Saturday, June 15, 2019

Learning The Origin Of "Duality"

Yesterday I learned that the person who first used the term "duality" in connection with linear programming, indeed with anything in economics, was John von Neumann in a private conversation with George Dantzig in 1947, the "father of linear programming."  That was the year Dantzig published his paper showing the simplex method for solving linear programming problems, bot their primals and their  duals.  Von Neumann wrote a paper on it the same year but did not publish it, with it only appearing in his Collected Papers in 1963, 6 years after he died. 

It is not really surprising that it would be von Neumann as there are deep links between oprimizing programming and game theory.  This would be seen in 1951 when David Gale, Harold Kuhn, and Albert Tucker invented nonlinear programming.  Kuhn and Tucker would, of course, prove the Kuhn-Tucker theorem that deeply involves duality.  1951 would also be the year that Tucker's student, John Nash, completed his PhD thesis with his ultimately Nobel-Prize-winning paper on non-cooperative game theory.  An irony is that while seeing the first prisoner's dilemma experiments at RAND soon after, Nash would become disillusioned with game theory and economics, it would be Tucker who would coin the term "prisoner's dilemma" in an address to the American Psychology Association.

While the term was introduced into linear programming by von Neumann, the concept itself had already been floating around in economics, with its first appearance being in 1886 when Antonelli first derived an indirect utility function.  It would be further developed by Harold Hotelling in a famous paper in 1932 with "Hotelling's Lemma," and the 1942 paper by Roy in which he introduced his famous identity.

While I had previously known bits of this, what I learned yesterday came from an ongoing project of mine to read the entire 3rd edition of the New Palgrave Dictionary of Economics, all 20 volumes of it, nearly 15,000 pages and about 3800 entries.  I am doing that because I am one of the coeditors of the fourth  edition, along with Matias Vernengo and Esteban Perez.  I have learned a great deal from this reading, which has now gotten me through entries for the letter D.  I have a ways to go, but I am genuinely impressed by the job that Steve Durlauf and Larry Blume did editing the third edition.

The original Palgrave Dictionary of Economics was published in 1893.  The current one still has entries from that original one by people like Edgeworth and Wicksteed.  Some of these oldies are really quite fascinating.  But the cumulative effect of reading all of it is really beginning to kind of blow my mind.

Oh, and returning to the original topic, for anyone who does not know, it has long been viewed by many as being one of the greatest mistakes and wrongs that when the Nobel Prize was given for linear programming, Dantzig was not one of the recipients, who were Leonid Kantorovich, the only actual Soviet economist to win a Nobel, and Tjalling Koopmans. There  was room for Dantzig (especially with von Neumann dead), but somehow he got left out.  But then, hey, they never gave it to Joan Robinson either.

Barkley Rosser

The North Korea Food Shortage Deepens

Yeah, I know, the Iran situation is more in the headlines, but nobody knows anything and everybody is shooting off their mouths.  I shall comment on that one when things settle down a bit.

Instead I shall provide info less widely reported coming out of nkecon on the still-unreported-in-MSM story about the increasingly bad food situation in North Korea (DPRK). There are multiple reports.  Drought has hit the principal rice growing area in DPRK.  Also, there is now a serious situation regarding potatoes, the old backup for wheat and rice failures. and generally a widely relied upon staple for DPRK diets.

The latest hot story regarding potatoes is that a couple of people have been arrested and sent to labor camps for stealing potato seeds.  Reportedly this often goes on at this time (actually May when there is a two week period when usually most planting occurs).  Most of the time these people are not themselves using the potato seeds to plant them themselves but selling them to others.  But this year the situation was much more serious last month, and these arrests are a sign of it.

As I argued earlier, this situation is probably aggravating political conflicts within DPRK.  We have seen a weird letter from Kim Jong Un to Trump even dumping on Biden. Trump has now further disgraced himself by not only praising this letter, including specifically for its Biden remarks, but even going so far as to say after Kim's dead brother was reported to have been a CIA informant that, no, not during his presidency will we let the CIA spy on North Korea.  We shall only use DOD intel agencies to keep track of DPRK nuclear weapons programs.

I remind all readers that the fact that DPRK has nuclear weapons is because in the first few months of the second Bush presidency, Cheney and Rumsfeld and John Bolton beat out Colin Powell on Korean policy with their fantasy that we should bring about regime change in DPRK rather than continuing with the nuclear deal that had DPRK not developing nuclear weapons that was in place and more or less functioning, despite some wrinkles. After the Cheney-Rumsfeld-Bolton gang got their way, DPRK withdrew from international agreements and began building nuclear weapons, which it is still doing, with not a damn thing idiot Trump has done to slow them down.

Hopefully, readers of this can see the analogy to the Iran nuclear situation and the appallingly idiotic policies Trump is carrying out, that make the Cheney et al gang look like choir  boys.

For Anne-nominous, still no word on those DPRK folks rumored to have been killed. That nkecon says nothing about that, well, nobody knows.  But they remain disappeared.  More important is that Kim Jong Un seems to have no functioning underlings to negotiate these matters. Josh Rogin in WaPo notes that successful nuclear negotiations involve underlings from both sides doing long and hard work on necessary details, but there are no underlings on the DPRK side. This is now strictly a Trump-Kim show, but it looks like neither of them is sufficiently competent at the art of the deal to pull a serious nuclear one off, whether or not the missing negotiators in DPRK are dead or alive.

Barkley Rosser

Thursday, June 13, 2019

Robert J. Samuelson Goes Whole Hog Against Dems On Social Programs

I want to follow Dean Baker in dumping on the Robert J. Samuelson Monday, 9/11/19 WaPo column on "The Democrats' fairy-tale campaigns."  He may be right that lots of proposals have been put forward with no clear accounting of how much all of them will cost, but RJS also fails to recognize some might save money, such as a properly structured universal health care program that might move us more towards the costs we see in other nations.  Of course, RJS regularly uses this column to call for cuts in Social Security benefits, so that some of these candidates dare to call for increased such benefits has him really riled up.  How dare they!?!?

Aside from reminding that RJS has regularly been misguided on Social Security projections, he goes after  him for not noting the role of patents and other regs supporting monpoly power, especially in the health care sector, including supporting outrageously high doctor salaries.

As it is, RJS whines about the size of budget deficits and claims the next president will need to increase defense spending.  This latter is not obvious. Trump has done a lot of increasing it, and restoring damaged US alliances does not obviously call for more spending.  How about just behaving better and making outrageous demands of US allies, including a stupid trade war?

The additional item I see him not mentioning involves taxes.  Implicitly no tax increase can play a role to pay for new programs, and this is how he almost always how he addresses Social Security, where what mush happen is benefit cuts, no tax increases.  But nearly all the candidates have called for at least undoing the large Trump tax cuts, which have been quite unpopular, and most also call for going further with increased taxes on the wealthy beyond what we had earlier.

I shall add here that today the NY Times in an article by Jeff Sommer is adding on to the standard hysteria over Social Security, although there is not really much new.  The big news is that indeed in 2020 the long built up assets of the SSA will start to get drawn down, with a projection of those getting used up by 2035.  This is not news.  Sommer does go on and on in detail about how if nothing is done, SS recipients will face 20 percent or so cuts in SS benefits.  I must differ with this.  Of course, that will not happen, but as has long been the case the calculation does not account for the fact that benefits will rise.  By my calculation, if such a cut were to happen, it would put real benefits back to about where they are now in real terms.  This is an overblown story.

Back to Samuelson, I shall conclude by noting that he makes some outright incorrect comments. In particular he claims that "Government does more things for more people than ever in U.S. history."  No, sorry RJS, that is just false.  Social spending as a percent of GDP peaked in 2010 as automatic stabilizers were kicking in big time.  Yes, SS and Medicare and Medicaid have now gotten above 10 percent of GDP. But even with no changes, the much denounced SS increase will only amount to another one percent of GDP.  This is the coast of the baby boomers retiring, not that big of a deal.  Yes, there is a problem in health care, but this calls for more fundamental change, indeed, probably a universal health care coverage system that gets costs under control like other nations do.

Barkley Rosser

Thursday, June 6, 2019

75 Years After The Longest Day

Yes, I am watching "The Longest Day" on TMC.  Have not seen it for decades, but this 75th anniversary of D-Day seems to be the time to do it.  This will be a rambling post all over the place.  I note that according to the film, it was German Field Marshall Rommel who is depicted calling it "the longest day," the day before it happened, seeing it coming.

I have been there several times, first in Fall 1953 when I was young and it was cold and rainy.  Three times in1994, 1997, and 2002 I and my wife, Marina, took students to visit the site, always impressive and moving, especially the famous cemetery.  In 1994 my late mother was with us and went around thanking veterans, who were visiting in large numbers as that was the 50th anniversary.

Unsurprisingly President Trump has been trying to get lots of attention for the celebrations of the anniversary, keen to hang out with the queen, who was actually around for the real thing, telling her how much his late mother admired her, one of the rare times we have heard him say anything about his mother.  Supposedly Macron got more applause at the Portsmouth gathering that had the queen and even Merkel apparently, although not Justin Trudeau, even though the Canadians were a major part of the invasion.  Putin was also not there (more on that later).  I am not going to waste time going on about the usual stupid things Trump has said and done other than to agree with the commentators who find it appalling that he is draping himself in this when so many things he is doing and supporting go against the ideals of those who landed there that fateful and bloody day.

A curious coincidence is that today was the last day my wife, Marina, was teaching.  She is now retired.  For her final lecture she argued that trade is an alternative to war.  Needless to say, this is something that Trump seems to be unaware of.

Before she went to class in the morning we heard a commentator on local radio going on about how this was the decisive turning point of the war, which would be followed by "our guys going to Berlin."  I do not wish to minimize D-Day at all, and certainly not the sacrifices of those who died there, but this is quite aside from the outright inaccuracy of thinking it was Americans who "went to Berlin," this reflects a longstanding ignorance by many Americans about what really happened in WW II.  It was all about us and D-Day, but as most readers of this probably know, the Eastern Front was the most important action, with many times more dead, and the Battle of Stalingrad the real turning point of the war, not to mention that it was the Soviets who got to Berlin first, although the other allies would get their pieces of Berlin later.  Indeed, while later many in the US would complain about our letting the Soviets get there first and taking over so much of Eastern Europe in the bargain, in fact Stalin had begged the Americans and British to invade much sooner.  As it was, the Soviets ended up doing the worst of the heavy lifting.

Which brings us up to Putin not being at Portsmouth, much less on Omaha Beach this morning.  This is understandable as we did not send anybody to their big memorial of the war, Victory Day, May 9.  This has long been one of the biggest holidays of the year in Moscow, both under Soviet rule and since under Russian rule.  As it was, after the end of the USSR there was a period when the military parades were cut back and even eliminated, although it remained a big celebration. But recently Putin has reinstated them.  The war is being increasingly emphasized as a national inspiration, and Stalin is being rehabilitated big time. Nevertheless, at this year's military parades on Red Square, there was only one foreign leader, with him in fact officially stepping down, although into a superior position still in ultimate control, Nursultan Nazarbaev of Kazakhstan, the last ruler of a former Soviet republic to have actually run his republic under Soviet rule as local Communist Party leader.  So, no surprise Putin did not show up for the D-Day celebrations, having a meeting in Moscow with China's Xi Jinping instead.

As for Trump, well, he is spending the night at his gold course in Ireland for a second evening before he heads back to Washington so he can declare a new national emergency to save us from all rhose illegal immigrants coming in from Mexico.  Bring on the tariffs says our bone spur leader!

Barkley Rosser

CORE and Periphery in the Reform of Econ 101

Thanks to Greg Mankiw, I’ve seen a preview of the piece by Sam Bowles and Wendy Carlin that will be published in a forthcoming Journal of Economic Literature.  It’s apparently part of a roundtable on the teaching of introductory economics, and not surprisingly Bowles and Carlin focus on the freely downloadable CORE text produced with support from the Institute for New Economic Thinking.  The starting point of their article is the revolution in economic textbooks inaugurated by Paul Samuelson in 1948, when Keynesian analysis and policy became the centerpiece of what every introductory student was expected to know.  Today, they say, we need a new revolution, since the introductory texts are equally out of date and fail to grapple with the issues students rightly care about.

Much of the article is taken up with a detailed comparison of their text to two leading competitors, those of Mankiw and Krugman/Wells.  They use frequency of word use to contrast the relative importance of different topics and describe in a more general way the key benchmark models that structure the alternative narratives.  They make the point that major changes in economic theory, such as greater behavioral realism, the relevance of institutions and the role of game theory, are largely absent from the mainstream texts but fundamental to CORE’s.

Of course, I strongly urge everyone one of you who happens to be an economics instructor to check out CORE.  It brings together the thoughts of a number of leading economists on how to make frontier concepts accessible to novices.  It is intellectually stimulating, and the price is right.

I want to suggest one limitation of the CORE initiative, however.  It’s actually congenital: according to the Bowles/Carlin writeup, CORE was born at an NBER meeting in 2013 and evolved through a series of international workshops (sixteen on six continents) and working groups to its present state.  It is clearly the product of a group of internationally prominent economic thinkers and researchers.  It is not the product of economists who have devoted a substantial portion of their career to the study of pedagogy.

CORE addresses one of the two main problems with the introductory economics course, that the intellectual substance is largely past its sell date and does not lend itself to the controversies most students will face in the years ahead.  Good!  But the other problem is that economics is typically taught in a manner that is both authoritarian and ineffective—too much indoctrination and not enough learning.  While it is important to crusade for better conceptual frameworks, it’s equally urgent to challenge doctrinaire economics instruction at the level of classroom dynamics.  In my view, while CORE can be adapted to some extent to an improved pedagogy, it is not more conducive in that respect than the mainstream texts it wants to supplant.

What’s the problem, exactly?  Overreliance on lecturing and minimal scope for critical thinking.  Let’s begin with the consecration of talk-and-chalk, or its current electronic update, as the only worthy mode of economics instruction.  Students are expected to listen attentively, take thorough notes and demonstrate their retention/comprehension on problem sets and exams.  No doubt a few of them take well to this and succeed magnificently; they’re the pool from which future economics instructors will be drawn.  Most do not.  Rather, they thrive on some form of active learning, which includes case studies, workshops and projects.  There is a vast literature that demonstrates the superiority of active learning across a range of disciplines, and economics is not an exception.

One reason lecturing has become so embedded in economics teaching is the emphasis on formal modeling, even at the introductory level.  The difference between Econ 101 and the specialized courses for advanced majors and grad students is not the share of time devoted to models but only their complexity.  CORE apparently prides itself in having more analytical diagrams relative to verbal description than either Mankiw or Krugman/Wells, but it is exactly this approach that requires instructors to spend hour after hour in lecture trying to make the models digestible for newbies.  In pointing this out, I am not damning all use of formal models—hardly.  Economics without the discipline of thinking in models is vacuous.  But there is a lot more to economic reasoning than cranking through models, and by foregrounding these aspects the need for lecturing can be reduced.  Much intuition, for instance, can be built up inductively through careful examination of cases rather than handed down as a tight construction of assumptions and proofs.  Similarly, empiricism can and should be brought in through project work—actually digging up and thinking about economic data—than just plugging numbers into toy models.  I should mention in this context that this year, finally, I managed to flip my classroom, posting lectures as streaming videos that students could view at home, while devoting class time, as much as possible, to workshops.  It was just a start, but even these baby steps were superior to the old, pre-flip approach.

The other problem, authoritarianism, is related to the first.  Models have right and wrong forms of understanding, and to the extent the class is taking up with figuring out how the models work and can be applied, thinking operates within a right/wrong framework.  True critical thinking is about limits and tradeoffs: how a model that might work in one situation would be misleading in another, or how the simplifications embedded in a model may help you see one thing but blind you to something else.  A critical thinking approach to economics has to employ fewer models and give more attention to context, assumptions and purposes.  In the real world people have to make judgment calls about what forces at work in a situation are the most consequential—which stories to bring to bear, and which ones to tuck away for another time.  It is that capacity for judgment that critical thinking activities are intended to build, and a useful text would be one that modeled the process in an open-ended way.  The conventional economics texts don’t do this, and CORE doesn’t either.

So for me, CORE bats one out of two.  That’s way ahead of zero but not yet what we need.  I hope its proponents can recognize that introductory economics has a pedagogy problem as well as a theory problem, and that their 2.0 will take strides in that direction.

Tariffs and Monetary Policy: Moral Hazard and Rent Seeking

President Trump's threat to impose tariffs on Mexico over immigration has pushed Federal Reserve Chair Jay Powell to say that if the tariffs lead to economic growth slowing, the Fed will cut interest rates.  While the bump may be about to end, this announcement was followed by a  solid global surge of stock markets on June 4 followed by smaller increases the next day.  This sets up a moral hazard situation for Trump where if he behaves irresponsibly on trade policy (with even GOP senators basically freaking out), the Fed might bail him out with interest rate cuts.

How is rent seeking entering into this?  I note a point just made by Dean Baker, that all these tariffs Trump is imposing on his own without any Congressional approval offer him the option of allowing specific exemptions from them.  So Trump can grant exemptions to specific sectors or even firms that favor him.  So Trump's trade wars are opening up a whole new vista for rent seeking.

Finally, and unsurprisingly, many of his trade policies look to fail to achieve their supposed goals.  This is pretty obvious for the case of the tariffs on Mexico, which by potentially weakening the Mexican economy weaken Mexico's ability to reduce Central Americans from to the US.  Another case involves the Chinese firm Huawei, supposedly both to enhance US national security and support the US high tech sector.  But according to a story in the Washington Post, 6/5/19 reports that 61 percent of experts say that Trump's ban on US firms supplying parts to Huawei will both weaken US national security by reducing US influence over Huawei and the whole 5G sector, with the relevant US firms being hurt.  I do not think even the Fed can bail the US economy out from this mess.

Barkley Rosser

Tuesday, June 4, 2019

A Bernie Sanders Narrative for Seniors

What follows is some unsolicited advice for the Sanders campaign.

Politico has an important piece on the downside of the extraordinary age bias in Sanders’ support.  Like a teeter totter, the large advantage Sanders enjoys among younger voters is counterbalanced by his dismal showing among the older crowd.  The article reviews voting breakdowns from the 2016 campaign and current poll results, and it shows that Sanders is not just behind among seniors, but way, way behind.  His political strengths guarantee he will survive the winnowing of the twenty-odd 2020 pretenders, but sheer arithmetic suggests he will need to make significant inroads among older voters, something he hasn’t done up to this point, to overtake Biden—assuming of course Biden doesn’t overtake himself.

So how can he do this?  The first thing to realize is that he doesn’t need absolute majorities among retirees and near-retires, just enough support so his advantage among the non-elderly isn’t erased.  The second is that direct material benefits alone are never enough.  People don’t simply vote in their immediate financial interest, although of course interests play an essential role.  Economic motives are like nuclei around which layers of narrative form, but it’s the narrative—the meaning—that orients people, and an economic condition can be explained in multiple ways.  Not all explanations are equally valid, of course, but in politics that’s largely irrelevant.  So yes, Sanders can and should talk up Social Security expansion and how universal health insurance would benefit  those on Medicare too.  But that’s not a sufficient political strategy; it lacks an encompassing narrative.  This narrative doesn’t have to be one all older people will gravitate to, but it has to speak to a significant portion of them.

And that’s where this post comes in.  Here’s a narrative I would recommend if I were on Bernie’s staff: As a democratic socialist, I have always believed in a future that we could approach step by step through political and social change.  That’s the America I once lived in, too.  It wasn’t perfect, not even close.  We had poverty, inequality, racism and sexism, military adventurism, and domination by the rich and monopolistic corporations.  Yet we also had steady progress against all these things, made possible by a relatively open political system—in other words, by democracy.  But for several decades that progress has stalled, and many of these problems have actually become worse again.  The system has shut down, and it will take radical means to open it up again so our country can resume moving forward.  For those of us in my generation who have seen all of this in our own lives, the era of reform and progress and then the era of blockage, this is our final opportunity to leave our legacy to the young.  It is an opportunity to recover the idealism that once, in the days of people like Martin Luther King and Bobby Kennedy, seemed almost mainstream but now demands a revolution.  We know what America was like before it became a plutocracy, and we can come together again to return to the path of democracy.  This is not about returning to the past, but returning to a possibility we knew when we were young that the future could be ours to win.  One way or another, we will leave a legacy to our children and their children’s children.  Let it be this legacy of democratic possibility.

Then talk about Social Security and health care, and the need for a politics that can actually put these issues on the table and make the needs of the majority the driving force for change.

A Very Erroneous Chart in the Economic Report of the President

Menzie Chinn has been reading the latest Economic Report of the President and finds a very erroneous and misleading chart, which is figure 1-6 from this this document (see page 45), which states:
Equipment investment, in particular, exhibited a pronounced spike in the fourth quarter of 2017, as both the House and Senate versions of the TCJA bill, which were respectively introduced on November 2 and November 9, stipulated that full expensing for new equipment investment would be retroactive to September 2017. This created a strong financial incentive for companies to shift their equipment investment to the fourth quarter of 2017, so as to deduct new equipment investment at the old 35 percent statutory corporate income tax rate. After the initial spike in the rate of growth in fixed investment, standard neoclassical growth models would predict a return of the rate of growth to its pre-TCJA trend, but from a higher, post-TCJA level, with the capital-to-output ratio thereby asymptotically approaching its new, higher steady-state level.
Earlier on page 43 we see:
Despite expected adjustment costs and investment lags in the transition to a higher-target capital stock, the first three quarters after the TCJA’s passage saw a notable acceleration in investment. Figure 1-6 reports growth in real private nonresidential fixed investment from the time of the TCJA’s passage until the third quarter of 2018, both for nonresidential investment overall and for the major subcomponents of structures, equipment, and intellectual property products, expressed as compound annual growth rates
Menzie looks at the equipment investment calculation:
My calculations indicate that (stochastic) trend annual growth rate over the pre-TCJA period indicated by the ERP is 7.8%, not -2.2% as indicated in ERP Figure 1-6. The TCJA period growth rate is 6.4%, rather than the 6.6% reported. Using the vintage the CEA probably used (December 2018 release) does not change these fundamental patterns.
I decided to look at FRED data on real private nonresidential fixed investment and suspect Hassett’s 1.5% growth rate for the pre-TCJA period really should read 5.1%. I suspect careful readers can find all sort of errors in this document, which begs the question how could the Council of Economic Advisers get the basic data on an important issue so very wrong. Or did Hassett outsource this chapter to Lawrence Kudlow?

Sunday, June 2, 2019

A Tariff Laffer Curve?

Douglas Irwin is a very good economist. Let’s highlight his Historical Perspectives on U.S. Trade Policy:
The Civil War marked the beginning of a long period of high U.S. tariffs. These tariffs served the dual purpose of raising revenue for the federal government and keeping out foreign goods, ostensibly for the protection of U.S. labor and business. After the war, tariffs (which generated roughly half of government revenue) remained high to service the enormous debt burden that resulted from the war. Yet by the mid-1880s a curious problem had arisen: though much of the debt had been paid off, federal revenues were outstripping expenditures by as much as 50 percent. Republican and Democratic politicians agreed that the fiscal surplus should be reduced, but they proposed exactly the opposite policies for achieving this objective. Democrats advocated cutting tariff rates in an effort to reduce revenue. Arguing that this would simply encourage imports and raise even more revenue, Republicans proposed higher tariff rates to reduce fiscal revenue. This debate over the tariff "Laffer curve" essentially hinged on whether existing tariffs were above or below the revenue-maximizing rate, which in turn depended on the height of the tariff and the price elasticity of import demand.
Irwin examined this issue in his Higher Tariffs, Lower Revenues? Analyzing the Fiscal Aspects of the "Great Tariff Debate of 1888":
This paper examines this debate and attempts to determine the revenue effects of the proposed tariff changes. The results indicate that the tariff and the price elasticity of U.S. import demand during the 1880s below the maximum revenue rate, and therefore a tariff reduction would have reduced customs revenue.
Irwin also contrasts the other policy agendas of the two parties. Democrats wanted to lower tariffs to “ease the tax burden on consumers and farmers, and to eliminate inequities associated with special interest protection”. Republicans feared import competition as lower tariffs “would expose American industry and workers to foreign competition and thereby jeopardize the economic well-being of the country”. His paper notes that the typical tariff back then was even higher than the tariff rates being considered by the Trump White House. His estimates of the revenue-maximizing tariff rate, however, suggests that lower tariff rates would reduce tariff revenue. Of course, today we have other ways to raising Federal tax revenues as opposed to inefficient tariffs, which is why U.S. fiscal policy had relied on these other taxes and not tariffs before Trump.

Art Laffer is Not an Economist

Can The Hill be more wrong?
President Trump will award the Presidential Medal of Freedom, the nation's highest civilian honor, to economist Arthur Laffer, the White House announced Friday. The president will honor Laffer on June 19 for his contributions to economic policy. The White House described Laffer as "one of the most influential economists in American history" in announcing the award.
OK the Idiot-in-Chief did say that but repeat after me – Art Laffer is not an economist. Why did Trump debase the Presidential Medal of Freedom and the entire economics profession?
Laffer co-wrote a book published last year titled "Trumponomics: Inside the America First Plan to Revive Our Economy." His co-author was Stephen Moore, who earlier this year was nominated to serve on the Federal Reserve Board of Governors but withdrew amid bipartisan opposition from senators.
Well at least The Hill got this right. But this?
Laffer championed supply-side economics and gained prominence serving as a top adviser to then-President Reagan. He established what is known as the "Laffer Curve," which showed that increases in tax rates will eventually cause government revenue to decrease at a certain point. The model has been cited to argue for the benefits of tax cuts. Critics of supply-side economics argue that it has contributed to inequality and disproportionately benefits the wealthy.
The inequality critique is not the only issue with tax cuts that reduce national savings. Couldn’t The Hill note that the 1981 tax cut lowered investment via higher real interest rates as well as appreciated the dollar leading to large trade deficits? Enough with this weak account as Slate got this right!
Trump Gives World’s Worst Economist the Presidential Medal of Freedom
A better read and if you are going to dub Laffer as an economist please note he is a very poor economist. But at least he lavished Trump with praise.

Saturday, June 1, 2019

North Korean Near-Famine Reportedly Leads To Dead Nuclear Negotiators

It has not been officially reported by the North Korean govt, but long running rumors are now being reported by various  serious media that Trump's big pal Kim Jong Un has recently killed the top 5 officials of his govt who set up his  failed summit with US President Trump.

According to sources I watch there has been a massive crop failure this year in the Democratic Peoples' Republic (DPRK). The big issue there is if the local, semi-allowed private markets in ag will save the population from outright starvation. At this time this is not  known.

So this difficult situation may be partly responsible for Kim Jong Un killing the top five negotiators with the US on nuclear weapons for the summit in Hanoi.  In addition, reportedly five more senior officials have been sent to rural labor, or something like that.

A report from South Korea's Chousn Ilbo nuwspaper is that whom Kim Jong Il killed was Kim Hyok Choi, along with four others, although this has not been confirmed by outside observers.  The newspaper also claimed that five other officials were sent to hard labor, but at least one of those has appeared in public, so this raises questions about this report, which some doubt (see comments below)

The unclear question is how much will the unofficial private markets in DPRK will save people from outright starvation/famine. The deepest  sources ai have followed say that it is unclear.  DPKR is not a "normal" country, and we have no way to know what is actually going on there now.

Given that his nation is facing food shortages, it is not surprising that he may be facing an internal challenge, and now we see that manifested by him overcoming any inside opposition by killing these five individuals. 

Note that this post has been revised in light of new information and comments below.

Barkley Rosser

Friday, May 31, 2019

Trump’s Latest Mexican Tariff Tirade Irks Senator Grassley

Senator Grassley rebukes the latest idiocy from the White House:
President Trump dropped a trade war bomb on Thursday when he announced his intent to put in place new and harsh tariffs on goods from Mexico until the “illegal Immigration problem is remedied.” And among the many worried, negative reactions was one from Senate Finance Committee Chair Chuck Grassley, in a strongly worded statement. “Trade policy and border security are separate issues. This is a misuse of presidential tariff authority and counter to congressional intent,” the statement begins. “Following through on this threat would seriously jeopardize passage USMCA, a central campaign pledge of President Trump’s and what could be a big victory for the country.” Putting this in the context of harming Trump’s own signature USMCA (the replacement for NAFTA) is a smart frame, an effort to show that the tariffs are in conflict with the administration’s own trade goals.
First Tramp thinks NAFTA is the worst trade deal ever but NAFTA 1.1 is beautiful. But now Trump wants to start a new trade war with Mexico because he did not get his racist wall? OK! Of course Trump is not the only one with a twitter account and Paul Krugman has joined Senator Grassley with lines like:
Leave the economics on one side, and consider the supposed legal justification. U.S. trade law gives the president huge discretion to impose tariffs, as long as he is willing to make bizarre claims – i.e., Canadian steel threatens national security. But imposing tariffs without Congressional approval to serve goals that have nothing to do with trade policy – in this case, an immigration crisis that exists only in his mind – goes well beyond even the brazenness of his previous actions. So he's claiming justification under the International Economic Emergency Powers Act, which he claims basically lets him do anything he wants in response to anything he declares to be an emergency. I don't see any limits under this interpretation. Could he, for example, impose punitive tariffs on Swiss watches because Swiss newspapers run cartoons that make fun of him? Why not?
Krugman continues by noting some basic economics:
OK, the economics: What we import from Mexico are a lot of consumer items, especially food items, plus Mexico is a key part of the supply chain in various manufactures, especially autos. So this would hurt U.S. consumers and also hurt competitiveness of U.S. companies. So this would be stagflationary: higher inflation plus lost jobs. Industry would howl. Also very nasty for U.S. farmers if Mexico retaliates. Plus we are, of course, throwing away any remaining credibility as a negotiating partner.
Let’s also think about the Mexican economy which will be hurt by these tariffs. And if employment prospects decline in Mexico, this will likely increase the immigration flows from Mexico. So Trump’s latest insanity will only increase what he sees as a major problem. Yes – our President is a very stupid person.

Wednesday, May 29, 2019

Will China Play The Rare Earth Card In The Trade War?

The rumor that China might play its "rare earth card" was the rumor today that helped push down both stock and oil markets according to a variety of reports.  The trigger for this seems to have been a visit on May 26 by China's president, Xi  Jinping, to a rare earth facility, along with some rumbling statements associated with that visit.  They may not do it, but the possibility of blocking exports to the US of exports of rare earth metals shows that China has potential weapons if Trump follows through with more vigorous trade barriers.  How serious is this threat?

It is probably not as serious as it might  have been a decade ago.  In 1990 a solid majority of these critical elements were produced outside  of China, with the US being a major source, particularly California.  But production here and in some other nations such as Australia was reduced substantially as mining of many of these involves substantial environmental damage.  At the same time China entered the opening and expanded production, getting to be the source of about 90 percent of all production by 2010.  However, due to events then increased efforts to increase production of them elsewhere, especially Malaysia, Australia, and South Africa, has reduced this to 70 percent.

In 2010 China used the weapon against Japan.  A Chinese fisher was captured by Japanese forces when he  entered a zone controlled by the Japanese but claimed by China.  As the Chinese demanded release of the fisher, they halted exports of several of these metals used to produce electric cars. The Japanese gave up and returned the fisher.

There are 17 of these recognized rare earth elements, although it is often noted that they are not really all that rare.  Some of the more important ones are neodymium,  which is used in lasers and in magnets used in wind turbines and electric motors, yttrium used in superconductors, lanthanum used in cameras and telescope lenses, cerium used in catalytic converters, yttrium used in superconductors, gadolinium used in TV screens and MRIs, and praseodymium used in aircraft engines.

An irony of this situation is that these rare earths are used in technologies that are important to move us off dependence on fossil fuels towards more sustainable energy sources, such as wind and electric cars.  This may be a serious limit to long run growth. It is ironic that this may be getting caught up in a stupid trade war staged by our president against China.

Barkley Rosser

A Decision Theory Case to Chew On

Here’s something I posted over on Andrew Gelman’s wonderful blog:
I read Alive and thought it unknowingly made a very powerful point about decision theory, that you always have to balance the risks of action against the risks of inaction. The plane was stuck in snow on a slope that led down to a valley that was partially inhabited. Yes, the immediate survivors could not see this, and sending a party down the slope seemed very dangerous (which it was), so they delayed for months. Meanwhile, without thinking explicitly about it, they accepted the risks of staying put, which included the obvious one of an avalanche (how can you not know this about snowy mountain slopes?), which in fact transpired, killing a large fraction of those who had survived the initial crash. In retrospect, once it was obvious they would not be rescued by being spotted from the air, they should have sent a party down to the valley, and it is probable many lives would have been saved. The whole cannibalism thing is a distraction, IMO.
As for the munchy business, I once knew someone who, when giving his name at a restaurant, said “Donner” so he could hear them call out “Donner party of four!”

Tuesday, May 28, 2019

Conservative Economists Discover the Baumol Cost Disease

A little over a year ago Mark Perry wrote this nonsense:
The chart above (thanks to Olivier Ballou) is an update of a chart we produced last year about this time, and shows the percent changes since January 1997 in the prices of selected consumer goods and services, along with the increase in average hourly earnings in this version … Blue lines = prices subject to free market forces. Red lines = prices subject to regulatory capture by government. Food and drink is debatable either way. Conclusion: remind me why socialism is so great again.
To which I reminded him of the Baumol cost disease and followed up with this. It is good to see that Alex Tabarrok has been thinking about this issue as has John Cochrane. Read their posts as there is a lot of great discussion but permit me to cite just this:
I assumed that regulation, bloat and bureaucracy, monopoly power and the Baumol effect would each explain some of what is going on. After looking at this in depth, however, my conclusion is that it’s almost all Baumol effect.