a giant corporation, they will stop using the GrubHub, UberEats, DoorDash, etc. apps, putting downward pressure on the pricing structure of that industry and allowing more money to flow to the people who produce, rather than deliver, the food.   This, of course, assumes that people’s motivation behind using such apps is to support local businesses rather than to indulge the apps’ users’ propensity to rarely vacate themselves from their couches, but let’s uncustomarily toss such cynicism aside and assume that people really do want to keep their favorite gustatory outlets alive for whatever reason.   Even under such circumstances, there is one obvious and one not so obvious problem with this motivation.

The obvious problem is that this effort to get people to eschew home delivery apps might work.  Foodies and the like, disgusted by the huge portion of what they pay for their meals that doesn’t find its way to mom and pop who run the joint down the street, might stop ordering via GrubHub and the like.   How does that help the restaurant?   If the restaurant has its own delivery service, or the customers are so motivated as to get off the couch and walk or drive to their favorite eatery (Frugal types like yours truly wonder why customers wouldn’t do so in the first place in order to save the delivery fee, but I’ve given up the quixotic quest for financial common sense among my fellow Americans a long time ago.   Again, I digress, but at least I do so parenthetically.), that would work out nicely for the restaurant.   But what if people won’t get off their couches and/or the restaurant does not have its own delivery service?   The result of people’s sticking it to the man by refusing to use the apps is that the restaurant loses that business.   And the assumption that all that business is unprofitable because of the outrageous fees the delivery apps charge is a tempting one until one stops to consider that the restauranteurs in question are not idiots.  If this business did not at least cover its immediate, or variable, costs, the restaurants would not be pursuing the business.   Undoubtedly, the business is not nearly as profitable as pick-up business, certainly is not as profitable as “in-store” business, and isn’t sufficiently profitable to sustain the restaurant in the long run, but it can’t be money losing business or the restaurants wouldn’t bother.  As much as this might go right over the heads of political types, you can’t make money by losing money no matter how much money losing business you do. 

The same logic applies to delivery services.   A lot of restaurants don’t have delivery services because their owners find it cheaper, at least at lower volumes, to deal with DoorDash, UberEats, and the like.  If setting up delivery were economic for restaurants, and especially for small restaurants, these apps wouldn’t exist.

Examining the less obvious problem with requiring full disclosure of delivery app fees requires us to recall some of the cynicism we hypothetically cast aside when elucidating the more obvious problem outlined above.   Suppose everybody is not as civic-minded and as concerned with “the little guy,” or with much of anybody beyond himself, as we are led to believe.   Suppose the consumer learns that, of the, say, $30 he just spent on a restaurant meal that reached his house via a delivery app, only, say, $20 went to the restaurant.   Suppose further that this consumer’s reaction is not something like

“Damn those money-grubbing food delivery apps!   I’m going to dash off my couch and pick up my eats in person!”,

but, rather

“Hey!  Luigi down the street is making money on my order at $20!   Where does he get off charging me $30 when I go to the restaurant or pick up my meal?   Why, that Luigi is nothing but a gouging, money-grubbing, profiteering miscreant!”

Then, when he goes to pick up his next order or, when he can, eats at the restaurant, the consumer berates Luigi, demanding that he lower his prices so that he doesn’t become “rich” at the expense of this consumer who, after all, has lease payments to make on his Lexus.

No, I’m not being outrageous here.   There are people, and more than you probably think, who are sufficiently self-centered, clueless about the tough economics of the restaurant business, and unfamiliar with such concepts as fixed costs and contribution margins, as to think that their half-hindquartered argument about Luigi’s being a price gouger makes sense.

While yours truly has no problems with full disclosure, at reasonable cost, one can easily see how this full disclosure rule on delivery apps can wind up hurting local restaurants at least as much as it hurts the big, bad delivery apps.   Such an outcome should be no surprise; it is typical of the results derived from sometimes good intentions combined with lack of knowledge or introspection, a combination that nearly perfectly describes the modern political process.

See my two books, The Chairman, A Novel of Big City Politics and The Chairman’s Challenge, A Continuing Novel of Big City Politics, for further illumination on how things work in Chicago and Illinois politics. 

WE MUST “FOLLOW THE SCIENCE”…BUT ONLY IF DOING SO ACHIEVES MY POLITICAL ENDS

5/12/20

We have to follow the science!

That I didn’t include that tired and largely meaningless expression in my inaugural post of 2020 (See ACTUALLY, WOULD THESE WORDS AND EXPRESSIONS THINK OUTSIDE THE BOX, MAN UP, AND LEVERAGE THEIR AWESOMENESS TO LITERALLY, OR AT LEAST BASICALLY, DIE AN OLD SCHOOL DEATH?, 1/2/20) is surely one of the few shortcomings of this blog.   We are incessantly hearing, almost exclusively from Democrats, that, whatever the issue, we must FOLLOW THE SCIENCE.   That this admonition comes from a political party that assumes it somehow has a monopoly on science while completely ignoring the science of anatomy when determining one’s gender is especially presumptuously fatuous, but I digress.

In the current understandably COVID obsessed world, this tread-worn admonition is incessantly trotted out to warn us that we must keep economic activity to the bare minimum, hunkering down in our own homes, slowly, but increasingly quickly, going crazy, because “the scientists” say we must do so to fight the coronavirus.   While certainly not completely wrong, such a purely “science based” approach to COVID, along with the perennial gormless admonition to “follow the science” whence this seeming imperative sprung, is faulty for at least two reasons.   First, the insistence that “science” must always prevail assumes that science is, well, an exact science, that there is no dissent in the scientific community about whatever “science” determines is the right approach.  Science comes up with an answer and that is THE answer.   Unlike in the social sciences, there is no disagreement in the physical sciences, only exact answers on which anybody with a scientific background must agree.  

This is nonsense.   There is plenty of disagreement in the scientific community, whatever that is, about just about every issue in science beyond the basics.   One of the major reasons scientific journals exist is to serve as forums for scientists in particular branches of study to mull over and debate various ideas regarding the physical world.   One could argue that one of the very foundations of science is the espousing of alternative hypotheses that can then be tested using, you guessed it, the scientific method.   There is plenty of room for disagreement in the realm of the physical sciences.   Fortunately, such disagreements do not usually become the grounds for gratuitous ad hominem attacks, as do disagreements in the pompously monikered social sciences, but disagreements among physical scientists over purely scientific topics do become vociferous at times.    And that is okay if it leads to further scientific discovery.

In our current situation, we are told to believe that the science is settled, that until we get a vaccine and/or other types of amelioratives, we must practice the type of social distancing and social isolation that all but cripples our economy.   That is our only hope, we are told, in our fight against the coronavirus, and if we don’t lock down and do what the politicians, using scientists as cover, tell us to do, we are surely headed toward a resurgence of COVID-19 that will be at least as vicious as the round from which we are currently showing signs of emerging.  

Maybe that is true.   But maybe it’s not.  It’s not settled science that gradually, or even more speedily, opening up the economy will surely lead to a medical dystopia from which we have little hope of emerging.   We have been shown various models of this disease’s progression and they show widely varying outcomes of widely varying approaches to the disease.   And we are frequently told one thing and then its opposite with great rapidity and with similar scientific justification.   We were told that those who have contracted and survived COVID-19 develop immunity.   Then we were told they don’t.   We were told that only N-95 masks are useful against transmission of the disease.    Then we were told that surgical masks and home-made masks offer plenty of protection and that we must wear them.  We were told that young people are not as prone to the disease as older people.   Then we were told they were.   We were told that antibody testing, and antibody treatments, might be useful against the virus, and then we were told that they might not be useful.   This is not to suggest that either side of any of these arguments is right or wrong; such back and forth and changing one’s conclusions is just the normal process of scientific testing and discovery.   This process is messy and not nearly as exact as those who are constantly telling us to “follow the science” (but only, strangely, when doing so comports with their political, rather than their scientific, policy prescriptions) insist it is.

The second reason that the admonition to exclusively “follow the science” regarding COVID is faulty is that developing an approach to COVID from an overall societal/economic point of view is, like just about everything in life, a cost/benefit analysis.    Even if the doctors and scientists were in complete agreement on all things COVID-19, medical and epidemiological science can only, at best, provide half that analysis; it can give us an idea of the benefit of a “hunkering down” approach or the cost of an “open it up” approach.  Medical science is not capable of giving us an idea of the economic, psychological, and sociological costs of “hunkering down” approach or the similar benefits of an “open it up” approach.   Some have suggested that we consult the economists on these legs of the cost/benefit analysis that is involved in developing an approach to COVID.  Economists would indeed be useful in such an application.  However, though economists like to flatter themselves by calling themselves “social scientists,” as if economics were a science on a par with, say, physics or chemistry, economics is fun and instructive but is not a science in any but the loosest sense of the term; economics is, rather,  common sense put to (too many) numbers.  It lacks the exactitude of the physical sciences, even the limited exactitude, if such an expression makes sense, described above.  So, yes, economists should be consulted, but so should business people, investors, and typical workers.   Wisdom on such, and on just about all, matters is best gained in the practice of such matters, so let’s consult those who actually participate in the economy and the society we are trying to salvage in designing an approach to the coronavirus and its aftermath.   That, of course, leaves out the politicians, by the way, and not unintentionally.    As they use the coronavirus, as they use everything else, as just another excuse to tell us how wonderful and selfless they are, the politicians merely provide further evidence of how little they know.

So, yes, the application of science, especially medical science, is absolutely imperative in approaching COVID-19 which is, at its base, a medical problem.   However, let’s not pretend science is as exact as those who like to use its citation for political ends would have us believe.   And let’s also not pretend that the approach that would be prescribed by pure adherence to the tenets of physical science, which themselves are debatable in application, is the optimal solution to a problem that transcends the physical sciences.

THE CORONAVIRUS TASK FORCE: TRUMP ALMOST SHOWED SIGNS OF BEING A CONSERVATIVE

5/6/20

All of official Washington and its attendant scribes in the media were aghast at President Trump’s suggestion that he would disband the coronavirus task force.    Even their arch-villain, they supposed, could not be so misguided, so callous, so insensitive to the ravages of the coronavirus.   Those of us whose common sense dissuades us from Washington group-think, however, found that this was one of those instances, albeit rare instances, in which the President was distinguishing himself, showing a clear break from the stultified, elitist thinking that he was, after all, elected to oppose.

People who have spent their lives in Washington, covering Washington, and/or focusing their lives on Washington equate action with forming a committee, a task force, an authority, or the like.   When something has to get done, such people’s first reaction is not to do it but, rather, to form a committee, explore the issue, gather information, and then take credit when the solution to the problem arises, as it nearly always does, when people who don’t live in Washington respond to signals sent to them by the free market.   Such task forces generally describe their job as information gathering, fact-finding, coordinating, and, yours truly’s favorite, “facilitating.”   One can form some notion of what the first two are, but “coordinating” and “facilitating” are, like so many things in government, political equivalents of a Rorschach test; they are whatever people see as justifying the real tasks of these task forces.  The task force, committee, or the like’s real task is to serve as a forum for public sector acolytes to hold press conferences at which they tell “the American people,” themselves, and the pols who appointed them how wonderful they are...while deflecting responsibility from those same politicasters who set up the task force.

  

In this case, the solution to the COVID crisis will only come when private sector entities, motivated by the desire to enhance the wealth of their owners, find a vaccine and/or other amelioratives; see 3/19/20’s QUINN ON THE CORONAVIRUS:  I HOPE SOMEBODY GETS REALLY RICH FROM THIS CRISIS.  What is needed from the public sector is for the FDA and other agencies involved in testing and approving drugs and the like to act as expeditiously as possible.   Contrary to the cheap jokes at the public sector’s expense that have long been a staple among comedians, political commentators, and comedians who think they are political commentators, there are effective agencies out there and some very smart, dedicated, and talented people who work for them.  They are up to the task as long as the pols stay out of their way and refrain from gumming up the works through vanity and/or a cost/benefit configuration that provides incentives to complicate, rather than expedite, a solution to the problem.   Further, the very notion that the free market needs the wise, guiding arm of some federal bureaucracy to get its job done, especially when there is money, a lot of money, on the line, is laughable to anybody whose job does not involve having his hindquarters perpetually smooched by favor seekers or covering the every movement of such smoochees.  If there is money to be made solving a problem, and the politicians don’t get in the way, the miracle of the marketplace will result in a solution.    That this can be accomplished without all the drama and headlines a task force or committee produces is good news to those of us who don’t thrive on such drama.

Even in those rare instances in which task forces, committees, authorities and such do a decent job, as seems to be the case with the coronavirus task force, they eventually become real life zombies, never dying, but living on long after the problem they were designed to address has been forgotten.   It’s better to drive a stake into the heart of such bloodsuckers, even if prematurely, than to allow them to live forever.   The essential work will go on, but without all the drama and bureaucracy.  In this instance, if the coronavirus task force were to be disbanded and/or redirected, we would still have access to the wisdom of the likes of Doctors Fauci and Birx, and thank God for it.   But, without the demands of the coronavirus task force, the good doctors would have more time to work toward a solution because they wouldn’t have to spend so much time telling the pols, including the President, what great jobs they are doing and taking inane “gotcha” questions from the media.   And surely the work toward a solution or, more properly, set of solutions, to the COVID crisis would continue, but without the ankle-weights another layer of bureaucracy inevitably provides.

But wait…

We now hear that the President has changed his mind and that the coronavirus task force, like the quieter members of the cast of “Night of the Living Dead,” will live on.   President Trump has apparently gone native, agreeing that a federal task force is a help, rather than a hindrance, to solving the real problem.  Or perhaps he misses the nearly daily opportunities the task force provides him to preen for the cameras.   So his failure to follow through on his refreshing idea to actually let a layer of bureaucracy die appears to be a result of a combination of two of his most salient characteristics: his vanity and his aversion to spending more than thirty seconds thinking about anything.   

Mr. Trump, by not letting the coronavirus task force die and/or to be redirected, has caved into his vanity and aversion to more than cursory thought.  He has thus missed yet another chance to act like the conservative he claims to be.

FRICK AND FRACK WENT UP THE TRACK…TO HELP THE FED KNOCK THE MARKETS OFF TRACK?

5/1/20

While yours truly’s posts about the presidential election (e.g., PRESIDENT TRUMP WILL NOT BE RE-ELECTED, 4/22/20) and the vice-presidential sweepstakes (e.g., THE DEMOCRATIC VEEP RACE:  HOW ABOUT A FEMALE TIM KAINE…OR A NAME OUT OF LEFT FIELD?, 4/29/20) are of wider interest and thus draw more readers, my background is in finance and I thus feel compelled to address a few things in the markets that bother, or delight, me from time to time:

·         Fracking, as an industry, is uninvestable, and one needn’t get into the details, financial or otherwise, of every enterprise involved in this process to make that conclusion, avoid the industry, and thus save one’s self a lot of money, grief, and aggravation.   One simply has to realize that fracking depends on high oil and gas prices for profitability, but fracking itself makes sustainably high oil and gas prices nearly impossible by increasing supply at the margin just when prices get high.

One could make the same argument, one supposes, about any commodity…higher prices bring on more supply that in turn lowers prices…Econ 101 stuff.   However, fracking is especially acutely subject to such market discipline because it operates at the margin of an already imbalanced market.   Further, that imbalance preceded the COVID crisis and will continue long after that crisis is behind us.  One does not have to be on the “alternative energy is the wave of the future” bandwagon to conclude that, due to both supply and demand factors, oil is probably going to be cheap forever.   The last word of the last sentence is a dangerous one, especially in finance; nonetheless; yours truly is comfortable with it in this context.

While one could argue with yours truly’s conclusions regarding the uninvestability of fracking, I suspect that investors in Occidental Petroleum agree with me, secretly or otherwise, after OXY’s $38 billion investment in big time fracker Anadarko that has crippled Occidental.  So do legions of junk bond investors whose reach for yield led them to frackers in the nether regions of that market.

One suspects that the uninvestability of fracking delights environmentalists, much as the large-scale replacement of coal with cheap natural gas as fuel for electric power plants has done.   These are both instances of the markets’ achieving environmental goals more efficiently and on a much larger scale than can governmental regulation.

·         Officials at the Fed and enthusiasts for its current aggressively expansionary tactics, including Chairman Jay Powell, contend that one of the Fed’s achievements in the last few weeks is having given companies access to the financial markets that they would otherwise not have had, and doing so without actually expending any money but merely by stating a readiness to expend such money.   Doubtless this is true, but this process of access granting, if you will, has been quite indiscriminate.   Yours truly suspects that we may find, and maybe sooner than a lot of people think, that many of the companies accessing the markets as a result of Fed intervention were previously incapable of accessing the markets for a reason.   Cruise lines come immediately to mind, but there are others.    Others disagree, of course, but that is, as the old saying goes, what makes a market.   One only hopes that the Fed will allow those on the wrong side of this market, whatever that side might be, to suffer the financial consequences of their misplaced wagers.  Given the activism of the Fed of late, one would be forgiven for doubting that it will.

·         Yours truly has mentioned this before, but one of the expressions to which the wise men of the markets nearly unanimously nod in agreement is

“Markets hate uncertainty.”

I know what those who repeat this tripe are trying to say, i.e., markets go down in response to greater uncertainty.   But that very observation renders the statement nonsensical.   Markets don’t hate uncertainty; markets thrive on uncertainty because markets are designed to handle, and price, uncertainty.   Without uncertainty, there would be no need for markets; markets owe their very existence to uncertainty.   So how can markets “hate” uncertainty?   

Mere semantics, one might argue, but to those of us who understand and have come to implicitly trust markets, and the English language, the expression “Markets hate uncertainty” is especially grating.   More importantly, blind accession to such inexact language can easily lead to dangerous policies designed to eliminate uncertainty for fear of letting markets do their job by pricing in greater uncertainty and going down.   See the last bullet point.