Archive for the ‘Economics’ Category

Bitcoin: a solution in search of a problem

November 12, 2018

Since coins are my business, perhaps I should discuss Bitcoin.

It’s a “cryptocurrency” or digital currency. Or supposed to be. Existing only in cyberspace but worth money of the more conventional sort. It has a whiff of underground rebellion, breaking free from the system of government-run money supply — and all its associated regulation. The idea is to make transactions untraceable by snooping government. Thus, Bitcoin payment has featured in some shady doings, notably the “Silk Road” venue for, mainly, illegal drug trades, and in ransomware attacks (where bad guys hack into your computer and lock you out unless you pay them).

This Satoshi Nakamoto denies it

How does Bitcoin actually work? Such a system’s main challenge is to prevent the equivalent of counterfeiting. People spending Bitcoins they don’t own, spending the same coin twice, etc. Bitcoin’s solution is what’s called a “blockchain,” invented by a mysterious, probably pseudonymous “Satoshi Nakamoto,” who has since vanished. A blockchain, or “distributed ledger” is a kind of database which isn’t centrally controlled, but accessible to everyone, such that when a new transaction is recorded, it cannot thereafter be altered. Thus every Bitcoin transaction ever occurring is indelibly encoded into the blockchain.

Bitcoins are created by “mining.” This entails beating other punters to the solution of a complex mathematical puzzle requiring vast computer power, the winner garnering a reward in fresh Bitcoins. That serves to limit expansion of the “money supply.” In fact, it’s ultimately capped at 21 million coins. Mining Bitcoins consumes so much electricity that this has become a real problem for power supply in areas where miners locate (usually places with low electric rates).

Bitcoin’s value started at nine cents on July 18, 2010. With much fluctuation, it topped $19,000 in December, 2017, then fell by about two-thirds.

That huge run-up in value prompted numerous copycats to jump in with their own “cryptocurrencies,” introduced via “initial coin offerings” (ICOs), mimicking “initial public offerings” for securities. But they aren’t shares in a business or promises to pay (like bonds). They are only worth . . . well, what the market decides they are worth. Not much, it often turns out.

But what makes a Dollar worth a Dollar? A tautological question. Writer Yuval Noah Harari likes to call this a fiction kept aloft because a lot of people believe it. You accept a Dollar as payment because you expect you’ll be able to similarly spend it. But that web of expectation is its only value; you actually can’t take it to the government and exchange it for some commodity of tangible value, like gold. (And what makes gold so valuable, except our mutual understanding to so treat it?)

Anyhow, that ready universal acceptance is what makes a currency a currency; and cyptocurrencies singularly fail that test. A currency must also be a store of value, and the wild fluctuations in cryptocurrency prices fail that too. Nobody wants to accept a currency that could lose half its value in a short time. (Of course, this does happen occasionally with national currencies, like Venezuela’s right now — a huge economic disaster.)

Add to that the lack of what might be called consumer protections. The cryptocurrency world is rife with fraud and sharp practice. Most ICOs are really nothing more than scams.

A lot of people made a lot of money on Bitcoin; a lot of people lost their shirts. The reality is that Bitcoin has become not a currency but, mainly, an object of speculation, which is not at all what “Satoshi Nakamoto” had in mind. And the fact is that Bitcoin, after all, has no objective value that can be ascertained. The mining process is costly, but that expenditure does not somehow confer intrinsic value on the results. Nobody will value a Bitcoin based on its creation having entailed solving an abstruse mathematical puzzle.

Indeed, why it should have any value at all remains a salient question.

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Richard Wolff in sheep’s clothing, on capitalism versus socialism

September 14, 2018

I heard Richard Wolff again on “Alternative [left-wing] Radio.” He’s the “Marxist” economics professor whose LOL take on first class airplane seats I wrote about. Wolf saw them as though created by God but unfairly handed out by dastardly airlines to rich folks, forcing plebeians to suffer in coach. In actuality, the rich subsidize the rest. That’s how airlines make their money. Without milking richies via vastly overpriced premium seats, they’d have to charge coach travelers far more, which wouldn’t fly — literally.

Wolff couldn’t see that reality. But he is a glib talker. His latest was on capitalism versus socialism. He thinks capitalism’s badness will cause socialism to triumph.

A chief theme was “socialism” getting a bum rap because people don’t understand it. This is part of the effort to sugar-coat socialism, making it seem innocuous — a wolf in sheep’s clothing. (We saw this with the Bernie campaign.) It’s the trope that if you like public roads and libraries and fire departments, etc., anything government does, why, that’s socialism!

Except that it isn’t. Providing necessary services that a free market cannot (at least not well) is just any government’s job. Socialism instead is government substituting for (and disallowing) a capable free market.

Now, if you think that’s a good idea, fine, try to persuade us. But socialists must doubt its persuasiveness, else why do they constantly hide what they really advocate, under false camouflage about roads and fire service?

Richard Wolff-in-sheep’s-clothing epitomizes this, again saying people misunderstand “socialism.” He repeatedly mocked the idea of any association with Stalin’s crimes. He stressed that “socialism” is not limited to any single categorical definition. But did he ever actually say what it does mean?

Nope.

But, talking about “capitalism,” Wolff did exactly what he criticized — painting it as one limited thing — which, typically, was a gross caricature.

I was struck by the contrast with a book I happened to be reading, Relentless Revolution: A History of Capitalism, by historian Joyce Appleby.* Indeed, its key theme is that “capitalism” has been not one discrete concept but endlessly flexible, adaptive, and evolving, with vastly varying iterations — its great strength.

This is clear from the first great book on the subject — titled Capital — by Karl Marx. I will not deride Marx as a fool. He was in fact a brilliant thinker, observer, and analyst, who had some important insights. But he was fundamentally wrong in predicting capitalism’s future. Marx saw an “iron law of wages” always pushing them down to bare subsistence, just enabling workers to stay alive to produce the golden eggs for the capitalists, until they’d revolt. Marx did not imagine the mass affluence capitalism (and the associated industrial/technological revolutions) would bring forth. Even amid all today’s lamentations about inequality, and capitalism’s supposed injustice, the fact is that workers in industrialized societies were able to gain a large enough share of the economic pie to give them living standards unimaginably cushier than the bare subsistence Marx posited.

That’s because the pie has grown so spectacularly. And because of democracy. “Democratic socialism” is really a contradiction in terms because the two ideas have proven in practice to be fundamentally incompatible. That’s due to socialist systems concentrating so much power in government, whereas free market societies distribute power widely. Socialism is not the antithesis of fascism or communism. All three have the central idea of valorizing the collective over the individual, thus being inherently coercive and repressive.

No type of society or system will deliver justice and equality free from the depredations of people who will always try to exploit it for their own advantage. That’s certainly been true in all socialist or communist systems, wherein some individuals always amassed great power over others — using the machineries of the state and its monopoly on violence (legitimate in free societies, but not in others). A free enterprise system at least does not allow that. Instead, there you gain advantage by (in the main) creating value others voluntarily pay you for, making society as a whole wealthier. That’s how Steve Jobs, for example, got so rich. It’s how the whole industrialized world — including its workers — got so much richer than Marx foresaw.

Richard Wolff (Yes, socialism IS for dummies)

Such prosperity has never been produced by socialism. China is a very instructive case. It has two economic systems functioning side-by-side: a socialist one of state-owned firms, and another of very free enterprise. The latter runs rings around the former. It is the source of China’s phenomenal economic advancement, lifting hundreds of millions out of poverty in the last few decades.

* She’s no right-wing free marketeer; plenty critical of capitalism’s negative aspects, especially environmental. Appleby is often a trenchant observer, but I can’t let pass how many annoying bloopers I noticed. Like, “Ingenuous people found a new way to exploit electromagnetism.” Really? I thought that was disingenuous.

The Trump Tax on cars

September 6, 2018

NAFTA was a bad deal, the worst deal ever, sending jobs to Mexico. Our imports exceed exports, a bad thing. Trump’s tough talk of tariffs against Mexico made them give us a better deal. A big win. So much winning!

That’s the Trump story. Every word is a lie, including “the” and “to.”

NAFTA reduced trade barriers among Canada, Mexico, and America. This enabled Mexico and Canada to produce and export more — thereby becoming richer, and hence a bigger market for stuff we produce. (After NAFTA we export more to Canada and Mexico than we import from them.) Low production costs in Mexico enable Americans to buy stuff cheaper, and thus to buy more. Which creates more jobs — more than the ones lost to Mexico. That’s how free trade makes everybody better off.

That’s Economics 101. Which Trump flunked. (He got rich as a con artist.)

But isn’t Trump’s new deal with Mexico better for America? No, it’s worse — and worse for Mexico as well. Mexico agreed to it because the Trumpian alternative of full punitive tariffs was worse still (and Mexico’s incoming and outgoing presidents both wanted this issue resolved before the handover).

Cars are the main target. Trump’s deal will make Mexican car production costlier, so more production will occur in America. Good, no? No, because North American car makers don’t compete just against each other, but against the whole rest of the world. Making North American car production more expensive makes it less competitive against cars from all those other countries. And Trump’s idiotic trade policy raises the costs of not only Mexico’s car production, but our own. Cars use a lot of metal, and tariffs on metal, like aluminum, raise prices for it. Surely a plan for killing both U.S. and Mexican jobs and making us all poorer.

We don’t know yet how things will wind up with Canada. But meantime it’s estimated that Trump’s “great deal” with Mexico will add over $2000 to the cost of your next car purchase. Call it the Trump MAGA tax. (But don’t forget the big tax cut he gave millionaires.)

America’s eviction problem

August 21, 2018

A trivial incident — kids throwing snowballs at a car. Next thing you know, Arleen, a single Milwaukee mother, is evicted. Sheriff guys give her a choice: all her stuff dumped on the sidewalk, or taken to storage, where she can pay $350 to reclaim it.

Arleen doesn’t have $350.

So begins Matthew Desmond’s book, Evicted: Poverty and Profit in the American City.

Words like “profit” and (on the cover flap) “economic exploitation” set a tone. “Landlord” has always been a dirty word too. Landlords are way outnumbered by renters, so the politics, and the common narrative, are against them. Stalin and Mao demonized them to justify their murder. Desmond doesn’t go so far, but does think landlords “exploit” poor tenants and make excessive profits.

There seems to be an idea that housing is somehow “out there,” like handed down from God, with landlords sort of leeching onto it to suck profit. Not that housing is a good that landlords provide to tenants, earning some just compensation for their investment and efforts.

But a few pages into the book we meet Sherrena — a black woman of middle years and Arleen’s landlord. And just as Desmond does depict the trials and tribulations of renters, so too does he show those of landlords. “Profit?” Maybe — if they can manage to overcome all those things that can and do constantly go wrong. (I’m thankful to have my own different and very smooth business.) In the landlord-tenant relationship, it was often arguable who was “exploiting” whom. The “system” has a lot of aspects hostile to landlords. In Milwaukee, if there are more than three 911 calls in a month, the landlord faces fines, property forfeiture, and even jail. She has to file a plan for “abating the nuisance.” Usually that means eviction.

And what was Sherrena earning? Desmond estimates her net at about $10,000 a month, on three dozen inner city units. A nice income, yes, but not much above middle class par. Which she really worked hard to earn, negotiating hurricanes of hassles and headaches. (Desmond does profile another guy making about half a million running a trailer park with 131 units.)

New York has actually had a “Rent is Too Damn High Party.” And that theme seemed to pervade Desmond’s book, with poor people paying high proportions of their incomes in rent. Implying this contravenes social justice. The author even notes that rents for wretched slum dwellings are not greatly lower than for nice one ones in better neighborhoods.

So are the poor being gouged to subsidize better-off tenants? Of course not. As the book shows, slum apartments actually entail a lot of operating costs landlords don’t face in nicer areas. Like apartments constantly being trashed. (One flat incurred repeated plumber visits because the tenants kept throwing crap down the drain.) All the court costs for frequent evictions. The mentioned 911 problems. The constant hassle of chasing after overdue payments. Et cetera. Excessive profits? Considering what landlords have to put into the business? If rents were lower, who’d want to supply tenants with apartments?

In the final analysis, this is a highly competitive free market, with multitudes of suppliers, and rents determined by supply and demand. I kept wondering: if profits are so great, why aren’t guys rushing to build more apartments? (Expanding the supply, which would drive down rents. That’s how markets work.)

But again, being a slumlord is actually a fraught business. A lot of it is due to the life dysfunctionality rampant among lower income renters. The picture is sadly familiar from books like Hillbilly Elegy and Our Kids. Drugs, alcohol, lack of education, casual violence, marital/family/relationship chaos, and much involvement with the criminal justice system. It’s wrong to blame the poor for their poverty. Anyone born into such an environment is greatly handicapped in life from the start. Yet in so many of Desmond’s stories, folks make some really bad choices. He offers the psychologically understandable explanation that, with lives full of difficulty and uncertainty, poor people tend to prioritize the “now” over the future, while also withholding their full energies from today’s problems, to keep some in reserve for tomorrow’s.

Yet there’s actually a simple, almost foolproof formula for avoiding poverty: finish high school (at least), don’t have kids before you do, and stay sober. Easy to say, hard to do, if you’re born into poverty.

Desmond makes a good case that the eviction problem is huge: poor Americans just cannot afford market rents. They juggle rent bills with utility bills, unable to keep their heads above water. In all the book’s many stories, the main income sources were government benefits of one kind or another; very little earned by working. Many people are just not realistically employable in today’s economy. Government hand-outs aren’t enough to keep their heads above water. The result is rampant evictions, which devastate their lives, psychologically as well as materially. They often lose their possessions. An eviction makes it much harder to find new digs. Landlords don’t like to rent to people with evictions on their records. It even disqualifies them from government housing assistance programs!

I am no “bleeding heart” liberal. In reading a book like this it’s hard to project myself into the skins of the people portrayed. For me a big hassle is when the DVR doesn’t work. What can it feel like to be evicted, made homeless, all your stuff dumped at the curb? With small children no less. Yet I can imagine it at least a little bit; and it’s really really bad. These are human beings, like you or me. I’ve been lucky. The cosmic lottery could just as easily have given me a life like theirs. And don’t say with all my brains and character I’d have surmounted it. That’s nonsense. Born into such circumstances, I would not be the me I know.

One seemingly obvious answer to the mess that is the housing picture for poor people is for the government to step in and, instead of trying to regulate the market, to simply provide housing itself. In fact, we tried that; it proved a massive disaster. So nowadays the government’s intervention largely takes the form of “Section 8” vouchers, paying part of some poor tenants’ rent. Though Desmond notes the voucher amounts are calculated by reference to average rents in an area — including both slums and nice districts. Thus they’re above the average for slum housing — seemingly a windfall for landlords. (On the other hand, many landlords refuse to accept “Section 8” tenants.)

The book doesn’t mention rent control. It’s been said that the two most effective ways to destroy a city are carpet bombing and rent control. Because it disincentivizes landlords from maintaining properties and developing new ones, so the housing supply doesn’t meet demand. Googling, I found that Milwaukee does have some rent controls, but couldn’t readily find details. I stumbled upon the Milwaukee Housing Authority’s web page, which mentions providing some public housing. Also that the waiting list for Section 8 vouchers is currently closed!

Desmond doesn’t mention this either, but for all the chatter about “affordable housing,” cities typically defeat that by also restricting supply through zoning rules, height and density limits, etc. A study by economists Tang-Tai Hsieh and Enrico Moretti estimates that removing such restrictions in just three cities (NY, SF, San Jose) could boost U.S. GDP by 9% by enabling more people to live in them. Some cities have made a “grand bargain,” removing building restrictions in exchange for requiring developers to offer some units at below-market rents.

Desmond’s main recommendation is to expand the voucher program to simply cover all families below the 30th income percentile. He cites a 2013 estimate that this would cost $22.5 billion nationwide, even without changing the averaging formula that he says favors landlords, and without considering offsets like less homelessness with its associated public costs. That $22.5 billion is hardly more than a rounding error in a federal budget with trillion dollar annual deficits.

The book shows government programs for the poor are a convoluted cat’s cradle with highly arbitrary results. Desmond’s proposal for a simplified and widely available housing voucher program might be a step in the right direction. However, it’s become obvious that federal college tuition help has had the perverse effect of enabling colleges to ramp up their fees. I’d fear that expanded housing subsidies would similarly push rents up.

A better approach would actually go further: ditch all the Rube Goldberg welfare programs (and all the huge bureaucratic costs they entail), supplanting the whole mess with one simplified program: a guaranteed annual income.

This would face up to a growing reality. Increasing technological sophistication makes the world richer, but many people are left behind. Simple humanity demands sharing with them a part of those riches. We can afford it. The cost would be a fraction of what’s spent for far less compelling purposes.

Visiting sunny tropical Iceland

April 23, 2018

Years back we made the mistake of visiting Washington, D.C., over Christmas. It was bitterly cold. I vowed no more icy vacations!

My wife’s windblown selfie

So this time we chose . . . Iceland. Well, how cold could it be in April? And wet, and windy? I didn’t realize it’s supposedly the third windiest place on Earth. The other two are uninhabited.

But it was fun. Long underwear helped.

Iceland is a small country, and sparsely settled; population only a third of a million (about equal to Anaheim’s). Partly because it is indeed fairly inhospitable. Its first settlers, in the Ninth Century, could just barely eke out survival. They came from Norway. How awful must Norway have been?

During Iceland’s next thousand years things only got worse. They quickly consumed all the island’s trees, thereafter making do with driftwood. And it grew colder.

The only saving grace was self government, of a sort, embodied in the Althing, an annual gathering for making laws and settling disputes (which seemed to be legion), presided over not by a king but the “law speaker.” Iceland’s Althing continued more or less continuously since the year 930; today the parliament still bears that name. We visited the place where the ancient Althings were convened.

Luxurious traditional Icelandic homes

But otherwise Iceland’s history was grimly depressing. Windy though the place is, the winds of progress passed Iceland by, and the Middle Ages continued there until the middle of the Twentieth Century. Epitomizing this is the language being virtually unchanged over the millennium. Try reading or understanding Ninth Century English (if you could call it “English”).

Also, Iceland never developed the modern convention of people having last names. Instead, Bjorn’s son Eric goes by Eric Bjornsson; his daughter Ingrid is Ingrid Bjornsdottir. (I suppose transsexuals change both their names.) This makes it fun trying to look someone up in a phone book.

Iceland was finally blasted from a medieval existence into modernity during World War II. A possession of Denmark, which was occupied by the Nazis, Iceland was preemptively occupied by the Brits and Americans. Then it took the opportunity to declare independence from Denmark in 1944. Foreign investment, and tourists, poured in, and Iceland, in a few decades, vaulted into First World ranks.

Seeking some breakfast our first morning in Reykjavik, we went into what looked like a very modest little place. A chocolate covered croissant seemed tempting until we saw it was $17! Such prices are very typical, showing how “advanced” Iceland has become. The Economist has a “Big Mac Index” gauging how over- or under-valued a nation’s currency is by reference to the local price for a Big Mac. That’s a universal commodity — except in Iceland, which has no McDonalds restaurants. But according to one analysis based on comparable burger prices, Iceland’s currency is actually the most overvalued in the world (i.e., its prices are the highest).

Nevertheless, its people are imbued with a very positive attitude. We got a wool-making demonstration, by a gal named Harpa who characterized herself as “hyper.” She was so animated and bubbly that it made this wool demonstration a highlight of the trip for me.

Speaking of positive attitude, my wife’s, as always, greatly enhanced the experience. She enthusiastically appreciates everything and never complains about anything.

Me, under a waterfall

Another trip highlight was our glacial lagoon boat ride. That glacier is the biggest in Europe. The lagoon had only just unfrozen, and was still full of ice crunching under our open rubber boat. We were encased in rubber ourselves — looking like astronauts in space suits. Getting suited up took longer than the boat ride. And it didn’t keep us from getting wet in the cold rain. But . . . you had to be there.

We also visited the Eyjafjallajokull Volcano, whose 2010 eruption messed up European air travel. Actually, we couldn’t see the volcano itself; but a farm at its foot had set up a visitor center, showing a really excellent home-made film about the eruption’s impact on them. Our visit was just about the last before the facility was closing so the family could get back to full-time farming.

Then there was the Blue Lagoon, touted as the world’s biggest jacuzzi. It’s heated by geothermal action and clouded with silica and other minerals. It was a weird sensation to have one’s body in hot water with the head (slathered with mineral goop) exposed to a cold breezy drizzle, while the whole scene is enveloped in a steamy mist (so I couldn’t see much of the bikinied babes). But, again, you had to be there.

The one key attraction we missed was Reykjavik’s Penis Museum. Maybe next time.

It’s your economy, stupid

March 25, 2018

Presidents are usually judged mainly on the economy, which most voters care most about. (“It’s the Economy, stupid.”) Yet in truth a president’s economic performance is mainly just luck. He doesn’t run the economy; his actions normally have very little impact on it.

The start of Obama’s term was a rare exception, an economic crisis where he was looked to for leadership. Influencing the economy more than the actual measures he took was their psychological effect. You can argue all day about those measures, but they did combat pessimism, which shaped people’s behavior, and thus boosted the economy. So it’s fair to give Obama some credit.

Trump came into office lucky on the economy. It was doing great. And the prospect of tax cuts and deregulation added to the fizz. All Trump had to do, really, was not screw things up. Which — given a president’s limited ability to actually impact the economy — should have been a piece of cake.

But Trump is a poster boy for the Dunning-Kruger effect I’ve written about: the dumber people are, the less they recognize their dumbness. Trump understands nothing about the global economy while feeling certain he understands everything. A deadly combination.

And he managed to find the one thing within his power to screw up the economy. He can’t set interest rates, regulate the money supply, or by himself make tax and spending policy. But he could start a trade war.

I’ve explained before why this is so dumb. It doesn’t take a PhD in economics to understand that import tariffs — virtually always — hurt more people than they help and weaken the overall economy in multiple ways. U.S. businesses mostly become less competitive, consumers pay higher prices, jobs are lost not gained, interest rates rise, our exports become costlier and hence fall, so our trade deficit is more likely worsened than improved.

And that’s even without other countries retaliating. When they do, as China and others are, that hurts U.S. businesses, jobs, consumers, and our trade position even more.

But do those other countries also take a hit? Oh yes. Tariffs make the whole world poorer. It is a “beggar thy neighbor” policy. An overall poorer world is not good for America — not for our economy, nor our national security.

It’s true that China is guilty of bad things in the realm of trade and commerce (like stealing intellectual property, to name just one). But the self-inflicted wounds of tariffs are surely not the right answer. A far better one would have been the Trans-Pacific Partnership trade deal, which America had negotiated with 11 other Asian nations, precisely to combat China on trade. Trump pulled out of TPP on his first day.

His tariffs make Trump like the character in “Blazing Saddles” who took himself hostage by pointing a gun at his own head. Trump has pulled the trigger.

Dow down another 1150 points.

The tariffs: economic nationalism or economic madness?

March 2, 2018

Trump is slapping stiff tariffs (i.e., taxes) on steel and aluminum imports. He says it’s to protect our “vital” steel and aluminum industries from foreign competition. Which he calls “unfair” and “disgraceful” (two of his favorite words) because foreigners sell the stuff cheaper than us. So unfair!

This is part of Trump’s “America First” economic nationalism. Here’s why it’s idiotic:

1. It protects American aluminum and steel companies — a very small part of our economy (we no longer make much steel) — at the expense of businesses that use aluminum and steel — a very big part. Their aluminum and steel supplies get costlier. Making them less competitive against foreign manufacturers. Studies have shown that in such cases, we lose many times more jobs, in all those affected industries, than are “protected” by the tariffs.

2. It raises prices for consumers, on all items made with aluminum or steel. That reduces consumers’ living standard and purchasing power, causing a reduction in other things they might otherwise have bought, which in turn costs jobs in all those industries.

3. The higher consumer prices raise inflation, and thus interest rates, which also flow through to consumers and make U.S. businesses further less competitive. And given the huge national debt, every bump in interest rates costs taxpayers a bundle, and worsens our already dire fiscal situation, weakening America.

4. Higher interest rates also push up the Dollar’s exchange rate vis-a-vis other countries’ currencies, making all our exports more expensive to them, thus reducing our exports and related jobs.

5. Other countries will likely retaliate by slapping tariffs on stuff we export, thus causing us yet more job losses, even threatening a broader trade war. (Which Trump moronically calls “good” and “easy to win.”) We’re antagonizing our foreign friends, making fools of ourselves, and undermining our international influence and standing.

Understanding all this doesn’t take a business genius (stable or otherwise). No economist disputes it.

Trump, and the aluminum and steel guys, say fair trade is fine, but China isn’t playing fair, it’s cheating. How? By making too much steel  and selling it too cheap! Adam Smith said in 1776 that if another country wants to sell us something too cheap, we should take advantage of the bargain. Rather than trying to compete with them on steel, we should instead concentrate on other industries where we have what economists call our own comparative advantage. Every country doing that makes the world richer.

Adam Smith

Flouting this logic doesn’t “protect” our economy, but harms it. Tariffs always hurt the nation imposing them. That will be true of those retaliating against us with tariffs of their own. They’ll hurt themselves too. But they’ll probably do it anyway, to teach us a lesson, and also because they (and their voters) are not always so smart either.

Protectionism is politically seductive because some people get big benefits, while the vastly greater number who get screwed don’t realize it.

Trump’s view of trade centers upon the old-time mercantilist fallacy that imports exceeding exports is bad (which Adam Smith labelled “absurd”). Trump says China “rapes” us by selling us more than it buys from us. If that’s true, I get raped by a lot of coin dealers. But in fact we make such purchases because it’s advantageous. Walmart buys things from China (and I buy coins) to make money. Consumers buy them to save money. Trade is not a zero-sum game, it’s win-win. A no-brainer.

Too bad we have a no-brain president.

Wall Street gave its verdict on Trump’s tariffs, the Dow promptly plunging 420 points.

Stock market drop

February 10, 2018

I didn’t grasp how much the market had fallen till I received this account statement in the mail from my brokerage:

 

Of babies and bathwater

January 15, 2018

Libertarians tend to be skeptical toward government because it too often uses sledgehammers to kill ants, throws babies out with bathwater, and punishes the many for the sins of a few. (Like TSA, incapable of smart targeting, punishes all air travelers; confiscating, because of some past liquid bomb plot, the coffee bottle my wife forgot was in her bag.)

Advocates of free market economics do not actually call for “unfettered” capitalism. Just like we’re all subject to laws against jaywalking and murder, etc., the same principle applies to businesses, to protect us from harm. But there can be too much of a good thing.

India is a clear lesson, having suffered, since independence, from its founders’ infatuation with the idea of socialism, producing an excess of government and regulation. It’s been called the “Licence Raj.” Whatever notional harm this thicket of rules supposedly protected the public against, that was far outweighed by suffocating the economy and thereby keeping Indians a lot poorer than they need have been. (Another sardonic Indian expression for this was “the Hindu rate of growth.”) Thankfully, India started undoing all this after a 1991 financial crisis, and Narendra Modi’s government, elected in 2014, promised to do more to let business do business.

But two recent episodes show that India hasn’t unlearned its bad habits.

Government’s main economic role should not be constraining businesses, but facilitating them, by creating the conditions for commerce to thrive. For example, a sound judicial system wherein legal disputes can be fairly and efficiently resolved. Another critical role is providing a money supply, the lubricant of commerce.

Modi’s government thought it had a problem with tax-evading business people hiding cash. Maybe it did. Its answer was an attempt to catch them out by invalidating, on short notice, the highest value banknotes — 86% of the money in circulation! Economic chaos ensued with citizens queuing for hours outside banks trying to exchange their old notes — with strict limits — for new ones that were in short supply — prompting a mad scramble to find other ways to buy, sell, and get paid. While many poor people lost savings.

Punishing the many for the sins of a few; a sledgehammer to kill an ant; a baby thrown out with bathwater. (Meantime, it doesn’t even seem that black marketeers were inconvenienced much. Unsurprisingly, they found ways around the restrictions.)

Now a second Indian tale. Another problem is rampant car crashes, often caused by drunk driving. India’s latest brilliant answer: a Supreme Court ruling barring alcohol sales within 500 meters (about 1500 feet) of a state or national highway. Location near a highway used to be advantageous for such businesses. No longer. Indeed, the ruling could potentially close 100,000 bars, costing a million jobs.

Punishing drunk driving makes sense. Punishing an entire legitimate industry– indeed, the entire country — does not. More sledgehammers and ants; babies and bathwater. The victims of this insanity also include state and local governments, which stand to lose billions in alcohol taxes. But many are taking evasive action, by hastily reclassifying state highways into district or municipal roads. Some wags say the true reading of the new rule is “No road shall be classified as a highway within 500 meters of a bar.”

Maybe India will next literally require throwing out babies with bathwater. As a population control measure, of course.

America’s state capture

December 24, 2017

               “The world sees how bad the United States is.”

                                           — Donald J. Trump, 2017

The tax bill is heralded as Trump’s big legislative win. In fact — having built his fortune as a grifter — it’s his biggest scam. At over a trillion dollars, probably the biggest heist in history.

Republican lawmakers duly performed a leader-worship extravaganza sickening for a democracy. One commentator called it ring-kissing; but what was kissed this Emperor’s clothes don’t cover. These sycophants do it because Trump laps it up. Foreign governments too have figured out how flattery turns him to jelly.

“State capture” means looting the state for private benefit. The term was coined in South Africa, where President Jacob Zuma and his business cronies, the Gupta brothers, hardly even bother to hide their corruption.

Zuma

Zuma was the example I cited when, after our 2016 election, I wrote that giving bad men power never makes them better. That such men have a golden opportunity to prove doubters wrong, and become heroes. But they never do. Creeps only become creepier.

The latest is Zimbabwe’s Mnangagwa. Following one of the baddest baddies ever, he too had a golden opportunity.

Mnangagwa

So awful was Mugabe that it wouldn’t have taken much for Mnangagwa to look like Gandhi by comparison. And he promised a new leaf. But already it has the same putrid stench as the old leaf.

In South Africa, Zuma’s presidency has nearly ruined the achievement of the country’s transition to democracy. But there’s hope. The ruling ANC party met recently to choose Zuma’s successor, and he failed to swing the vote to his ex-wife (or to derail it). The winner — by a whisker — is Cyril Ramaphosa — just possibly a good man.

Trump is not. He too could have proven naysayers wrong; instead he’s proven we underestimated his badness. Yet a third of Americans still love him. Compare Brazilian President Temer’s approval rating of just three percent. Three! And he’s much less bad. But the difference is that Brazilians see clearly, not blinded by the disease afflicting America: partisanship trumping everything.

And so we get this tax bill — probably the foulest legislation in U.S. history, combining cravenness of intent with hugeness of impact. Looting the Treasury to the tune of over a trillion, mainly to benefit fatcats like Trump himself. His saying it will actually cost him money — “believe me, believe me” — is a stupendous lie. Among the bill’s biggest beneficiaries are what are called “pass-through” business entities. Of which Trump owns approximately 500.

And in the debates, Trump said the “carried interest” loophole, which also benefits him, should surely be scrapped. Was it? Of course not.

The entire bill is one big lie. No, two. First the lie that it’s a gift to “the American people” when it’s overwhelmingly for corporations and the richest, ultimately paid for by the rest. And the lie that it will pay for itself, and benefit the less affluent, by stimulating the economy.

Mnuchin’s teeth

No serious economist agrees. Treasury Secretary Mnuchin lied through his teeth (literally; his normal speech mode) about his own department’s analysis of the bill’s impact.

As both economic and social policy this is insane. Republicans railed against Obama’s 2009 stimulus bill as a budget buster, at a time when the economy was desperate. Today’s economy is, in contrast, humming nicely, with unemployment less than half, yet Republicans slate an even bigger unneeded stimulus. One that in fact will eventually harm the economy by increasing the megatonnage of our national debt bomb.

I mentioned social policy. Ever hear the word “inequality?” Trump was elected, in large part, because of middle- and working-class economic anxiety. Yet it’s the rich this tax bill coddles.

And it sets the stage for worse to come. Targeted next is “entitlement reform.” Indeed, the long looming fiscal hemorrhage of Social Security, Medicare, Medicaid, etc., is worsened by the tax giveaway, making reform even more imperative. What’s needed is curbing welfare for the rich. But will Republicans do that? If their tax heist is any clue, they’ll instead use that very legislation — which slashes the money available for social programs — as a pretext for a “reform” cutting those programs for the neediest while preserving hand-outs for the people who . . . donate to their campaigns.

Merry Christmas! Make America great again!