Monetary Policy v Fiscal Policy — What Do They Even Mean?

Other day I am scanning a blog post from what was once my favorite blog. The author uses the words “monetary policy” and “fiscal policy” in a manner that reveals he has no earthly idea what they mean, but they sit nicely in the sentence and give off the erroneous notion that he is an erudite and educated observer of the condition of the world and our economy.

So, your Big Red Car will tell you what they actually mean.

Monetary policy and fiscal policy are not interchangeable. They mean different things.

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How Does Texas Do It?

Texans voted for a constitutional ban against imposing a state income tax in an election held in November 2019. The situation until then had been murky on the issue of a personal income tax relying upon something called the “Bob Bullock Amendment” which allowed the Legislature to set a personal income tax, but only if voters approved it via a statewide referendum and if the new revenue was used exclusively for school property tax cuts and education programs.

Which leads us to the question — how does Texas fund itself?

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COVID Exposes The Weaknesses

Business environments are impacted by laws, regulation, and leadership. This happens at the state level.

The business environment in, say, New York and California is different than the business environment in Texas.

COVID and the pressure upon Governors — the CEOs of their states — to steward the business environment in their states whilst simultaneously dealing with the pandemic has accentuated differences in state leadership and regulation.

These differences have triggered meaningful mobility amongst companies and investors.

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Killing The Gig Economy

A lot of trends, suspect ideas, cultural quirks, and bad laws start in California and spread across the country.

Case in point is California Assembly Bill 5 which destroys the gig economy by imposing standards on the employer-employee relationship that prevent the gig economy from functioning in a manner as it currently does.

Lyft and Uber have both threatened to pull out of California if the law is not repealed in November.

Joe Biden supports California Assembly Bill 5 which effectively kills the gig economy and wants to pass a Federal law mirroring it. If you are a gig worker, take note.

Cal AB 5 came to life in December 2018 in response to controversy created by the employment of Lyft and Uber drivers, classic gig economy workers. These contract, independent contractor, 1099, gig workers are eliminated under the law that was passed in September 2019 and took effect in January 2020.

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New York City Recovery

It is fashionable to debate the fate of New York City these days with the left edge of the argument being it is doomed and the right edge the constant refrain that New Yawkers have GRIT.

New York Post writer James Altucher opines that “New York City is dead forever” whilst comedian Jerry Seinfeld (from his Hamptons mansion) counters that New Yawkers have grit.

New York City is dead forever — link

This falls under the heading of: “Two Things Can Be True At The Same Time.”

Guy calls me to discuss apartments and asks what happens when markets begin to drift. I had a good long run owning thousands of apartments and was taught some harsh lessons and some good ones by Mother Market.

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The Trump Recovery

The May Jobs Report contained some staggering, incredible, unexpected data.

 1. Jobs in the USA in May surged by 2,500,000 after having declined by 20,700,000 in April.

Economists had been expecting a loss of 8,000,000 jobs. Instead, net new jobs were 2,500,000 meaning the economists were off by more than 10,000,000 jobs.

 2. Unemployment dropped from 14.7% to 13.3% whilst the economists were looking for a 19% unemployment rate.

This is the beginning of a substantial recovery and the economy is only starting to re-open. It is a Hell of a start.

I place extra emphasis on the unemployment number falling below 10% as it kills all comparisons to the Great Depression and small improvements will have huge impact. We would also be within 6% of the pre-COVID19 numbers. Keep you eye on this baby.

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Unemployment, A Few Words

Today we are facing monumental COVID19 unemployment that is initially tracked by the weekly number of new applications for unemployment payments — remember this is an insurance policy for which you have paid for years.

By that measure we are at 15% unemployment (those without jobs actively looking for a job which is known by the Bureau of Labor Statistics as U-3 Unemployment, the most common measure referred to by the media).

We are likely headed to 20-25% unemployment before the trend is reversed.

But, we are dealing with a situation that is entirely different than the traditional manner in which we assess these numbers over a long period of time.

Traditionally, we look at these numbers as a means of tracking a trend line to establish the expansion or contraction of the economy. They are trend numbers.

Before the advent of COVID19, the USA was at record high employment.

These numbers subsume — incorporate — people who technically meet the criteria, but who are really “furloughed” rather than classically unemployed.

By using the word furloughed, I am suggesting that their jobs are waiting for them whenever that business re-opens.

They are not “looking for a new job;” they are waiting for the business that formerly employed them to re-open.

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The Post COVID19 World Will Be Different?

I have been mulling the post COVID19 world as this matter continues to evolve. I have been reading a lot of others’ opinions, many of whom I respect and several of whom I despise — but one has to build a base of knowledge, right?

So, here are some thoughts.

This COVID19 Thing Will End

Just to be clear, there will be an end to this COVID19 affliction. Yes, there will.

There will be ingrained better hygiene practices (says the chap on his 16,393rd hand washing since 1 Mar 2020), some therapeutics, and a vaccine.

There will be multiple vaccines and the whole vaccine thing will be integrated with the flu vaccine of which 170MM Americans got the needle this flu season. [I got mine at Costco from a guy who had been to school to learn how to do it. Free.]

COVID19 will become like polio — something we figured out, but which was very dangerous. Dr Jonas Salk, University of Pittsburg, talking to you, amigo.

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