Morning Report: Why hasn’t there been better wage growth? 8/7/17

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Stocks are up this morning on no real news. Bonds and MBS are flat.

Should be a relatively dull week after the employment report. Not much in the way of data but we do have Fed-speak almost every day.

Last Friday’s jobs report didn’t have much of an impact on the Fed Funds futures. They are forecasting a 99% chance of no hike at the September meeting, while the December meeting is being priced as a coin toss. The consensus seems to be that the September meeting will usher in the next steps in reducing the size of the Fed’s balance sheet.

The jobs report prompted a lot of articles asking about wage growth and why we aren’t seeing it. The usual explanations include low productivity, lack of bargaining power on the part of workers, and the untapped reservoir of the long-term unemployed. IMO maybe the answer IS inflation – at 1.5% PCE growth, maybe 1% real wage growth is about the best we can hope for. We are seeing wage inflation in pockets (especially skilled labor and construction) however unskilled labor is still competing with technology which unfortunately keeps getting better and cheaper. Also, note that wage and job growth has been uneven geographically.

The post-election spike in interest rates pushed down prepayment speeds and refis earlier this year. Now that interest rates have corrected some of that move, we are seeing them increase again, according the Black Knight Financial Services. The January and February numbers were the most depressed, which reflects the increase in the 10 year to 2.6% post-election.

Wells Fargo has admitted that the fake account scandal could be bigger than previously thought. Meanwhile, Trump administration is taking a look at the Obama-era settlements where banks were forced to donate to third party activist groups as part of their settlement.

Why are Treasury investors buying them at what will probably turn out to be a negative yield after taxes and inflation? Because the alternative (of losing more in the stock market).

61 Responses

  1. Hi, Brent.

    …however unskilled labor is still competing with technology which unfortunately keeps getting better and cheaper.

    Agreed, but I think it goes hand-in-hand with the previously underemployed coming out of the woodwork, that you mention as one of the conventional answers. Perhaps even “hand-in-glove”, because as the economy grew after the recession bottom many employers were attracted to labor saving devices to incrementally stretch productivity – I think what I just wrote makes sense but I am not sure that it does.

    We saw Al Gore’s new film and it has some interesting pieces. His retelling about how a reluctant India was cajoled to ditch new coal plants in favor of solar and how India was successfully lobbied to sign on to the Paris Accords was fascinating. If true, it was entirely because of the cooperation and active participation of Silicon Valley entrepreneurs Musk, and one of his partners.

    Link: https://www.washingtonpost.com/news/powerpost/paloma/daily-202/2017/08/07/daily-202-democrats-are-moving-left-and-that-won-t-necessarily-hurt-them-in-2018/5987ab1e30fb045fdaef114d/?utm_term=.4b5cfa371a91

    With a shining opportunity to claim the entire middle of the field, Ds will decide to defend the left end of the gridiron and leave the field open, apparently. Ds circle wagons, aim inward.

    While this has been true of Rs recently, politically emulating a failing strategy seems like a defective response.

    The comments that were most “liked” included mainly ones by relatively moderate Ds pointing out that a $15 minwage was a job killer in much of the nation, that “single payer” was not the way other nations that evolved universal health care from the mainly employer system did it, and that Americans do want choices, and that tax paid college for all was a giveaway to the rich. Despite the great number of “likes” for comments like these critical of the so-called “Better Deal” echoes of the Sanders campaign, indicating lots of relatively moderate D readers, the comments in response were vitriolic from the lefties. Especially adamant for the socialists was one I think NoVA and JNC like to troll at PL. “Alethiea”?

    Liked by 1 person

    • Mark:

      … and that tax paid college for all was a giveaway to the rich.

      A whacky way of looking at it, if you ask me. Even if it were true that most or all of the benefits accrued to “rich” people, who do they think is going to be paying all the taxes necessary to fund this “giveaway”…the poor?

      Liked by 1 person

      • I don’t know what the Bernies have in mind, tax-wise or finance wise. I see your point if it is actually income tax financed – the poor don’t pay income taxes. If state sales tax financed, then the burden is different, and I guess if federally deficit financed, the likeliest Bernie option, it would likely never get paid back in our lifetimes.

        I think part of the objection of the more moderate Ds to the Bernies is the liberal elitist assumption that everyone must go to college, which we know is ridiculous.

        Leaving education to the community still works and education is not mentioned in the federal constitution, at all. Conservatives are not the only people who think the feds role in higher ed is to maintain the service academies. I am more liberal than that – I am OK with using the cheap researchers available in graduate STEM programs for military/security purposes and paying for it from tax dollars, and, of course, ROTC scholarships.

        On a case by case basis, I might be convinced of more.

        Like

    • “Especially adamant for the socialists was one I think NoVA and JNC like to troll at PL. “Alethiea”?”

      I wouldn’t say what we do is trolling. We actually take him seriously and assume he’s saying what he actually thinks.

      His bigger problems are with his fellow travelers. It’s hilarious how often they want to rehash Clinton v Sanders.

      To your broader point, the Democratic base is more concerned with things like this than winning the middle:

      https://www.theatlantic.com/politics/archive/2017/08/the-lena-dunham-approach-to-twitter-call-outs/535932/

      Because no one is allowed to just have a private conversation without the PC Stasi listening in.

      Liked by 1 person

      • “Clinton v. Sanders.” Got it.

        I remember when the losses by McCain and Romney were blamed on their impurity of belief. Same song, different vocal group.

        I apologize for using the word “trolling” – I kinda meant “teasing”, I guess. Seems like he is the ardent type.

        Good link.

        PS – Are you coming to ACL Fest?

        Liked by 1 person

      • Well, George, I did write If true…

        Like

      • Of course it is. He’s working a biographical narrative, not truth. Which makes little sense. He could do a movie about how people can make the environment better and showcase Ed Begley and document France’s nuclear energy and talk about improvements in solar and, you know, do something The actually advance his ostensible cause. These are “condemn the sinner” vanity projects produced by the Climate Change pope.

        Like

    • Minneapolis Fed governor Neel Kashkari said this today about the NFIB etc surveys showing employers are experiencing a labor shortage. “Are you really struggling to find workers? If so, the proof for me is you are raising wages. If you are not raising wages, then it just sounds like whining,” he said.”

      http://www.marketwatch.com/story/feds-kashkari-says-hell-remain-doubtful-there-are-worker-shortages-until-wages-rise-2017-08-07?mg=prod/accounts-mw

      Liked by 1 person

  2. I wonder if it even occurred to her that the Chinese dudes were mocking Hitler and Germans, and not doing a white power salute…

    Like

    • OMFG. Wouldn’t it be nice if we had work camps we could round up the racists and put them in? Or just do a good old style Pol Pot cleansing of the racists? Purify our society.

      The absolute worst thing about these people is their utter lack of irony and self-awareness.

      Like

  3. To paraphrase yellowjacket, there may be a non-bigoted reason for not making the cake, I just haven’t heard one yet.

    http://www.washingtontimes.com/news/2017/aug/7/bakers-refused-make-pro-trump-birthday-cake-9-year/

    How can there be non-protected classes?

    Liked by 1 person

  4. Google memo guy has been fired. Many female Googlers took the day off in protest.

    The funny thing is that he was fired for straying from the orthodoxy that men and women are the same. Think their ad algos buy that sentiment?

    Instapundit: Google is Mizzou….

    Like

    • What’s the best search engine apart from Google?

      Like

    • He got off light. In the old days, the punishment for heresy was burning at the stake or worse.

      I suspect things like this will generate support for antitrust action against Google from unexpected quarters.

      Liked by 1 person

      • Antitrust has always focused on prices (or price gouging). What sort of justification would government have to go after Google and turn it into a public utility?

        Second, would you trust Obama to regulate Google in a remotely fair way ideologically? I wouldn’t.

        Liked by 1 person

        • “Antitrust has always focused on prices (or price gouging).”

          No it hasn’t. That’s something that started in the 1970’s. Robert Bork’s “The AntiTrust Paradox” was the seminal piece that changed the thinking from concentrations of economic power to a purely consumer welfare (i.e. price gouging) standard. “Restraint of trade” can mean something more than just charging high prices.

          https://en.wikipedia.org/wiki/The_Antitrust_Paradox

          The old standard that caused Standard Oil to be broken up was too much economic power being concentrated and it also took into consideration the impact on other producers, not just consumers.

          Standard Oil was targeted for setting prices too low.

          https://en.wikipedia.org/wiki/Standard_Oil

          “Second, would you trust Obama to regulate Google in a remotely fair way ideologically? ”

          No, but that’s why antitrust enforcement and breaking up the company is superior to leaving it intact and regulating it as a utility.

          I use to think differently, but the AT&T breakup resulted in more cell phone innovation than would have otherwise happened absent it. I also think that in hindsight it would have been better if Microsoft had been broken up.

          My thinking as a libertarian on markets and antitrust is very similar to Julian Assange’s.

          “So as far as markets are concerned I’m a libertarian, but I have enough expertise in politics and history to understand that a free market ends up as monopoly unless you force them to be free.”

          http://reason.com/blog/2010/11/30/assange-im-influenced-by-ameri

          https://www.forbes.com/sites/andygreenberg/2010/11/29/an-interview-with-wikileaks-julian-assange/#6a76d5942c27

          Like

        • jnc:

          I use to think differently, but the AT&T breakup resulted in more cell phone innovation than would have otherwise happened absent it.

          The AT&T nmonopoly was the result of government regulation in the first place.

          …but I have enough expertise in politics and history to understand that a free market ends up as monopoly unless you force them to be free.

          What are some examples of free markets ending up as monopolies in the absence of government intervention?

          Like

        • Approve, completely.

          The competitive mechanism requires the anti-trust mechanism – more producers/distributors beats either socialism or the regulated monopoly or unregulated monopoly. The last has the same effect as socialism: one owner with little incentive to optimize anything but collections.

          Like

        • Mark:

          beats either socialism or the regulated monopoly or unregulated monopoly.

          Can you give me an example of an unregulated monopoly?

          Like

        • The American examples are the late 19th century trusts and monopolies that preceded the Sherman Act, Scott.

          Like

        • Mark:

          he American examples are the late 19th century trusts and monopolies that preceded the Sherman Act, Scott.

          jnc mentioned 3 specific examples of those earlier, the railroads, the oil industry, and the steel industry. As I replied to him, the railroad monopoly was actually the creation of the government, not free markets. Standard Oil’s monopoly was largely earned in the free market, but was distinguishable primarily by the innovation and efficiency gains that were achieved by the monopoly, lowering prices to consumers significantly (so quite the opposite of socialist results). And while I am not as familiar with the steel industry, my understanding is that it never quite reached a real monopoly (US Steel controlling about 65% of the market) and that while US Steel did suffer the lazy effects of being a near monopoly, the market itself did its job as smaller firms began to take market share from it.

          Did you have any other specific examples in mind that were as bad as socialism?

          Like

        • Socialist “results” often lower prices – see Pemex, early on. But the failure of innovation is legendary. See Pemex.

          Innovation went faster post Standard Oil breakup, but I cannot create a counter factual history that proves that Standard Oil would not have innovated on its own as fast as the post breakup industry. There may be a book about it somewhere. IDK.

          I still see rail lines and telephone poles as “natural” monopolies. More government allowed than government created.

          I can tell you that the Detroit auto makers slowed Tesla’s march to market through regulatory capture and are still doing it by imposing anti-competitve measures at the state level – in Texas, they are fighting the mail order nature of Tesla by claiming that not having dealers restricts service to the public.

          Classic capitalist theory – especially Marshall – demonstrates oligopoly as similar to monopoly in its negative effects. Trusts, in the TR sense, included duopolies and oligopolies that acted like monopolies. Big Steel was US Steel plus Bethlehem Steel.

          While competitive theory and open markets with ease of entry and free trade (Smithian capitalism) are completely consonant with individual liberty, monopoly and oligopoly are consonant with feudalism, mercantilism and their modern cousins, fascism and “Communist” China.

          Like

        • Mark:

          I still see rail lines and telephone poles as “natural” monopolies. More government allowed than government created.

          I don’t think that is true with regard to US railroads in the 1800s. They were all given government subsidized land grants and legal monopoly control to operate in specified areas. They were a creation of government.

          monopoly and oligopoly are consonant with feudalism, mercantilism and their modern cousins, fascism and “Communist” China.

          Only when the result of government policy. Google, for example, may be both populated and run by fascists, but the model by which it has become a near-monopoly is not at all consonant with feudalism, mercantilism, fascism, or communist China.

          Like

        • “The AT&T nmonopoly was the result of government regulation in the first place.”

          So what follows from that? Sure it would have been nice if it hadn’t been protected to begin with, but that really doesn’t address the question of what to do once it is a monopoly.

          “What are some examples of free markets ending up as monopolies in the absence of government intervention?”

          The classic trusts from the 1800’s. The railroad, steel, and oil trusts.

          Google seems to be well on the way there too at least as far as search is concerned.

          Liked by 1 person

        • jnc:

          So what follows from that?

          The important point is what doesn’t follow. Just because a government-created monopoly has deleterious effects that must subsequently be blunted by more government action doesn’t mean that market-created monopolies have the same deleterious effects, nor that the same government action is justified against them.

          The classic trusts from the 1800’s. The railroad, steel, and oil trusts.

          The railroad trusts were all government created monopolies. They did not result from the free market.

          Standard oil, which was not a government created monopoly, was highly innovative and efficient, both vertically and horizontally, keeping prices to consumers low which is how it maintained its monopoly. It’s ability to keep prices low was the primary objection to it, from other producers.

          I am not that familiar with the steel industry, but from what I understand the closest that the steel industry ever came to being a monopoly was with US Steel, which controlled roughly 65% of US steel production in the early 1900s (so not quite a monopoly), but it eventually lost market share to smaller but more innovative and efficient competitors through the magic of free markets, not government intervention.

          Like

        • “What are some examples of free markets ending up as monopolies in the absence of government intervention?”

          There has to be some enforcement, or the largest player can either acquire everybody else or force them out of business in ways having nothing to do with offering the superior product. Most of this is covered in contract and property law. But not all of it.

          Actions done strictly to drive competitors out of business, not legitimately produce a better product at a better price, can use some redress.

          Not sure if this is anti-trust law, but I see the value in preventing mega-mergers, at the very least.

          AT&T existed as monopoly because of the government. There’s no question of that. It’s hard to compare AT&T to Microsoft, as the government never made it illegal in install a video card in your computer or or try to build a better mouse. Still, I think the market as a whole would be better off had Microsoft been broken up. Not particularly from a moral standpoint, just from an innovation standpoint.

          Like

        • “Google seems to be well on the way there too at least as far as search is concerned.”

          But competitors can enter the market, and the market is primed for competition. That no one’s doing it, or has done it yet, amazes me.

          The Bing strategy is always the wrong one for search. You don’t build a brand, you build a kickass search engine. You focus on search in ways that Google does not. I’m not sure what role there is for government when nobody seriously wants to compete.

          Because the talent that could really make it happen is all angling to get jobs at Google. That’s the real Google monopoly genius: just create the place that all your future competitors want to work for. HP never did anything like, and so we got Apple and Commodore and Atari. Google has created a place where the future Wozniaks and Bushnells and Sergey Brins want to go and get a job instead of toiling on their own.

          Like

        • “doesn’t mean that market-created monopolies have the same deleterious effects”

          It depends on how broadly you construe “deleterious effects” and whether you consider anything other than consumer welfare/price.

          Again, the classic divide since “The Antitrust Paradox”.

          Like

        • jnc:

          It depends on how broadly you construe “deleterious effects” and whether you consider anything other than consumer welfare/price.

          I was assuming that your main concern was innovation and efficiency, which is part of consumer welfare. Do you have other concerns?

          Like

        • Restricting the ability of other competitors to enter the market, and the extent that the company can leverage it’s economic power to control things outside of it’s realm of business.

          I.e Google deciding to redirect all searches for the RNC to the DNC instead. Or the various “shadow banning” complaints against Twitter.

          Like

        • jnc:

          Restricting the ability of other competitors to enter the market…

          That’s just the definition of a monopoly. The question is why the inability of others to enter the market is a concern, if not for innovative/efficiency (ie consumer protection) reasons.

          I.e Google deciding to redirect all searches for the RNC to the DNC instead.

          I certainly wouldn’t like that any better than you, but I don’t see anything about Google’s position that prevents other search engines from entering the market and satisfying a demand to do things better/differently. Nor do I see why the government should intervene just because I don’t like the way Google runs its searches.

          Like

        • “Google has created a place where the future Wozniaks and Bushnells and Sergey Brins want to go and get a job instead of toiling on their own.”

          Maybe. They also seemed determined to make it inhospitable for those guys as well.

          Like

        • “The question is why the inability of others to enter the market is a concern, if not for innovative/efficiency (ie consumer protection) reasons.”

          Because consumer protection isn’t the only value. So is the ability of competitors to actually conduct their businesses as well, especially if a lot of monopolies result merely from getting there first, and then restrict access to following businesses.

          To put it in supply side terms, every consumer is also a producer.

          Elevating consumer welfare above all other concerns is an assumption that hasn’t been questioned recently. Doesn’t mean it should automatically go unchallenged.

          Like

        • jnc:

          Because consumer protection isn’t the only value.

          Ok, but what are the other values? Is having more than one producer in a given market valuable simply for its own sake, wholly apart from the economic effects? Do computer techs have some kind of a natural right to make a living off of a search engine, a right that is being violated when too many people choose to use Google to make an alternative viable? What exactly are these other values?

          …especially if a lot of monopolies result merely from getting there first, and then restrict access to following businesses.

          To me that depends entirely on how they restrict access. If they are literally restricting access via laws, or by firebombing competitors offices, then yeah, I agree. But if they have simply made follow-on businesses non-viable as the result of astute business decisions and choices, how do you justify using government coercion to remove that free market advantage?

          Like

        • Whether or not they have engaged in anti-competitive behavior or simply astute business practices is something that would be determined at the antitrust trial.

          If I recall the facts correctly, in pretty much every high profile case (railroads, US Steel, Standard Oil, AT&T, & Microsoft) there was evidence of anti-competitive tactics (which can be something other than just colluding with competitors to fix prices) introduced.

          I think you are arguing that there are some areas where there are “natural monopolies” that arise apart from illegal behavior and what, if anything, should be done about them.

          Like

        • jnc:

          Whether or not they have engaged in anti-competitive behavior or simply astute business practices is something that would be determined at the antitrust trial.

          On what basis? What is the objective measure of what constitutes an “anti-competitive” practice? It seems to me that using government coercion in order to subvert market-created outcomes is the pinnacle of “anti-competitive” practices.

          I think you are arguing that there are some areas where there are “natural monopolies” that arise apart from illegal behavior…

          Not really. There are certain goods/services which do in fact naturally lend themselves to monopoly (for instance utility services like water and electricity). But that is not what I am talking about.

          What I am talking about is instances like Google, where the firm achieves a monopoly (or near monopoly) neither coercively (ie as the result of a government mandate) nor as a natural result of the service itself, but rather as a result of market forces, ie attracting almost all users to the product despite the existence of competitors.

          BTW, whether or not their practices are currently “illegal” is not that interesting to me, because literally any practice could be declared illegal, so to me the relevant question is what practices should be illegal. You seem to be saying that any practice at all which results in a monopoly ought to be illegal simply because monopoly itself is “bad”. If that is the case, then even the practice of producing a product/service so superior that everyone chooses it to the exclusion of any other provider ought to be illegal. That doesn’t make any sense to me.

          I think that if a practice is objectionable enough to be made illegal, it ought to be illegal regardless of whether it results in a monopoly, and if a practice is not objectionable when it doesn’t result in a monopoly, it ought not be illegal even if it does produce a monopoly. Basically I do not think the government should be picking winners and losers, and anti-trust regulation does exactly that.

          Like

    • This is hilarious to read now:

      ““The company was founded under the principles of freedom of expression, diversity, inclusiveness and science-based thinking,” Alphabet Chairman Eric Schmidt said at the time.”

      https://www.bloomberg.com/news/articles/2017-08-08/google-fires-employee-behind-controversial-diversity-memo

      “Freedom of expression” and “science-based thinking” are the last things that would come to mind to describe Google’s actions here. More like a SJW religious institution where any heresy against the theology (and that’s exactly what it is) will not be tolerated.

      Liked by 1 person

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