RIP Christopher Hitchens. I've always loved his writing. I think he went off the rails supporting Bush on Iraq, but I am reminded of what Auden wrote about Yeats:
Time that is intolerant
Of the brave and the innocent,
And indifferent in a week
To a beautiful physique,
Worships language and forgives
Everyone by whom it lives;
Pardons cowardice, conceit,
Lays its honours at their feet.
Time that with this strange excuse
Pardoned Kipling and his views,
And will pardon Paul Claudel,
Pardons him for writing well.
Friday, January 6, 2012
Romney’s Tax Proposal
The Tax Policy Center provides its review of which taxpayers will pay more and which ones will pay less under the tax proposal introduced by Mitt Romney. A really short summary goes as follows:
(a) The well to do will pay less in taxes;
(b) The working poor will pay more in taxes; and
(c) Overall tax revenue will be significantly reduced.
But wasn’t that also the case for the Herman Cain tax proposal as well as any other tax proposal from the Republican candidates for President? And the Republicans claim they are for fiscal responsibility!
(a) The well to do will pay less in taxes;
(b) The working poor will pay more in taxes; and
(c) Overall tax revenue will be significantly reduced.
But wasn’t that also the case for the Herman Cain tax proposal as well as any other tax proposal from the Republican candidates for President? And the Republicans claim they are for fiscal responsibility!
Thursday, January 5, 2012
There ought to be clowns
From today's Times: "The Federal Reserve will begin later this month to publish the predictions of its senior officials about their own decisions..."
FOMC minutes: February 2012
Chairman Bernanke predicted that he would start the meeting promptly at 10 and, indeed, his forecast was correct -the meeting started at 10. Yellen began with a forecast that she would be getting into it with Plosser and Kocherlakota soon if they persisted with their standard nonsense about inflation threats and "it's all structural so what's the big deal." Plosser forecast that he would in fact claim that it's all structural, so that Yellen's forecast was a good one. He then stated "it's all structural, ladies and gentleman. Our work is done." Yellen then got into it with him, as she had predicted. At this point, Bernanke predicted that he would be stepping out in a minute to use the gents, but predicted that he would be right back. After a minute, Bernanke proceeded to step out. But he came right back and predicted that the meeting would resume, as it did. Evans then forecasted that he would forecast that he would forecast that he would forecast that he would forecast.......... (People began to file out)
Respectfully Submitted With a Forecast That I will Sign my Name But Inadvertently Misspell it,
Kavin Quenn
FOMC minutes: February 2012
Chairman Bernanke predicted that he would start the meeting promptly at 10 and, indeed, his forecast was correct -the meeting started at 10. Yellen began with a forecast that she would be getting into it with Plosser and Kocherlakota soon if they persisted with their standard nonsense about inflation threats and "it's all structural so what's the big deal." Plosser forecast that he would in fact claim that it's all structural, so that Yellen's forecast was a good one. He then stated "it's all structural, ladies and gentleman. Our work is done." Yellen then got into it with him, as she had predicted. At this point, Bernanke predicted that he would be stepping out in a minute to use the gents, but predicted that he would be right back. After a minute, Bernanke proceeded to step out. But he came right back and predicted that the meeting would resume, as it did. Evans then forecasted that he would forecast that he would forecast that he would forecast that he would forecast.......... (People began to file out)
Respectfully Submitted With a Forecast That I will Sign my Name But Inadvertently Misspell it,
Kavin Quenn
Wednesday, January 4, 2012
War Whooping on Iran
So, it is bad enough that GOP pols like Santorum are calling for bombing Iran and that reportedly 50% of the US population agrees with this, but we also have the Obama administration about to implement a seriously intensive sanctions policy on the Iranian central bank that has gotten the Iranians all worked up and making threats about closing the Straits of Hormuz. Some of this is clearly just politics, with the US in an election year and war whooping on Iran popular, while Iran is coming up on a parliamentary election on March 2, with similar sorts of tough guy strutting going on there as well as here. Needless to say, Iran is unlikely to follow through on its threat, but enjoys watching oil prices spike with the threats, thus threatening the economic recovery Obama needs for his reelection.
Let us remember certain things. While the latest US National Intelligence Estimate moved somewhat away from its previous firm denials of there being any Iranian nuclear weapons program, that movement amounted to saying that they maybe had one going on longer than we had previously thought, but continued to say that there is not one going on now. The more recent IAEA report that seems to lie behind Obama's plicy basically only amplified that somewhat, with some more recent reported simulations by some scientists of nuclear explosions and some evidence of not being fully forthcoming in certain areas. Neither report says that they have an active program to build nuclear weapons, so the vast majority of the current talk is basically hysteria, less credible than the claims that Iraq had WMD.
While Juan Cole has long argued that they would like to have the capability to build nuclear weapons, what they have done so far is completely legal according to the NNPT to which they are a party. They have a civilian nuclear energy program, which they are allowed to have, and their ongoing uranium enrichment program is fully consistent with it and not the higher levels associated with a nuclear weapons program. IAEA inspectors are still in the country, and Cole points out that we would be able to figure out if they went active because of a variety of things the inspectors and other sources would observe. And, although many dismiss this, the supreme military commander and supreme leader, Vilayat-el-faqih, Khamene'i has issued fatwas against nuclear weapons. As long as he does not undo those and remains in charge, there will be no nuclear weapons program in Iran.
What I confess to being a bit mystified about is the attitude of some of the Western European countries, who seem to be quite eager for these heightened sanctions and this confrontation. I can sort of understand that they might fear more any possible nukes from Iran due to proximity, just as Israel does. But I also think that there intel agencies ought to be able to figure out what the US intel agencies know, and that reportedly the Isreali ones do as well, even though they get majorly ignored by their politicians, that there is no nuclear weapons program in Iran.
Indeed, I am really not at all clear what Obama or anybody else thinks is going to be acheived by these heightened sanctions. Are we actually demanding that they shut down their perfectly legal civilian nuclear weapons program? Presumably a negotiation would involve some sort of deal where they are allowed to have their civilian program if they promise not to have a military program. But that is already what they are doing and repeatedly declare that they are doing. Is this really about trying to achieve regime change? This will also not work, as sanctions simply reinforce the arguments of the hardliners, just as the US sanctions have done with regard to Cuba for a half a century. The only place I know where sanctions worked was maybe in South Africa, but they had a real problem and undid it, whereas what is being demanded of Iran is for them to stop doing something that they are not doing. Really, this war whooping is getting seriously out of hand. Do we really need to go into Iran now that we finally just got out of Iraq?
Oh, and hope to see some of you in Chicago, :-).
Let us remember certain things. While the latest US National Intelligence Estimate moved somewhat away from its previous firm denials of there being any Iranian nuclear weapons program, that movement amounted to saying that they maybe had one going on longer than we had previously thought, but continued to say that there is not one going on now. The more recent IAEA report that seems to lie behind Obama's plicy basically only amplified that somewhat, with some more recent reported simulations by some scientists of nuclear explosions and some evidence of not being fully forthcoming in certain areas. Neither report says that they have an active program to build nuclear weapons, so the vast majority of the current talk is basically hysteria, less credible than the claims that Iraq had WMD.
While Juan Cole has long argued that they would like to have the capability to build nuclear weapons, what they have done so far is completely legal according to the NNPT to which they are a party. They have a civilian nuclear energy program, which they are allowed to have, and their ongoing uranium enrichment program is fully consistent with it and not the higher levels associated with a nuclear weapons program. IAEA inspectors are still in the country, and Cole points out that we would be able to figure out if they went active because of a variety of things the inspectors and other sources would observe. And, although many dismiss this, the supreme military commander and supreme leader, Vilayat-el-faqih, Khamene'i has issued fatwas against nuclear weapons. As long as he does not undo those and remains in charge, there will be no nuclear weapons program in Iran.
What I confess to being a bit mystified about is the attitude of some of the Western European countries, who seem to be quite eager for these heightened sanctions and this confrontation. I can sort of understand that they might fear more any possible nukes from Iran due to proximity, just as Israel does. But I also think that there intel agencies ought to be able to figure out what the US intel agencies know, and that reportedly the Isreali ones do as well, even though they get majorly ignored by their politicians, that there is no nuclear weapons program in Iran.
Indeed, I am really not at all clear what Obama or anybody else thinks is going to be acheived by these heightened sanctions. Are we actually demanding that they shut down their perfectly legal civilian nuclear weapons program? Presumably a negotiation would involve some sort of deal where they are allowed to have their civilian program if they promise not to have a military program. But that is already what they are doing and repeatedly declare that they are doing. Is this really about trying to achieve regime change? This will also not work, as sanctions simply reinforce the arguments of the hardliners, just as the US sanctions have done with regard to Cuba for a half a century. The only place I know where sanctions worked was maybe in South Africa, but they had a real problem and undid it, whereas what is being demanded of Iran is for them to stop doing something that they are not doing. Really, this war whooping is getting seriously out of hand. Do we really need to go into Iran now that we finally just got out of Iraq?
Oh, and hope to see some of you in Chicago, :-).
Oy! Deja-Voodoo Economics, and some Horn-Tooting
Here we go with the RE means fiscal policy is impotent meme again! Well, this blog was on the case early - PGL and I, along with Nick Rowe in the comments, sorted the whole thing out back when the Stimulus was being enacted, I think. And now, surely, it is a stylized fact that that the stimulus was effective compared to the counter-factual - no?
On a completely different subject: remember back in the campaign Obama made noises about raising revenue by lifting the cap on the payroll tax? That still seems like a good idea to me, and something that might have political legs in the wake of Occupy and all that. I await evisceration at the hands of my fellow bloggers, at least, who IMS didn't cotton much to the idea at the time.
Oh and Happy New Year!
On a completely different subject: remember back in the campaign Obama made noises about raising revenue by lifting the cap on the payroll tax? That still seems like a good idea to me, and something that might have political legs in the wake of Occupy and all that. I await evisceration at the hands of my fellow bloggers, at least, who IMS didn't cotton much to the idea at the time.
Oh and Happy New Year!
Tuesday, January 3, 2012
A Modest Case for Guarded Optimism in 2012
I think that there is reason to think that economic performance in the US and many portions of the world will do better in 2012 than has been forecast by many recently. Basically, recently many trends seem to be doing better than what has been forecast, coming out of a long period of fear of various catastrophes (and many very real problems), which have been deeply embedded into the forecasts and the markets as well. A way of looking at this is to consider the analysis in the Sunday Washington Post New Year's article by Neil Irwin, "Could 2012 be better?'
Irwin lists five factors that will determine how things go.
1) US political system behavior
2) Can European leaders balance every country's demands?
3) Performance of US housing market
4) X-factor
5) Can China manage a soft landing?
Irwin thinks that things are pretty shakey still on many of these, but is mildly optimistic that things will be better than in 2011. I think they might even be better than does Irwin.
1) This may be the one that I am least optimistic about, particularly given that this is an election year. However, it may be that the worst is past on this front, and that was manifested in the debt ceiling conflict last summer when the tea party pushed things right to the edge of a default for the first time since the US became the first and only country ever to impose a nominal debt ceiling back in 1917. The sign may well be the collapse of the House Republicans at the end of this past year over the payroll tax issue. Now, I am not sure that I agree with the payroll tax cut, given my old position that the whole social security system should have been left alone. But, in terms of politics, it seems that the tea partiers are now aware of the impact of the OWS and the fact that they were blamed substantially for the bad economic performance after the debt ceiling fiasco. Indeed, ironically, the fact that this is an election year may keep their noses to the grindstone a bit more and increase their caution regarding engaging in really outrageous actions with regard to the economy. Too many people are watching very closely.
2) I think the situation in Europe may be better than many think. I have been off and on arguing here and elsewhere that the freakouts over Italian deficits were ridiculously overblown, and now the markets seem to have figured this out, with interest rates on their borrowings having declined even further even yesterday. Despite all the recessionary trends, Germany has reported increased manufacturing. No, Europe is not going to be booming, but I think the threat of a full-blown euro collapse is largely past. The carrying on about the end of the euro by many US commentators is looking increasingly likely to be a big embarrassment, once again (some of these folks have been at this since before it was adopted, snore). Curiously, I think the biggest drag on Europe will be the effort to meet the Basel III capital requirements for banks, which is definitely restricting lending in the EU, not just in the eurozone. Europe will have a bad first half of the year, but once this Basel adjustment is in place, things may improve, if gradually.
3) Housing prices continue to decline in the US, and foreclosures continue at a high rate in much of the country, with something like a quarter of mortgages still under water. I do not see much change in any of those. However, we have seen an uptick in construction of multiple unit housing in many areas of the country, fairly steadily since the middle of last year actually. With very little construction for basically the last half a decade, there is good reason to believe that there is pentup demand and that this increase in construction can continue, even if it is limited to certain regions. Construction was the first part of the aggregate US economy to go down. Having it rising again steadily is important and may provide one of the more important foundations for keeping the US economy growing this coming year, even if not enough to really noticeably dent the unemployment rate.
4) The X-factor is the unknown shock, you know, those Minnesota real business cycle folks with their technology shocks and so on. Whatever. Well, yes, maybe the Mayan calendar people are right and the world will end on Dec. 21. But at least maybe we'll luck out before then and not have too many more natural disasters as bad as the last couple of years. Even if we do have some, it looks to me that there is more of a foundation for continuing growth now than previously, although heck, maybe the Mayan doom will hit even earlier in the year (and no, I am not being pollyanna here about some longer term problems such as global warming, although in the near term global warming actually helps the US economy on net as the reduced heating bills outweigh rising costs in other parts of the economy).
5) China does have a property bubble, with housing prices having more than tripled since 2005 along with sharp rises in price to rent and price to income ratios. For a pathetic story about what is going on, with prices now falling hard in some parts of China, see http://www.chinalawblog.com/2011/12/the_impacts_of_chinas_real_estate_crash_a_hard_rain_is_gonna_fall.htm . So, there is reason to believe that China is facing some slowdown in its growth rate. However, besides the fact that manufacturing rose in December above forecasts, there are other reasons to think this may have less impact there than has the housing crash in the US. Housing is a smaller part of the economy for one thing. Another is that China has had several quite sharp crashes of its stock markets in recent years with little impact on economic growth. China is planning for some growth slowdown, which would probably be a good thing and inevitable, but China is in much better shape to use macro policy tools including fiscal policy to offset a decline coming out of a property crash to some extent at least. This could be a problem, but for now much of East Asia seems to be performing above predicted levels.
So, all in all, folks, I think there is reason to think that 2012 may do better than many have been forecasting, although this may in the end prove to be wishful thinking on my part, even as I have a history of often forecasting doom and gloom.
Irwin lists five factors that will determine how things go.
1) US political system behavior
2) Can European leaders balance every country's demands?
3) Performance of US housing market
4) X-factor
5) Can China manage a soft landing?
Irwin thinks that things are pretty shakey still on many of these, but is mildly optimistic that things will be better than in 2011. I think they might even be better than does Irwin.
1) This may be the one that I am least optimistic about, particularly given that this is an election year. However, it may be that the worst is past on this front, and that was manifested in the debt ceiling conflict last summer when the tea party pushed things right to the edge of a default for the first time since the US became the first and only country ever to impose a nominal debt ceiling back in 1917. The sign may well be the collapse of the House Republicans at the end of this past year over the payroll tax issue. Now, I am not sure that I agree with the payroll tax cut, given my old position that the whole social security system should have been left alone. But, in terms of politics, it seems that the tea partiers are now aware of the impact of the OWS and the fact that they were blamed substantially for the bad economic performance after the debt ceiling fiasco. Indeed, ironically, the fact that this is an election year may keep their noses to the grindstone a bit more and increase their caution regarding engaging in really outrageous actions with regard to the economy. Too many people are watching very closely.
2) I think the situation in Europe may be better than many think. I have been off and on arguing here and elsewhere that the freakouts over Italian deficits were ridiculously overblown, and now the markets seem to have figured this out, with interest rates on their borrowings having declined even further even yesterday. Despite all the recessionary trends, Germany has reported increased manufacturing. No, Europe is not going to be booming, but I think the threat of a full-blown euro collapse is largely past. The carrying on about the end of the euro by many US commentators is looking increasingly likely to be a big embarrassment, once again (some of these folks have been at this since before it was adopted, snore). Curiously, I think the biggest drag on Europe will be the effort to meet the Basel III capital requirements for banks, which is definitely restricting lending in the EU, not just in the eurozone. Europe will have a bad first half of the year, but once this Basel adjustment is in place, things may improve, if gradually.
3) Housing prices continue to decline in the US, and foreclosures continue at a high rate in much of the country, with something like a quarter of mortgages still under water. I do not see much change in any of those. However, we have seen an uptick in construction of multiple unit housing in many areas of the country, fairly steadily since the middle of last year actually. With very little construction for basically the last half a decade, there is good reason to believe that there is pentup demand and that this increase in construction can continue, even if it is limited to certain regions. Construction was the first part of the aggregate US economy to go down. Having it rising again steadily is important and may provide one of the more important foundations for keeping the US economy growing this coming year, even if not enough to really noticeably dent the unemployment rate.
4) The X-factor is the unknown shock, you know, those Minnesota real business cycle folks with their technology shocks and so on. Whatever. Well, yes, maybe the Mayan calendar people are right and the world will end on Dec. 21. But at least maybe we'll luck out before then and not have too many more natural disasters as bad as the last couple of years. Even if we do have some, it looks to me that there is more of a foundation for continuing growth now than previously, although heck, maybe the Mayan doom will hit even earlier in the year (and no, I am not being pollyanna here about some longer term problems such as global warming, although in the near term global warming actually helps the US economy on net as the reduced heating bills outweigh rising costs in other parts of the economy).
5) China does have a property bubble, with housing prices having more than tripled since 2005 along with sharp rises in price to rent and price to income ratios. For a pathetic story about what is going on, with prices now falling hard in some parts of China, see http://www.chinalawblog.com/2011/12/the_impacts_of_chinas_real_estate_crash_a_hard_rain_is_gonna_fall.htm . So, there is reason to believe that China is facing some slowdown in its growth rate. However, besides the fact that manufacturing rose in December above forecasts, there are other reasons to think this may have less impact there than has the housing crash in the US. Housing is a smaller part of the economy for one thing. Another is that China has had several quite sharp crashes of its stock markets in recent years with little impact on economic growth. China is planning for some growth slowdown, which would probably be a good thing and inevitable, but China is in much better shape to use macro policy tools including fiscal policy to offset a decline coming out of a property crash to some extent at least. This could be a problem, but for now much of East Asia seems to be performing above predicted levels.
So, all in all, folks, I think there is reason to think that 2012 may do better than many have been forecasting, although this may in the end prove to be wishful thinking on my part, even as I have a history of often forecasting doom and gloom.
Monday, January 2, 2012
Is Alex Tabarrok Saying Unpleasant Monetarist Arithmetic is Identical to Complete Crowding Out?
I am puzzled by this.
Paul Krugman has already replied noting that Brian Riedl is arguing complete crowding-out even as the economy is far from full employment. Go figure. And I have to really wonder how Brian Riedl thinks the problem is too little savings as if consumption was allegedly soaring.
But let me just add what I said in Alex’s comment box:
As I read what Paul has written at various times, his arguments strike me as quite clear and hardly inconsistent.
Paul Krugman has already replied noting that Brian Riedl is arguing complete crowding-out even as the economy is far from full employment. Go figure. And I have to really wonder how Brian Riedl thinks the problem is too little savings as if consumption was allegedly soaring.
But let me just add what I said in Alex’s comment box:
Krugman’s 2003 writing strikes me as the same type of concern that was contained in Sargent and Wallace’s Unpleasant Monetarist Arithmetic. Which I thought was an excellent discussion. Simply put – the long-run government budget constraint has to be honored somehow. And if markets are ever convinced that our political masters have decided to spend and spend without raising taxes – inflation would soar, which I think Irving Fisher in 1907 claimed would drive up nominal interest rates. So what is so bizarre about this argument again?
As I read what Paul has written at various times, his arguments strike me as quite clear and hardly inconsistent.
Saturday, December 31, 2011
Shopping Is Not a Perfect Substitute for Politics
The New York Times has an interesting piece today on the shortcomings of organic agriculture in its current, commercialized form. They describe vast monocultures, drawdowns of aquifers, wasteful attempts to prevent natural blemishes and deformation of vegetables, and long-distance shipping in the off-season.
A few of their criticisms are spurious; for instance, it is better ecologically to ship tomatoes and basil from Mexico to the US during the winter than to try grow them in greenhouses, and trying to persuade consumers to remove such things from their diet for half the year is not a reasonable strategy. Nevertheless it is quite true that an organic label does not guarantee that the agriculture that brought the food to your table is sustainable, ecologically or socially.
The roots of the problem lie with the idea that agriculture can be fixed by establishing labels like organic or fair trade, so that shopping does the work of social change. Of course, shopping can be better or worse. You can have no labels at all and drift inexorably to the lowest common denominator in all aspects of food production outside the purview of the consumer. Or you can have labels like the ones we have today and give shoppers a choice in how much social responsibility they want to trade off for price, product differentiation or other consumerly objectives.
Don’t expect these labels to do everything, however. They have to be kept simple and standardized, so they can’t address all the practices that arise in different environmental conditions. Also, they are assigned to production on a producer-by-producer basis, so they can’t take into account the interactions at a regional or sectoral level. For instance, even if it were possible to insert language about sustainable water withdrawals into the organic standards, what constitutes sustainable depends on what other users sharing the same groundwater resources are doing. An individual farm may simply be the wrong unit of observation.
Real solutions require regulation and coordination, stuff like water and soil conservation districts. Reducing the burning of fossil fuels in food production and distribution requires a systematic control over carbon emissions, such as the permit system I’ve pushed in the past (such as here and here). And better labor practices require better labor laws and healthy unions to enforce them. You shouldn’t expect shopping to take care of all this.
So why is all the burden placed on labeling and consumerism? Because we’ve given up on politics, at least for now. If you don’t think the rules of the game can be changed through collective action, all you’ve got left is shopping. But remind yourself from time to time that this is duct tape, not real repair.
Thursday, December 29, 2011
Partisan Misrepresentation of Ricardian Equivalence is Nothing New
Paul Krugman catches Robert Lucas (not to be confused with Robert Barro - thanks for the comment David) misrepresenting Barro’s claim to fame:
Let’s get back to this after this abbreviated explanation of Ricardian Equivalence from David Andofatto. OK David, we know that in a life cycle world where households understand the long-run government budget constraint that households view all tax cuts (even the 1981 and Bush43 tax cuts) as mere tax surcharges that have to be repaid. But this model goes well beyond this. If fiscal policy involved a permanent increase in government consumption, it also involves a permanent increase in taxes which would be a wash as Barro alleges. So if the Obama Administration passed a law where we built a bunch of bridges every summer only to tear them down every winter for the rest of time, then maybe Barro’s claim makes sense.
But this is not the correct policy experiment. The building of a bridge is a temporary blip in spending intending to invest in the public infrastructure where the benefits will be long-term. The financing requirements can be met either by a blip in taxes or very low taxes each year over the future. And in either case, the fall in private consumption in the first year will be small in proportion in the rise in government spending to build this bridge (which it does not intend to subsequently tear down).
One would think this logic was well known. The reason for this blog post, however, is to note that Republican hacks have grossly misrepresented Ricardian Equivalence before. Recall all the fuss over why the Bush43 tax cuts would be better aggregate demand stimulus if that were to be made permanent as opposed to temporary? While that might be good life cycle theory if we could ignore a lot of other economic propositions – such as the long-run government budget constraint (and of course Ricardian Equivalence). Yet some Republican hacks even went so far as to dismiss any concern about crowding-out (even as the FED was already raising interest rates) based on the proposition that tax cuts do not raise interest rates ala Ricardian Equivalence and that Paul Evans AER 1985 paper entitled “Do Large Deficits Produce High Interest Rates”. But wait a darn second – the Ricardian reason for all of this is the assertion that tax cuts don’t encourage more consumption. This incredible dishonest mishmash was most evident when Victor Canto claimed in what National Review November 2002 piece that the Bush tax cuts would be more powerful in encouraging consumption if made permanent, while in another National Review November 2002 piece he used Ricardian Equivalence to argue that the tax cuts would not raise interest rates. To be fair to Mr. Canto – the National Review expects such brazen dishonesty if it is in defense of its rightwing agenda.
I should say that the Evans AER 1985 paper always puzzled me because the Reagan tax cuts did raise aggregate demand by raising consumption during a period when government spending was not reduced. And while nominal interest rates may have declined, real interest rates rose. In other words, we got classical crowding-out from a mix of expansionary fiscal policy and the Volcker tight monetary policy. Now if you wanted to remain a true believer of Ricardian Equivalence, I guess you could have argued that households expected the Reagan revolution to eventually get around to reducing government spending. Domestic spending after all was trimmed a bit even as defense spending soared. But we did eventually get that good old Peace Dividend – in the 1990’s.
But, if we do build the bridge by taking tax money away from somebody else, and using that to pay the bridge builder — the guys who work on the bridge — then it’s just a wash. It has no first-starter effect. There’s no reason to expect any stimulation. And, in some sense, there’s nothing to apply a multiplier to. (Laughs.) You apply a multiplier to the bridge builders, then you’ve got to apply the same multiplier with a minus sign to the people you taxed to build the bridge. And then taxing them later isn’t going to help, we know that.
Let’s get back to this after this abbreviated explanation of Ricardian Equivalence from David Andofatto. OK David, we know that in a life cycle world where households understand the long-run government budget constraint that households view all tax cuts (even the 1981 and Bush43 tax cuts) as mere tax surcharges that have to be repaid. But this model goes well beyond this. If fiscal policy involved a permanent increase in government consumption, it also involves a permanent increase in taxes which would be a wash as Barro alleges. So if the Obama Administration passed a law where we built a bunch of bridges every summer only to tear them down every winter for the rest of time, then maybe Barro’s claim makes sense.
But this is not the correct policy experiment. The building of a bridge is a temporary blip in spending intending to invest in the public infrastructure where the benefits will be long-term. The financing requirements can be met either by a blip in taxes or very low taxes each year over the future. And in either case, the fall in private consumption in the first year will be small in proportion in the rise in government spending to build this bridge (which it does not intend to subsequently tear down).
One would think this logic was well known. The reason for this blog post, however, is to note that Republican hacks have grossly misrepresented Ricardian Equivalence before. Recall all the fuss over why the Bush43 tax cuts would be better aggregate demand stimulus if that were to be made permanent as opposed to temporary? While that might be good life cycle theory if we could ignore a lot of other economic propositions – such as the long-run government budget constraint (and of course Ricardian Equivalence). Yet some Republican hacks even went so far as to dismiss any concern about crowding-out (even as the FED was already raising interest rates) based on the proposition that tax cuts do not raise interest rates ala Ricardian Equivalence and that Paul Evans AER 1985 paper entitled “Do Large Deficits Produce High Interest Rates”. But wait a darn second – the Ricardian reason for all of this is the assertion that tax cuts don’t encourage more consumption. This incredible dishonest mishmash was most evident when Victor Canto claimed in what National Review November 2002 piece that the Bush tax cuts would be more powerful in encouraging consumption if made permanent, while in another National Review November 2002 piece he used Ricardian Equivalence to argue that the tax cuts would not raise interest rates. To be fair to Mr. Canto – the National Review expects such brazen dishonesty if it is in defense of its rightwing agenda.
I should say that the Evans AER 1985 paper always puzzled me because the Reagan tax cuts did raise aggregate demand by raising consumption during a period when government spending was not reduced. And while nominal interest rates may have declined, real interest rates rose. In other words, we got classical crowding-out from a mix of expansionary fiscal policy and the Volcker tight monetary policy. Now if you wanted to remain a true believer of Ricardian Equivalence, I guess you could have argued that households expected the Reagan revolution to eventually get around to reducing government spending. Domestic spending after all was trimmed a bit even as defense spending soared. But we did eventually get that good old Peace Dividend – in the 1990’s.
Wednesday, December 28, 2011
Does The Italian Bond Sale Mean The Eurocrisis Is Over?
Yesterday Italy sold bonds for a little over 3% compared to over 6% in late November. Does this mean the eurocrisis is over? Not necessarily, but it may well mean that the markets have finally figured out that Berlusconi really is gone, that Italy is one of four countries in the eurozone that is running a primary budget surplus (Germany, Belgium, and Luxembourg are the others), and a much higher proportion of its debt is held domestically by the high saving Italians.
The worst ongoing problem in the zone is Greece. It is caught in a downward spiral that is hard to see an end to other than an exit from the eurozone. While some worry what will happen "if Greece defaults," the hard fact is that it has already effectively done so. The wholse argument over the size of the "haircuts" on its sovereign debt is really just an argument over how bad the default will be and exactly who will end up having to bear the cost of their default. But for all the worry about linkage and contagion if Greece defaults, by now it looks like the ECB's plan to support European banks will probably work to keep the dominoes from falling down in a row as a result. Maybe Portugal might also have to depart, but both Spain and Italy have better budget fundamentals than either the UK or the US. Probably the eurocrisis will end with all that.
What we may be looking at is a better than expected scenario. I find it increasingly amusing to read and listen to commentators who note that Christmas sales did better than expected and that gasoline prices keep dropping, but who then warn that all this will probably turn around next year. Well, yes, maybe it all will. The eurozone has pretty much fallen into a recession that will probably continue into the next year, and more worryingly China is clearly slowing down with its property bubble seriously cratering. But it may be that the US will return to its old role as the engine of growth for the rest of the world, at least somewhat. Probably the biggest fly in the ointment may be the purely artificial crisis being ginned up over sanctions on Iranian oil to stop their nonexistent nuclear weapons program (despite all the hoopla, the IAEA report did NOT report an actual nuclear weapons program there, despite some new findings of some past research regarding a potential to have one).
The worst ongoing problem in the zone is Greece. It is caught in a downward spiral that is hard to see an end to other than an exit from the eurozone. While some worry what will happen "if Greece defaults," the hard fact is that it has already effectively done so. The wholse argument over the size of the "haircuts" on its sovereign debt is really just an argument over how bad the default will be and exactly who will end up having to bear the cost of their default. But for all the worry about linkage and contagion if Greece defaults, by now it looks like the ECB's plan to support European banks will probably work to keep the dominoes from falling down in a row as a result. Maybe Portugal might also have to depart, but both Spain and Italy have better budget fundamentals than either the UK or the US. Probably the eurocrisis will end with all that.
What we may be looking at is a better than expected scenario. I find it increasingly amusing to read and listen to commentators who note that Christmas sales did better than expected and that gasoline prices keep dropping, but who then warn that all this will probably turn around next year. Well, yes, maybe it all will. The eurozone has pretty much fallen into a recession that will probably continue into the next year, and more worryingly China is clearly slowing down with its property bubble seriously cratering. But it may be that the US will return to its old role as the engine of growth for the rest of the world, at least somewhat. Probably the biggest fly in the ointment may be the purely artificial crisis being ginned up over sanctions on Iranian oil to stop their nonexistent nuclear weapons program (despite all the hoopla, the IAEA report did NOT report an actual nuclear weapons program there, despite some new findings of some past research regarding a potential to have one).
Saturday, December 24, 2011
Daring To Disagree With Dean?
That would be Dean Baker, briefly a co-blogger on the old maxspeak, who warns that the recent upbeat reports on housing are not reliable, with them being too much based on highly volatile changes in multi-family housing. For details see http://www.cepr.net/index.php/blogs/beat-the-press/erratic-patterns-in-monthly-housing-starts as well as the closely related http://www.cepr.net/index/blogs/beat-the-press/housing-is-back. Dean must be taken seriously on these matters since his being the first to call the housing bubble all the way back in 2002.
I am not disagreeing with him very much. I agree that for much of the year the hype over a possible double dip in the US has been overdone, which partly explains the sudden surge of enthusiasm we are now seeing at recent high GDP growth rates, which are probably overdone due to being heavily driven by inventory adjustments that are likely to halt after the first of the year, not to mention the continuing likelihood of a European recession with a Chinese slowdown that will put a drag on externally, although those fears have been the main source for all the moaning and groaning in the markets for much of the past few months. And Dean is right on part of the details: single family home construction is barely above its pit in 2009 and not moving; nearly all of this recent increase in housing starts has been for multi-family dwellings, and that is a highly volatile monthly series.
Nevertheless, if one looks at the charts he provides and those he links to, there is a clear upward trend since spring, despite the month-to-month volatility, even if it is mostly in multiple family units. It is also true that it is regional, mostly in the Northeast and West, but any apparently sustained movement should be welcomed. In the chart he shows, with January 2002 as 100, there was a peak in mid-2006 at around 140. The pit in late 2009 was around 20, and it was below 40 this spring. But the November number is at 80. This will probably show declines in coming months, but if the general upward trend continues, this will mean that for the first time since 2006, housing will be a net positive contributor to the US economy, even if only somewhat weakly so.
The newspaper reports have it that rents have been rising in the regions where construction has been rising, reflecting an increase in household formation, with this rising demand finally crashing against the long-depressed supply. Overall housing starts remain far below where they once were, but the issue is direction, and that does appear to be upwards, if erratically and not throughout the US. Dean links to data on rents, but that does not show the most recent that has been reported in the papers.
So, this is at most a mild disagreement with Dean, but in fact I am willing to say that the news on the housing front is improving, at least in terms of a trend for multi-family construction, even if there is a continuing problem in foreclosures and in the single-family home portion of the market. So, while Dean threw in a mention of celebrating Hanukah, I'll throw in one for celebrating Christmas as well, :-).
I am not disagreeing with him very much. I agree that for much of the year the hype over a possible double dip in the US has been overdone, which partly explains the sudden surge of enthusiasm we are now seeing at recent high GDP growth rates, which are probably overdone due to being heavily driven by inventory adjustments that are likely to halt after the first of the year, not to mention the continuing likelihood of a European recession with a Chinese slowdown that will put a drag on externally, although those fears have been the main source for all the moaning and groaning in the markets for much of the past few months. And Dean is right on part of the details: single family home construction is barely above its pit in 2009 and not moving; nearly all of this recent increase in housing starts has been for multi-family dwellings, and that is a highly volatile monthly series.
Nevertheless, if one looks at the charts he provides and those he links to, there is a clear upward trend since spring, despite the month-to-month volatility, even if it is mostly in multiple family units. It is also true that it is regional, mostly in the Northeast and West, but any apparently sustained movement should be welcomed. In the chart he shows, with January 2002 as 100, there was a peak in mid-2006 at around 140. The pit in late 2009 was around 20, and it was below 40 this spring. But the November number is at 80. This will probably show declines in coming months, but if the general upward trend continues, this will mean that for the first time since 2006, housing will be a net positive contributor to the US economy, even if only somewhat weakly so.
The newspaper reports have it that rents have been rising in the regions where construction has been rising, reflecting an increase in household formation, with this rising demand finally crashing against the long-depressed supply. Overall housing starts remain far below where they once were, but the issue is direction, and that does appear to be upwards, if erratically and not throughout the US. Dean links to data on rents, but that does not show the most recent that has been reported in the papers.
So, this is at most a mild disagreement with Dean, but in fact I am willing to say that the news on the housing front is improving, at least in terms of a trend for multi-family construction, even if there is a continuing problem in foreclosures and in the single-family home portion of the market. So, while Dean threw in a mention of celebrating Hanukah, I'll throw in one for celebrating Christmas as well, :-).
Thursday, December 22, 2011
Lowering The Flag And Leaving Iraq
So, the US military has lowered the battle flag and the last official military have now left Iraq, although there will still be some engaged in advising and protecting the mammoth US embassy in Baghdad. Time for a reconsideration.
On the day that Saddam's last stronghold, his hometown of Tikrit, fell to US troops in April, 2003, I wrote a column published in my local paper, portions of which I posted on the old maxspeak. This was the moment of the highest US triumph, with the looting in Baghdad just starting and before the US stupidly disbanded the Iraqi army and fired all the Ba'athist civil servants, thus triggering the rebellion that eventually became the Sunni-Shi'i civil war, which seems to be picking up as the US leaves rather than tailing off. In that essay, I noted three positives and three negatives of the war, emphasizing that I thought the last of the negatives weighed more heavily than anything else. All six have come to pass.
The positives were that Saddam would no longer be violating human rights, that economic sanctions against Iraq would be ended, and that US troops would be reduced in Saudi Arabia, which had been a leading propaganda point of Osama bin Laden. Yes, despite the apparently tightening of authoritarianism of the Maliki regime and reports of ongoing torture, the human rights situation in Iraq is better today than under Saddam in general. Yes, economic sanctions were ended, but the benefits of that have been far overwhelmed by the subsequent economic collapse engendered by the ongoing war, with the effects of that still not ended. And the removal of US troops from Saudi was a strictly minor event, also overwhelmed by other events.
The negatives were that womens' rights would be worsened in the country as Shi'i fundamentalists would come to power, that the situation of Christians would also be worsened, and finally and most importantly, that this invasion would give al Qaeda a major propaganda gain. Womens' rights have not worsened as badly as I thought they might, but they have worsened. The situation of the Christians has been catastrophic, with more than half of their population having fled the country, not that this has registered one blip on the radar of the US fundamentalists backing the war. And, not only did al Qaeda get a propaganda boost, but as the civil war erupted al Qaeda gained a major foothold and became a major player in that war. More generally, the standing of the US in the Muslim world and more broadly was severey damaged by the entire episode and remains so.
Needless to say, I did not foresee the civil war or the scale of death and destructiont that followed. But then, just about nobody else did either, not at that point in time anyway.
One clear winner from the war has been the Kurdish population, who were under particular repression from the Saddam regime. They have won a virtual autonomy, now guaranteed as they remain power breakers in the federal government in Baghdad, and have been independently developing their oil industry with help of various minor oil companies from places like Norway and Canada. While not perfect, governance in autonomous Kurdistan seems to be reasonably competent, and the economic and social and political situation is almost certainly far improved over the previous period, something that cannot be said about the rest of Iraq.
Finally, I would like to comment on the whole issue of the role that oil played in the war, and here I shall largely be reiterating arguments I made long ago, although not in that original essay in April, 2003. While many thought and continue to think that the war was "mostly about oil," I have never accepted this. Yes, the first Gulf War was. Bush, Sr. clearly would not have bothered undoing Saddam's invasion of Kuwait if there were no oil there or if there was none in neighboring Saudi Arabia. As it was, it was the Saudis, satisfied that Saddam was contained, who held Bush Sr. back from rolling to Baghdad out of fear that this would lead to a pro-Iran, Shi'i-dominated government in Baghdad, which has indeed been an outcome of Bush Jr.'s invasion.
No, it was mostly about Bush Jr. trying to prove that he was a bigger man than his dad, a neo-Ronald Reagan, and many of the other backers of the war in the administration were neocons like Wolfowitz whose big concern was Israel and how Saddam's paying the families of Palestinian suicide bombers was an affront, not to mention the Israeli fear of the nonexistent weapons of mass destruction. As it is, the interests of Israel have basically never been in line with those of the US oil majors in the Middle East.
There was one player for whom oil was important: VP Dick Cheney, certainly a not inconsequential figure, and possibly the one who most effectively played on Bush Jr.'s inferiority complex vis a vis his dad to get him going on the whole thing. At a minimum, Cheney's own company, Halliburton, made money hand over fist, and there is a clear case of oil playing a role, if a minor one. It is also true that Cheney apparently semi-secretly plotted with various US majors about "getting back into Iraq" as a result of the war, although the CEOs of these companies were not enthusiastic about the idea of disruptions of oil production and transportation that might arise from the war and were not at all public supporters of it.
As it is, of course, the oil companies did make money as the price of oil rose with the disuptions that did occur, although these were not supposed to occur. Indeed, not only Cheney but Wolfie as well were fully under the delusion that we were going to be welcomed with flowers, and the drive to secure the Oil Ministry first in Baghdad was driven by the even more ridiculous delusion that as did Kuwait, Iraq would actually pay for the war itself out of their overwhelming gratitude. It is really astounding to think how such actually intelligent people (Paul Wolfowitz, whom I know personally, is in fact brilliant) could be so completely out of touch with reality.
In any case, the ultimate irony of this is that in the end, the US majors were probably right not to get too excited about all these prospects. They never came to pass. The Kurdish production is being handled by oddball small companies from around the world, although with a couple of minor US ones in there as well. And in the rest of Iraq, oil production has only barely gotten going again due to the ongoing problems of pipelines being blown up and so on, and the companies that have made contracts to do anything have been overwhelmingly non-US ones, with Chinese and Russian ones much more active than any US major. Cheney may have had getting the US majors into Iraq as a major goal of his own efforts, but this may have been the ultimate failure of the many that he was responsible for as VP of the US.
On the day that Saddam's last stronghold, his hometown of Tikrit, fell to US troops in April, 2003, I wrote a column published in my local paper, portions of which I posted on the old maxspeak. This was the moment of the highest US triumph, with the looting in Baghdad just starting and before the US stupidly disbanded the Iraqi army and fired all the Ba'athist civil servants, thus triggering the rebellion that eventually became the Sunni-Shi'i civil war, which seems to be picking up as the US leaves rather than tailing off. In that essay, I noted three positives and three negatives of the war, emphasizing that I thought the last of the negatives weighed more heavily than anything else. All six have come to pass.
The positives were that Saddam would no longer be violating human rights, that economic sanctions against Iraq would be ended, and that US troops would be reduced in Saudi Arabia, which had been a leading propaganda point of Osama bin Laden. Yes, despite the apparently tightening of authoritarianism of the Maliki regime and reports of ongoing torture, the human rights situation in Iraq is better today than under Saddam in general. Yes, economic sanctions were ended, but the benefits of that have been far overwhelmed by the subsequent economic collapse engendered by the ongoing war, with the effects of that still not ended. And the removal of US troops from Saudi was a strictly minor event, also overwhelmed by other events.
The negatives were that womens' rights would be worsened in the country as Shi'i fundamentalists would come to power, that the situation of Christians would also be worsened, and finally and most importantly, that this invasion would give al Qaeda a major propaganda gain. Womens' rights have not worsened as badly as I thought they might, but they have worsened. The situation of the Christians has been catastrophic, with more than half of their population having fled the country, not that this has registered one blip on the radar of the US fundamentalists backing the war. And, not only did al Qaeda get a propaganda boost, but as the civil war erupted al Qaeda gained a major foothold and became a major player in that war. More generally, the standing of the US in the Muslim world and more broadly was severey damaged by the entire episode and remains so.
Needless to say, I did not foresee the civil war or the scale of death and destructiont that followed. But then, just about nobody else did either, not at that point in time anyway.
One clear winner from the war has been the Kurdish population, who were under particular repression from the Saddam regime. They have won a virtual autonomy, now guaranteed as they remain power breakers in the federal government in Baghdad, and have been independently developing their oil industry with help of various minor oil companies from places like Norway and Canada. While not perfect, governance in autonomous Kurdistan seems to be reasonably competent, and the economic and social and political situation is almost certainly far improved over the previous period, something that cannot be said about the rest of Iraq.
Finally, I would like to comment on the whole issue of the role that oil played in the war, and here I shall largely be reiterating arguments I made long ago, although not in that original essay in April, 2003. While many thought and continue to think that the war was "mostly about oil," I have never accepted this. Yes, the first Gulf War was. Bush, Sr. clearly would not have bothered undoing Saddam's invasion of Kuwait if there were no oil there or if there was none in neighboring Saudi Arabia. As it was, it was the Saudis, satisfied that Saddam was contained, who held Bush Sr. back from rolling to Baghdad out of fear that this would lead to a pro-Iran, Shi'i-dominated government in Baghdad, which has indeed been an outcome of Bush Jr.'s invasion.
No, it was mostly about Bush Jr. trying to prove that he was a bigger man than his dad, a neo-Ronald Reagan, and many of the other backers of the war in the administration were neocons like Wolfowitz whose big concern was Israel and how Saddam's paying the families of Palestinian suicide bombers was an affront, not to mention the Israeli fear of the nonexistent weapons of mass destruction. As it is, the interests of Israel have basically never been in line with those of the US oil majors in the Middle East.
There was one player for whom oil was important: VP Dick Cheney, certainly a not inconsequential figure, and possibly the one who most effectively played on Bush Jr.'s inferiority complex vis a vis his dad to get him going on the whole thing. At a minimum, Cheney's own company, Halliburton, made money hand over fist, and there is a clear case of oil playing a role, if a minor one. It is also true that Cheney apparently semi-secretly plotted with various US majors about "getting back into Iraq" as a result of the war, although the CEOs of these companies were not enthusiastic about the idea of disruptions of oil production and transportation that might arise from the war and were not at all public supporters of it.
As it is, of course, the oil companies did make money as the price of oil rose with the disuptions that did occur, although these were not supposed to occur. Indeed, not only Cheney but Wolfie as well were fully under the delusion that we were going to be welcomed with flowers, and the drive to secure the Oil Ministry first in Baghdad was driven by the even more ridiculous delusion that as did Kuwait, Iraq would actually pay for the war itself out of their overwhelming gratitude. It is really astounding to think how such actually intelligent people (Paul Wolfowitz, whom I know personally, is in fact brilliant) could be so completely out of touch with reality.
In any case, the ultimate irony of this is that in the end, the US majors were probably right not to get too excited about all these prospects. They never came to pass. The Kurdish production is being handled by oddball small companies from around the world, although with a couple of minor US ones in there as well. And in the rest of Iraq, oil production has only barely gotten going again due to the ongoing problems of pipelines being blown up and so on, and the companies that have made contracts to do anything have been overwhelmingly non-US ones, with Chinese and Russian ones much more active than any US major. Cheney may have had getting the US majors into Iraq as a major goal of his own efforts, but this may have been the ultimate failure of the many that he was responsible for as VP of the US.
Wednesday, December 21, 2011
George W. Bush's Second Biggest Foreign Policy Mistake Revisited
Of course the first would be invading Iraq. But a close second not often remembered or even realized occurred two months into his term of office. It was the humiliation inflicted on then South Korean President Kim Dae-Jung, a Nobel Peace Prize winner and former torture victim of earlier military dictatorships in that country, when he arrived to visit the US. Secretary of State, Colin Powell, had planned on a continuation of the warming policies between the two Koreas and a friendly meeting with Bush and support for Kim. As it was, the "Vulcans" led by Cheney and Rumsfeld intervened to torpedo this and leave Kim not meeting in the cold and without his long-running policy. This also ended that round of negotiations with North Korea on nuclear weapons, with the Vulcans arguing that the US should pursue "regime change" in North Korea, which, hack cough, did not happen.
Instead what happened was that the nuclear negotiations came to and end and US-South Korean relations tanked until a more conservative government took over there. Not long after the end of the negotiations, the DPRK withdrew from the Nuclear Non-Proliferation Treaty and restarted its plutonium-based drive for nuclear weapons, which led to its successful acquisition of such not too long later. This is fish soup that cannot now be turned back into fish or spilled milk that cannot be returned to its container, a disastrous development that we might not now have to be dealing with at this time of leadership transition in North Korea, if Bush and his
Vulcans had not pulled this enormously stupid blunder.
Instead what happened was that the nuclear negotiations came to and end and US-South Korean relations tanked until a more conservative government took over there. Not long after the end of the negotiations, the DPRK withdrew from the Nuclear Non-Proliferation Treaty and restarted its plutonium-based drive for nuclear weapons, which led to its successful acquisition of such not too long later. This is fish soup that cannot now be turned back into fish or spilled milk that cannot be returned to its container, a disastrous development that we might not now have to be dealing with at this time of leadership transition in North Korea, if Bush and his
Vulcans had not pulled this enormously stupid blunder.
Tuesday, December 20, 2011
KimJung Un should have such problems!
He doesn't have principles students telling him, on a final exam, that, for instance, the "shoe-leather costs" of inflation stem from "the rising price of leather" Or that hoary and hardy perennial, that the alternative to monetary policy is "physical policy" - carried out, no doubt, by the President's Council on Physical Fitness.
Why was I born?
Why was I born?
Monday, December 19, 2011
How North Korea Became So Isolated
North Korea (DPRK) officially follows an ideology developed by its founder, Kim Il Sung, known as KimIlSungism (really), which his just deceased son continued to follow, and which it is likely will continue to be followed at least for awhile by his grandson, the Great Successor, Kim Jong Un. Besides generally following the Stalinist version of strict command planned socialism, somewhat loosened in recent years, the most famous aspect of KimIlSungism has been its doctrine of self-reliance, or juche (also transliterated as chuch'e). While some of the poverty of the DPRK is clearly due to its overemphasis on military production (fourth largest military in the world, and check out those nukes) and the typical stagnation of command planning, much is almost certainly due to the nearly autarkic approach due to KimIlSungism. Where did it come from? I see at least five sources.
The first is the Stalinist model itself. In the great struggle with Trotskyism, Stalin advocated "socialism in one country," although, of course, the Soviet Union was the largest nation in the world by far in land area. However, after WW II, this would be less emphasized as Eastern Europe went officially command socialist with the assistance of the Red Army in place. But in the DPRK, Kim Il Sung would cling to the older model.
Second is that after the death of Stalin, Kim would find fault even before Mao did to the moves towards thawing and loosening of the model that was going on in the Soviet Union. The first recorded speech of Kim supporting juche occurred in late 1955, prior to Khrushchev's 1956 deStalinization speech that reportedly upset Mao (according to official DPRK histories, Kim Il Sung gave his first pro-juche speech in 1930 at age 18, but no independent evidence supports this). With the failure of North Korea to conquer South Korea, and truce without official peace treaty after Stalin's death in 1953, the new leaders would go even softer with the Geneva summit in 1955, accepting the reunification of Austria, guaranteed to be neutral, a model possibly there for Korea that Kim rejected.
Third was the emergence of the Sino-Soviet conflict after 1956, although it would be a few years before this would become open and a problem for the DPRK, caught between the two. While Kim tended to side with Mao's critique of Khrushchev's ideological and policy deviations from Stalinism, he also disagreed with the more decentralized and agriculturally oriented version of socialism that Mao followed in China. As the conflict worsened, he wished to keep independent from both of them, which encouraged the idea of self-reliance. He also did not wish to go the capitalist road or fall into dependence on the capitalist West (or worse yet, Japan), so self-reliant juche became the way to go and was gradually developed over a long period.
Fourth was the emergence of his desire for a socialist monarchy, with his son to succeed him. Having a distinct ideology of self-reliant socialism fit in with this (and it is curious that some other dictatorships have followed the same path of de facto monarchy even if officially socialist republican, see Syria). Curiously, this is also consistent with traditional Confucian values of respect for family.
And the fifth involves the DPRK also falling back on traditional Korean attitudes and practices. Not only has Korea long been described as the most Confucianist nation, but prior to the Japanese conquest in 1910, it was also the most isolated, known as the Hermit Kingdom. In this it had long imitated Japan, but continued to resist being "opened up" even after Japan was by Commodore Perry's black ships in the 1850s, leaving it to the Japanese themselves to do the opening. Kim, of course, presented himself as the national hero of the anti-Japanese resistance, and this return to a traditional Korean practice burnished his credentials as the truly genuine national Korean leader who deserved to lead the unified nation.
The first is the Stalinist model itself. In the great struggle with Trotskyism, Stalin advocated "socialism in one country," although, of course, the Soviet Union was the largest nation in the world by far in land area. However, after WW II, this would be less emphasized as Eastern Europe went officially command socialist with the assistance of the Red Army in place. But in the DPRK, Kim Il Sung would cling to the older model.
Second is that after the death of Stalin, Kim would find fault even before Mao did to the moves towards thawing and loosening of the model that was going on in the Soviet Union. The first recorded speech of Kim supporting juche occurred in late 1955, prior to Khrushchev's 1956 deStalinization speech that reportedly upset Mao (according to official DPRK histories, Kim Il Sung gave his first pro-juche speech in 1930 at age 18, but no independent evidence supports this). With the failure of North Korea to conquer South Korea, and truce without official peace treaty after Stalin's death in 1953, the new leaders would go even softer with the Geneva summit in 1955, accepting the reunification of Austria, guaranteed to be neutral, a model possibly there for Korea that Kim rejected.
Third was the emergence of the Sino-Soviet conflict after 1956, although it would be a few years before this would become open and a problem for the DPRK, caught between the two. While Kim tended to side with Mao's critique of Khrushchev's ideological and policy deviations from Stalinism, he also disagreed with the more decentralized and agriculturally oriented version of socialism that Mao followed in China. As the conflict worsened, he wished to keep independent from both of them, which encouraged the idea of self-reliance. He also did not wish to go the capitalist road or fall into dependence on the capitalist West (or worse yet, Japan), so self-reliant juche became the way to go and was gradually developed over a long period.
Fourth was the emergence of his desire for a socialist monarchy, with his son to succeed him. Having a distinct ideology of self-reliant socialism fit in with this (and it is curious that some other dictatorships have followed the same path of de facto monarchy even if officially socialist republican, see Syria). Curiously, this is also consistent with traditional Confucian values of respect for family.
And the fifth involves the DPRK also falling back on traditional Korean attitudes and practices. Not only has Korea long been described as the most Confucianist nation, but prior to the Japanese conquest in 1910, it was also the most isolated, known as the Hermit Kingdom. In this it had long imitated Japan, but continued to resist being "opened up" even after Japan was by Commodore Perry's black ships in the 1850s, leaving it to the Japanese themselves to do the opening. Kim, of course, presented himself as the national hero of the anti-Japanese resistance, and this return to a traditional Korean practice burnished his credentials as the truly genuine national Korean leader who deserved to lead the unified nation.
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