Category Archives: Economics

How Can Independents Help?

The former CEO of Starbucks is considering a Presidential run as an independent. Both major parties are paranoid about losing critical electoral college votes to an independent. First, let’s understand why he doesn’t think either party suits him. He hates Donald Trump so the Republican party is not an option. But what about running as a Democrat? He says:

“When I hear people espousing free government-paid college, free government-paid health care and a free government job for everyone — on top of a $21 trillion debt — the question is, how are we paying for all this and not bankrupting the country?”

These are straw men chosen to suit his preference, which is to be free of multi-candidate primaries. Apparently, all his views on social issues fit into the Democrat category so if he takes votes from anyone, they will be Democratic. The Dems are angry.

If he runs and wins a healthy 15% of the vote he will likely swing the election to a candidate that earns far less than a plurality. How could he contribute favorably to the outcome? On the day of each convention when they count the delegates it’s too late. What if on the week before the chosen party’s convention Schulz could make an appearance and bring with him his own delegates (proxies). He would then provide a huge boost to “his” candidate of choice for that party. He would step back into the darkness having influenced the election by virtue of pulling candidates toward his stated views. During the debates and the barnstorming, candidates will be aware that skewing their positions towards Shultz could yield a great big fat bonus at the end. At that time he would officially drop out of the race.

No one could accuse him of being a spoiler and he would make an imprint on a party which has representation in Congress. If he has received a huge chunk of the vote then he could also simply join that party right near the end and work to get the additional needed votes/delegates during the convention.

Either way, if he chooses one of the two major parties so they get the best candidate (in his opinion),then he won’t be a spoiler in the national election. This will take a dose of realism on his part. He must see that 25% or less of the electoral vote won’t become 40% in a three-way race just because the parties’ conventions are over. If Trump holds onto his 35% core and Bernie holds his 35% then Shultz will need to steal and grab some of both to get him across the line.

Ross Perot grabbed 19% of the vote in 1996, a great result for an independent with a squeaky voice, nowhere near enough to be a threat to Clinton but enough to hurt Dole (and Bush in 1992). So what did Perot achieve?

Absolutely nothing.

Why are we arguing?

I am a little confused by the obstinacy of the Democrats. Yes, a wall is a little old school. It’s too expensive and does nothing to stop permanent tourists – our real source of illegal immigration.  Is it the expense that so bothers everyone – the paltry $5.7bn Trump is asking for? Or is it simply the fact that Trump is the guy asking? My guess is that a majority of Americans are OK with the money, so why shut down the government over this? This is their litmus test for open-mindedness and Dems are determined to pass.

Has everyone been following the deeds and achievements of our troops in Syria? Are we actively fighting and killing ISIS militias? Where are our reporters on the ground filming all this? Perhaps I’m not watching the right nightly news. If Mattis had great victories to report wouldn’t we have heard about them? I don’t know anyone who is broken up about reducing our (invisible) army force by half. Americans don’t care about these kinds of Middle Eastern civil wars. Besides, Russia and Assad are both also fighting and killing ISIS too, right? Let them handle this.

How did Mattis’s resignation help (the Dems)? He was the cool general that everyone agreed was thoughtful and a good influence on Trump. In the end, he just looks like any standard issue war-loving military idiot. Why should I be on his side?

Then we have the efforts of Steve Mnuchin, a completely corrupt moron (married to a modern Marie Anoinette) whohas no idea why the market goes up and down even though he worked for Goldman Sachs and some sort of hedge fund for many years. He called a stock market press conference in the format of a pep rally. It achieved nothing – the market kept tanking. It wasn’t a terrible idea.  So what if it didn’t work?

We need to pick our battles so that when we make a case that the Trump White House is truly corrupt or malevolent people will accept the reasonableness of our position. Leave Mnuchin alone and stop hugging Mattis. (He was never on our team.) Trump has set himself up as the guy who destroyed all of Obama’s work. We don’t want to be defined as the party that exists solely to undo all of Trump’s.

 

The election is over and here they come!

Okay – the election is over and the Dems get the House back so they are ready to rumble. What’s on their top 10 list? – Why, illegal immigration of course. I’m sure Nancy is dying to cry foul. She’d like to put all these caravan people up at the Trump hotel. Does Nancy have a fully developed policy in hand?

  • We don’t know how to process all these Hondurans.
  •  We don’t know how to separate immigrants from asylum seekers.
  •  We have never shown the capacity to deport them back to their country of origin. Once done – how do we keep them there?
  • Are we to blame for their economic morass?
  •  What do we do with children?

The  problem goes much deeper than the logistics of handling new immigrants. As general Mattis sends in some troops we need to think how badly Bill Clinton screwed this up. Back in the 90’s Central (and South) Americans were set up by US trade agreements to produce and sell us textiles.  Then Clinton decided to give away special trade status to every Asian country.  Most developing world trade aid is just a form of welfare since we know they’ll never buy anything we make – they’re too poor) so this was his idea of being charitable.

  • In 1997 Central American production (Mexico, Honduras, Guatemala, and El Salvador) produced 19%% of our needs.  Asia (China, Vietnam and Bangladesh) also produced 19%.
  • In 2001 it was 22 to 17 (so far so good).
  • In 2006 it was 14 to 29
  • In 2107 it is 12 to 54%!

Quite simply we have allowed Asia to destroy countries that have far more political significance to us. Without work, their economies and societies melt down and their desperate people come here.  Who we trade with should be a strategic political decision.  We must be particular about who we buy our stuff from so we get the most bang for our buck.

All this reminds me of the Arab Spring where an ocean of overeducated Egyptians and Algerians wondered about with nothing to do but apply to graduate school and for government jobs. Choice #2 for these young people was ISIS. What are all those  20 somethings doing in Italy, Spain, and Greece  – same problem. China has all the capacity in the world to replace every laborer on the planet – at a lower cost. Even subSaharn Africans didn’t expect this.

“Free” traders have set policy that essentially forces us to take in Mexican and Central Americans as immigrants whose jobs “we” shipped to China/Asia. Mexico would be doing the same thing if it weren’t for cars and the corruption of NAFTA.

This is just another example of what happens when people use trade policy like they’re Santa with no consideration of immigration and factor price equalization.

Robert Reich should be the man that Trump sends to confront these desperate people.

What is the perfect amount?

Do you ever get the impression that we have gone as far as we can go in many respects?

  • We have overproduced digital phone apps.
  • We have too many ways to make a (real) phone call and only prisoners seem to make them.
  • We have too many poverty-stricken people in the world with no economic purpose.
  • We have too many academics and too many academic bureaucrats.
  • We have overproduced music so much that the most popular kinds have no melody.
  • We have so much (video) entertainment on our phones that there is no time to read and reflect. (Do people read books on subjects other than food?)
  • There seem to be a ton of people headed off to do jobs that aren’t that necessary? (like SEO managers) Aren’t there way too many car and truck drivers?
  • Didn’t social media advertising become saturated about 5 years ago? Do we really need to spend more $ on Google ads? What is the ROI?

It seems like years ago we really needed more reliable cars and better-sounding stereos – right away. We needed cheaper clothes, more reliable cars with better gas mileage, and more media options. We needed more than (plain) penicillin. We needed to get to the moon! (Do we really need to get to Mars?)

When we asked for new stuff, it usually came below par – we could see obvious areas for improvement. That meant more work for designers and manufacturers. Apple seems to have no clue how to make their phones better – and neither do I. If someone asked me for a features wish list in Excel in 1998 I’d have some ideas. I don’t know what would be on the list now.

Am I saturated in the world of consumer goods? Apparently – I never go into Best Buy … do I need a bigger TV?  My laptop is 3 years old and if I replaced it, the new one would look just like it. Do you enviously study the latest iPhone features? My Christmas list consists of replacement clothing items.

It’s not just that I’m old, though that’s a big part of it. My 20-year old children have terrible wish lists too. It leaves them saving for housing, transport, food, and vacation – the normal big four from history. (Borrrring)

Wasn’t it so much more exciting when there were other new things coming up all the time that seemed both necessary, and stimulating? We needed to get those people on the subway to work – there was a lot to be done.

Not anymore.

Weekend Musings

  • Please stop comparing historical “creative destruction” with our current problems. I can retrain a horse and buggy driver to be a cab driver (circa 1910) in about a day. I can’t teach a sales clerk at Macy’s how to write Python code.
  • Israel’s plan of loving all thing’s Sunni and hating all things Shiite is and always was a self-serving policy that will fail spectacularly. The enemy of my enemy is not necessarily my friend. Didn’t we all finally learn this during the 2nd Gulf war? How about this? – The fiend of my friend (Israel) isn’t necessarily my friend.
  • No, China has no idea how to transition from a small TIGER like , export-driven, economy to a fully diversified first world economic state. We fed it a few import tariffs and the wheels are almost coming off the entire corrupt state. It’s a dirt cheap offshore polluting, parasite fed by our purchases. Let us never forget that.
  • Renaming NAFTA is not an achievement. Neither is your assertion that you saved pre-existing exemptions for new buyers of health insurance –  because you failed to get it passed.
  • So far our giant corporate tax cut has given us exactly what we expected – soaring budget deficits, giant stock buybacks, no wage gains, no acceleration in hiring or training. Even the Repubs are too embarrassed to bring it up.
  • The stock market has been fed by two energy sources over the past twenty years:
    1. Low-interest rates
    2. Outsourcing and automation that raises the ROR on labor … They are both going away (for now) but we have fabulous stock buybacks to help transition us into a rather dull sideways or down market. No reason for panic if you’re long but no reason for optimism either.

The Patriot Tax

How will people handle a 10% increase on all Chinese goods (initially just $200 bn of them)? Will they run screaming from Walmart crying for armed rebellion? … or maybe they won’t notice that a shirt at TJ Max went up from $13.50 to $14.75?

Catherine Rampell (WashPo Oped writer) thinks this is a travesty as though we (Trump et al) have sinned against the one true American creed – consumerism. Why is it so hard to accept the idea that paying a higher price for some things can be in the national interest? It makes sense to have tariffs against trade criminals and to protect jobs even if it’s at the expense of the consumer.

My guess is that this 10% price increase will be a giant non-event. Economists may whine but people won’t get too exercised. The question is -will this experiment in domestic preference sustain itself through the next administration. It seems clear to me that since Trump raised the issue of Chinese trade crime many non-Trumpsters have recognized the validity of the case. Now they must deal with one of the appropriate ways to counteract it. If you’re against their subsidization of exports and IP theft then what would you recommend? You no longer get to whine about the inefficiency of tariffs without proposing an alternative.

We could set up a rebate for the poor or increase food stamps. We could/should exclude non-essential consumer items that will never be made in the US no matter how much of a tariff we apply – Haloween masks and cheap plastic toys. I’m after things like LCD screens for airplanes and antibiotics. I’d like to know that such things were procurable in the US in case our giant parasite gets testy.

In the long run, production adjustments will happen; prices will do their job but if the market thinks this is just a temporary Trump-only policy then nothing will be achieved. It’s true – a rollback will come along with a smug proclamation of how tariffs never work but If the reaction to the tariffs is diminimus then it makes it easier to leave them intact. It would also help if the tariffs came with a guarantee that the revenue was used to pay down the national debt and increase food stamps.

Then retracting them would be almost impossible.

Trumpism is Not Spreading.

The first reason why this is not true is simply because there is no such thing as Trumpism. There is no plan, no ideology, A man without knowledge of anything cannot be given credit for a strategy or a phenomenon. The Poles and Hungarians might prefer autocracy. Australians and Italians might want to reduce immigration. None of the people in these countries are voting for these changes because they are watching Trump on TV.

The entire first world suffers from three common problems:

  • The maldistribution of income,
  • Anemic growth of lower and middle incomes.
  • Poor participation rates and/or high youth unemployment.

Italy’s economy over the last 20 years has not grown at all! The Spanish youth unemployment rate is 33.8%. 29% of 15-year-olds in the UK come from new immigrant families and one out of three babies are born to foreign-born residents (2/3 in the city of London). Australia is in the middle of the longest period of low wage growth since its last recession in the early 1990s.

There are only two possible reasons for this global mess – automation and China. Automation reduces worker demand and outsourcing to China sets a global price for labor. It tells every manager – 1st world workers are not worth any more than Chinese peasants. In the midst of this, liberal politicians decided to do the right thing and let in foreign immigrants.  America let in an ocean of Hispanic people. Europe let in Muslims. When you’re feeling economically oppressed you’re not going to be generous to new arrivals unless they look and sound exactly like you.

Our common global parasite ensures a common 1st world condition. How could politicians become so out of touch with basic human psychology? We’ve decided to label this – populism, as though it’s a new socio-economic phenomenon.  Isn’t it logical to want to curtail immigration when wages are stagnating and the foreign-born population is at a 70 year high? None of this is local or national – it’s global. This isn’t about white supremacy – it’s about supply and demand.

This should be a battle between economists and open border liberals but the economists are hiding in the bushes. Maybe they’re outnumbered by the efficiency lovers who can never get enough cheap labor. Their absence has been filled in by the likes of Steve Bannon, Viktor Orban, and Jimmie Akesson. These are not necessarily nice guys but stupid open border fanatics who have never taken a course in economics have facilitated their rise. If we expect economically oppressed people to open their hearts to economically oppressed foreigners we are asking way too much. I doubt they would be open to a new flood of Canadians fleeing a natural disaster. We are too quick to judge our grandparents who closed our borders during the depression.

They were bad humanitarians but good (labor) economists.

Are Marxists responsible for Stalin’s genocide?

This may sound a little obscure but it needs to be addressed since it keeps coming up. As political rhetoric gets more heated it has become popular to say that extreme right-wing thinking will lead to another holocaust. Jordan Peterson is desperately claiming that naive millennial Marxists must take responsibility for all of Stalin’s and Mao’s crimes. This confuses me:

  1. Leftists detest income inequality. They may even propose a swing toward a Centrally Planned Economy (Marxism) as a solution. It can be shown that this is a terrible idea. It cannot be said though that a democracy run by industrial workers (“All Power to the Soviets”) has anything to do with starving farmers in Ukraine or working millions to death in Siberian Gulags. Mao starved his people in order to hoard grain to sell to Russia to pay for nuclear bombs. Where is that in Das Capital?
  2. Fascism is a tough thing to define but it isn’t necessarily the logical extension of extreme conservative thinking. Even if it were we have a variety of 20th-century fascist examples – Spain and Italy. They never engaged in genocide.  Neither deported their Jewish populations to Polish death camps.  Mussolini and Franco were not nice to their enemies but as dictators, we kind of figured they wouldn’t be. The problem is that Hume and Burke never said dictators were the way to go. What has any of this got to do with conservatism?
  3. Analogously we often hear religious people say that Stalin’s and Hitler’s atheism drove them to murder. I guess there’s a sort of Guidebook for Nonbelievers that says they have no beliefs except that murder is OK. In the name of believing in nothing, they condemn their citizenry to death(?)… or if they had followed Jesus they would be pacificists like Gandhi. Not even close.

Find me one conservative thinker who is in favor of ethnic cleansing. Then find me a Marxist who wants to set up a new government and murder all the capitalists. Can we stop this nonsense of using 20th-century similes when they make no sense? We need to take the good parts from both sides – that’s impossible if we associate either ideology with genocide. Let’s just agree that totalitarianism is a bad idea and leave it there.

If Trump starts to act like a dictator or seems to be unwilling to leave the oval office then bring on the 20th-century parallels!

Should we all be optimists or pessimists?

Steven Pinker, a Harvard psychologist and author of Enlightenment Now: The Case for Reason, Science, Humanism, and Progresszooms back and examines the “big picture of human progress” since the late 18th century, right around the time the Enlightenment Age kicked off. Pinker highlights the data on education, literacy, wealth, and longevity to make the broader case that life, is good and getting better.  He’s sort of the anti-Lester Thurow (circa 1983).

Global economic prosperity proves his thesis that science and reason have saved the day, but what if that prosperity is an illusion?

Pinker suffers from what I’ll call the jealous neighbor fallacy.  You are living on a street where all the houses are of similar value and design. Everyone has 1.5 children and a minivan. One day you notice your neighbor (Joe Blow) has a new Mercedes S550. You finally decide to confront him. You ask whether he got a new job or a huge raise. He tells you that nothing has changed, he simply leased the car with no money down. The dealer seemed more than happy to make the deal.

Then it gets worse – your other neighbor gets a new Tesla S, again all financed through the dealer. From that point on your wife and you wince a little as both your neighbors cruise around in high-class cars so everyone can see them. You feel like the poor people on the block. One day you go out to pick up your paper from the street and Steven Pinker is outside congratulating Joe on his financial good fortune.

The error that Thurow made was to never imagine we would borrow our way to faster growth. Ronald Reagan got us going and George Bush Jr. took it to a new level. Pinker doesn’t pay attention to the balance sheet – all he sees are the near-term benefits.

These numbers are extraordinary. This debt has allowed us to both stimulate our local economy but also those of our trading partners. They lend to us and we voraciously buy all their crud. We have lifted all boats which is why Pinker’s global averages look so marvelous. But that’s not all. Other countries have followed our lead just like neighbors copy neighbors when it comes to borrowing to buy new cars. Here’s what China has done:

Every time you hear Larry Kudlow brag about GDP growth you must balance it against the giant annual deficits we are currently running – 10 years after a recession, precisely when we should be running huge surpluses. Do we feel richer? Yes. Crime is lower, longevity is rising (sort of) and global poverty has fallen (mainly due to Chinese growth). If this were being achieved by virtue of rising productivity then we truly would have much to celebrate. (It’s not)

Unfortunately, if we look into the future using Pinker’s time frame this doesn’t end well.

How to Win a Trade War

I believe we have been in a trade war with China for 20 years. They have been fighting every day and gaining ground. We have been acting like Stalin at the beginning of Operation Barbarossa – mired in disbelief and incompetence. It was so much easier to think China was just giving us what we wanted (cheap consumer goods) without any cost to our own economy or security.

Thanks to Trump many more Americans and even economists are recognizing that we have been taken for a ride. There are confessionals everywhere; Few who now defend China in light of such public documents as Made in China 2025. This seems to have sent Trump and his team into a sort of frenzy, attacking every country as though it’s China. He even attacked a country that we have a trade surplus with (and there aren’t many of those) – Canada!

Memo to Trump: How to Conduct a Trade War

  1. Set an example by attacking the leader of global trade crime – China. (Let’s give a big shout out to Marco Rubio for this bill.)
  2. Clearly explain why it has been singled out so others know what the new rules are.
  3. Attack transhipping to prevent new tariffs against China from being circumvented.
  4. Pick a favorite country to use as an example of good conduct – one that has a deficit with us ideally and who we can trust under any situation to deliver needed goods in case we have a (military or trade) war. Canada or England will do. Celebrate their fairness.
  5. We must use tariffs and subsidies in case the spinoff effects of higher prices are too costly. Some combination of the two makes sense with steel, solar panels, and LCD screens.
  6. Make sure critical inputs like rare earth metals and pharmaceuticals are stockpiled or brought in only from friendly sources.
  7. Someone call up Peter Navarro and tell him you can’t win a war without allies.

Trump is right about one thing – every country in the world has been targetting debt-loving, consumption-crazy Americans. We have been in love with policies that favor consumers over producers/workers for thirty-five years.  It is a shock to wake up and be told that something you buy or use as an intermediate good in your business may go up in price. For every other country in the world, that’s a normal day. Everyone (except in America) pays extra for something, knowing they do so to grant a higher wage (or social service) to a neighbor. That’s why they accept higher tax rates and/or a VAT.

Surely Americans can see the absurd place this has gotten us – we have a (fake) unemployment rate of 3.8% and wages are barely keeping up with inflation. There are a ton of unfilled jobs out there – at Chinese wage rates! Corporate outsourcers have reset the price on domestic labor. Unless we break with the global trade parasite we shall continue to circle the drain with huge tax shortfalls and an opioid epidemic.  The war has begun and we must all be drafted to pay something for our safety, our sovereignty, and higher wages. We should accumulate allies to fight with us – sing along with me: Oh Canada (… or God Save the Queen).

Let’s not continue to act like Stalin in 1941.