The USPS postal service has been major news in recent weeks with mail-in voting being discussed, President Trump making clear he believes there will be corruption if he allows it, and the Postmaster-General removing hundreds of sorting machines. Then, a few days ago, the House voted to block recent changes and to allocate $25 billion to the postal service.
The goal of this article is to highlight the issues with as little politics as possible. This will not consider the timing of the President's actions or the claims that these actions were designed to limit a portion of the electorate's impact on the outcome of the election.
To start, a United States postal service is mentioned in the constitution - but it doesn't state that the federal government has the exclusive power to deliver mail, nor does it require the mail be delivered by the federal government to every home in the country, six days a week. The U.S. Constitution, in 1789, authorized Congress to establish “Post Offices and post Roads” but, unlike the Articles of Confederation, did not explicitly establish an exclusive monopoly.
The USPS has been in a "financial crisis" for a long time, as more volume goes to competitors like UPS or FedEx. It's worth acknowledging that like many other governmental agencies (i.e. the military, the CDC, the weather service, NASA) it costs more to run than it makes. It's also worth acknowledging that the post office doesn't cost tax dollars, but survives primarily off of postage sold.
via CATO
Much of what the USPS offered to the general public is now done by private companies - and it could be argued, without the USPS's legal monopoly over letters and mailboxes, they could fill in some of those roles. The main people who benefit from the USPS are small businesses and rural communities.
While the USPS isn't profitable, many other delivery services are (look at UPS). Part of this is because UPS will not deliver to places that don't have the volume for bundling. And, when they do ship to remote places, they charge more to justify the effort.
A federal mail service currently provides stable costs across volume and distance (for the most part) but is that a reason to keep it?
As a practical matter, public services can't be held to the same standards of profitability as private industry, but we have to be cognizant of the point of diminishing returns on public services.
Absentee Voting Versus Universal "Vote by Mail"
Absentee voting requires you to request a ballot ahead of time, meaning it's associated with a specific voter request. Vote by mail sends a ballot to all registered voters within a jurisdiction.
In America, we don't have to vote by mail, but most states allow absentee voting without the need for a valid excuse.
via Brookings Institute
In 2016, nearly one-quarter of U.S. votes were cast by mail. A Stanford study shows no partisan effect on absentee voting, and similar levels of voter fraud to in-person voting (though there are cases of fraud) but as we know in trading, past performance does not guarantee future results.
As with in-person voting, the main issue ultimately comes down to the integrity of the results. We've had numerous issues with flawed voting machines, ballot box stuffing, unregistered voters casting ballots, hanging chads, gerrymandering, and a host of issues. For a fair election, the goal is to minimize (or eliminate) election fraud, election manipulation, or vote-rigging. The rules, regulations (and even the process) should discourage or prevent illegal interference with the process of an election, either by increasing the vote share of the favored candidate, depressing the vote share of the rival candidates, or both.
November should be interesting.
Feast on This: The Big Mac Index
In the past, I've shared various "indicators" for markets that just don't make sense — like the Superbowl Indicator. The lesson to learn from those indicators is that we crave order, and look for signs that make markets seem a little bit more predictable even where there are none.
Wall Street is, unfortunately, inundated with theories that attempt to predict the performance of the stock market and the economy. More people than you would hope, or guess, attempt to forecast the market based on gut, ancient wisdom, and prayers.
While hope and prayer are good things ... they aren’t good trading strategies.
Today, I want to talk about a still "out there" index, but one that's a bit more practical from an economics standpoint (remember economics ≠ markets). I don't believe it should influence trading decisions, but I do believe it can teach you something about the practical realities of economies.
The Economist's Big Mac index seeks to make exchange-rate theory more digestible. They say it is arguably the world's most accurate financial indicator (based on a fast-food item).
The Big Mac index is based on the theory of purchasing-power parity (PPP), according to which exchange rates should adjust to equalize the price of a basket of goods and services around the world. For them, the basket is a burger … a McDonald’s Big Mac. The difference the disparity in price between Big Macs, and the actual exchange rate lets you know whether the currency is over or undervalued.
According to this measure (as of July 15th, 2020), the most overvalued currency is the Swiss Franc at 20.9% above it's PPP rate. In Switzerland a Big Mac costs 6.50 francs. In the U.S. a Big Mac costs $5.71. The implied exchange rate is 1.14, and the actual exchange rate is 0.94 — thus 20.9% overvalued. For contrast, South Africa Rands are the most undervalued (67%) with a Big Mac costing 31 rand and an actual exchange rate of 16.67.
Click the image below to see the interactive graphic.
The index is supposed to be a guide to the direction in which currencies should, in theory, head in the long run. It is only a rough guide, because its price reflects non-tradable elements such as rent and labor. For that reason, it is probably least rough when comparing countries at roughly the same stage of development.
It is not meant to be the most precise gauge, but it works as a global standard because Big Macs are global and it's lighthearted enough to be a good introduction for college students learning more about economics.
You can read more about the Big Mac index here or read the methodology behind the index here.
Posted at 11:57 AM in Business, Current Affairs, Food and Drink, Ideas, Market Commentary, Trading, Trading Tools | Permalink | Comments (0)
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