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Greece – Lazy, Stupid or Evil?

Greece – Lazy, Stupid or Evil?

My regular readers are already familiar with what I like to call BUC

Lenores Law BUC

Lately I’ve been mulling over a new one, which applies quite well to the discussions around Greece, but I think is universally applicable – L4

Lenores Law L#

I was speaking with a friend of mine who lives in the States and she was asking me about the view of Greece from Italy, (I’m working from Genova, Italy at the moment) and commented on how the country really needs to get its act in gear and what is wrong with those lazy Greeks who want Germany to endlessly subsidize them.

Dog-with-perked-ears

 

My ears immediately perked up!  That sounds a lot like L4.

 

 

 

Yes, Greece is a disaster, but having been to the country, (I’m in love with Santorini and Mykonos) and having seen just how hard many of the Greeks work, my ire got up hearing that as the explanation for why the nation is struggling.  Let’s look at the data on just how lazy those Greeks really are.

Data compiled by the Organisation for Economic Co-Operation and Development (OECD) shows that in 2013, Greece had the second highest number of average annual hours actually worked per worker at 2,037 hours- only Mexico worked more!

How many hours for those diligent, finger-wagging Germans?  1,388 – two thirds the hours that those lazy Greeks worked! The Germans sit at number 34, BEHIND Russia, Ireland, United States, Italy, Portugal, Canada, Spain, Sweden, Belgium, France, Denmark and Norway!  Yes, the average annual hours worked in Germany in 2013 was LESS than Greece, Italy, Spain and Portugal!

So what gives?  Why is Greece and for that matter Italy, Spain and France struggling?

There is no easy answer for that, but lets take a quick look at the data.

According to data compiled by the World Bank benchmarked to June 2014, out of 189 countries ranked for ease of doing business, Greece was number 61 while Germany was number 14.  (The lower the number the easier it is.)  Italy sits at number 56, Spain at 33 and Portugal at 25.  For comparison, the United States is number 7.

For getting credit, Greece ranks number 71 while Germany was 23.

For getting electricity Greece ranks 80 while Germany ranks 3.

For enforcing contracts, Greece ranks 155 while Germany ranks 13.

So maybe it isn’t that those Greeks are lazy, stupid or evil.  Maybe they just have government bureaucracy that makes it excruciatingly difficult to earn a living, no matter how hard you work!  As a gentleman named Henry David Thoreau once said in “Civil Disobedience, “That government is best which governs least.”

Or as another fellow for whom I have a rather mad crush said, “Government is not the solution to our problem; government is the problem.”

Banks & the Fed – Bail 'em Out then Beat 'em Up

While shoppers were watching their pennies this holiday season, I was grinching over the relationship between the Fed and the big banks as reminiscent of the abusive relationship between Ike and Tina Turner – bail them out then beat them up with an onslaught of massive fines.  According to a global banking study by the Boston Consulting Group, legal claims against the world’s leading banks have reached $178 billion since the financial crisis, with heavy fines now seen as a cost of doing business, a cost ultimately born by shareholders with no banking employees or executives facing charges for wrong-doing.

All these fines do little to deter wrong-doing in the future while taking money out of the hands of those saving for retirement and give it to the government to spend with zero accountability.


 

Regulating Freedom of Speech & IRS scandals

Regulating Freedom of Speech & IRS scandals

Earlier this week I appeared on the Rick Amato Show with my writing partner, Chris Versace.   We discussed the FCC’s recent statements  concerning regulating conservative media, somehow justifying regulating freedom of speech.  We also discussed the IRS Scandal concerning Lois Lerner’s refusal to testify and claims that her emails have been lost.

In the second segment we discuss how the horror of the sequester resulted in the loss of all of one job!   Government math strikes once again, reporting a decrease in the rate of increase as a cut.  Using that logic, if over the past year I’ve been gaining 2 pounds a month and this month I only gained one pound… well then I’ve lost weight!

 

Rick Amato Show: 5/8/2014 from Mychal Wilson, Esq. on Vimeo.

Italy and California: A Sisyphean Nightmare?

Italy and California: A Sisyphean Nightmare?

I think most people are clear that in a robust, healthy economy entrepreneurs are able to quickly turn their ideas into reality, in the process creating jobs and occasionally having an enormous impact on the way we live, as in the case of Apple, Amazon, and for the ladies out there, Spanx.  My two homes, Italy and California both appear to be hell bent on becoming Sisyphean nightmares for not only the budding entrepreneur, but even for well-established, international corporations.

Yesterday the Wall Street Journal ran a piece entitled, “Can Italy Find it’s Way Back?”  The article opens with an example of just how difficult it is to get a business going in the country.  We are told of an entrepreneur who bought a tract of land when he was 45 with the intention of building a supermarket on it.  At 88 years old, he’s finally received the necessary permits!  Seriously!?  Colleagues of mine in Italy have shared similar insane tales of government bureaucracy, their frustration mounting and gesticulations increasingly animated as the bottles of vino empty.  It is Italy after all and intense conversation requires a good bottle of champagne or a rich bottle of red.

California is moving rapidly in the same direction, making it more and more difficult for entrepreneurs to translate a passion into reality, while for existing companies the regulator and tax burden is pushing them to locate elsewhere.  The headlines for years have told of one company after another deciding to leave the state.  Carl’s Junior announced that it would not open one more restaurant in the state because it takes too long and is too expensive to get through all the red tape.  Just this week Toyota announced it is moving a facility it has had in Torrance, California for over 30 years to Texas.

This is what I like to call, for obvious reasons, Elle’s Law of Unintended Consequences whereby bureaucrats’ attempts to protect invariably end up harming the very thing their legislation intended to protect.

Entrepreneurs, being adventurous types by definition, rationally choose to go where there are fewer barriers to success.  Large corporations may find that over time, the benefits of being in a specific locale are falling further and further below the associated costs.  When bureaucrats enact legislation that creates barriers, any reasonable businessperson will have to compare the associated costs with the potential benefits of operating under such conditions.

In Italy, labor laws have become so onerous that the economy is bizarrely bifurcated into two distinct types of businesses:  very small, family-run, mom-and-pop shops and large multi-national corporations that were already large by the time they entered the Italian market.  Why is this?  The labor laws that were enacted in Italy with the intention of protecting workers have made it inconceivably risky to hire anyone, because if it doesn’t work out, firing them is almost prohibitively costly.  If you have a small shop, with just you and your partner, it is insanely risky bring on additional help, so you simply don’t grow.  The economy is deprived of the potential success you could have had if the risks of expanding weren’t so great!  Think of how many jobs wouldn’t exist today if Google had never made it out of the basement.  Large multinationals that come into the country face a slightly easier mountain as for them, the likelihood of a high portion of hires not working out is fairly low.  Due to their size, they can survive having some level of deadweight, unlike the small firms.

Unfortunately, the damage doesn’t stop here.  The culture of protecting labor in this manner comes from a history of communism and socialism that emerged as a violent reaction to the hell experienced under fascism.  This mentality applies subtle negative attributes to those who attempt to be special, to do something unique and worthy of attention.  Thus there is a disincentive for putting in the extra effort, for taking the risks associated with overachieving and given this cultural climate, overachievers aren’t compensated much more than their colleagues who do the bare minimum.  Couple this with the reality that it is really difficult to fire someone, so imagine the incentives!  Shockingly enough, human beings, like all animals, respond strongly to incentives.  If I won’t get compensated much more for working my tail off, why would I put in the effort and take the risks to be outstanding?  If I can’t be fired, the floor for the level of performance I consider reasonable is going to be a lot lower than if I know there’s a line of people just waiting to take my place!  Now while we’ve all had days when this situation would sound awful comfortable, think about what it means for the performance level of the society as a whole.  How often have you heard envious tales of Italian efficiency and professionalism?

Is it any wonder that Italy’s economy is essentially stagnant?  How can it possibly grow when entrepreneurs are so heavily hamstrung and when workers have very little incentive to do more than the bare minimum where their is neither a carrot, nor a stick.

Sadly, every time I leave Italy and return to California I am struck more by the similarities than the differences.  The U.S. would be wise to look across the pond and understand what it is that is keeping so many countries in the eurozone economically stagnant and fight like hell to move in the opposite direction.

Toyota and GM Recalls

Earlier this week I spoke with Graham Ledger on the recent Toyota and GM recalls.  So far this year, automakers have recalled about 9 million vehicles in the U.S. If that pace continues, the nation would break the record of 30.8 million recalled vehicles set in 2004.

Toyota’s recalls come as rival GM recalls 2.6 million small cars for defective ignition switches the company links to at least 13 deaths. Of those, 2.2 million are in the U.S. As that crisis unfolded, GM announced recalls of another 3.4 million U.S. vehicles.

Toyota’s latest recalls were announced before the company even developed specific repairs. They come two weeks after the Justice Department skewered the Japanese automaker for allegedly covering up problems that caused unintended acceleration in some cars starting in 2009. Toyota agreed to pay $1.2 billion to settle that case, but federal prosecutors can resurrect a wire fraud charge if the company fails to comply with the terms of the settlement.

The bigger picture is that Toyota’s cars are hardly unsafe. For the 2001-04 model years, for example, Toyota and Lexus accounted for five of the 12 models with the lowest death rates per driver year, and zero of the 12 with the highest. But the company is a multinational whose bottom line depends on a return to good publicity and putting legal troubles behind it in the huge U.S. market.

Is all this a triumph for safety? Or in the case of Toyota, have aggressive federal prosecutors seized on relatively minor missteps to stampede an image-conscious company into a big payout?

As for GM, the bankruptcy and government bailout complicate the feasibility of class action lawsuits.

While clearly the deaths linked to the GM defects are horrific and worthy of much furor. We’re also seeing a trend in enormous government crackdowns on the private sector with enormous fines that lead one to question the utility and purpose of such aggressive actions.

100 Years of the Federal Reserve

100 Years of the Federal Reserve

There was a time when no one, outside perhaps the most esoteric economic geek circles, could name the current Chairman of the Federal Reserve. Those days are now long gone as the Fed has taken a much more active role in the economy and the various Fed Presidents and Chairman have evolved into media cult figures, perhaps less riveting than the latest Kardashian marriage collapse, but financially far more provocative.

 

The Fed’s current focus is clearly helping Uncle Sam reflate out of the government’s enormous mountain of debt. The chart on the next page shows the mountain of debt that has been created by impressive levels of spending from both sides of the aisle for a truly bi-partisan mess. The deficit is now almost three times what it was seven years ago, while debt service costs are at about the same level, thanks to Fed sponsored suppression of interest rates. The Fed effectively has complete control of the market for longer-dated Treasuries, with its holdings of bonds with a maturity greater than 10 years increasing by $154 billion through June of this year, (latest data available from the Fed) to a total of over $500 billion. Meanwhile the total outstanding level of such debt, privately held interest-bearing, grew a measly $9.6 billion for a total of $809 billion.


For those of you who enjoy a monetary policy geek-fest, the following summary of comments from the various speakers at the Cato Institute’s Monetary Policy Conference on November 14th, including current Philadelphia Fed President Charles Plosser may be of great interest. I’ll do my best to keep it lively.

 

Charles Plosser opened the conference with a discussion of how many of the both implicit and explicit limits on central banks around the world have been challenged over the past few decades and most dramatically since the financial crisis. He believes the Fed entered into the realm of fiscal policy when it began purchasing non-Treasury securities such as mortgage-backed securities and referenced Milton Friedman’s warning in 1967 that, “We are in danger of assigning to Monetary Policy a greater task than it can accomplish.” Over the past 40 years, it is clear that we have failed to heed Friedman’s warning, with the Fed doing a poor job of aligning expectations with what it is actually capable of accomplishing. Plosser warned that increasing the scope of the Fed’s mandate opens the door for highly discretionary policies, acknowledging that a rules-based approach is unattractive for the majority of policy makers as it ties their hands.,Discretion is the antithesis of commitment, something most politicians loathe. If the Fed gave itself less discretion, it would be held more accountable. He pointed out that the current climate of guess-my-mood communication on the Fed’s part leads investors to make unwise gambles, as they try to read the mysterious tea leaves of Fed speak, such as the recent market tumult over taper talk.

 

Jerry Jordan, the former President of the Cleveland Federal Reserve expanded on Plosser’s comments, pointing out that the existence of a Central Bank with discretionary power essentially guarantees the emergence of moral hazard with the resulting power to grant permission and regulate with discretion, opening the door to crony capitalism. To large banks, their PACs, (Political Action Committees) are often more impactful on their bottom line than their own management. (Shocker, businesses as well as individuals respond to incentives!) He referenced the Fed’s recent report on the impact of quantitative easing on the economy stating that if there is any relationship between economic growth and quantitative easing, it is a remarkably well kept secret, instigating a round of chuckles from the audience. He pointed out that most economists understand that monetary policy cannot correct the mistakes of the rest of government, even though the Fed is currently doing its best to defy that assessment. He argued that central bank independence is a myth, at least during a financial crisis, because once a central bank takes its first steps to support the economy, there is no way out that does not involve collateral damage. That, by definition, prompts pressure from bureaucrats. He believes that exiting the current zero interest rate regime will be exceedingly complex and it will be impossible to escape without considerable financial market volatility. He seconded Plosser’s assessment of the Fed’s move into fiscal policy, asserting that traditional views of monetary policy and its impact are no longer useful as monetary policy has become fiscal policy. This move into fiscal policy has served to increase market volatility as no one can say with certainty, which entities will receive support during a crisis and for how long. Once again, discretion comes at a price.

 

Cato President and CEO John Allison, (former CEO of BB&T Corp, a U.S bank with over $180 billion in assets) discussed the impact he saw of government actions on his former bank. He pointed out that the Patriot Act and the federal privacy policy are in conflict with each other, leading to discretionary enforcement and application by regulators, which opens the door for corruption. He observed one of the great fallacies of current conventional wisdom is that there was financial deregulation under President George W. Bush which led to the crisis. Instead, Allison stated that there was actually a net increase in regulation if you look at the quantity and complexity of the regulations before and after his term. He believes that regulators greatly exacerbated the panic that hit the markets during the financial crisis by effectively suspending the rule of law and greatly increasing their level of discretion. No one had confidence in just what were the rules of the game, nor was there any clarity on who would be bailed out, who wouldn’t, and at what cost and for how long.

 

Kevin Dowd, Professor of Finance and Economics, Durham University, reinforced John Allison’s assertions, pointing out that the original Federal Reserve Act is about 32 pages long. The Glass-Steagall Act is under 40 pages long. The Volker Rule is just under 550 pages. Dodd-Frank, so far, is nearly 850 pages with most expecting it to total around 20,000 pages or more when all the discretionary bits are worked out. Notice a trend in the timeline here? The more complex the regulations, the more costly it is to enforce them, and to comply with them, creating a bias towards ever larger financial institutions, and increasing the opportunity for corruption.

 

For those of you who’d like a bit more, aside from suggesting you look into therapy as my family reiterates every holiday, I recommend going to this site to watch clips of some of the presentations. Despite the gloomy potential, there were frequent rounds of boisterous laughter, albeit the geeky economist style which I enjoy more than I ought to admit.

Obamacare delays highlight the dangers of an ever-expanding government

Obamacare delays highlight the dangers of an ever-expanding government

By completely restructuring how health care works in the US, those responsible for implementing the Affordable Care Act are restructuring and controlling what today amounts to about 15% of the U.S. economy.

With that in mind, after having 4 years to prepare for this, they still are not ready to implement a major portion of it.  The Obama administration has stated that it will not have the capacity to collect from employers the information required to determine which employers will be subject to penalties in 2014.  Thus it will not require employers to report that information until 2015, even though the very statute that this Administration pushed through Congress requires employers to furnish that information in 2014.  This doesn’t exactly instill confidence in the government’s ability to improve our healthcare system not does it? 2013-07-11 Expect-Delays-sign2

Four year and they can’t even collect data!

The employer-mandate penalties unequivocally take effect on January 1, 2014.  When Congress passed this Act, it gave the Treasury Secretary no authority to postpone the implementation, which is not unusual.  Congress rarely passes anything giving other parts of the government discretion over how and when to implement.  This would be akin to Congress raising or lowering tax rates, but then telling the Treasury it can decided when it wants to implement those  changes,  “Ehhh, next year or maybe the year after.  Whenever you can get around to it.”

The statute gives the Treasury secretary the authority to collect these penalties “on an annual, monthly, or other periodic basis as the Secretary may prescribe.” It does not allow the secretary to waive the imposition of such penalties, unless the State has implemented an acceptable health insurance program for its residents.  Then the Treasury is allowed to waive the imposition until 2017.

So here we have a clear example that Congress did in fact contemplate giving the Treasury the ability to waive penalties, but decided to do so ONLY under specific conditions.

If one wants to continue to try and argue that the Treasury does in fact have the ability to waive parts of the ACA, then what is the limit of the Treasury’s ability to waive any portion?  If it can extend 1 year, why not 5 or 10 or 500?  What authority then does Congress have to enforce the very Act it passed?

Now the Republicans, seeing clear signs of distress from their opposition, are trying to take advantage, as is always the way in DC.  They are saying that if businesses get a one year waiver, individuals should too.

No wonder American’s have less respect for their government than at any other time in history.  Those in DC, whether it be Congress, the President and his Administration, the Treasury and the IRS, have no respect for the very laws they pass and are charged with enforcing and are even comfortable exempting themselves from them!  This is exactly what one would expect to happen when you have a government that has grown entirely too large and is beyond unruly.

We cannot respect our government when it does not respect itself.  If we cannot respect our government, then how does our society function when those tasked with implementing and enforcing laws cease to do so in any reasonable way?  Rome…are we there yet?

What is the proper role for government?

Only July 21st, Lenore Hawkins joined the Freedom Fighters, (Charles Payne, Ellis Henican and Kmele Foster) and on Freedom Watch to discuss the economics of electric cars, Florida selling info on citizens obtained by the DMV, the federal government’s restriction of potatoes in school lunches and the impending FAA shut down.

The Rahn Curve

As I head off to Las Vegas for an exceptionally inspiring conference called FreedomFest, I thought I’d leave you with a great video from my friend Dan Mitchell about the Rahn Curve, (developed by Richard Rahn) which graphically illustrates the relationship between the size of government and the economic success of a country.  On the one extreme, anarchy is incredibly expensive and suppresses productivity.  On the other extreme, an large government, with onerous tax burdens is also debilitating for an economy.  As an investment advisor I watch the direction the nation is taking, as over the long-run that will affect overall GDP and investment opportunities.  We are currently on a disconcerting trajectory of government expansion, with increasing sovereign debt and onerous rules and regulation to control and limit the growth of business.  While Europe moves away from Keynesian economics as they realize the consequence of entitlement programs they cannot afford, we continue to expand ours.