Category Archives: Economics

All and all…

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In June, 1987, another Republican President said:

We welcome change and openness; for we believe that freedom and security go together, that the advance of human liberty can only strengthen the cause of world peace. There is one sign the Soviets can make that would be unmistakable, that would advance dramatically the cause of freedom and peace. General Secretary Gorbachev, if you seek peace, if you seek prosperity for the Soviet Union and Eastern Europe, if you seek liberalization, come here to this gate. Mr. Gorbachev, open this gate. Mr. Gorbachev...Mr. Gorbachev, tear down this wall!

This morning, while the fact checkers are busy mocking the current Republican President is getting ready to go on television to try to convince the United States that what was not needed in Germany, is needed on the US border. The irony is thick.

I do not have time to fact check the President. He lies so often that you just assume he is lying. The Washington Post has a few people that can do fact checking and they have. This includes sources like State Department report which says:

Despite their portrayal of Mexico as a teeming portal for terrorists the State Department issued a report in September finding ‘no credible evidence indicating that international terrorist groups have established bases in Mexico, worked with Mexican drug cartels or sent operatives via Mexico into the United States.

So while there might be a crisis, and there is an immigration problem, the real problem is eight hundred thousand federal employees and contractors are 1) Not getting paid, 2) Working without pay (for those who are essentials), 3) Forcing employees not considered essential back to work to improve optics.

It is time to forget about a drop in the bucket five billion dollars and get the government back to doing the people’s business.

National Emergency?

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The Latest: Pence says national emergency being considered | WTOP

Vice President Mike Pence says the White House is looking into the legality of declaring a national emergency to circumvent Congress and begin construction on President Donald Trump’s long-promised Southern border wall.

Let me see if I understand this. There are 800,000 people not getting a paycheque because the President of the United States wants to build a wall, that even his own experts (and the Cato Institute and a half-a-dozen other firms) believe will solve nothing. Especially when there are bridges falling down, courts backed up, and, um, 800,000 people not currently drawing a paycheque.

The National Emergency is the unfunded nature of several agencies critical to the operation of the country. At this point, even ISIL is laughing at us.

Wait, What?

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The Latest: Trump administration looks to prevent pay freeze | WTOP

The Trump administration says it’s exploring ways to prevent a scheduled federal workers’ pay freeze from taking effect while government workers are furloughed by the partial shutdown.

And in the same voice:

Trump announced the pay freeze in his 2019 budget proposal in February and later in letters to Congress.

Is it any wonder Congress does not know what to put in a bill that 45 will sign when he is talking out of both parts of his ass at the same time?

What a Government Shutdown Really Means

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Spoiler: It does not mean politicians feel any pain.

If you have not met a Federal employee or contractor, or live more than a short drive from the Beltway (what we call the I-495/95 asphalt loop that circles DC), it is understandable that you have a rose coloured glasses opinion about what a government shutdown (even a partial shutdown) means. So, to help you understand the impacts on ordinary people, let me explain it to you.

This current shutdown is a partial shutdown. What does that mean? In this case, it means that only a small number of agencies are affected — specifically, the Department of Homeland (In)security, Justice, EPA, Interior, Agriculture, Commerce, HUD, and a handful of others. Agencies, including the Department of Defense, Veterans Affairs, and Health and Human Services, to name a few are not impacted because their budget was approved after the earlier shutdown this year (yes, that’s right, this is the second shutdown in 2018, now rolling into 2019). I will not discuss the political hand-waving being done, but that does not mean this had to happen. Instead, let us look at the impact.

Personnel

It is estimated that this shutdown will impact some 800,000 people. That is 800,000 full-time Federal employees, and contractors. Let’s put this in perspective, shall we?

In November, General Motors announced it was laying off 14,000 employees. Wells Fargo quietly laid off 26,000, and Verizon is dumping some 10,000 employees. The layoffs in the Auto Industry caused a great hue and cry, but the other layoffs barely caused a ripple, in the press. Everyone agrees, however, that those numbers are significant numbers to be laid off in an economy that is growing. That is less than 10% of the total workforce that has been idled by the Federal Government. The official term is furloughed, and it is important to remember that the Federal Workforce has not been laid off (the same cannot be said for the contractors).

So why the difference in wording. Because being a Federal Employee comes with many benefits, and those benefits, come with a couple of significant catches. As a Federal Employee, you get at least nine days off a year (you know, all those Federal Holidays that none of the rest of us generally get). They get discounts at hotels, transit benefits, and a generally stable pay structure. In exchange, they cannot do certain things that the average employee can (look up Hatch Act for example), but it also means they cannot legally hold a second job. Which means, that if they are furloughed they cannot apply for unemployment insurance (since they are still technically employed), they cannot go and get a part-time job to carry them over until they are paid again, and best of all, if they are deemed essential they have to continue to work without the benefits of pay.

Federal employees will, eventually, get their pay. The bill has already been passed to pay them once the budgets are allocated, but until the money is available, they cannot be paid, even if they are required to stay at their posts. So be kind to that TSA employee. He may not be making much money, but at the moment, he is working and not being paid.

I mentioned that contractors are a particular case. Most contractors, assigned to work for agencies that are shut down, are not being paid, because their companies are not being paid. Moreover, since they are not working, they cannot receive pay for that time. They are, in all reality, laid off. Some of the larger contractors will carry these employees over. Either by forcing them to take paid time off, or send them off to training, but even that will not be a long-term fix. If their agency is not funded in a short period of time, usually two weeks in my experience, they will be out of work. Let me repeat this. Federal contractors, who work for agencies that are close, will be out of work if this is not resolved quickly. How many people are we talking about? As many as 10% in some agencies, considerably higher in other agencies. So those layoffs at GM and Wells Fargo are comparable to the layoffs that are happening in the Federal sector over the Christmas break.

Economics

The Government is closed. Look at all the money the Fed is saving. Again, this is not entirely accurate. The people that are full-time employees are, in fact, going to be paid. So there are no payroll cost savings.

Further, the lights, heat, and phones are still being utilized, even at a minimum extent (although if you notice, many of the Federal websites are still online) so those bills will have to be paid to the local utilities, eventually. But so do the mortgage, utilities, and other bills for the 800,000 employees who are not receiving a paycheque. These 800,000 people still have to feed their families, put gas in their cars, put clothes on their bodies — all without a paycheque. The gas company continues to send gas to their houses on the assumption the bill will be paid. Remember that many of these employees are not being paid a great deal of money. You can look up exactly how much they are being paid online. Also, like most Americans, living paycheque to paycheque is the norm. So missing even one paycheque is economically risky.

However, there are other impacts, some of which are invisible. Some of which are quite visible.

Because an agency is shuttered, it means that no one is eating Enzo’s Lunch Special at the local deli. Most of these restaurants barely survive with the local trade. Take it away for a day, a week, a month, and suddenly Enzo’s deli is no longer there. Car repairs are put on hold. Home upgrades. Tuition. The impacts are a real example of how trickledown economics really works. One domino falls, and it might not cause a cascade. Several falling and the cascade may be unstoppable. Eight hundred thousand people represent a lot of falling dominos and a lot of small to medium businesses being impacted.

So if you think that is not that big a deal, then think about this. The Federal Government is not paying its bills. At least those agencies that are closed are not paying their bills. The largest business in the United States is not paying its bills. However, companies have started doing work on the assumption that they will be paid. Uniforms are being made; servers are boxed, boots are ordered. Dell might be able to absorb a week or two shutdown and not have it negatively affect their bottom line, or their stock price, but other companies have already announced or will be announcing the hit in the fourth quarter or the first quarter of 2019. If this shutdown goes more than two weeks, expect those impacts to begin to show on the markets. If they have not shown up already in the significant downturn just after the shutdown was announced.

Access

A commenter on a site posted: I just went to my local National Park. The gates were up. You don’t need park rangers to allow you access to our national resource.

All well and good. The National Park Service, part of Interior, is unfunded and many of the Rangers are not patrolling the parks. Some parks are open, unattended; others are closed. However, Rangers and other park workers are not there to just collect the entrance fee (which is trivial). They are there to keep bad things from happening to the natural resource: no Rangers, no fire watch. No fire watch, well, we could lose acres to wildfires. No Rangers, no one stopping poachers, or others doing bad things on Federal land. No Rangers, or even park workers, no one to clean up the trails when the trees fall or rebuild bridges, or come and get you if you get into trouble. Think about that before you go out.

In DC, more visible than anywhere else, many tourists have discovered what the shutdown means in person. The Smithsonian museums are closed. Many tried to stay open until at least New Years, but come January 1, they all closed. Moreover, this is impacting many people and their plans.

As I mentioned, most of the government websites are still operational, although many have banners saying they are unattended. Got a question about your Known Traveller status? It’s going to have to wait. How about that citizenship application? Sorry, not today. Import license that is critical for making that end of month deadline? Hope you have alternate plans. Anything that is not automated is not being processed. So even if it is automated, if there is a piece of paper required, it will not be sent out.

A Shutdown is Expensive

If I have not convinced you that a shutdown is impactful, and more than just a political stunt, let me share some additional numbers.

The 2013 shutdown estimated a one-week shutdown would likely decrease fourth quarter annualized growth by 0.1-0.2 percentage points. Politico posits that the cost of the current shutdown could cost millions of dollars a day.

Quantifying the exact cost to the government is difficult, in part because every shutdown is different. Between November 1995 and January 1996, the government shut down twice for a total of 27 days as Democrats and Republicans clashed over Medicare funding, among other issues. A subsequent analysis conducted by the White House’s Office of Management and Budget estimated that both shutdowns together cost the government $1.4 billion—more than $2 billion today after adjusting for inflation.

That is not an insignificant cost. So that money is in addition to the funds that must be allocated to keep things open and running.

So if like many, you are shrugging your shoulders over the shutdown, I hope I have convinced you that, despite your political leanings, a shutdown is just brinksmanship. It has no positive outcome. Moreover, for many, the hand they have been dealt is not a winner.

Most Are Looking

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Shutdown ‘unnerving, frustrating’ for federal contractors | WTOP

Offering advice to impacted contract workers, Chvotkin said they should stay in close communication with supervisors because their status could change quickly. He also advised to be ready to return to work as soon as possible, if needed.

The reality is that if you are not reporting to work, your resume is already on the street. Fifteen to twenty percent of the contractors working for companies that are unfunded will not be returning to their current assignments. Which will make restarting after the shutdown even harder.

Can I have what they’re smoking?

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Mick Mulvaney says DHS can’t 'spend money from Mexico' for wall: 'We have to get it from the treasury'

Mulvaney said that through the new agreement, "American workers are going to do better, the government is going to do better, and you could make the argument that Mexico is paying for it in that fashion."

Seriously? This is how the current administration is justifying taking five billion dollars from the US taxpayer for a device to prevent border crossings. A device that the Chinese will tell you did not work as advertised, but did employ a lot of people. Mostly slaves.

I can think of a lot of things that five billion dollars can buy that will do a lot more good for the US economy. And for those playing the home game, five billion is the buy in. Current estimates are north of $20 bn for actual completion. For that the US could make Dominica a State. With cash left over. Or how about 50,000 teachers for a decade? No? 50,000 miles of road repairs. Surely that is just as important, and the follow on spending would boost a number of local economies. How about feed 3.4 million people for a year. We always hear about the homeless, many of whom are veterans in need of more than just food. We could also house some 300k of them.

Clearly preventing a tiny percentage of illegals has a cost (yes, tiny. The Census estimates less than 20 million illegals are in the US. That is the population of the state of Texas or a bit more than 4 times the population of New York City. A drop in the bucket) but the cost of building an ineffective preventative wall is even higher when you consider what can be built with it. (The next aircraft carrier is only $13 bn).

Let's go Congress, show some leadership. Fix immigration.

There Should Be A Law: Christmas Carols

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Even though it snowed in Metro Washington, DC yesterday, it is still only the middle of November. And while many of you probably do not support my position that the Christmas Season should be restricted to the two weeks from December 15 to December 26, I am confident that many of you, especially those in retail, think that the push of Christmas into almost September in many cases, is excessive.

Today, while sipping my latte from a Christmas themed cup, I noticed that the music playing was, indeed, Christmas carols.

To me, this is excessive.

I grew up in Canada. The Thanksgiving dinner, held in the United States in November is held in mid-October in Canada. Then it is Hallowe’en. Many a Hallowe’en saw me trick-or-treating with a coat under my costume. But no Christmas ornaments were competing with the jack-o-lanterns for attention. And it was not until late November or early December when the Christmas decorations began to arrive.

In the US, it seems to be entirely different. Over the last decade, we have seen Christmas decorations arrive earlier and stay up longer, and incorporate the themes of the holidays it is stepping on. A turkey in a Christmas sweater is very jarring. And of course, the carols. Those insidious earworms that flood the background sonics to the point where they cannot be ignored.

Further, as the Christmas season expands (balloons), we are hearing complaints about it stepping on the sanctity of Thanksgiving. I wrote a post about that fallacy back in 2014, and it is as relevant today as it was then. You cannot have it both ways.

Maybe someday, the economic cycle will be less focused on the fourth quarter as the retail make or break quarter, but until that happens, I cannot see any way to avoid starting Christmas as soon as possible, but could we wait until Black Friday? This Christmas year round is really getting tiring. And I am so tired of hearing Run Run Rudolph.

Apple’s TOCK upgrade

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Yesterday, Apple announced the biggest iPhone ever, with stunning new displays. They also introduced a new watch that will read your EKG better, stronger, faster. Yawn. Sorry, what?

If this morning's mullet wrappers (as an old boss used to call the tech press) are any indication, they are less thrilled then I am about the new Apple hardware. Lead on Computerworld this morning? A review of five digital whiteboards. Apple's releases were the fifth bullet down behind Slack adds enterprise key management and How you can train for your MCSA and MCSE certifications (a house ad).

A couple of days ago, one of the luminaries in the Apple world asked Has Apple lost its shine? A valid question, especially related to the release yesterday. Sure, there are those that will go gaga over the new hardware, but those of us that have been in IT for more than a couple of months don't pay attention to new processors unless we need a feature in that new processor. And when it is only a tock (speed, security) upgrade, we really do not get excited.

Apple will continue to promote its new devices. The iDevice market is a considerable part of their revenue stream so they really cannot do anything else. But when the most exciting thing is the camera (and I can buy better glass for my DSLR for less money then they will ever be able to stuff in a phone case), perhaps Apple really has lost its way.

One minor thing of note. In iOS 12, there will now be almost complete support for the reading of NFC tags. I say this is a slight note because the NFC people have been asking for this for more than a decade when it first appeared in Android devices. Thanks for joining the planet Apple.

Your Rights Are Not What You Think

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"Aden described the scene in a Facebook post Saturday, adding that the officer who told him that he wasn’t being detained has an “ignorance of the law and the Fourth Amendment” of the U.S. Constitution that should disqualify him as a customs officer.” (WTOP)

Regrettably for Mr. Aden, as well as everyone else that considers themselves a citizen of the United States, whether natural born or legally converted, the law is not that clear and the rights granted under the Constitution do not actually apply as you have been deluded into believing (and if you think a Founding Father or two just rolled over, join the crowd). The article What Customs and Border Officials Can and Can’t Do highlights this in chilling detail.

As more and more of us are learning, especially with the more tyrannical leadership under Number 45, the Constitutional provisions offer you no protections within 100 miles of the United States Border. Let me say that again. According to the law, any member of the Customs and Border Protection Agency (CPB) has the legal right to stop you, perform an unsanctioned search and seizure, and detain you without a warrant. If your jaw just hit the floor, join the club. If you are confused, think about this. The Border of the United States is not just with Canada and Mexico. There is an invisible border twelve miles off the coast of the United States. Take a ruler. Draw a line from that 12-mile limit one hundred miles into the interior of the United States. Draw it one hundred miles from the US/Canadian border and 100 miles from the Mexican border. Tell me how many cities are inside that border? Tell me how much of the population fo the United States lives inside that line. Upset yet? You should be. Inside that zone, many of the provisions of the Constitution can be suspended without cause and there is nothing you can do about it. And it is only going to get worse, not better.

The person in the street shrugs, security comes first [B. Cockburn]. If that is your attitude, either you never plan to travel anywhere, or you do not understand how damaging this is to our foreign relationships. But as this sort of nonsense continues, it is likely that the United States will see a departure of its citizens. Those citizens that have the option to go somewhere else. The brain drain started when the IRS cracked down, in many cases irrationally, on funds overseas. This resulted in a serious backlash in financial markets that is already causing issues with US funds abroad. This type of harassment of citizens and foreigners alike will have negative impacts. Travel, tourism, and goodwill are important in international relations. When the country’s citizens are treated as criminals, the only one left will be criminals.

An Open Letter To Starbucks

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Starbucks, it is time to rethink our relationship. It has been a good run. Almost twenty years of providing me a morning jolt, a quiet place to sit and prepare for the day, a quick breakfast on the way to any number of events. But I think we have come to the end of the run. Now do not get the wrong idea. The quality of the prepared food is still acceptable, and the coffee is still what gets me going in the morning most days. And least you think I am upset about the new rewards program, I am not. In fact, it suits me better than the old one. On any weekend I am expending $40 a day and only getting one star for that, the same as for buying a bottle of water. But I was not in the reward program for the stars. Heck, I probably have let more than a dozen free drinks fly by.

No, I am afraid the problem is service. Pure and simple. Starbucks used to be the gold standard for customer service. But lately, something has come off the rails. And not just a little. Allow me to illustrate.

I have two Starbucks within a mile of my house, pretty much on the same street. I pick one over the other by proximity. What we call in the business, the intervening opportunity. I visit the store that is closest to what I am doing at the time. Today, when I pulled up, there were fifteen cars in the drive-through. When I walked into the store, there were at least ten waiting to place their orders. This being a Saturday, you can expect that most people are ordering more than one item. I did not even pause, but turned on my heel and left. With only three people behind the counter, I did not have much confidence that I could get in and out quickly, and I had a bit of a time crunch.

Instead, I went to the other shop. Again, busy, but not as busy and the people ahead of me were only ordering one item. I placed my order and waited. This is where we come to the second problem in service, quality control. My daughter likes frappuccinos, but is not a fan of whipped cream. Go figure. So I always order hers without. Starbucks, if you could make one rapid improvement, it would be in the literacy of your baristas. In the dozen odd years I have been ordering her frappuccinos, without whipped cream, your baristas have got it wrong 50% of the time. And in 90% of those cases, it has been marked correctly on the cup!

I am not going to expect perfection. The baristas are human. Stuff happens. I expect that an order will be wrong on occasion. The problem is that the definition of occasion is not weekly. Worse, if this was something that happened in only one store, I would have a quiet word with the manager and that would be that. But it is not just one store. And it is not the only error, which have run the gamut from missing coffee in coffee drinks, missing syrups and sometimes straight up the wrong drink. I could go on. Since most of my drinks are coffee drinks, I am usually far away from the store before I notice something wrong at which point it is more of a hassle to go back.

Which brings me to the last issue. I would have words with the manager, but I cannot easily tell who the manager is. I am the first one to say that leadership and age are not synonymous, but sometimes the oldest person in the store is the worst offender and the youngest is the manager. Maybe if you make them stand out like the coffee masters, it would be easier to bring these issues to their attention.

Are these insurmountable issues? No. Are they resolvable? Yes, and in many cases, very easily. If it was just one store, I would chalk it up to that store and find another, but it is apparent that it is systemic. And because of this, I am considering my alternatives. Including making it myself.