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Charlottesville

mont4

This commentary was co-authored by Philippa Dunne (The Liscio Report) and David Kotok (Cumberland Advisors). It reflects their personal views. Philippa notes it was a real honor to write this with David. And that it was so very “David” of him to remind her that James Alex Fields, Jr., is innocent until proved guilty.

A saga unfolds. First, snippets of online news, followed by TV images and “breaking news” reports. “Another one,” she thinks. “Ugh!” he exclaims, “madness! Why? What is the matter with these people?”

Two thousand miles apart, each in their own home, these two friends experience a similar aching angst over the futility of their efforts to try to improve a world that now seems to be rejecting their vision. After all, hate and anger triumphed in Charlottesville. Death arrived on scene, and innocents and innocence were among the casualties. Hate always seems to end that way.

Is hate learned, or is it embedded in some strand of DNA passed down through every human generation? Nazis hated, and Jews died. Then millions more died worldwide. Generations were seared and scarred. For what? To what end?

Geneticists who have decoded the human genome tell us that there is really only one human race, not multiple races within the species, yet the notion of a color scheme still grips some human imaginations, with disastrous results. White hated, and black and red died. And within this awful spectrum, each race’s history is replete with its own internecine murder and torture. Yellow on yellow, brown on brown. White on white. Red on red. That’s our history.

Bling! That little noise is now nearly continuous, announcing incoming mail in the wake of tragedy. A quick look. She has written:

“I am guessing you are sharing my grief today. I know grief isn’t much better than hope as a tactic – perhaps worse, but…”

Yes, he thinks. Grief, like regret, is an emotion that is not very effective, since it occurs after the damage is done.

He taps her cell number on his iPhone. They chat, just as if they are in the same room. How can his miracle of communications and the hate that ripped through Charlottesville occupy the same space and time? How can humanity have come so far and yet never seem to progress?

How can the many heroes who put their own lives on the line to shelter Jews and fleeing slaves people the same world as an individual who decides to plow his car into a group of people he has never met, or one who feels OK about walking down our streets wearing a T-shirt quoting Hitler. Quoting Hitler, you understand.

Pained, each recalls the writings of Joseph Conrad, and they share that sad understanding. Each feels the heaviness of this latest door opened into a “heart of darkness”.

Those of good will must not succumb, she and he agree, as futile as their efforts may seem at times. That is their closing pledge.

Conversations like ours must have taken place among friends all over the country, as we as a nation reckon with the events that unfolded in Charlottesville, Virginia, last week.

How do we brighten that dark heart? Platitudes abound, but first, we should take an honest look at our own motives. Listen to the stories we tell about why the economy is the way it is, why there is a growing number of disenfranchised citizens in our country.

If our theories are overly complicated, they are likely constructed to obscure basic truths. Think, by way of an analogy, of the tortuous paths the planets were said to follow in order to keep the Earth at the center of the old Ptolemaic view, obscuring for centuries the simple beauty of the heliocentric system.

Reality insists that we seek answers to life’s puzzles – and answer to ourselves. We’re forced to admit that we’re probably not up to sitting down and having a chat with someone who believes certain groups of people are subhuman. How do you shake hands with someone who was happy to call Sasha Obama a monkey on her sixteenth birthday? You don’t.

But we can do something about the decades of reckless neglect that are an integral part of our heritage. Targeting each other is clearly not working; targeting the neglect that drives the anger is, perhaps, the only way through.

Jobs are just one telling example: Yes, jobs are being generated by the sharing economy, but many of them are makeshift and do not make up for jobs lost to globalization and displacement of industry. The state of our workers is not an artifact of poor measurement. If that’s your argument, you aren’t looking at the facts on the ground.

There are many simple things to do. Someone recently suggested that PTAs in rich districts might take some of the money they raise to struggling sister schools. We’d add: Don’t mail it to them. Walk it over and tell the kids you are funding a specific project.

The US economic pie isn’t growing as it once did. Maybe we can do something about that through broader capital investment, especially in research & development.

Maybe we can’t… or maybe we won’t. We have to think about what it means that our workers are worse off today than they were in the 1950s. We need to recognize how easy it is for some to manipulate the anger that hardship generates. Set up a straw man, and by and by, someone succumbs to the urge to drive his car into a group of people he has never met. Wherever did those guys marching by eerie torchlight last Friday get the idea that Jews are out to “replace” them? Many of them are feeling shunted aside, that’s for sure.

We get to decide if the threat of manipulated anger is something we want our children to live with. Yes, that’s right. We get to decide. Note indecision or do nothing is also a decision.

As it is, everyone loses. Though James Alex Fields, Jr., is innocent until proven guilty, if he took Heather Heyer’s life as alleged, it’s hard to believe he didn’t also ruin his own.

(Photograph: The thousand-foot garden at Monticello)

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Inflation, that dog just won’t bark

We are happy to report that Hale Stewart will be contributing to our blog going forward. Here’s a longer look from him, with an assist from the St. Louis Fed, at pricing trends.

Friday’s inflation report was, yet again, underwhelming, further confirming that upward price pressures are contained. Core and overall CPI are 1.7% Y/Y:

fredgraph-16

Both measures are below the Federal Reserve’s 2% inflation target. Core (in blue) was slightly above 2% for most of 2016 while total CPI (in red) was rising. But its increase did not influence overall CPI, indicating that commodity pressures are weak. Although they are part of the misery index, neither food nor energy prices should concern us in terms of sticky inflation:

fredgraph-17

fredgraph-21

The top chart shows the year Y/Y percentage change in food and beverage prices, which were declining from the beginning of 2015 to 3Q2016. They are now increasing, but are only slightly above 1%. The bottom chart shows energy prices which were negative for approximately two years, turning positive at the beginning of 2017. Yes, they did spike to about 15%, but that’s as much a function of statistics as the marketplace activity. Now they are quickly declining. Just as importantly, food and beverage prices are only 13.63% of CPI while energy prices are 7.35%, meaning both would have to increase at sharply faster rates for an extended period time for us to be concerned.

Energy and food prices are the only commodity prices adding to CPI:

fredgraph-19

All commodities less these two items have subtracted from CPI for over four years. This sub-index of overall CPI accounts for 18.95% of CPI. Its negative contributions counterbalance any upward pressure from food and energy prices.

Finally, we have the sub-index for services less energy:

fredgraph-20

This was between 3%-3.2% for most of 2016, but has since decreased sharply. The underlying reasons for this spike have dissipated.

Readers sometimes suggest we adjust spending measures, like retail sales, for certain segments’ own personal deflation in order to show that spending is actually quite strong. That gets a “Huh?” from us. If spending were strong, prices would be floating up. The point is that they are not.

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All This, and Indentured Servitude Too

It’s no secret that many of our more vulnerable workers have it tough these days.

In July, the Treasury Department decided to take a look at the widespread use of non-competition agreements among low-wage workers as a factor in ongoing low job churn and wage growth.

Additionally, Case Western law professor Ayesha B. Hardaway is looking into the proliferation of these “non-competes” among low-wage low-skill workers as a condition of their at-will employment as a violation of the 13th Amendment. She argues that Reconstruction Era debates, legislation passed after the amendment itself, and judicial opinions of the time make it clear that the prohibitions against indentured servitude and peonage in the broader amendment were intended to prevent wage slavery.

Which is what you get if you put at-will employees on this particular one- way street. They are not protected by contracts and, since they cannot seek like similar employment elsewhere, have no bargaining power.

And therefore no economic mobility. Hardaway argues that such use is outside the original scope of post-employment restrictive covenants, which were designed to protect trade secrets, thereby encouraging employers to invest in new ideas and in the training of their employees.

Restrictive employment covenants have been addressed by the courts for centuries, and US legal thought on such matters came, originally, from British courts in the 16th century. These courts generally put attempts to restrict work opportunities of former apprentices under the rubric “improper and unethical motives of masters.” Specifically, applying the rule of reason, the court stamped the idea that an apprentice could not seek employment in the “very trade he honed during his apprenticeship to be morally improper and outside ordinary norms.” Such thinking on employment restrictions held in England, although specific confidentiality clauses, and non-solicitation and non-poaching agreements, Hardaway’s “original scope,” generally got the green light.

And so it was in America until the late nineteenth century, when judicial decisions began to wear away the precedent set by the test of reason. Even so, through the twentieth century such agreements were limited by the courts to high-level employees with access to proprietary information, employees whose names and reputations themselves often added value to the company. These sophisticated workers are on a two-way street: at the same time they sign such agreements, they also sign employment contracts.

Hardaway believes that subjecting low-wage un-skilled workers to similar arrangements “fails to comport with the established rule of reason.” Indeed, and worth thinking about with the Politics of Rage getting so much ink these days.

13th-amend

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Coffee into the Waves

For us, a good remedy for the brutal political tenor in the country these days is to read long and hard. You always figure that someone like Stuart Hampshire, who during his high-school years in the 1930s watched the men unemployed by the closing of the Mersey shipyards stamping their cold feet in the streets of Liverpool, while the women sold wildflowers to passers-by. He saw kids without shoes while shoe factories were laying off workers because they couldn’t sell their shoes, and coffee jettisoned into the sea for price controls. He knew those shipbuilders could well remain unemployed unless or until the looming war ramped up demand for ships. When that war did so he went into intelligence work focusing on the espionage efforts of Himmler’s Central Command, and came to believe there is nothing we are not capable of doing, and that a “thin layer of procedural justice” is crucial in balancing competing moralities within a society. He calls such justice more important to morality than courage (we’ll add that’s “acting from the heart”) because, say, a bookish life might require little courage. “Not so for justice, always required.”

Hard to argue with him, and he does a far better job of incorporating Shakespeare throughout his books than we ever have.

But we bring Hampshire up because he makes the distinction between restrictive morality, what we must not do, and the immorality that results from a lack of imagination. It’s not being Pollyannaish to say that the posturing that has replaced insight and discussion as we confront the economic issues we face these days has led to a profound failure of imagination, to all of our peril. And all the while the combatants fiendishly defend their negatives, what they believe cannot work.

Oh, and, Hampshire calls, “Which side are you on?” a “fatally over-simple question.”

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