Category: Economics

We stopped into a Florida pinball machine dealer. He said that he went into the business as a labor of love, but has recently been making more money than he ever dreamed possible. “Prices for new machines are up 30 percent compared to 2020,” he said, “and the used machines have pretty much followed the new prices.”

New or old? “The new machines are much more engaging for home use,” he responded. “You could play one for an hour and not finish every mission. People get bored quickly with the older machines.”

How about the super wide super complex Jersey Jack machines? (Dialed-In is a prescient 2016 design about a city under attack.) “Remember the Fisker Karma? It looked great, but hardly any were made. Tesla, on the other hand, is still here.” (He wasn’t a believer in the maintainability of the Jersey Jack machines.) What company is the Tesla of pinball? “Stern.”

What if you’re not good enough to complete these complex games with 3 balls? “You can set them to up to 10 balls per game,” the expert responded, and explained that it was also possible to customize the amount of time within which the machine would provide a replacement ball for one that drained.

The Dialed-In game, above, made me think that a Coronapanic machine could be a lot of fun. The player would have to spell out R0, PCR, mRNA, Fauci, Wuhan, and WHO. The history section of the game would feature Robert Malone inventing the idea of an mRNA medication, being interviewed by Joe Rogan, and then being memory-holed by the New York Times. A wheel-o-masks would spin to bandana, cloth, surgical, and N95 locations. The virus would start spreading and the player would have to hit targets and ramps to #StopTheSpread. The successful player would shut down commercial airline flights, quarantine cities, order the general public to wear masks (slowing down the spread imperceptibly), order schools shut, etc. Hit the 14 Days to Flatten the Curve spinner once and then it inexplicably would continue to spin until the machine was powered down.

The Canadian Freedom Convoy would get its own subsection. The player would take on the role of Justin Trudeau. Don Blackface would be the first level. No matter how many times the player hit the trucks that converted in the center of the playing field, they wouldn’t break up. It would then be time to Invoke Emergency Powers and freeze the bank accounts of anyone who donated $20 to the truckers.

Separately, I wondered why pinball machines aren’t made in China. Everything else electronic is. You wouldn’t buy a smartphone assembled by clumsy Americans, right? It turns out that Homepin set up a factor in Shenzhen (factory tour video; the machine gets terrible reviews, but mostly because of its rules and layout, not because of the way it is built).

A friend imports European windows for Americans who are too rich to look at America through American windows. Price increases for components are happening every few weeks. Prices for the finished product are now 30 percent higher than two years ago. “We’re doing much better than our competitors with lead times,” he said. “Where we used to be at 12 weeks, for example, we’re now at 16.”

He surprised me by saying that the Europeans make windows with laminated and tempered impact glass, which is conventional for installation in new Florida construction. Why would they do that when there aren’t any hurricanes in Europe? “They like that nobody can break in,” he responded.

“Where, Exactly, Did $800 Billion in PPP Money Go?” (Bloomberg):

Billions of dollars of federal funds may have been misappropriated as part of the government’s well-intentioned but loosely monitored effort to support entrepreneurs and their employees during the Covid-19 pandemic. Meanwhile, the Small Business Administration, which has supervised the massive rescue since last year, decided recently to speed up its completion by making it easier for borrowers to have their loans forgiven.

Analysts remain split on how best to assess the success of the PPP and the related Economic Injury Disaster Loan program. The Government Accountability Office puts the spending at $910 billion, of which $800 billion is PPP money. Any assessment, however, will rely on the release of more sweeping data about the push from the government and borrowers. It’s also becoming clearer that fraud may have been much more rampant than originally understood, although the likelihood of massive misappropriation because of lax supervision was obvious from the start. Any funds that wound up in the wrong pocket or were steered toward insiders also blunted the program’s effectiveness.

The question for today is not whether any of the $800 billion was obtained fraudulently (or whether forgiveness was obtained fraudulently), but what businesses actually did with the money. For example, my friends who own small-to-medium-sized companies enjoyed reasonably strong revenue in 2020 (a dip in the spring and then roaring back in the summer and fall), so the PPP money ended up being a an untaxed bonus of $millions that went straight into personal checking accounts. From there, what did or could they do with, e.g., $2-5 million? Mustafa Qadiri bought himself “a Ferrari, Bentley and Lamborghini” and got in trouble because he faked the number of employees that he had. But my friends were in a similar position, showered in cash that they had no use for in their respective businesses (which were continuing to show a profit).

Let’s assume that half the companies that got PPP didn’t need it. That’s $400 billion in cash that business owners needed to invest in stocks or real estate. This is only about 1 percent of the total value of the U.S. stock market, but it could still be significant if we believe the Wall Street Journal. “What Determines Stock-Market Prices? Here’s a New Theory” (11/6/2021):

A new study shows how much the flows of money into and out of the stock market affect stock prices—perhaps more than many investors realize.

Specifically, a dollar of cash from outside the stock market that is invested in equities will cause the combined market cap of all stocks to rise by about $5, while a dollar withdrawn from the market will have the opposite “multiplier effect,” the study says.

The reigning academic theory of the market up until now, in contrast, has insisted that investors are extremely sensitive to price, very willing to sell when prices go up. As a result, flows into the market that have no relevance to a company’s fundamentals should play no role. That is why academic orthodoxy up until now has been that the flow-based multiplier must be zero.

The new study that finds to the contrary, titled “In Search of the Origins of Financial Fluctuations: The Inelastic Markets Hypothesis,” was written by Xavier Gabaix, a professor of economics and finance at Harvard University, and Ralph Koijen, a finance professor at the University of Chicago’s Booth School of Business.

Another reason is investor psychology: We become more bullish as prices rise—not less. An illustration is how much stock market timers’ recommended equity-exposure levels have risen since the March 2020 bottom. According to my tracking of nearly 100 such timers, they on average were completely out of the market at that bottom, when the Dow Jones Industrial Average was below 19000. Today, with the DJIA nearly double where it stood then, the average exposure level is 63%. If these timers were more price-sensitive, you would expect their equity-exposure levels today to be a lot less.

It could the same phenomenon in real estate. In a country where it is ever-more-challenging to build anything (but we’ll bring in 59 million more migrants and hope to find somewhere for them to live!), extra money in bank accounts will generate insane bidding wars among those who were blessed by the Great Covidcratic Wealth Reallocation of 2020-2022.

A friend owns a company that makes equipment for factories. His theory is that the central planners who’ve been printing money overestimated the elasticity of supply and therefore created much more inflation than they expected. In his experience, the number of Americans willing, interested, and capable of building anything in a factory is essentially fixed. Once existing factories and teams maxed out, increased government spending just created inflation rather than more production.

For the apparatchiks who set up the money-printing presses, factories are abstract concepts, never experienced in person. They come up with theories about why certain complex items aren’t available, e.g., automobiles or GPUs, but don’t grapple with the reality than even the simplest-to-build items are back-ordered by months or years. I just checked at ikea.com, for example, and none of the things that we wanted to buy in August 2021, e.g., dining chairs, are back in stock:

(I check every month or so and the situation has never improved. We’ve learned to live with what we have!)

Could the inelastic nature of worldwide manufacturing have been expected? I think so! Look at the Great Toiler Paper Famine of spring 2020. A tiny increase in demand led to empty supermarket shelves, not increased production.

Readers: What do you think of this theory? The Modern Monetary Theory that is the de facto mainstream economic philosophy in the U.S. assumes that inflation occurs as soon as supply runs out, but doesn’t predict when the supply wall is hit.

Related:

• Netflix: American Factory (in which a Chinese auto glass manufacturer tries to get workers in Dayton, Ohio to make high quality glass while Senator Sherrod Brown and other politicians try to get the workers to unionize)

“Annual American inflation hit 7.5%: A near 40-year high” (CNN, today):

A key measure of inflation climbed to a near-40-year high last month. Economists are hopeful that America will reach the peak of the pandemic-era price increases in the early months of 2021. Here’s to hoping.

The consumer price index rose 7.5% in the 12 months ending January, not adjusted for seasonal swings, the Bureau of Labor Statistics said Thursday. It was the steepest annual price increase since February 1982 and worse than economists had forecast.

(Note that these are “pandemic-era” increases, not “Biden-era”.)

Which economists are “hopeful”? The article itself cites only an economist who suggests that the price increases will be persistent.

“There will be plenty of persistence from soaring house prices pushing shelter costs this year,” said Sal Guatieri, senior economist at BMO, in a note to clients.

How does it feel on the ground? (“on the swamp”?) Across from our beloved Abacoa neighborhood is Alton, a newer development. The Italian restaurant inside Alton is Lynora’s and, through 2021, they were famous for $2 meatballs on Mondays (example). For 2022, the meatballs are $3 each (an annual inflation rate of 50%).

What about the new houses in Alton? You used to buy one pre-construction or at least pre-completion, thus enabling the selection of colors, styles, finishes, and options. The result would be paying a June 2021 price and moving into a December 2021 house. Inflation is now so high that this approach to business has become untenable. Starting in 2022, the developer will no longer sell any house until it is complete and therefore it is no longer possible for a buyer to customize anything.

What does a house with in Alton look like? Here’s one for $3 million (5,000 square feet, helpful alligator ramp from the “lake”):

Or you could live in a townhouse for $950,000 (2,252 sq. ft.):

Despite the stratospheric-by-2020-standards prices, this neighborhood is actually inferior to Abacoa in many ways. People don’t like the public schools as much (though both neighborhoods are served by the same Palm Beach County system). There is much less green space in Alton. There are fewer trees and they’re scrawny so there is precious little shade. There is so little space between houses that your single family home’s living room probably ends in the neighbor’s bathroom. Why are people willing to pay so much? There is a significant premium for new construction in Florida, where people believe sic transit gloria mundi when it comes to developer-built housing exposed to sun and humidity. (As Dan Quayle is famous for pointing out, Latin is more commonly spoken here due to the proximity to Latin America.)

The U.S. is a great place to be on welfare. Except for France, we spend the largest percentage of our GDP on government handouts such as free housing, health care, food, and smartphone (Washington Post). Marijuana is legal in a lot of states (and “essential” so it will be available through any COVID-19 shutdowns), booze is cheap, and Medicaid will buy you a suitcase full of opioids.

The U.S. is also a great place to be rich. There is no limit to corporate executive pay. After the shareholders have been thoroughly mined, there are plenty of swank neighborhoods in which to hang out with other rich people. At least until 2020, there was a huge supply of low-wage service workers to meet the needs and wants of those in the rich enclaves. Unlike Europe, we have no massive value-added tax to discourage consumption. (Depending on the state, rich people are much more exposed to family court predators than in Europe; see Real World Divorce.)

There is a slavery zone in the middle, though, where an American earns too much to get subsidized housing, health care, food, etc., but not enough to have a spending power or material standard of living substantially higher than what someone on welfare enjoys (quantified by state). He/she/ze/they will pay a crushing array of taxes as well in order to support the comparable material lifestyles of those who don’t work at all.

American slaves seem to be prevented by economics from reproducing. From $50,000 per year to nearly $200,000 per year, fertility is lower than for those on welfare and for the elites. A chart from 2019:

The Wall Street Journal (2/7/2022) says the trend is toward additional oppression of these slaves. “In Covid-19 Housing Market, the Middle Class Is Getting Priced Out”:

At the end of last year, there were about 411,000 fewer homes on the market that were considered affordable for households earning between $75,000 and $100,000 than before the pandemic, the study found. At the end of 2019, there was one available listing that was affordable for every 24 households in this income bracket. By December 2021, the figure was one listing for every 65 households.

For households earning between $75,000 and $100,000, five of the top six metro areas with the fewest affordable homes for sale per household were in California, NAR found, led by the San Jose metro area. The state’s shortage of affordable housing helps explain why many people left California’s coastal cities during the pandemic and moved inland.

Is it safe to say that the future of the American middle-class slave is apartment living and a one-child max? The population keeps growing while land and roads are more or less fixed. Construction costs go up much faster than wages. A median earner in China can’t afford a single family home. As the U.S. approaches Chinese levels of population, why would we expect someone near the median here to own a single family home?

Related:

• “Modern Immigration Wave Brings 59 Million to U.S.” (Pew 2015, reminding us that the next 59 million migrants will also be competing with the American slave class for housing)