Friday, April 28, 2017

Is Authoritarian Nationalism Mostly A Rural Phenomenon?

Offhand it looks like maybe it is.  In the US Trump won overwhelmingly in rural areas while losing all of the largest cities.  Yes, he took some mid-size declining industrial ones like Youngstown, OH and Erie, Pa, while losing some rural areas in places like Vermont as well as areas with minority groups the majority of the population.  But in general it holds, he won the countryside and lost the big cities.

In France, Marine Le Pen is also leading in some declining industrial cities of the Northeast for the upcoming presidential second round, but she loses in the larger growing cities such as Paris and Toulouse.   Recently The Economist reported a study showing that as one goes from downtown Paris outward there is a linear and substantial increase in support for her.  Again, the countryside is her base.

The Brexit vote was more for nationalism than authoritarianism, but in England it was the same pattern, countryside and declining industrial cities for it while London was strongly for Remain.  Of course in Scotland, every county was pro-Remain, but that is a special case.

In Russia, where Putin apparently remains very popular, his base is also  the countryside.  The main location where one finds open opposition to him?  Moscow, the largest, richest, and capital city.

So it looks like there is a pattern here, but there are some exceptions.  One is to some extent Turkey, where authoritarian President Erdogan has long had strong support in the largest city, Istanbul. That support fell in the recent referendum vote increasing his  power, which he narrowly won, possibly through fraudulent ballot stuffing. But it was more for him than Ankara and Izmir.  But in fact it was rural areas that provided the base for the referendum to pass, although it was a near draw in very large Istanbul.

Another is Poland, where the Law and Justice Party has strong support in capital city Warsaw, despite its being full of high tech yuppies and all that.  But the now dead Lech Kaczynski was its mayor from 2002-05 before he became president, only to  die in a controversial plane crash in 2010.  However, Law and Justice also has a strong base in certain rural areas, especially the poor and traditional Southeast.

I think in both of these cases what is involved is religion.  Certainly the authoritarian nationalist movements in all these nations are pushing religion or using it, even if just in opposition to other religious groups, especially Muslims.  But in both Turkey and Poland the majority local religions are making comebacks from long periods of suppression and trying to really take over their societies.  In both of them, there are large numbers of strong followers of the nationally predominant religion in these particular large cities, and this may explain why we see these somewhat different outcomes in them compared to so many other nations experiencing this  surge of ugly politics.

Barkley Rosser

Reader Mail and Rand A'Pauling

Responding to my post chastising Woodford for (in effect) assuming that housing prices prior to the unwinding contained no bubble component, reader Narina writes:

"I am a private lender, my company provides loans of all kinds with an interest rate of 2% only. It is a financial opportunity at your door step, apply today and get your quick loans."

Thanks for that astute comment, Narina!  It's wonderful to have such close readers of what one writes, able to hone in on  the weak points of one's argument with lasar-like precision. I stand corrected. I did overlook the fact that there is a "financial opportunity at my doorstep," - which ought to have tempered my criticism of Woodford. 

Meanwhile, the  invaluable Josh Marshall points out that Senator Rand Paul has signed up to teach a course at GWU on dystopian visions. Who better? Libertarianism: the war of all against all.

Thursday, April 27, 2017

Financial Times Messes Up On Italy

I have for a long time thought the Financial Times to be the best newspaper in the world, but now I am going to play Dean Baker beating the press on it.  I think they are slipping, and the sign is a story that appeared in today's issue about Matteo Renzi in Italy, about whom I have posted here previously.

The story reported that he is likely to finally nail down the leadership of the Democratic Party in Italy this Saturday over two rivals.  It then praised him and compared him to Canada's Trudeau and France's Macron as a bright young guy all new and blah blah, even as it recognized that he stepped down in December as PM after losing a referendum he pushed.  It said he has learned his lesson.

Now it did briefly recognize that he might have a problem in the general election next year as the opposition Five Star movement now has 50% support in the polls, although so what.  The one thing that they mentioned as possibly causing problems for him would be the problems of Alitalia.

There was zero mention of the corruption problem of his father, zero.  I note that over the last several weeks basically every day on the front pages of all the newspapers in Italy have been stories about this matter, and it has badly damaged Renzi in the polls.  The Alitalia story is back pages. Heck, that airline is always in trouble, in "crisis."  Big nothing.  But his old man being corrupt completely upends this story of him being the reformed young Trudeau-Macron.  He has a serious problem, and it could be a serious problem for the EU next year, if Renzi cannot get this under control.

But the Fin Times somehow completely missed this story.  I guess their reporter listened to some PR guy out of the Renzi camp and never bothered to check on the Italian press.  I am sorry to learn that the FT has joined so many other newspapers in just going down the toilet of bad reporting.

Ciao you all.

Barkley Rosser 

Wednesday, April 26, 2017

Poland: "What Are These People Complaining About?"

Thus spake Jeffrey Sachs in January 1994 at the ASSA/AEA meetings shortly after the Solidarity government of Lech Walesa was defeated in an election over plans to cut old age pensions, which Sachs thought were too high. He has since recanted some of his views from that time, but indeed Poland had been the poster boy for the Washington Consensus on transition, with its "shock therapy" approach of sudden change that looked like it was doing well.  Poland had sharply reduced inflation from triple to single digits and after a 7% GDP decline in 1990 had turned to positive growth before any other transition economy and was growing impressively with sharply falling unemployment.  What were these people complaining about?

This parallels more recent developments.  Poland was the only European nation not to fall into recession in 2009, able to devalue its zloty as not in the Eurozone and able to continue exporting to strong neighbor Germany.  Its unemployment rate has remained fairly low and its poverty rate falling and below that of the US.  Yet in 2015 the Civic Platform party was ousted by the Law and Justice Party, which has since taken to shutting down free press and judiciary and otherwise engaging in general demagogic and populist authoritarianism along with hyper-nationalism.  Well, thank the Civic Platform raising the retirement age for those large pensions back in 2012, which the Law and Justice Party hammered them on hard.  Part of why Poland has done well has been that indeed it has not undone its social safety net inherited from the communist period, even as so many outsiders and insiders have said they should do, including at some points the mastermind of shock therapy and the finance minister who put it in place, Leszek Balcerowicz.

Poland's problem looks like that of most of the transition economies, especially given that indeed it has been one of the best performing of them, still a poster boy of "successful transition."  As a group  they were catching up to Western Europe during prior to the Great Recession, but since then have not been doing so, falling back if anything, although less so for Poland.  Indeed, if one compares the ranking of European nations by real per capita income a quarter of a century ago with today it is amazingly stable, very little change.  There have been a handful of large movers,  Ireland zooming from not all that well off to, yes, second place now behind only Luxembourg, and Albania moving from dead last to ahead of five others at the bottom, while Ukraine has fallen hard down to second from the bottom, ahead of only Moldova, and Greece falling hard, although still above all but two of the transition nations.  The change of perspective can be seen in that while Poland may have in the past compared itself to neighboring Ukraine, now it compares itself to Germany and the UK, and indeed the "Polish plumber" is the iconic immigrant to UK that helped drive the Brexit vote there.

I note some details about the Polish transition not all that widely known. I heard about the original plan from Leszek Balcerowicz back in 1988 when he was traveling around the US promoting it.  At the time I did  not take it  all that seriously as it was far from obvious that the  Communist government would be replaced the following year and Balcerowicz would be in a position to implement his plan.  But, while he would change his position later, at the time a part not widely remembered but implemented was that privatization would occur slowly.  Indeed, even today Poland has one of the highest rates of state ownership of enterprises of any of the transition nations, quite in contrast with its image.  At the time much of this was nationalistic, fear of Germans in particular coming in and taking over the economy.  But it prevented corrupt and inefficient privatizations as occurred in many other such nations, such as Russia.

I close this by noting that I am in Warsaw right now, and observing that indeed the economy does seem to be mostly operating pretty well on the surface, despite this underlying unhappiness about being behind other nations.  But part of the appeal of the nationalistic  and populist Law and Justice Party has been that Poland has suffered in the past from outside nations, partitioned in the late 1700s by Russia, Prussia, and Austria for over  a century, and then conquered by Nazi Germany and then by Communist Russia/USSR with little support from outsiders.  Their paranoia is not entirely unjustified, even if right now it does not seem that they are being threatened all that much by others, and the conspiracy mongering over the 2010 plane crash that killed then President and Law and Justice Party leader, Lech Kaczynski is being overdone, especially with his twin brother, Jaroslaw effectively running the party.  Nevertheless, they look to have more reason for hysterical and paranoid behavior than some other nations currently engaging in extreme nationalism and hysteria, with the US under Trump probably the outstanding and most egregious example.

Barkley Rosser

Learning from The Great Recession....NOT

I have been teaching Michael Woodford's "Financial Intermediation and Macroeconomic Analysis" (JEP) in my money and banking class.  It does what I want - adds financial intermediation to an AE/MP or AD/PC model. You have two interest rates, what fi's charge borrowers and what they pay lenders. Policy targets the latter.  The supply of intermediation depends on intermediary capital and on the wedge between the borrowing and saving rates - this latter by means of a value-at-risk constraint. A decrease in bank capital increases the wedge and reduces AE at every lending rate. So far so good. But in passing, Woodford, citing William Buiter, declares that the collapse of housing wealth had no effect on [spending, since housing isn't net wealth.  An owner of a house who resides therein sees the value of her house fall, but experiences an offsetting reduction in the cost of housing services,

Well, that's fine, if you're willing to assume the house prices always equal their fundamental values - the discounted value of future rents.  As long, that is, as you assume that housing prices before the crash contained no bubble component!

Are you kidding me?

Tuesday, April 25, 2017


Repeat after me: The world is not a zero-sum game. Technology often creates more jobs than it destroys. The number of jobs in the economy depends on how much people are spending and investing. High-skilled tech workers grow the economic pie by boosting productivity, encouraging more investment and increasing entrepreneurship. Economists call this “the lump of labor” fallacy.

Jennifer Rubin, WaPo
Trump and right-wingers who have never heard of the lump-of-labor fallacy seek to construct a false narrative to explain real hardship caused by a whole variety of issues, including automation, a skills mismatch and education inadequacy. We would hope the poll is a positive sign that Americans grasp that “the world is not a zero-sum game where natives must lose out in order for immigrants to gain — or vice versa.”
Isabel Sawhill, Brookings Institute
One problem is that when people look at the labor market, they often come to the wrong conclusion. They see well-paid jobs in manufacturing or elsewhere disappearing. They conclude that there are simply not enough jobs to employ everyone who wants to work. Their implicit view of the world is that there are a fixed number of jobs and that it will be impossible to supply everyone with a reasonable livelihood. Economists call this “the lump of labor” fallacy. This way of thinking is a fallacy because the number of jobs in the economy depends on how much people are spending and investing, that is on the total demand for goods and services.
Chris Yapp, Open Democracy
Technology advances both destroy and create work. In the long run, technology often creates more jobs than it destroys. In the short term, while we cannot see what those new roles may be the “lump of labour fallacy” often becomes a central concern. The argument is that there is a fixed amount of work, so if some is automated the amount of available work must reduce.
Stuart Anderson,
The central flaw in arguments alleging a negative impact on native employment due to the presence of foreign scientists and engineers is that they are based on the "lump of labor fallacy" – or the notion that there is a fixed number of jobs in the economy. Hence, the argument goes, if you increase the number of workers, you get lower wages and rising unemployment. But high-skilled tech workers grow the economic pie by boosting productivity, encouraging more investment and increasing entrepreneurship. Overall, they create jobs.
Economists call this “the lump of labor” fallacy. Trump and right-wingers who have never heard of the lump-of-labor fallacy seek to construct a false narrative to explain real hardship caused by a whole variety of issues, including automation, a skills mismatch and education inadequacy. The central flaw in arguments alleging a negative impact on native employment due to the presence of foreign scientists and engineers is that they are based on the "lump of labor fallacy" – or the notion that there is a fixed number of jobs in the economy. In the short term, while we cannot see what those new roles may be the “lump of labour fallacy” often becomes a central concern. Economists call this “the lump of labor” fallacy.

One problem is that when people look at the labor market, they often come to the wrong conclusion. Economists call this “the lump of labor” fallacy. Their implicit view of the world is that there are a fixed number of jobs and that it will be impossible to supply everyone with a reasonable livelihood. They conclude that there are simply not enough jobs to employ everyone who wants to work.

The argument is that there is a fixed amount of work, so if some is automated the amount of available work must reduce. Economists call this “the lump of labor” fallacy. Hence, the argument goes, if you increase the number of workers, you get lower wages and rising unemployment. They see well-paid jobs in manufacturing or elsewhere disappearing.This way of thinking is a fallacy because the number of jobs in the economy depends on how much people are spending and investing, that is on the total demand for goods and services.

In the long run, technology often creates more jobs than it destroys. But high-skilled tech workers grow the economic pie by boosting productivity, encouraging more investment and increasing entrepreneurship. Overall, they create jobs. Technology advances both destroy and create work. We would hope the poll is a positive sign that Americans grasp that “the world is not a zero-sum game where natives must lose out in order for immigrants to gain — or vice versa.

See also LUMPO'

Tuesday, April 18, 2017

Turkey And The Trend To Authoritarianism

The big surprise in the Turkish referendum to make Turkey a presidential system was not that Erdogan's side won, but that it was close enough that opponents are charging fraud based on ballots not being counted properly.  It may in fact be that it really did lose by a narrow margin, as some I know said it would.  But, officially it won by a bit more than Hillary beat Trump by and a bit less than Brexit won by. What strikes me is how the voting patterns in all of these three resemble each other, even as they differ in many ways on economic, nationalistic, and religious grounds, not to mention broader historical issues.

So the big similarity is that they all seem to have exhibited a pattern of the winning side (not in pop votes in the US) being rural traditional voters in the heartlands of these countries, this not holding in UK where all counties supported the losing Remain side, against urban and higher educated and more secular or minority laden areas.  Southwestern Wisconsin switched from Obama to Trump, Northern England came in strong for Brexit, and central Turkey aside from Ankara came in for Erdogan's referendum.  Is there a commonality here, global populism?

It may be, but the differences between the countries on the categories of economics, nationalism, and religion are notable. One should not forecast too far into  the future about future elections based on this, just to  note a more political issue, in the UK the Brexit vote was not obviously authoritarian, with many Brexiteers supporting freedom from supposedly oppressive and undemocratic EU regulators, even if they may have been misled to some degree.  In the US, many see Trump as authoritarianb, but some voting for him think he is bringing freedom of some sort, maybe as the Sons of Liberty in Texas fought for the freedom to own slaves.  In Turkey this matter is pretty unequivocal, with Erdogan declaring a third round of martial law after imprisoning thousands of innocent people on trumped up charges after the failed Gulenist coup attempt last summer.  He is full bore authoritarian, but then he is seeking to replace Ataturk, who was also very authoritarian.

On economics the US and UK look more  similar and less like Turkey, although all three have experienced economic problems.  In the US and UK, they superficially look good, growing more than many other OECD nations, but they also have very high inequality compared to those other nations, with the outcome that the majority in both nations are not doing better economically. Both have old industrial areas suffering from import competition where an anti-foreigner appeal has a lot of appeal, and did so in crucial states in the US, and portions of England, although not Scotland, where every county voted for Remain.  Turkey does not have the extreme inequality or the problem of old industrial areas facing import competition, but after a decade of substantial growth under Erdogan's rule prior to 2012, it has slowed down since and actually had negative per capita income growth in 2015 (have not seen 2016 numbers yet).  It is different in Turkey, but the economy is not doing all that well, although this may have fed into the low support for Erdogan's referendum.

I see convergence on nationalism.  In all three there has been an appeal to an ethnic core based nationalism, WASPs or whites more generally in the US, English in UK, and traditional Sunni Turks in Turkey.  For whatever reason, in all three nations those core groups have responded strongly.,

The matter of religion is more subtle and complicated, but has been dragged into the other two.  So in both the US and UK anti-Muslim sentiment has been key, with this easily coinciding with anti-immigrant and foreigner appeals that feed into both the economic and nationalistic arguments. In Turkey it is pro-traditional Sunni Islam that is the key, with the large religious minority Alevis viewed as enemies, along with the ethnic Kurds.  The central long term game of Erdogan is to undo the secular Turkish state of Ataturk and replace it with a neo-Ottoman Empire approach, although in the vein of the Young Turks of 1905, with a religious Sultan in charge, even if he does not claim to be Caliph.

Indeed the contradictions on all this for Turkey show up in the matter of Daesh/ISIL where Turkey has gone back and forth, long letting arms and people flow to their areas in Syria to keep the Kurds at bay and dump on Assad. Now they have been cut off from that, and have flipped on their relations with fellow authoritarian Putin in Russia.  They seem completely confused, with Trump congratulating Erdogan on his referendum and mostly praising him, even as Trump has sent US troops to back the leftist Kurds fighting Daesh/ISIL in Syria because, hey, they are  the only ones willing to go  to Raqqa and beat those creeps, just as Obama had figured out some time ago.

Barkley Rosser

Monday, April 17, 2017

It was actually quite amusing to see an article in my provincial newspaper a while back where two sides were arguing about a reduction in the work week, and you could play bingo with the excuses the anti-side used. There wasn’t an original idea in the whole article, as the pro-side was almost apologizing and got one paragraph of the six on offer. -- "Salty," comment at AngryBear.

Sunday, April 16, 2017

The Mopani Copper Mine in Zambia – Role Model for Trump’s Infrastructure Investment?

Frik Els wrote last year on what on the surface might seem as good news for Zambia:
Last week Glencore announced plans to invest more than $1.1 billion in its Mopani copper complex in Zambia over the next two years. The investment, which will help improve the mine’s operational efficiency and extend its life, is credit positive for the Southern African nation because it will help drive growth says ratings agency Moody's. Glencore’s expansion and upgrade plan for 75%-owned Mopani will return output to 110,000 tonnes per year by 2018 and reduce costs at the same time and will enable the Swiss mining and trading giant to "take advantage of the potential for a gradual recovery in copper prices over the next three to five years." Glencore acquired the historic Mopani complex in Kitwe province in 2000 after the mine was privatized and has since spent $3 billion on the project.
Copper prices were less than $1 per pound in 2000 but rose to almost $5 per pound by 2011. They fell to around $2.30 per pound but have been on the rebound. One would think this Mopani mining affiliate of Glencore is getting not only jobs in Zambia but also a lot of tax revenues given all these economic rents from high copper prices. Christian Aid, however, has been accusing Glencore of transfer pricing abuse:
The first signs that something may have been seriously wrong with the taxes of Glencore's Zambian subsidiary emerged in early 2011, with the leak of a draft report by auditors Grant Thornton and Econ Poyry. It has never been clear who leaked the report. Even by the standards of 2015, when revelations about multinationals' tax affairs are commonplace, the 23-page document is an extraordinary one. It highlights irregularities around the mine's operational costs, revenues, transfer pricing, employee expenses and overheads and covers the years 2006-7 and 2007-8. The auditors who wrote it also complained bitterly about the obstructiveness they faced when they attempted to do their job, which was commissioned by Zambia's tax authority, the ZRA. "It should be noted that the international team leaders have not experienced such a lack of compliance in any other country, and Grant Thornton Zambia confirmed that this attitude is also not typical for other industries/companies in Zambia," they said. Glencore has always dismissed the report as a flawed draft which contained major mistakes and it and Mopani have always denied wrongdoing.
Maybe this report prepared on behalf of the Zambian government does not tell the whole story but one would think Glencore should be asked to present its own analysis of the transfer pricing issues. And maybe Donald Trump should release his tax returns. But one has to wonder what Peter Navarro and Wilbur Ross think about this investment in the Mopani copper mines especially if most of the economic rents can be so easily diverted to Switzerland tax free.

Saturday, April 15, 2017

Noah Smith: "Why the 101 model doesn't work for labor markets"

At Noahpinion:
A lot of people have trouble wrapping their heads around the idea that the basic "Econ 101" model - the undifferentiated, single-market supply-and-demand model - doesn't work for labor markets. To some people involved in debates over labor policy, the theory is almost axiomatic - the labor market must be describable in terms of a "labor supply curve" and a "labor demand curve". If you tell them it can't, it just sort of breaks their brain. How could there not be a labor demand curve? How could there not be a relationship between the price of something and how much of it people want to buy?
Funny thing is this is pretty similar to what Sandwichman is saying in Boundless Thirst for Surplus-Labor. The "lump of labor" is a partial equilibrium model and rebuttals to the "fallacy" also invariably rely on partial equilibrium models. They are both wrong.

Trump and the Ex-Im Bank

Reuters reports:
President Donald Trump plans to revive the hobbled Export-Import Bank of the United States, his office said, a victory for American manufacturers like Boeing and General Electric, which have overseas customers that use the agency's government-backed loans to purchase their products ... The Export-Import Bank, an independent government agency, provides loans to foreign entities that enable them to purchase American-made goods. For example, it has been used by foreign airlines to purchase planes from Boeing and farmers in developing nations to acquire equipment.
Trump has certainly been malleable on many of his campaign positions. Old Trump called these loan guarantees corporate welfare and a waste of taxpayer money. So why is New Trump now in favor of these loan guarantees?
Trump's about-face on the export bank comes after meeting on Tuesday with former Boeing Chief Executive Officer Jim McNerney, who left the company last year but oversaw the corporation's aggressive lobbying effort in support of the bank in 2015. Trump also met at the White House on Feb. 23 with GE CEO Jeff Immelt and Caterpillar CEO Mark Sutton, both vocal supporters of the bank.
Before one jumps on the Club for Growth screaming of corporate welfare, is there a possible rationale for Trump’s new position. We can see this move as a form of trade policy where this program provides a subsidy to exports. I guess one could also defend that Destination Based Cash Flow Tax as a form of trade policy acting as a tax on imports and a subsidy for exports. Of course some economists would argue that such trade policy would not increase overall net exports as the primary effect would be to appreciate the dollar. Two proponents of the Destination Based Cash Flow Tax write:
Border adjustments do not distort trade, as exchange rates should react immediately to offset the initial impact of these adjustments.
Now if this is true – it also follows that an export subsidy for Boeing would hurt import demand. In other words, old Trump may have been correct. So why is new Trump pushing something that is a violation of WTO rules? Of course maybe that is the entire point – Trump strikes me as a person who wants to violate WTO rules just for the fun of it.

Italy And The Future Of The European Union

Given that Trumpfreakout may guarantee relatively pro-EU politicians winning in France and Germany in the near term (France less certain than Germany), many are now looking at Italian elections next year as the next time when there may be a serious threat in a major EU nation of a leader being elected who may want to pull the nation out, following the UK example.  The most likely candidate for pulling off this feat would be Chiara Appendino, the current apparently fairly competent mayor of Turin, and the new rising star of the Fiver Star Party, with Rome's Five Star mayor having gotten bogged down in corruption scandals, and long time party leader, Beppe Grillo, more likely to stay in the background.  Why might this come about, quite aside from the fact that the Five Star Party is now dead even with the ruling Democratic Party in polls after rising?

The obvious main explanation is that the Italian economy has simply been dead flat since around 2000, in contrast to the other large EU nations: Germany, France, UK, Poland, and Spain.  The latter certainly has had some worse experiences in the last decade and a half, notably a much higher unemployment rate.  But that has been coming down in more recent years as Spain has gotten it together and finally gotten growing, despite crises and debt issues.  Italy never had it as bad as Spain, and certainly never as bad as still declining Greece.  But its stagnation has begun to really sour, and those who claimed to fix it have fallen on their faces, with the EU itself increasingly putting unpleasant pressures on Italy that are drawing forth resentment.  The Five Star Movement may be semi-incoherent and contradictory in its populism, but it seems to be rising as the ruling PD (Partita Democratia) has increasingly floundered, and it has a strongly anti-EU position.

Frankly it is not obvious why Italy has done so poorly in the last decade and a half, especially in comparison with previous years.  It may be that it is getting into the euro and losing the ability to devalue periodically, while underlying problems in the Italian economy and society remained.  But Italy was quite dynamic prior to the turn of the century, one of the growth stars of the EU in many years, with a strong position in such areas as luxury clothing and expensive sports cars, as well as several other areas.  They continue to have strength in those areas, but have increasingly faced foreign competition in them, with the Chinese playing an important role.  But then the Chinese have been competing with other EU nations. Why has Italy found it so much harder to maintain its position?

Also, most of the underlying problems in Italy were certainly there prior to 2000, notably an excessive bureaucracy, major corruption, as well as some stodgy state-owned enterprises, with some of these features dating back to the fascist era, if not earlier.  It is not obvious that they have gotten substantially worse, and there have been major anti-corruption and anti-Mafia campaigns, even if they may not have been as successful as the headlines would have it.  But somehow these problems have exacerbated a declining ability to maintain leadership in many sectors, and the economy simply has stagnated, even if not collapsed.  Some blame the fact that it has not collapsed on the inability to get the society to do anything serious about the entrenched problems, which may be true.

A particularly vexing problem has been the troubled financial sector, whose opacity and complexity is seriously daunting.  The poster boy for all this is the world's oldest bank, once Italy's largest, although now down to third, Monte dei Paschei di Siena (MPS), founded in the 1400s.  Indeed, modern banking began in Tuscany, with Siena, Florence (with the Medicis), and Pisa competing for being most innovative in developing double-balance accounting, the use of Indo-Arabic numerals, and so  forth.  The very word "bank" comes from a bench (banca) in Siena where guild leaders sat in the Middle Ages.  Its books and operations have long been complicated, with its museum even showing black books" from earlier centuries where the bank hid actual transactions from outside authorities.  To some degree, the problems of MPS are recent, with the bank getting involved in flaky investments during the runup to the last financial crisis, with these blowing up big time.  The bank has been trying to save itself ever since, with multiple bailouts and rollovers and eliminating financing the Palio horse race in Siena as well as other civic functions there.  However,  its problems have persisted, aggravated by the general stagnation of the Italian economy, and it has come down to regulatory bodies in the EU arguing that no more EU funds should be provided for helping the bank out and effectively arguing that it should simply be closed.  The EU view is that if the Italians want to save this ancient monstrosity, they should pay for it themselves with their own taxes, but economic stagnation in Italy has also led to serious fiscal problems, and the Italians have been loath to provide open-ended support for MPS.  As of now, it remains unclear what will happen, but increasingly many Italians have become resentful of the EU attitudes on this matter, with many fearing that if MPS goes down it might take down many other Italian banks, whose interconnections are murky at best.  Indeed, many in Frankfurt also worry that such a collapse could spread beyond Italy to other parts of the EU.

So, have the Italian polticians tried to respond to all this?  Yes, but not successfully.  The most important player here is Matteo Renzi, former mayor of Florence and recently reelected as PD party leader in a hotly contested three way race.  He had been serving as Prime Minister since 2013, a young man viewed as dynamic in the mold of Obama and Justin Trudeau.  He proposed a major referendum to  make major reforms in the Italian political system.  This had many parts, with the most important involving reducing the powers of the judiciary (seen as behaving arbitrarily), imposing testing in the school system, eliminating the provincial layer of government (essentially equivalent to US counties and mostly not doing much now), reducing the power of the Senate, as well as major changes in other areas.  Renzi campaigned hard for his referendum, which went up for a vote in December, 2016, declaring that if it did not pass, he would step down.  It did not pass, and he stepped down, to be replaced by Paolo Gentilone, a former far leftist, now moderate smoother-over, who might yet emerge as the PD candidate, although most think it will be Renzi running again.  One problem with the referendum appears to be that it simply had too many items in it, and while many were generally sympathetic, there were too many things that upset too many entrenched groups, with the education and judicial proposals for it to pass.  Indeed it may well be that this is where a bigger economic crisis might have helped Renzi out. Complacency won, but now many are more disillusioned.

Which brings us to more recent matters, which I am aware of because I have been living in Florence for the last three months (leaving tomorrow, which is why I am posting this now while still on top of all this) and following local language media, as well  as talking to various economists and others around the country.  The supposedly clean and dynamic Renzi, whose family are practicing Catholics even though he is of the center left, has now become personally besmudged.  The problem is not him, or at least not so far directly, but his father, Tiziano, a former local businessman and figure in the old Christian Democratic Party, who became a regional PD leader.  There has been a stream of reports linking him to corruption scandals involving public contracting over the last few years.  It has been a drip drip drip sort of thing, rarely with any really dramatic story that would make major headlines in the foreign media, although the story has had some foreign coverage, but repeated top headlines in the papers across the political spectrum.  This has undoubtedly played a role in the recent decline of the PD in polls with the Five Star movement rising, with the PD the main pro-EU party and the Five Star movement opposed.

There are many political parties in Italy, but there are two main other large ones, both of them on the political right and also to varying degrees critical of the EU.  The most anti-EU one is the hard right Lombard League, which has little chance of coming to national power as it is essentially a regional northern party that would also like to leave Italy so as to stop sending money to the poor Mezzogiorno south.  The fourth is Forza Italia, the party of longtime former leader, Silvio Berlusconi, who resembles Donald Trump in all too many ways.  The FI has been critical of the EU, but has taken a somewhat softer line than has either Five Star or the Lombard League.

This has led to my final observation, based on carefully reading the back pages of the local Italian papers, where an important matter is who is appearing in photographs and how often?   I have all along known that Matteo Renzi is a major player because he always has his photo  in the papers, even if way inside, for whatever he is doing.  People know he is important, and he continues to get lots of attention.  But in the last month or so I have noticed a very curious phenomenon, the sudden reappearance on a regular basis in photos, even in papers that do not like him, of "Il Cavalieri" ("the Knight," really), that wily old scoundrel Berlusconi, all dressed up and looking like his old self.  I am speculating that it is not out of the question that this man might yet make a reappearance as leader.  Why?  He is perceived as not as anti-EU as the leaders of either the Five Star Movement of the Lombard League, and if Renzi continues to get dragged down by the problems of his father, those who want to stay in the EU might well go for the old dog.

Nevertheless, the most likely scenario is a showdown next year between Renzi of the PD and Appendino of Five Star, with membership in the EU a central issue, and by then people more used to Trump being in office, whatever the heck he will be doing by then. 

This is important not only because Italy was one of the original six members of the European Coal and Steel Community (along with France, West Germany, and the three Benelux countries), but it was the site of the founding of the European Economic Community, the predecessor to the EU, in the Treaty of Rome, signed on March 25, 1957, whose 60th anniversary was just observed.

Ciao, you all.

Barkley Rosser

Friday, April 14, 2017

Boundless Thirst for Surplus-Labor

September 22, 1956
November 7, 1960
QUESTION. This is from Mr. White, Warren, Mich. 
What is your stand on the 32-hour workweek?
Vice President NIXON: Well, the 32-hour workweek just isn't a possibility at the present time. I made a speech back in the 1956 campaign when I indicated that as we went into the period of automation, that it was inevitable that the workweek was going to be reduced, that we could look forward to the time in America when we might have a 4-day week, but we can't have it now. We can't have it now for the reason that we find, that as far as automation is concerned, both because of the practices of business and labor, we do not have the efficiency yet developed to the point that reducing the workweek would not result in a reduction of production. The workweek can only be reduced at a time when reduction of the workweek will not reduce efficiency and will not reduce production.
It's inevitable... but we can't have it.

Dick Nixon's turnaround on the issue of the four-day workweek was epic. His original prediction of  a four-day week "in the not too distant future" came in a prepared speech, not in some unguarded moment of overheated campaign hyperbole. He even disclaimed that his "projections" were not "dreams or idle boasts" but were based on the continuation of President Eisenhower's economic policies.

Following up on Nixon's 1956 prediction, United Auto Workers president Walter Reuther responded with a telegram calling on the administration to outline a legislative program to achieve the shorter workweek. Nixon sent a telegram in reply and President Eisenhower endorsed Nixon's reply in a press conference on September 28.

Nixon's reply was that "mere artificial legislation" would not accomplish a four-day workweek. What was necessary was "dedicated joint efforts of labor, management, government and research." For his part, Eisenhower "saw nothing wrong with" Nixon's answer, which he thought also represented his own view that it would be "wonderful" to have more leisure time, but that "no man can say it is going to come about because I say so." A month after his first comment, Nixon reaffirmed his expectation of a shorter workweek, based on partnership between government, business and labor.

The adamant wording of Nixon's 1960 dismissal of the idea takes on added resonance in the context of Eisenhower's earlier caveat that "no man can say it is going to come about because I say so." Four years later, it "just isn't a possibility... we can't have it now. We can't have it now... [because I say so]."

This wouldn't be the first time that self-contradiction has appeared in the rhetoric of opposition to shorter work time. The Sandwichman has amassed the world's largest collection of lame excuses offered by opponents. I assembled 21 of them and sorted them into eight categories having to do with productivity, new consumer wants, unsatisfied needs, labor costs, government policy, self-adjusting markets, history and inevitability, and the devious motives of proponents.

To be kind, the rationales are opportunistic. Mostly, they are jejune partial equilibrium statements invoked as if they were eternal verities. More bluntly, they are mendacious. Every single reason given for not shortening the hours of work is complemented by a contradictory reason for not shortening the hours of work. Damned if you do and damned if you don't.

Thursday, April 13, 2017

Trump's Road To Damascus Moment

This is a bragging post, how I was right all along in numerous venues, if not in a full-blown post, about what would happen to the US-Russia relations if Trump was elected.  I said repeatedly that Trump's naive admiration for Putin would get disappointed at some point, and when that happened he could flip to the other extreme and become very anti-Putin anti-Russia.  It now seems that this has happened, ironically over Syria.  However, the title of this post refers to Saint Paul and how he went from persecuting Christians to being their biggest leader after a dramatic moment on the road to Damascus, literally the road to Damascus from Jerusalem.  So, for whatever reason, the Syrian chemical weapons attack seems to have provided that Road to Damascus moment for Trump, who only a week earlier had been declaring that we were just fine with Assad staying in power.

Having made my point, I am going to call out all those foolish people who loudly declared that Trump would be better than Hillary because she was this awful neocon who would drag us into a war with Russia, especially in Syria. I always granted that she looked more hawkish than Obama, whose policy looked not to unreasonable despite all the terrible things that have happened in Syria (sorry, but I see no policy that would have substantially changed that).  But at least with her we knew where she stood, and it was pretty clear that Putin and Assad would not view her as some sort of patsy whom they could start pulling all sorts of stunts like using chemical weapons around.  Indeed, with her hawkis rep she might even have been able to pull a Nixon Goes to China sort of deal, although maybe not.  I never said that would necessarily happen.  But I also always thought that we would not have some foolish sudden flip to being super anti-Putin.  She knew him and he knew her, and they did not like each other.  But there would be no fooling around.

Anyway, there were an awful lot of people in the econoblogosphere, "ilsm" stands out in particular, who sometimes comments here but more often at Economists View and Angry Bear, who focused on this particular issue to either not support HRC or to outright support Trump, which was the case with ilsm repeatedly, and who was still praising Trump for some time after his inauguration, although he seems to have gone somewhat quiet recently.  In any case, if you reading this were among those people who spouted this nonsense, especially if you outright supported Trump, you should be ashamed of yourselves.  You were wrong, wrong, wrong, and I said you would be many times.

Barkley Rosser

Tuesday, April 11, 2017

Which Is More Important, China Or Syria?

For the world as a whole and the US in particular, when it is put like that it is pretty obvious: China.  It has the world's largest population, largest economy in PPP terms, a rising military, expanding interests around the world, including making territorial demands on several neighbors, not to mention being a nuclear superpower as well as cyberpower, and more.  Syria has a population of 22 million and an economy half the size of Puerto Rico's.  It is not a major oil exporter.

However, last week it certainly looked like Syria was more important.  President Trump meets with President Xi at Mar-a-Lago, and almost nothing is reported about the meeting other than some vague remarks.  Important matters such as trade policy (the US has initiated an  anti-dumping suit against China in steel), South China Sea issues, North Korea nuclear testing issues (US has just sent a major naval group towards the place), issues over currency management (with Trump long charging China with currency manipulation, even though it is now widely accepted that while they did it in the past the Chinese are not doing so now), climate change (where China is becoming world leader on the international policy stage while Trump claims that global warming is a "Chinese hoax").  They barely had a press conference, and what really went on in the meeting remains largely mysterious.

So, wow, much better to have the headlines and the commentaries taken up with the apparently one-shot firing of 59 Tomahawk missiles at a base in Syria, after apparently warning both the Russians and the Syrians we were going to do it, in response to a chemical attack in Syria that killed about 80 civilians, including some children.  This was certainly a bad attack, but it remains unclear if it was the Syrian military or some rebel groups, although probably it was the government, and if it was the government, it is unclear if it was done by some local commander on his own or with the explicit orders of President Assad, and if the latter, was it done with the foreknowledge of their allies, the Russians, and most especially President Putin.  The Russians and Iranians are claiming that the rebels did the chem weapons attacke and are denouncing the US attack.  But who really knows?  I sure as heck do not, and I  am not sure anybody in the US government knows either, especially given the 25 reasons that have since been given for this by various administration officials.

There is also the weird matter that if it was the Syrian government, they probably did it in response to Trump declaring that we did not favor overthrowing Assad, which was previous US official policy, alhough in fact little had been done in a long time to do that, with the US effectively cooperating with the Russians and Syrians against Daesh/ISIS, if quietly and not fully.

So on the relation between this stuff and China, once Xi Jinping got home the Chinese media jumped all over Trump for the missile attack, saying almost certainly accurately that a major reason Trump did it was to distract people from all the investigations of his Russia ties.  See?   He is doing something Russia does not  like, and Putin has announced no more cooperation on saying where planes are flying in Syria.  Wow, what a great outcome. And that Xi appears not happy with Trump probably means that Trump was as unpleasant on trade to Xi in private as he was to Merkel in public, not to mention to  the Mexicans.  And we know Xi is not happy with this new naval maneuver with regard to North Korea.  Indeed, some people think Trump did the missile attack to scare North Korea and China, although it is unclear Trump is really smart enough to think that one through.  So for all the official happy talk, it looks like this very important meeting did not go well, although it is not clear that not having all those commentators praising Trump for "being presidential" while shooting off missiles in Syria would have helped on this more important matter of US-Chinese relations.

As a final point I want to remind people of something that I have seen zero commentators mention, even the astute Juan Cole who does at least note that what is going on in Syria looks like classic power politics not driven by economics.  That is that the Russia-Syria alliance is a strategic and deep one.  The only Russian naval base outside of Russia is at Tarsus in Syria, in Latakia Province where the ruling Alawis are dominant.  It was rebel advances into that province threatening their base that led the Russians to engage in massive bombing raids to support the Assad government, and Cole does note that not using chemical weapons (which the Syrians were supposed to have gotten rid of) will mean they will bomb a lot instead, and horrible as chem weapons are, thousands of children were killed in the bombing in Aleppo. In any case, that naval base has been there since 1971 in Soviet times.  This is a deep strategic relationship, and this must be kept in mind.

Barkley Rosser

Saturday, April 8, 2017

Only So Much To Go 'Round

The Sandwichman commented the other day on The Economist article, "Britain’s Green Party proposes a three-day weekend." Regrettably, though, I didn't pay much attention to their "rebuttal" to the alleged assumption of a fixed amount of work:
In fact, if people worked fewer hours, demand would drop, and so fewer working hours would be on offer.
I have seen stupid explanations before of why there is not a fixed amount of work. Layard, Nickell and Jackman argued that if work time reduction and redistribution succeeded in reducing unemployment, it would be inflationary and that would probably cause the central bank to intervene to re-establish the "non-accelerating inflation rate of unemployment." That's pretty stupid but not nearly as stupid as what The Economist article claimed as "fact." Pardon me for repeating the whole dreadful argument:
The Greens’ proposals encounter two problems. First, the theory. They argue that the reduced hours worked by some could be redistributed to others in order to lower underemployment. They thus fall prey to the “lump of labour fallacy”, the notion that there is a fixed amount of work to be done which can be shared out in different ways to create fewer or more jobs. In fact, if people worked fewer hours, demand would drop, and so fewer working hours would be on offer.
According to the above, the Greens "argue that the reduced hours worked by some could be redistributed to others in order to lower unemployment." So the idea is that a given number of hours of work could create more jobs if each person worked fewer hours.

For example, if there are 100,000 people employed 40 hours a week and 25,000 unemployed, you could, ceteris paribus, employ all 125,000 people for 32 hours a week. That is admittedly a very big ceteris paribus, but the argument is clear for illustrative purposes. In spite of using the number in the example, there is no assumption --implied or otherwise -- that there actually are "4,000,000 hours" of work to be done. Likewise there is no assumption that the actual number of hours of work to be done, whatever they may be, is unchanging.

But in addition to reprising the straw man attribution of  a "notion that there is a fixed amount of work to be done," the Economist article introduces an innovation in stupidity: using the same example as above, the hours of the 100,000 employed people cannot be redistributed because... they vanish! If the hours of 100,000 employees are reduced from 40 to 32, then aggregate hours of work are reduced accordingly from 4,000,000 to 3,200,000. The 100,000 employees have less money to spend and demand falls correspondingly.

But, using a similar logic, presumably those 100,000 employees commute to work. At some point in their trip, they are half-way between home and work. Later, they are half-way between work and the half-way point from home to work. And so on. They will never get there!

Friday, April 7, 2017

War is the Health of the State

Excerpts from Randolph Bourne's The State:
War is the health of the State. It automatically sets in motion throughout society those irresistible forces for uniformity, for passionate cooperation with the Government in coercing into obedience the minority groups and individuals which lack the larger herd sense. The machinery of government sets and enforces the drastic penalties. The minorities are either intimidated into silence, or brought slowly around by subtle process of persuasion which may seem to them really to be converting them. Of course, the ideal of perfect loyalty, perfect uniformity is never really attained.  
War is the health of the State. Only when the State is at war does the modern society function with that unity of sentiment, simple uncritical patriotic devotion, cooperation of services, which have always been the ideal of the State lover. With the ravages of democratic ideas, however, the modern republic cannot go to war under the old conceptions of autocracy and death-dealing belligerency. If a successful animus for war requires a renaissance of State ideals, they can only come back under democratic forms, under this retrospective conviction of democratic control of foreign policy, democratic desire for war, and particularly of this identification of the democracy with the State. 
War is the health of the State and it is during war that one best understands the nature of that institution. If the American democracy during wartime has acted with an almost incredible trueness to form, if it has resurrected with an almost joyful fury the somnolent State, we can only conclude that the tradition from the past has been unbroken, and that the American republic is the direct descendant of the English State. 
And what was the nature of this early English State? It was first of all a medieval absolute monarchy, arising out of the feudal chaos, which had represented the first effort at order after the turbulent assimilation of the invading barbarians by the Christianizing Roman civilization. ... The modern State begins when a prince secures almost undisputed sway over fairly homogeneous territory and people and strives to fortify his power and maintain the order that will conduce to the safety and influence of his heirs. The State in its inception is pure and undiluted monarchy; it is armed power, culminating in a single head, bent on one primary object, the reducing to subjection, to unconditional and unqualified loyalty of all the people of a certain territory. This is the primary striving of the State, and it is a striving that the State never loses, through all its myriad transformations. 
The President is an elected king, but the fact that he is elected has proved to be of far less significance in the course of political evolution than the fact that he is pragmatically a king. It was the intention of the founders of the Constitution that he be elected by a small body of notables, representing the ruling propertied classes, who could check him up every four years in a new election. This was no innovation. Kings have often been selected this way in European history, and the Roman Emperor was regularly chosen by election. That the American President’s term was limited merely shows the confidence which the founders felt in the buttressing force of their instrument. His election would never pass out of the hands of the notables, and so the office would be guaranteed to be held by a faithful representative of upper-class demands.

Thursday, April 6, 2017

Thank God it's Boilerplate Thursday and The Economist is Lumping its Labour

The Economist and Jonathan Portes are at it again. "Lump of labor! Lump of labor!" The occasion? A proposal for a four-day workweek announced by the U.K. Green Party at their convention this week in Liverpool.

The Economist pretended to find "two problems" with the Greens' proposal:
The Greens’ proposals encounter two problems. First, the theory. They argue that the reduced hours worked by some could be redistributed to others in order to lower underemployment. They thus fall prey to the “lump of labour fallacy”, the notion that there is a fixed amount of work to be done which can be shared out in different ways to create fewer or more jobs. In fact, if people worked fewer hours, demand would drop, and so fewer working hours would be on offer. 
Second, the cost. Increased productivity could cover some of the costs of paying a five-day wage for a four-day week, suggests Sarah Lyall of the New Economics Foundation, a think-tank. She points to a Glasgow marketing company that did just that, and experienced a 30% leap in productivity. But that is an astonishing increase to expect across the board.
First the theory: why does the idea of redistributing work require a "fixed amount of work to be done"? I can cut up a pie in many different ways. I can also cut two, three, many pies in different ways. In what sense does redistribution imply a constant amount? It doesn't.

Furthermore, what does The Economist mean by "fixed"? The word seems to refer to a constant or unchanging amount. It is unlikely that it means "repaired," as in the amount of work used to be broken but now it is fixed." But there is third possible meaning of fixed that is very significant: a quantity that is determined or regulated by a proportion. Here is an example of this usage from a 19th bankers' magazine: "it is the proportion between supply and demand that fixes the price of the metal." Here is another example: "the market price of cotton is fixed by the proportion between the demand and the supply." A third example: "It has been always understood, that the price of commodities is fixed by the proportion between the demand and the supply."

The word "fixed" thus has a well-established place in partial equilibrium analysis. It refers to a proportional relationship between supply, demand and price. Thus a "fixed amount of work to be done" could conceivably refer to a variable quantity whose variation is regulated by the wage rate. This, of course, is the (partial equilibrium) argument trotted out perennially by opponents of the minimum wage. This is also the logic behind the argument that markets are self-adjusting and will clear, provided that prices are flexible.

It short, the lump-of-labor "fallacy" claim hinges on a deceptive ambiguity. It is a bamboozle. But apparently not enough of a bamboozle for The Economist, which doubled down with a second sleight of rhetorical hand, "the cost." The Greens' argument was that productivity could cover some of the cost. The New Economics Foundation cited an exemplary productivity gain of 30% at a Glasgow marketing company. The Economist harrumphed the whole argument away by sneering that it is "an astonishing increase to expect across the board."

Did anyone claim that such an increase was expected across the board? No. Would such an increase across the board be needed to cover some of the cost? No.

Could Incompetence Lead To Reelection?

I know, I know, it is way too early to talk about the presidential election of 2020, so maybe this is more relevant to midterms, and more likely it is just something merely momentary.  Nevertheless, it occurs to me that the increasingly apparent incompetence of our current president could possibly play into helping him get reelected in 2020.

His incompetence is manifesting itself substantially in his inability to achieve many of the things that he campaigned on most loudly, including repealing and replacing Obamacare, introducing massive trade protectionism, sharply cutting taxes for the rich, and sharply stopping immigration. Of course his new administration, which included probably the most incompetent, insane, and corrupt set of cabinet secretaries and other officials in US history, are doing and will be doing things that will be terribly damaging to American society on many fronts, including the environment, education, womens' rights, the arts, financial market stability, minority rights, and a long list of others, with many of these very important.  The Trump administration is doing and will do a great deal of damage.  But none of  these were really red meat headline issues in his campaign.  They were not the items that got his angry mobs at rallies chanting and yelling and more generally making public fools of themselves while scaring much of the rest of the population.  Those issues were the ones I mentioned up front, the ones that Trump seems so far not to be actually doing much about after all the ranting and raving.

So how could this incompetence-fueled failure aid his possible reelection? At least two reasons.  The first is that succeeding with some of these could really seriously hurt lots of people, including in some cases especially his own supporters, who might then become unhappy with him if this happened, even though so far polls show most of his supporters supposedly sticking with him even when they hear that he might do something that might hurt them personally.  They either do not believe that he will or think that his policies will hurt others they do  not like more.  In any case the poster boy for this is certainly the health care issue.  Trumpcare has proven to be unpopular and Obamacare now finally has a majority supporting it.  Lots of people have figured it out that they might get hurt if that campaign promise were kept to repeal and replace.  So the upshot is that people do not get hurt and become angry at him.

On immigration and trade policy, these would have mixed effects, but there certainly would be economic damages from seriously enforcing either of them, especially immigration policy, and there already appears to be some damage coming from some of that even indirectly, such as the likely fall in foreign tourists coming to visit the US and also  an apparent likely decline in smart foreigners applying to attend US universities, with probably fewer of them than sticking around later to be innovative and job-creating entrepreneurs.  But for the moment the attention is on all  those judges knocking down Trump's efforts to simply ban people from certain countries entering the US.  But probably these damages will not be noticed that much by the majority of Trump supporters.

So, assuming that all this would continue, which it may not as he may get his way on some issues where he has not so far, with cutting taxes for the rich the most likely to get through at least in part,  how does this help his reelection campaign?  Because he can run again on these same old issues, complaining about all those judges and Democrats and bad Republicans who did not help him get them passed.  Maybe he will drop pounding on Obamacare if  it gets even more popular, but, heck, on immigration and trade for sure he could get back to ranting his red meat and getting those angry mobbing troops chanting and screaming again.  Hate the terrorist foreigners who are taking away our jobs!  It could well work again, especially given that a lot of his supporters seem not to be able to add two  and two and avoid getting five.

Barkley Rosser 

Wednesday, April 5, 2017

Mixed Methods Forecasting

There’s a nice piece up today at Bloomberg by Noah Smith on the utter failure of macroeconomists to develop a functioning forecasting model.  Complex models can be calibrated using past data but fail out of sample going forward.  The literature Smith cites doesn’t look at heterodox models (all those stock-flow consistent entries), but I’d wager they’d fail the same tests.

My take—aside from a general disbelief in the theory that underlies DSGEism—is that the objective is unrealistic.  I can’t imagine there will ever be a single model that does what we want for forecasting.  What I can imagine is a set of models that do the job, providing you know which model to call on when.  That ability to size up a situation, see what’s important and pick the model appropriate for it, relies on judgment, a qualitative assessment of a single, immensely complex moment.  Judgment can’t be bottled and marketed as an off the shelf model; it’s a different kind of process.  But it can be learned, more or less the way it’s learned in other realms of life, through apprenticeship, practice and reflection.

Think of a medical analogy.  Would you want to replace an MD (or PA or NP) with a machine that followed algorithmic instructions to diagnose patients and prescribe treatment?  (This is not a hypothetical question; we’re on the cusp of doing something like this.)  I’d say, in general, no.  There is a valuable role for all sorts of tests and decision algorithms based on them.  In the end, however, care will still be better if a knowledgeable human assesses the overall condition of a patient and turns to the diagnostic models that seem to make the most sense under the circumstances—and then interprets the output to see if it still makes sense.  Maybe at some point in the future AI can completely replace human judgment, but I wouldn’t go there yet.

An economy is even more complex than a single human body (from a treatment/intervention point of view), there are vastly less observations to calibrate on, and AI, as represented by economic models, is still further from displacing qualitative assessment.  What’s needed is a mixed approach.

Tuesday, April 4, 2017

Why Economists Are Bad At Economics

If you want an informed, thoughtful analysis of the effects of robotization on productivity, investment, employment and wages, ask an art school professor. Jason E. Smith's two-part series, "Nowhere to Go: Automation, Then and Now," (part one and part two) at Brooklyn Rail cuts through all the statistical aggregation category errors to highlight the accumulation dilemma that economists just don't seem capable of either grasping or admitting.
Current speculations on both the promise and threat of automation are confronted with an ongoing crisis of accumulation. In this climate, a fragmentary implementation of automation is unlikely either to liberate large fractions of humanity from work, or produce mass unemployment of the sort envisioned over and again by commentators for the past century.
Smith has a PhD in comparative literature, which perhaps explains why he can tell the difference between an arbitrary catch-all term like "service sector" and the very different and distinctive components that are lumped together in it. Both promise and threat evaporate when the components are dis-aggregated and the jumble untangled. Definitely worth a read.

Sunday, April 2, 2017

Fascism And You Know Who (YKW)

[from when the Italian Fascist government was 'but a few years old"]

"The Secretary of the Fascist Party visits a large factory, accompanied byt the obsequious company director.  At the end of the tour all the workers are massed in the yard to listen to a speech. Before addressing them the Fascist chief looks them over proudly from his podium and asks the director: 'What are these people's politics?' The director answers: "One-third of them are Communist, one-third Socialist, and the rest belong to several small parties.' The Fascist's face turned livid. 'What?" he cries, 'And how many of them are Fascist?'  The director reassures him quickly: "All of them, Your Excellency, all of them.'"

Luigi Barzini, The Italians, 1965, pp. 225-226.

I shall simply list a bunch of characteristics associated with fascism and see how YKW (He Of Whom We Cannot Speak) fits as of now, an ongoing situation as it were.  So my list would include extreme nationalism, militarism, racism, sexism (and homophobia), left-right populism ultimately going right, mixed relations with organized religion, building infrastructure, control of arts, megalomania, dictatorship, and suppression of human rights.

1. Extreme nationalism.  YKW seems to fit the bill here. Totally.

2. Militarism.  It would seem that he does here too, proposing a $54 billion increase in the military budget even as he proposes slashing most other parts of the budget to the point of eliminating completely some agencies.  OTOH, he claimed to be anti-Iraq war (although he supported it initially) and campaigned on how he would pull US out of Middle East conflicts. So far looks  like he is going the other way, sending more troops to Syria, Iraq, and Afghanistan, if not yet going off the deep end, although making loud noises towards North Korea, and China, if not Russia.  Also, OTOH, he has never served in the military personally, indeed got out of Vietnam War service due to an obviously phony claim about some foot spur that just disappeared conveniently.  He does not himself seem into wearing military uniforms and strutting about like Mussolini and some others have done.  But he has also  appointed more generals to high positions in his administration than we have ever seen in US history, and weirdly enough many of us are counting on them to be Voices Of Reason in this completely wacko and incompetent administration.

3. Racism.  His dad was arrested in a KKK demo back in the 20s or thereabouts, and among Trump's first business activities were managing housing complexes that were convicted of racial discrimination, not just once but twice.  His whole history stinks of racism, although it looks like he is more anti-Hispanic and Mexican in particular than anti-black, although the family KKK history is certainly the latter.  I mean he does keep Ben Carson around a few other friendly African-Americans, but Hispanics of any sort are very hard to find in this admin, and his anti-Mexican screeds, attitudes, and policies seem deep-died, with his ridiculous campaign to "build that wall" one of the few things he seems to be really set on, although he may yet not be able to get funding for it from Congress.

4. Sexism (and Homphobia).  Well, quite aside from all his notorious "grab..." quotes and wandering through the dressing rooms to see scantily clad teenage girls during some of the events he has hosted over the years, and despite some token stuff about child care that favored daughter Ivanka managed to talk him into (not likely to go anywhere in current Congress), he seems to be playing into current views on Planned Parenthood  and so on of the current GOP.  On LGBTQ he has played a bit of a mixed game, again with perhaps Ivanka and Jared trying to hold him back as well as the fact that obviously all those years in NYC and show biz has left him with many gay acquaintances, he seems in the end to  siding with the traditional GOP conservative view, even if  the Log Cabin Republicans supposedly find some things to like about him.  Anyway, very sexist, although not pushing a fully classic kinder, kirche, kuche line (a kkk rather than a KKK).

5. Left-Right Populism Ultimately Going Right.  Yes, this is certainly a forte of his, dragging those poor sucker coal miners to stand with him while he trashes environmental policies when we all know that there will be no new coal jobs in the US probably ever simply due to market forces, definitely reinforced by his anti-enviro policies, especially not slowing fracking, which is what  has given us cheap natural gas, which has become the death knell for the coal industry.

The other aspect of this is of course the trade issue, and certainly on this we have portions of the old midwest manufacturing working class that he is appealing to and has made moves to please, at least with his withdrawal from TPP, even if  other moves to protectionism are floundering in his ongoing incompetence.  Will there be a major restructuring of NAFTA?  Will there be a trade war with China?  I don't know, but increasingly it looks like probably not, but who knows?

As for Going Right, well, traditional fascists tended to appoint their party hacks who came up through the ranks with lower class backgrounds (like Mussolini and Hitler themselves) and their cronies, who would go all corrupt once they got government positions.  But with spoiled brat YKW who would be wealthier by all reports if he had simply reinvested and sat on his inheritance, we have the biggest flood of full out billionaires into top positions we have ever seen, with many of them apparently amazingly incompetent on top of all their money (see DeVos).  Libertarians like to argue that the fascists and Nazis were socialists because, well, the fascists did nationalize some industries, and "Nazi" is short for "National Socialists," although the Nazis did not nationalize companies and were quick to make friends of big business such as I.G.Farben, even if big business had not been among their original supporters, who were,  well, little guy populist suckers, just like those supporting YKW.

5.  Mixed Relations With Organized Religion. For classical fascists this has largely meant the Roman Catholic Church, although in Germany Hitler had a stronger base in the Protestant rural North than in the Catholic South, even though his initial base was uber-conservative and Catholic Bavaria.  Mussolini was initially anti-Church, and the Nazis long pushed their pseudo-Wagnerian neo-paganism, even as Wagner himself ultimately went with the Church in his final opera, Parsifal. Certainly the softer fascists in Spain and Latin America have tended to side up with reactionary elements in the R.C. Church, and in the end Mussolini made peace with the Church in the 1929 Lateran treaties, aka "Concordat," that settled relations between the Church and the Italian state, a deal that still holds today (Barzini credits Mussolini with this, saying it is the one clearly good thing he did).

This is harder to call because Protestanism is more important in the US than Catholicism.  Like the old fascists it looks like YKW is really not very religious, if not openly anti-religious in the way Mussolini was for awhile.  But he has made peace with the US conservative religious establishment, with so-called Evangelicals among his strongest supporters in the election, as well as conservative elements in the Catholic Church, as well as Orthodox Jews.  He has clearly set himself up against the liberal Pope Francis, with his alt-right de facto fascist adviser, Steve Bannon, openly involved in an effort to combat the current pope.  So, he has allied himself pretty firmly with traditional religion.  No wonky neo-paganism for him.

6. Building Infrastructure.  Ah yes, a classic fascist fixation given their fixation on Ancient Rome, which did a good job with infrastructure.  On this YKW has talked a lot, although the rumbles have involved silly stuff such as tax breaks to private companies to privatize infrastructure.  Given his massive incompetence, for better or worse his talk about a big infrastructure program looks like it is going nowhere.  This is one area where maybe we would wish that he was more of a "good fascist" than he is.  I mean, Mussolini did make those trains run on time, more or less. Looks like YKW could care less.

7.  Control of Arts. Classical fascists would ban certain types of art and push certain other types that they viewed as building up the nation and state.  YKW has proposed simply eliminating funding for NEA, no more Big Bird, so it does not look like he is out to Control Art, although clearly he simply does not care about it all, major vulgarian that he is.

8. Megalomania.  Yep, like nationalism, this one YKW has in spades.  It  is All About Him.

9.  Dictatorship.  Thankfully this is  one area where he has run into  a brick wall thanks to the US constitution and judicial system, at least so far.  He obviously has fascistic tendencies and would really like to just be able to order people to do what he wants and have them do it. After all, this is a CEO view of the world.  The real question will be if he ends up pulling a Reichstag Fire routine and uses some incident, cooked up or  not, to declare martial law, and if he does so, will he get away with it. If he does, well, then we shall have the full monty fascism here in the US.  If he is held back by the courts, his incompetence, or whatever, well, for all his tendencies, we shall fortunately hold back from full out fascism.

10.. Suppression Of Human Rights.  This is obviously tied to the previous one as the really serious suppression of human rights that we saw in classical  fascism with death camps and all that came with dictatorship.  But even without that his racist-motivated anti-immigrant push has been one of the few things that he has seemed really into pursuing vigorously, even as he has run into road blocks from the courts on some of  his initiatives. But in terms of horrifying episodes happening since he became president, the worst have involved deportations and people being held trying to enter the country, including people with a full right to do  so.  YKW may not (yet) be a full blown fascist, but in this particular area his fascistic tendencies have probably shown their fullest and most egregoius manifestations.  Let us hope that it does not get worse.

Barkley Rosser


One point I missed is that of the economic policy labeled "corporatism," which both Mussolini and Hitler officially subscribed to.  Aspects of it were described above in the part about "left-right," but it should be commented on.  While both of them came from anti-clerical initial positions, corporatism as a term and a concept came from the Roman Catholic Church in the late 19th century in reaction to  the socialist movements of the time.  The idea was that the class conflict was to be overcome or subsumed in a national unity that would involve state-private interaction within the moral codes of the Church.  This implied that some bones should be thrown to  the workers, underlying the "left" part of the appeal, although in practice under fascism unions were suppressed as the state claimed to speak for the workers.  There was also much state interference in the private  sector, often to support national leading companies, but in some cases more directly,with Mussolini nationalizing some industries and Hitler through Hjalmar Schacht instituting command central planning, although firms remained privately owned, hence formally capitalist.

Another area where YKW does not resemble these  earlier leaders is that he is personally wealthy and out to add to that in office in violation of the emoluments clause of the constitution and in a way unprecedented in US history.  Thus he resembles more the recent buffoonish Italian leader, Silvio Berlusconi more  than the officially poor Mussolini and Hitler, even if they did have lavish lifestyles while in power.