Wednesday, November 30, 2016

Carrier Capitalism

According to very reliable press reports United Technologies, the parent corporation of Carrier, has promised the incoming Trump Administration to remain in Indiana instead of moving its heating equipment parts facility to Mexico. From a political standpoint this represents a "YUGE" victory for Donald Trump. Simply put, he promised to save the approximately 1000 jobs and he delivered.

In exchange for staying United Technologies relied on the promise of fundamental tax reform being offered by President-elect Trump and a modest amount of tax incentives offered up by Indiana Governor and Vice-President-elect Mike Pence. This act will certainly put Congress under the gun to act on his proposal. What is left unsaid is the fact that United Technologies does about $6 billion worth of business with the Department of Defense. It certainly wasn't worth it for them to get off on the wrong foot with the new administration.

What is troubling about the whole transaction is the direct involvement of the incoming administration to get involved in what is essentially a private decision. Is this a one-off event or will we see a line-up of corporations announcing moves to Mexico in order to extract concessions? What we have here is the President-elect acting as a governor. Governor's do this all of the time for the benefit of the corporate sector at the expense of the taxpayer. "Crony capitalism" if you will.

My guess is that it won't be the first time and we will see President-elect Trump with his gazillionaire cabinet acting as a Jacksonian tribune of the people. But make no mistake, politically it was brilliant. 

Tuesday, November 22, 2016

The Coming Political Realignment

You have got to give Donald Trump credit. He destroyed the two reigning dynasties in American politics; the Bushes and the Clintons. He is now in the process of destroying the hollowed out shells of the Democratic and Republican parties. By the end of his term there could very well be two Democratic parties. A social democratic one headed by Bernie Sanders and Elizabeth Warren based on hostility to capitalism, an expanded welfare state and identity politics. The last of which can be viewed as fundamentally anti-American in the sense that it rejects our national motto, “E Pluribus Unum,” which means “out of many one”.  This faction is open to unskilled immigration, anti-trade and isolationist with respect to foreign policy.

I would characterize establishment wing of the Democratic Party, formerly headed by the Clintons as Left Hamiltonians. The favor big government but are friendly to finance, Hollywood and Silicon Valley. They favor open trade, an internationalist foreign policy, high skilled immigration, the regulatory state and thoroughly believe in the educational meritocracy that by and large runs the country. To them Trump is the ultimate outsider. My question is will they remain in what will be a very left wing Democratic Party with its hostility to the elites that they are?

On the Republican side we now have a very populist Jacksonian party that is hostile to nontraditional lifestyle choices, trade, immigration and foreign entanglements. It supports the existing entitlement programs and is voice of dispossessed white people who now believe that they are a minority group and are voting as such. They too are hostile to E Pluribus Unum. It was these voters that elected Donald Trump. To be sure there racism is present, but the grievances are real as they are looked down upon by the elites of both parties. On economic issues they are closer to the social democratic wing of the Democratic Party than the establishment Republicans, a fact highlighted by Donald Trump during the campaign.

I would characterize the establishment wing of the Republican Party, now a shell of its former self, as Right Hamiltonians as typified by House Speaker Paul Ryan. They favor big government where it can help big business, low taxes, open trade, high skilled immigration, and an internationalist foreign policy. They have more in common with the Left Hamiltonians in the Democratic Party than they do with the Jacksonians that are now running their party. The basis of a new party can be formed here similar to the way the Northern Whigs and the anti-slavery Democrats merged to form the Republican Party in 1854.

There is also a Jeffersonian wing in the Republican Party. They are called libertarians who favor a small government, an isolationist foreign policy and are wide open to the life style choices people make. It isn’t clear they have a home in the newly constituted Jacksonian Republican Party.

So fasten your seat belts, we are in for a wild ride over the next four years!

Friday, November 11, 2016

My Letter to The Wall Street Journal on Monopsony Labor Markets, Nov 11

Jason Furman and Alan Krueger ought to look in the mirror. The Affordable Care Act, which both authors supported, triggered a host of hospital mergers, thereby creating monopsony power in many local health-care markets.

The link is here:

Wednesday, November 9, 2016

After Action Report on the 2016 Election

WOW! Confounding all of the pollsters and the experts Donald Trump has become the President Elect. He relied on the voters willingness to "stick it to the man" (the global elite), the emergence of a bloc of white voters who acted as an "oppressed" minority, and he did much better than expected with suburban and Hispanic voters. Simply put nationalism is back. For whatever reason the Trump campaign sensed an opportunity in the upper Midwest and pounced. If anything this election represented a big loss for high-priced political consultants.

Shulmaven's forecast was pretty close we had Clinton winning on the electoral college by 288-250. We had Michigan going for Trump, but Florida going for Clinton. That was are big mistake because with Florida Trump in our model would have ended up with 279 electoral votes. It now looks like he will get around 300. We had Clinton winning the popular vote by 3 points; she will end up winning it by 1 point.

We were very close to the mark with the House and Senate races. We had the Republicans ending up with 51 seats; it now looks like they will have 52 or 53 seats. In the House we had the Republicans losing 12 seats which is about double the 6 or 7 seats they will end up losing. Not bad.

Where we are most surprised we thought there would be a major stock market sell-off. We got that overnight, but as of 11AM Eastern Time, stocks are off modestly with the bond substitutes, hospitals and auto parts suppliers bearing the brunt of the selling while defense, infrastructure and pharmaceutical stocks are soaring. I guess the market believes that Trump's reckless fiscal policy will be pro-growth and his barks on trade and immigration are just that with no follow through.

We will have more comments later in the week.

Sunday, November 6, 2016

Election Forecast: Clinton Wins, Republicans Hold Senate and House

It is going to be a long night. My best guess is that Clinton will beat Trump in the popular vote by 3 points, 48.5 - 45.5 with Johnson and Stein getting 4% and 2%, respectively. The electoral college could very well end up being a squeaker with Clinton beating Trump 288-250. Why so close? If I am right about Clinton's 3 point margin, which is somewhat above the polling averages, then California will account for the entire margin of victory. Using simple math with Clinton carrying California by 20 points and California accounting for about 15% of the popular vote; then by simple multiplication you get 3 points. That means the rest of the country will be tied.

How I get to 288 for Clinton is that I give her Nevada and Florida, but I give Trump Ohio, North Carolina and in two upsets I give him New Hampshire and Michigan. Question: why are Obama, Hillary and Bill visiting Michigan tomorrow? Trust me, it is not for the mid-Fall weather.

As far as the Senate goes, with Trump not collapsing the GOP has a real chance to hold on. There are going to be more than a half dozen very tight races so the margin for error is large. My central tendency is for the Republicans to hold the Senate by a razor thin 51-49 majority. The only sure loser the Republicans have is Mark Kirk in Illinois. Now if Clinton wins by 5 points, the Democrats will take the Senate by something like 52-48. 

As far as the House goes it now looks like my fears of a few weeks ago that the Democrats would take the House were unwarranted. Again assuming a 3 point victory for Clinton, the Republicans figure to lose about a dozen seats ending up with a 234-201 majority. And because the Republicans are the "stupid" party they will immediately squander their victory by having a leadership fight. A fitting coda for the ongoing collapse of a party that had victory on a plate and it nominated the only candidate that could lose to Clinton.

Correction and Addendum

California accounts for 10% of the vote not 15% as stated above. Thus with Clinton carry California by 20 points her margin of victory in the rest of the country would be 1 point. Not zero, but very close. In 2012 President Obama beat Romney by 5 points with 2 of those points coming from California. Thus if his margin of victory was only by three points with California being roughly unchained, we might now be witnessing Mitt Romney's reelection campaign.