Friday, June 28, 2019

Rice Prices Rising In North Korea

According to nkecon, on April 30 the price of rice in the DPRK was 4070 won per kg, but as of June 25 it had risen 26 percent to 5147 won per kg, the highest in many years.  The price of corn has also sharply risen although not quite as high abovee recent levels as has the price of rice.  However, the price of pork has fallen, reflecting standard corn-hog relations, and per capita incomes appear to have fallen.  Crop failures have now been passing through to consumers in higher prices.

And in the meantime Kim Jong Un has sent an "excellent letter" to Donald Trump, who is traveling from the G20 summit  in Osaka with South Korean President Moon, who would like there to be another Kim-Trump summit. Apparently Trump will visit  the DMZ, the most heavily fortified place on earth, which Trump has now said is a model for how the US-Mexican border should be.

Barkley Rosser

The New York Times: A Propaganda Machine for Trump

The Times thinks it’s leading the forces of reason and light against Donald Trump, but it doesn’t have a clue.  Every day their front page is festooned with the latest noxious Trumpian remark, followed by paragraphs of commentary on how unprecedented it is for a president to talk this way and how appalled most politicians and political observers are.  They think Trump is making one mistake after another, and if their readers are exposed to the whole lot of them, they will turn against the Donald.  But his pompous bullying is not a mistake at all; it’s pretty much all he does.

Trump has been nothing but consistent during his first run as a reality-show business tycoon and his second as a national politician.  He presents himself as a sort of alpha male, bigger, badder and sexier than anyone else on the block.  People don’t support him because they think he’s nice or sophisticated in his reasoning; they want someone who can get the job done, and Trump presents himself as willing and able to bash his way to success.  Threats and insults are standard operating procedure.

The irony, of course, is that once you get past his mouth he turns out to be an uncommonly weak and ineffectual president.  True, his allies and cronies are securing judgeships and eviscerating regulations, but Trump himself is 99% PR.  He was a fake business kingpin the first time around, and now he’s a fake president.  His only job is to distract you from what the real movers and shakers are doing.

So the Times, by giving us megadoses of Trump’s mouth are playing right into his strategy.  If they secretly want him to be re-elected, they should go on doing it.  On the off-chance that they want to defeat the guy, however, here’s a better way:

1. No, absolutely no, front page news on Trump unless he actually does something—and saying stupid or mean stuff doesn’t qualify as doing.

2. Have a regular section deeper in the paper, on page 8 say, devoted to the man’s various harangues and tweets.  Record his weird and ugly babbling for posterity.  Provide reputable internet sources for factual correctives.  But keep it small and tucked away.

3. Change the ruling meme from “He is upending the world through his threats and insults” to “He is a blowhard who actually does almost nothing.”  Treat him not like an alpha but more like an omega with endless vocalizations, best ignored.

Wednesday, June 26, 2019

Donald Trump – Don’t Insult Our Team at the World Cup

At 3PM EDT on Friday, I’ll be watching the coverage via Fox of our great women’s soccer team playing the host team in Paris. It is only the quarterfinals of the World Cup and yet this may be the game of the entire match. Unfortunately the Idiot in Chief has been writing a lot of insulting tweets:
President Donald Trump has invited the U.S. women's soccer team to the White House, regardless of whether they win the World Cup, after Megan Rapinoe's assertion that she is "not going to the f---ing White House." Rapinoe, who has described herself as a "walking protest" to Trump's policies, made her recent comments about a potential White House visit to soccer magazine Eight by Eight.
I support Megan Rapinoe and guess what – her teammates do too:
I am not going to fake it, hobnob with the president, who is clearly against so many of the things that I am (for) and so many of the things that I actually am," Rapinoe told SI. "I have no interest in extending our platform to him." Fellow U.S. star Alex Morgan also has said she would decline an invitation to the White House, telling Time Magazine that she doesn't "stand for a lot of things the current office stands for." "We don't have to be put in this little box," Morgan told Time in an interview published last month. "There's the narrative that's been said hundreds of times about any sort of athlete who's spoken out politically. 'Stick to sports.' We're much more than that, OK?"
Yes you are Alex! Of course a real President would just shut up and let our athletes have center stage. That is what President Obama did in 2015 and when Team USA won – they were glad to celebrate with him at the White House. But Trump thinks he is the center of the universe:
Women’s soccer player, @mPinoe, just stated that she is “not going to the White House if we win.” Other than the NBA, which now refuses to call owners, owners (please explain that I just got Criminal Justice Reform passed, Black unemployment is at the lowest level...
This was his first tweet, which has not a damn thing to do either with soccer or even the Golden State Warriors. But here is the choice line from tweet two:
I am a big fan of the American Team, and Women’s Soccer, but Megan should WIN first before she TALKS!
First of all – our very fat President has no clue what the game of soccer is even about. But “WIN first before she TALKS!”? Is this like telling Lebron to shut up and play basketball? I guess Trump thinks these women should just look pretty and never talk. Of course Lebron is a man but then he is a black man who has no right to express his views either. Of course Kelly Anne Conway has the First Amendment right to violate the Hatch Act when she is saying what he wants her to say. OK tweet #3:
“Megan should never disrespect our Country, the White House, or our Flag, especially since so much has been done for her & the team. Be proud of the Flag that you wear. The USA is doing GREAT!”
The team is doing great no thanks to Trump. The only disrespect for our nation is coming from Trump himself. But WTF have we done for these athletes. Does Trump even know that when they won the World Cup in 2015, the pay per player for the world champions was a mere $75,000? Slave wages – which I guess is exactly what Trump thinks women athletes deserve. Update: Stuart Varney uses his Fox Business show to kiss Trump’s rear end:
Soccer star Megan Rapinoe dissing President Trump was a bridge too far for Fox Business Network’s Stuart Varney. After Rapinoe, co-captain of the U.S. women’s national soccer team, preemptively declined an invitation to the White House if team USA wins the Women’s World Cup, Varney said Wednesday she doesn’t deserve to lead the team.
Fox Business Network gets no say as to who leads the team. And I’m sure the team will just laugh at this idiotic statement from Mr. Varney.

Tuesday, June 25, 2019

Whither The Price Of Oil?

I do not know, which is a kind of silly way to start a post, but pretty obviously this is an opening to talk about some other matters, especially the US-Iran situation.  However, I want to point out some things  that have been on my mind.  In particular, while oil price volatility has not been super extreme recently compared to some movements in the last decade and a half, the degree of uncertainty and confusion about what is going on in the oil markets has become extreme.  This is heavily a subjective judgment based on following on a daily basis, which links to several stories a day, along with what has been happening to prices themselves.  In particular what has struck me for some time has been how  frequently I see completely contradictory stories on a given day, one declaring that prices are going up  (definitely!) while another declares exactly the opposite (definitely!).  This has been happening several times a week for quite some time now.

Here is the rough history of oil prices over the last two decades roughly.  I shall quote West Texas Intermediate (WTI), but keep in mind that for the last several years the more important global price of Brent crude has generally been about $10 higher than WTI.  So, the price reached a low in the late 90s, which coincided with a booming US economy, which even got down briefly into the teens of $, although was mostly in the 20s.  This began to rise gradually with some hiccups after the turn of the millennium and reached an all time nominal peak in July 2008 of $147, which was followed by a plunge to about $30 in November four months later as the financial crash also cranked up.  The price then rose again jerkily getting up to roughly the $100-120 range by 2011 until mid-2014, when it dropped over a half year to the $30 range, rose again to nearly over $80 by late 2018, then to fall to $40 by the end of the year, then rising to over $70 by April, then to fall back to the mid-$50s today, currently wobbling around.  So, a lot of moving up and down, but not as sharply as some years  ago.

Obviously there are many things going on here.  On the demand side, aside from long run trends to greater energy efficiency, we most recently have seen slowing global economic  growth, which has what has mostly dragged the price down since April.  The supply side has been more complicated, with US production indeed now tops in the world, boosted by fracking, although that seems to be reaching limits.  Russia and OPEC have had ongoing rumbles and disputes over production cuts.  Venezuelan production has collapsed, with problems also in Libya and Nigeria, as well as the newly heightened sanctions against Iran, now aggravated by the possibility of Iran blocking the Straits of Hormuz.  Yes, the price  briefly spiked when it looked like war after the US nearly hit Iran last week, but fell back again once the pullback by Trump happened.  But this situation is clearly still very dicey, with the threat of war and possible disruption in the Strait very real.

So why are we not seeing higher prices with all these supply threats, aside  from the mildly weakening world economy. An important one is that the world is simply less reliant on the oil coming through the Strait of Hormuz compared to the past.  There are competing sources, but it is somewhere  between 20 and 30 percent of world oil production going through.  But this is a decline from the past when this reached nearly half at times.  Furthermore, as Saudi Arabia has been noisily announcing, it in particular has pipelines from the Gulf oil pools to the Red Sea.  Furthermore, while Iran almost certainly can make a big mess in the Strait, most observers think it probably cannot really close it fully, or if so, not for very long.  At worst we are probably looking at a temporary disruption, although it could well be enough to push the prices back up over $100 per barrel at least for awhile.

As I have put up many posts over past years about Iran, I shall not say too much.  They had an off and on vague nuclear weapons program dating from the 1950s, aided by the US before 1979, which was shut down totally in 2003, followed by numerous fatwas against them, although continuing the popular civilian nuclear energy program.  The JCPOA of 2015 moved Iran even further from being able to restart a nuclear weapons program, which Iran has followed, in exchange for removal of  economic sanctions.  Last may President Trump withdrew the US from that and has imposed far more severe sanctions on Iran, with these further tightened in May, with severe impacts on Iran's economy.  Iran has now declared it will technically violate the JCPOA as of July 7 unless other nations can offset the US sanctions, which now seems unlikely.  The latest following the near outbreak of war last week is that the US has added sanctions on certain Iranian leaders, while claiming a desire to negotiate with Iran.  But one of those sanctioned is iran's foreign minister, who is now not allowed to enter the US.  As Iranian leaders note, this seems to deliberately block negotiations.  This situation is simply continuing to go downhill with there being no justification for the policy of the Trump administration.

Barkley Rosser

Addendum: The current price of Brent crude in the $60 range is roughly about the target that OPEC and Russia supposedly want, not too high and not too low.  We shall see if they can keep it there.

Monday, June 24, 2019

Ali Velshi Interviews Arthur Laffer

Today I endured listening to Arthur Laffer lie serially to Ali Velshi today. Skip the first 36 minutes of this Youtube as the interview begins there. Never mind the praise for Laffer’s cheerleading for Trump. Laffer actually claimed that the FED’s low interest rates after the Great Recession began was the cause of the Great Recession. OK! But then he pivots and advocates we should have low interest rates now that Trump is President. I know – WTF?! OK – don’t trust Laffer on monetary policy but the real fun was when he claimed that the Reagan tax cut of 1981 led to average annual growth rates of 8% during his first term. I think that is what Laffer is claiming but BEA data suggests much lower growth rates for real GDP. OK – we all know that Laffer lies a lot but why on earth does MSNBC bother to let Ali Velshi just sit there as thank him for such dishonesty. Update: Paul Krugman explains Laffer’s bizarre monetary theory well before this interview:
The Trumpification of the Federal Reserve: In late 2015 then-candidate Donald Trump accused Janet Yellen, chair of the Federal Reserve, of being part of a political conspiracy. Yellen, he insisted, was keeping interest rates unjustifiably low in an attempt to help Hillary Clinton win the presidency. As it happens, there were very good reasons for the Fed to keep rates low at the time. Some measures of the job market, notably prime-age employment, were still well below precrisis levels, and business investment was going through a significant slump — a sort of mini-recession. Fast forward to the present. The employment picture is much stronger now than it was then. There are hints of an economic slowdown, partly because of the uncertainty created by Trump’s trade war, but they’re considerably fainter than those of 2015-16. And Trump himself keeps boasting about the economy’s strength.
But of course Trump insists we need to lower interest rate because??? And of course Art Laffer has to agree with his political master.

Wednesday, June 19, 2019

Will Libra Destroy Cryptocurrenciees Or Vice Versa?

Yesterday Facebook released a While Paper ( ) on their planned supposed cryptocurrency, Libra, which has apparently long been under development.  This triggered two stories in the New York Times, as well as lots of commentary by lots of people, including several posts by Tyler Cowen at Marginal Revolution, who is moderately favorable to the proposal.  This is supposed to become an international currency backed by a reserve account provided initially by 27 major corporations such as Uber and VISA, which will be tied in value to a basket of currencies.  While tied to Facebook, it is supposed to have a firewall separating FB's data on individuals from data arising from anybody's activities in connection with Libra.  It is to be overseen by an association based in Geneva and run by the 27 companies, each of which will have control over a node in the supposed blockchain of the currency.  It is to use a new program, "Move," and will have potential features that resemble Etherium, such as an ability to set up contracts.

First of all it may be that Libra will not be allowed to get off the ground by politicians or regulators.  Rep. Maxine Waters (D-CA) has demanded a halt in the development until Congress can look at it more closely.  There  is concern that it may be too much of a real currency in competition with the USD, which might be illegal.  Other nations reportedly are worried about regulatory issues based on the apparent partial resemblance to a bank, with no banks among the 27 companies, with France being one nation also expressing such concerns.  There are also no  Wall Street firms in the 27, for better or worse.

Aside from these matters there is a lot of disagreement among commentators about crucial aspects of this, involving what it really is and how it is supposed to work, with some forecasting that it may be a total bust because of internal problems, even if it is not blocked by any governments.  Only a few commentators seem ready to accept the optimistic story one sees in the White Paper, much less even how it describes what the system is.

A central issue has to do with if Libra is really a cryptocurrency and if what it operates on is really a blockchain.  It is clearly not standard in either way, with quite a few commentators declaring outright that is not either a cryptocurrency at all and that its data structure is not a blockchain at all either.  This argument says that it is really just a pay system ledger system like PayPal, although with a few extra bells and whistles and an ambition to operate at a much larger scale.  This is partly driven by the lead organizer of the effort is David Marcus, who was most recently the president of PayPal.  Rather like some internal stablecoins like JPM of J.P. Morgan it seems to be basically a system for transferring money for an insider group, with control of the nodes in the data structure controlled by the 27 companies (a group that may increase). The initial supposed market is users of Facebook who supposedly will use it to move from one FB app to another.  There is a lot of verbiage about helping unbanked people in less developed countries, and the supposed first place an effort will be made to introduce it will be India.

Libra's supposed blockchain differs from ones used by regular cryptocurrenies in several ways, although a lot of details of this remain unclear at least to me, and people are differing on this, with the White Paper simply calling Libra's system a "blockchain" repeatedly, while others say this is false advertising.  It certainly is not open, but more importantly it does not seem to fully solve a system in the way usual blockchains do, which exist in blocks.  It is a unified ledger, and so critics say it really is just like a PayPal system approving transfers without the deep solving of problems of a real blockchain involves, although it has more cryptographic security protection than does PayPal.  Without this deeper solving, it does not need mining for creating new Libra units (this is done more conventionally by one of the companies selling some actual currencies from the reserve, which will begin with $10 million at least from each of the 27 companies).  Without mining it is certainly more energy efficient than bitcoin, but then it lacks the deeper solution element of a real cryptocurrency.

Some claim that its efficiency is that it will use "proof of stake" rather than "proof of work" as bitcoin does.  But from what I gather, XRP (formerly Ripple, used between some commercial banks) and Etherium, which has the potential for setting up contracts like Libra, already use "proof of stake," which is indeed more efficient than proof of work, but proof of state still requires some mining and related energy usage as cryptographic solutions are still needed, if not as extensively in proof of work.  But it seems that this is not the issue with Libra, which supposedly needs no mining at all, and this is not due to using Move.  It simply looks not to use a real blockchain, rather being a fancy version of PayPal, with some features of Etherium. But it should be noted that Etherium is facing serious difficulties in moving to its next stage of development.

There is then the possible impact of Libra on the regular cryptocurrencies.  The immediate reaction to the White Paper release was an upward blip for bitcoin in particular, less so for Etherium and XRP, but then they settled back.  Some see Libra as a possible threat if it works, the "cryptocurrency" that succeeds in fulfilling at least part of the dream of the bitcoin inventors. Others argue that the ongoing failures of the existing cryptocurrencies will inhere to Libra as well, dooming it to at best far less than is being claimed for it.  At least one problem it will avoid is that given its supposed tie to a basket of actual currencies, it will not become an object of speculation, although so far such stablecoins have not generated much enthusiasm.

So it looks like this preview of a rollout of Libra seems rather overhyped, and this is not even taking into account that many will be highly skeptical of its security aspect given the recently revealed history of Faceebook violating personal security of many people.

Barkley Rosser

Saturday, June 15, 2019

Learning The Origin Of "Duality"

Yesterday I learned that the person who first used the term "duality" in connection with linear programming, indeed with anything in economics, was John von Neumann in a private conversation with George Dantzig in 1947, the "father of linear programming."  That was the year Dantzig published his paper showing the simplex method for solving linear programming problems, bot their primals and their  duals.  Von Neumann wrote a paper on it the same year but did not publish it, with it only appearing in his Collected Papers in 1963, 6 years after he died. 

It is not really surprising that it would be von Neumann as there are deep links between oprimizing programming and game theory.  This would be seen in 1951 when David Gale, Harold Kuhn, and Albert Tucker invented nonlinear programming.  Kuhn and Tucker would, of course, prove the Kuhn-Tucker theorem that deeply involves duality.  1951 would also be the year that Tucker's student, John Nash, completed his PhD thesis with his ultimately Nobel-Prize-winning paper on non-cooperative game theory.  An irony is that while seeing the first prisoner's dilemma experiments at RAND soon after, Nash would become disillusioned with game theory and economics, it would be Tucker who would coin the term "prisoner's dilemma" in an address to the American Psychology Association.

While the term was introduced into linear programming by von Neumann, the concept itself had already been floating around in economics, with its first appearance being in 1886 when Antonelli first derived an indirect utility function.  It would be further developed by Harold Hotelling in a famous paper in 1932 with "Hotelling's Lemma," and the 1942 paper by Roy in which he introduced his famous identity.

While I had previously known bits of this, what I learned yesterday came from an ongoing project of mine to read the entire 3rd edition of the New Palgrave Dictionary of Economics, all 20 volumes of it, nearly 15,000 pages and about 3800 entries.  I am doing that because I am one of the coeditors of the fourth  edition, along with Matias Vernengo and Esteban Perez.  I have learned a great deal from this reading, which has now gotten me through entries for the letter D.  I have a ways to go, but I am genuinely impressed by the job that Steve Durlauf and Larry Blume did editing the third edition.

The original Palgrave Dictionary of Economics was published in 1893.  The current one still has entries from that original one by people like Edgeworth and Wicksteed.  Some of these oldies are really quite fascinating.  But the cumulative effect of reading all of it is really beginning to kind of blow my mind.

Oh, and returning to the original topic, for anyone who does not know, it has long been viewed by many as being one of the greatest mistakes and wrongs that when the Nobel Prize was given for linear programming, Dantzig was not one of the recipients, who were Leonid Kantorovich, the only actual Soviet economist to win a Nobel, and Tjalling Koopmans. There  was room for Dantzig (especially with von Neumann dead), but somehow he got left out.  But then, hey, they never gave it to Joan Robinson either.

Barkley Rosser

The North Korea Food Shortage Deepens

Yeah, I know, the Iran situation is more in the headlines, but nobody knows anything and everybody is shooting off their mouths.  I shall comment on that one when things settle down a bit.

Instead I shall provide info less widely reported coming out of nkecon on the still-unreported-in-MSM story about the increasingly bad food situation in North Korea (DPRK). There are multiple reports.  Drought has hit the principal rice growing area in DPRK.  Also, there is now a serious situation regarding potatoes, the old backup for wheat and rice failures. and generally a widely relied upon staple for DPRK diets.

The latest hot story regarding potatoes is that a couple of people have been arrested and sent to labor camps for stealing potato seeds.  Reportedly this often goes on at this time (actually May when there is a two week period when usually most planting occurs).  Most of the time these people are not themselves using the potato seeds to plant them themselves but selling them to others.  But this year the situation was much more serious last month, and these arrests are a sign of it.

As I argued earlier, this situation is probably aggravating political conflicts within DPRK.  We have seen a weird letter from Kim Jong Un to Trump even dumping on Biden. Trump has now further disgraced himself by not only praising this letter, including specifically for its Biden remarks, but even going so far as to say after Kim's dead brother was reported to have been a CIA informant that, no, not during his presidency will we let the CIA spy on North Korea.  We shall only use DOD intel agencies to keep track of DPRK nuclear weapons programs.

I remind all readers that the fact that DPRK has nuclear weapons is because in the first few months of the second Bush presidency, Cheney and Rumsfeld and John Bolton beat out Colin Powell on Korean policy with their fantasy that we should bring about regime change in DPRK rather than continuing with the nuclear deal that had DPRK not developing nuclear weapons that was in place and more or less functioning, despite some wrinkles. After the Cheney-Rumsfeld-Bolton gang got their way, DPRK withdrew from international agreements and began building nuclear weapons, which it is still doing, with not a damn thing idiot Trump has done to slow them down.

Hopefully, readers of this can see the analogy to the Iran nuclear situation and the appallingly idiotic policies Trump is carrying out, that make the Cheney et al gang look like choir  boys.

For Anne-nominous, still no word on those DPRK folks rumored to have been killed. That nkecon says nothing about that, well, nobody knows.  But they remain disappeared.  More important is that Kim Jong Un seems to have no functioning underlings to negotiate these matters. Josh Rogin in WaPo notes that successful nuclear negotiations involve underlings from both sides doing long and hard work on necessary details, but there are no underlings on the DPRK side. This is now strictly a Trump-Kim show, but it looks like neither of them is sufficiently competent at the art of the deal to pull a serious nuclear one off, whether or not the missing negotiators in DPRK are dead or alive.

Barkley Rosser

Thursday, June 13, 2019

Robert J. Samuelson Goes Whole Hog Against Dems On Social Programs

I want to follow Dean Baker in dumping on the Robert J. Samuelson Monday, 9/11/19 WaPo column on "The Democrats' fairy-tale campaigns."  He may be right that lots of proposals have been put forward with no clear accounting of how much all of them will cost, but RJS also fails to recognize some might save money, such as a properly structured universal health care program that might move us more towards the costs we see in other nations.  Of course, RJS regularly uses this column to call for cuts in Social Security benefits, so that some of these candidates dare to call for increased such benefits has him really riled up.  How dare they!?!?

Aside from reminding that RJS has regularly been misguided on Social Security projections, he goes after  him for not noting the role of patents and other regs supporting monpoly power, especially in the health care sector, including supporting outrageously high doctor salaries.

As it is, RJS whines about the size of budget deficits and claims the next president will need to increase defense spending.  This latter is not obvious. Trump has done a lot of increasing it, and restoring damaged US alliances does not obviously call for more spending.  How about just behaving better and making outrageous demands of US allies, including a stupid trade war?

The additional item I see him not mentioning involves taxes.  Implicitly no tax increase can play a role to pay for new programs, and this is how he almost always how he addresses Social Security, where what mush happen is benefit cuts, no tax increases.  But nearly all the candidates have called for at least undoing the large Trump tax cuts, which have been quite unpopular, and most also call for going further with increased taxes on the wealthy beyond what we had earlier.

I shall add here that today the NY Times in an article by Jeff Sommer is adding on to the standard hysteria over Social Security, although there is not really much new.  The big news is that indeed in 2020 the long built up assets of the SSA will start to get drawn down, with a projection of those getting used up by 2035.  This is not news.  Sommer does go on and on in detail about how if nothing is done, SS recipients will face 20 percent or so cuts in SS benefits.  I must differ with this.  Of course, that will not happen, but as has long been the case the calculation does not account for the fact that benefits will rise.  By my calculation, if such a cut were to happen, it would put real benefits back to about where they are now in real terms.  This is an overblown story.

Back to Samuelson, I shall conclude by noting that he makes some outright incorrect comments. In particular he claims that "Government does more things for more people than ever in U.S. history."  No, sorry RJS, that is just false.  Social spending as a percent of GDP peaked in 2010 as automatic stabilizers were kicking in big time.  Yes, SS and Medicare and Medicaid have now gotten above 10 percent of GDP. But even with no changes, the much denounced SS increase will only amount to another one percent of GDP.  This is the coast of the baby boomers retiring, not that big of a deal.  Yes, there is a problem in health care, but this calls for more fundamental change, indeed, probably a universal health care coverage system that gets costs under control like other nations do.

Barkley Rosser

Thursday, June 6, 2019

75 Years After The Longest Day

Yes, I am watching "The Longest Day" on TMC.  Have not seen it for decades, but this 75th anniversary of D-Day seems to be the time to do it.  This will be a rambling post all over the place.  I note that according to the film, it was German Field Marshall Rommel who is depicted calling it "the longest day," the day before it happened, seeing it coming.

I have been there several times, first in Fall 1953 when I was young and it was cold and rainy.  Three times in1994, 1997, and 2002 I and my wife, Marina, took students to visit the site, always impressive and moving, especially the famous cemetery.  In 1994 my late mother was with us and went around thanking veterans, who were visiting in large numbers as that was the 50th anniversary.

Unsurprisingly President Trump has been trying to get lots of attention for the celebrations of the anniversary, keen to hang out with the queen, who was actually around for the real thing, telling her how much his late mother admired her, one of the rare times we have heard him say anything about his mother.  Supposedly Macron got more applause at the Portsmouth gathering that had the queen and even Merkel apparently, although not Justin Trudeau, even though the Canadians were a major part of the invasion.  Putin was also not there (more on that later).  I am not going to waste time going on about the usual stupid things Trump has said and done other than to agree with the commentators who find it appalling that he is draping himself in this when so many things he is doing and supporting go against the ideals of those who landed there that fateful and bloody day.

A curious coincidence is that today was the last day my wife, Marina, was teaching.  She is now retired.  For her final lecture she argued that trade is an alternative to war.  Needless to say, this is something that Trump seems to be unaware of.

Before she went to class in the morning we heard a commentator on local radio going on about how this was the decisive turning point of the war, which would be followed by "our guys going to Berlin."  I do not wish to minimize D-Day at all, and certainly not the sacrifices of those who died there, but this is quite aside from the outright inaccuracy of thinking it was Americans who "went to Berlin," this reflects a longstanding ignorance by many Americans about what really happened in WW II.  It was all about us and D-Day, but as most readers of this probably know, the Eastern Front was the most important action, with many times more dead, and the Battle of Stalingrad the real turning point of the war, not to mention that it was the Soviets who got to Berlin first, although the other allies would get their pieces of Berlin later.  Indeed, while later many in the US would complain about our letting the Soviets get there first and taking over so much of Eastern Europe in the bargain, in fact Stalin had begged the Americans and British to invade much sooner.  As it was, the Soviets ended up doing the worst of the heavy lifting.

Which brings us up to Putin not being at Portsmouth, much less on Omaha Beach this morning.  This is understandable as we did not send anybody to their big memorial of the war, Victory Day, May 9.  This has long been one of the biggest holidays of the year in Moscow, both under Soviet rule and since under Russian rule.  As it was, after the end of the USSR there was a period when the military parades were cut back and even eliminated, although it remained a big celebration. But recently Putin has reinstated them.  The war is being increasingly emphasized as a national inspiration, and Stalin is being rehabilitated big time. Nevertheless, at this year's military parades on Red Square, there was only one foreign leader, with him in fact officially stepping down, although into a superior position still in ultimate control, Nursultan Nazarbaev of Kazakhstan, the last ruler of a former Soviet republic to have actually run his republic under Soviet rule as local Communist Party leader.  So, no surprise Putin did not show up for the D-Day celebrations, having a meeting in Moscow with China's Xi Jinping instead.

As for Trump, well, he is spending the night at his gold course in Ireland for a second evening before he heads back to Washington so he can declare a new national emergency to save us from all rhose illegal immigrants coming in from Mexico.  Bring on the tariffs says our bone spur leader!

Barkley Rosser

CORE and Periphery in the Reform of Econ 101

Thanks to Greg Mankiw, I’ve seen a preview of the piece by Sam Bowles and Wendy Carlin that will be published in a forthcoming Journal of Economic Literature.  It’s apparently part of a roundtable on the teaching of introductory economics, and not surprisingly Bowles and Carlin focus on the freely downloadable CORE text produced with support from the Institute for New Economic Thinking.  The starting point of their article is the revolution in economic textbooks inaugurated by Paul Samuelson in 1948, when Keynesian analysis and policy became the centerpiece of what every introductory student was expected to know.  Today, they say, we need a new revolution, since the introductory texts are equally out of date and fail to grapple with the issues students rightly care about.

Much of the article is taken up with a detailed comparison of their text to two leading competitors, those of Mankiw and Krugman/Wells.  They use frequency of word use to contrast the relative importance of different topics and describe in a more general way the key benchmark models that structure the alternative narratives.  They make the point that major changes in economic theory, such as greater behavioral realism, the relevance of institutions and the role of game theory, are largely absent from the mainstream texts but fundamental to CORE’s.

Of course, I strongly urge everyone one of you who happens to be an economics instructor to check out CORE.  It brings together the thoughts of a number of leading economists on how to make frontier concepts accessible to novices.  It is intellectually stimulating, and the price is right.

I want to suggest one limitation of the CORE initiative, however.  It’s actually congenital: according to the Bowles/Carlin writeup, CORE was born at an NBER meeting in 2013 and evolved through a series of international workshops (sixteen on six continents) and working groups to its present state.  It is clearly the product of a group of internationally prominent economic thinkers and researchers.  It is not the product of economists who have devoted a substantial portion of their career to the study of pedagogy.

CORE addresses one of the two main problems with the introductory economics course, that the intellectual substance is largely past its sell date and does not lend itself to the controversies most students will face in the years ahead.  Good!  But the other problem is that economics is typically taught in a manner that is both authoritarian and ineffective—too much indoctrination and not enough learning.  While it is important to crusade for better conceptual frameworks, it’s equally urgent to challenge doctrinaire economics instruction at the level of classroom dynamics.  In my view, while CORE can be adapted to some extent to an improved pedagogy, it is not more conducive in that respect than the mainstream texts it wants to supplant.

What’s the problem, exactly?  Overreliance on lecturing and minimal scope for critical thinking.  Let’s begin with the consecration of talk-and-chalk, or its current electronic update, as the only worthy mode of economics instruction.  Students are expected to listen attentively, take thorough notes and demonstrate their retention/comprehension on problem sets and exams.  No doubt a few of them take well to this and succeed magnificently; they’re the pool from which future economics instructors will be drawn.  Most do not.  Rather, they thrive on some form of active learning, which includes case studies, workshops and projects.  There is a vast literature that demonstrates the superiority of active learning across a range of disciplines, and economics is not an exception.

One reason lecturing has become so embedded in economics teaching is the emphasis on formal modeling, even at the introductory level.  The difference between Econ 101 and the specialized courses for advanced majors and grad students is not the share of time devoted to models but only their complexity.  CORE apparently prides itself in having more analytical diagrams relative to verbal description than either Mankiw or Krugman/Wells, but it is exactly this approach that requires instructors to spend hour after hour in lecture trying to make the models digestible for newbies.  In pointing this out, I am not damning all use of formal models—hardly.  Economics without the discipline of thinking in models is vacuous.  But there is a lot more to economic reasoning than cranking through models, and by foregrounding these aspects the need for lecturing can be reduced.  Much intuition, for instance, can be built up inductively through careful examination of cases rather than handed down as a tight construction of assumptions and proofs.  Similarly, empiricism can and should be brought in through project work—actually digging up and thinking about economic data—than just plugging numbers into toy models.  I should mention in this context that this year, finally, I managed to flip my classroom, posting lectures as streaming videos that students could view at home, while devoting class time, as much as possible, to workshops.  It was just a start, but even these baby steps were superior to the old, pre-flip approach.

The other problem, authoritarianism, is related to the first.  Models have right and wrong forms of understanding, and to the extent the class is taking up with figuring out how the models work and can be applied, thinking operates within a right/wrong framework.  True critical thinking is about limits and tradeoffs: how a model that might work in one situation would be misleading in another, or how the simplifications embedded in a model may help you see one thing but blind you to something else.  A critical thinking approach to economics has to employ fewer models and give more attention to context, assumptions and purposes.  In the real world people have to make judgment calls about what forces at work in a situation are the most consequential—which stories to bring to bear, and which ones to tuck away for another time.  It is that capacity for judgment that critical thinking activities are intended to build, and a useful text would be one that modeled the process in an open-ended way.  The conventional economics texts don’t do this, and CORE doesn’t either.

So for me, CORE bats one out of two.  That’s way ahead of zero but not yet what we need.  I hope its proponents can recognize that introductory economics has a pedagogy problem as well as a theory problem, and that their 2.0 will take strides in that direction.

Tariffs and Monetary Policy: Moral Hazard and Rent Seeking

President Trump's threat to impose tariffs on Mexico over immigration has pushed Federal Reserve Chair Jay Powell to say that if the tariffs lead to economic growth slowing, the Fed will cut interest rates.  While the bump may be about to end, this announcement was followed by a  solid global surge of stock markets on June 4 followed by smaller increases the next day.  This sets up a moral hazard situation for Trump where if he behaves irresponsibly on trade policy (with even GOP senators basically freaking out), the Fed might bail him out with interest rate cuts.

How is rent seeking entering into this?  I note a point just made by Dean Baker, that all these tariffs Trump is imposing on his own without any Congressional approval offer him the option of allowing specific exemptions from them.  So Trump can grant exemptions to specific sectors or even firms that favor him.  So Trump's trade wars are opening up a whole new vista for rent seeking.

Finally, and unsurprisingly, many of his trade policies look to fail to achieve their supposed goals.  This is pretty obvious for the case of the tariffs on Mexico, which by potentially weakening the Mexican economy weaken Mexico's ability to reduce Central Americans from to the US.  Another case involves the Chinese firm Huawei, supposedly both to enhance US national security and support the US high tech sector.  But according to a story in the Washington Post, 6/5/19 reports that 61 percent of experts say that Trump's ban on US firms supplying parts to Huawei will both weaken US national security by reducing US influence over Huawei and the whole 5G sector, with the relevant US firms being hurt.  I do not think even the Fed can bail the US economy out from this mess.

Barkley Rosser

Tuesday, June 4, 2019

A Bernie Sanders Narrative for Seniors

What follows is some unsolicited advice for the Sanders campaign.

Politico has an important piece on the downside of the extraordinary age bias in Sanders’ support.  Like a teeter totter, the large advantage Sanders enjoys among younger voters is counterbalanced by his dismal showing among the older crowd.  The article reviews voting breakdowns from the 2016 campaign and current poll results, and it shows that Sanders is not just behind among seniors, but way, way behind.  His political strengths guarantee he will survive the winnowing of the twenty-odd 2020 pretenders, but sheer arithmetic suggests he will need to make significant inroads among older voters, something he hasn’t done up to this point, to overtake Biden—assuming of course Biden doesn’t overtake himself.

So how can he do this?  The first thing to realize is that he doesn’t need absolute majorities among retirees and near-retires, just enough support so his advantage among the non-elderly isn’t erased.  The second is that direct material benefits alone are never enough.  People don’t simply vote in their immediate financial interest, although of course interests play an essential role.  Economic motives are like nuclei around which layers of narrative form, but it’s the narrative—the meaning—that orients people, and an economic condition can be explained in multiple ways.  Not all explanations are equally valid, of course, but in politics that’s largely irrelevant.  So yes, Sanders can and should talk up Social Security expansion and how universal health insurance would benefit  those on Medicare too.  But that’s not a sufficient political strategy; it lacks an encompassing narrative.  This narrative doesn’t have to be one all older people will gravitate to, but it has to speak to a significant portion of them.

And that’s where this post comes in.  Here’s a narrative I would recommend if I were on Bernie’s staff: As a democratic socialist, I have always believed in a future that we could approach step by step through political and social change.  That’s the America I once lived in, too.  It wasn’t perfect, not even close.  We had poverty, inequality, racism and sexism, military adventurism, and domination by the rich and monopolistic corporations.  Yet we also had steady progress against all these things, made possible by a relatively open political system—in other words, by democracy.  But for several decades that progress has stalled, and many of these problems have actually become worse again.  The system has shut down, and it will take radical means to open it up again so our country can resume moving forward.  For those of us in my generation who have seen all of this in our own lives, the era of reform and progress and then the era of blockage, this is our final opportunity to leave our legacy to the young.  It is an opportunity to recover the idealism that once, in the days of people like Martin Luther King and Bobby Kennedy, seemed almost mainstream but now demands a revolution.  We know what America was like before it became a plutocracy, and we can come together again to return to the path of democracy.  This is not about returning to the past, but returning to a possibility we knew when we were young that the future could be ours to win.  One way or another, we will leave a legacy to our children and their children’s children.  Let it be this legacy of democratic possibility.

Then talk about Social Security and health care, and the need for a politics that can actually put these issues on the table and make the needs of the majority the driving force for change.

A Very Erroneous Chart in the Economic Report of the President

Menzie Chinn has been reading the latest Economic Report of the President and finds a very erroneous and misleading chart, which is figure 1-6 from this this document (see page 45), which states:
Equipment investment, in particular, exhibited a pronounced spike in the fourth quarter of 2017, as both the House and Senate versions of the TCJA bill, which were respectively introduced on November 2 and November 9, stipulated that full expensing for new equipment investment would be retroactive to September 2017. This created a strong financial incentive for companies to shift their equipment investment to the fourth quarter of 2017, so as to deduct new equipment investment at the old 35 percent statutory corporate income tax rate. After the initial spike in the rate of growth in fixed investment, standard neoclassical growth models would predict a return of the rate of growth to its pre-TCJA trend, but from a higher, post-TCJA level, with the capital-to-output ratio thereby asymptotically approaching its new, higher steady-state level.
Earlier on page 43 we see:
Despite expected adjustment costs and investment lags in the transition to a higher-target capital stock, the first three quarters after the TCJA’s passage saw a notable acceleration in investment. Figure 1-6 reports growth in real private nonresidential fixed investment from the time of the TCJA’s passage until the third quarter of 2018, both for nonresidential investment overall and for the major subcomponents of structures, equipment, and intellectual property products, expressed as compound annual growth rates
Menzie looks at the equipment investment calculation:
My calculations indicate that (stochastic) trend annual growth rate over the pre-TCJA period indicated by the ERP is 7.8%, not -2.2% as indicated in ERP Figure 1-6. The TCJA period growth rate is 6.4%, rather than the 6.6% reported. Using the vintage the CEA probably used (December 2018 release) does not change these fundamental patterns.
I decided to look at FRED data on real private nonresidential fixed investment and suspect Hassett’s 1.5% growth rate for the pre-TCJA period really should read 5.1%. I suspect careful readers can find all sort of errors in this document, which begs the question how could the Council of Economic Advisers get the basic data on an important issue so very wrong. Or did Hassett outsource this chapter to Lawrence Kudlow?

Sunday, June 2, 2019

A Tariff Laffer Curve?

Douglas Irwin is a very good economist. Let’s highlight his Historical Perspectives on U.S. Trade Policy:
The Civil War marked the beginning of a long period of high U.S. tariffs. These tariffs served the dual purpose of raising revenue for the federal government and keeping out foreign goods, ostensibly for the protection of U.S. labor and business. After the war, tariffs (which generated roughly half of government revenue) remained high to service the enormous debt burden that resulted from the war. Yet by the mid-1880s a curious problem had arisen: though much of the debt had been paid off, federal revenues were outstripping expenditures by as much as 50 percent. Republican and Democratic politicians agreed that the fiscal surplus should be reduced, but they proposed exactly the opposite policies for achieving this objective. Democrats advocated cutting tariff rates in an effort to reduce revenue. Arguing that this would simply encourage imports and raise even more revenue, Republicans proposed higher tariff rates to reduce fiscal revenue. This debate over the tariff "Laffer curve" essentially hinged on whether existing tariffs were above or below the revenue-maximizing rate, which in turn depended on the height of the tariff and the price elasticity of import demand.
Irwin examined this issue in his Higher Tariffs, Lower Revenues? Analyzing the Fiscal Aspects of the "Great Tariff Debate of 1888":
This paper examines this debate and attempts to determine the revenue effects of the proposed tariff changes. The results indicate that the tariff and the price elasticity of U.S. import demand during the 1880s below the maximum revenue rate, and therefore a tariff reduction would have reduced customs revenue.
Irwin also contrasts the other policy agendas of the two parties. Democrats wanted to lower tariffs to “ease the tax burden on consumers and farmers, and to eliminate inequities associated with special interest protection”. Republicans feared import competition as lower tariffs “would expose American industry and workers to foreign competition and thereby jeopardize the economic well-being of the country”. His paper notes that the typical tariff back then was even higher than the tariff rates being considered by the Trump White House. His estimates of the revenue-maximizing tariff rate, however, suggests that lower tariff rates would reduce tariff revenue. Of course, today we have other ways to raising Federal tax revenues as opposed to inefficient tariffs, which is why U.S. fiscal policy had relied on these other taxes and not tariffs before Trump.

Art Laffer is Not an Economist

Can The Hill be more wrong?
President Trump will award the Presidential Medal of Freedom, the nation's highest civilian honor, to economist Arthur Laffer, the White House announced Friday. The president will honor Laffer on June 19 for his contributions to economic policy. The White House described Laffer as "one of the most influential economists in American history" in announcing the award.
OK the Idiot-in-Chief did say that but repeat after me – Art Laffer is not an economist. Why did Trump debase the Presidential Medal of Freedom and the entire economics profession?
Laffer co-wrote a book published last year titled "Trumponomics: Inside the America First Plan to Revive Our Economy." His co-author was Stephen Moore, who earlier this year was nominated to serve on the Federal Reserve Board of Governors but withdrew amid bipartisan opposition from senators.
Well at least The Hill got this right. But this?
Laffer championed supply-side economics and gained prominence serving as a top adviser to then-President Reagan. He established what is known as the "Laffer Curve," which showed that increases in tax rates will eventually cause government revenue to decrease at a certain point. The model has been cited to argue for the benefits of tax cuts. Critics of supply-side economics argue that it has contributed to inequality and disproportionately benefits the wealthy.
The inequality critique is not the only issue with tax cuts that reduce national savings. Couldn’t The Hill note that the 1981 tax cut lowered investment via higher real interest rates as well as appreciated the dollar leading to large trade deficits? Enough with this weak account as Slate got this right!
Trump Gives World’s Worst Economist the Presidential Medal of Freedom
A better read and if you are going to dub Laffer as an economist please note he is a very poor economist. But at least he lavished Trump with praise.

Saturday, June 1, 2019

North Korean Near-Famine Reportedly Leads To Dead Nuclear Negotiators

It has not been officially reported by the North Korean govt, but long running rumors are now being reported by various  serious media that Trump's big pal Kim Jong Un has recently killed the top 5 officials of his govt who set up his  failed summit with US President Trump.

According to sources I watch there has been a massive crop failure this year in the Democratic Peoples' Republic (DPRK). The big issue there is if the local, semi-allowed private markets in ag will save the population from outright starvation. At this time this is not  known.

So this difficult situation may be partly responsible for Kim Jong Un killing the top five negotiators with the US on nuclear weapons for the summit in Hanoi.  In addition, reportedly five more senior officials have been sent to rural labor, or something like that.

A report from South Korea's Chousn Ilbo nuwspaper is that whom Kim Jong Il killed was Kim Hyok Choi, along with four others, although this has not been confirmed by outside observers.  The newspaper also claimed that five other officials were sent to hard labor, but at least one of those has appeared in public, so this raises questions about this report, which some doubt (see comments below)

The unclear question is how much will the unofficial private markets in DPRK will save people from outright starvation/famine. The deepest  sources ai have followed say that it is unclear.  DPKR is not a "normal" country, and we have no way to know what is actually going on there now.

Given that his nation is facing food shortages, it is not surprising that he may be facing an internal challenge, and now we see that manifested by him overcoming any inside opposition by killing these five individuals. 

Note that this post has been revised in light of new information and comments below.

Barkley Rosser