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Strikes, Deficits, and the Housing Crisis
On focusing on the wrong things and fooling ourselves
Really appreciative of this kind shout from Matt Levine :)
This article is about misperceptions and reality and when things get weird.
So Kevin McCarthy, former Speaker of the House, was booted from his position (something that has never happened before!) mostly because no one can agree on much of anything. He managed to keep the government funded (this time around) but got booted mostly because he couldn’t appeal to the very far-right who don’t really know what they want, but they know what they don’t want1.
And the thing is, we need to get spending sorted and the budget sorted.
Rising interest rates and the calamity whatever is going on in DC2 are going to create an increasingly unnavigable storm, so better tighten down the hatches and lower the sails or whatever now.
And part of the reason that the government needs to get it together is that we know that the Fed has raised rates so fast and so furious to battle inflation, putting pressure on those who were hoping to own a house but also putting pressure on the U.S. government.
Interest payments are a growing percentage of the budget, at ~10% for 2023, which could continue to tick up depending on what the Fed does.
It’s not the biggest deal (as someone said “we’re a mess but so is the rest of the world”) but it’s still a big deal. It’s a great opportunity for people to get into bonds and snap up ~5% yields, but someone (the government) has to pay that yield, you know.
There’s a long list of possible culprits, ranging from the Federal Reserve -- which opted not to hike rates two weeks ago but also simultaneously unveiled a dot plot suggesting a tighter path for monetary policy -- to rising oil prices that risk pushing inflation higher. Then there are concerns over an increasing supply of US debt and investor positioning heading into the selloff.
And so as Jason Furman of Harvard points out - 1) this means the Fed can chill a little and 2) it would be pretty helpful for the government reduce the deficit.
But! This gets into the weeds of what it means to reduce the deficit, which could be shuttering certain programs and reforming others, as Armand Domalewski said. But that clearly isn’t really happening. We are hurdling right towards another potential shutdown in November, mostly because party is superseding nation.
And I don’t know, people are getting mad. 75,00 Kaiser Permanente workers just went on strike because people are just sick of it all. The UAW is on strike4, having a massive impact on trucking volumes with contracted load volumes down over 12%. The WGA just sorted out a deal with Hollywood. And everyone is going on strike! People are mad!
And the thing is, historically strikes were the way that employers and employees interacted. During the late 1800s, everyone was raising pickets because of rapid industrialization, horrendous working conditions, and little to no workers’ rights. So people went on strike. But, 100 years later, they didn’t.
So what happened?
Well, employers don’t really like when workers go on strike. There was legislation passed to support workers - like the Wagner Act of 1935, granting workers the right to unionize and bargain collectively and the National Labor Relations Act of 1935 which was meant to protect against retaliation for organizing workers.
But the problem is that the threshold for firings is so low in the US that it doesn't matter - and the biggest thing that employers have to deal with is the National Labor Relations Board (NLRB) asking them to do some back pay, reinstate fired workers, and say “big sorry everyone”.
In the 1980s, Ronald Reagan was big into union-busting, and court rulings and legislation were passed that allowed for the ‘permanent replacement’ of striking workers, stripped unions of key protest tactics, defunded them through “right-to-work” laws that banned mandatory fees, facilitated aggressive anti-organizing campaigns, etc etc etc. As Bloomberg writes -
Given the NLRB’s wrist-slap approach to enforcement, firing employees who try to organize a union is one of the most effective short-term investments a company can make… Employees lose an estimated $15 billion a year because companies simply don’t pay them the minimum wage they’re owed—“wage theft” that rivals the total value of property crime the FBI tracks.
And I think it’s just so beyond a boiling point for people right now.
The UPS avoided a strike earlier this summer, doctors at the NHS in Englad are about to go on strike, hotel employees are on strike, Finland is prepping for strikes, Chevron just reached a deal down in Australia at key LNG export plants - as the FT wrote, “organized labor is exerting it’s force globally in new ways”.
I got this comment on a video I made about unions -
Unions inhibit innovation and economic growth because they prevent free market principles such as competition. Imagine a world where AI could write a script 10x more interesting than any Hollywood writer. Why would we want to prevent such a thing, when it will clearly benefit the majority of society (at the expense of a small few). It’s illogical
Which is sort of funny. It’s similar to what Simon Lester pointed out about trade and war - “Two things can be true. Trade promotes peace. Trade doesn’t prevent all war.”
People oppose (or support) things in the abstract, like free markets.
Unions and innovation don’t exist on opposite sides of the spectrum, business isn’t (can’t be, in the long term) just about the bottom line, creativity is human and AI can complement but speculation should be grounded in reality, free markets don’t mean no regulation, a strong labor force is a benefit for the majority of society, and there’s an ethical balance which I won’t get into.
Two things can be true! AI can be good and important, but we still need to have workers’ rights. And some solutions to support said workers’ rights could be -
The proposal to reboot labor law from a “clean slate,” including by ending at-will employment, installing elected “workplace monitors” in every U.S. workplace, and establishing a “sectoral bargaining” (because) … as long as collective bargaining rights are limited to the individual companies where workers have won a unionization election, executives have an overwhelming incentive to fight like hell to stop that from happening, and they have cause to fear they’ll be outcompeted by lower-cost rivals if they don’t.
The labor market movements are going to keep going (barring a recession, but maybe even then, workers will put their foot down). Either way, it’s a flipping of a script.
Perception and Reality
“The public doesn’t know how restrictive immigration laws are. The public also doesn’t even know the basic effect of immigration: The legal immigrant share of the population. Public ignorance & bad policy are correlated.”
Perception and reality are going in two different directions!
Like what happened with the Nobel Prize.
The scientists that won did ground breaking vaccine research, but had zero respect in the field. They were rejected from major journals and Dr. Katalin Karikó was demoted by UPenn (and that’s just the beginning of the things she went through). And that’s the dichomoty right? Like we expect these institutions to be Gold Standard (perception), but if the Standard is not really “Gold” but “Paint Yourself in the Shade of Gold We Like and No Other Shade” it really brings to light the objective silliness of the status games (the unfortunate reality).
Inflation is another example. The American psyche often fixates on absolute prices, because inflation rates are weird. When prices soar by 20%, the predominant concern is not the rate of increase but the absolute price because that’s what you see at the store.
And then when you talk about how to fix it, 90% of the public thinks that policymakers should try to get prices back down to normal - but only 8% of economists agree with that. Perception, reality, etc. What to do when nothing makes sense.
And there are worlds where perception and reality collide. Rohit Krishnan writes -
(The difficulties of affordability in cities) are still underrated and gets missed in the meta analyses of affordability at state or country level. It's why the younger generation is upset, because they have to live where jobs are. Where friends are. Boomers have assets, younger folk have dreams.
Housing crisis is both a perception and a reality. Those that got in at 2020 (and those that are going to inherit from parents) are on a completely different economic path. There was this funny thread from Damien Henry on how VR is sort of ridiculous and he writes -
The VR promise is to bring “a sense of presence” to computing. But the “sense of presence,” seeing things as if they were there, adds little value beyond the wahoo effect it generates. The misunderstanding is between "immersion" and a "sense of presence." Listening to a good story is immersion. Our brains' capacity to immerse ourselves in someone else idea is a superpower that allows us to co-create. Reading a book is real immersion. When immersed in a book, our senses are disconnected from our bodies, and we no longer feel our direct environment. Reading a book is decoding black symbols on a white page. Our brains decode these abstract symbols, creating a virtual world inside our brains. There is no need for brain implants; we can already read the “Matrix”. We are immersed when we are focused on our inner thoughts, controlled by some external signals. VR takes the problem the wrong way. It tries to immerse us by fooling our sensory system. VR is lying to our bodies. That’s why most VR experiences are unpleasant after a couple of minutes. Our perceptions fade away when we are immersed. For instance, while reading a book in the tub. On the other end, VR uses our body's senses as the medium, distracting us from the story, the message, and the real thing we want to be immersed in. Ironically, VR is a bad medium because the only immersion that matters is the immersion of our minds.
And this is a lot of things. Banging up one part of things to try and impact another, when really, we already have the tools at our disposal. We go after the wrong feelings, the wrong things, with the intention of fooling ourselves, perception versus reality, perhaps.
Finally, a poem that calls on the balance of tenderness and kindness, and how it does not choose who it helps, but by doing that, it helps all.
Disclaimer: This is not financial advice or recommendation for any investment. The Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, or financial advice.
Lots of people will say “they just want to balance the budget” but they want to do this through 30% cuts to - housing subsidies for the poor, medical research for cancer etc, SSA offices, nutrition aid for pregnant moms, Head Start, EPA, NASA, the Justice Dept, LIHEAP, toxic waste cleanup and much, much more except the DHS, VA, and DOD
Tangential, but loved this from Anthony Lee Zhang - “The political issue with grift is that when a grift employs enough people, it becomes really politically inconvenient to displace that grift. Realtors in the US are a big example of this, with other US examples in healthcare, education, etc.”
Immigration is net-good. As Adam Ozimek wrote - “High skilled immigration isn't free, he's right. It raises money. National Academy of Sciences estimates immigrants with a bachelor's adds on net $481,000 to local, state, and federal coffers over a 75-year period. With a grad degree its $812,000. This is free money.”