Sunday, September 30, 2018

I Believe Kellyanne Conway

In an interview with Jake Tapper on CNN's State of the Union, Kellyanne Conway said, "I’m a victim of sexual assault, I don’t expect Judge Kavanaugh or Jake Tapper or Jeff Flake or anybody to be held responsible for that. You have to be accountable for your own conduct."

I believe Conway because she spoke about this before, in October 2016, in an interview with Chris Matthews, right after the Access Hollywood tape of Donald Trump's "locker room talk" came out.
KELLYANNE CONWAY: I would talk to some of the members of Congress out there when I was younger and prettier, them rubbing up against girls, sticking their tongues down women's throats who - uninvited, who didn't like it.
CONWAY: Yes, you're saying yes because you know it's true. They used to - 
MATTHEWS: No, I'm hearing it - I've heard the accounts, of course, but I want to ask you – 
CONWAY: They did - no, absolutely. And some of them, by the way, on the list of people who won't support Donald Trump because they all ride around on their high horse.
Conor Friedersdorf summed up that exchange at the time: "the GOP nominee’s campaign manager declared on national television that multiple prominent Republicans –– some who oppose Trump, and others, apparently, who support him –– perpetrated sexual assaults, and she knows their names."

The headline on that story was, "Trump Tries to Intimidate Republicans Into Sticking With Him" and the subhead was, "His campaign manager, Kellyanne Conway, warned that she knows of GOP congressmen who perpetrated sexual assaults."

Saturday, September 29, 2018

Trump Destroys His Favored SCOTUS Nominee

Yes, I am weighing in on this overly hyped story on the problematic proposal by President Trump to appoint Brett Kavanaugh to the SCOTUS.  Obviously the main reason why BK will end up not on the court is all his lying about his past sex and drinking behavior, ironically some of which he may not remember, although claiming he does remember all his past may lead to him convicted of perjury.

For poor Brett Kavanaugh, his personal tragedy is that Trump nominated him for SCOTUS.  If DJT had not done so, BK would probably have reasonably quietly lived out his life as a far right wing member of the Washington District Appeals Court, basically the second most important and powerful court  in the US. Dr. Prof. Ford would not have come forward to drag up his ugly ancient past, much less the several other women who have done so.  His  10-year old daughter would not have been publicly embarrassed, and he might even have been able to coach a few more years of school basketball teams, certainly the most important thing one can do personally. Shame on Trump for destroying his Kavanaugh's fragile life.

Of course the reason Trump destroyed the life of this worthless scumbag is that he was reportedly the only judge at his level in the system who publicly proclaimed that  a president should not be investigated, that he can refuse a suppoeana, even though Nixon accepted one.  BK has gone down because he would not even accept this precedent, and laughable madman President Trump really wants some sucker on the SCOTUS to help save his behind if/when it comes to pass.

But, frankly, I do not feel sorry for Brett Kavanaugh.  While what is doing him in is all this sex and drinking scamdal, what makes him completely unacceptable as a SCOTUS nominee is his role in the W. Bush admin, most of the relevant papers not publicly released, is his reported role in writing memos supporting torture  as an appropriate activity by the US.  Nobody is talking about this, but his support of torture is the most important reason Kavanaugh should be rejected for sitting on SCOTUS.

Barkley Rosser

Wednesday, September 26, 2018

The US-Mexico Trade Deal Dies

Nobody is calling it that, but the low key story on the back pages of today's major papers report that this is what has happened, not to my surprise.  September 29 (or maybe the 30th at a stretch) is the deadline for President Trump to submit to the Congress the final version of the US-Mexico trade deal if there is any chance of it being passed by the US Senate in time for outgoing Mexican President Pena Nieto to sign it on his lats day in office on November 30 after the outgoing Mexican parliament could approve of it.  The US Senate rules are that there is a 90-day waiting period for the initial announcement of a trade deal and a 60 day waiting for delivering the final detailed agreement.  The Trump administration got their initial report in on time, but with only it involving US and Mexico.  Sept. 29 is the deadline for the final deal.

As noted in previous posts here (Aug. 29, and Sept. 6, , sorry having trouble providing the links), top Republican senators such as No. 2 John Cornyn of Texas and others have said they will not approve a deal that does not include Canada, a reformed NAFTA.  Let me note that it was not impossible for this US-Mexico trade deal to form the basis of such a deal.  But, unfortunately, in the immediate aftermath of the announcement of the US-Mexico deal Trump announced that Canada must settle the negotiation on "our terms."  Oh.  The funny thing is that there was a possible deal.  The US was making demands of Canada about the dairy industry (never a part of NAFTA because it was so hard to make a deal) and Canada was making demands about the lumber industry, generally described as a dispute over "dispute resolution."  There were other issues, but these were the politically hard and sensitive  ones involving such places as Wisconsin and Quebec.  In the end it appears that no deal between the US and Canada has been made and probably will not be made in time for the Sept. 29 deadline.

The newspaper reports provide zero details of the official negotiations, led by official US trade rep Robert Lighthizer on the US side, a hardline but experienced and knowledgeable official. All we have is that there is no deal between and the US and there will be no further official negotiations between now and the deadline of Sept. 29 or 30. We have just passed a last possible moment to save the US-Canada negotiation at the UN meeting (where the US president for the first time in history was laughed at while addressing the UN General Assembly filled with around 100 national leaders from around the world), actually two.  One was a possible meeting between Lighthizer and Canadian Foreign Minister, Chyrsta Freeland, which might have happened on the sidelines of the UNGA meetings.  I do not think that happened, and while she has in the US media been regularly identified as the Canadian opposite number of Lighthizer, she certainly was not the Canadian rep in the now failed negotiations, presumably somebody on the same level as Lighthizer (US SecState Pompeo is the opposite number of Freeland), whose name I have never seen reported.

But that meeting became completely irrelevant as there became a possible meeting at the same meeting (after Trump got laughed at) between Trump and Canadian PM Justin Trudeau.  Trump very loudly and publicly declared that he would not meet with or speak with Trudeau, claiming that he did not like the Canadian ngotiating "style."  Really.  In any case, any possible meeting between Lighthizer and Freeland was simply out the window.  And, of course, this means there will be no agreement between the US and Canada prior to the Sept. 29 deadline.

According to the back page WaPo report today, despite this failure of getting an agreement with the US's largest national export destination, the Trump admin will submit the current US-Mexican agreement without Canada (NAFTA minus Canada) to the US Senate (assuming that some not well-reported details of this agreement with Mexico have been resolved).  I suppose there is a small chance that the Senate will accept it and that will be it.  But based on previous statements by important Republican senators, this will not pass without Canada aboard, and while a few Dem senators (Sherrod Brown) have made supportive noises about Trump's trade war, I doubt there will be enough to offset the loud GOP opposition, especially given that that United Autoworkers Union has come out against the agreement without Canada, joining in this with the US Chamber of Commerce and the US Business Roundtable.

It looks like the successor to NAFTA, if anything, will have to be renogiated from scratch with the incoming leftist Mexican president, Lopez Obrador, but Canafa will have to be brought in, no matter what, or else involved will laugh very loudly at President Trump.

Barkley Rosser

Sunday, September 23, 2018

Catch 22.4

As the number of workmen that can be kept in employment by any particular person must bear a certain proportion to his capital, so the number of those that can be continually employed by all the members of a great society must bear a certain proportion to the whole capital of that society, and never can exceed that proportion. -- Adam Smith, The Wealth of Nations
An"invisible hand" reaches up out of the subterranean depths of that "whole capital" periodically to re-establish the "certain proportion," which lies somewhere between 20 and 25 percent. The average from 1948 to the end of 2017 was 22.43434%. It looks rather like this:

Household and non-profit net worth and GDP track each other quite nicely from 1948 to 1973 until "something happens" in 1973. (What could that "B"?!) After 1973, net worth underperforms GDP until sometime in the late 1990s when a series of wild gyrations commences. As you can see from the chart, though, the authorities have the situation well in hand and nothing could possibly go wrong.

Henry Hoyt in 1886 and Leo Amery in 1908 chided Smith's "fallacy" of "terminological inexactitude" and the consequence of ignoring the fact that the capital of a nation, "grows by the exercise of the qualities and energies of which it consists." Well, yes, but to some extent those qualities and energies are bound up in the possession of assets whose market values at any particular time can be aggregated. The amount of work to be done is not fixed but it is bounded. Hoyt and Amery had a point -- but so did Smith.

It seems to me that my little chart above tells a story of how those bounds might even be stretched a bit -- presumably by the expedients of easy credit, fiscal deficits and financial deregulation. But there seems to be inevitable leakage from stimulation to speculation and from speculation to Ponzi finance, as Minsky warned. From 1948 to 2016, the CPI-adjusted net worth of households and non-profits never exceeded five times real GDP (or GDP never less than 20% of Net Worth). At the end of the second quarter of 2018, GDP was 18.7% of Net Worth.

A Weak Defense of Citizen United: Ownership v. Control

Many thanks to Peter Dorman for highlighting Citizens United As Bad Corporate Law. I guess we had to endure this comment, which is a really weak rebuttal:
Corporate shareholders are most definitely owners; they alone have the authority to sell their shares or the company's assets. Their rights are based not on contract law but statutory rules of franchise. They are guaranteed rights of assembly abd representation, and they cannot legally surrender those rights even if they elect Directors who vote to do so.
My first thought to this attempted rebuttal was the complaints of condominium owners in San Francisco. They may own the rights to what is effectively an apartment but they have to deal with management as they really do not own the land. And even the land owner does not have that much control in a city where regulations control land use. My second thought involved the minority shareholders of Yukos Oil during Yeltsin’s Russia, which I noted in this related post:
AB noted yesterday that some of Sinclair Broadcasting’s shareholders were upset the decision of management to aid the Bush-Cheney ’04 campaign with free air time for another smear of John Kerry. Their stock, which was around $10 a share in early August, is trading now for about $7.30 a share.
Now I get that the corporate governance rules in the U.S. are not as pathetic as they were during Yeltsin’s Russia but the idea that an individual shareholder has any real control of how a corporation is run is quite naïve. Peter asked this commenter if he had read the paper. Had he done so, he might have noticed footnote 34 on page 19, which included a seminal paper by Ronald Coase entitled “the Nature of the Firm”. This paper initiated an entire literature on what this recent paper calls the “nexus of contracts theory”. If our commenter has not read this literature, he should.

A Few Thoughts on “Sorry to Bother You”

I saw this film several weeks ago and have been meaning to say a few things about it.  Herewith:

1. This is an exceptionally intelligent movie by American standards.  It maintains a high level of wit and observation from beginning to end, and little zingers flash by in almost every frame without announcing themselves.  It speaks up to its audience, something I really appreciate.

2. STBY fits into a tradition of films in which the act of organizing a union and carrying out a job action is held up as a revolutionary political and personal challenge.  Other examples include “Norma Rae” and “Bread and Roses”, but actually I was reminded even more of “The Cradle Will Rock”, at least in spirit.

3. There’s a California, loose-limbed absurdist aspect too.  I was reminded a bit (giving away my age, race and sensibility) of the Firesign Theater.

4. Kate Berlant as the employee motivation hack was perrrrfect.

5. Thank you, Boots, for showing us so clearly the “race versus class” debate is vacuous.  These are not separate things in America.

6. Maybe the horse stuff was a little too much, even for me.

On a serious note, the fundamental question in any strike is whether there will be scabs, and whether the police will push them through the line.  If the job doesn’t require scarce skills, the boss is willing to alienate the workforce, and the power of the state is enlisted to break the strike, it will almost always fail.  (Maybe the only exception is where a boycott of the strikebreaking company can be effective.)  All the politics of labor action swirl around these issues.  Spoiler alert: the intervention of the horse people at the end is not just a plot device, it’s a way to finesse the the central problem labor activism has to deal with in the twenty-first century.  But that’s OK—it’s only a movie.

Saturday, September 22, 2018

Citizens United, Thoroughly Debunked

I admit I haven’t paid too much attention to debates over Citizens United, since I regard the direction taken by regulation, control over who may contribute to political campaigns and how much they can put up, to be misguided.  I would like to see comprehensive control over how much money can be spent on behalf of candidates, period.  (I would also like to see a mandate that all such contributions be funneled through an intermediary, like a public political finance fund, that keeps the identities of donors hidden from recipients.)  While CU has been yet another blow to democracy, the demand that plutocrats use one vehicle to flood the system rather than another is second best.

That said, I was struck by this new critique of CU.  Its authors, Jonathan Macey and Leo Strine, base their analysis on a point I was familiar with in the context of economic debates over the Jensenian shareholder rights theory of the firm, but its application to CU is obvious once you think about it.  The article ranges over a number of topics, but here’s the core, taken from the abstract:
In this Article we show that Citizens United v. FEC, arguably the most important First Amendment case of the new millennium, is predicated on a fundamental misconception about the nature of the corporation. Specifically, Citizens United v. FEC, which prohibited the government from restricting independent expenditures for corporate communications, and held that corporations enjoy the same free speech rights to engage in political spending as human citizens, is grounded on the erroneous theory that corporations are “associations of citizens” rather than what they actually are: independent legal entities distinct from those who own their stock.....[C]orporations do not have owners, they have investors who have contract-based, financial interests in the firms and limited management rights.
The best ideas often seem obvious once they are put forward, but the trick is to see them in the first place.

Tower of EconoBabel

What are we talking about when we talk about a bad metaphor for the second derivative of an abstraction?

There was a bunch of stuff. Here is another bunch of stuff. Did the first bunch of stuff turn into the second bunch of stuff? Did it grow? Did it shrink? Did bunch of stuff "A" liquefy, solidify or evaporate into bunch of stuff "B"?

What are we talking about when we talk about a bad metaphor for the second derivative of an abstraction?

No. You tell me.

Thursday, September 20, 2018

Mainstream Media Says Trump Triumphs Over Iran!

That would be several stories in both the New York Times and the Washington Post over the last two days: Trump's policy against Iran is a great success and it  is completely reasonable and justified. This reporting and columnizing has followed three tracks.

One was in a column yesterday in WaPo from Mark Thiessen of AEI, generally pro-Trump.  His column was about how Trump in general doing well on foreign policy, although with no mention of the trade war.  He did not spend much time on Iran, but it is a success, so obviously so it does not need much discussion.   He fulfilled a campaign promise and showed he is strong, and of course it is so justified he did not waste time defending it.  However, he made no comment on how Iran has responded to this supposedly gloriously successful policy, and in fact Iran has basically done nothing.

Anouher thrust in both papers have been reports of the release of the State Department's annual report  on terrorism.  As in past years the report again without question names Iran as the world's "leading state sponsor of terrorism," something that Trump and politicians of both parties have regularly repeated without a shred of embarrassment.  Juan Cole points out several problems here.  For starters, there is not a single terrorist act that happened last year (this report covers 2017) that can be blamed on Iran or any of the groups it supposedly supports.  The single piece of evidence on Iran's supposed terrorist threat to the US is that in February two supposed Hezbullah "operatives" were arrested in Michigan.  There is not even a claim that these "operatives" were even planning a terrorist act, much less actually carried out one.  As Cole notes, Hezbullah is the dominant force in the Lebanese government, and it is well over a decade since anybody has tied that organization to an actual terrorist act. As it is, Cole notes that the report notes a 23% decline in terrorist acts from 2016 to 2017, with most of that due to a reduction of acts by ISIS in Iraq especially.  Who helped shut down ISIS in Iraq?  Iran-supported gropus, but the report fails to note that, just as it fails to note ongong Saudi support for terrorist actions.

The final thread showed up in a news report in the business section of the NY  Times that can barely restrain itself from frothing at the mouth over how "successful" Trump's economic sanctions against Iran have been, and here we must grant that he has  managed to get a lot of businesses to go along with withdrawing from Iran out of fear of retaliation from the US.  Oil exports from Iran have fallen by nearly half and will fall further, but without oil and gasoline prices rising much.  Success!  Apparently 72 companies have decided to leave Iran, 19 have decided to stay, with 142 still undecided.  Many of those 72 companies are from nations that oppose the US policy but have been unable to convince their own companies to stick with Iran.  France's Total is a poster boy for this.  Only China and Russia and their companies appear to be fully resisting the internationally illegal Trump policy.

Ironiccally this article even includes as part of Trump's ttriumph is that Iran is still adhering to the nuclear deal and has not moved to enriching lots of uranium again. Wow!  What a triumph!  Trump is successfully beating up on them and damaging their economy, but they continue not to obey the agreement.  Hurray!  But then it also gets quietly admitted that Iran is not doing anything else, reducing their aid for Syria, Hezbullah, and the Houthis in Yemen, not to mention shutting down their missile programs.  Oh well, maybe you cannot win them all, but, wow! Trump is triumphing over the damaged Iranian economy and US car drivers are not suffering from higher gas prices!  A triumph!

Barkley Rosser

Is the Ecological Salvation of the Human Species at Hand?

In "De-growth vs a Green New Deal," Robert Pollin relies on the same blurring of distinctions that Robert Solow employed 46 years earlier in his condemnation of The Limits to Growth as "bad science." Nicholaus Georgescu-Roegen pointed out Solow's obfuscation in the article that inspired the term "degrowth." That historical context is vital for understanding why Pollin's "blueprint for ecological salvation" is no advance over Solow's.

In "Is theEnd of the World at Hand" Solow scolded the "bad science" of The Limits to Growth report on the grounds that its authors' model assumed "that there are no built-in mechanisms by which approaching exhaustion [of resources] tends to turn off consumption gradually and in advance."[1] Solow cited increases in the productivity of natural resources to illustrate the importance of the price system as the built-in mechanism of capitalism for "registering and reacting to relative scarcity."

According to Solow, between 1950 and 1970, consumption of iron in the U.S. increased by 20 percent while the GNP roughly doubled. Consumption of manganese rose by 30 percent. Copper consumption increased by one-third, as did lead and zinc consumption. These increases represented productivity gains ranging from 2 percent per annum for copper, lead and zinc to 2.5 percent for iron. Meanwhile, productivity of bituminous coal rose by 3 percent a year during the same period.

There were, Solow conceded, some "important exceptions, and unimportant exceptions." Among the more important ones was petroleum, "GNP per barrel of oil was about the same in 1970 as in 1951: no productivity increase there." Nevertheless, Solow was confident that "no one can doubt that we will run out of oil… [s]ooner or later, the productivity of oil will rise out of sight, because the production and consumption of oil will eventually dwindle toward zero, but real GNP will not."

Solow acknowledged another important exception to his productivity argument: pollution. The price system is flawed, he admitted, in its failure to charge polluters "for using the environment to carry away waste." Thus "the waste-disposal capacity of the environment goes unpriced; and that happens because it is owned by all of us, as it should be." Solow saw this problem as easily remediable through common sense regulation, user taxes and investment in pollution abatement.

Georescu-Roegen's response to Solow, in the 1975 article, "Energy and Economic Myths" emphasized the distinction between growth and development:
…if we are talking about growth, strictly speaking, then the depletion of resources is inherent in the process by definition. Solow's exposition of why he thought The Limits to Growth was bad science relied on blurring the distinction between qualitative development and quantitative growth and counting the former as an instance of the latter. This sort of legerdemain is, of course, standard in so-called growth economics.[2]
In 1979, Jacques Grinevald and Ivo Rens translated "Energy and Economic Myths" and included it with two other articles on bioeconomics in a book titled Demain La Décroissance: Entropie – Écologie – Économie.[3] The term, décroissance occurs in the translation of a section in which Georgescu-Roegen criticized what he considered "the greatest sin of the authors of The Limits" -- their exclusive focus on exponential growth, which fosters the delusion that "ecological salvation lies in the stationary state."

In opposition to that view, Georgescu-Roegen argued, "the necessary conclusion of the arguments in favor of that vision [of a stationary state] is that the most desirable state is not a stationary, but a declining one (emphasis in original)." His argument was not that ecological salvation lies instead in a declining (or "degrowth") economy. It was that there can be no "blueprint for the ecological salvation of the human species." as he elaborated in the subsequent paragraph:
Undoubtedly, the current growth must cease, nay, be reversed. But anyone who believes that he can draw a blueprint for the ecological salvation of the human species does not understand the nature of evolution, or even of history -- which is that of a permanent struggle in continuously novel forms, not that of a predictable, controllable physico-chemical process, such as boiling an egg or launching a rocket to the moon.
Pessimistic? Perhaps, but it is less so if one keeps in mind Georgescu-Roegen's injunction against blurring the distinction between quantitative development and quantitative growth. There are no "built-in mechanisms," either of the price system, of the regulatory and tax regime or of a Green New Deal that can ensure ecological salvation because the latter requires not blueprint or a formula but "permanent struggle in continuously novel forms."

So how does Pollin's Green New Deal stack up compared to Solow's "built-in mechanism" of the price system? First, with regard to the distinction between qualitative development and quantitative growth, Pollin gives no indication of being aware of Georgescu-Roegen's (and Schumpeter's) distinction. Instead, Pollin does distinguish between "some categories of economic activity [that] should now grow massively" such as those associated with clean energy and others, such as "the fossil-fuel industry that needs to contract massively." Charitably, this shift may be interpreted as at least tacitly acknowledging a qualitative development rather than simply a quantitative growth/contraction. But because Pollin doesn't make that distinction explicit, his concluding comparison of "average incomes" from a degrowth scenario vs his Green New Deal is fundamentally flawed.

Decoupling the Derivative

Wednesday, September 19, 2018

"What Keynes Ignored"

Ruth Sutherland wrote in The Daily Mail a couple of days ago:

Here is how Keynes "ignored" those "workaholic tendencies":
Yet there is no country and no people, I think, who can look forward to the age of leisure and of abundance without a dread. For we have been trained too long to strive and not to enjoy. It is a fearful problem for the ordinary person, with no special talents, to occupy himself, especially if he no longer has roots in the soil or in custom or in the beloved conventions of a traditional society. ... 
For many ages to come the old Adam will be so strong in us that everybody will need to do some work if he is to be contented.

To be fair to Sutherland, Keynes didn't use the exact words "workaholic tendencies" so if she actually read the Keynes essay, she might have not comprehended the passages dealing with the training of "old Adam"... "too long to strive and not to enjoy." On the other hand, it is entirely possible Sutherland didn't read the essay but just assumed Keynes ignored the point she wanted to raise.

Monday, September 17, 2018

The Minsky Moment Ten Years After

These days are the tenth anniversary of the biggest Minsky Moment since the Great Depression.  While when it happened most commentators mentioned Minsky and many even called it a "Minsky Moment," most of the commentary now does not use that term and much does not even mention Minsky, much less Charles Kindleberger or Keynes.  Rather much of the discussion has focused now on the failure of Lehman Brothers on September 15, 2017.  A new book by Lawrence Ball has argued that the Fed could have bailed LB out as they did with Bear Stearns in February of that year, with Ball at least, and some others, suggesting that would have resolved everything, no big crash, no Great Recession, no angry populist movement more recently, heck, all hunky dory if only the Fed had been more responsible, although Ball especially points his finger at Bush's Treasury Secretary, Hank Paulson, for especially pressuring Bernanke and Geithner at the Fed not to repeat Bear Stearns.  And indeed when they decided not to support Lehman, the Fed received widespread praise in much of the media initially, before its fall blew out AIG and brought down most of the pyramid of highly leveraged derivatives of derivatives coming out of the US mortgage market ,which had been declining for over two years.

Indeed, I agree with Dean Baker as I have on so many times regarding all this that while Lehman may have been the straw that broke the camel's back, it was the camel's back breaking that was the problem, and it was almost certainly going to blow big time reasonably soon then.  It it was not Lehman, it was going to be something else.  Indeed, on July 12, 2008, I posted here on Econospeak a forecast of this, declaring "It looks like we might be finally reaching the big crash in the US mortgage market after a period of distress that started last August (if not earlier)."

I drew on Minsky's argument (backed by Kindleberger in his Manias, Panics, and Crashes) that the vast majority of major speculative bubbles experience periods of gradual decline after their peaks prior to really seriously crashing during what Minsky labeled the "period of financial distress," a term he adopted from the corporate finance literature.  The US housing market had been falling since July, 2006.  The bond markets had been declining since August, 2007, the stock market had been declining since October, 2007, and about the time I posted that, the oil market reached an all-time nominal peak of $147 per barrel and began a straight plunge that reached about $30 per barrel in November, 2008.  This was a massively accelerating period of distress with the real economy also dropping, led by falling residential investment.  In mid-September the Minsky Moment arrived, and the floor dropped out of not just these US markets, but pretty much all markets around the world, with the world economy then falling into the Great Recession.

Let me note something I have seen nobody commenting on in all this outpouring on this anniversary.  This is how the immediate Minsky Moment ended.  Many might say it was the TARP or the stress tests or the fiscal stimulus,  All of these helped to turn around the broader slide that followed by the Minsky Moment.  But there was a more immediate crisis that went on for several days following the Lehman collapse, peaking on Sept. 17 and 18, but with obscure reporting about what went down then.  This was when nobody at the Board of Governors went home; cots made an appearance.  This was the point when those at the Fed scrambled to keep the whole thing from turning into 1931 and largely succeeded.  The immediate problem was that the collapse of AIG following the collapse of Lehman was putting massive pressure on top European banks, especially Deutsches Bank and BNP Paribas.  Supposedly the European Central Bank (ECB) should have been able to handle this  But along with all this the ECB was facing a massive run on the euro as money fled to the "safe haven" of the US dollar, so ironic given that the US markets generated this mess.

Anyway, as Neil Irwini The Alchemists (especially Chap. 11) documented, the crucial move that halted the collapse of the euro and the threat of a fullout global collapse was a set of swaps the Fed pulled off that led to it taking about $600 billion of Eurojunk from the distressed European banks through the ECB onto the Fed balance sheet.  These troubled assets were gradually and very quietly rolled off the Fed balance sheet over the next six months to be replaced by mortgage backed securities.  This was the save the Fed pulled off at the worst moment of the Minsky Moment.  The Fed policymakers can be criticized for not seeing what was coming (although several people there had spotted it earlier and issued warnings, including Janet Yellen in 2005 and Geithner in a prescient speech in Hong Kong in September, 2006, in which he recognized that the housing related financial markets were highly opaque and fragile). But this particular move was an absolute save, even though it remains today very little known, even to well-informed observers.

Barkley Rosser

Saturday, September 15, 2018

Trump Wants to Lower Drug Prices

I just now got around to reading some May 11 speech by Donald Trump who says he wants to reign in the high price of drugs. A laudable goal and Trump said some things that got applause. But ahem – he may no clue especially when he says things like this:
We’re very much eliminating the middlemen. The middlemen became very, very rich. Right? (Applause.) Whoever those middlemen were — and a lot of people never even figured it out — they’re rich. They won’t be so rich anymore.
Nancy L. Yu, Preston Atteby, and Peter B. Bach did some excellent research on where our drug money goes:
As a starting point, we relied on IQVIA’s 2016 estimate of the net revenue received by drug manufacturers … For 2016, IQVIA reported $323 billion in company-recognized net revenues.
Yea – this sector is characterized by huge profit margins so someone is getting rich. The large pharmaceutical manufacturers also have a knack for shifting income to tax havens. To his credit – Trump talked about generic competition and ending the lobbying efforts of those in this sector. But let’s turn to those middlemen:
The PBMs and wholesaler-distributors are extraordinarily concentrated, with the three largest companies dominating the market share within these segments…United Healthcare reports OptumRx’s revenues, to which we applied a 5 percent margin (comparable to CVS Caremark’s) to estimate its gross profits, bringing total profits for the “big three” to a little more than $17 billion. Assuming lower profitability margins for the remaining smaller players, we grossed up to an estimate of $22.6 billion in gross profits for the PBMs. The three largest pharmaceutical wholesalers, McKesson, AmerisourceBergen, and Cardinal …After aggregating the gross profits for these three dominant companies, we extrapolated the remaining 15 percent to come up with an estimate of $17.7 billion in gross profits for the overall segment.
They estimate that the gross margins for the PBMs and wholesaler/distributors were just over $40 billion. Net profits would be less as these companies bear at least a modest amount of operating expenses. While more competition might drive down these gross margins, the very high gross margins for the manufacturers would be a better starting point. Just saying.

Go, Secretary Mnuchin! Save The Iranian Banks!

In the Sept. 14 Washington Post, Josh Rogin is all shocked and upset about a report that people in the US Treasury Department, apparently supported by, if not outright led by, Secretary Steve Mnuchin, have been stonewalling or slow-moving a memo that was ordered up by President Trump in late July in order to implement the fully renewed financial sanctions against Iran, specifically to disallow Iranian banks from using the international SWIFT settlement system, which was imposed on them in 2012-2015, and many think played a crucial role in bringing Iran to the negotiating table to make the nuclear deal the US is now abrogating.  Apparently Trump needs to sign this memo for this to go forward, but he is getting angry that it has not come out of Treasury where it seems to be "lost."

Rogin is really outraged.  According to his sources, Richard Goldberg (wrote SWIFT ban on Iran for Obama) says, "The only hope for the president's strategy to succeed is getting SWIFT to disconnect all the Iranian banks...And if the Treasury Department waffles one iota on that mission, they are setting up the president for failure."

Good for them! Let the president fail on his idiotic violation of international law!

He then blathers about how awful Iran is because it "illicitly" provides aid for the Syrian government, Hezbollah, and Hamas, with of this supposedly involving "funding terrorism."  Oh. Well, I do not like the Assad regime that has killed huge numbers of people trying to overthrow it, but the majority of those have been allies of the Sunni terrorist groups related to al Qaeda.  Yes.  You know, the group that attacked the US on 9/11/01, killing about as many people as died in the Hurricane Maria in Puerto Rico last year, an A+ performance of this administration on hurricane performance. And while Hezbollah did engage in terrorist activities in the early-to-mid-90s, none since then.  They are basically the main part of the government of Lebanon.  Hamas is certainly attacking Israel, but then Israel is attacking them back.  It is way long past that the claim that Iran is the "world's leading supporter of international terrorism" was remotely close to being true.

Rogin's pathetically disgusting defense of this garbsae continues quoting Mark Dubowitz of the Foundation for the Defense of Democracies who declared, "Mnuchin's job as treasury secretary is to protect that integrity of the global financial system, and he's not protecting this integrity if he is allowing these Iranian banks to stay on."  And this is where things go off the rails as Rogin (and Dubowitz) admit that "Wall Street doesn't like Washington policymakers disrupting their institutions, and there could be economic  blowback."

Wow!  Shame on those evil Wall Streeters threatening "economic blowback" against Washington policymakers engaging in violating international agreements!

OK, so what is really going on here.  Well, a major  issue is whether even if Trump gets this memo to sign out of slow-moving Treasury he can actually enforce his illegal demand that Iranian banks be forbidden to use the  SWIFT system.  That system is located  in Brussels and is ultimately subject to Belgian law, not US presidential commands.  Germany and the rest of the EU nations totally oppose Trump's initiative on this and claim he does not have authority to demand this of SWIFT,  When Obama made his demand for SWIFT cutting off the Iranian banks back in 2012, he had the support of the full EU and certainly the Belgian government, as well as such nations as Russia and China.  Now none of these support Trump in this egregious and illegal action, with not just Wall Street but pretty much most of the rest of the world aside from a handful of powers, and certainly every other nation in an authoritative position regarding the crucial SWIFT system of international bank clearances.

All this becomes more important as Europe and China have not been delivering for Iran against Trump's illegal demands. Their governments have  all been talking a good story, denouncing Trump for his outrageous actions, but on the ground they have not been delivering for Iran.  European companies have been fleeing Iran afraid of US sanctions.  And I have seen reports that in the face of the impending Us sanctions on oil shipments to kick in on Nov. 1, India has reduced iranian oil imports by nearly half, supposedly part of trying to be friendly with the US, and even China has cut them back by nearly a third, not wanting to annoy Trump more in the midst of the trade war.

So here we have all these nations claiming to support Iran against the US, with Iran unequivocally obeying the requirements of the JCPOA agreement, which the UN Security Council signed off on.  Trump and the US have no grounds foe any of this; it is all totally internationally illegal, as well as monumentally stupid, arguably the worst action on foreign policy of this horrendous presidency.

Up until now we have seen no serious feedback from Trump's illegal awfulness.  Despite their failure so far to deliver any serious goods for the Iranians against Trump, and with many of their big companies kowtowing to his demands, such as France's Total, Itran has so far continued to adhere to the  deal.  But it is a close call.  If nobody supports them economically rather than merely rhetorically, the super hardliners in Iran might come to power and restart all the uranium centrifuge enrichment programs they stopped as part of the agreement.  Really.

As it is, it may well turn out to be that the bottom line on all this will be this matter of the SWIFT system, which really is a big deal.  If when finally Mnuchin (or his successor) sends the bloody memo to Trump and he signs it, the EU fails to block his demands on the SWIFT system based in Belgium regarding the Iranian banks, we may well see Iran say to heck with it, the deal is over and we shall go back to our serious  uranium enrichment and maybe reopening our closed plutonium plant.  Hey, when W. Bush canned the old Korean deal, it was the North Korean's plutonium plant that made their first bombs. But, hey, Trump is doing this for somebody or other's security!

In the meantime, go Mnuchin! Save the Iranian banks!

Barkley Rosser

Wednesday, September 12, 2018

W(h)ither Italy?

I returned a few days ago from a conference in Italy where I spoke with some former economic  advisers of the Five Star Movement (M5S), which is now in a coalition government with the hard right wing Lega, formerly the separatist Northern League, which has now gone national, appealing to southern Italy with a strong anti-immigrant push.  While the not very exciting M5S leaders push for a minimum income guarantee,  Lega's Matteo Salvini as Interior Minister has been capturing all the public attention with direct actions to block African immigrants from arriving over the summer.  With Steve Bannon showing up to support him, he is on a roll and obviously aiming to take full control and push the M5S coalition partner aside.  One sign of the new era is that there are now heavily armed soldiers in camouflage pretty much everywhere patrolling, Interior troops, in contrast to the old local police and low key federally supported carabinieri.  There is a very different atmosphere from even a few months ago.

The two share some positions.  They both criticize the EU leadership and claim to support leaving the eurozone.  However, that appears not to be too likely.  What is more likely is that they will break rules on budget  deficits that have long been in place, with both parties supporting this, which is not necessarily a bad thing.  It also appears that Lega will go along with some sort of income guarantee, although M5S's former support for a strong environmental policy of sustainable development seems to have largely gone by the wayside, aside from wacko opposition to vaccinations, this being a major reason one of my friends stopped supporting them.  Unsurprisingly at the conference there was a presentation on how bad outcomes can arise from having too many people not getting vaccinated.

I note that last year Italy finally began to see some economic growth after a long time of just pure stagnation, although at about 1% per year not too much.  But this was not enough to hold off this surge of creeping authoritarian populism.  I do not think Italy will wither, as my post title hinted, it continues to have vast wells of creativity and innovation.  But I fear Salvini could come to full power, and I fear where that might lead, not just for Italy, but all of Europe.

Barkley Rosser

Monday, September 10, 2018

Kevin Hassett Needs Remedial Arithmetic

Kevin DOW 36000 Hassett was sent out to the White House press to lie about real wage growth. Or maybe he just proved he seriously needs remedial math for another reason besides one that Brad DeLong notes:
Glassman and Hassett get the math of the Gordon equation for valuing the stock market simply wrong. It's not the earnings yield that shows up in the numerator, it's the dividend yield. The book should have been called Dow 22000.
I would put this in a slightly different way. We use the discounted cash flow model not some discounted profits model and anyone who knows anything about basic financial modeling realizes that cash flows equal profits minus the investment in new tangible assets required for growth. But Hassett did not appear to get this basic point back in 1999. Flash forward to today when he was echoing some disinformation written in this report. Credit goes to Jared Bernstein and Larry Mishel for a point by point take down of the intellectual garbage from the Council of Economic Advisers which included this gem:
The most commonly cited wage and compensation data come from the Employment Cost Index (ECI), and these data show, for example, that over the past two years, nominal wages (private sector workers) are up 5.4 percent while fringe benefits are up 5.1 percent. Thus, in these data, adding in benefits doesn’t change the wage growth story.
Hassett admitted inflation is up but argued real compensation growth is growing faster than real wages because of something to do with fringe benefits. Over the past 24 months, the consumer price index has increased by 4.7% so real fringe benefits are only marginally higher whereas real wages grew by a very modest 0.7%. So fringe benefits have actually fallen relative to wages but Hassett told the press that including fringe benefits makes compensation growth appear higher. OK – maybe Hassett was not intending to deceive the press but if he really does not get this simple point, I suspect a few first graders could explain this to him.

Thursday, September 6, 2018

Is the Ecological Salvation of the Human Species at Hand?

The July-August issue of New Left Review published an essay by Robert Pollin titled "De-growth vs. Green New Deal" in which he outlines his objections to what Peter Dorman affectionately refers to as "a suicide cult masquerading as a political position." I have written a response to Pollin's article, that I have submitted to NLR, a draft of which, "Pollin's Green New Deal: Blueprint for Ecological Salvation?" may be downloaded as a pdf file from dropbox.

In my response I am particularly interested in how Pollin's argument unwittingly recapitulates Robert Solow's from 46 years earlier, right down to the percentage of gross income to be invested in clean energy (Pollin) or pollution abatement (Solow). The ubiquitous "decoupling" turns out to be a euphemism for resource input productivity and not a particularly helpful one. Proponents often referring to the decoupling of GDP growth from "CO2 emissions" when what they mean -- unless they intend to deceive -- is the decoupling of the derivative rates of change.

A point I have mentioned previously is that Nicholas Georgescu-Roegen was not advocating "degrowth" as an ecological panacea. What he was saying (and what he wrote) was that evolution and history involve "permanent struggle in continuously novel forms" and is not a "predictable, controllable process." There is no "blueprint," no "built-in mechanism," no 20 or 30 year investment plan, (and no pure interpretation of the U.S. constitution or the Bible) that will relieve us of that permanent struggle.

Reverse 'Decoupling' in the 21st Century
Post Script: I almost forgot to mention, there is this conceit on the part of technocrats to insist that if you don't have a "blueprint" for how you're going to "solve the problem" you're not really serious. "Get out of the way!" This is a symptomatic late 18th century, early 19th century bourgeois viewpoint and is exemplified in Andrew Ure's Philosophy of Manufactures. The machine and the factory were viewed as the pinnacle of human achievement and the best one could do is emulate their automatism.

Pollin plays the "degrowthers don't have a programme and I do!" card with a vengeance. Of course the more detail and moving parts such a programme has, the better because the closer it resembles a machine or even a factory containing many machines. With that kind of challenge, it is very tempting to come up with a detailed programme to illustrate how various scenarios might work out in practice. But such competition will inevitably be judged on mechanistic grounds.

Monday, September 3, 2018

Trump Shafts Abe On Trade And North Korea

The Washington Post today (on p. A11) has a revealing story about how President Trump has essentially shafted an important world leader who may have tried harder than any other to please and appease Trump from the moment he became president, with the story ironically reporting that supposedly Trump views the friendly feeling as mutual and has said much more respectful things about this leader than almost any other, with perhaps Vladimir Putin being the prime exception.  This world leader is Japanese prime minister, who rushed to the US to be the first world leader to meet Trump after his inauguration and who has spoken on the phone with him more than any other, as well as playing lots of golf with him and even giving him a gold-plated golf club worth $3800.

But it seems to have been largely for naught, with Trump basically giving Abe next to nothing he has asked for and actually engaging in policies on trade that seriously damage the Japanese economy and certainly Abe politically in Japan, with his refusal to make an exception for Japan on the steel and aluminum tariffs, even as Abe held back from retaliating against US exports as pretty much all of the rest of the US's major trading partners did when they were it with them.  And Trump is threatening to impose tariffs on Japanese cars and demanding that Japan unilaterally open up more to US agricultural goods while offering zero in return to Japan.  This reportedly came to a head in late June when Trump apparently went on an on about Pearl Harbor and made numerous simply false statements about Japanese policy and its economy, all of this on top of the US withdrawing from the TPP, which has been especially important to Japan, with Japan leading the remaining ten nations to follow through on it despite the departure of the US under Trump.  The Japanese have pulled back and all but given up on Trump being remotely reasonable on these issues, with Abe very frustrated that Trump is acting as he has been dong.

It is not just on trade that Trump has been sticking it to Abe and the Japanese.  He has ignored Abe's advice on North Korea, where Abe advised him not to stop military exercises until North Korea made serious moves to denuclearize.  An issue of special concern for the Japanese is the matter of the return of Japanese abductees from North Korea. Trump supposedly promised to raise this issue with Kim Jong-un, but did not do so, too busy getting dead Americans back rather than living Japanese.  A new report appearing for the first time in this article is that the frustration of the Japanese led them to have a previously secret meeting in July in Vietnam with the North Koreans about this issue, having given up on Trump.  The US is now apparently furious and declaring that Abe needs Trump more than Trump needs Abe, but just as Trudeau in Canada has reacted similarly to such bullying by Trump, we are seeing the Japanese declaring a refusal to bend on matters of their national interest to Trump's demands, even while trying to maintain Abe's position as one of Trump's best friends among foreign leaders.  Shinzo Abe has now joined a large club of foreign leaders frustrated with Trump.  With a few exceptions (Turkey's Erdogan is one), they have my sympathy.

Barkley Rosser

Sunday, September 2, 2018

Has Trump Gone Over The Edge On Negotiating With Canada?

He may well have.  Facing the  deadline for submitting his deal with Mexico to Congress on Friday, he did so.  However, he did so without Canada signed on, the apparently intense negotiations in Washington between Canadian Foreign Minister, Chrystia Freeland and US Trade Representative, Robert Lighthizer having failed to come to an agreement.  With both the Mexican leaders and major Republican senators saying they will not approve without Canada on board, this makes for a very dicey situation.  There is still time: the ultimate deadline for having a fully detailed agreement to the Senate in time for it to approve it prior to the change of Mexican government on Dec. 1 is Sept. 29. So if US and Canadian leaders can come to an agreement by then in full details, it might still fly.

Needless to say, it looks like the giant fly in the ointment is Donald Trump.  Lighthizer is hardline, but experienced in trade negotiations, and Freeland is highly competent by all accounts. There is even an obvious deal to be made if each side is willing to give.  The two hardest issues seem to involve the dairy industry and the lumber industry.  Dairy has always been outside of NAFTA because it is so difficult, and Trump has made demands on the Canadians to loosen and let in more US dairy products.  OTOH, lumber involves the dispute  resolution mechanism, which is easy to  invoke, and the US regularly does so to block Canadian imports on grounds of alleged dumping.  There have been rumbles of possible give on each side, Canadians give some on dairy and US gives some on lumber.  It is just obvious (there are also issues of patents and the steel and aluminum tariffs, but these seem minor compared to the politically fraught dairy and lumber issues).

But it seems that Trump wants to humiliate Trudeau and Canada.  It was leaked that he has "privately" said any settlement must be on his terms.  He has even apparently recognized that leaking that statement will make it harder for Trudeau to cut a deal with him.  While some may say he is showing the "art of the deal" and playing 11-dimensional chess here, I doubt it.  I fear this is a combination of both ignorance and egomania on his part.

It remains possible that the obvious deal will be cut prior to Sept. 29, with all the necessary details ironed out (and there are still details needing ironing out with the Mexicans), and negotiations between US and Canada supposedly restarting this coming Wednesday, Sept. 6.  But it is clear that Trump is really pushing the limits here, and not for any obvious big gain in wonderfulness for the US in terms of the ultimate trade deal.  I mean, after all, the auto part of this as negotiated will raise auto prices to consumers without definitely improving employment prospects for US autoworkers, here on the eve of Labor Day.

Barkley Rosser

China Starts Yuan/RMB Futures Maeket

Juan Cole reports that Reuters reports that China is establishing a commodities futures market in Shanghai that will operate in yuan/rmb.  According to the report the commodity that is most expected to be traded is crude petroleum.  This will put this exchange in competition with the West Texas intermediate crude market, the London-based Brent crude market, and the Dubai market, all of which operate in US dollars.

Supposedly a main motive for establishing this market is to provide an outlet for Iranian oil for nations that want to buy it without facing sanctions from the United States after November 1.  Some might argue that this will not work as oil is and has always been priced in dollars.  However, in fact there have been oil deals in other currencies, even if there have not been organized regular markets doing so.  However, in this case purchases by China of crude oil should be sufficiently great to provide a basis for such a market to develop.  How many other nations will take advantage of this to circumvent the sanctions of the Trump administration remains to be seen.

Barkley Rosser