Why “Entitlement” Cuts and Not Tax Increases Again?

John Cochrane has to remind us that he co-authored a really bizarre oped:

Unless Congress acts to reduce federal budget deficits, the outstanding public debt will reach $20 trillion a scant five years from now, up from its current level of $15 trillion. That amounts to almost a quarter of million dollars for a family of four, more than twice the median household wealth. This string of perpetually rising trillion-dollar-plus deficits is unprecedented in U.S. history.

Oh good grief! Can one say relative to GDP? We are also about to see a $20 trillion per year level of national income – “unprecedented in U.S. history”. But yea – they did begin with mocking this Trump nonsense:

President Trump's recently released budget is a wake-up call. It projects that this year, a year of relatively strong economic growth, low unemployment and continued historically low interest rates, the deficit will reach $870 billion, 30 percent greater than last year.

Relatively strong economic growth is not exactly the same as Kudlow’s forecast of 5% growth is it? Oh wait – Cochrane and company have been touting strong growth effects from the Trump tax cuts. Never mind. Back to Cochrane the new found deficit alarmist:

In recent months, we have seen an inevitable rise in interest rates from their low levels of recent years. Rising interest rates and increasing deficits threaten to build upon each other to send public debt spiraling upward even faster. When treasury debt holders start to doubt our government's ability to repay, or to attract future lenders, they will demand higher interest rates to compensate for the risk. If current spending and tax policy continue unaltered, higher interest costs will have to be financed by even more debt. More borrowing puts more upward pressure on interest rates, and the spiral continues. If, for example, interest rates were to rise to 5 percent, instead of the Trump administration's prediction of just under 3.5 percent, the interest cost alone on the projected $20 trillion of public debt would total $1 trillion per year. More than half of all personal income taxes would be needed to pay bondholders. Such high interest payments would crowd out financing of needed expenditures to restore our depleted national defense budget, our domestic infrastructure and other critical government activities. Unchecked, such a debt spiral raises the specter of a crisis. Some may think that such concerns are overblown, as there is no current evidence in financial futures markets that a crisis is on the horizon.

Let’s stop right there and note that the interest rate on 30-year government bonds is only 3% not 5%. But of course Cochrane knows so much more than the market knows – I guess. But yea there is a long-run government budget constraint so let’s get to the policy prescription:

To address the debt problem, Congress must reform and restrain the growth of entitlement programs and adopt further pro-growth tax and regulatory policies. The recently enacted corporate-tax-reform plan is a good first step, as it sharply increases the incentive to invest and grow businesses, which will increase incomes. The revenue loss, which amounts to about 0.4 percent of gross-domestic product in 2025, is not by itself a budget buster, considering both the offsetting revenue reflow from higher incomes and the far larger long-run entitlement explosion.

Yea – that Laffer curve! Kudlow is a genius! PLEASE! Their message is that tax cuts for the rich as fine and dandy but we cannot afford to honor your Social Security benefits. Didn’t we cover this already? AddendumOf course I should turn the microphone over to the two Justins! Justin Fox is right: Beware of Economists Crying 'Entitlement Explosion'- Our inability to speak frankly about the nation's fiscal situation has real consequences. He is criticizing the same oped as he provides a much more detailed and honest discussion of the issues. Meanwhile Justin Wolfers does a nice job of debunking the supply-side silliness:

Corporate tax cuts will put billions of dollars back in the hands of businesses this year. Naturally, people want to know how those businesses will spend it. But the answer doesn’t really matter, at least not for understanding whether the tax cuts were a good idea. That’s because the economic case for corporate tax cuts has almost nothing to do with what corporations do with the extra cash. Economists generally recognize that corporate tax cuts have two quite distinct effects. First, a tax cut increases the incentive to invest... This incentive effect drives most economic models of investment, and few economists debate its underlying logic, although there’s considerable debate as to whether it will yield a large or small increase. Second, a tax cut showers extra cash on companies. That cash largely comes from companies that are suddenly paying a lower tax rate on profits earned from past investments. This windfall has a big effect on the distribution of income, with billions of dollars going to owners of capital at the expense of taxpayers. But few economists believe that this cash transfusion will do much to bolster future investment, because the profitability of a new capital project depends on future revenues and expenses, not on how much cash a company has lying around.

Most models of investment also note that a higher cost of capital discourages investment. Cochrane et al. are worried about higher interest rates but then they ignore this effect on investment as they hype the incentive effects. It is entirely plausible that the extra consumption from rich people getting showered with the Trump tax cuts will actually crowd out investment and reduce long-term growth. So what we will get is mainly a higher deficit. When Cochrane calls this a good first step – one has to wonder what the real agenda is.

Anniversary of Yeshua bin Yusuf dying on a cross.

Today is "Good Friday" for most of established world ruling Christianity. It is indeed the recognition of the single most historically realistically accepted event of the life of this world historical individual, his death on the cross a bit under 2000 years ago. Three of the Gospels, Matthew, Mark, and John, two of which reportedly observed this as live personal observers (Matthew and John) agree on the final words of this world-historical individual. Those were according to Matthew and Mark (the oldest of the gospels), "Lama lama, Sabacthania," ("My God, why hast thou forsaken me?").  This is , the mother-tongue of Yeshua bin Yusuf, the man who died on a cross just short of 2,000 years ago.

The woosey version of this comes from Luke, not an actual personal observer of this, the single most historically for real event of the life of Yeshua in Yusuf. He claims that when Yeshua died his last words were "Father forgive them, for they know not what they do."  But unlike Matthew and John he was not there, so there (and Mark's earliest Gospel) what the eyewitnesses saw is probably what happened.  For better or worse this is one of the most important people who ever lived, and his death is the single event most observed and recorded, and those who were actually there do not have this frankly bs line about forgiving those who made him suffer on the cross. This is the bowdlerized version of what happened that Luke sold to the world based on Paul's revision of what went down, a vision that it is not clear Yeshua bin Yusuf would have accepted.

I have twice visited the generally accepted site of the Crucifixion, in the Church of the Holy Sepulchtre, a very strange place beyond it's containing the most likely location of the most seriously recorded event of the life of the wise Jewish Prophet, Yeshua bin Yusuf.  That just before he "gave up the ghost" as the KJV books of Matthew and Mark and John say, he said in his  mother tongue of Aramaic, "Lama lama, sabachthani," translated into English as "My God, my God, why hast thou forsaken me?"

Well, I appreciate that this is not the standard fare for this blogsite, so I apologize to any and all for my posting this.  But this is how I view what really went down. And as someone who knows about torture personally, well, I have sympathy for this wise person who suffered in a way none of us will.

Barkley Rosser  
   

The Coordinated Activity Theory of the Firm

I just got around to posting this paper on SSRN, although it was written a couple of years ago.  I need to cite it for other work I’m currently doing, so it has to be out there, somewhere.  It is a more concise version of the theory than previous renditions and stays closer to the main point.

What it shows:

There is a simple explanation for why firms exist, why they have the boundaries they have, and why they are organized as they are, which is superior to the alternatives—and it has nothing to do with transaction costs or anyone whose name begins with the letter C.

This theory is implicit in much of the management literature, especially strategic management.

It’s based on the same math as fitness landscapes, but it doesn’t draw on evolutionary theory.

It exemplifies a more general methodological approach that de-emphasizes hill-climbing (optimization theory derived from concave programming) and emphasizes instead hill-finding.  There are many potential applications in economic theory, but the theory of the firm stands out.

For the life of me, I don’t understand why this approach to the economics of the firm isn’t universally accepted.  Hardly anyone even knows it exists.  It strikes me as too obvious to take credit for or be proud of.

Here's the abstract:

This paper proceeds from the assumption that economies are characterized by a high degree of interactive nonconvexity in most activities and at most scales.  The consequence is nonconvex production and preference sets and the corresponding inefficiency of myopic algorithms.  One application of this perspective is the theory of the firm.  Conventional theories explain the existence, boundaries and internal organization of firms on the basis of contracting costs that impede the otherwise optimizing properties of market decentralization.  I propose instead an approach in which the motive for organizing production within rather than between institutions is to internalize nonconvexities, thereby obtaining the benefit of explicitly coordinated plans.  A useful device for representing this problem is the profit landscape, understood to be nonconvex in the sense that fitness landscapes are in evolutionary theory.  Firms face three types of challenges, optimizing with respect to a particular profit hill (the problem analyzed in standard microeconomics), selecting a desirable hill, and achieving flexibility to transition between hills in the face of environmental change.  These entail tradeoffs, which are reflected in the diversity of personnel, organizational, and innovation strategies observed in actual enterprises.  While the use of the landscape metaphor in coordinated activity theory resembles a similar deployment in evolutionary economics, the two approaches differ in the questions they ask and the units of observation and analysis they employ.  The applicability of the coordinated activity model is underscored by its congruence with the bulk of management literature, which can be understood more readily in terms of hill-selection than, or in addition to, the hill-climbing paradigm of conventional economics.  In this sense, the existing management literature already provides a body of empirical and applied support for coordinated activity theory, although not generally for the socially-founded objectives of economics.

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This Is Tax Simplification?

I happen to support tax simplification that does not increase regressivity of the tax system, and I recognize that there are a few parts of the Trump tax change that do that.  But mostly it massively increases regressivity, along with massively increasing the budget deficit at a time when we are not too far from full employment.  As it is, however, the new tax law turns out to be riddled with all kinds of ridiculous unintended consequences that complicate the tax code absurdly and that in some cases were not meant to be put in and are creating major problems for  certain groups of people.  One that is reportedly hurting especially are farmers, and GOPs in Congress now want to fix some of these blunders.  Of course much of this is due to their super hurry to get the bill passed without proper hearings and vetting that obviously were called for in the case of such a massive change in our tax laws.  We are going to be discovering these gliltches for some time to come.

There was an article in yesterday' Washington Post ("Tax 'planning frenzy': The hunt for loopholes," by Jeff Stein) noting some of the nonsense that is going on, especially regarding professionals.  Stein  says that "doctors are going berserk" and they are the ones especially caught up in the "tax planning frenzy."  To give some idea of what is going on I shall simply quote the opening paragraph of the article, which provides further details.

"In hopes of paying less in taxes, several surgical centers in Louisiana are considering spinning off their parking garages into separate businesses. Eye doctors in Florida are looking at separating their eyeglass business from their medical practices. And small and midsize law firms around the country are pondering treating their offices as distinct real estate companies."

One of the virtues of real tax simplification is that it would reduce our society's massively wasteful use of tax accountants for rent seeking tax avoidance.  But this new law is clearly going to provide a major bonanza for that socially useless profession.

Oh, one final tidbit.  Apparently there are (at least) 39 "unresolved tax problems for which the American Institute of CPAs, the nation's leading association of accountants, has asked for 'immediate guidance'" on from the IRS.  But the IRS is swamped, with its budget cut, and in no hurry to resolve these matters.  Such fun and games.  No, tax simplification this is not.

Barkley Rosser

LOLFF on TED

In a TED talk, "3 myths about the future of work and why they are not true" from December 2017, Daniel Susskind channels Sandwichman:

Now the third myth, what I call the superiority myth. It’s often said that those who forget about the helpful side of technological progress, those complementarities from before, are committing something known as the lump of labor fallacy. Now, the problem is the lump of labor fallacy is itself a fallacy, and I call this the lump of labor fallacy fallacy, or LOLFF, for short. Let me explain. The lump of labor fallacy is a very old idea. It was a British economist, David Schloss, who gave it this name in 1892. He was puzzled to come across a dock worker who had begun to use a machine to make washers, the small metal discs that fasten on the end of screws. And this dock worker felt guilty for being more productive. Now, most of the time, we expect the opposite, that people feel guilty for being unproductive, you know, a little too much time on Facebook or Twitter at work. But this worker felt guilty for being more productive, and asked why, he said, “I know I’m doing wrong. I’m taking away the work of another man.” In his mind, there was some fixed lump of work to be divided up between him and his pals, so that if he used this machine to do more, there’d be less left for his pals to do. Schloss saw the mistake. The lump of work wasn’t fixed. As this worker used the machine and became more productive, the price of washers would fall, demand for washers would rise, more washers would have to be made, and there’d be more work for his pals to do. The lump of work would get bigger. Schloss called this “the lump of labor fallacy.”

And today you hear people talk about the lump of labor fallacy to think about the future of all types of work. There’s no fixed lump of work out there to be divided up between people and machines. Yes, machines substitute for human beings, making the original lump of work smaller, but they also complement human beings, and the lump of work gets bigger and changes.

But LOLFF. Here’s the mistake: it’s right to think that technological progress makes the lump of work to be done bigger. Some tasks become more valuable. New tasks have to be done. But it’s wrong to think that necessarily, human beings will be best placed to perform those tasks. And this is the superiority myth. Yes, the lump of work might get bigger and change, but as machines become more capable, it’s likely that they’ll take on the extra lump of work themselves. Technological progress, rather than complement human beings, complements machines instead.

The Unsolved Riddle of Poverty Reduction

A submission to the B.C. Poverty Reduction Strategy engagement process
March 23. 2018

"What makes one poor is not the lack of means. The poor person, sociologically speaking, is the individual who receives assistance because of the lack of means." – Georg Simmel

“A tight labor market is important for all workers, but especially for historically disadvantaged groups." – Janelle Jones, Economic Policy Institute

Executive Summary

Forty percent of the 678,000 British Columbians living below the poverty line are working adults. This submission focuses on the reduction of poverty among employed adults.

"What do you think are the best ways to reduce poverty in British Columbia?" (p. 3)

Poverty is not simply a problem of insufficient wherewithal but more fundamentally a problem of disparities of political and social power grounded in grossly disproportionate wealth. Reduction of the hours of work is an economic solidarity strategy whose greatest benefit is the enhancement of the collective bargaining strength of employees relative to that of employers.

An unsound economic theory of "leisure choice" has obscured the crucial role that work time reduction plays in mitigating social, economic and political inequality. Although this theory has been systematically refuted, it continues to dominate economic thinking and consequently public policy through sheer institutional and intellectual inertia. This obstacle to social justice must be repudiated.

"What can we do as a province, a community or as individuals to reduce poverty and contribute to economic and social inclusion?" (p. 6)

Historically, reductions in working time have resulted from mass popular movements and collective action, not from well-meaning administrative fiat. What the provincial government can do, though, is to promote cultural change and collective action by setting an example in its own employment practices, sponsoring research, data collection and education, and by directly challenging the economic malpractice that promotes social inequality in the name of "choice."

"What does success look like in a BC Poverty Reduction Strategy?" (p. 6)

An analysis is presented based on S. J. Chapman's authoritative theory of the hours of labour. Hours of work that aim at maximizing total output are shown to be detrimental to workers' welfare. This analysis estimates that a 25% reduction in standard, full-time hours would result in a net benefit to the worker of 23%, when the value of leisure, increased productivity and decreased physical and psychological "wear and tear" are taken into account. A reduction in the standard work week of 10 hours a week would, conservatively, yield an estimated 2.5 to 3.3 hours of new employment.

"What if a poverty reduction strategy could also, incidentally, reduce greenhouse gas emissions and thus constitute a climate change mitigation strategy?" (p. 12)

Prosperity without Growth, the 2009 report of the U.K. Sustainable Development Commission, featured “sharing the available work and improving the work-life balance” as one of its “12 steps to a sustainable economy.” The Commission argued that work time reduction was essential “to achieve macro-economic stability” and “to protect people’s jobs and livelihoods” in a non-growing economy. To date there have been only a few empirical studies done but these suggest that a reduction of working time by 1% is associated with a reduction of carbon emissions of between 0.8% and 1.3%.

Download a .PDF file of the full submission (17 pages): The Unsolved Riddle of Poverty Reduction

The Father Of "Market Failure" Analysis Dies

That would be Francis M. Bator. Born in 1925 in Budapest (moving to US in 1939 with family), Francis M. Bator died at age 92 a few days ago after being hit by a human-driven car while crossing the street. The funny thing is that when I read of it, I  was surprised he was still alive, thinking he had died some time ago.

It turns out that for the public he is best known as an economic and national security adviser to LBJ in the 1960s, being for awhile the Deputy National Security Adviser to McGeorge Bundy and thus partly responsible for the war in Vietnam policies.  I did not know about that and am uninterested in commenting on that, although supposedly he left the administration in 1967 mostly because of his lack of enthusiasm for that war, after encouraging friendlier relations with both the USSR and western Europe.  He also seems to have been one of the founders of what is now the Kennedy School of Government at Harvard,  where he went after being in the LBJ administration, retiring in 1994.  In later years he wrote much about interaction between fiscal and monetary policy, but little of it is of much longer term interest.

Why Bator interests me and why I am posting this is because of his intellectual role dating from 1957 and 1958, soon after here got his PhD from MIT under Robert Solow, with a pair of highly influential articles that essentially set textbook discussions of the matters they discussed (and as I basically had not heard of him since the 1960s is why I thought he was dead, not being aware of how young he was when he wrote those papers).  The second one is the more important and gave the label to his now widely accepted formulation, "The Anatomy of Market Failure." It was Bator who coined that term and who also laid down the standard list of reasons for  "market failure," the syndrome of a free market possibly failing to be Pareto optimal, essentially a large caveat on Pareto's First Welfare Theorem that says that general equilibrium is Pareto optimal.  The textbook four reasons for such possible market failure according to  Bator are monopoly power, collective consumption (or "public") goods, externalities, and imperfect information.

Probably the most important part of his formulating this widely accepted list is that he was the first to clearly distinguish between the second two of these: collective consumption (public) goods and externalities.  It is easy to forget that both of these involve collective aspects in one way or another, but in slightly different ways.  But in our accepting his distinction we have come to forget that some of our most important problems involve both simultaneously being involved, with global climate change being perhaps the most important current example.  Pollution leading to climate change involves externalities while the condition of the global climate is clearly a collective consumption good of the highest order.

As it was, externalities were first rigorously analyzed by Pigou in 1922 in his Economics of Welfare, with the "Pigovian" view becoming the standard textbook view, and still is with some caveats.  Thus the 1960 critique by Ronald Coase in his "Theory of Social Cost" made it clear that under the right conditions, well-defined property rights and low transactions costs, markets might succeed in internalizing externalities, and much environmental policy since, including cap and trade, have been inspired by trying to bring about an internalization of externalities using markets.  It must be noted that Bator's paper appeared two years prior to Coase's.

The part that had not been clarified until shortly before Bator's papers involved collective consumption goods, with this being done in 1954 in a famous paper by Paul Samuelson, who would have been teaching Bator when he was a grad student at MIT.  Samuelson's famous formulation is that such good involve non-depletion and non-excludability due to  their collective nature, which implies that to find true market demand one must vertically sum individual demand curves in the form of "willingnesses to pay" in contrast to the horizontal summation of demand curves we see in markets for purely private goods.  Super individualists sometimes argue that there are no pure collective consumption goods, and it is true that some classic examples such as lighthouses have been shown not to be such, but some certainly do exist, with global climate a pretty clear case.

In any case, presumably influenced by the recent publication of Samuelson's clarifying paper on collective consumption goods (where Samuelson did not comment on the matter of externalities), Bator proceeded to produce his list and analysis, which indeed went into the textbooks a long time ago, much  to the annoyance of some free market Coasian types, such as the late James Buchanan, who regularly publicly debated Richard Musgrave, who played a key role in putting Bator's analysis into the public finance and public economics textbooks.  I am unaware of anybody ever suggesting that Bator should get a Nobel Prize for what he did, but serious rumor has it that when Buchanan got his for public choice, the person who  nearly shared it with him and did not was not Gordon Tullock but Buchanan's long-running debating partner, Musgrave, who is probably more widely identified with advocating the "market failure" analysis than is Bator.  But it was Bator who first formulated it.

Barkley Rosser

Moishe Postone 1942-2018

Presente!

Kudlow Predicts An Investment Boom

Kudlow channels his inner Gerald Friedman:

Larry Kudlow, picked to be President Trump’s new economic adviser, has privately told the White House that the nation’s economy is on the verge of 4 percent to 5 percent growth, or more than double the last decade. In a recent gathering with Trump, he said that many firms held back investing until the tax reform package passed and “some of that is already showing up.” What’s more, he told the president, “We’re on the front end of the biggest investment boom in probably 30 to 40 years.” The president responded, “Well, I couldn’t have said it any better.”

OK - I get that Friedman was looking at a progressive fiscal agenda whereas Kudlow supports Starving the Beast to pay for more tax cuts for rich people. My point is that both of them take a cavalier modeling of potential GDP. And when Friedman’s supporters try to argue that potential output has been growing by 3.5% per year since 2000, I noted that his is also Kudlow’s approach:

It is sort of funny that Kudlow and Novak were making a Keynesian economics argument given both of their disdain for Keynesian economics. Of course summing 8 numbers when the right approach would be to take the average of 8 numbers is a conceptual error that one would trust a first grader could point out. It is also interesting that Kudlow wanted to assume that potential real GDP always grows at 3.5% as he is likely going to be Trump’s chief economic adviser. Trump is even bragging that Kudlow now favors tariffs. And why not – Lawrence Kudlow’s entire career has been telling any lie that his political master want him to tell as long as there is another tax cut for rich people in store.

Brad DeLong has this silly idea that we should take modeling seriously:

The rule-of-thumb is that each 1% point rise in investment as a share of national product adds 0.1% point to the annual growth rate. To get from a growth rate of 2.5% up to 4.5% would thus require a 20% point jump in the investment share of national product—if you were to get it from investment. If you were to get it from employment growth, with Okun's Law, you would need the unemployment rate to fall by 1% point per year—which means the unemployment rate would hit zero by the start of 2022. And there are no signs of a productivity growth recovery: given demography, labor productivity growth would have to consistently hit 3.75% per year in order to get to 4.5% per year real GDP growth.

When I read this, I noted over at Brad’s place:

I guess Kudlow thinks the FED will keep interest rates really low even if we soar past full employment and inflation takes off! Me thinks he learned the wrong lessons from the 1980's when the Volcker FED made sure real interest rates soared in response to the 1981 tax cuts. Of course given that it is Kudlow, he likely does not know the difference between changes in nominal interest rates v. changes in real interest rates.

So what was the quip about something that happened over 30 years ago? Oh yea – we have very strong growth over the 1983 to 1985 period – something else the Friedman supporters are fond of noting. But of course that was the recovery from the deep Reagan recession. If one looks at potential GDP growth over the 1981 to 1992 period or even actual real GDP growth over the same period, the growth rate was closer to 3% per year in large part because the Reagan fiscal stimulus crowded out investment. Menzie Chinn recently suggested:

Mr. Kudlow is apparently on the short list for new National Economic Committee chair. Maybe a good time to review some of his macro predictions.

OK – his track record on economic forecasts is dreadful. So why would this time be any different? Then again when people were filling out their brackets for March Madness the thought process was generally that no 16 seed had ever defeated a 1 seed.

Trump on Our Trade Surplus/Deficit With Canada

Menzie Chinn listens to the latest from Donald Trump so we don’t have to:

And by the way, Canada? They negotiate tougher than Mexico. Trudeau came to see me, he’s a good man, he said we have no trade deficit with you, we have none. Donald, please. Nice guy, good looking guy. Comes in. Donald we have no trade deficit. He’s very tough. Everyone else, getting killed or whatever. But he’s tough. I said, well Justin, you do. I didn’t even know. Josh, I had no idea. I just said you’re wrong. You’re wrong. It was so stupid. [LAUGHTER]. I thought it was fine. I said, you’re wrong Justin. He said, nope we have no trade deficit. I said, well in that case I feel differently. I said but I don’t believe it. I sent one of our guys out. His guy, my guy. They said check because I can’t believe it. Well, sir you’re actually right, we have no deficit but that doesn’t include energy and timber. [LAUGHTER]. Well you don’t have timber, and when you do we’ll lost $17 billion. It’s incredible.

Menzie provides this source on our 2016 bilateral trade surplus with Canada:

U.S. goods and services trade with Canada totaled an estimated $627.8 billion in 2016. Exports were $320.1 billion; imports were $307.6 billion. The U.S. goods and services trade surplus with Canada was $12.5 billion in 2016.

OK we had a trade surplus when measuring both goods and services. But wait:

Goods exports totaled $266.0 billion; goods imports totaled $278.1 billion. The U.S. goods trade deficit with Canada was $12.1 billion in 2016. Trade in services with Canada (exports and imports) totaled an estimated $ 83.7 billion in 2016. Services exports were $54.2 billion; services imports were $ 26.9 billion. The U.S. services trade surplus with Canada was $24.6 billion in 2016.

Trump has a propensity to ignore our service surpluses focusing on our goods deficit, which was $12.1 billion in 2016. Census notes for 2017, we exported $282 billion to Canada and imported almost $300 billion from Canada so we continue to have a modest goods trade deficit, which is likely what Trump was referring to. I submitted two comments at Menzie’s place with this one making it to his blog:

My God – Trump is really stupid and people laugh it off? I do not grow fruits and vegetables but since I try to eat healthy, I buy a lot of them from my grocery store. To say I “lost” a lot of money to them is beyond stupid. No I earn my income another way and my firm I guess has lost money to me even if they profit quite well from my services. Jeffrey Sachs had a great line on Trump’s utter stupidity the other day – something I featured over at Econospeak.

Not sure what happened to the other one but this is the one that captures my utter frustration with Trump’s idiocy which I did note here:

Trump equates our trade deficit with us being ripped off. Let’s do this as a simple example. You walk into Best Buy and purchase a $1000 computer but do not have cash. So you put it on your credit card incurring a $1000 liability. Even though you now have the computer and Best Buy does not – Best Buy just ripped you off as you have a $1000 financial obligation. An odd statement from someone who routinely defaulted on his financial obligations!

Jeffrey Sachs nailed this:

But don't expect an impulsive and ignorant man like Trump to heed the lessons of economic history, logic of retaliation, and the basics of trade. His actions are based on three primitive fallacies. First, Trump thinks that America runs trade deficits with countries like China and Germany because the US is being swindled by them. The real reason is that the US saves too little and consumes too much, and it pays for this bad habit by borrowing from the rest of the world. The Trump theory of international trade is like a man in deep debt who blames his creditors for his spendthrift behavior. Come to think of it, that is precisely how Trump has spent his whole business career: over-borrowing, going bankrupt, and blaming his creditors.

If we add our imports of pulpwood and woodpulp, newsprint, and paper and paper products, we imported $5.4 billion from Canada. But to call this a loss is incredibly dumb. We happen to export about $5 billion of goods in these sectors to Canada. We also export over $30 billion in cars, buses, and trucks to Canada but import $46 billion in the same sector. So why is Trump picking on timber and not vehicles? Of course we run trade surpluses for other goods sectors so is Trump saying Canada lost to us with respect to trade in those sectors? The only thing that is “incredible” is the level of stupidity that our President utters.

Kudlow

Menzie Chinn notes:

Mr. Kudlow is apparently on the short list for new National Economic Committee chair. Maybe a good time to review some of his macro predictions.

Yours truly goes back memory lane:

But let’s turn back the clock to the first term of the Bush43 Administration when Kudlow writing for the National Review was all in defending Bush’s fiscal stimulus and arguing at several points how the labor market was booming even when it was not. Kudlow was infamous for claiming the household survey was a better measure of employment when it showed that employment was rising while the payroll survey said the opposite. Of course there were months when the payroll survey showed better job growth than the household survey showed – to which Kudlow declared the payroll survey was more reliable. And during those months when the unemployment rate fell even though the employment-population ratio fell, Kudlow was all aglow that labor force participation rates were falling. After all, spinning for the Bush-Cheney 2004 campaign was more important than actual improvement in the labor market

Of course my main point was to remind us of Kudlow’s deficit dance and how Robert Novak fell for it:

OK Kudlow said this $2 trillion was a gap over 2 years so we can blame Novak by not dividing these figures by two. But Kudlow was also using annual flow information as if it were quarterly flow information. So to correct even what he wrote – we needed to further divide his figures by four. Our second graph shows the GDP gap on an annual basis using the CBO estimate of potential GDP and they were nowhere near $1 trillion per year. Could Kudlow really be this incredibly stupid or did he know he was trying to deceive stupid readers? I guess he did because Robert Novak certainly fell for this incredibly misleading and incorrect assertion.

It is sort of funny that Kudlow and Novak were making a Keynesian economics argument given both of their disdain for Keynesian economics. Of course summing 8 numbers when the right approach would be to take the average of 8 numbers is a conceptual error that one would trust a first grader could point out. It is also interesting that Kudlow wanted to assume that potential real GDP always grows at 3.5% as he is likely going to be Trump’s chief economic adviser. Trump is even bragging that Kudlow now favors tariffs. And why not – Lawrence Kudlow’s entire career has been telling any lie that his political master want him to tell as long as there is another tax cut for rich people in store.

The Final End Of The As-Is/Red Line Agreement

In London yesterday visiting Saudi Crown Prince, Mohammed bin Salman (MbS) allowed the signing of a set of trade memoranda with various British companies, including buying Typhoon aircraft, and many other things, 18 such deals, although some sources say only 14, total value maybe about $90 billion, although much of that already in the works and in the end may amount to what the $110 billion plus deals he agreed to with Trump, not much at all.  One large item not in the deal, a promise to let London handle the upcoming massive IPO for 5% of ARAMCO, with both New York and Riyadh itself still in contention for that one, the main claim to "privatization of the Saudi economy" that its PR machine has been relentlessly spinning about loudly for some time now.  I continue to forecast that wherever it is done, it will end up being a Saudi insiders deal to get some shares of ARAMCO into MbS approved private princely hands.

But the deal that triggers this post is one that signals the final end of two closely related deals made in 1928 between the leading oil companies of the day, the As Is Agreement and the Red Line Agreement.  The first is the more important one, although the latter involved the dramatic drawing of a red line on a map by Calouste Gulbenkian that basically supported the As Is one, although involving surface holding companies.  The As Is one was made at a secret meeting held at Achnacarry Castle in Scotland, after a round of grouse hunting, between the world's three most powerful oil CEOs, Sir Henri Deterding, host and owner of the castle and Chairman of Royal Dutch Shell from 1900-1936 (created by him by merging his Royal Dutch shipping company with Marcus Samuel's Shell Company based in the Dutch East Indies, now Indonesia, originally actually dealing in shells but then in oil production), Sir John John Campson, Chairman of then Anglo-Persian Oil Company, which became Anglo-Iranian Oil Company in 1935 when the nation showed its alliance with Hitler and his Aryan racial master race theory (and was briefly nationalized by Mossadegh in Iran in 1951, only to have that undone by the mostly US Project Ajax, which let some US oil minors in) and which is now British Petroleum (and was 50% owned by the British govermment from WW I when Churchill nationalized it to guarantee oil for the British navy until Thatcher sold off the "family silverware" shares in the 1980s) with BP responsible for the Deepwwater oil spill in the Gulf of Mexico some years ago, and finally Walter Teagle, Chairman of New Jersey Standard, the largest successor to Rockefeller's Standard Oil, which would later become Exxon after being Esso as a brand, and more recently would buy up the second largest successor, Mobil, originally New York Standard.

They divided up the Middle East among them, with the Red Line emphasizing it, with APOC/AIOC/BP getting Persia Iran mostly and Royal Dutch Shell basically getting Iraq and Kuwait, all these holdings nationalized by the 1970s.  For our purposes here, the crucial matter is that Saudi Arabia, not then definitely known to have any oil, was granted to Jersey Standard, aka Esso aka Exxon.  In 1938 petro-geologists from the company found oil and cut the first deals with then King Abdulaziz to start production, which did not really take off until after his death in the early 1950s, although it was co-founder (with Venezuela) of OPEC in 1960, and is and long has been and will continue to be the world's largest exporter of oil.  ARAMCO was the company, originally Jersey Standard (Exxon), New York Standard (Mobil) , Califonrnia Standard (Chevron), and the now defunct Texaco.  By the end of the 40s, the Saudis hasd intiated a 50-50 profit sharing agreement.  By the time of the first oil price shock in 1973 that they initiated, they had bought out these US companies, and while everybody calls it ARAMCO (Arabian-American Oil Company), it is officially the Saudi Arabian Oil Company now.  Nevertheless, the old US companies continued to get contracts to do various things for and with ARAMCO.

So, in London MbS has allowed a British breach of the 90-year old As Is/Red Line Agreement from 1928.  For the first time a Briitsh-based oil company will get in on the action in Saudi Arabia, in this case, good old Royal Durtch Shell, which is really part British part Dutch (the Dutch royal family still holds shares, I unserstand).  They are going to be brought in, reportedly, to help with developing shale production of natural gas, apparently on the fringes of the al-Ghawar field, by far the largest oil pool in the world, responsible currently for about 4-5% of world oil production.  This may yet not come to pass, but it does indeed mark the final end of the 90 year old agreement that said oil production in Saudi Arabia was strictly for the American oil companies (among non-Saudi ones).  Time passes on.

Barkley Rosser

Basil Moore dies

I have just learned that prominent Post Keynesian economist, Basil Moore, died yesterday.  I do not know of what or how old he was, although he retired over a decade ago.  He is best known as the author of Horizontalists and Vericalists, in which he strongly argued for the endogeneity of money. In more recent years he had become interested in dynamic complexity economics.

He long taught at Wesleyan in Connecticut.  In the final years of his career he taught at Stellenbosch University in South Africa, his wife, Sibs, being from there, and they continued to live there after he retired.  He will be missed by many, including me.

Barkley Rosser

Cochrane Fails to Make His Case for the Trump Tax Cut Again

John Cochrane recently noted:

Stock Buybacks Are Proof of Tax Reform’s Success… A short oped for the Wall Street Journal here on stock buybacks. As usual, they ask me not to post the whole thing for 30 days though you can find it ungated if you search.

I did search and found this. Does the Wall Street Journal get the fact that rebutting weak arguments against a policy are not exactly making an affirmative case for the policy? Permit me to note two places where Cochrane and I agree:

echoing illogical claims is not a contribution to that debate. Granted, Republicans invited the attack by trumpeting worker bonuses. But a bad argument for the cut does not redeem a worse counterargument.

Well thanks for that and now an argument from the left that is also weak:

To cast corporate tax cuts as a “scam” and redistribution to the wealthy, opponents have shifted their focus to the evils of stock buybacks and dividends…Share buybacks and dividends are great. They get cash out of companies that don’t have worthwhile ideas and into companies that do. An increase in buybacks is a sign the tax law and the economy are working. Buybacks do not automatically make shareholders wealthier. Suppose Company A has $100 cash and a factory worth $100. It has issued two shares, each worth $100. The company’s shareholders have $200 in wealth. Imagine the company uses its $100 in cash to buy back one share. Now its shareholders have one share worth $100, and $100 in cash. Their wealth remains the same.

When I read this argument over at Cochrane’s blog, I decided to provide this link:

Merton H. Miller liked to tell a joke about Yogi Berra, the famous baseball catcher. Berra once told his trainer that he was particularly hungry, and he instructed him to cut his pizza into 12 pieces instead of six. The quip illustrated vividly the celebrated theorem about capital structure that Miller devised with MIT’s Franco Modigliani and published in 1958. As every finance student is taught, the Modigliani-Miller theorem states that a firm’s value is independent of how it is financed, much like the size of a pizza is independent of how you slice it. The two researchers published another landmark paper three years later, the same year in which Miller—who would go on to win the 1990 Nobel Memorial Prize in Economic Sciences—moved to the University of Chicago Graduate School of Business (now Chicago Booth). “Dividend Policy, Growth, and the Valuation of Shares,” which appeared in the Journal of Business, told essentially the same story as its predecessor paper but using a different mechanism.

Cochrane rebuttal of the buybacks argument is simply the other Miller and Modigliani proposition. I sometimes wonder why a professor of finance does not simply say so. But my main complaint with his Wall Street Journal oped is how he made – actually did not make – the case for the reduction in the corporate tax rate:

Wouldn’t it be better if the company invested the extra cash? Wasn’t that the point of the tax cut? Perhaps. But maybe this company doesn’t have any ideas worth investing in. Not every company needs to expand at any given moment. Now suppose Company B has an idea for a profitable new venture that will cost $100 to get going. The most natural move for investors is to invest their $100 in Company B by buying its stock or bonds. With the infusion of cash, Company B can now fund its venture. The frequent rise in stock price when companies announce buybacks proves the point. In my example, Company A’s share price stays fixed at $100 when it buys back a share. But suppose before the buyback investors were nervous the company would waste $40 of the $100 cash. Imagine an overpriced merger or excessive executive bonuses. Not every investment is wise!

Hold on a second. Company A does not invest more on its business regardless of what the corporate tax rate is whereas Company B wanted to invest more in its business even before the reduction in the corporate tax rate. OK! But in a Miller-Modigliani world, company B would have all sorts of means for financing the new investment even without Company A’s assistance. So where in this oped has Cochrane make his alleged case that the new tax law will increase investment demand? Is this it?

The economic logic of the tax cut is to create good incentives for profit-maximizing management teams—not to “trickle down” cash to workers from philanthropic management.

What exactly is this logic again? Yes company B will get to keep more of its cash flows with a lower tax rate but then it also bears more of the systematic risk. Furthermore, the general thrust of Trump’s fiscal policy is to reduce national savings even as it allegedly may shift the investment demand schedule outwards. Brad DeLong casts this argument in terms of the standard Solow growth model:

One thing we in the academy can do is to explicitly make bulls--- deduction an explicit student learning goal. For example: We ask students to do practice problems using the Solow growth model on paper, and then to reproduce the analysis and draw the graphs on the exam. But the problem is that after the final exam students are very unlikely to ever be asked to do anything similar again. If Intermediate Macroeconomics is to be useful—if its learning goals are to be worth anything—it is because it will put in the back of your brain stuff so that when they in the future read things like

He was referencing:

the Nine Unprofessional Republican Economists who placed their letter in the Wall Street Journal

And it seems that this same Wall Street Journal published the latest non-case from John Cochrane.

Put the "Stone" Back in Estonia

From here.  Hat tip: Naked Capitalism.

Eastern Economic Association Conference

So, I returned late last night from Boston where I presented three papers at the 44th Eastern Economic Association conference.  Only about 70% of those preregistered made it due to weather, with airport and train station both closed on Friday, first full day of conference.

One of those who did not make it was James Galbraith, scheduled to give the first Godley-Tobin plenary lecture, sponsored by the Review of Keynesian Economics (ROKE).  However, he managed to do it from a Dallas hotel room, with a full room audience. He spoke on "Global macroeconomics - yes, macroeconomics, dammit - income inequality and distribution."  A good opening for the series.  ROKE editor Tom Palley among those not making it, and the word is out that the last of the founding editors, Louis-Philippe Rochon, is stepping down.

I have accepted an invitation to be one of three editors-in-chief of the fourth edition of the New Palgrave Dictionary in Economics.  I met for the first time with the other two: Matias Vernengo and Esteban Perez Castelnedy, along with publisher, Mike Hermann, from Palgrave.  This will be a large and long project, but at least we know where we are going at this front end for now.

Probably the two groups that have had the best long term relationship with the EEA and were both out in force at the conference despite the absences are URPE, which had 20 sessions there, and the New York Complexity and Computational Economics group, run by Jason Barr and Leann Usher. The latter had some of the best sessions I have seen in several years.  They had 15.

I have been a fairly regular attender along with my wife, Marina, since 1990, although missed it last year due to not being in the country.  It is idiosyncratic and has its ups and downs, but I think there were some good sessions this year, despite all the absences.  Will be in New York next year.

Barkley Rosser

Jeffrey Sachs on Trump’s Trade Fallacies

I heard on some news show an incredibly stupid statement from our President earlier today and in utter disbelief fired off this comment on some blog:

Trump equates our trade deficit with us being ripped off. Let’s do this as a simple example. You walk into Best Buy and purchase a $1000 computer but do not have cash. So you put it on your credit card incurring a $1000 liability. Even though you now have the computer and Best Buy does not – Best Buy just ripped you off as you have a $1000 financial obligation. An odd statement from someone who routinely defaulted on his financial obligations!

Never mind that as on Friday Jeffrey Sachs beat me to this:

But don't expect an impulsive and ignorant man like Trump to heed the lessons of economic history, logic of retaliation, and the basics of trade. His actions are based on three primitive fallacies. First, Trump thinks that America runs trade deficits with countries like China and Germany because the US is being swindled by them. The real reason is that the US saves too little and consumes too much, and it pays for this bad habit by borrowing from the rest of the world. The Trump theory of international trade is like a man in deep debt who blames his creditors for his spendthrift behavior. Come to think of it, that is precisely how Trump has spent his whole business career: over-borrowing, going bankrupt, and blaming his creditors.

Check out his discussion of the other two primitive fallacies! I guess Trump would argue that it was very unfair to me when Best Buy gave me a credit card. Update: Apparently Trump admires the protectionist philosophy of Abraham Lincoln who is famous for this:

When an American paid 20 dollars for steel to an English manufacturer, America had the steel and England had the 20 dollars. But when he paid 20 dollars for steel to an American manufacturer, America had both the steel and the 20 dollars.

This line reminds me of the incredibly dumb logic ala Wilbur Ross. I know he is old but could he have been one of Lincoln’s advisers?

Saudi Crown Prince Tortures Fellow Princes

A new report by Hugh Miles at Middle East Monitor, Is the Saudi Elite Cannibalizing Itself?" linked to by Juan Cole, reports that the recent purge of supposedly corrupt princes and high officials was (and continues to be) much more horrendous than previously reported, which I fear does not surprise me. (Link not working, sorry, but it is at juancole.com/2018.03/saufi-cannibalizes-itself.html.)

Apparently Crown Prince Mohammed bin Salman (MbS), whom I have previously posted about here, hired mercenaries to interrogate those arrested and kept at the Ritz Carlton, which turns out to have not been a luxurious hangout.  Money, signed confessions, and promieses of loyalty were demanded, with most let out wearing electronic tags and not allowed to leave the country.  Many were physically beaten, hung upside down, and tortured in vsrious ways.  One of them died, the privste secretary of a former governor of Riyadh.  Some have not caved yet and remain imprisoned, although this remnant has been moved out of the Ritz elsewhere as of Feb. 11 when the Ritz reopened for business.

Probably the best known of these has been Walid bin Talal, a multi-billionaire heavily involved in many businesses around the world, including in the US.  Reportedly his torture led to three episodes of emergency medical care being involved. His family was brought to KSA and pictures of his young daughter in handcuffs were shown to him.  A televised interview with him prior to his release had him denying he was tortured, but also had him guzzling Pepsi and chomping down condiments that it is known he would never normally eat, being a health fanatic and vegetarian.  It is being touted that this was a sign of him signaling that this interview was under duress.

Supposedly the public is pretty cynical about all this, with an austerity budget in place and many wondering if and or when all the many billions supposedly paid by these supposedly corrupt princes and officials will show up to help the general public.  There certainly has long been widespread corruption there, but as with Putin in Russia (and Xi in China) using anti-corruption purges to get at political opponents while enriching their cronies, there are widespread reports of massive corruption by MbS himself along with his full brothers.  Supposedly MbS offerd Kim Kardashian millions to sleep with him, and, of course he paid a record $450+ million for Leonardo da Vinci's "Salvator Mundi" recently in the midst of this anti-corruption purge.  Frankly, this is just a bit too blatant. Given what a botch he has made of the war in Yemen and the effort against Qatar, some are wondering how long he will last, as the Saudis have a revenge culture, and this unprecedented bout of torturing a bunch of top Saudi princes is going to engender very serious feedback.  But, I suppose his pal Jared Kushner will help him maintain his power against angry rivals.

Barkley Rosser

Wilbur Ross on the Effective Rate of Protection

When I watched this clip by Wilbur Ross – all I could think of was Mr. Ed. But what did he say?

"In a can of Campbell's Soup, there are about 2.6 pennies worth of steel. So if that goes up by 25 percent, that's about six-tenths of 1 cent on the price on a can of Campbell's soup," Ross argued. "I just bought this can today at a 7-Eleven ... and it priced at a $1.99. Who in the world is going to be too bothered?"

Ross is doing his best (I guess) to explain the Effective Rate of Protection:

The principle objective of a tariff is to dampen imports in order to encourage domestic production of the protected industry. Until recently, the protective effects of a tariff were measured in terms of nominal rate of tariff on the imports of final products. It was believed that a higher nominal rate tariff of would bring a larger increase in the output of the protected industry. But the various duties imposed by a country are not likely to give a true picture of the degree of production afforded by the nominal tariff rate. For the nominal tariff rate does not take into consideration the amount of the duty on imported intermediate products and raw materials which are used in domestic import competing industries. The theory of effective rate of protection takes into account duties levied on such raw material and intermediate products. It measures actual rate of protection that the nominal tariff rate provides to domestic import competing industry. The nominal tariff rate is the rate of duty on the value of the imported final product (as for example the ad valorem tariff). It is important to the consumer, because the nominal tariff rate affects the price of final goods which the consumers ultimately consume. The effective rate of tariff, on the other hand, is important to producers, because the degree to which their production activity is protected from foreign competition depends upon effective and not the nominal rate of tariff.

In cases where the percentage of the imported inputs in the locally produced good is very small, then maybe we should not be too bothered, but let’s consider another example:

Consider the following example. Suppose a locally manufactured car has a selling price of $ 10,000. And the selling price of an imported car, having similar specifications, is also $ 10,000 in the domestic market…Now we assume that the government imposes a nominal tariff duty of 20 per cent on the imported car. The amount of tariff duty per year levied at 20 per cent ad valorem would, come to $ 2,000…Suppose now that the local car industry uses imported inputs accounting for 50 per cent of the total cost of producing a car and the rate of duty on these imported inputs, on ad valorem basis is 40 per cent. What would then be the effective degree of protection enjoyed by the local car industry?

I will leave to the reader to consider the case where the tariff on imported cars is zero and the tariff on imported components is 25%. I just wish someone from the Price is Right would have driven up in “a new car” when Wilbur was talking about soup and soda.

On Those Aluminum Tariffs

The global price of aluminum fell below $1500 per metric ton by the end of 2015. By June 2017, it had risen to $1885 per metric ton. This source suggests that this price is even higher. So what happened yesterday?:

The stock market dip reflects the enormous impact that a 25 percent tariff on imported steel and a 10 percent tariff on imported aluminum will have on the economy. That's because so many American industries need steel and aluminum: They’re used to build cars, skyscrapers, roads, bridges, washing machines, refrigerators, and a whole host of other products. More expensive steel and aluminum means higher costs for the American businesses that make these products — higher costs that will likely get passed on to consumers. Trade groups and businesses didn't wait long to slam the president's decision. Some of the country's most influential industry groups warned that the tariffs would hurt more than a company's bottom line

C’mon man! Aren’t there winners from these tariffs?

There are a handful of winners from the proposed tariffs: the companies that produce steel and aluminum in the United States. The CEOs of the big American steel companies were invited to the White House for Trump's big announcement. David Burritt, the CEO of US Steel, was thrilled. "This is vital to the interests of the United States," he said at the White House after the announcement, according to a pool report. "This is our moment, and it’s really important that we get this right." As the stock market slid, share prices for his company — and other steel companies — jumped.

Forget steel – what about Alcoa! Alcoa has seen a recent slide in its revenues and profitability so we will look at certain information from their 10-K filing shortly. But first let’s check with Census to see how much bauxite and aluminum we imported last year. End use code 14200 shows that total imports were $16.255 billion but only $1.267 billion was from China. Yes boys and girls it was those socialists in Canada that sold us $6.978 billion of these products in 2017. That damn NAFTA! I saw some pro-Trump cheerleader commenting on another economist blog that we had to protect our U.S. smelters from foreign competition, which brings me to Alcoa’s most recent 10-K filing: From 2016 to 2017, their sales picked up and they return to profitability. But the details on their smelters is interesting:

In March 2015, management initiated a 12-month review of 500 kmt in smelting capacity for possible curtailment (partial or full), permanent closure or divestiture. This review was part of management’s target to lower Alcoa Corporation’s smelting operations on the global aluminum cost curve to the 38th percentile (currently 38th) by the end of 2016. In summary, under this review, management approved the curtailment of 447 kmt-per-year and the closure of 269 kmt-per-year. The following is a description of each action. At the same time this review was initiated, management decided to curtail the remaining capacity (74 kmt-per-year) at the São Luís smelter in Brazil; this action was completed in April 2015. In 2013 and 2014 combined, Alcoa Corporation curtailed capacity of 194 kmt-per-year at the São Luís smelter under a prior management review. Additionally, in November 2015, management decided to curtail the remaining capacity at the Intalco (230 kmt-per-year) and Wenatchee (143 kmt-per-year) smelters, both in Washington. These two smelters previously had curtailed capacity of 90 kmt-per-year combined. The curtailment of the remaining capacity at Wenatchee was completed by the end of December 2015 and the curtailment of the remaining capacity at Intalco was expected to be completed by the end of June 2016; however, in May 2016, Alcoa Corporation reached agreement on a new power contract that will help improve the competitiveness of the smelter, resulting in the termination of the planned curtailment. Furthermore, in December 2015, management approved the permanent closure of the Warrick smelter (269 kmt-per-year). This decision was made as this smelter was no longer competitive in light of prevailing market conditions for the price of aluminum at that time. The closure of the Warrick smelter was completed by the end of March 2016.

Their most recent 10-K lists 16 smelters with only 4 in the U.S. Canada and Spain have 3 each. Brazil and Norway have 2 each. Alcoa also has smelters in Australia and Iceland. If Alcoa’s sales are enhanced by this tariff – it is not clear that they will not outsource the smelter operations to Iceland:

Alcoa, formerly the Aluminum Company of America, and another American company, Century Aluminum, have opened factories like this in Iceland, and closed factories in the United States, for a simple reason: Electricity is much cheaper here.

Century Aluminum’s share price also rose. Their 10-K also notes their smelters:

We operate three U.S. aluminum smelters, in Hawesville, Kentucky ("Hawesville"), Robards, Kentucky ("Sebree") and Goose Creek, South Carolina ("Mt. Holly"), and one aluminum smelter in Grundartangi, Iceland ("Grundartangi").

They have constructed another facility in Iceland known as the Helguvik project, which has struggled in a competitive aluminum market. I’m sure Century Aluminum is delighted with these tariffs. After all – Make Iceland Great Again!

Begun the Trade War Has

Master Yoda at the end of the second of the Star Wars prequels:

Begun the clone war has

Exactly the right sentiment with this news:

President Donald Trump is expected to announce new tariffs on imports of steel and aluminum as soon as Thursday, a move that could trigger significant economic repercussions. "Our Steel and Aluminum industries (and many others) have been decimated by decades of unfair trade and bad policy with countries from around the world," Trump tweeted Thursday morning. "We must not let our country, companies and workers be taken advantage of any longer. We want free, fair and SMART TRADE!"

I wonder if the agriculture sector will see this as smart:

The tariffs would most likely trigger retaliation from other countries. China is already looking into restrictions on US exports of sorghum and soybeans, both of which are important crops for American farmers. Additionally, the European Union was said to be mulling tariffs on US agricultural products like cheese and bourbon.