Category Archives: Economics

Bigger Than Atlantic City, by Robert Gore

The Trump Plaza hotel and casino in Atla

Experience keeps a dear school, but fools will learn in no other.

Benjamin Franklin

Millions of words have been written about Trump’s motivations and psychology, why he does or doesn’t say or do this, that, or the other thing. Some find him playing complex games of four-dimensional chess, some treat him as a case of arrested development—no impulse control, filters, or guard rails, lacking a coherent worldview, making it all up as he goes along.

The correct answer is neither of the above. Surprisingly, little of the speculation refers back to what he’s written. The Art of the Deal casts some light. If you want a rough-and-ready summary, read Chapter 2, “Trump Cards: The Elements of the Deal.” Trump is an entrepreneur, businessman, and promoter to the core, which may be why so many politicians and pundits—most of whom have little or no actual business experience—don’t get him.

His book was published in 1987, after a string of successful real estate projects, and brims with optimism and self-confidence. His aphorisms are common sense essentials for success: control costs; stay focused on both the big picture and the details; don’t negotiate without leverage; buy low; use other people’s money to limit personal risk; persist; work hard; be tough; never stop promoting; jump patiently through government hoops; use the media for leverage, and push back hard against perceived injustices. Trump was enthusiastic about his newest venture, Atlantic City casinos. He liked gambling’s bedrock—the odds in the house’s favor—and he liked the glitz. However, the flush of success and the ebullience at the time (the stock market crashed after publication) probably affected his judgment.

Trump defenestrated much of his own common sense and got his head handed to him in Atlantic City. In 1991 and 1992 three of his casinos filed for bankruptcy. They were competing against themselves and had taken on far more debt, much of it at high interest rates, than they could support. Trump had personally guaranteed $900 million and had to sell a yacht and the Trump shuttle airline to reduce his liability to $500 million. It was the closest Trump has come to personal bankruptcy. He also reduced his stake in the financially restructured casinos and hotels that came out of bankruptcy. There would be two more Atlantic City bankruptcies, in 2004 and 2009. (Trump Plaza Hotel, a Manhattan property for which Trump admits he paid too much, filed in 1992.)

Trump is not a political philosopher. Short of revolution, intellectual or otherwise, we’re not going to get a reversal of the statist tide. However, many of his supporters hoped he would apply his business and entrepreneurial sensibilities and the lessons he had learned to governance. Washington is ripe for fundamental accountability, cost control, competence and performance standards, ground-up reappraisal of myriad programs and payments, fiscal reform, and reduction in the debt that’s threatening national insolvency. If we can’t have a revolution at least maybe Trump the businessman would steer the ship of state away from the Category 5 hurricane into which it’s headed Unfortunately, on current trend the federal government will be an Atlantic City, multiplied bigly, not a Trump Tower or Wollman Skating Rink triumph.

For the Commander in Chief, the nation’s troops and arsenal must cast the same spell as glittering casinos and house odds once did on the real estate developer. The military is on a long losing streak of inconclusive or lost wars that have sparked the terrorism they’re ostensibly meant to squelch, created political instability, wounded and killed hundreds of thousands, and driven millions more from their homes. Between the military, veterans benefits, intelligence, and homeland security the US government spends around $1 trillion a year. Nobody pretends this money is spent cost effectively. The Defense Department has never been audited, but estimates put waste in the multi-trillions since the Reagan defense build-up. The first question any conscientious businessman would ask: Why do we keep pouring money down this rat hole?

That’s not the question Trump has asked. Instead, he wants to increase the military’s budget by $54 billion, spend $1 trillion over thirty years to upgrade the nuclear arsenal, escalate old wars in Iraq, Afghanistan, Syria, and northern Africa, and perhaps start new ones elsewhere. It’s as if, when his three Atlantic City casinos were failing in the early 1990s, he decided to borrow more money and build more casinos. Bankruptcy indicates there’s something wrong with your business plan. You can’t put the Defense Department into bankruptcy, but its business plan is fundamentally wrong, which makes throwing more money its way improvident waste.

Businesses that are losing money often restructure or jettison unprofitable divisions and operations. When they hit rock bottom, they may have to rethink their entire business to survive. When did “defense” of the United States become defense of “US global interests”? Are those interests anything more than US-based multinationals’ profitability, the care and feeding of defense and intelligence contractors, corrupt skims, and the maintenance of puppet governments in every one of the world’s capitals? Surely many, probably most, of the US’s 800-plus military outposts around the world, including some at home, could be closed with no loss to US security. Trump pushed his supporters’ buttons when he asked why the US was picking up the defense tab for Europe, Japan, and South Korea. Does he still intend to put that cost-saving question to them, or has that fallen by the wayside? They are certainly wealthy enough to pay their own way.

The US spends more on its military than the next seven nations combined. Trump’s $54 billion increase is greater than the military budgets of the United Kingdom, Germany, and Japan, equals France’s, and is only $12 billion less than the budget of supposed existential threat Russia. Downsize defense, intelligence, and homeland security to the mission of protecting the US proper and you could cut spending by at least half, or half a trillion dollars. That isn’t chump change, even for the world’s biggest and most indebted spender, and the US would still be spending more than China and Russia combined. The US has friendly allies to the north and south, and the world’s two biggest oceans to the east and west. These advantages don’t make the US invulnerable to nuclear attack, but they certainly make any kind of land-based invasion dauntingly difficult, probably impossible. That half a trillion saved, by the way, would offset the half a trillion that the US will pay this year in interest on its debt, the first time we’ve reached that “milestone.”

How long before we hit a trillion? The greatest threat to the security of the United States isn’t Russia, China, North Korea, or Iran; it’s national debt and unfunded pension and medical liabilities. Benjamin Franklin once said, “Experience keeps a dear school, but fools will learn in no other.” If Trump continues to throw money away on the bloated and ineffective military, he’s learned nothing from Atlantic City. That’s beyond foolish.






The True Face Of ‘Health Reform’ by Karl Denninger

The big problem with medicine is its cost, and a big part of its costs stem from the fact that medicine has become a government-cosseted cartel and racket, engaging in price fixing and exclusion of competition. From Karl Denninger at

If you want to know why fixing “health care” is so difficult you need only read this article.

From Akron to Youngstown and Canton to Cleveland, as in cities and towns across the country, workers who once walked out of factories at the end of each shift now stream out of hospitals.

While manufacturing employment has fallen nearly 40 percent in northeastern Ohio since 2000, the number of health care jobs in the region has jumped more than 30 percent over the same period. In Akron, the onetime rubber capital of the world, only one of the city’s 10 largest employers still makes tires. Three are hospitals.

If these were doctors and nurses that might be understandable.  But they’re not.

They’re nearly all paper-pushers who contribute exactly zero to actual consumer care.

The problem is that all of these people draw salaries and thus drive up the cost of medical care by ridiculous amounts.  In fact last month some 20,000 people were added to the “health care” employment rolls and nearly all of them will never provide one second of actual care to an actual person — but every one of them has and will massively drive up your health care costs.  In fact if the average “administrator” in that group makes $40,000 in the last month alone a whopping $800 million per year before their health insurance and employment tax cost was added to your medical bills and yet not one single person got one minute of additional actual care out of that expense.

Next month there will be another $800 million added on which you will be forced to pay.

The next, and at least as-large problem is found in the continual bleating of hospitals and similar that “Medicare doesn’t pay what X costs” as their justification to gouge private parties.  But this claim is false; if you look at many of the so-called “non-profits” you can find myriad examples of this being a flat-out lie, and nowhere is it easier to find than in the hospitals’ lab sections.

Direct operating costs are usually about 10% of the revenue amounts!

To continue reading: The True Face Of ‘Health Reform’

How Governments Outlaw Affordable Housing, by Ryan McMaken

Great article about how governments and existing homeowners make it hard to increase the supply of housing. From Ryan McMaken at

It’s no secret that in coastal cities — plus some interior cities like Denver — rents and home prices are up significantly since 2009. In many areas, prices are above what they were at the peak of the last housing bubble. Year-over-year rent growth hits more than 10 percent in some places, while wages, needless to say, are hardly growing so fast.

Lower-income workers and younger workers are the ones hit the hardest. As a result of high housing costs, many so-called millennials are electing to simply live with their parents, and one Los Angeles study concluded that 42 percent of so-called millennials are living with their parents. Numbers were similar among metros in the northeast United States, as well.

Why Housing Costs Are So High

It’s impossible to say that any one reason is responsible for most or all of the relentless rising in home prices and rents in many areas.

Certainly, a major factor behind growth in home prices is asset price inflation fueled by inflationary monetary policy. As the money supply increases, certain assets will see increased demand among those who benefit from money-supply growth. These inflationary policies reward those who already own assets (i.e., current homeowners) at the expense of first-time homebuyers and renters who are locked out of homeownership by home price inflation. Not surprisingly, we’ve seen the homeownership rate fall to 50-year lows in recent years. 

But there is also a much more basic reason for rising housing prices: there’s not enough supply where it’s needed most. 

Much of the time, high housing costs come down to a very simple equation: rising demand coupled with stagnant supply leads to higher prices. In other words, if the population (and household formation) is growing quickly, then the housing supply must also grow quickly — or rents will rise.

Moreover, where the housing gets built is a key factor. We cannot speak of housing supply for an entire metropolitan area. Metro areas are composed of a wide variety of employment centers and neighborhoods. The mix of employers and workers varies from place to place depending on tolerable commute times, local industries, and geography.

To continue reading: How Governments Outlaw Affordable Housing


China’s Plan to Subvert the Global Dollar Standard, by Alasdair Macleod

The US realizes almost incalculable benefits by having the world’s reserve currency. It’s gain is other countries’ loss. China may be trying to upend the existing order. From Alasdair Macleod at

If nothing else, the Chinese have a sense of history and destiny. They have had a glorious past, stretching back millennia, and once controlled most of the Asian heartland in the days of Genghis and Kublai Khan. But even then, China was essentially inward-looking, protecting her own cultural values. Trade with Europeans in the centuries following Marco Polo’s visit was mostly at the behest of European travelers, not the Chinese. She exported her art and culture to visitors, and did not import European values.

This was a mistake, implicitly recognized by China’s current leadership. This time, China has embraced Western thinking and technology to further her own progress. The development of the Shanghai Cooperation Organization in recent years is the platform for China in partnership with Russia to embrace the Asian continent through peaceful trade, improving the lives of all the citizens of the many nations who are and will become members. The SCO promises a revolution in the wealth and living standards of over 40% of the world’s population, and associated benefits for its supplier-nations on the other continents.

China’s approach is fundamentally different from that of America, which under President Trump appears to be envious of the success of non-Americans producing goods and services for the American consumer. Autarkic America has a GDP of $19 trillion. Eventually, China will have free trade agreements with the rest of the world, excluding for now the EU. On a purchasing power parity basis, this is a market with a GDP of about $70 trillion, out of a world total of about $125 trillion.

Already, China dominates world trade. Her own economy is already significantly larger than that of the US on the purchasing power parity (PPP) estimates. While being the largest consumer of raw materials, China also exports more finished goods by value than any other country. As the Asian powerhouse, she has lifted the economies of all the countries on the western side of the Pacific Ocean, which including her own between them have a GDP of $50 trillion. Her exports into Asia now exceed her exports to the US. Yet despite this dominance, most of China’s trade is conducted in US dollars, something China is bound to change, if she is to contain external economic risk and replace America as the dominant global empire. Both objectives can only be achieved by China replacing the dollar as a medium of exchange.

To continue reading: China’s Plan to Subvert the Global Dollar Standard

Atlanta Fed GDPNow Forecast for Q1 Drops to Almost Zero, by Wolf Richter

The economy continues to lose altitude. From Wolf Richter at

I hope the forecasting model is broken.

The Atlanta Fed’s GDPNow forecast for first-quarter 2017 economic growth in the US dropped further, this time to 0.2%. This seasonally adjusted “annual rate” of GDP growth means that if the economy grows like this for four quarters in a row, it would grow only 0.2% for the entire year.

Economic growth in 2016 was 1.6%, which matched 2011 as the worst year since the Great Recession. So the current forecast of Q1 GDP growth of 0.2% annual rate looks ugly. I just hope that the model is broken and that some internal gears have jammed.

The forecast is down from the already ugly 0.5% at the last publication of the GDPNow forecast on April 18.

As the GDPNow model picks up data for the quarter, it gets more accurate in predicting GDP growth to be reported by the Bureau of Economic Analysis in its first estimate for that quarter. With the last batches of March data piling up, the GDPNow forecast is now just a hair above zero. This has been a steep plunge from 2.5% at the end of February to my red marks today:

Since the last report on April 18, new data points have arrived and have left their marks:

Existing-home sales (April 21). No change in the forecast.

New-home sales (April 25). No change in the forecast.

Retail trade revision (April 25) pushed the forecast for consumer spending from already weak growth of 0.3% to near stagnation of 0.1%.

Durable goods manufacturing (reported today by Census Bureau) and the light trucks sales to businesses (reported by BEA on April 25) caused the forecast of real equipment investment growth to rise from 5.5% to 6.6%.

Wholesale and retail inventories (today) caused the forecast of the contribution of inventory investment to GDP to fall deeper into the negative (from -0.76 percentage points before) to -1.11 percentage points today.

To continue reading: Atlanta Fed GDPNow Forecast for Q1 Drops to Almost Zero

Alan Greenspan, Sellout, by David Gordon

Alan Greenspan offered his belief in and advocacy for free markets and laissez-faire in exchange for power, fame, and fortune, and the devil came through. From David Gordon at

Sebastian Mallaby is the Paul A. Volcker Senior Fellow for International Economic Relations at the Council on Foreign Relations. One can be sure, then, that his new comprehensive book, The Man Who Knew: The Life and Times of Alan Greenspan, reflects an Establishment point of view. As if this were not enough to tell us where the book is coming from, Mallaby informs us that he had Greenspan’s full cooperation in writing it. “This book is based on almost unlimited access to Alan Greenspan, his papers, and his colleagues and friends, all of whom were generous in their collaboration.

Though the book is hardly a panegyric to Greenspan, Mallaby views his subject with considerable favor. Nevertheless, the book contains ample material for a more severe verdict: Greenspan abandoned the free market convictions he effectively defended early in his career as an economist. To uphold economic truth was not the path to the power and influence Greenspan sought; and he readily adjusted his beliefs to fit with his ambitions.

Greenspan attached himself to Ayn Rand’s inner band of disciples; but his adherence to free-market economics did not stem from his alliance with Objectivism. Greenspan learned economic theory from Arthur Burns at Columbia University. For Greenspan, like his mentor Burns, statistics had primary importance: economic theory emerged from discerning patterns in the data and was strictly subordinate to its empirical sources. “Burns was the chief heir to Wesley Mitchell’s empiricist tradition, and his influence restrained any enthusiasm that Greenspan might have felt for the new trends that had begun to stir in economics. … Even the cleverest econometric calculation was limited because yesterday’s statistical relationships might break down tomorrow; by contrast, finer measures of what the economy is doing are more than just estimates — they are facts.”

To continue reading: Alan Greenspan, Sellout

New York’s Office Market Gets Crushed, Bubble Deflates, by Wolf Richter

The interesting thing about the New York office market is that sales have been declining for three straight quarters even as the stock market was making new highs. Generally the office market moves with the stock market. From Wolf Richter at

Where the heck is the Foreign Money when you need it?

The market for office buildings in one of the hottest and most overheated real-estate markets in the world, New York City, just went into the deep-freeze. If you see the word “plunge” a lot below, it’s because that’s what happened in the first quarter of 2017.

It was exactly what no one in the industry needed. Sales of large office properties (those with over 50,000 square feet) that closed in Q1 2017 plunged 63% year-over-year, from $5.54 billion in Q1 2016 to $2.1 billion. It was the lowest transaction amount in any quarter since Q1 2013.

According to Commercial Café, which analyzed data from Yardi Matrix and PropertyShark, that $2.1 billion in Q1 office sales, in total 10 deals, was down an ear-ringing 80% from the $10.3 billion, and 26 deals in Q1 2015.

This chart shows the plunge in billion dollars:

In terms of square footage sold, a similarly ugly picture emerges. Sales plunged 39% year-over-year to 2.8 million square feet, the lowest in the data series going back to 2013, and down 74% from the glory days of Q1 2015:

The average price per square foot of these sales plunged 23% year-over-year, to $741 per square foot, and 36% from the peak, which occurred in Q2 2015. It was the lowest average since Q1 2014. It was an ugly quarter.

To continue reading: New York’s Office Market Gets Crushed, Bubble Deflates