Saturday, November 30, 2019

Bicycles and Wine Tariffs

Jeffrey Frankel has a must read blog over at Econbrowser:
The “bicycle theory” used to be a metaphor for international trade policy. Just as standing still on a bicycle is not an option — one has to keep moving forward or else the bike will fall over – so it was said that international trade negotiators must continue to engage in successive rounds of liberalization, or else the open global trading system would be pulled down by protectionist interests. I don’t know if the theory was ever right. (And, to be honest, I don’t entirely understand why forward movement keeps a bicycle from falling over.) But if we had stood still on trade policy over the last three years we would be a lot better off than where we are now.
It may be cold in New York City but after all that Thanksgiving wine, maybe a bicycle ride is in order. Just after that infamous phone call with the President of Ukraine, Trump opined on trade policy regarding wine:
Mr Trump, who is teetotal, said: "I've always liked American wines better than French wines. Even though I don't drink wine. I just like the way they look." The US is the world's largest consumer of wine and the largest import market, with France consistently among the top origin countries for imported wine.
He was angry over something called the digital sales tax but here is a more related reason for this weird tweet:
High tariff rates constitute the single most restrictive barrier to U.S. wine exports. According to the World Bank, the average simple-applied import tariff including all products worldwide in 2015 is 6.8%; without including the preferential rates the average is 30.4%. Virtually all U.S. wine exports to the major markets, other than Canada, face tariffs that are double or triple those rates. For example, the EU import tariff per 750 bottle can range from $0.11 to 0.29, depending on the type alcoholic content of the wine. Japan’s tariff is 15% by value of the product. U.S. exports to India are hindered by a 150% tariff set on the value of the wine. By comparison, the U.S. import tariff on a 750 ml bottle is $0.05 for still wine and $0.14 for sparkling wine. Over the last 30 years of multilateral wine negotiations through the General Agreement on Tariffs and Trade (now the WTO), the U.S. import tariff for wine shrank from 31.5 cents to 6.3 cents per liter. Unfortunately, other countries’ wine tariffs only slightly decreased, if at all. For several emerging markets those rates are still high with China at 14%, Russia at 12.5%, Brazil at 20%, Vietnam at 50% and India at 150%. Wine Institute takes the position that trading partners must first reduce their tariff rates for all wine products (e.g., HTS Codes 2204, 2205 and 2206) to the current U.S. tariff levels before the U.S. further reduces its rates. This policy is based on decades of international trade negotiations that have materially aided the wine industries of other countries and harmed the U.S. industry. The U.S., which has some of the lowest wine tariffs of any major wine producing country, lowered its wine tariffs to a very low rate in the Uruguay Round while other countries maintained much higher tariff rates. This disparity in tariffs has directly resulted in a significant loss of U.S. market share and a negative balance of trade for U.S. wineries that continues to increase.
The Wine Institute discussion continues by noting EU subsidies for European wine. One might presume this would be an excuse for Trump’s proposal of wine tariffs but fortunately the Wine Institute would rather get back on that bicycle.

Friday, November 29, 2019

The Current State of the U.S. Dairy Industry

I had to endure a discussion of the plight of American dairy farmers where Trump’s trade policies were somehow to blame. Stephanie Mercier confirmed some of the facts:
According to data reported by the National Farmers Union (NFU), the average dairy farm has shown a positive net income only once in the last decade, in 2014. In 2018, the average value of production exceeded the total cost of producing each hundredweight of milk in only one state, California, and nationwide, dairy farmers lost an average of $3.21 per hundredweight of milk produced. For 2019, total dairy production is expected to increase modestly over 2018, by less than 0.3 percent, and the average all-milk price is expected to increase as well, from $16.26/cwt in 2018 to $18.40/cwt. While the projected 13 percent increase in price for this year is welcome news for U.S. dairy farmers, that level still falls below the average total cost of production for farmers in most of the country.
But she had a very different take on the international issues involved:
This situation is largely a result of a persistent mismatch between the supply of dairy products and the demand for them, and is not isolated to the U.S. domestic market. Within the European Union, low dairy prices prompted some Italian, German, and Belgian producers to dump their product in protest during the summer of 2019. The combination of low prices and a severe drought in 2018 has pushed many Australian dairy operations to the brink of collapse. The farmer-owned Fonterra dairy cooperative, serving both Australia and New Zealand farmers, has seen its share values decline by about 50 percent since the beginning of 2018.
Look – we can criticize Trump’s stupid trade war for a lot of things but low milk prices are being driven by other factors:
In many ways, the current supply/demand conditions in the global dairy market, at least in developed countries, seem to represent an example of the “treadmill theory of technology adoption” in agriculture, posited by Dr. Willard Cochran (University of Minnesota) in the 1950s. Farmers adopt new technologies to reduce their costs, but if most farmers do the same thing, it often leads to over-production of that commodity. Prices drop, so they end up generating less revenue.
So what has been the U.S. policy response?
In the 2018 farm bill, enacted late in the year, Congress tried to respond to the dairy crisis by making significant changes to the dairy safety net system. Under the new legislation, Dairy producers will be able to cover their production with both the Dairy Margin Coverage (DMC) program (the replacement for the Margin Protection Program) and Livestock Gross Margin insurance for dairy offered under the crop insurance program. Dairy producers will be eligible to claim a refund of some of the premiums they paid under the Margin Protection Program, a benefit estimated to cost $58 million for all producers. Dairy farmers who commit to maintaining the same DMC coverage level over the lifetime of the farm bill will receive a 25 percent discount on their premiums. Congress set the stage for bolstering these programs with provisions in the Bipartisan Budget Act of 2018 (passed in February of 2018), with policy changes that were projected to cost $1.1 billion over and above baseline spending levels for the period of 2018 through 2028. Under the DMC program, 37,468 dairy operations were enrolled for 2019, accounting for 85 percent of all operations. Payouts under the program for 2019 have totaled $306 million to date. Enrollment is now open for 2020 participation in the program, and the enrollment period ends on December 13, 2019. There were also 1,237 livestock gross margin insurance policies sold for dairy cattle operations in 2019, covering $128 million worth of liability.
As consumers, we are enjoying low milk prices but then we are paying a bit more in taxes. This link has more on this Dairy Margin Coverage program. Update: Free trade with China could help the dairy products surplus problem according to this report:
With the development of China’s economy and the rise in Chinese people’s living standards, the per capita consumption of dairy products in China keeps rising. Despite the increasing demand for dairy products, the domestic production of dairy products sees a rather anemic growth. In 2017, the apparent consumption of dairy products in China reached about 31.79 million tons, representing a CAGR of about 2.7% from 2013 to 2017, according to the researcher. However, the production volume of dairy products in China grew at a CAGR of only 2.1% during the same period. The main reasons for the sluggish growth include: (1) The costs of domestic dairy production in China are higher than the global average as affected by the costs of feed, labor and land, and the low profitability inhibits the production growth; and (2) Chinese people lack confidence in domestic dairy products as safety incidents occurred frequently in China's dairy product industry in the recent decade. The above factors drive the growth of dairy product imports in China. According to China Customs, in 2018, the import volume of dairy products in China reached 2.74 million tons, up by 7.80% YOY; the import value reached USD 10.65 billion, up by 14.80% YOY, the researcher concludes.
Of course, Team Trump and their stupid trade war philosophy might screw this up for American farmers.

Why Did Oil Prices Plunge This Black Friday?

Nothing to do with the American super big shopping day after Thanksgiving, but several items, some of which may reverse themselves.  As it is, it was a pretty big drop, nearly 5 percent for the day for both West Texas and Brent crude, with the latter now just above $60 per barrel.

The big headline is the resignation of Iraqi prime minister Adil Abdul Mahdi. The immediate trigger of that was that it was demanded by Iraq's most influential cleri, Ali Sistani.  This came after weeks of mounting protests in Iraq against the government, both in Baghdad, but also among Shia in the South, with Sistani a Shia cleric. He is based in Najaf, the Shia holy city where Imam Ali is buried, the son-in-law of the Prrophet Muhammed.  Protestors had just torched an Iranian consulate there. The supposed reason this might justify a fal in oil prices is that it is thought that the protests have reduced exports from Iraq, which is currently the second largest oil exporter in OPEC. I do  not know if that will result, but if indeed this leads to Iraqi oil exports rising, then indeed a price drop is justified.

While lless headline-generating but arguably more important are rumors regarding a major OPEC meeting in Vienna next week.  Supposedly the Saudis have gotten tired of cutting oil production to offset increases by other OPEC members. This may not help out the ARAMCO IPO going on, with falling oil prices resulting.  But that would certainly portend a reasonable basis for them to fall.

On top of that there are also reports that non-OPEC member Russia is now withdrawing from agreements over the last three years, largely with the Saudis, to restrain their production, especially of condensates.  This too would reasonably push oil prices down.

There are also reports of snags in US-China trade talks, a less important item that might reveese tomorrow, but one that makes all the markets nervous, and indeed stock markets were down today also.

So, while "Black Friday" in the US means businesses supposedly coming out of negative red territory on their profit accounts, in the the oil patch it looks more like something unwanted, black indeed.

Barkley Rosser

Wednesday, November 27, 2019

Putin Beating Up People At Russia's Top University

That would be Moscow State University, the "Harvard" of Russia.

Not in the MSM at all, but I have mu sources, and apparently sometime last week the FSB, the successor to the domestic  arm of the old  KGB, raised Moscow State (whose main building is one of those "Stalin Gothic" skyscrapers) to capture a student who had been posting leaflets on walls protesting recent government actions.  He was reortedly taken into the library and severely beaten to the point of torture.

Oh yes, VV Putin is such a lover of knowledge and science, just like his flunky, Donald J. Trump.

Happy Thanksgiving, you all.

Addendum: Apparently the student was accused of "terrorism."

Barkley Rosser

Tuesday, November 26, 2019

Complicating The ARAMCO IPO

Thee Saudi ARAMCO IPO is happening on the Saudi exchange just for Saudi citizens, where apparently there is a not-so-subtle campaign on well off and connected citizens who wish to remain that way to buy into the IPO.  But there continues to be delays in opening it up to the rest of the world, with this partly reflecting fears of demands that might be made for more openness, and all that, with various Saudis not keen on that, especially apparently at ARACO itself.

However there are now reports of another development that might encourage domestic purchases but may further put off foreigners.  This is a nw round of arrests of alleged dissidents, up to at least nine in the last week.  These are all fairly prominents leading citizens, a philosopher, journalists, businessmen.  What is curious and sisturbing about this round is that badically all of these have reportedly been supportive of the regime and of the recent initiatives, at least the economic ones, by MbS, the Crown Prince.  But they are being swept up?  Why?  Apparently the only thing that at least some of them have in common is that back in 2011 many of them (not clear all of them) made public statements sympathetic to the initial Araab Sprinbg uprisings, a position never shared by the Saudi government.  The theory is that thanks to Trump's support and the apparent end of the mild disapproval  by many foreigners after the murder og WaPo columnist, Jamal Khashoggi, MbS feels he can get away with clearing out even potential critics.

But then this new round of such conduct may further sour the prospects for obtaining outside investors in the ARAMCO IPO.  The company may currently have the world's highest net income, well ahead of Apple, at $110 billion.  But worries about the future of the oil industry, not to mention the stability of the Saudi royal family.  Of course part of the high net income is that KSA continues to be one of the lowest cost locations in the world to pump oil, with ARAMCO officials claiming that if indeed oil disappears from the world economy, the last to be pumped will be out of Saudi Arabia.

Of course, given worries about the foreigners, not rushing in, it may be that this outburst of arrests may be to encourage more domestic purchases.  So it may be a contest: do the arrests encourage more domestic purchases than it discourages by the foreigners.  Or maybe MbS is not thinking, which he seesms to have done previous, e.g. the Khashoggi murder.

Barkley Rosser

Monday, November 25, 2019

Have the Transfer Pricing Experts at KPMG Heard of the Repo Ruckus?

If one thinks Trump’s economic advisors are the dumbest people on the planet, I have a new candidate for that award – a few supposed experts on intercompany loans that work for KPMG:
In 2017, the ARRC selected the Secured Overnight Financing Rate (SOFR) as the alternative that represents the best replacement rate for USD-denominated LIBOR. SOFR is based on overnight transactions in the U.S. dollar Treasury repo market, the largest rates market at a given maturity in the world ... In the time since the Federal Reserve Bank of New York began daily publication of SOFR in 2018, significant progress has been made in building liquidity in SOFR-linked markets (which include dollar-based derivatives and loans) … SOFR is fundamentally different than LIBOR in a number of key elements. SOFR is (currently) an overnight rate, is secured and is designed to reflect a (virtually) risk-free rate. LIBOR has forward-looking term options, is unsecured and is designed to reflect a bank’s cost of funding. All of these characteristics factor into how SOFR will perform under certain circumstances and how it can be used by market participations. For example, the following figure compares 3-month LIBOR, one the most commonly used LIBOR benchmarks, to the 3-month simple average of SOFR. SOFR is generally both lower and, depending on the methodology applied to derive a term structure, less volatile as compared with LIBOR. This is to be expected given the lower risk profile of SOFR, since it represents borrowings collateralized by U.S. Treasury securities while LIBOR reflects interbank credit risk.
The purpose of their ramblings was to advise multinationals on what to do with a set of their intercompany loans once LIBOR disappears, which is sort of making an easy issue hard so their arrogant and overpriced clowns can charge lots of fees for virtually nothing. But hey – that is what the Big Four does. Any financial economist with half a brain would spot two serious problem with their comparison of SOFR (an overnight rate) with the 3-month LIBOR. Of course the latter tends to be higher than the former as we have been living in a world of an upward sloping term structure for the last decade. There is an overnight LIBOR rate, which closely tracks SOFR for most dates. In fact, the average overnight LIBOR rate over the April 3, 2018 to current period has been a few basis points less. But to claim SOFR has been less volatile? I guess they did not read The Repo Ruckus where Barkley Rosser wrote:
This is now about three weeks old news, but it is increasingly clear that it is not clear why it happened or if it will happen again. There was an outbreak of completely unexpected volatility in the repo market, where in the past the Fed had carried out open market operations, although that had largely passed. Indeed in more recent years when the Fed has intervened in markets it has been in the reverse repo market. In any case, interests rates shot up as high as 9 or 10 percent at one point
Now SOFR only shot up to 5.25 percent. LIBOR showed no such volatility during this period. Now one would think the experts at KPMG would have noticed this market development but it appears they did not. Now who on earth would hire people so utterly clueless? Update: This dumb idea of comparing an overnight rate (SOFR) to the 3-month LIBOR rate may have originated with BDO:
SOFR is a secured interbank overnight interest rate. As a result, SOFR rates are lower than LIBOR rates because SOFR is secured by collateral. The table below shows a comparison between historical LIBOR and SOFR since the introduction of the SOFR in April 2, 2018.
Well not quite. One reason why SOFR is lower than this 3-month LIBOR rate has something to do with the term structure as well. Those who know – avoid BDO!

Sunday, November 24, 2019

Chaos Theory And Global Climate Change

I am currently attending the Southern Economic Association meetings in Fort Lauderdale, where the street facing the hotel was underwater during the most recent hurricane to pass through.

Anyway, I saw a talk today that took me back to when I first learned about chaos theory, actuallly in the early 1970s before the word "chaos" was used for it. I learned about it and the butterfly effect, aka sensitive dependence on initial conditions, while working on a combined model of global climate change and food production.  It was called "irregular dynamics" back then, and the model showing it was climatologist Edward Lorenz, published in 1963.  Blew my mind then.  Anyway, it is widely accepted that the global climate system is chaotic, which is why one can only make weather forecasts for fairly short periods of time into the future, although one can forecast longer run average changes of averages such as average global temperature.

Anyway, I saw a talk by Emmanuele Masssetti of Georgia Tech that reminded me of all that, a talk thet explicitly drew on this chaotic effect.  So he has been simulating future climate using different assumptions for the various climate models the UN has been using for its IPCC reports.  What he found was that indeed the overall average temperature change projected did not vary as he varied initial conditions by small amounts. But what the projection for particular regions of the world did vary, indeed very much so as in the butterfly effect. So, for exmple, the Great Plains of the US would warm a lot under one simulation, but then actually cool for a simulation following a slightly changed initial conditions.  This is atunning, but not really surprising given the underlying chaotic nature  of th global climate system.

Another talk was a keynote  by Richard Zeckhauser of Harvard, who was pushing for us to study geoengineering.  He made a strong case for it.

Barkley Rosser

Wednesday, November 20, 2019

The End Of Decades Having Identities In The USA?

We are closing on the centennial of the beginning of decades having identities in the USA, the "Roaring 20s" of the 20th century.  It may be that this centennial will clearly mark the end of this odd phenomenon that we had been used to, but which was always a bit odd.  Why did this start and why might ibe ending?  I have a few thoughts on this.

My theory oon why it started in the 1920s is that this was the first appearance of national news media in the form of radio, which was the first time we could really have aunified discusson and consciousness in a way not possible previously.  Certainly there were decades earlier that had the potential for having identities. The 1860s had arguably the most dramatic event of US history, the Civil War, but nobody has ever talked about "the 60s" meaning the 1860s rather than the 1960s. Likewise, there serious economic downturns through most of both the 1870s and 1890s, but nobody has ever talked about the 70s or 90s referring to those decades.

Indeed this continued into the beginning of the 20th century, with many dramatic events in the first decade and, of course, WW I in the second, although the US was in that war for less than two years.  But it was the 1920s that got an identity for the first time in US history.  Maybe it is not the spread of radio, maybe it is the spread of automobiles, which became the dominant form of personal transport in that decade, which helped increase social mobility and communication.  So add the auto to radio, and maybe some other things, jazz, although we also got the spread of records and movies also.  So, there we had that roaring decade.

So for the rest of the 20th century people talked about each decade as something with an identity, even as some had less clear identities than others.  The 30s were dominated by the Great Depression.  The 40s were clearly dominated by WW II, and  its aftermath in the latter half of the decade.  The 50s was that golden time of US dominance with big cars and suburbs and I Like Ike.  The 60s, well, from civil rights to the Vietnam War, not to mention sex, drugs, and rock and roll.  The 70s were more complicated, marked after 73 by economic stagflation and much pulling back from excesses of the 70s, while certain movements that barely began (or started up again) got going  more seriously in the 70s, notably both the womens' movement and the gay rights movement (the latter only really getting going with Stonewall in 69).  The 80s saw the major shift associated with Reagan, the 90s had the foloowup to the end of the Cold War with an economic boom under Clinton in its latter part.  Indeed, the 90s may have been the last decade with a clear identity, with the US arguably reaching some sort of optimistic peak of world standing at the end of the millennium/century, although in fact the US was more globally dominant in the late 40s and 50s.

Here is where things get complicated, and I would argue that neither the Noughties, as the first decade of this century tends to get called when somebody bothers to call it anything, and the current nearly ending teens, do not have strong identities.. Of course the early part of the Noughties was dominated by 9/11 and the following War on Terror, including the awful war in Iraq.  But then we got someting that spilled over into the teens, the Great Recession, which began at the en of 2007.  Ironically the teens have not had a single period of time when the US economy was officially in recession, but certainly the first part of the decade was dominated by the recession that happened at the endo of the prvious decade.  Somehow by the end of the decade we had come back to reasonably growing and full employment economy, but the long dragging aftermath of the Great Recession soured our society, with the nationalist, racist, populist attitudes that brought us Trump, but have also spread across the world.  And while ISIS has been defeated, we continue to be "fighting terror" in many places.  In short, it is hard to separate these two decades.  When we look at it hard, we may be in a situation where we have been in period where we have a kind of two decade period that has its own identity, with in effect the Great Recession and its long aftermath being the unifying factor spilling across from the latter part of the first of them into the early and mif part of the second one.

I shall comment on one other reason why we may be coming to a time when the decades lose their identities, if in fact we may have already done so as I have suggested just above.  If this is the case, it may be due to an undoing of what happened a century ago, a disintegration of the unified mediia based story that emerged with radio.  As has been noticed for quite some time we have had an increasing diversity of media into ever more fragmented parts, which has allowed for large groups to simply live in different worlds, with the polarization between those who watch Fox News versus most of the rest of us symbolic of it. But watching the current situation I am struck that I have never seen such a divide in the nation in terms of fundamental perceptions about the nature of reality.

So what this centennial of the Roaring 20s brings I do not know, but it may well be that 2020s will have no more decadal identity than did the 1820s in the USA.

Barkley Rosser

Friday, November 15, 2019

Is Venezuela Stabilizing?

ry It looks the inflation ratei in Venezuela maxed  out in January at an annuualized rate of 192,000 % , whiich fell by September to 4,600% rate, still in hyperinflationary teritoryy, but  clearly coming down substantially.  I am not  a fan of this regime and never was, unlike some prominent economists saying nice t8ings about tueir economic performance, especially back in 2007, just berofe  the  world crash, when indeed their  numbers  looked prtty good.  But, not more recently unfortunately.  But maybe they are slowly returning to a more functional economy now, with still a long way to go.

There are also reports that oil production in Venezuela has recently risen.  Reportedly some of the recent possible stabilization in Venezuela may reflect influence of Russian advisers.

Barkley  Rosser

Thursday, November 14, 2019

"Are Robots Stealing Your Job?" is the Wrong Question

Andrew Yang says, "Yes, Robots Are Stealing Your Job" in an op-ed at the New York Times. Paul Krugman thinks they're not and advises, "Democrats, Avoid the Robot Rabbit Hole." This is, of course, a classic case of asking the wrong question.

The real question is: will robots burn down your house and kill your grandchildren? Let's imagine that all those self-driving trucks and the computers needed to guide them will run on electricity generated by wind turbines and solar panels. Will the robots in the truck factories and the robots in the computer factories also run on wind and sunshine? How about the robots in the wind turbine factories and the solar panel factories and so one ad infinitum? I know an old lady who swallowed a fly...

Let's assume that it is feasible to phase out all current fossil fuel consumption by 2050 and replace it with renewable, zero-carbon energy. Does that mean it is equally feasible to provide the additional energy needed to run all those job-stealing robots? Or to put the question in proper context, would it be feasible to do it without an uncorruptable, omniscient global central planning authority?

The hitch in all this robot speculation is a little paradox known as Jevons paradox conjoined at the hip, so to speak, with it's counterpart, "Say's Law." The former paradox says that greater fuel efficiency leads to more fuel consumption, the latter paradox tells us that labor-saving machines create more jobs than they destroy. Here are two inseparable positive feedback loops that together generate an incongruous outcome. "Yes the planet got destroyed. But for a beautiful moment in time we created a lot of value for shareholders." Or lots of jobs, jobs, jobs. Or a monthly $1,000 payment to every adult "so that we can build a trickle-up economy," Choose your poison.

There is, they say, "a certain quantity of work to be done." Who says that? Good question. In the beginning, it was the political economists -- even proto political economists -- who said it. But around 1870 economists realized that the maxim conflicted with other things they had in mind so instead of professing it they began to condemn it and to attribute the idea to others -- to Luddites, Malthusians or Lump-of-Laborers. The idea that a people could always do more work was just too great a temptation. In principle, the amount of work that could be done is infinite! The robots will not replace us! The robots will not replace us!

What this job-stealing robot debate is really all about is an economics version of theodicy. "Why does evil exist if God, the creator, is omnipotent, omniscient and good?" This theological question is echoed in the puzzle about poverty in the midst of plenty and in Mandeville's "Fable of the Bees," where private vices promote public virtues. If it seems like robots are stealing your job, have faith, all is for some ultimate purpose in this best of all possible worlds, as Candide's tutor Dr. Pangloss would assure him.

Taking the Panglossian philosophy into account, it becomes clear that both Andrew Yang and Paul Krugman are on the same page. They are just reading different paragraphs. Although they disagree on what the solution is, they agree that there is a solution and it doesn't really require a fundamental change in the way we think about limits to the "certain quantity of work to be done."

Ukraine Corruption and Transfer Pricing

As I listened to the testimony of Bill Taylor and George Kent, I was also reading up on some South African transfer pricing case involving iron ore:
Kumba Iron Ore will pay less than half of the tax bill it received from the SA Revenue Service (Sars) last year following audits of its export marketing practices during the commodities boom. The settlement of R2.5bn significantly overshot the R1.5bn Kumba had set aside as a contingent liability. It is, however, a fraction of the taxes, penalties and interest payments Sars was pursuing the country’s dominant iron ore producer for. The existence of a potential tax liability was first reported to shareholders in June 2014, but Kumba could only put a number on it early last year when it received a tax assessment of R5 billion for the years 2006 to 2010.
If this account sounds like a lot of accounting gibberish, one might check with other accounts including whatever BDO wrote but these other accounts were even less informative. To paraphrase one commercial “people who know” avoid BDO. I think what happened is that the South African tax authority objected to what it saw as a lowball transfer pricing paid to the South African mining affiliate by a tax haven marketing affiliate and decided to completely disallow any commission income for the tax haven affiliate. This account at least notes that Kumba Iron Ore eventually told its shareholders that there might be some transfer pricing risk and that the issue was eventually resolved with a more modest commission rate booked by the marketing affiliate. So what does this have to do with Ukraine?
There is high public interest in the topic of “offshores” in both Ukraine and the EU. It is of particular importance for Ukraine which is categorized as an “open economy”, meaning a country with a high share of exports and imports relative to GDP. In particular, iron and steel production and exports from Ukraine are very significant even by the scale the global iron and steel markets. These sectors have also become the single largest source of wealth for the richest Ukrainians ... It is intriguing that even the Ukrainian authorities publicly declare that there is significant profit shifting occurring to avoid corporate taxation. For instance, according to the State Fiscal Service of Ukraine the usage of transfer pricing within all types of operations results in 100 billion hryvnia tax avoidance annually (around 3.3 billion euros), which leads to almost 20-25 billion hryvnia loss of the national state budget (Riabych, Vakulchyk 2015). This budgetary loss is equivalent to 660–750 million euros, which is comparable to the scale of the annual macro-financial assistance received by Ukraine from the European Union in the last several years to fill the budgetary gap.
The authors spend considerable effort attempting to document the extent of transfer pricing manipulation involving Ukraine’s exports of iron ore and steel. While I’m not convinced they have the right metrics, let’s admit that such tasks are difficult without the multinationals providing information on their business and transfer pricing policies. Of course, multinationals involved with the type of tax avoidance suggested in this document are reluctant to provide such clarity unless they were compelled to do so. It was funny yesterday when the Trump sycophants whined about second hand information with the obvious reply being to demand the testimony of those with first hand information. Now if we could get Rudy Giuliani under oath, not only should he be asked about UkraineGate but he should also be compelled to tell us what he knows about Ukrainian iron ore transfer pricing.

Wednesday, November 13, 2019

What quid did the president quo and when did he quo it?

Aside from the headline news about a July 26 phone call, I learned four big things from the impeachment inquiry hearing this morning. First, the specific corruption surrounding Burisma Holidings had to do with self dealing by company founder Mykola Vladislavovich Zlochevsky -- issuing oil and gas licences to his own company when he was Minister of Ecology and Natural Resources. In other words, Zlochevsky did exactly what Donald J. Trump attempted to do with his Doral Golf Club and the G7 summit.

The second thing I learned is that President Trump was nursing a grudge against Ukraine because some Ukrainian politicians said some nasty things about him after he made a comment about letting Russia have Crimea. That's why he felt Ukraine "owed" him. The third thing is that the Ukraine shit made fanfall just about exactly the time that Trump was extemporizing about Hurricane Dorian hitting Alabama. Who knew Trump could multi-task?

The fourth thing I learned is the big one. There was not one quid pro quo but two. One involved Zelensky, the other Putin. That's the significance of the timing of the Trump-Zelensky phone call -- the day after Robert Mueller's congressional testimony was a dud. Humiliating Zelensky by forcing him to make a public announcement of a politically-motivated investigation of Biden-Burisma-2016 would hand to Putin his reward -- a weakened negotiating partner -- for the favor of having helped put Trump in the White House. The art of the deal, indeed.

Sunday, November 10, 2019

OK, Who Approved Of The Ads Here Now?

And not only that, presumably they are paying money to put them on, so who is getting that money?  I am not, although it may not amount to much.  Hey, I see there  are not nearly as many as on Angry Bear, where I find them to be obnoxiously in one's face, and they are pretty low key.  But, personally, I would rarther not have them and I sure as hell was never asked by anybody if I did want them.

This is also a message to those who may think I should be getting rid of weird stuff showing up in posts that I am not the person in charge of that.  So I guess I also have no say on whether we get ads, much less what they will be for.  Heck, I saw some survey about Trump.  I do not even want to see his m--f--g face here at all.

Barkley Rosser

Friday, November 8, 2019

"ok boomer " or "gas all boomers"

Within the last week or so there seems to have been an explosion of yattering over "ok boomer." Over the last few years in various parts of the internet there was a self-righteous meme pushing "gas all boomers."  Yeah. This never made it to the MSM, I suspect  because it was just too extreme for the MSM to publicize.  But now we have the MSM allover this milder "ok boomer" meme, now a big deal.  I think I have an original view of this,that the "gas all boomers"  is an idealistic millennial view, reflecting their boomer parents. This new milder meme reflects the view of the Gen-Z group, \

My view is that the former nastier "gas all boomers" meme was from the idealistic millennials, strongly rebutting their boomer parents,  We failed them, and them wanted us gassed for our  failures to deliver for them, especially in the Great Recession, which in their view at least of several years ago, was our boomer fault, although that is a pretty weak argument.

But now w come to this milder meme of "ok boomer," how polite.  Word is  that this is coming from Gen-Z sources, a groups younger than the angst-ridden millennials., who seem to have come up with the "gas all boomers" meme that went nowhere.

Obviously younger generations in the US have reasons  for being unhappy. The US economy, along with the  world economy, is slowing down.  Both the milllennials and the Gen-Z group face higher college costs and housing costs than their predecessors.  That the boomer gen is responsible for this outcome is a highly unreasonable view.

The middle portion of the millennials have  indeed been big victims of the Great Recession, and will for the rest of their lives will have lower incomes the MSM, was just too shocking, while arguably idealistic hard core in its formulation

But the new less shocking "ok boomer" meme is  coming from the new rising Gen-Z gen. Most commentary has lumped them in with the millennials, but this is crap.  They are following the "ironic" meme of their  parents, the supposedly loser Gen-X, with their irony.

So indeed that is this new "ok boomer" meme  that  is ironic, coming from the Gen-Z gen, following their  Gen-X "ironic' parents.  This contrasts with the hard line millennial "gas all boomers" view, ironically following the idealistic view of their boomer parents.

Barkley Rosser

Thursday, November 7, 2019

Mankiw’s Ideal Democrat (Bloomberg Alert)

Greg Mankiw has always been a Never Trumper:
I just came back from city hall, where I switched my voter registration from Republican to unenrolled (aka independent). Two reasons: First, the Republican Party has largely become the Party of Trump. Too many Republicans in Congress are willing, in the interest of protecting their jobs, to overlook Trump's misdeeds (just as too many Democrats were for Clinton during his impeachment). I have no interest in associating myself with that behavior. Maybe someday, the party will return to having honorable leaders like Bush, McCain, and Romney. Until then, count me out. Second, in Massachusetts, unenrolled voters can vote in either primary. The Democratic Party is at a crossroads, where it has to choose either a center-left candidate (Biden, Buttigieg, Klobuchar, Yang) or a far-left populist (Warren, Sanders) as their nominee for president. I intend to help them choose the former. The latter propose to move the country too far in the direction of heavy-handed state control. And in doing so, they tempt those in the center and center-right to hold their noses and vote for Trump's reelection.
In a way I get this and a lot of other centrist Republicans are saying similar things. Enter Michael Bloomberg:
Michael Bloomberg is taking steps to enter the 2020 Democratic presidential campaign, a person familiar with his plans tells CBS News. Bloomberg, 77, has dispatched aides to Alabama to file paperwork in the state to run as a Democrat. The Cotton State doesn't hold an early Democratic presidential primary, but has the earliest filing deadline for the presidential campaign. Taking steps to file paperwork is the most serious signal yet that the former New York mayor and billionaire is seriously planning for a White House run. Howard Wolfson, a longtime Bloomberg adviser, said in a statement that Bloomberg "is increasingly concerned that the current field of candidates is not well positioned" to defeat President Trump.
I guess Bloomberg thinks Biden, Buttigieg, Klobuchar, and Yang are way too liberal for his America. Hey Never Trumpers – more tax cuts for rich people! Now of course, we need to pay for all of this and something tells me that proposals to slash Social Security and Federal health care payments are not exactly going to win the Bloomberg ticket a lot of votes. Oh wait – tax the little guy. Of course, Bloomberg has long proposed a soda tax. Let’s hope Mankiw convinces to go for a carbon tax instead. But addressing income inequality in a Bloomberg Administration? Not going to happen if the Mayor of Manhattan (mainly the Upper West Side and Upper East Side) becomes President!

Tuesday, November 5, 2019

The ARAMCO IPO Stumbles Out The Door

Finally after numerous delays, the potentially largest Initial Public Offering (IPO) of stock has finally become for fully state-owned ARAMCO in the Kingdom of Saudi Arabia (KSA).  MOst of the delays had involved an unwillingness by the Saudi royal family to publicize financial and other factual details about the company, although issuing an IPO for 5 percent of the company was a part of the Vision 2030 plan of Crown Prince Mohammed bin Salman (MbS). 

As it is, for the time being the IPO is only available to Saudi nationals through the Riyadh stock exchange.  It is unclear how long or even if it will open up to foreigners.  Reportedly the Saudis are hoping for it to value  the company at $2 trillion, which would put it well ahead of Apple and Microsoft, both of which are around $1 trillion.  But some observers think this is overly optimistic on the part of the Saudis for a variety of reasons.

Along with that, the US has this past month for the first time since 1978 recorded a trade surplus in petroleum products.  This will continue to put  downward pressure on global oil prices, and also depress the prospects for how much money this IPO will raise in the end.

Barkley Rosser 

Monday, November 4, 2019

Has Tyler Cowen or John Cochrane Ever Heard of Monopsony Power?

I’m going to replicate one portion of a long winded rant about alleged cognitive dissonance:
The argument for a minimum wage is that labor demand is inelastic -- employers will hire the same number of workers. They will just absorb the higher wages or pass along the costs to customers. Workers get all the benefit. If labor demand is elastic, employers cut back on the number of employees.
Of course, labor economists would recognize that John Cochrane’s entire post assumes a perfectly competitive labor market. One has to wonder about economists who have never even considered monopsony power.

Saturday, November 2, 2019

Republican Senators Suggest Trump’s Treason is Legal

Yes – we know President Clinton cheated on his wife while in office. And yes some Republicans such as Trump sycophant Lindsey Graham passed Articles of Impeachment over adultery. Graham was rewarded by being able to move from the House to the Senate where he repeatedly suggested that the Whistle Blower complaint was nothing more than “hear say”. My have things changed:
An increasing number of GOP senators are preparing to acknowledge that there was a quid pro quo in President Trump’s leveraging of military aid with Ukraine as a means to urge the country to investigate former Vice President Joe Biden, The Washington Post reported Friday. While some Senate Republicans have defended Trump’s insistence that there was no quid pro quo, a growing number of GOP officials in the chamber are adopting the stance that what Trump did was a quid pro quo but that his actions weren’t illegal and don’t constitute impeachment, the Post reported.
Since when did treason become AOK? Yea I know these same Republicans will say “treason” is a harsh word for this holding up of military aid authorized by Congress to Ukraine which needs it to fend against Putin’s invasion in exchange for political dirt on Joe Biden. Of course, Trump’s sycophants say a lot of really stupid things. I listened to two proponents of impeachment debate on what to stress: (a) that Trump was selling out the national interest to our enemy Putin; or (b) Trump was gaining a corrupt benefit. Both statements are clearly true. But we can summarize (a) and (b) into a single and very understandable word – TREASON! Just in case these Republican Senators are confused as to what our Founding Fathers wrote when they gave us the Constitution, let’s remind them about Article II, Section 4 which states:
The President, Vice President and all civil officers of the United States, shall be removed from office on impeachment for, and conviction of, treason, bribery, or other high crimes and misdemeanors.
Donald Trump did commit treason. Treason is an impeachable event. The only question is whether these Senators will fulfill their Constitutional roles or will simply remain Trump sycophants. Update: Mike Schupp has a rather weak argument to dismiss my use of the word treason. Yes he cites Article III section 3 but I would argue withholding military aid from Ukraine gave aid and comfort to the Russians who have invaded Ukraine. Mike also wrote this:
But we can't convict someone simply for being a rogue, we try them at law for specific criminal acts.
Sorry Mike but a lot of learned people would disagree. I would also remind people that Senator Trent Lott argued people had committed treason for a lot less than what Trump has done. Speaking of Senator Lott:
Senate Majority Leader Trent Lott (R-Miss.) said Tuesday that Congress need not prove that President Clinton committed a crime to impeach him. “I think bad conduct is enough, frankly, for impeachment,” said Lott, who has provided guidance to Speaker Newt Gingrich (R-Ga.) as the House grapples with perjury and other allegations against Clinton. But that is a far different standard from what Lott advocated during the Watergate hearings in 1974, when he was one of President Nixon’s staunchest congressional defenders. Lott and nine other Republicans on the House Judiciary Committee argued then that even proof of criminal conduct by a president was not necessarily enough to proceed with impeachment--precisely the position now taken by the White House and Clinton’s Democratic defenders. “It is our judgment . . . that the framers of the United States Constitution intended that the president should be removable by the legislative branch only for serious misconduct dangerous to the system of government established by the Constitution,” Lott and the other Republicans wrote in a minority report.
Adultery is neither a crime nor “serious misconduct dangerous to the system of government established by the Constitution. What Trump has done does represent the Lott 1974 standard for impeachment.