Month: August 2016

In the latest note from ICI’s Glenn Schorr, the analyst points out something that so many others have previously noted: namely, that the market is “weird.” And it’s not just one way. According to Schorr there are at least three different reasons why “it’s still a little weird to us to see equity markets near all-time highs”:

• Eequity Capital Markets volume is down ~50%, we’re in our 10th straight month of down y/y volume and volumes are below average as a percentage of GDP. Reasons for the disconnect include a combination of macro fears spurred by oil’s nosedive, Brexit (EMEA is the slowest region), terrorism and investors being wary about a market propped up by QE and insanely low interest rates.
• Additionally, PE funds are doing more selling vs IPO’ing lately (500bps above average) and block trades are 3x their normal percentage of secondary volume as sellers look to take the money and run instead of taking the next 2 years to work their way out of a position.
• Finally, several industries (like energy, biotech/health care and parts of technology) have been lesser participants given their own fundamental and/or regulatory challenges lately.

Here are the details:

Given where equity markets are, you’d think there’d be more ECM activity – instead we’ve seen 10 months in a row of down y/y results: Over the past 15 years, there’s been a nearly 50% correlation between global ECM deal volume and the S&P 500, reflecting mgmt teams rationally wanting to issue stock at higher prices & their hesitance to do so when markets are tanking. Currently, we’re in a period which seems to have started in the middle of last year where that relationship has disconnected (Figure 1). In a way it makes some sense. During the last 14 months, CEOs have seen a ton of volatility-inducing, hold-onto-your-seats global items – the surprise yuan devaluation in August 2015 (and the sharp market sell-off later in the month); the weakest post-GFC markets month in January 2016; another sell-off spurred by oil’s nosedive a month later in February & most recently Brexit in June.

The impact has been that a full 13 of the last 15 months have seen down y/y announced deal volume. August 2016 did break a ten month negative y/y streak; but in total, 2016 YTD deal volume is off 2015’s pace by more than one-third. Looked at another way, deal value as measured as a % of GDP has also been weak, trending below the historical average since 2Q15 (Figure 2).

This period has been characterized by disappointing IPO volume; block-trade driven follow-on’s; high sponsor-related activity; broad regional weakness & some particularly pressured industries: One feature of this timeframe has been a big drop-off in IPO activity (15% of ECM). At $63bn, 2016 YTD deal value is down 47% y/y and represents the weakest first 9 months since 2009 (Figure 3). In addition to macro  volatility and mgmt teams waiting for a better business environment weighing on results, another factor at play is an M&A-led supply cut. Factors like low interest rates, excess corporate cash & low organic growth are enticing buyers; and on the flip side in many cases, sponsors are preferring the sale route rather than an IPO’ because they get their money right away & without the associated risk. As far as secondaries, volume is down less than IPOs but is still off an uninspiring 32% from this point last year (Figure 4).

As well, a very high percentage of the activity is attributable to block trades (Figure 5) which tend to be higher risk. The $72bn of this type of volume YTD accounts for a full 60% of the total U.S. pie, more than triple the historical contribution. In addition, another facet of the current environment is that financial sponsors continue to be a significant part of the total ECM pie (Figure 6), such that their share is tracking at ~17% so far in 2016. While this is down a bit from 2013 & 2014’s peak of 20% because of the M&A supply cuts, it’s about 500 bps above the long-term average.

Regionally, EMEA is faring the worst, down a full 44% YTD y/y, followed by the U.S. down 33% and Asia down 29% (coming off of a +44% bounce in 2015). In terms of industries, there are areas that have been particularly hurting: (1) energy where many players are just looking to survive after 1Q16’s weak & volatile oil prices; (2) technology & biotech where some unicorns are holding off as last valuation rounds remain higher than current (volatile markets, M&A supply cuts too); and (3) healthcare.

* * *

Note, the market’s most obvious “weirdness” factor, namely that some $200 billion in monthly QE from the world’s central banks are necessary to sustain asset prices as of this moment, following 8 years of various QEs and NIRPs, is ignored as by now everyone is aware that when stripping away central bank support there is no actual market but a central bank policy tool as Stanley Fischer admitted earlier.

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Submitted by Patrick Buchanan via Buchanan.org,

The debacle that is U.S. Syria policy is today on naked display.

NATO ally Turkey and U.S.-backed Arab rebels this weekend attacked our most effective allies against ISIS, the Syrian Kurds.

Earlier in August, U.S. planes threatened to shoot down Syrian planes over Hasakeh, and our Iraq-Syria war commander, Lt. Gen. Stephen Townsend, issued a warning to Syria and Russia against any further air strikes around the city.

Who authorized Gen. Townsend to threaten to shoot down Syrian or Russian planes — in Syria?

When did Congress authorize an American war in Syria? Is the Constitution now inoperative?

That we are sinking into a civil war where we sometimes seem to be fighting both sides is a tribute to the fecklessness of the Barack Obama-John Kerry foreign policy and the abdication of a Congress that refuses to either name our real enemy or authorize our deepening involvement.

Our Congress appears again to have abdicated its war powers.

Consider the forces that have turned Syria into a charnel house with 400,000 dead and millions injured, maimed and uprooted.

On the one side there is the regime of Bashar Assad and its allies — Hezbollah, Iran and Russia. Damascus buys its weapons from Moscow and has granted Russia its sole naval base in the Mediterranean. And Vladimir Putin protects his interests and stands by his friends.

To Iran, the Alawite regime of Assad is a strategic link in the Shia crescent that runs from Tehran to Baghdad to Damascus to South Beirut and Lebanon’s border with Israel.

If Syria falls to Sunni rebels, Islamist or democratic, that would mean a strategic loss for Russia, Iran and Hezbollah, which is why all have invested so much time, blood and treasure in this war.

If they are going to lose Syria, Assad, Iran, Hezbollah and the Russians are probably going to go down fighting. And should we decide to fight a war to take them down, we would find ourselves with such de facto allies as ISIS and the al-Nusra Front, an affiliate of al-Qaida.

Have the hawks who want us to target Assad considered this?

The American people would never sustain such a war in the company of such allies, with its risks of escalation, to remove Assad, who, whatever we think of him, never terrorized Americans or threatened U.S. vital interests.

Years ago, Assad dismissed Obama’s demand that he surrender power, then defied Obama’s “red line” against the use of chemical weapons. He is not going to depart because some U.S. president tells him he must go.

As for the Syrian Kurds, the YPG, they have sealed much of the border with Turkey and fought their way ever closer to Raqqa, the capital of the ISIS caliphate. But what has elated the Americans has alarmed the Turks.

For the YPG not only drove ISIS out of the border towns all the way to the Euphrates; this summer, with U.S. backing, they crossed the river and seized Manbij.

Turkey’s fear is that the Syrian Kurds will link their cantons east of the Euphrates with their canton west of the river and create a statelet that could give Turkey’s Kurds a privileged sanctuary from which to pursue their 30-year struggle for independence.

If, when the war ends in Syria, the YPG is occupying all the borderlands, Ankara faces a long-term existential threat of dismemberment.

After recent terrorist attacks on his country, Turkish President Recep Tayyip Erdogan recognizes that ISIS is a monster with which he cannot live. Thus, this weekend, he sent tanks and Arab troops to drive ISIS out of the Syrian border town of Jarablus.

Now Turkish troops and their Arab allies are moving further south into Syria to expel the Kurds from Manbij. Joe Biden, visiting Turkey, told the Kurds to get out of Manbij and back across the river.

How does the U.S. protect its interests while avoiding a deeper involvement in this war?

First, recognize that ISIS and the al-Nusra Front are our primary enemies in Syria, not Assad or Russia. Geostrategists may be appalled, but the Donald may have gotten it right. If the Russians are willing to fight to crush ISIS, to save Assad, be our guest.

 

Second, oppose any removal of Assad unless and until we are certain he will not be replaced by an Islamist regime.

 

Third, we should assure the Turks we will keep the Kurds east of the Euphrates and not support any Kurdish nation-state that involves any secession from Turkey.

America’s best and wisest course is to stop this slaughter that is killing a thousand Syrians a week, use our forces in concert with any and all allies to annihilate the Nusra Front and ISIS, keep the Kurds and Turks apart, effect a truce if we can, and then get out. It’s not our war.

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In the aftermath of the EU’s latest escalation in its tax war with US multinational corporations, the rebuke from the US was swift, stretching from the US Treasury all the way to Congress: according to Kevin Brady, the House Ways and Means Chairman, the EU Apple decision was  “predatory and naked tax grab.” Chuck Schumer, the third-ranking Senate Democrat on the committee, said that the EU is unfairly undermining U.S. companies’ ability to compete in Europe.  Naturally, the Treasury also chimed in, and a spokesperson said that “the Commission’s actions could threaten to undermine foreign investment, the business climate in Europe, and the important spirit of economic partnership between the U.S. and the EU.”

Naturally, the US would confine itself only to heated words: after all, there was little chance Washington would do anything to truly jeopardize trade relations between the two core trading partners, and Europe knows it. 

However, with Europe desperate to boost its dwindling public coffers and only starting tits anti-tax avoidance campaign, AAPL is only the start in the European Commission’s crackdown.  As the WSJ writes, following today’s ruling that Apple got an unfair advantage over its competitors because of help it got from Ireland government’s, the EU’s antitrust regulator is likely next to turn to two other ongoing tax investigations on its docket: Amazon.com and McDonald’s.

The EU regulator has previously disclosed that it is looking at the arrangements both companies have with tax authorities in Luxembourg. In the case of McDonald’s, the WSJ reports that antitrust commissioner Margrethe Vestager said in 2015 that the investigation concerned a 2009 tax ruling granted to a Luxembourg unit of the restaurant chain, called McDonald’s Europe Franchising, that resulted in the fast-food chain “paying no tax on their European royalties either in Luxembourg or in the U.S.” The unit, which collects royalty fees from McDonald’s franchisees across Europe and Russia, recorded a profit of more than €250 million in 2013 alone, the commission said.

As for Amazon, the tax ruling in question dates back to 2003. It applies to an Amazon subsidiary based in Luxembourg called Amazon EU Sarl. Investigators said in 2014 that “most of Amazon’s European profits” were routed through the unit, but that the structure of the subsidiary made it so that those profits were not taxed in Luxembourg.

We expect Google, which has infamously used the “Dutch sandwich” legal tax evasion scheme for years, will eventually make its way in Europe’s crosshairs too.

Vestager on Tuesday gave no concrete timing on when the two investigations would come to a close.

Just like Ireland, Luxembourg has denied giving the companies special treatment, and both Amazon and McDonald’s have said they believe they’ve been paying their European taxes appropriately. However both multinational companies warn in their annual report that they could end up on the hook for more if the investigations don’t go their way.

In addition to US corporations’ rising tax problems at the Commission level, companies operating in Europe are also facing increased enforcement efforts at a national level. Authorities in Spain and France recently have raided offices of Google’s parent company, Alphabet, and French authorities have demanded more than €1 billion in back taxes and fines from the company. Alphabet says it’s paid all the taxes it owes.

Considering the deteriorating state of Europe’s projected financials, in big part a result of Europe’s declining tax base as millions of aging workers are set to retire and instead of contributing will become a drain of government cash, we expect today’s dramatic crackdown against Apple to be only the beginning of a long slog which will ultimately hurt Europe itself. Consider that despite its receipt of €13 billion, the biggest loser from today’s decision is Ireland itself. As Reuters comments, Dublin already faces a competitive threat from the United Kingdom, which once outside the EU may cut its own corporate tax rate. According to Ireland’s Economic and Social Research Institute, a 1 percentage point cut in the UK corporate tax rate could reduce the probability of non-EU states sending foreign direct investment into Ireland by 4 percent. Irish firms send 44 percent of their exports to the UK, so future trade barriers could mess up Ireland’s economic recovery.

The size of Apple’s potential bill puts Ireland in even more of a corner. While on one hand a 13 billion euro payment would be a windfall for the Irish people, it’s also a big blow to competitiveness if companies fear past dealings could be subject to retrospective meddling. Ireland could simply lower the corporate tax rate across the board. Other countries in the EU with less competitive rates would be among the losers.

To be sure, the full impact of the unwind of Europe’s tax policies will take many years; the bigger question is whether, as a result of the ongoing nationalist, refugee and social upheavals, there will even be a Europe in several years.

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Submitted by Mike Krieger via Liberty Blitzkrieg blog,

At least part of the message is beyond dispute: the cash flowing out of China into assets around the world has hit tsunami proportions, driven by fears of a slowing economy and a declining currency. Estimates peg the amount Chinese investors and companies moved out of the country last year at nearly $1 trillion, up more than sevenfold from 2014. Much of that money is being spent by Chinese companies looking to snap up Western assets, such as ChemChina’s US$43-billion bid to take over Swiss seed company Syngenta, or to pay down U.S. dollar-denominated debts. But a sizable portion was directed into overseas real estate.

 

The frenzy has taken a visible toll on one of the world’s “most livable cities,” resulting in hollowed-out neighborhoods, absentee investors, and vacant, decrepit homes as huge numbers of investment properties simply sit unoccupied. What statisticians have been slow to chart has been ruefully documented in popular blogs like Vancouver Vanishes and Beautiful Empty Homes of Vancouver, which tracks empty, multi-million-dollar character and heritage houses.

 

– From May’s post: “China is Buying Canada” – Notes From a Gigantic Real Estate Bubble

If I were a Canadian citizen, I’d be up in arms about the following story. Ironically, it’s Chinese-Canadians who are bearing the brunt of the intimidation and censorship (for now).

Excerpts from the New York Times:

ORONTO — Canada’s prime minister, Justin Trudeau, is due in China on Tuesday for a much anticipated visit, hoping to reset what had been an up-and-down relationship under the previous government. Closer ties, Mr. Trudeau says, would release untapped prosperity at home and promote Canadian values like good governance and the rule of law in China.

 

But many Chinese-Canadians say the opposite is happening. They say the growing economic clout wielded in Canada by China, Canada’s largest trading partner after the United States, is leading to an erosion of their own freedom — specifically their freedom to speak openly about China’s authoritarian state. Journalists who write for the many Chinese-language publications in Canada, along with activists and others, say they are under increasing pressure to promote the interests of the Chinese government.

 

“It’s gotten worse and worse,” said Jonathan Fon, 67, a Toronto paralegal, freelance writer and critic of China’s Communist rulers. Mr. Fon, who emigrated from China in 1992, said publications that had once printed his opinion articles now routinely rejected them because of worries about political and financial fallout. “They will not take my contributions, even though we’re friends,” he said.

 

In the past decade, China has embarked on an ambitious effort to promote its image abroad, including a multibillion-dollar overseas expansion by Chinese state media and a network of Confucius Institutes, which teach Chinese language and culture while disseminating the Communist Party’s viewpoints. In Western countries, analysts say, the party exerts influence over Chinese immigrants and students through embassies, consulates and community organizations, as well as business interests with the financial leverage to shape local Chinese-language media coverage.

 

“China is not shy about using overseas Chinese communities to advance its interests abroad,” said Minxin Pei, an expert on Chinese politics at Claremont McKenna College in California. “What’s brilliant about the Chinese government’s interest strategy is that it exploits the freedoms of Western democracies against Western democracies.”

 

A Chinese writer said he had lost his column in the Global Chinese Press, based in British Columbia, after the newspaper was pressured over his criticism of Mr. Wang and Mr. Chan, according to a report in The Globe and Mail. A Chinese-Canadian freelancer in Toronto who uses the pen name Xin Feng received death threats online for chastising Mr. Wang in a column.

 

A year ago, the editor in chief of a Chinese-language newspaper in Ontario said she had been fired for publishing a commentary critical of Mr. Chan. She blamed that, in part, on complaints from the Chinese consulate in Toronto.

 

In Ontario, which includes Toronto and its suburbs, Chinese-language journalists and media executives say self-censorship has become widespread because of the economic pressures on their outlets. They fear boycotts by pro-Beijing advertisers and the loss of distribution deals with Chinese state media publications. 

 

Ontario has more than 30 Chinese-language news outlets, mostly free newspapers, and the majority of them appear to avoid reporting that would anger China’s leaders. 

 

Jack Jia, 54, the publisher of the Toronto-based Chinese News Group newspaper and website, said China’s influence had “grown stronger and stronger” in recent years. “They want to control everything,” Mr. Jia said. 

 

Today, he said, as immigration from China has soared, Chinese officials have gained more leverage. “They can threaten, because most media employees have family back in China,” Mr. Jia said. 

 

A Chinese-language reporter in Toronto, who asked not to be identified in order to protect her job and her relatives in China, said her editors now regularly deleted quotations that were critical of Beijing, and reviewed article ideas specifically to head off coverage that might reflect poorly on the Chinese government.

 

Activists in Canada critical of Beijing have found themselves targets for intimidation. Not long after Zang Xihong, 54, a prominent Chinese human-rights activist, emigrated to Canada 27 years ago, she said, she began receiving menacing phone calls from Chinese state security agents at her home in the Toronto suburbs.

 

Ms. Zang said the Canadian authorities had told her that they could take no action because most of those activities were protected free speech, leaving her powerless, she said, to escape the long arm of the Chinese government or its supporters. 

 

“When I fled from China, I suddenly realized they are here already,” she said. “Where else can I go?”

Good question.

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With Hillary Clinton continuing her run of days without a press conference, the nation is growing increasingly concerned as day after day more headlines – from even the mainstream media – cast shadows over her actions as Secretary of State. With more records reported to be released tomorrow, AP reports another nail in the coffin of Clinton honesty today as The State Department is forced to admit that The FBI has discovered dozens of emails related to Benghazi that Clinton failed to hand over.

As AP reports, The State Department says about 30 emails involving the 2012 attack on U.S. compounds in Benghazi, Libya, are among the thousands of Hillary Clinton emails recovered during the FBI’s recently closed investigation into her use of a private server.

Government lawyers told U.S. District Court Judge Amit P. Mehta Tuesday that an undetermined number of the emails among the 30 were not included in the 55,000 pages previously provided by Clinton to the State Department.

 

The hearing was held in one of several lawsuits filed by the conservative legal group Judicial Watch, which has sued over access to government records involving the Democratic presidential nominee. The State Department has said the FBI provided it with about 14,900 emails purported not to have been among those previously released.

 

Clinton previously had said she withheld and deleted only personal emails not related to her duties as secretary of state.

 

The agency said it would need until the end of September to review the
emails and redact potentially classified information before they are
released.

However, as Bloomberg notes, the judge in Judicial Watch’s case is pressuring State to release the emails earlier…

U.S. judge sets Sept. 6 deadline for government lawyers to tell him the number of newly discovered messages from Hillary Clinton’s private e-mail servers relate to the 2012 attack in Benghazi and how quickly they can be cleared for public release.

 

Mandate comes in Freedom of Information Act lawsuit pressed by conservative government watchdog Judicial Watch. Washington-based group opposed U.S. plan to vet records and release them between Sept. 30 and Oct. 31

In a separate development Tuesday, a law enforcement official told The Associated Press that the FBI is expected to release documents soon related to its investigation, which focused on whether Clinton and her aides mishandled government secrets.

The official, who was not authorized to discuss the matter by name and spoke on condition of anonymity, said documents in the case would be made public as the FBI responds to Freedom of Information Act requests. It wasn’t immediately clear when the documents would be released or exactly what they would include.

 

Though he described Clinton’s actions as “extremely careless,” FBI Director James Comey said his agents found no evidence that anyone intended to break the law and said “no reasonable prosecutor” would have brought a criminal case.

 

The FBI this month provided Congress portions of its file from the agency’s yearlong investigation. The FBI interviewed Clinton for several hours at FBI headquarters in Washington just days before announcing its decision to close the investigation. The Justice Department accepted the FBI’s recommendation.

 

CNN reported that the records could be made public as early as Wednesday.

One can’t help but agree with Colin Kaepernick’s assessment of Hillary Clinton…

We have a presidential candidate who has deleted emails and done things illegally…That doesn’t make sense to me because if that was any other person you’d be in prison. So, what is this country really standing for?

Good question Colin.

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While there are many things to ‘worry’ about in today’s markets, there is one “great expectation” that it appears everyone is dreaming about…

As Bloomberg’s Mark Gilbert notes, there’s increasing chatter about the prospect of fiscal action from governments, which is shorthand for borrowing money to spend on infrastructure projects, thereby creating jobs, boosting growth and investing in the future. The U.S., the U.K., Japan and the euro zone are all being urged to ease up on austerity and open their pocketbooks.

The chatter, though, has become a roar — which raises the uncomfortable prospect that speculation about fiscal action will lead to disappointment. Here’s a chart showing how the hubbub has become louder and louder in recent weeks…

 

So now that we know what is ‘expcted’ to save the world, Gilbert concludes by noting that the question posed by many investors is what might break the spell that’s seen the Standard & Poor’s 500 Index gain 7%this year and the combined value of stock indexes around the world increase by 10 percent in the past year. The scope for disappointments is wide:

if the next U.S. president fails to make good on election pledges to repair infrastructure,

 

if Japan fails yet again to make meaningful investments, if Germany continues to block fiscal action in the euro zone,

 

if the U.K. government doesn’t follow through on its promise to “reset” economic policy.

Those “great expectations” in the chart above could be dashed very hard indeed.

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Four years ago we first exposed the dismal fact that in the U.S., for the lowest income American Dreamers, work is punished. Sadly, the situation has grown worse as buying votes amid a burgeoning welfare state has left millions in the so-called 'low-wage-trap' leaving Americans teetering on the welfare cliff.

The situation can be summed up perfectly, as Foundation for Economic Education's Howard Baetjer explains, "If you accept this raise… you fall off the welfare cliff"…

Pretend you are a poor, single parent of two in Chicago, earning $12 an hour, working full time, and determined to do what is best for your family. And suppose your employer, impressed with your work, offers you training for and promotion to a new job paying $15. Should you take the offer?

 

It sounds like a no-brainer, but it’s not.

At your present $12 an hour you are eligible for refundable tax credits, food assistance, housing assistance, child care assistance, and medical assistance worth $41,465 combined. Together with your earned income after taxes of $22,121, you are now bringing home to your kids about $63,586 a year.

If you take your employer’s offer, you’ll earn $5,451 more after taxes, $27,572. You will also become eligible for an Affordable Care Act (ACA) premium tax credit. But at that level of earned income all your other benefits would decrease by $8,336, more than your increase in net pay. That means the income you would bring home would decrease from $63,586 to $60,701.

Now, would you take your employer’s offer? What would be best for you and your family, a move up the job ladder with a loss of $2885 in income? Or staying in your same job and keeping the larger income?

The Low-Wage Trap

This example, which is taken from a fascinating, and appalling study by the Illinois Policy Institute entitled “Modeling Potential Income and Welfare Assistance Benefits in Illinois,” illustrates with clear charts and tables what is known as “welfare cliffs” or the “low wage trap,” which can trap families in poverty.

When earning more means taking home less, the disincentive to work is obvious.

The report provides striking visual representations of the “welfare cliffs” that poor people’s total incomes can fall off as they increase their earned incomes. Here is the chart on which the hypothetical above is based (the particular numbers in our example come from tables in the report, which clarify the visual data in the charts.)

Notice that welfare cliff we considered above, which occurs between $12 an hour and $15 an hour, is relatively small. A bigger one (and the reason I call the report “appalling”) occurs between $15 an hour and $18 an hour.

An Unaffordable Raise?

To pick up our thought experiment, let’s suppose that you want to get free of welfare eventually, and you know that moving up the job ladder is key to doing so, so you take your employer’s offer of a raise to $15 an hour and the corresponding loss of $2,885 in annual income. You cut back on spending where you can and look to the future. Now suppose further that you do well in your new job, you boost your knowledge and skills, and your employer offers you another promotion, with still more training and a raise to $18 an hour. Should you take it? Can you afford to take it?

At $18 an hour full time you would earn gross income of $37,440, and net income (after taxes) of $33,023. But earned income that high would reduce your refundable tax credit and ACA premium assistance, and eliminate your cash assistance, food assistance, housing assistance, and child care assistance, for a total reduction in government benefits of $26,820. So if you take the promotion and raise, your income would decrease from $60,701 to $39,332! A case could be made that it is irresponsible for you to reduce your family’s income that way.

Just think what that kind of welfare cliff does to the incentive to work (“on the books,” at least) and thereby to get off welfare. And the problem is not restricted to Chicago; the same kind of problem exists all across the country.

One of the tragedies of America today is that so many adults of sound mind and body do not support themselves and their families. It’s a tragedy not because they suffer material want; indeed, relatively few suffer so, because government assistance satisfies many of their material needs. It’s tragic because one of the keys to human happiness is earned self-respect, which requires, as Charles Murray has written, making one’s own way in the world. The vast majority of poor people don’t want welfare; they don’t want handouts; they want a good job with which they can support themselves and their families comfortably.

The tragedy of the American welfare system is that it traps so many people in dependency on government, by hindering them from getting on and climbing up the job ladder, and thereby earning self-respect and happiness.

*  *  *

Welfare cliffs are of course not the only reason so many capable Americans languish in partial dependency on government assistance. Dreadful government schools in poor areas and systematic obstacles to getting a job, such as minimum wage laws and occupational licensing laws, are also to blame. But the perverse incentives of America’s welfare system really hurt.

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