2020 Hindsight: Why the world is not zero-sum

According to a report, Global Waves of Debt, pre-published by the International Bank for Reconstruction and Development:

Waves of debt accumulation have been a recurrent feature of the global economy over the past fifty years. In emerging and developing countries, there have been four major debt waves since 1970. The first three waves ended in financial crises—the Latin American debt crisis of the 1980s, the Asia financial crisis of the late 1990s, and the global financial crisis of 2007-2009.  

A fourth wave of debt began in 2010 and debt has reached $55 trillion in 2018, making it the largest, broadest and fastest growing of the four. While debt financing can help meet urgent development needs such as basic infrastructure, much of the current debt wave is taking riskier forms. Low-income countries are increasingly borrowing from creditors outside the traditional Paris Club lenders, notably from China. Some of these lenders impose non-disclosure clauses and collateral requirements that obscure the scale and nature of debt loads. There are concerns that governments are not as effective as they need to be in investing the loans in physical and human capital. In fact, in many developing countries, public investment has been falling even as debt burdens rise. 

We hear from time to time that "the world is not zero sum." Rarely is that dictum explained in other than mystical terms (e.g. "supply creates its own demand," "human wants are insatiable," etc.). The explanation, however, is simple: debt. Without debt there would be no "economic growth."

Debt finances growth; growth services debt. And they all lived happily ever after. But some debt takes "riskier forms." Hyman Minsky wrote about the first of those four debt waves in "The Bubble in the Price of Baseball Cards." In that paper Minsky addressed the price of baseball cards, the Latin American debt crisis, the Japanese, Korean and Taiwanese real estate and equity booms of the '80s, and "[o]ne of the puzzles of the 1980s... the rapid rise in the financial wealth of Donald Trump."

What the rise in Trump's wealth had in common with the Latin American debt crisis was that they both were predicated on a precarious differential between real interest rates and increases in asset values that could change very suddenly with an increase in the former or a decrease in the latter. 

One of Minsky's best shots was a drive-by -- relating the regional increase in real estate prices to "rapid increase in incomes in banking and financial services -- sort of a derived demand from the financial success of Drexel Burnham." That Drexel Burnham "success" was, of course, transitory and involved fraud. The inference was that Trump's financial success, too, was ultimately -- at least indirectly -- fraudulent.

John Kenneth Galbraith coined the term "bezzle" for the amount by which total wealth is inflated by embezzlement in the period before the embezzlement is discovered:

At any given time there exists an inventory of undiscovered embezzlement in—or more precisely not in—the country’s business and banks. This inventory – it should perhaps be called the bezzle – amounts at any moment to many millions of dollars. It also varies in size with the business cycle.

Any large quantity of debt includes an inventory of embezzlement. A certain amount of it will never be paid back. Some was never intended to be repaid. As the debt increases relative to income, the proportion of prospective embezzlement also increases.

Happy New Year!

Thiessen Balances His Policy Defense Of Trump

Several days ago I posted on Marc A. Thiessen's defense of 10 policies by Trump in WaPo.  I must now credit him with today on New Year's Eve in the same venue publishing a column "The 10 worst things Trump did in 2019."  Good for him, some balance after all.  I agree these are all bad things, although I disagree with some of his analysis of them, with a few caveats especially on a couple of the foreign policy items.  However, I shall just list them with Thiessen's conclusion.

10. He ridiculously claimed "Our country is FULL"

9. He used anti-Semitic tropes to attack his enemies.

8. He said the Soviet Union was right to invade Afghanistan and congratulated China on the 70th anniversary of the Communist takeover.

7. He lost a needless government shutdown.

6. He used his emergency authority to circumvent Congress on the border  wall.

5. He continued to spread the canard that the United States is fighting "endless wars."

4. He continued to attack dead people.

3. He asked the president of Ukraine to investigate Hunter Biden.

2. He invited the Taliban to Camp David.

1. He gave Turkey a green light to invade Syria and attack out Kurdish allies.

Thiessen concludes with the following paragraph:

"In past yearss, many entries on my 'worst' list were mistakes of style, not substance. But this year, the number and seriousness of the president's substantive mistakes grew.  On balance, the good still outweighs the bad in the Trump presidency.  But the bad is getting worse."

Again, Happy New Year, you all!

Barkley Rosser

Forward Creeping Excessmass Wins The War On Christmas

"Excessmass" is a term neologized in a column in the late 1990s in the Wall Street Journal (sorry, unable to find precise date) by my JMU colleague, Bill Wood.  A devout Brethren, he was and remains disgusted by the crass commercialism associated with the Christmas holiday in the US. In this column he proposed dividing the holiday into two: a strictly religious one, "the Nativity" without gift giving, and a gift giving one he argued should be called "Excessmass," a term that did not particularly catch on, but I am reviving as I see its forward creep as in fact damaging it not outright destroying the traditional religious Christmas, certainly far more vigorously than any bout of people saying "Happy Holidays!" to each other.

What triggered this post is that over the weekend in the Washington Post comics section (the most important part of the paper), nearly a  quarter  of the comics had a theme of "taking down the Christmas tree" or "taking down the Christmas decorations," and indeed in my neighborhood I saw several houses where there was a tree out on the street on either the 26th or 27th.  Plus, for some years now a local radio station has started playing the schlocky commercial Xmas music ("Frosty the Snowman," etc.) starting a day or  two after Halloween, but then on Dec. 26 is back to its usual pop music stuff. Hey, Christmas is over!  Time to move on to Valentine's Day!  And also this year I saw the stores breaking what had been a Halloween barrier (the Thanksgiving one long ago broken) and putting up all their Xmas stuff in October.  Hey, with all that going on for so long, of course it is time to put all those decorations away the minute Christmas is over!

Well, let me note in fact how far all this has now moved from the formal religious Christmas, especially as seen by Roman Catholics around the world, as well as the more established  "high" Protestant faiths like Episcopalianism and Lutheranism.  Formally, the core Christmas holiday only begins on Christmas Day, indeed, the day after.  Dec. 26, known as "Boxing Day" in the UK, is the actual "First Day of Christmas" of the 12, with the 12th day being the Epiphany, January 6.  Not that long ago, lots of public places kept decorations up until then, but now it is an increasingly close call if they keep them up until New Year's Day.

Yes, there is recognition of an earlier period.  The major churches recognize Advent, the runup to Christmas.  It begins on December 1, but it was breached long ago by the commercial move to institute Black Friday the day after Thanksgiving for major Xmas shopping.  As it is, the Macy's Thanksgiving Day parade has since the 1920s featured Santa Claus arriving at the end of the parade to mark the beginning of the Excessmass season, and indeed, while it is now forgotten, the modern image of Santa Claus was really cinched at that time and in connection with that parade.  But, of course, as noted above, the Thanksgiving boundary was breached long ago, and now the Halloween one has been as well, leading to total exhaustion with it all once Christmas Day finally is reached.

I shall also note that especially in predominantly Catholic countries, the early celebrations do not get going until December 8, which I think is supposedly Mary's birthday, or something.  Creches get put into churches then.  But the creches stick around until the day Jesus was supposedly taken to the Temple after birth, which is also the Purification of the Virgin.  This is 40 days after Christmas, that is February  2, or Candlemas in the Church, although Groundhog Day in the US.  In any case, no  way commercially minded Excessmass celebrators are going to have decorations up from Nov. 2 to Feb. 2, (although, of course there are those people who simply never take their decorations down).

Oh, and Happy New Year everybody, here on the Sixth Day of Christmas!

Barkley Rosser

Protectionism and the election

Democrats need to campaign inter alia on a full-throated condemnation of Trump's protectionism. Over and over again, they need to point out that Trump has raised taxes on ordinary people with his tariffs -- we need to get an estimate of the net effect of the tax "cuts" less tariff-induced price increases and run with it. I have to say that years and years of  "progressives' " apologia for protectionism -- the nonsense about the jobs destroyed by NAFTA (when jobs created are ignored!) is a case in point--has contributed to the current muteness of the Democrats on these issues.

Surely a full-throated anti-protectionist message could capture votes in rural America. And a non-negligible part of the pervasive corruption of this administration centers on the quid pro quos, explicit or implicit, that are involved in granting exemptions from tariffs --this needs to be investigated to a much greater extent.

The Unreasonableness Of The Policy Defense Of Trump

In today's (12/27/19) Washington Post, regular Trump defender, Mark A. Thiessen published a column, "The 10 best things Trump did in 2019"  This turns out to be mostly things either not worth defending or Thiessen, who simply never criticizes Trump, misrepresenting situations.  Here they are.

10. "He continued to deliver for the forgotten Americans."  This amounts to unemployment continuing to decline, wages beginning to rise, and supposedly 57 percent of Americans saying they are better off since he became president.  Yes, this by and large happened, but amounts to Trump managing to having avoided derailing the expansion he inherited from Obama.  The problem is that he enacted many policies that have hurt the poor and redistributed money to the rich.  They would have been even better off without his policies.

9. "He implemented tighter work requirements for food stamps."  Yikes, more of his helping "forgotten Americans."  This was the amazingly Scroogeish policy of dumping people from getting food stamps just as the holiday season arrived, probably part of the "War on Christmas."  This supposedly to help the "dignity and pride" of the poor.  Sure, Scrooge himself could not put it better.

8. "He has gotten NATO allies to cough up more money for our collective security."  I guess the outcome here is not a bad thing, per se, although the amounts of  money involved are not all that big.  But this has been the only thing he has done regarding NATO, managing to alienate most of the leading nations in NATO, with him raising serious doubts regarding whether he would actually defend a nation that might be attacked by Russia.  Their attitude is best seen by the bunch of leaders mocking him on tape at the last NATO meeting.  They hate his guts and disrespect him.

7. "He stood with the people of Hong Kong."  No he did not.  This is Thiessen just engaging in fake news.  Shameful and nauseating.  Just a worthless liar.

6. "His withdrawal from the Intermediate Range Nuclear Forces Treaty is delivering China and North Korea a strategic setback." No it has not. I have seen zero commentators making this point. I agree that China not being in it has complicated things, and most believe that Russia had been in violation of it for a long time.  But almost nobody abroad approved of Trump simply withdrawing from this important 1987 treaty negotiated by Reagan and Gorbachev.  The European nations are especially disturbed by this action.

5. "His maximum pressure campaign is crippling Iran."  This is true, but this in fact follows and reinforces probably the worst single foreign policy decision he  has made: withdrawing from the Iran nuclear deal to which Iran was adhering.  He has indeed succeeded in imposing sanctions on Iran against the views of all but a handful of nations in the world, notably Israel and Saudi Arabia. So, wow, Iranian oil exports have fallen from 2.5 mbpd to about 10 percent of that.  Yes, the Iranian economy has been thrown into serious stagflation.  People are miserable.  But has this brought us a new and improved agreement with Iran?  No. And Iran has escalated actions against Saudi Arabia and in other places. This policy is both a practical disaster as well as being completely indefensible and immoral.

4. "His tariff threats forced Mexico to crack down on illegal immigration." Well, it probably did. But I disapprove of using tariff threats against a smaller and weaker neighboring nation, and I simply do not see illegal immigration as a bad thing.  No, I am not a supporter of totally open borders, but I am not far from that.  These people now blocked were desperate, and immigration helps both out economy and lowers our crime rate. There is really little here to be proud of.

3. "He delivered the biggest blow to Planned Parenthood in three decades."  I completely support PP, so I view this as nothing but bad.  Ugh.

2. "He ordered the operation that killed Islamic State leader Abu Bakr al-Baghdadi."  OK, I approve of this.  But Thiessen manages to undermine this two ways. First he fails to note that Trump neaely undid this by his stupid support for Turkey invading northeastern Syria against US allies against ISIS.  This nearly undid this attack given that crucial information came from the Syrian Kurds.  Apparently the attack was delayed and nearly did not happen.  Thiessen also drags in that Biden supposedly questioned Obama's attack on bin Laden.  This is just silly.  This is at best a mixed bag.

1. "He has continued to appoint federal judges at a record pace."  Needless to say, I see this as yet another thing I think is awful and reason to get him out.  No mention here of how McConnell blocked Obama judicial appointments, but obviously he thinks the ends justify the means.

He then throws in a laundry list of other items, sort of a mixed bag, where he does allow just the slightest hint of criticism at one point: "Despite an inexcusable 55-day delay, he gave Ukraine the lethal aid that the Obama-Biden administration refused to deliver." Yeah, sure no reason for any impeachment there, despite a mention of "inexcusable."  Yes, this Thiessen is a fair and balanced guy.

Barkley Rosser

Two Can’t Miss Sessions in San Diego Next Week

Well, I can’t miss them because I’m in them.  You can, but why would you?

Climate Crisis Mitigation: Implementing a Green New Deal and More
Union for Radical Political Economics: Paper Session
Friday, Jan. 3, 10:15am–12:15pm
Manchester Grand Hyatt San Diego - La Jolla B

“Financial Bailout Spending Would Have Paid for Thirty Years of Climate Crisis Mitigation: Implementing a Global Green New Deal and Marshall Plan” – Ron Baiman, Benedictine University

“Green New Deal: Interdisciplinary Heterodox Approaches” – Mathew Forstater, University of Missouri–Kansas City; Fadhel Kaboub, Denison University; Michael Murray, Bemidji State University

“The Climate Crisis and the Green New Deal: The Issue Is the Issue, After All” – Peter Dorman, Evergreen State College (emeritus)

Chair: Ron Baiman

Socialism in the Twenty-First Century
Union for Radical Political Economics: Paper Session
Saturday, Jan. 4, 2:30–4:30pm
Manchester Grand Hyatt San Diego - Coronado E

“Integrating Long-Term and Short-Term Participatory Planning” – Robin Hahnel, American University (emeritus); Allison Kerkhoff, University of British Columbia

“Stable Job or iPhones? The Dilemma of Innovation in Socialism” – David Kotz, University of Massachusetts, Amherst; Mihnea Tudoreanu, University of Massachusetts, Amherst

“Information Technology and the Socialist Mode of Production: A Simulation of the Point Allocation System” – Daniel Saros, Valparaiso University

“Social Equity Funds in a Pluralist Socialism” – Peter Dorman, Evergreen State College (emeritus)

Chair: Robin Hahnel

For those of you who have registered for this conference, both of my papers are now available on the ASSA’s app.  Anyone else can click on the links for the two papers: Green New Deal and Social Equity Funds.

Is There An Objective Reality?

Yes.

So this is the ontological question: is supposed apparently "objective" reality really real?

I come at this as someone who in the past questioned this.  I had my period of post-modernist questioning of objective reality. This culminated in a paper, which  I presented as a major address to receive a major recognition at my university, "Belief: Its role in economic theory and action," American Journal of Economics and Sociology, 1993.

I shall stand by the vast majority of things I said in that paper, now under criticism on various fronts, but not all. I shall note, without bothering to reply specifically to any of those comments here, that indeed I there are things in this paper I now disagree with.  This was the height of my agreement with the pomo view of the universe.  But I had moved on from the less defensible parts of that  paper well before the general pomo exercise was to be revealed to be a pile of crap.in the Sokal expoese in 1996.

I have just finished reading main portions of the latest book by my friend, Lee Smolin, "Einstein's Unfinished Revolution: The Search for What Lies Beyond the Quantum," which is to be a Christmas present to a family member, "pretesting" of gifts we call it.

Lee is a friend of mine, and the big cheese at the Perimeter Institute of Theoretical Physics in Waterloo, ON, CA. This is the place where the critics of string theory hang out, and Lee is their leader. I have spoken there, and I have lots of respect for this place and specifically many people thre beyond Lee Smolin, their general protector and supporter.

So, Lee is the leader of those who question the String theory explanation of ultimate reality. This now puts Lee and his associates at the PMI as "heterodox," as economists would say, given that there is no longer a clear disproof of the hypothesis.

Anyway, Smolin recognizes that this debate over the  nature reality is important for current policy discussions.  While he recognizes varieties of "anti-realists," the most important view going back through Wheeler and Bohr and Schrodinger is his cat problem: until somebody looks at it we do not know if it is alive or dead.  But whether or not we view it; in the end it is one or the other.  There really is an objective reality that has been proceeding long before we showed up to have ideas about it.  At the bottom line, I agree with him, even as I continue to support most of what in my 93 paper.

I shall note, now especially as I have identified or economists, especially fans of this blog, the Perimeter Institute is the hangout of what supposedly does not exist, "heterodox physics theorists." Now I, as an old epistemologist, recognize that supposedly physics is "more real" than economics, with all its humans behaving weirdly and more.  But, as Smolin notes, quantum mechanics is itself from Neils Bohr on down through Heisenberg and many others associated with an "anti-realist" view: reality is ultimately an interaction between humans and what they perceive: the cat is dead or alive only when some observer sees the cat.  For Smolin, and according to him and the ultimate realist Eintein, the cat in the end is alive or dead.  More fundamentally, on a point I take seriously. reality was  around for billions of years before we showed up.  Does somehow its reality depend  on us on observing it?

Bottom line is that I agree with Lee that despite all the oddities of quantum mechanics in the end there really is an objective reality.

So now let us bring this to the current ongoing debates in political economy an admittedly less well-founded "science." So Smolin does make some observations on current discussions, where I completely agree with him. So, on climate change, yes, science is pretty clear: global warming is happening. What we do about  is another matter. But global warming is a real reality actually happening.

Also, human beings got here through evolution.  That is also an objective fact supported by virtually all of the available evidence, despite  some odd details in evolutionary history.  We really need to defend science against its attackers in the public arena.

Barkley Rosser

Trump Brags About Record Defense Spending

Niv Elis covers the latest in the Trump fiscal fiasco:

President Trump on Friday signed two spending packages totaling $1.4 trillion, averting a government shutdown at midnight. The bills included all 12 annual appropriations bills for the 2020 fiscal year that started Oct. 1. They also included a slew of tax cuts, extending expiring and expired tax breaks and eliminating other taxes that amount to an additional $426 billion in lost revenue, bringing the total cost of the bill to more than $1.8 trillion.

Reagan used to complain about “tax&tax and spend&spend” so he replaced it with spend&spend and borrow&borrow. Trump is doing the same but there’s more:

Trump’s signature brings to a close a fraught year for spending. At the same time last year, his refusal to sign a stopgap measure over funding his proposed border wall led to a 35-day shutdown, the longest in the nation’s history. The Democratic majority in the House, which was seated in the midst of the shutdown, left Trump with little to show for the shutdown by way of wall funding. After finally striking a deal to reopen the government in February, Trump proceeded to declare a state of emergency along the Southern border to allow him to reprogram other funds. Not long after, Trump released his annual budget proposal that would have hyper-charged military spending while dramatically cutting domestic spending, slashing more than 20 percent of funds from the EPA, State Department, and Transportation Department, and abolishing funding for popular programs such as the National Endowment for the Arts, the Corporation for Public Broadcasting and the Special Olympics. Congress summarily dismissed the request and ultimately agreed to a deal that would increase spending on both defense and non-defense significantly for both 2020 and 2021. Congressional leaders would need two stopgap measures spanning nearly three months to work out spending allocations, find compromises on controversial issues such as the wall and agree on additional legislation to include in the package.

Trump tried to follow the rightwing playbook by paying for the tax cuts for the rich and increases in defense spending by screwing the rest of the Federal budget. Thankfully this failed. But of course that did not keep Trump off the twitter:

I will be signing our 738 Billion Dollar Defense Spending Bill today. It will include 12 weeks Paid Parental Leave, gives our troops a raise, importantly creates the SPACE FORCE, SOUTHERN BORDER WALL FUNDING, repeals “Cadillac Tax” on Health Plans, raises smoking age to 21! BIG!

Trump went onto to say that the U.S. has never spent more on defense but of course he is talking about nominal dollars and not inflation adjusted figures. Thankfully we have the BEA and Table 1.1.6. Real Gross Domestic Product, Chained Dollars. In 2012$, defense spending was $861.3 billion in 2010. By 2016 it had fallen to $708.3 billion. Now it had risen to $737.5 billion by 2018 and will likely be over $770 billion this year. But we will nowhere close to $862 billion in 2020 – nor should we be. Of course that did not stop Trump from lying to the troops!

Does Menzie Chinn Or Tyler Cowen Replace Mark Thoma?

The retirement of Mark Thoma, whose Economists View has been praised on his retirement with having transformed the econoblogosphere back in the mid- noughties by linking regularly, daily in his heyday, to other blogs, including this one. Thanks to him when the big crash happened, there was a wide open debate across levels and schools of thought in economics about what was going down. 

But for some time now, Mark has been reducing his activity on his blog, with it stopping being the reliable every day link to other blogs some time ago.  I fear that this combined with his retirement may be a signal of the decline, if not the outright death yet, of the econoblogosphere, at least as an important intellectual and policy force.

The obvious new competitor has been Twitter, which I confess I still resist.  It is ubiquitous, but also seriously shaallow for serious issues.  I recognize its usefulness for covering immediate events such as disasters or revolutoins or strikes, etc.  But it is vacuous for any serious discussions.  But its appeal and attraction have simply grown, with the rise of use by Trump, with his 68 million followers and doinog over 100 per day has substantially led to this shift.  We here are in a declining market.

At a personal level it seemed to me the peak may have been even before  Mark Thoma showed up. I was involved with the predecessor to this blog, Maxspeak. Back then I regularly would get up to 70 cmmentss on posts I mase, and in my view, without draggging through details, the most influential in real terms posts I have ever put up in the econoblogsphere date to that time.  We had some major issues we were important on against established views in both parties, with Social Security an espeially important one, something tha carried over when Econospeak started with its closely affiliate Angry Bear blog.

Anyway, as regular readers probably notice, the only times we get the kinds of comment numbers I used to get regularly on Maxspeak ar when somebody like our semi-regular visitor, Egmont, shows up. But even he recently seems to appear less frequently.  Our audience seems to be shrinking, and as near as I can tell is largely of an older age: ok boomer!

Which brings me to the matter of Mark Thoma's retirement.  So, there is no question that I have huge respect him and the role he has played. I fear that this is not a matter of him now devoting more time to his blog in retirement, but a sign that he will be withdrawing more generally from public activity for whatever reason, various speculations floating around on that, which I shall not comment on in any detail.  But if he is having problems due to health or whatever, I definitely wish him the best.

In any case, I fear he is disappearing from the econoblogosphere. This raises the question of who is his successor, however reduced.  I propose that it is Menzie  Chinn ar Econbrowser, now mostly silently backed up by his senior co-blogger, Jim Hamilton.  That blog now seems to host some of the more intelligent debates between people of different views.

Its most serious rival may well be Marginal Revolution, run by the polymathic Tyler Cowen, who posts on matters beyond  economics.  He and Menzie clearly have different ideologies, with Mennzie, who briefl served on the CEA staff of George W.. Bush, more of an establishment center left type, with his co-blogger somewhat more to the right, although long eschewing any ideological or political stance except  occasionally very vaguely.

OToH, Tyler identifies himself as a libertarian, but is so often complicating his views that many of his commenters regularly complain about his supposed statist deviations.  But there also people of different ideologies and methodologies appear and acstually debate to some degree.

It is kind of a close call. MR gets more attention, and Tyler covers a wider array of topics, while getting more and more into interviewing major public intlllectuals.  But while some of them have disappeared, he has perhaps more trollish extremists spouting racist and xenophobic and wild conspiracy yveiws. Unlike Menzie (or  Jim) he rarely enters into the discussions he sets off, with an occasional exception.

OTOH, Menzie's  posts are narrower, often reflecting his specialty of  time-series analysis of international economic relations, which holds off some of the worst trollish crazies. But theee regular commentators who defend t=Trump and his policies, which Menzie  is often criticizing.  Menzie is more likely to comment on the ongoing debatres, although usually on fairly technical matters regarding econometric methodology or data. But he (and Jim) tolerate broader debates, and the quality of those debates cross the current divide may be more serious than what goes on at MR, with its large number of loonny bin conspiracy theorists.

These seem to me now to be the most serious successors to Economists View in the wake of Mark Thoma's rerirement. Neither provides the broad linking he did, but they are both open to broad debate across party and ideological lines, which goes on in each of them.  I wish both all the brst.

Barkley Rosser

The Afghanistan War

The Washington Post has over the last 7 days published a detailed account based on many secret documents they have spent years obtaining to provide an accurate account of what has happened during what is now the longest war the US has been engaged in.  It is an impressive account, which I have tried to follow, although with finishing a semester I did not read every word ot it. But it is a serious and important serious series, just reaching its conclusion today, along with lots of commentary in the WaPo Sunda Outlook section.

One extremely serious bottom line on both of them was lying by US officials, just rampant and all over the place for both wars.  WaPo Outlook had an especially useful column by Lauren Kay Johnson who was US military PR person in late 2009-early 2010, soon after Obama came in.  Lies, lies, lies.

The obvious comparison is with the Vietnam War, and  much does carry over such as corruption and bad excuses for continuing with unlikely improvement outcomes. Vietnam was bigger and deadlier, well over 2000 dead per year in Vietnam compared to about 100 Americans dying in Afghanistan per year.  Easy to pay no attention to them.

So aside from a lot lower US deaths, maybe the other big difference from the Vietnam War is the shift to drones, perhaps not unconnected to the  first.  While this almost certainly reduced the US deaths, it also led to less knowledge on the  ground  that was there in Vietnam (see "They Marched into Sunlight" by David Maraniss, old friend of mine).

Obviously a big difference between the two wars is that Vietnam beyond some point engendered a massive anti-war protest movement, while the longer Afghan war has not even to now triggered anything like the protests the Vietnam predecessor brought.  Certainly both the far lower death rate and lower costs lie behind this.

But the similarities are clear and must be recognized.  This has been a corrupt, ultimately hopeless war that people at many levels of the US govt have  just routinely lied about.  A big difference between the teo wars is the big role of opium in Afghanistan, with the money in that just hugely important,while a much more minor matter in the earlier war.

A big question coming out of these reports, especially important for Dems, is the tole of Obama.  Unfortunately he looks somewhat like LBJ in the Vietnam War, although not identical. The similarity is that both inherited their war from a predecessor and then were subjected to accusations that they needed to show that they were tough and not Communists or Muslim radicals, and so each attempted to make intermediate deals that kept the war going while not going all the way the superhawks wanted, allowing both those who wanted more war and less to whine.

For Obama the ultimate of this came with Libya, where he was pressured by many outsiders, including the old colonial powers UK and France, with Hillary Clinton transmitting these outside demands, Obama took a middle route, the much-mocked "leading from behind" where the air forces of UK and France were leading the way in with massive outside support, including from the Arab League complicated, not going to get into details of that, but Arab Spring was going on).

On the politics I note that Newt Gingrich (or some other high GOP of the time) in a single sentence criticized hiin for being a wimp and only "leading from behind" rather than going in all out, while also, in the same sentence criticizing him for going in at all, implicitly the later Trump critique.

So, yes, Libya became aa mess, still one to this day, which made Obama loath to go all in in Syria, although he did set up the deal with the Syrian Kurds  i NE Syria that after Trump got in led to the defeat of Daesh/ISIL.  But, hey, he got 8 Benghazi hearings that eventually led nowhere.

But then we have him imitating LBJ at a later stage and rather than pulling out as JOe Biden of all people was basically advising him to do, he played to the hawks as people like Trump were claiming he was not even a US citizen, and had his "surge," not all that big, but enough to stick him into the war for the rest of his presidency.  This was one of the biggest mistakes Obama made.

Which Brings us t o Donald Trump. He campaigned on opposing this war and got support from some leftsts due to this and similar promises elsewhere.  The botton line is that despite a lot of so-far failed negotiations with the Taliban, he has not gotten anywhere, and there are now more US troops in Afghanistan than when be became president.  This is also true  in other parts of the wold.

What almost nobody commenting on this, and while I did not read every single word of the generally excellent WaPo series on this, is that there was a compltely justified reason for the beginning of this war.  Al Qaeada attacked the US on 9/11/01, killing nearly 3000 Americans, with them being protected and housed by the Taliban regime then there.  Many have forgotten that when G,W. Bush invaded Afghanistan to bring regime change thee, he had the support of well over 90 percent of the US population, including me. And the invasion was successful: the government was overthrown.

Which gets us to the critical point: we should have declared the real victory we had achieved and withdrawn soon after, arguably, possibly, with some more to pursue bin Laden, but not necessarily as he had built the mountain caves he initially retreated to, and Sausi intel was  not giving us the info on them at that time.

But, G.W. Bush got distracted with the completely idiotic  invasion of Iraq, and once that got going, Afghanistan was forgottn, an embarrassing, which it has remained ever since, so unfortunately.

The harder question I see here is the massive momentum of the US mil/intel complex.  Once it gets going anywhere, it is just so hard to overcome and stop;  There was from a thoughtful perspective an argument to get out soon after the Taliban were overthrown in 2001.  But instead we got this massive momentum: we needed to get the right successor regime, fix things up, etc etc etc, and given that the Bush adminhad become refocused on the totally idiotic invasion of Iraq, simple did not happen.

So, we did not leave when we could have with honor as a success, and given how these things go, even with newly elected presidents o both parties calling for us to leave, well, we remain there with more troops than ever.

In any case, as a bottom line, I thank the Washington Post for having provided this highely detailed account of what has happened with the now-long US war in Afghanistan.

Barkley Rosser

PS: note that at certain points this was written as of being 12/15, but it did not get finished and gou out until 12/16.

At This Point Richard Nixon Resigned

Richard Nixon resigned as president after the House Judiciary Committee recommended he  be impeached, the vote that just happened yesterday for President Trump.  In the case of Nixon that vote was followed by a famous visit from three poerful GOP senators, including Barry Goldwater, who informed Nixon that he had lost the support of the GOP in the Senate.  Of course now we have the GOP Senate Majority Leader McConnell going on Sean Hannity to promise that Trump will not be convicted and that he will "coordinate" with Trump's lawyers to make sure there is no conviction.

Curiously, public polling support for impeaching Nixon only got ahead of opposition to it after the SCOTUS ruling that led to the public  release of the so-called "smoking gun" tape about a month before Nixon resigned.  In contrast, support for impeaching Trump has exceeded opposition to it since soon after it was announced the impeachment hearings would happen and appears to be holding steady, even as the Trumpists run all over the place declaring how he is  going to gain or is gaining from the impeachment proceedings.  It may be that his base is all riled, but so are those who do  not like Trump.

I find it also a bit weird that Trump and his supporters are running around threatening that the next time they control the House under a Dem prez, well, they will just go and impeach him.  They seem to forget that we have already seen this show with the Clinton impeachment, also a thoroughly partisan affair, which never had support from more than about 30 percent of the population.  That one went to trial with all the GOPs voting for conviction, with one Dem also voting for it, Mr. Clean Russell Feingold of Wisconsin.  Of course the current GOPS say Clinton committed a crime, perjury, while they claim Trump has not, although last time I checked, bribery is a felony.

Now they did not try to impeach Obama, for which I suppose we should be grateful, although he was largely squeaky clean.  But they certainly did endlessly harass him over nonsense, 8 separate hearings on the nothing that was Benghazi, lots of time and millions of dollars, not to mention endless aggrieved ranting by Sean Hannity, although somehow we never hear a whisper about that now.

Ass a final comment on the changed attitude of the GOP, I can look at my congressional representative.  In 1974, that was GOP M. Caldwell Butler of  Roanoke, a member of the House Judiciary committee, who voted in support of recommending to impeach Nixon.  As successor (after a six year spell with Dem Jim Olin) was a former staffer of Butler's, Richard Goodlatte, who also was on the Judiciary committee, eventually becoming its Chair in recent years. He just stepped down and was replaced in the  2018 election by one of his staffers, the mostly mild-mannered Ben Cline. However, not only did Cline not vote for impeaching Trump, he even joined the gang led by Matt Gaetz that raided the House Intelligence committee during one of its hearings.

Needless to say, Ben Cline is no M. Caldwell Butler, even though he sits in Butler's old seat.

Barkley Rosser

Is The Trump Trade War Over?

Probably not, but maybe.

The basic problem is that Trump has long wanted t beat up on other nations in a trade war, but now he is getting impeached and he needs positive news, and the stock markets like word that he is making trade deals. So now we get trade deals, but it is all sort of a mess.

So there are two matters here. One involves China, discussed in a new post here by pgl, which I shall comment on later. But my quick take on it is that he has made essentially similar proclamations in May, April, and even Dec. 2018. Sure, China will buy lots of US ag products and will respect intellectual property rights.  The number of times the la tter has been promised, I havelost count of.  As for the former, well, Trump is still trying to pay off his farmer losers with US taxpayer money.

So, the iiem not mentioned by pgl, although I konw he is konwledgeable on this, is the USMCA, or NAFTA++ whatever number.  The situation with this has become completely absurd. So on the day the House Judiciary comm called for impeachment of Trump, House Pseaker Pelosi came out for a modified version of Trump's USMCA.  Seveeral changes were made, incuding putting a limit on pharma price protections and a demand for Mexicans to allow union organizing. There were siine other minor changes frm the earlier versions. Anyway, it was enough for Pelosi o get the AFL-CIO to support it. She supported it.

So now McConnell and GOPs in the Senate do not support it. They do not like something because the AFL-CIO supports it?  Given that Trump wants this, I am really quite mystified.  I do not know what is going on here on this weird Senate oppo to this deal.

Just to review, this deal is mostly just the old NAFTA.  Some of it is an improvement; it needed an updating  Most of the changes in it were simply TPP items that both Canada and Mexico had previously agreed to.  This included most of the environmental and labor changes in the deal, but not a problem for Can and Mex.  Curiously one of the recently revised view by House Dems undoes part of the TPP deal, wich involved major protection for US pharma, with this being undone by the Pelosi/Hose Dems revision.  I am not clear id this  is the item that has McConnell upset or the matter of demanding that Mexico allow more union organizing.

As for the China matter, well, the new statement does not look all that much different from the May, April, and Dec. 18 stateements. Wow. We shall have China respecting US intellectual property rights and will buy lots  of US ag products.  Some tariffs will be reduced, but not many.  The big thing with the tariffs is not that some are being reduced, but that those that were supposed to come on Dec. 15 will not happen. Not much here, and the stock market yesterday barely moved.  Trump's ability to goose up the market with these nearly vacuous pronouncements seems to be coming to an end.

Barkley Rosser

Exaggerated Benefits for U.S. Farmers from the China Trade News

How gullible is Reuters?

China will likely hit $50 billion in purchases of U.S. agricultural products, U.S. President Donald Trump said on Friday after earlier announcing that he would roll back scheduled tariffs on Chinese imports as Washington and Beijing finalized an initial trade deal.

That was their opening paragraph. Fortune had a different take:

The Markets Have Spoken: Phase One Trade Deal Between the U.S. and China Is “No Victory” - From Shanghai to London, stocks rallied on Friday morning as a “Phase One trade deal” was reached between China and the Trump Administration—that is, until the details were announced. By noon in New York, the major indices still trading were swooning, with the S&P 500 and Dow Jones Industrial Average in negative territory, ceding big early gains. What happened? ... Later in the day, the markets' exuberance was largely dashed by what's not in the deal. "I think we're pretty much where we were in May," says Usha Haley, W. Frank Barton distinguished chair in international business and professor of management at Wichita State University.

From 2012 to 2014, we exported less than $20 billion of agricultural goods according to this reliable source. In 2017, this figure had declined to less than $17 billion while it dropped to less than $7 billion by 2018 thanks to Trump’s stupid trade war. All this deal accomplished was to temporarily avoid even more trade war stupidity. The stock market does not believe there will be any real improvement in the trading between the U.S. and China. Even if there was a complete reversal of the damage done to our agricultural sector from Trump’s idiotic trade policy – the best we could hope for would be $20 billion in agricultural exports to China and not some absurd $50 billion from our Liar-in-Chief. Of course, Lawrence Kudlow is supposed speak today so maybe he can mansplain to us how Trump’s stupid trade policy will lead to some massive agricultural boom. Update: On occasion one gets a comment that is too good to pass up:

"From 2012 to 2014, we exported less than $20 billion of agricultural goods according to this reliable source." That is yearly, if I understand. What period of time does the agreement cover, so that $50 billion could make sense? Surely not in a year.

Brilliant and here was my reply:

I was referring to exports per year with that near $20 billion. But Trump's babbling? Huh! So maybe Trump has one of those Leninist 5-year plans where we declare success if annual exports are only $10 billion per year. Yes Trump does follow Putin's lead!

Stealing The 2016 Election?

I have been watching the later stages of the still-ongoing House  Judiciary Comm hearing on impeaching Trump.  I have seen Republicans repeatedly ranting on about how this is an effort to undo the "popular election" of Trump, the will of the "63 million" who voted for Trump.

Really, how dumb are these people? Hillary had three million more than Trump, 66 million.  He was not the popular winner.  What a joke.

Of course impeachment is explicitly an undoing of an election result.  The person elected, even ones who actually won the popular vote such as Nixon and Clinton, is charged with having engaged in conduct meaning they should be removed.  Quite aside from the hypocritical idiocy of ranting over Trump's "popular" election, this claim about elections and impeachment is simply ridiculous.

Barkley Rosser

Smoking At The Fed

This is about the now late Paul Volcker, but I shall come in from an odd and particular persprctive. Upfront, I did meet the late Paul Volcker several times, although never in an official situation.  Much of "inside" stuff I shall say comes from others.

I do not know the details of the Fed prior to the 1970s, but at least as of the Chairmanship of Milton Friedman's major prof, Arthur Burns, who capitulated to the  demands of Nixon for his 1972 reelection,  But it was clear that Burns was carrying on a long established tradition in the Board of Govs of the Fed: they smoked their behinds off in their supersecret meetings in the old days (not the "openness" of now).

What really went on in the earlier days is myth, but then in the 1970s Fed Chairs came to be required to testify on a regular basis to various Congressional committees.  Burns was the Chair then and the first of them who had to do this, and he set the precedent: obfuscating smoking in public.  Burns smoked a pipe, and he became notorious s the Congressional reps pressed in with their generally populist questions pushing for lower interest rates, he smoked his pipe at length before answering inquiries, to the point of actually shrouding himself in actual smoke, something no longer allowed.

From my old inside info, this matter of smoking was a big deal in the late 1970s when Jimmy Carter appointe G. William Miller to be Fed Chair, a corporate CEO with zero experience with either banking or the Fed.  His was one of the worst and most disastrous Fed chairmanships ever, maybe the absolutely worst ever.  To really nail this down, I have been told by insiders of the day that Miller not only did not smoke, but he imposed a no-smoking ruole on Bd of Govs meetings (not sure about FOMC ones, but probably them too).  I have been told that this reallyt seriously ticked off various decades-long Bd members who had long been used to smoking during Board meetings.  As it was, inflation soared shortly after Miller arrived, who was viewed as not only incompetent, but a jerk.

It is frequently forgotten that Jimmy Carter put Volcker in 1979 as inflation accelerated and accepted that Volcker might engage in polices that would end his presidency.  There were other factors in Reagan's victory over Carter, but the bad economy, not totally due to Volcker, and beyod the economy, that did Carter in.

So, to further the smoking story, which is very much about closedness vs openness at the Fed, a matter  of ongoing dispute, when Carter removed the blazingly incompetent Miller, the Board was most pleased when the then NY Fed prez Volcker came in, the biggest in all meaning smoker of them all ever. At 6'7 tall he was indeed a most imposing and formidable individual. He  also smoked the biggest cigars I have ever seen, reportedly from odd local sources (he lived in simple circumstances most of his professional time in DC, longtime base in NYC).  So his elevstion from NY Fed Prez was most welcomed by all reports I have reported.

The pubic smoking tradition continued with Volcker and beyond hin to his successor, Alan Greenspan, who was in for the next two decades, only with Bernanke coming in mid-noughties, after when the current PC no-smoking rule came in not only for pubiiic presentations but also in Board meetings. But the old system was in place for the Volcker regime, preceded ty Burns's obscurantis  pipres, followed by t he massively pahllic cigsrs of Volcker, and then the long reign of  Greensapna with his cigarettes.  All of them used their smoking in Congresinoial appearances to help confuse all with their caefullyd-do-not-disturb-the-markets public testimony, which was simply supported by their caeefully obfuscatory remarks, with =an entire industry arising that  still exists, somewhat resembling the old "Kremnilolgy"of the old days. In the old days ,especially with Burns and Volcker, they literally would envelepe themselves in smoke while testifying to Cpngrsss, and Greenspan in bad moments did a passable imitation of what they could do more effectively with pipes and vthe large cigars of Volcker.

The big question on this meme is transparency at the Fed.  The smoking by Fed Chairs  in the old days symbolized the old secrecy of Fed discussions.  Now we have transparency, more or less coming in with Bernanke in the mid-noughtties, just ii time fot the big crash and the Great Recession.  I do not know if Fed secrecy is better than the current everry-Fed-official-shoots-off-his/her mouth or not. But that is where we are now: the Fed is  open, no more smoke-filled rooms.

As for Volcker himself, he had a long life and career..  Apparently he was the key person bringing the final end of the remnants of the gold standards under Nixon.  There was much more.

Clearly this is much debate over his inflation-crushing policy, 79-82, which helped end Carter's presidency and brought the sharp and deep recessinon of 1982, when the uneployment rate got higher than in the latest Great Recession, both over 10 percent. Phillips Curve  was positive in much of the 70s with stagflation, and the ratex crowd said P'c vertical, although that was for expectations being fulfilled and that was a period of great upheaval.

A final more private report from old friends/Fed staffers is that when a staff person made a presentation to the Board in the Volcker era he usually said nothing, while sitting there with all his size and smoking huge cigars.  Fine. But if staff person messed up, he would arise and the speaker was in deep trouble with Volcker destroying the presenter as if he had burned his cigar into them.

But, the bottom line is that for his many flaws this man who lived for 92 years and had hug influence over the history of global monetary and economic developments, I ultimately have deep respect for him, despite his various flaws, although in the end this might get down to how incredibly impressive he was in person, so tall and bald and smoking a humongous cigar, all with a calm smile.

Barkley Rosser

How Long Will US Foreign Net Income Dark Matter Continue?

The United States became a net foreign debtor in 1985.  With current account deficits every year since that net foreign indebtedness has steadily increased since, reaching a reported total of -$10.56 trillioin as of Sept. 30 this year, a substantial total.

However, while many have long predicted that this mounting net foreign indebtedness would eventually lead to the US having also having a net negative capital income flow, it has not happened.  In 1985 when the US initially into net indebtedness, the US had a net surplus on capital income of about $30 billion.  Rather than shrinking, that surplus has increased somewhat apparently in the subsequent 34 years.  As of the  second quarter of this year it appears that the annual surplus of capital income was running in the neighborhood of $100 billion. 

While there are serious sources of uncertainty and noise in much of this data, it certainly seems that US-owned assets abroad are earning far higher rates of return than what foreigners are earning from their assets in the US.  This has for quite a long time been labeled the "dark matter" phenomenon.

The question arises: how long can this odd situation continue?

Barkley Rosser

Liz Cheney Loves Traitors

Dick Cheney lied a lot so I guess his daughter feels compelled to do the same:

So I would just ask people to remember that they have failed despite the fact that they had a process that basically put everything tilted in their direction. The Democrats were able to act as judge and prosecutor. The Democrats were able to select every single witness. The Democrats were able to prevent, and did prevent, witnesses from answering Republican questions. The Democrats decided what the American people would see and when. The Democrats decided the timing on the release of important pieces of transcripts, they still have not released the transcript of the IC Inspector General, and so the Democrats essentially stacked the deck in their favor and despite the fact that they did this, and even with every unfair advantage and unprecedented advantage they gave themselves, including preventing the President from having any access to the proceedings, preventing his counsel from having any participation in the proceedings, they now have come out of this and fundamentally failed to prove their case.

My Lord – more whining about the process? And yes the case was proven overwhelmingly. There is a lot more BS in her little rant but who gives a damn what she said. Why is she defending a traitor? Oh wait PlameGate:

Four and a half years ago, after reading the Robert Novak column that outed Valerie Plame Wilson as a CIA operative specializing in counter-proliferation work, I wrote an article in this space noting that this particular leak from Bush administration officials might have been a violation of a federal law prohibiting government officials from disclosing information about clandestine intelligence officers and (perhaps worse) might have harmed national security by exposing anti-WMD operations. That piece was the first to identify the leak as a possible White House crime and the first to characterize the leak as evidence that within the Bush administration political expedience trumped national security.

Of course this leak was from the Office of the Vice President. Who was the Vice President back then? Oh yea – Liz Cheney’s daddy. Yes Dick Cheney committed treason and he got away with it. So now Liz Cheney wants the traitor Donald Trump to get away with it too!

The End Of The Harris Candidacy

I should probably not waste time on this, but I was a fan of Kamala Harris, and her ending her candidacy while still in fifth  place in the polls, if in a long slide, has me disappointed.  As it is, given her declining polls, lack of money, and reportedly internally divided campaign staff, there, her chances of actually getting the nomination had falle n to effectively zero.   It is actually an act of class on her part to get of the overly crowded Dem field.

In light of  the recent sharp decline of Warren as well who is now running #4 among Dems, we now have three white males on top.  As it is I confess that I favored both Warren and Harris over all three oof those and the rest as well.  How is it these problematic three whilte males are on top (I reocgnize that especially supporters of Sanders and Buttiegieg will dispute this and may well show up here to properly correct me and tell us of their virtues, and they as well as Biden do have virtues).

I am going to put it out there: I think both Warren and Harris, especially the latter, have been held to a higher standard as women and Harris as a minority woman, than the white males. They are not allowed to make any errors or even appear to make an error.  The white males can bungle and have serious issues, but hey, not a problem, or at least not a fatal problem.  They can go on for the next day.

Soomething that played a role in the decline of both Warren and Harris (and Warren may yet make a comeback) has been their effort to overcome the split among Dems over what to do about health care.  Both of them initially, or at least at some point, signed on to the "Medicare-for-all" label for a single payer government run health insurance system that would eliminate all private insurance, following Bernie's lead from 2016 and maintained now, all of this being part of a fight over who was the "most progresive" candidate.  Of course, neither Warren nor Harris could beat Bernie for that title, and Bernie's true believers have stuck with him, even if his support has not expanded.

As it is, "Medicare-for-all" is a label that is not great if one looks at it closely.  That is because, frankly, Mwdicare by itself sucks.  It is crappy coverage.  Pretty much everybody actually on Medicare also has supplemental private insurance od some sort as well. So in fact this was a misleasing label for what really should probably be called "Canadian-style single payer."  But this is a minor point.

The more important point was all the pollls showing that while a majority says they support "Medicare-for-all" when asked that, if one adds "with all private insurance ended," the support has always plunged.  Most people have private insurance and most of them like their  insurance  or are afraid of losing it.  So both Harris first and then Warren tried to deal with this, tried to deal with this, only to fall on both of their faces.

So first it was Harris, saying while she was for Medicare-for-all, she would not immediately abolish private insurance.  It was a bomb.  Both sides dissed her.  Big surprise, same thing happened when Warren not unreasonably also sought a middle way, go slowly on Medicare-for-all.  Ironic  As ir is, I think both of them took reasonable positions, but they have been political disasters.  As it is, I think this internal Dem arguing over this issue is just stupid.

On the matter of Harris, I am now too late going to mount a defense of her on the the other matter that she got hurt badly on.  Well, a further matter was what put her briefly on top: that her attack on Biden on the race issue in the first debate was overdone and problematic as people came to think about it, and her  attack failed to move African Americans away from supporting Biden.  But the matter that really hurt her was the attack by Tulsi Gabbard near the end of the second debate of her record as a DA and AG, and she never really recovered from that.

Here is where I wish to mount the defense I now feel guilty of not making publicly earlier, especially as I was aware of the response.  I think the reason Harris did not respond clearly in the debate is that Gabbard's attack was filled with so many fale or misleading atatements that Harris could not on the spot in the time given respond to all of them.  As it is, the very next day that Gabbard was shown to be full of it, but that report involved subtlrlirs and complications and was simply not picked up widely.  It became unknown, with the publicity being that Gabbard had successfully exposed terrible problems with Harris's record.  She was not perfect, so, bring on the white males!

I have reason to believe I shall not get this link right, but it can be tracked down on Politifact from Aug. 1, 2019.  It is at politifact.com/california/article/2019/aug/01/were-tulsi-gabbard-attacks-kamala-harris-record-c .  Since that  will probably not work, let me lay out the points made in it.

So Gabbard made a string of accusations.  The one that actually sticks to some extent is that Harris was in a hypocritical position given thaat she admitted  to having smoked pot but was putting pot smokers in jail, while later supporting legalization.  Well, of course she was enforcing the law, but apparently there  was a dramatic decline in the arrest rate on this during her time as AG, from 817 in the first year  down to 137 in the final year. She was accused of not allowing new evidence to be applied for Kevin Cooper.  That did happen, but it happened before she was in and done by people she had not control over.  She was accused of supporting tightening punishment of famillies, but that was lower level officisls and she made them stop.  Another issue involved raising cash bails.  This was put in place while she was DA in SF by certain judges for violent crimes.  She was not responsible for this and in the Senate supported reducing bail.  The bottom line is that almost all of what Gabbard accused her of was either exaggerated or just plain false.  But, hey, a black woman cannot make any mistakes.

One positive here is that I think this may raise the chance Harris might become VP nominee.  If Warren gets the nomination, it wll not happen: two women ia too much.  Biden might not pick her, both because he may still be angry over what she did in the first debate and also does not need her to increase his support among African Americans, but he also may need more to pick Warren to unify with the left wing of the party.  But for Both Sanders and Buttigieg, especially the latter, she looks like the obvious VP pick. We shall see.

BTW, one reason I have been for her is that I know her dad, retired Post Keynesian Stanford economist, Donald J. Harris of Jamaica originally, whom I had in grad school and greatly respect.  ironicallly he and his daughter fell out during her campaiign over the pot issue, when she jokingly replied to an interviewer, "Of course I am for pot legalization; I am a Jamaican," which her old man did not appreciate at all.

Barkley Rosser

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.

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

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

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

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!

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

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

Is Venezuela Stabilizing?

Maybe.
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

"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.