All posts by Chris Evans

The Populist Scam

We have had populists rise to the top of the American political system in the past. In each case, we saw a relationship between the man and the message. Take a look at the style and wealth of Eugene Debs, William Jennings Bryan, Henry Wallace, and Bernie Sanders. Their message was clear and no one doubted their sincerity.

It became hard to understand the commitment of a real estate millionaire to populist policies such as trade tariffs, more healthcare for the lower and middle classes, lower levels of immigration and less international engagement. Trump’s believers bought into the inconsistency because the man seemed so different from the standard polished lawyers who competed against him. They couldn’t be trusted/believed. Trump spoke his mind and had no history of flip-flopping on policy because he had never been a policy maker.  The fact that his promises were altered to suit his audience never shook their faith.

Trump has abandoned all his populist positions in record time:

  • Repeal and replace became – dump coverage for all those middle-class voters.
  • China (and India and Mexico) were not declared to be currency manipulators as promised, and his talks with the leaders of Japan and China seem to be warm and fuzzy. Wasn’t China our economic archenemy?
  • The tax bill that was to include a Border Tax Adjustment seems to be dying as the retail industry gets its way.
  • No NATO countries are being asked to contribute more or raise their level of defense spending.
  • NAFTA cancellation has become NAFTA renegotiation – light.
  • Where’s the wall?

He seems to need love from whoever is in the room more than the satisfaction of actually doing anything he promised. There are always far more people in the room who favor corporate interests over those of the people. That was supposed to be the problem he was going to change. As we watch the demise of Steve Bannon and the rise of Xi Jinping and Jared Kushner we are watching the logical failure of a millionaire who never believed in the cause.

You can tell by how Bernie Sanders combs his hair, that he is a true believer. No one can doubt that when confronted by Wall Street lobbyists he would be deaf to their remonstrations. Trump says he wants to make deals. Did it occur to anyone that blowing up a trading relationship is the opposite of a deal? China will always offer us a “good” deal. After all, they just want to sell us cheap stuff. It will be far easier for Trump to take the easy path.

Inertia is powerful.

The question then becomes – when do his supporters realize they have been had? Do they maintain hope because of his unconventional (moronic) approach/appearance? How will he defend his failure to deliver on anything other than a bombing raid in Syria which is exactly the sort of thing his voters really don’t care about?

The conventional forces of the Washington political quagmire are taking hold – they have sucked this neophyte into their black hole of dysfunction and failure.

What is the constituency of an interloper?

Donald Trump entered the political realm as a self-proclaimed pragmatist with no perverted loyalties, free from the corruption of Washington. He sold us on the idea that as a businessman he would get things done. He then chose various issues somewhat at random based on (presumably) populist outcry – the chanting of crowds. There were so many contradictions and absurdities that we could never trust his sincerity or commitment to any of his promises.

Now that he is in office we find that many of his ideas – a Mexican wall, punishing trade cheaters like China, and healthcare for all (but not Obamacare) are falling by the wayside. Since Trump is not a politician and not (really) a committed party member he can take or leave various policies as it suits him but that causes a natural problem. Who are his true-blue followers that will stick with him through thick and thin?  His voters were with him for what he was handing out. Some media members may stay loyal (Sean Hannity) because he’s good for ratings but everyone else is now figuring out that he will betray you – eventually. The wall will never happen and your healthcare may be taken away – still OK? How about a budget with no improvement in the deficit and a giant increase in the defense department budget? Did you really expect to see new trade deals and manufacturing jobs?

After Trump abandons all of these promises and gets buried in Twitter scandals, his voters will melt away like an iceberg in Jamaica. Populists will have to go back to Bernie and Repubs will fall back on Paul Ryan or maybe Mike Pence. Trump will find himself naked and afraid – friendless and mocked.  Steve Bannon may cling to power for as long as he can but a better test will be what all the (cabinet) oligarchs and generals will do when they see that their reputations are getting destroyed. So far Trump seems to think that following the extreme right wing of the Republican Party and abandoning his populist crowds will be safer. It won’t be.

Donald Trump is a political interloper who succeeded by promising everything and lying when asked to reconcile those promises. He doesn’t have the backing of a green party, the socialists, or the libertarians. He is an atheist fighting for the religious right on abortion and LGBT issues. He seems to like single payer healthcare but is (sort of) supporting Paul Ryan’s plan to take away coverage for 24 mm people. His only hope to succeed is to stick to his brand of populism. That means more, not less healthcare. It means new trade deals and new high-paying manufacturing jobs. It means big cutbacks in immigration. If he gets none of this done and only delivers  Ryan-style tax cuts for the highest earners or Pence-style destruction of Planned Parenthood then 2018 could be a mess for the Repubs, to say nothing of 2020.

There is one way I get this all wrong: We find out that the Republican party is a rotting corpse full of racists and moronic Ayn Rand followers. They have no coherent vision of the country or of social and economic policy. Since they have no plan they’ll stick with Mr. Crazy in the White House because that’s all they’ve got. By their tortured standards, he is the most electable in their party so they use him to pass whatever laws they can think of for two years – until the voters come back with a new verdict.

Does immigration produce economic prosperity?

There seems to be a popular narrative that says that immigration acts as a sort of economic engine. People arrive, many without skills, and get trained. They work their way up feverishly. They use their new money to educate their children. The next generation is entirely American. They know little of their parents’ homeland and have no desire to move there. They see that they would have never have been so well off if their parents had not emigrated.

The twentieth century provides a sort of glorious history with regard to labor empowerment and enrichment as long as you can live it in fast forward by reading a textbook and avoid one critical fact.

Hordes of people arrive in the 19th century and live horrible lives in poverty and misery while robber barons become rich on the back of labor’s woes. By 1910 everyone understands that the labor glut is killing any chances for labor advancement. Teddy sets up an arbitrator to rule on the coal strike of 1910. The union/labor movement is born. 

Before we continue, allow me to inject an irritating fact:

immigration

As you can see the percent of foreign born people peaked in 1910 – at the exact same time as the labor movement was born. What allowed it to succeed was the steady decline in new cheap foreign labor – until 1970. I’d like to continue my history of economic success and upward mobility by virtue of innovation, foreign wars, government stimulus and the accumulation of skills and education by the great American workforce but, unfortunately, this chart has ruined the narrative.

All those factors put the wind at the backs of labor. When we virtually stopped immigration we saw wages grow with GDP and productivity. An economist must make a hard argument to claim that everything will be fine this time just like it eventually was for our great grandparents in 1910. They have to argue for foreign wars that kill lots of people in countries we trade with and we need a sort of reverse industrialization where labor is needed to boost production rather than machines. If you can’t see either of those two things happening then there is only one way labor recovers from the hole it’s in – we must stop immigration or at least slow it to a trickle. (Need I point out that median wages peaked in 1974?)

Immigration by Another Name

But what about all those poor desperate people who just want a shot at the American dream? (You cry.) I see examples of them every night on the news. Well, there is another answer. Foreign immigrants come into the country in another way: They trade their way in. If we have no tariffs with China then we essentially allow every Chinese peasant to work here. There are hundreds of millions of them. If you want to help a poor Guatemalan immigrant you have to stop buying goods made by that Chinese peasant. Think what the chart would look like if I added in all those Chinese peasants.

This is, of course, nothing more than an argument based on supply and demand. If you expect to have a system that will benefit US labor then you have to have less labor. If you are an open border person (such as Mayor de Blasio) then you have to live with this:

Corporate-Profit-Margins

Once again, I must point out that labor’s share peaked in the 1970’s. Maybe it was too high? It couldn’t last and it wasn’t fair that an hourly worker at Ford without any education at all could make more than a college professor. True. Foreign competition and corporate outrage broke up union power but did we want it all to be completely destroyed so we could go back to the gilded age?

When I hear Silicon Valley whining about immigration bans I have no sympathy. Let the price rise and a labor shortage ensue. Let them train people and push them up the system. Sorry Mr. Zuckerberg, your costs may rise a little and your next useless feature may get delayed. Is there a foreign competitor you are worried about? I don’t hear China whining about not being able to hire Indian programmers. They buried and replaced Google and their economic growth seems to be unaffected. The arguments that begin by decrying our prospective loss of competitiveness are absurd and self- serving. If you repeat them then you have become a dupe for CEO’s desperate to pad their own pockets.

Alas, Trump the idiot has stumbled upon the correct policy of America First = less immigration and a tax system that favors “insourcing”. Beware of malevolent morons executing good policies. The policy may end up being desecrated.

A Reply to the Madison Initiative

Last week I went to a talk by Larry Kramer, a lawyer at the Madison Initiative – a subsidiary of sorts of the Hewlett Foundation. I struggled with his balanced assessment of blame regarding the dysfunction of Congress so I wrote him this letter as a retort:

The Problem: Congressional Dysfunction

The Madison Initiative: The objective is to find solutions to congressional dysfunction so that government works as it should for the benefit the country as a whole. You argue that unwillingness to compromise has spread evenly throughout both parties and therefore we cannot blame either party for this dysfunction.

This is a false assumption/belief.

If we can show that one party has moved significantly away from its traditional position in the political spectrum, then it naturally follows that both parties will become unwilling to compromise. For example, if the Democratic Party becomes a Marxist party, it will dig in and only accept legislation that promotes or advances its new radical ideology. Similarly, the Republican Party will find this new agenda to be completely unacceptable, so it too will try to veto every Democratic initiative. The fact that both have become intransigent is not a sign that both are equally to blame. One has completely stepped away from representing the American people and so it is solely to blame.

The Republican Party over the last 30 years has become dominated by media ideologues. The Democratic Party has no equivalent set of influencers. There is no one on the left as extreme as Michael Savage or Rush Limbaugh on the right. It is an easy task to show that the Republicans have moved to the right in lockstep with the demands of their entertainers (http://wapo.st/2kUj5mK). The Democrats have responded appropriately with intransigence.

This means we have a new task. If we are to improve functionality, then we must make sure that congressional representatives are voted in that represent the views of the population [more or less). The problem with a radical party is that it may pass laws that are completely out of sync with the beliefs of the country (See NSDAP in Germany) even, or especially when, they are elected in disproportionately large numbers.

Solutions:

  1. The Democratic Party could finance a more extreme left wing [radio or Internet] media program to energize its own base. This may help offset the influence of “hate” radio.
  2. A legal battle must be made to eliminate Gerrymandering at all levels of government. Proportionality is critical to any democracy. (I shall dodge Hamilton’s apprehension about mob power.)
  3. Term limits must be enacted. This will prevent old and famous politicians from gathering too much power.

Final Thoughts

The intransigence of Democrats during the Bush II years was an appropriate response to a government that was engaged in radical policies. One would expect and demand such inflexibility from the opposition. It does not prove that Democrats are equally responsible for dysfunction unless you can show that Bush’s wars, support for torture and warrantless wiretapping (to name 3 easy cases) were well reasoned and consistent with American values.

Greater proportional representation may not prevent stalemates. These will still occur when no significant polarization exists on a specific issue in the voting population. The goal must be to prevent majority power accruing to a radicalized few – that is far worse than dysfunction.

History is replete with examples.

Choose Your Battles Wisely

The Democrats are getting a lot of content to work with. Unsurprisingly Trump is lying and setting policy recklessly with no proper thought. His minions are lying to show their loyalty (welcome to 1930’s Russia). Some policies will be dangerous or absurd and others are populist in nature and should be endorsed or at least left alone.

Issue #1 The Mexican Wall

Enforcing the US southern border is logical and appropriate. To argue that it shouldn’t be protected is to be in favor of open borders. That puts you in a tiny minority, completely out of the mainstream. You will win no votes by arguing to let everyone in, in a sort of immigration free-for-all. You can say you object to the price but now you are changing the conversation to one about fiscal responsibility. Almost no one seems to care about that especially Dems as they allowed a $600bn deficit to go on and on and on under Obama.

Issue #2 Immigration Restrictions and Reductions

We have a global labor glut and wages have stagnated for 30 years. How are you going to solve that problem by allowing everyone in or raising the number of entrants every year? Humanitarian examples are easy to find but they make for bad policy. Why are there so few parallel anecdotes about suffering US workers? Underpaid or unemployed American workers will not vote to save every poor family in Somalia. If you want to win, Mr. Democrat, you need to start promoting policy that helps Americans, not Iraqi’s.

Issue #3 Save Muslims from discrimination

Everyone hates discrimination but no one relates to Islam. We associate it with Jihad and Sharia law. It doesn’t support the separation of church and state, or the rights of women, apostates, atheists and homosexuals. I stand with mistreated people from Afghanistan but I sure don’t stand with their religion. Democrats who want to wear hats in favor of Islamic solidarity will not win any converts. Repubs who favor Christian over Muslim immigrants may.

Go After These Issues

There are some big fat juicy policies that will grow the Democratic party base – the repeal of Obamacare, the cozying up to Russia, crazy tax policy that may blow up the budget and benefit only the super-rich. Dems will be given many gifts. They need to choose the right battles that make sense and win them more votes. They must avoid the failed obsessions of the past.

If Trump wants to promote a populist item like Made in America then Dems must get on the right side – even if it makes them sick.

Propaganda that binds us together.

At school we all learned about the military leadership of Washington, the morality of Lincoln and the resilience of FDR. Every Presidents’ Day we can see clips of Kennedy’s and Reagan’s speech in Berlin. As time passes it’s easier to mythologize our old leaders. Jefferson becomes a genius. Teddy is rambunctious and indefatigable. Old film presents every president as well intentioned and sternly committed to leading the world, not just the United States. We are told how we ended the WWI quagmire. We saved England and France from Hitler. Our economic might destroyed the Soviet Union in the cold war.

All Americans are joined together by this history and by the mythology. Every country has a version of it. French men grow weak as they recall the glorious victories of Napoleon. England revels in stories of its benign empire. Italy lays claim to ancient Rome and Russia swoons over Peter The Great. Socialists, communists, and fascists are all united by these stories. A limousine liberal in Manhattan has the same ingrained images as the family in Duck Dynasty.

We can discuss how twisted the truth is from the history in our heads but the video snippets linger. It’s as though the nobility of FDR proves that we have a superior system with exceptional people so we too can be exceptional. All of this history provides us with a sort of How to Behave if You’re President guidebook. We have so many examples to work with that we can’t help but construct a model President with regard to demeanor, maturity, and placability. These are the men who kept it together while the world or the country struggled.

Half the country has now selected a President who plainly chooses to not behave presidentially. He tweets his petty grievances every day. He brags and insults. He calls Democratic senators “clowns” and concerns himself with the ratings of his TV show replacement.   What I am confounded by is how his voters reconcile this behavior with past presidential behavior they have ingrained in their memories. If they accept him as a good change then they must reject the nature of all his predecessors. Can people suddenly look at the Ich bin ein Berliner speech as embarrassing, – delivered by a philandering liberal who should have been home, cutting taxes?

This is akin to suddenly rejecting your birth religion because someone you liked called Jesus, Mohammed or Moses an idiot. You have to abandon everything you were taught in bible school in one fell swoop. I think it’s more likely that Trump voters believe his behavior is temporary and once he is in office he will conform to historical norms.

If he doesn’t then either:

  • their (our) memories of his predecessors will destroy his popularity or
  • cognitive dissonance will kill their love and belief in our old Presidents and the office itself.

Can you please stop saying this?

Sometimes if you repeat something enough, everyone accepts it as the truth. “Obamacare is a disaster” for example. Really? How does insuring 30 million new people represent failure? If rates have gone up elsewhere because Congress failed to fund the program then that’s not the fault of the program. Here are a few more of my favorites:

Illegal Immigration is no longer an issue – after all, border crossings from Mexico have dropped to zero.

Yes, border crossing are down but does that mean that illegal immigration has declined? What if people are simply flying in as tourists and never leaving? Here’s some data from the Migration Policy Institute:

immigrants-to-us

The sum of all F1, H1B, and E8 visas granted has grown from 250,000 to 700,000 since 1992. The average is about 400,000 compared to total immigration of approximately 1 million/year. The popular revolt against massive immigration is not based on mythology. The data supports the populist argument that at the low end of the pay scale job competition is growing enormously by virtue of illegal immigration. Building a wall will not fix the problem.

Manufacturing plants will never be built in, or return to, the United States.

The New York Times did an excellent feature on the huge list of subsidies China offers to Foxconn so it can make and export iPhones. Is it unreasonable to believe that we can compete on an even playing field? US workers rank third in global productivity behind Luxembourg and Norway which are not exactly normal cases. We are three times more productive that Mexican workers for example. Comparisons to Chinese workers is hard because the data includes parts that are outsourced and local subsidies such as the ones mentioned by the NY Times. The reality is that manufacturing plants are being opened (and closed) all the time in the United States. I don’t expect a new iPhone plant in the US to look anything like its Chinese counterpart. Automation would be a much bigger component but higher wage jobs would be created as would jobs for security guards, sanitation workers, and hair cutters. Did I mention that R&D follows plant location?

The question we must ask is what would an iPhone cost without all those subsidies? We must have an industrial strategy to beat those foreign mercantilists who are already doing everything they can to destroy our industrial base. Then we can compare costs.

Israel is one of our closest allies.

What does it mean to be a close ally exactly? Israel advocated for our invasion of Iran. It chose to talk to the political opposition rather than President Obama. Does it support our diplomatic efforts in the Middle East?  Israel says that simply being a democracy is enough to earn love and everlasting aid. Is it? Being a close ally means doing something for us that does not help them or may be contrary to their interests. I seem to have missed those actions. Maybe they just have a terrible (American)  public relations department. Maybe there’s no such thing as close allies in such a Realpolitik world.

Germany needs Muslim immigrants since they have no population growth.

This is repeated right after it is mentioned that allowing in oceans of people from Syria and Eritrea was an act of mercy. Yes Germany has a very old population but are there no unemployed people in the Balkans or Spain? Wouldn’t it be easier to provide German lessons to Italians than to illiterate Syrians? What would it cost Germany to go on a worker hunt among the PIIGS where they offered transportation, subsidized housing, worker training and language courses? I’m sure it would be less than what they will pay to inhale a vast collection of Eritreans and Afghani’s. Did I mention that the unemployment rate in the PIIGS for 20-30 year-olds is above 25%? Bringing in culturally insoluble people to lower your average age is a multi-generational error.

 

 

 

The Death of Capitalism

The last time capitalism was under attack was during the Great Depression. Without proper bank regulation and government stabilizers like unemployment insurance, people began to question its efficacy. Postwar growth ended the conversation. The failure of the Soviet Union discredited Marxism. It is hard to see central planning as a viable alternative to free markets. It’s not so hard to see an economy with more government involvement. The major death blow to capitalism is globalism. We were told that it would deliver four things

  1. Additional foreign capital for investment
  2. Additional technology and innovation
  3. Additional consumers to buy (our) goods
  4. Additional workers to produce all these new things.

All we got was #4.  It turns out we didn’t really need more capital. We have more than enough available to us through our own capital markets. New technology and innovation seem to largely come from Silicon Valley rather than from Shanghai Or Mumbai.  All the new consumers turned out to have virtually no money [relatively speaking] so they couldn’t afford to buy anything that was made in America. That left us with all those additional workers who were eager to make goods for us –  at a much lower wage.

If you add new capacity with new workers but no new demand then there is no reason to invest in new plant and equipment, especially in the United States [or any other developed  country] . Excess corporate cash is used instead to either buy out competitors or to buy back stock.  The result is an ever greater amount of concentration in virtually every industry in the United States from energy to finance.

Every economics textbook has been rendered quaint. How do professors discuss “perfect competition” when there is none. How do they discuss free trade when none of it is free? The rise of populism and the growing absurdity of policies born from theoretical economics is not just a coincidence.

If Thomas Friedman is right and there is no going back then we shall descend into one common global living standard. There will be no difference between a laborer’s standard of living in Delhi and that of a worker in London or Cincinnati. Education will add less value over time as robotics renders it pointless. Owners of capital will roam the earth avoiding taxes like golden Gods. All the luxury condos in Dubai will sell out.

It turns out that globalism ate away at the ability of a state to control the  excesses of capitalism. Worker protections, pollution limits, and minimum wages are only possible if we reconstruct state sovereignty. That’s possible with protectionism and isolationism. Western populist movements seem to have stumbled on these policies without seeing the wicked invisible pile of unwritten import restrictions on Chinese imports, and the absurdity of the Ricardian trade model. They are lashing out and liberals feel their pain but defend their targets. Every tortured liberal economist who celebrates the rise of China also  laments the horrible job prospects of his children. They must pick a side.

Adam Smith knew all about the flaws of capitalism. The current crop of defenders sound more like plutocrat sycophants. Everyone knows it has major problems but few seem willing to accept the obvious cures. Must the populist revolts from below become violent before our policy makers accept that changes need to be made? The people of Europe seem to understand that the Euro is a failure better than their governments. Rural Tennessee voters understand that trade with China is deleterious while the entire Democratic party has its head in the sand. We have allowed the idea that “capitalism is a perfect model”  to spread because we love the theoretical model.

Unfortunately the model and our reality are completely unrelated.

Is it honorable to serve?

We have watched a parade of candidates prostrate themselves before our future king, desperate to get a position in the new court. When the more normal or decent among them is asked how they feel about working for a person they openly denounced, they tell us they must think of their country first. ” It’s the honorable thing to do.” Is it?

This is rather easy to resolve. What if the worst moron or tyrant were elected? Should we try to get involved to offset his malevolence? Let’s say we succeed in our little area. Perhaps we provide good economic advice or we help foster a new diplomatic relationship with a former enemy. The credit for all that would go to the tyrant and would help him achieve his other malevolent goals. Great, the economy is humming along. Now he can give tax breaks to friendly billionaires or spend the money on bombs. If we negotiate a new peace with country A, he can invade country B with less or no risk.

Who remembers Dr. Hjalmar Schacht, Hitler’s economic minister? He performed something of a miracle by stabilizing the disastrous economy after a brutal case of hyperinflation. The rest of the world was in the midst of the Great Depression. Wow. All this work facilitated the rearming of the country. Schacht served the people well and the tyrant benefited.

Would the Vietnam war have continued if everyone in Johnson’s cabinet who knew about the scam in the Gulf of Tonkin had resigned? What if Colin Powell had resigned and admitted he had been conned by the CIA and made to lie by the administration? Did he help his country by staying the course?

The worst excuse is to argue that someone else will do it if you don’t. Let some other corrupt sycophant take the job. His failure means the tyrant will fail faster.In the end the new king won’t thank you anyway. He thinks every win is his work. Did Colin Powell retire with dignity? Did Robert McNamara?

In the end good people will never change or improve the idiot king. They are far more likely to be dragged down by him.