Friday, August 10, 2018

"as a"

Kwame Anthony Appiah has an op-ed in Sunday's New York Times dissecting the “as a” locution, in which one first announces one’s gender, race, sexual orientation, or class position before making an argument during a public discussion.  He interprets it as a claim to represent the entire group defined in the preparatory clause, and explains why this claim is invalid; better you should begin with “speaking for myself”.  But I disagree with his interpretation of what “as a” means; I think it communicates speaking from rather than speaking for.

From my experience, “as a” is an acknowledgment that one’s view of the world is limited by one’s background and identity.  It’s a way to anticipate the criticism that what is being said is not universal or “true” in some objective but unattainable sense.  Of course, that limitation can be valorized in different ways.  If an oppressed identity is being invoked—or even better, an intersectionality of multiple oppressed identities—the partiality of perspective is even a strength, because it brings to the fore experiences and ideas that have historically been marginalized.  By the same token, if one is speaking “as a” member of a dominant identity, the limitations are pernicious because they reinforce what has been unfairly imposed over the same long duration.

From an epistemological perspective, the immediate problem is that the “as a” formulation conflates two different consequences of the speaker being positioned in the world rather than above or outside it.  One has to do with differences of experience, the other with proclivity to believe.

As a white man, I have had a host of experiences that people who are not male or white would not have had, and vice versa.  This is important.  It’s a reason to pay more attention to those whose experiences are different from ours.  But, as Appiah would be quick to point out, each individual has a unique set of experiences, even of those aspects of life that are structured by racial, gender or other norms.  As an analogy, consider two children growing up in the same family: same parents, same house, same sequence of family events.  As most of us have learned directly or from others, it’s possible, even likely, that different children experience these “same” things in radically different ways, to the point they can barely agree on the essential facts.  Were the parents permissive or controlling?  Fair or playing favorites?  Did they get along with each other or carry on running warfare?  One kid may say one thing, a sibling something else.  And so it is with our entire course through life: experience does not come out mass produced from the identity factory, each a perfect replica of the others.

Moreover, experience can both inform and mislead.  Or to put it differently, our subjective encounter with the world can be a valuable source of information or a source of error.  The analogy here is to the value of autobiography compared to biography: which is a “truer” account of a person’s life?  There is no general answer.  If I write my own story, I have access to observations and feelings no one else can possibly know about, except if they hear it from me.  That’s a big plus.  On the other hand, I am, as we all are, prone to misperception and misjudgment, thinking one thing happened when the reality was different.  An external biographer would be able to tell me many things about myself I could learn from.  (A good friend plays this same role.)  The larger point is that the set of experiences referenced by the “as a” prefix is not in any general sense validating or invalidating.  These experiences are real and ought to be reflected on, but not used in a mechanical way to add or subtract credence from what the speaker is saying.

The second function is belief, as captured by theories of ideology.  (I’ve written about this before here.)  One’s position in the world, and the interests one has because of it, affect the likelihood of believing ideas that are related to those interests.  (“It is difficult to get a man to understand something, when his salary depends on his not understanding it.”  Upton Sinclair)  Prefacing a remark with “as a” can be a useful signal to listeners, and even oneself, to pay close attention to potential biases.  “As a white male from an upper middle class background, I’ve always thought that society was basically fair, and the best people were the ones who got ahead.”  Signal recorded.  But it is crucial to remember that ideology is about belief, not truth.  You can be deeply biased but also right.  Thus whether ideological factors matter depends on what the question is.  If we are interested in the truth value of alternative analyses—of texts, events, judgments—it doesn’t matter at all if particular arguments reveal biases.  If we are interested in why some ideas are widely held and others aren’t, we ignore ideology at our peril.

I’ll close by being honest.  I’m a teacher.  When I hear a student preface a remark with “as a”, I initially cringe.  Most of the time this reflects a mechanistic worldview in which one’s place in a few sweeping social categories determines experience which then determines truth content.  I feel like stopping everything and spending an hour, a week, a year on epistemology.  But sometimes there are exceptions, where “as a” is absolutely appropriate and illuminating.

Thursday, August 9, 2018

Would Serious Climate Change Mitigation Policy Increase World Hunger?

That’s the finding of a recent study published in Nature Climate Change, “Risk of Increased Food Insecurity under Stringent Global Climate Change Mitigation Policy” by an international team of 22 researchers.  (Coauthorship like this is why god created et al.)  The abstract has made the rounds of the blogosphere, including Marginal Revolution, which is where I found it.

The article reports an integrated assessment model (IAM) exercise in which various scenarios are run, each consisting of a climate piece (how agriculture will be affected by climate change) and a climate policy piece (how steep a carbon tax is imposed and how it impacts production and consumption).  More tax, less climate change and vice versa.  The unsurprising result is that, if the tax is universal and large it will raise food prices, putting millions more people at risk of hunger.

But where does all this extra money collected in carbon taxes go?  That was not addressed: “In most models, carbon tax revenue stays outside of agricultural sectors both on the producer and consumer sides, and is not properly redistributed to affected people.”  That’s all they say about carbon revenues, but it’s enough to explain why climate policy is portrayed as a threat to the world’s poor.  In any sensible approach, carbon taxes or moneys collected from carbon permit auctions are returned to the people who pay them in a progressive manner, so those with the lowest incomes come out ahead.  (They get back more in rebates than they pay in higher prices.)  The simplest way to do this is with an equal per capita dividend.

I did a simple back-of-the-envelope calculation of the effect of a global carbon price rebated via an equal lump sum payment everywhere.  For every dollar of this price, $12.5 billion is effectively transferred from upper to lower income countries.  (Details will appear in my climate change book when it appears next year.)  Of course, there are large political and administrative problems to overcome in setting up such a system, but they are not insurmountable, especially since higher income countries can decide (or negotiate) how to divvy up carbon revenues between those destined for national versus international rebates.

So, yes, a global carbon tax as modeled by the Nature Climate Change team would make the poor poorer, but the one additional tweak of recycling the money on an equal per capita basis would lead to the opposite effect.

Monday, August 6, 2018

Trump's Illegal Economic Sanctions Against Iran Start Up

Today, President Trump's promised abjuration of President Obama's hard-negotiated nuclear deal with Iran,the JCPOA, jointly agreed with Russia, China,  UK, France, Germany, the EU, and the Security Council of the United Nations. All parties agree that Iran has held to the agreement, so Trump's move is completely internationally illegal.  His move is supported by exactly four other nations on the planet, and only them: Israel, Saudi Arabia, UAE, and Bahrain, a group that contains about 0.5% of the world's population.  Of course the percentage rises by a couple of percent when we add Trump supporters who applaud him keeping a campaign promise, even though most of them have no idea what this is really all about.

It is clear that Trump has mostly done this to undo something Obama did, although he also very much likes pleasing the leaders of three of those nations,who have managed to get his ear. But it is not even obvious that the undoing of this agreement will actually help these nations, even though they clearly think so. The least important of them, Bahrain, might get a slight gain given that it is a majority Shia nation ruled by an oppressive Sunni elite.  Maybe putting Iran under economic pressure will reduced Iranian support for restive Bahraini Shia. But then, maybe the Iranians will respond by increasing their support. Both the KSA and UAE view themselves as jousting with Iran in the Persian Gulf, although Iran has never invaded or militarily threatened either.  They were not in danger, so they will not  be better off.  of course, the Saudis blame Iran for the success of the Houthi rebels in Yemen, where the Saudis have been heavily bombing for three years, killing many civilians. But most serious sources say that the Iranians support for the Houthis has been minimal in material terms, if not nonexistent.  But given how low that is, even a worsened economic situation in Iran seems unlikely to make them halt that minimum aid, and mostly the Saudis are scapegoating the Iranians for their failure to defeat the Houthis.

As for Israel, their main concern seems to be Iranian support for Hezbollah in Lebanon (and Syria) and Hamas in Gaza, although Hamas is a Sunni group.  Based on Trump's own statement yesterday, these are the main things he seems to be concerned about.  He wants Iranian support for those groups reduced. Maybe that will happen, but while in the past Hezbollah did  carry out terrorist actiffset ons in many places (Buenos Aires, for example), it is a long time since describing them as "terrorist" has been at all accurate.  They have long since become part of the ruling coalition in Lebanon. They have been tamed, but the Israelisare very unhappy that they were unable to outright defeat Hezbollah the last time they invaded Lebanon. But even if Iranian aid to them is reduced, it is unlikely that that would make much difference to an outcome id they were to reinvade Lebanon. And it should be kept in mind that prior to the 1982 Israeli invasion the Lebanese Shia were largely sympathetic to Israel, and there was no Hezbollah.  Just as with Hamas that they encouraged to offset the more moderate PLO, so the Israelis are themselves responsible for the very existence of Hezbollah.

Now it must be recognized that Trump's reimposition of economic sanctions will have an impact on Iran. Even though none of the other nations in the JCPOA support Trump's move, his threat to ban any company violating the sanctions from operating in the US is forcing some major European companies to leave Iran if they have much larger dealings in the US, even if their governments disagee with their moves.  The most prominent companies leaving Iran now are Total and Peugeot from France and Siemens from Germany, although apparently some smaller companies with little business in the US will continue. Another round of sanctions in November will target Iranian oil exports, although there is  reason to believe many nations buying oil from Iran will continue to do so then.  Nevertheless, for all its illegality, Trump's reimposition of sanctions will almost certainly damage the already struggling Iranian economy, with demonstrations against the regime periodically breaking out there.

Of course it would appear that what Trump and such aides as John Bolton and Mike Pompeo want, as well as the leaderships of the four nations listed above,is "regime change" in Iran.  The short run reaction so far has been a rise in support for the moderate Rouhani government by its hardline opponents.  As it is, the most likely outcome if the weakening economy weakens political support for the government will not be regime change but simply a takeover by the hardliners.  This group contains many who never supported the JCPOA, and they may well then leave it and return to enriching uranium to a high level.  This will increase the national security of any of those four nations?  That it would not is seen by the support for the JCPOA given publicly by many retrired Israeli military and intelligence figures.

Needless to say, there has been heightened warlike rhetoric between Iranian and US leaders.I regret that Rouhani felt he had to indulge in the first round of this.  Probably this is all just chest thumping noise, but it is clear that there are some among those four nations as well as in the US who would like the US to either bomb Iran or invade it.  Given how much larger and more powerful it is than Iraq under Saddam Hussein, this looks extremely dangerous, in light of what a disaster the invasion of Iraq turned out to be.  Of course, given that Iran is not involved in developing nuclear weapons and has remained in accord with the JCPOA, there is  no such justification for such an invasion, which would probably end up creating major problems for the Gulf nations, if not Israel, although I think the Saudi leadership is too egomaniacally stupid and incompetent to figure this out.

Yet another irony is that if either through triggering some kind of successful  democratic uprising that would overthrow the Islamic regime, or if one were to be installed a la Iraq after a "successful" invasion, this regime would demand to have civilian nuclear power, which is overwhelmingly supported by the Iranian population (although maybe aid to  Hezbollah and Hamas would end).   The opposition Greens, who were violently suppressed in 2009, supported civilian nuclear power.  Iran has been working for it since Eisenhower initially provided US support for it in Iran to the Shah.  In the end the outcome in terms of the nuclear issue, after who knows how much cost in lives and material, would be something like what we had with the JCPOA,a carefully monitored and controlled civilian nuclear program. But it is clear that Trump is not even thinking about any part of this aspect of the matter, so focused is he on scoring short run political points and pleasing a narrow set of allies against the vast majority of world opinion, as well as an agreement made by the US government.

I see little prospect this will end well and serious danger this could lead to a seriously bad outcome.  I have said it before, and I say it again: abrogating the JCPOA with Iran is by far Donald J. Trump's worst foreign policy mistake, even as few Americans realize it yet.

Barkley Rosser

Real Wages Decline

Trump and his allies have been loudly bragging about the second quarterly GDP growth rate of 4.1%.  It is quite possible that a growth rate of this sort may be maintained for another quarter or so, given the large fiscal stimulus put in place at the beginning of the year. How curious it is that that coincided with the peak of the US stock market, at least as measured by the Dow.

However, this is seriously overblown for the simplest of reasons: the rate of inflation is rising.  It has now gotten to rising at a 2.9% rate while nominal wages are rising at a 2.8%.  So real wages have declined by a 0.1% rate.  Real wages rose throughout nearly all of the Obama presidency, except for a couple of quarters.  But if one pays attention to Trump and his allies, one would have no idea of this development. Needless to say, as the price increases from the trade war kick in, this situation is  not likely to improve.

Barkley Rosser

Saturday, August 4, 2018

Mush versus Mush on Climate Change

The very long New York Times piece on climate change politics in the 1980s by Nathaniel Rich has attracted a lot of critical commentary—justifiably.  To say that the failure to achieve a political response was due to human nature, a genetic defect that prevents our species from planning ahead, is just lazy and wrong.  Were the scientists, environmentalists and other activists that did want to take action a bunch of mutants?  Haven’t humans acted with foresight (and also failed to act) since time immemorial?  “Human nature” explains everything and nothing; it’s what you invoke when you don’t want to do the digging a real explanation would require.

I wish the left had a solid response to this immobilizing mushiness, but instead it mostly offers its own version of counter-mush.  A case in point is Naomi Klein.  I’ve already written at length about her book This Changes Everything: Capitalism and the Climate, but I don’t want to let her latest piece at The Intercept pass without notice.

Klein rightly excoriates Rich, but then goes on to make this argument:

Capitalism, not human nature, is responsible for climate inaction.
Capitalism is an ideology that worships profit and “endless growth”.
Its purest form is neoliberalism.
The late 1980s was the high water mark of neoliberalism, so climate activism was suppressed.
We must reject capitalism by adopting the earth-centered philosophy of indigenous peoples.
Politically, this means embracing a caring economy of green jobs, meeting human needs and rejecting “extractivism”.

If this were just Klein’s own idiosyncratic viewpoint we could shrug and move on, but since it reflects what may be the main current in left thinking about the climate crisis, it matters that it turns what ought to be well focused and clear into a thick, gummy soup.

No, capitalism is not an ideology.  What makes Jeff Bezos a capitalist is not his belief system but his ownership and deployment of capital.  Capitalism is a system of institutions that give economic and political primacy to the possession and control of capital.  There is no single metric that captures the effect that a capitalist context has on an issue like climate change, but the starting point is surely anticipated capital gains or losses from a given policy.  (One way we can tell that existing policies are largely toothless is that their enactment had imperceptible effects on asset prices.)

Yes, the 1980s was the zenith of the modern neoliberal project, but there are currents within neoliberalism that support climate action.  One doesn’t have to be a fan of this school of thought to recognize that it’s not monolithic on environmental matters—or on racism, criminal justice, public health and other questions.

Countering a climate disaster is not about changing one’s philosophy of economic growth or living a more natural lifestyle; it’s about keeping carbon in the ground.  I’m all for shifting production to more socially beneficial purposes, but that’s not what will prevent temperatures from rising far into the red zone over the decades to come.  The problem is too much carbon in the atmosphere due to the burning of fossil fuels, so the solution is to collectively limit them.  That means either setting up a permit system, with a tight cap on how many permits can be issued, or taxing fossil fuels into unaffordability.  The main reason governments haven’t taken this path is business opposition, and not just from fossil fuel corporations.  What motivates Team Capital is not a shared philosophy, but the belief, probably justified, that really effective action would eat into the value of their investments.  Fighting climate action is as rational for them as cutting an unnecessary production cost or cultivating a new, profitable market.

If you look at it this way, the left has a crucial role to play in climate politics, to clearly spell out the difference between the rationality of capital and the rationality of the human race.  Everything else—the fixation on degrowth, the claim that action on climate requires concomitant revolutions in cosmology and lifestyle—is a distraction.  Which is not to say that delving into consciousness and how to live a good life are unimportant, of course, just that, on this particular issue, what the left should be offering is clarity.  It’s as if you had a plumbing problem in your house, called up a progressive plumbing service, and were told that the real problem is your failure to envision the hydrological cycle in its global fullness and reorient your use of all natural resources.  Yes but no.

To turn Klein’s thesis around, the tragedy is that our awareness of an impending climate catastrophe arose just at the time that the left had entered a state of maximum confusion and diffusion.  It’s not too late to change this.

Wednesday, August 1, 2018

Is The World's Largest Planned IPO Kaput?

That would the long planned and widely advertised IPO to sell 5% Saudi-government-owned ARAMCO, estimated at being worth US $2 trillion, making the planned IPO being at about $100 billion, well ahead of any that has happened in the past, the largest being $25 billion by AliBaba. This has been a crucial part of Crown Prince Mohammed bin Salman (MbS) has had this as a central part of his Vision 2030 plan to privatize and diversify off oil the Saudi Arabian economy.  Most of the publicity about it over the last year or so has focused on which exchange would get all the fees (easily up to $1 billion, still real money), NewYork, London, Frankfurt, or maybe even Riyadh, for hosting this massive IPO.

Now in the last few days there are numerous reports floating around the internet declaring that at a minimum this IPO has been postponed, with quire a few now saying that the IPO is completely off, that the Saudis are now looking at a different approach, although exactly what that is or will be is very much up in the air. Sorry I have been unable to make the link,but this can easily googled, a story out today on this from by Kurt Cobb, "Was ARAMCO IPO Destined to  Fail?" which obviously suggests that it is kaput, although the article recognizes it may simply have been postponed. He provides links to some other reports engaging in various bits of speculation.  So what has happened?

Cobb provides two leading reasons why the IPO may be off.  One is that they may not need the revenue as much as they did a year ago  because of the roughly 50% increase in oil prices.  This makes sense.  Going along with that is that apparently they seriously do not want to be open to some external audit of their reserves and finances and so on.  This also also looks reasonable, with certainly all of the non-Saudi exchanges would make such a demand.  Maybe they might not have this demanded on the Riyadh exchange, but it is not a large exchange, and even there such a demand might be made.

Now it might be that their finances are fine and they do not need the money the IPO would have brought in. However, some of the sources Cobb links to report that the Saudis are contemplating various peculiar schemes for, well, raising money.  One of these involves a scheme to have ARAMCO take over a Saudi refining company and then issue a bunch of bonds on it.  This  all sounds a bit fantastic and not too likely, but the hard fact is that Saudi finances are highly opaque, which is a main reason they supposedly do not want to do the IPO, and there certainly have been a variety of efforts by them to reign in public spending.  Higher oil prices have certainly loosened some of this pressure, but exactly what is going on is far from clear. But at a minimum, it appears that the ARAMCO IPO has at least been postponed and may be totally kaput.

Barkley Rosser

Monday, July 30, 2018

Germany Organizing Anti-Trump Coalition

Mark Thoma today links to a story in Der Spiegel about a visit to Japan by new German Foreign Minister, Heike Maas.  He met with PM Shinzo Abe, and apparently the two of them agreed on the need for creating a network of like-minded nations that wish to maintain portions of the "post-war order," especially in the areas of trade policy rules and climate change agreements.  All of this is in reaction to actions by Donald Trump in both areas.  While Maas is fairly new in his office, reportedly the planning for this started under his predecessor and in conjunction with discussions in Paris and Brussels.  Supposedly the last straw was Trump's performance at the NATO summit.

Supposedly non-EU nations that may be joining this erstwhile coalition include beyond Japan: South Korea, South Africa, Australia, Argentina, Mexico, and Canada, with the foreign minister of the latter about to visit Berlin.  I guess we shall have to see how this works out.

Of course, much of the US media that should know better is still oohing and ahhing over the sjupposedly great deal cut between Trump and Juncker, which happened apparently on the same day as this meeting between Maas and Abe.  Today's WSJ had a headline quoting Kudlow that US-EU negotiations on "agriculture" are about to start.  Almost certainly, to the extent this is true at all, this will involve only to get more specific about Juncker's promise that the EU will increase soybean imports from the US (see pgl's recent post here on all that).  It absolutely will not go beyond soybeans, even if somehow Trump thinks it will. 

An earlier Der Spiegel article reported that Trump specifically requested of Juncker that the increase in ag imports go beyond soybeans, and Juncker firmly said no, soybeans only.  Anybody fantasizing that some big and general US-EU ag negotiation is about to start is seriously ignorant.  The Common Agricultural Policy (CAP) of the EU is both expensive and extremely politically and diplomatically complicated and controversial, having developed after many heated disputed among EU nations.  No way is Trump going to be allowed to just barge into that mess, where he might get sprayed with manure by French farmers (they did that once to an earlier French leader they were unhappy with).  The only reason soybeans are not such a big deal in the EU is that few countries grow them and they are just not that much used in European cuisines, for better or for worse.

Addendum:  I have just checked on EU soybean production.  No EU member is among the top 11 producers, and no EU member is among the 53 soybean oil producers.  Really. Some other European nations are in on the latter, including Norway and Switzerland, and Russia is 11th in soybean production. My bet on which one is the largest soybean producer in the EU is probably Italy, which is among the top three in soybean yields, with Turkey tops in that category.

Barkley Rosser

Saturday, July 28, 2018

The Soybean Boom

Via TalkingPointsMemo AP notes:
Private forecasters cautioned that the April-June pace is unsustainable because, they say, it stems from temporary factors, including a rush by exporters of soybeans and other products to get their shipments out before retaliatory tariffs took effect. They predicted the rest of the year is likely to see solid, but slower growth of around 3 percent. The transformation is also not as dramatic as Trump claims — and in many ways the 4.1 percent annualized growth during the second quarter is in line with an economic expansion that just entered its tenth year. During Barack Obama’s presidency, there were four quarters when annualized growth exceeded the level that Trump praised on Friday. And in 2015, full-year economic growth nearly reached the 3 percent level being targeted by the Trump administration this year when it hit 2.9 percent.
Is this “fake news” being peddled by those socialists at TPM? What do these private forecasters know anyway! Well AP does lead with what the White House wanted to emphasize:
President Donald Trump on Friday celebrated the release of new economic data, claiming the U.S. is now the “economic envy of the entire world.” Trump was responding to new growth numbers announced on Friday that show the U.S. economy surged in the April-June quarter to an annual growth rate of 4.1 percent — the fastest pace since 2014. “We’ve accomplished an economic turnaround of historic proportions,” Trump told reporters during hastily arranged remarks on the South Lawn of the White House, where he was joined by Vice President Mike Pence and flanked by members of his economic team. “Once again, we are the economic envy of the entire world,” Trump said, adding that “America is being respected again.”…Trump, who has repeatedly attacked the economic record of his predecessor’s administration, pledged during the 2016 campaign to double growth to 4 percent or better. And he has been tring to highlight economic gains ahead of the midterm elections. But Trump, ever the salesman, predicted even higher growth as he renegotiates the nation’s trade deals, saying, “We’re going to go a lot higher than these numbers.” And he insisted the economic numbers are “very sustainable” and not “a one-time shot.”
Now that’s telling it like Sean Hannity and Fox & Friends would do! OK – time to listen to an actual economist such as James Hamilton:
Growth in consumption, nonresidential fixed investment, and net exports helped produce the strong numbers. Higher oil prices stimulated a big boost in spending on mining exploration, shafts, and wells. That was one factor in higher investment spending; growing business confidence may have also played a role. Tax cuts likely contributed to the growth in both consumption and investment. Some of the export growth may have come in anticipation of coming tariffs. I count the contribution from exports as a soon-to-disappear plus, though it’s balanced by a big minus in inventory investment that’s also likely transient.
We’ll get back to the soybean boom which led to real exports growing by more than 9% per annum last quarter. While residential investment fell a wee bit, nonresidential fixed investment has been growing at a 9% per annum clip for the past two quarters. Is this due to temporary facts (see the Econobrowser comment section for more) or is it sustainable as Trump argued? We shall see but permit me to repeat what I said on this in the comment section:
Trump lies about everything. He correctly noted that real business fixed investment has been growing by 9% over the past two quarters but then we have not seen this for decades? Really? We had this rate of growth back over the 2011/2012 two year period. From 1995 to 2000, real business fixed investment grew by about 10% per year. We had double digit growth rates both during the 1976 to 1978 period and the 1964 to 1966 period. I guess it does not count if the President during these periods was a Democrat.
OK now that I got that out of my system, I want to turn to Trump’s argument that we can sustained high growth if we can get a large boost in net exports. Never mind the fact that the soybean boom will turn to a soybean bust now that China’s tariffs on our soybeans are in place. Of course there are other aspects to this stupid trade war but focusing on that may be missing the point that Menzie Chinn articulated last fall:
Since current account surpluses and deficits are primarily macroeconomic phenomena, driven by saving and investment decisions, attempts to reduce the United States' trade deficit by way of protectionist trade measures, such as anti-dumping tariffs and countervailing duties, and withdrawals from free trade agreements, are unlikely to be effective. Instead, they will redistribute the trade balances between our different trading partners. On the other hand, fiscal policy measures – such as the large tax cuts on the order of $2.2 trillion over ten years currently envisaged by the Trump Administration and the Republican led Congress – are very likely to drastically increase budget deficits and hence current account deficits.
We did see significant growth in consumption as noted by the AP:
The numbers were driven by consumers who began spending the tax cuts Trump signed into law last year and exporters who have been rushing to get their products delivered ahead of retaliatory tariffs…Private forecasters cautioned that the April-June pace is unsustainable because, they say, it stems from temporary factors, including a rush by exporters of soybeans and other products to get their shipments out before retaliatory tariffs took effect.
Trump supporters are likely saying now “there you liberals go again” with your prediction that the net export surge will reverse itself but let’s assume both fixed investment and consumption continue to rise strongly. Then Menzie may be right as a fall in national savings and a rise in investment demand will translate into a drop in net exports much like we saw under St. Reagan. Of course maybe I’m missing one possibility – a dramatic drop in government purchases as Kudlow’s plea that we cut government spending “Reagan style”. Dr. Hamilton’s chart shows government purchases rose decently but that masks the fact that Federal nondefense purchases and state/local government purchases grew slowly whereas we had a large rise in defense purchases. Of course that is “Reagan style” fiscal policy – increasing government purchases so John Bolton might have one of his desired wars paid for by reducing domestic government purchases. And I would submit that is not sustainable – at I hope it is not.

Thursday, July 26, 2018

Meanwhile, Saudis Stuck On Oil Thanks To MbS Crackdown

Saudi Crown Prince Mohammed bin Salman (MbS) has a plan to get Saudi Arabia off oil, with an immediate push to create 1.2 million private sector jobs by 2020.  However, as Juan Cole reports, his political crackdown last year in which over 300 people were tossed in jail  for various supposed crimes, with many of them now having frozen bank accounts and other restrictions placed on them, has somewhat scuttled this project badly.  700,000 foreign workers have left,and foreign direct investment has fallen from $7.42 billion in 2016 to $1.32 billion in 2017.  Oooops!  This is not the way to  wean the nation off oil.  Nobody wants to invest because they fear MbS will go on another rampage, seizing money and putting people in prison.

Of course, it is now clear that Trump and his son-in-law, Jared Kushner, encoureaged MbS in his coup against his cousin, former Crown Prince Mohammed bin Nayef.  They also supported his stupid war in Yemen and initially encouraged him in his campaign against Qatar, still ongoing although a total flop, although on that one Trump has figured out that the largest US air base in the Persian Gulf, al-Ubeid, is there, so he has lost his enthusiasm for this particular stupid project of MbS's.  Unfortunately, there is little prospect this 32 year old leader will be removed from power any time soon.

Barkley Rosser

Wednesday, July 25, 2018

Has Trump Won This Easy Trade War With Our Greatest Foe, The European Union?

So Sean Hannity would have us believe this evening after the press conference earlier today by Trump and EU Commissioner Jean-Claude Juncker.  According to Hannity they have signed a "deal" that will help US businesses, workers, and farmers. Yowzah!

As it is, what appears to have been agreed to (no signed deal) is that the US will not impose tariffs on autos imported from the EU as he had threatened to,  a proposal not supported by the US auto industry, the erstwhile beneficiary of such an action.  This means that the EU in turn will not impose a bunch of retaliatory tariffs against various American products.  So, the trade war sits where it is, with US tariffs in place on foreign steel and aluminum, with a set of retaliatory tariffs on a variety of US goods all still in place.  The war has not been won, merely that its momentum has slowed.

Ah, but then there was the dramatic announcement by Trump that there will be negotiations with the EU that will move to end all tariffs, subsidies, and other non-tariff trade barriers in all non-auto industrial sectors.  He then reeled off a set of other sectors in which negotiations would occur, although with not quite such a strong promise regarding what might result, with at the end of the list being soybeans, which Trump declared "is very important."  Indeed.

What all this brings up is how does this relate to the long-running negotiations over trade and investment that went on between the US and the EU that Trump shut down last year?  This would be the Transatlantic Trade and Investment Plan (TTIP, or T-TIP for some parties).  This negotiation began under Obama in 2013.  Between July 2013 and October 2016 there were 15 weeklong rounds of negotiation regarding 28 topic areas, some of them those mentioned in today's press conference by President Trump.  On none of those 28 was there a full agreement as of the final round of negotiations, although some were further along than others. It had been estimated that it might take until 2021 to complete this negotiation, and that made back when there still were negotiations.

So how might these revived negotiations go, and it must be noted that this past March? Commerce Secretary Ross actually raised the possibility of them being restarted, although that drew little attention at the time.  Well, back in 2014 a draft of a possible agreement was leaked and drew considerable opposition, more from the EU side than the US one.  It must be noted that the proposed TTIP had many similarities to the TPP, which Trump also withdrew from. Among issues raised involved environmental, safety, and broader regulations, along with investment issues, with the agreement supposedly granting US corporations power to challenge such rules.  As it is, however, details of the negotiations are classified; we do not know what they are, only broad indications of the degree of agreement.  So, will what Trump and Juncker agreed to today amount to a restart of these stalled TTIP negotiations, or will we see a whole new round of negotiations starting fresh that will lack all those issues or problems that have created problems in the past for the TTIP?

It should be noted that since Trump became president, the EU and Canada have ratified an agreement, and also the EU and Japan have more recently done so as well.  The US was never a part of the first negotiation, although it was a clear parallel to  the TTIP.  Regarding the latter the US withdrawal from the TPP made Japan not interested in having the US involved.  These agreements may have flaws as many (including me) think the TPP did (although its worst part was the favoritism given to the US pharmaceutical industry, which meant that many in it did  not mind seeing the US leave), but whatever lowering of actual trade barriers are occurring mean that the businesses in those nations will gain competitive advantages over US firms not a part of those agreements, quite aside the now-in-place tariffs due to Trump's supposedly "easy" trade war, even if today's announcement means that the war may not get more intense in the near future.  This is no victory in a still ongoing war.

Barkley Rosser

Yes, Trump Is Bailing Out Soybean Farmers

And maybe dairy farmers as well.  As suggested in a recent post here, indeed it will be by using the Commodity Credit Corporation, and Trump has announced a $12 billion package, starting in September, two months before the mid-term elections.  That is not quite the estimated $14 billion expected to be lost due to retaliatory tariffs on US soybean farmers, although it would cover a lot, although reportedly also hurting US dairy farmers will also get some of that action, which would reduce the aid soybean farmers will get.

It is unclear where the financing for this will come from.  This will  apparently involve no  action by Congress, but where the money will come from has not been announced. As it is USDA Secretary Perdue who has been identified as overseeing this bailout, presumably the money is coming from existing USDA budgets. But it is unclear what other USDA activities might suffer from cuts in funding for this blatantly political scheme.  It appears the CCC has some funds sitting around in some accounts, but nowhere near the amount that has been announced.  Will the CCC borrow the money?

While I guess this should be obvious, former W. Bush OMB Director, Douglas Holtz-Eakins has denounced this move as violating the purpose of the CCC as laid out both in 1933 when it was established, as well in terms of all of its subsequent practice.  Its support is supposed to be for damages farmers experience due to bad weather and other such natural events.  While aid has extended somewhat beyond that over time, it has never been to compensate for the costs engendered by a policy action of a president as is the case this time. This is without precedent, and even a lot of farm groups are not expressing enthusiasm for it, perhaps because some of them may be worrying that the funds for this will come out of other ag support programs that they are receiving.

Barkley Rosser

Tuesday, July 24, 2018

Screenwriter Dies at Age 100, Of "Rashomon," 1950, Greatest Film of Japan Ever.

Shinobu Hashmoto just died at age 100. His original screenplay for the greatest movie ever made in Japan was initially written while he was recovering in a Japanese hospital for war veterans.with him having tuberculosis. It is famous for showing how different observers of reality may have different views of that reality. The film's director was Kurowsawa, who worked closely with Hashimoto on many of his films. Regarding the greatest of them all, "Rashomon," even though now many see it as the ultimate inside view of Japanese culture, not to mention its far broader philosophical implications, when the film was being made,three assistant directors objected to the making of as they "did not understand" what the film was about. The following is an English translation of Kurowoawa's reply to his assistant directors,  as reported by Harrison Smith in his WaPo obit of Hashimoto:

      "Human beings are unable to honest with themselves.  They  cannot talk about themselves without embellishing.  This script portrays such individuals - the kind who cannot survive without lies to make them feel better than they really are...You say you can't understand this script at all, but it is because the human heart is impossible to understand. If you focus on the impossibility of truly understanding human psychology and read the script one more time.  I think you will grasp the point of it."

Barkley Rosser

Sunday, July 22, 2018

The Most Important Issue At Helsinki

No, folks, it was not the much ballyhooed issue of Russian election interference in 2016, which got so much attention because of Trump's bungled and false statements at the press conference.  Oh yes, for those of us who are convinced he is a bought out stooge of Putin, this all was very delicious, but it was far from the most important issue dealt with in Helsinki.

As always, the most important issue between Russia and the US is nuclear weapons, not Ukraine or NATO expansion eastward or even Putin murdering innocent opponents.  Of course we have this awful problem that we in the US do not know what was discussed for 2 hours privately between Trump and Putin in Helsinki. We are getting claims out of Moscow about supposed deals made, mostly about Syria in terms of specifics, but there remains zero  knowledge among US authorities supposedly responsible for these matters of what the deals are or their details.  As it is, most of the Syrian stuff looks like basically status quo arrangements made on the ground between US and Russian military, most of this dating back to the Obama era.  We needed a summit for this?

Anyway, getting back to the most important issue, nuclear weapons, what we have been provided with is a vague and confused statement: that the INF and "new" START treaties "will be extended."  Well, that sounds nice, but it has some problems, especially with the INF part, although given that START was an Obama treaty with Medvedev, this is some solace given Trump's propensity to simply end anything that Obama did, just because.

The Intermediate Nuclear Force (INF) was agreed to in Dec. 1987 by US President Ronald Reagan and Soviet President Gorbachev.  It is a permanent treaty requiring no special extension.  It bans missiles of intermediate range of especial danger to NATO nations in western Europe.  Until 2014 it was followed by both sides.  Then in 2014 Putin adopted the RS-26 missile that violates the treaty, although he has denied it does.  But US SecDef Mattis thinks it does.

So, what Trump should have had as his top priority in Helsinki and before while visiting NATO allies, whom he dissed, including the EU as our "worst foe," would have been to demand that Putin get rid of the RS-26 missile that violates the INF treaty.  Instead we are told that he and Putin have agreed to "extend" it and the START.  This  is plain awful, but not surprising.

Barkley Rosser

Thursday, July 19, 2018

Trump Tariffs Hit Largest US Aluminum Company, ALCOA

In the history of antitrust law, one of the most important rulings by the US Supreme Court came in 1945, when the Aluminum Company of America (ALCOA), long based in Pittsburgh with heavy Mellon family ownership, was ordered broken up for being a monopoly, following a ruling by Judge Learned Hand.  This was the famous "per se" ruling that said that simple domination of an industry by size was sufficient in the end to justify breaking it up.  However, with the entry of Reynolds and Kaiser into the industry, ALCOA was in the end able to fend off being actually broken up, and today it is still the largest aluminum company in the US and sixth in the world, with Century Aluminum second in the US and Kaiser third. While still with most activity in the US, ALCOA is a multinational company operating in many nations around the world.  Until 2016 it operated in all sectors of the industry, but then spun off some of its specialized processing for auto and aerospace inputs into the Arconic company.

Today stock of ALCOA fell over 4 percent on a report from the company of it expecting to see a , substantial decline in profits in the coming quarters due to the imposition of tariffs on aluminum by President Donald Trump.  So, his imposition of tariffs on aluminum, designed to aid US aluminum producers, will be causing a substantial decline in profits for the largest aluminum producing company in the US.  What is going on here?

It appears that the problem is that the US is increasingly a net importer of unprocessed aluminum that is the main input for companies that process aluminum, which is what ALCOA mostly does, even after spinning off Arconic.  The US has never been a major producer of bauxite, the original source of most aluminum, only producing about 1 percent of global supplies of it.  In term of producing unprocessed aluminum, the US reached a peak in 1980s, with this now only about a quarter of that level today. The US imports $23.4 billion of aluminum products, with nearly half of that, 46.8 percent to be precise, being unprocessed aluminum.  So ALCOA is importing a lot of the unprocessed aluminum it uses to produce aluminum products.  Unlike American steel companies, whose main inputs of iron ore and coal are domestically produced, ALCOA is more like an automobile company that is hurt by the tariffs on steel, which raise its costs.  Thus it is not surprising that the US aluminum industry more broadly has opposed the Trump tariffs, in contrast to American steel and coal companies supporting the steel tariffs.  I note that the US exports some finished aluminum products, but far less than it imports.

The top five nations from whom the US imports aluminum are Canada (36.3 percent), China (15.1 percent), Russia (7.0 percent),UAE (6.5 percent) and Mexico (4.3 percent).  When the tariffs were first announced, meanie Canada and Mexico were exempted due to ongoing NAFTA negotiations, but on May 31, they were included given the apparent breakdown of the NAFTA negotiations.  Back in 2006, ALCOA tried to take over Canada's Alcan, originally a started by ALCOA, but was blocked as Brazil's Rio Tinto took it over instead.  So ALCOA imports a lot from Canada, meaning tariffs on meanie Canada are hitting ALCOA especially hard.  As for meanie China, well, the yuan/rmb has hit a new low for the year against the rising US dollar, which will mean it will still be exporting to the US even as its economic growth rate declines somewhat to about 6.5 percent.  But obviously we have nothing to fear as our "Art of the Deal" president assures us that "trade wars are easy to win."  The meanies will be put in their place, and ALCOA will  just have to have a stiff upper lip and be patriotic along with all our soybean farmers.

Barkley Rosser

Saturday, July 14, 2018

Is Trump Bailing Out Soybean Farmers Or Not?

Chinese tariffs on US soybean exports have now kicked in, with China half the US soybean market, and exports much more important for soybeans than for corn, with the US producing half the world's corn, but exporting less of it than soybeans.  Upshot is that while soybean prices have fallen roughly 20% since Trump started his trade war, corn prices have fallen noticeably less.

Recognizing that soybeans are very important in some key pro-Trump states like Iowa, North Dakota, and Indiana, he has promised to provide aid for them, even as he has at times said that the victims of his trade war will be "patriotic" and continue to support him, even as they lose their jobs, farms, businesses.  Googling suggests that he has himself has not followed through on supporting his damaged soybean farmer supporters, but in fact the situation is unclear.

I have made my annual visit with my old friend who is an Indiana farmer, among other things.  He is glad that he planted more corn than soybeans this year, given that corn prices have fallen so much less than have those of soybeans.  But he tells me that even though the internet says Trump has done nothing to follow up on his promises to help out the soybean farmers, there is a new USDA program to  provide some sort of assistance to soybean farmers.  He has signed up for it, but so far has received no clear information of what is going to come out of it.

As near as I can tell what this might be is a resurrection by somebody at USDA inspired by Trump of the old Commodity Credit Corporation programs that date back to the Great Depression and are still on the books.  I do not know if this is the case or not, but it is hard to see what else it might be. As it is, my friend is curious and hoping to get some assistance, but whether any will actually be forthcoming, much less how much or to what degree Trump actually has anything to do with it specifically, remains up in the air, as does so much else about the Great New Trade War of Donald J. Trump.

Barkley Rosser