Employment to population ratio, velocity and oil prices

Clinton ran the velocity up mainly with a tax and technology windfall from California.  When that funding ran dry, Bush upped the velocity with debt until that ran out. Then we couldn't afford out oil bill and crashed. The solution is to break California into pieces so it is no longer a single source of funding for DC. Then fund DC with a tax on the ultra wealthy.

Nice chart on state by state unemployment variations

From Aleph Blog  All states are highly correlated to the national rate. Texas has oil and suffered the  a savings and loan disaster on the 80s, hence shows independence from the trend.

California is the largest economy. California has a relatively high relationship to the average partly because it is a greater part of the average. California deviated mostly from the average during the boom years of the 90s.


California led the nation in unemployment since the boom years, except for the crash of 2009. The connection between California and the average are the normal. California suffers oil shocks like everyone but Texas, and shares general trade. California has one other connection, DC and California account for some 30% of GDP in government spending. Just two governments. The boom of the 90s was fueled in part from a net transfer of taxes from California to DC. And then tax reduction from DC during the Bush years benefited California. Notice the alignment between California and the average in the Reagan years? Likely tax cuts again.


So how did we engineer the boom of the 90s while California suffered 2 point difference in unemployment in 1993? California  accepted a higher gini coefficient.  The large jump in Gini at the beginning of Clinton's term came from tax hikes which hit California and then defense cuts.

In the crash of 2009 what happened to California?  Much of the housing crash happened there,  and besides Florida, much of the housing boom happened in California, The deviations of California mostly match Florida, another housing boom an bust state. Together these two states have a 60% correlation, but they make up some 22% of GDP, and are the first and third largest state by population, and they are both sun belt states.

The 2009 crash was an oil crash.  Unemployment, rising, was uniform everywhere except Texas, the oil producer. Then the delevering and mortgage default happened.

But, here is the point. California and Florida are out of phase and feed the cycle. Florida employment maximized just before the crash to 3% then unemployemtn maximized to 11% after the crash, a huge swing for a state that is 7% of the economy. California is monolithic and now coupled to Florida.  California can generate taxes for a while then cannot. So California responds politically, behind the scenes, and the countercyclical force is multiplied. They cause the Fed to wait longer before normalizing. Housing policy in DC will be counter cyclical, so is tax policy, and any government program going through state capitals. It is reinforcing as voters in these states become increasingly confused about federal policy.

California was four years behind in the boom while Florida was two years ahead. Now California is two years behind.  Together that variations is about 1.5% of GDP. Hence, we have identified most of the business cycle causes.

CBO speaks

Wa Times: “CBO estimates that the ACA will reduce the total number of hours worked, on net, by about 1.5 to 2 percent during the period from 2017 to 2024, almost entirely because workers will choose to supply less labor — given the new taxes and other incentives they will face and the financial benefits some will receive,” CBO analysts wrote in their new economic outlook.
The scorekeepers also said the rollout problems with the Affordable Care Act last year will mean only 6 million people sign up through the state-based exchanges, rather than the 7 million the CBO had originally projected.
But over the long run, Obamacare will eventually catch up and by 2020 only about 30 million people will be without insurance coverage — down from 45 million this year. That will mean about 92 percent of legal U.S. residents without guaranteed access to Medicare will have insurance coverage.
Taking the budget as a whole, the CBO said Congress has made substantial headway on cutting spending and raising taxes, which has cut the deficit in 2014 to just $514 billion.

Microsoft chooses another bald guy

No Back pressure in the market?

Bank Of America Warns: "Too Few Bears Out There", "Investors Not Prepared" For Selloff Fed's Lacker Slams Permabulls, Pours Cold Water On The US "Growth Story" More than a correction… it is the natural [ Business Cycle]end Angry Bear We lost our bears!

Can the Fed control M1 Velocity?

Monetarists say the Fed could have kept velocity at about 9, and instead it let velocity drop to 6.5 after the crash. But with the deficit climbing so rapidly, the private sector needed to accommodate Congress. The deficit dropped from 3% of GDP to 10% of GDP. The lower the deficit the higher the velocity as can be seen in the chart. Cause and effect is immaterial, we have never seen any solution in the last thirty years in which the deficit was that large with the velocity also high, sorry. So the monetarists have no solution, just a theory of things that never happened. Beckworth says otherwise:

Okay, maybe there is another way to say it. The Bernanke Fed failed to meaningfully address the endogenous fall in the money supply and the decrease in money velocity. 

Dave has no historical basis in fact for his claim. At this point the only thing that gets velocity up is keeping the budget near balance.

Market is unhappy today

Down one and a half points. Gold up 2% and ten year yield down 2%.

Spontaneous emission will help Political Calculations

Political Calculations use quantum theory to explain stock market fluctuations. New energy for future growth seems to be instantly incorporated into the stock market valuations, but energy release from the market upon bad news seems to require decay over time. They cannot figure that out. Let me help.

When the stock market gets news indicating greater forward earnings in the future they expand the portfolio in dimensionality, the number of eigenstates, the components that make up earning increases. The Fed is the light source that adds energy to the market, and its parameters are well known.  When the Fed announces a taper, the original apportion of energy losses over time is unknown. Why are losses a discovery process but gains are not? Or as Buffet would say, why do we have to wait for the tide to ebb before we know who has no pants?

Because of shorts. Investors bet a forward drop in stocks with a promise to sell at a lower price in the future.  But investors incorporate good news about the future today.  So on a loss of energy the shorts are queued up and processing them takes time.

Political Calculations and those holding shorts have an incomplete knowledge of the entire economy. So, upon bad news, the models have to sort through the allocations of losses by discovery. Losses made go anywhere, including back into the market. Who knows the loss allocations until they unfold.

Are politicans from large states more corrupt?

California pensions: San Jose mayor's initiative may not make November ballot

SAN JOSE -- The white-hot political battle over public pension reform was supposed to go before a statewide vote this November with a constitutional measure championed by San Jose Mayor Chuck Reed. But now that suddenly is in question.

Reed, who leads a group of California city leaders campaigning for the proposal as a solution to soaring retirement costs, said Thursday they are mounting a court challenge to the state Attorney General's ballot wording, claiming it mischaracterizes their initiative's intent.
Reed said it's unclear if a legal fight would allow enough time to collect the required signatures to get the pension reform measure on the ballot -- or push the effort back to the 2016 election cycle.

Is political corruption greater in Nebraska or California or Texas? This is currently a big issue in the inequality of America, corruption versus fair voting. How can we test the hypothesis?

Well, we could examine the issue of political accuracy with respect to the initiative process across the laboratory of American states, as long as we can control for the political corruption of the researchers themselves.

No says the Ballot Initiative Strategy Center:

Nebraska got an F on its ballot initiative process from a progressive think tank that wants to limit fraud in the process.
We're not alone.
Only five of 24 states that allow citizens to put initiatives on the ballot got a C or better from the Ballot Initiative Strategy Center.

Well, at least someone is looking. Who is the Ballot Initiative Strategy Center?

Although a lot of research goes into individual ballot-measure campaign efforts, no research has ever sought to look at ballot measures holistically to understand how they function in the electoral environment. There is a critical need for research that allows progressives to make better decisions about messaging, voter turnout, campaign tactics, spending and strategy. To equip progressives with the best data possible, the BISC Foundation has launched a multi-year research project.

So, fair ballots are only for progressives? Not a hopeful start. It looks very much that understanding fair voting by comparing the large and small states is not going to happen with these folks.

Rice University has done some work finding:

The results generated herein lend support for expectation that there are some consistent patterns in voting behavior on ballot initiatives. Notably, the results indicate that individual-level party identification is consistently related to voting behavior across each of the various types of ballot propositions. 

Georgia State University does a better job:

Ballot questions often feature obscure and legalistic language that is difficult to comprehend. Because the language of ballot questions is often unclear, the authors hypothesize that questions with lower readability will have higher roll-off because voters will not answer questions they do not understand. The authors use an objective measure of readability to code readability scores for 1,211 state-level ballot questions from 1997 to 2007. Using hierarchical linear regression models of state-level data, the authors find that increased complexity leads to more roll-off. The authors further analyze some possible influences on readability by examining whether it is affected by the question topic.

Gated, but we need to see the comparison and look for correlations with big vs small states. Here is one from the University of Buffalo:

An abundance of recent research has suggested that direct democracy institutions, such as the initiative and referendum, craft an environment ripe for encouraging better democratic citizenship. High and frequent exposure to ballot measures has been shown to increase the awareness, efficacy, political participation, and even the general level of happiness of citizens. In contrast to these studies, I develop and test a theory that the use of ballot initiatives undermines the ability of government to prove themselves trustworthy. Using data from two surveys, I demonstrate that ballot initiatives in the American states do indeed create an environment that encourages citizens to distrust their government. The findings have implications in assessing the positive externalities to direct legislation as well as in understanding policy choice made in these elections.

Whoa, the ballot initiative educated voters! Now this is interesting because researchers in inequality have a hard time figuring if education follows or preceed democracy. This one says the democracy educates voters. A real problem for the Undemocrats of California who claim to be educators.

Tracy Gordon looks at California:

The statewide initiative process is a well-known and frequently used
way of making public policy decisions in California. What is not so well
known is that California voters also use the initiative process at the local government level and that they seem to do so far more often than votersin the rest of the nation.


Tracy Gordon reviews the use of the initiative at the local level in
California during the 1990s. She arrives at three main conclusions. First, initiative activity was concentrated in just a few jurisdictions. The majority of local measures were proposed in the Bay Area and South Coast regions. Although cities and counties in other regions also used the initiative, these two regions accounted for the lion’s share of activity.


Second, the most popular topics for initiatives in the 1990s were land use, governance, and safety—issues that are typically local and controversial. Issues relating to zoning changes, urban growth boundaries, open space preservation, and new development were frequently taken to the ballot box. At the county level, initiatives relating to the environment, water, and general service delivery were often the most likely to qualify for the ballot. Local measures were more likely to make it to the ballot box (75% to 80%) than their statewide counterparts (15%), but the approval rate was similar to that at the statewide level (40% to 45%).


Third, local initiatives are most common in larger, growing, and economically diverse cities. Gordon observes that larger populations, less political party affiliation, greater income diversity, and higher residential mobility can make it difficult for elected representatives to anticipate the needs of their constituents. Furthermore, voters may be less able to monitor the behavior of their elected representatives in larger jurisdictions. Thus, the initiative becomes an important adjunct to the process of representative decisionmaking in California’s larger cities and counties

This gives us some of the direct results we want. Local measures make it to the ballot box more often than statewide! This gives some support for Tim Draper's effort to subdivide the state.

Mike Ball has a good summary. He finds, among other results:

 In 2001 S. Brock Bloomberg expanded Matsusaka's work to consider if voters used statewide initiatives to allocate government resources in a more productive manner. He discovered that initiatives can lead states to more efficient economies, with findings to suggest that states with initiatives waste between 20% to 30% fewer resources. He also discovered that initatives accelerate economic convergence by about a third [11].

And more from the same review:

In a study conducted for the Public Policy Institute of California, Zolton Hajnal and Hugh Louch concluded that, in California, initiative votes over the past 20 years where nonwhite voters indicate a clear preference, they voted on the prevailing side 59% of the time. A statewide survey conducted in January 2000 by Mark Baldassare for the Public Policy Institute asked if citizen's initiatives or the governor/legislature were the best way to address California's problems. Responses to the poll question indicated that 76% of Whites, 73% of Asians, 83% of Latinos, and 92% of African Americans preferred citizen's initiatives. Minorities do not often vote as a bloc on initiative; however, when they do vote as a bloc they usually win because a substantial number of initiatives are decided by a margin of less than 10%. While California's initiative process is one of the most active in the nation, only 35% of initiatives placed on the ballot actually pass [15].

But, to my horror, we have a small state in which the politicians cheat:

In 1995, after a term-limits initiative was narrowly defeated, the Mississippi Legislature passed HB 472 with the effect of virtually insuring that such a measure would never reach the ballot again. The already stringent requirements were made even tighter, making it almost impossible to collect enough signatures to move an initiative through the system. The new law prohibited citizens from other states from circulating petitions, restricted signature gatherers from receiving pay based upon the number of petitions circulated or signatures gathered, and authorized the Secretary of State to refuse to file the petition if "one or more signatures" were found to be obtained in conflict with the law [19]. While there are still legal questions surrounding the more restrictive law, Mississippi voters were able to vote again on the term-limits measure in 1999, utilizing signatures obtained before HB 472 took effect. The voters rejected the term-limits proposal. Opponents of the initiative process have been successful in their efforts to restrict its use.

 Smart guy Mr. Ball, he looks directly across three diverse state:

We have discussed the initiative process and have examined differing applications of it in three culturally diverse states: California, Ohio, and Mississippi. While the process has obviously had a major impact upon the state government in California, its overt effects in Ohio and Mississippi appear minimal. While some of the effects of the initiative process are evident and quantifiable to some extent, there are latent advantages that are difficult to measure.

I will be spending time in this area, reporting results. I know the issues and I can detect the fraudulent researchers. Stay tuned.

Savings and government debt

The IS curve is use by economists to predict the demand for cash reserves as the interest changes. The idea is that a higher interest rate for deposits make people put more money in the bank for a year and keep less for reserve cash. From 1990 to 2008, interest rates held steady and cash reserves steadily decreased, people invested more and kept less cash reserves. Why? They forgot about the crash of 1982. Then the current crash, and reserves rose back up to normal levels, even though rates were zero. People feared another crash and wanted cash reserves.  So I would expect people to hold cash for quite some time after the last crash.

Dutrng the 90s, with the total economy decreasing reserves, the federal government was increasing reserves, counter cyclical says traditional economics.  Then under Bus, government begin decreasing reserves and the total economy did the same, pro cyclical.  Then we crashed. After the crash government kept on borrowing, nearly doubling the debt to GDP ratio while the economy, as a whole, built up its reserves again.

One quick takeaway is simple result from the series: A Republican president from California or Texas will crash the economy. 
  But it is not quite so simple as that. The real problem we are dealing with is California gone wacko.  Look at how California unemployment rate has begun to diverge since 1991. For Reagan and Bush, California is normal when DC debt is growing.  That broke down after the last= crash, and California is likely permanently broken. If I add the Florida unemployemnt rate we see the same pattern developing.  What is happening? Florida and California are our Club Med economies. They have difficulty maintaining reserves and their economies increasing dependent on government flows from DC, which has become volatile. As the deficit on DC decreases, these economies will falter and cause a downturn.