Messing Up Badly In Korea

In many areas where many were worried that President Trump would do this that or the other crazy thing he has held back for one reason or another.  But one very serious location where he has recently made a total botch of things has been in Korea, a series of unforced errors.  Of course before he got into it in Korea it looked like he might get in a shooting war with China, but then he decided that Xi Jinping is a great guy after the Chinese paid his family gobs of money and Trump realized that he needed to make nicey nice with Xi in order to deal with unquestionably serious problem of the North Korean nuclear weapons program, possibly the most dangerous situation in the world right now.

So then he proceeded to talk tough on North Korea, making noises about starting a war with them if they tested a nuclear weapon (which they did not, making a failed rocket test instead) with this supposedly being backed up by him supposedly sending the USS Carl Vinson to back up his threats, only to have it come out a few days later that the Vinson was sailing off into the Indian Ocean.  I gather it has finally shown up in the neighborhood, but now Trump has messed up with longtime US  ally South Korea, the only party involved in this arguably more important than China even.

South Korea is in the middle of a snap election happening May 9 brought about by the impeachment of now former President Park Geun-ye, daughter of former dictator Park Chung-he, who was assassinated by his top intel guy.  Park is from the more conservative of South Korea's political parties and had agreed under pressure from Trump to install the THAAD anti-missile defense system.  Doing this has upset China, which has put in place a strong economic boycott against South Korea.  Nevertheless Trump pushed on and has had the THAAD system installed and up and running, even though the politician most likely to win the upcoming election, Moon Jae-in of the more left-liberal party, has said that he would like to think about this and that it should not be fully installed yet.  But to add insult to injury, Trump demanded that the South Koreans pay for the THAAD system, completely outraging pretty much everybody there.  He has backed off that, but has now added a threat to unilaterally end the South Korea-US trade agreement. Maybe that is a bad agreement, but given everything else that is going on, this seems like an abysmally stuipid moment to bring up such an issue.  The South Koreans are enraged and likely to elect Moon on an anti-US platform.  Surely Trump should have been trying to make nicey nice with the South Koreans as he has with the Chinese, but maybe they have not paid Ivanka enough money yet.  This is just messing up very badly in a very important and serious part of the world.

Curiously this resembles in some ways a former messup there made by then President George W. Bush in March, 2001, which I have posted about here.  
In 1994 North Korea stopped pursuing a plutonium weapons program by shutting down its Yongbyan plant in exchange for various economic and security promises.  This was followed by the "sunshine" policy from South Korea, still going on when Bush became president in January, 2001.  Kim Dae-jung was South Korean president at the time and very much wanted support from the new administration of this policy.  Some supported him, notably SecState Colin Powell, and Kim thought he had full support.  He  came to Washington on March 7, 2001 to meet with Bush, but at the last minute Cheney and Rumsfeld convinced Bush not to support the policy for a variety of in retrospect stupid reasons.  Kim went home humiliated and angry.  At the end of 2002 it was found that North Korea was starting to enrich uranium, which was not part of the agreement, but the US said that this violated the agreement and stopped shipping materials to North Korea under the agreement.  This led to North Korea fully pulling out.  It restarted the Yongbyan plant and made its earliest nuclear weapons out of plutonum from that plant.  Of course soon thereafter most attention was taken up by Bush's even more disastrous invasion of Iraq, but his early blundering in Korea paved the way for  North Korea to get the nuclear  weapons that are now such a problem.

Barkley Rosser

A Climate of Capitalist Dominance

We’ve now had a chance to see Stephens #2, the second column on climate change by the new NY Times voice on the right, Bret Stephens, and unlike the first (which reasoned—sort of—back from its conclusions in true hackish fashion), this one isn’t so bad.  He argues that government action on climate change has done as much harm as good, pointing to the biofuels fiasco and shortcomings in the European (Carbon) Trading System (ETS) and Germany’s Energiewende as cases in point.  I agree.  What he says about these programs deserves to be said, especially since too many self-styled progressives won’t.  There’s a lot of really sketchy climate policy out there.

So what does he miss?  The first omission, and it’s an important one, is that he considers only the failures of government, not those of business and the market.  Above all, the continued operation of, and even investment in, a fossil fuel-based economy in the face of what we know about climate risk, is a massive fail, greater than every error committed by governments.  That doesn’t justify bad policy, but it puts government malfeasance in perspective.

To see the second omission we need to drill down a bit.  Consider the three examples Stephens brings up; what do they have in common?

Biofuels: Rather than taking action to remove fossil fuels from our energy base, government policy boosted a supposed “green” energy source derived from commercially grown crops.  This generated substantial profits for agribusiness, but, as Stephens rightly argues, it did little if anything to forestall greenhouse gas accumulation while producing a number of serious economic and social costs.

The ETS: Despite howls of protest from the scientific community, European politicians made decision after decision that eviscerated their carbon pricing system, handing out carbon permits for free, setting meaningless targets and removing large sectors of the economy from regulation.  The system has essentially broken down, but not before, as Stephens mentions, bilking European households of billions in energy costs, which went directly into corporate coffers.

Energiewende: While the achievements of solar and wind energy promotion in Germany are remarkable, the overall strategy prioritizes expansion of renewables and avoids taking any action to simultaneously restrict carbon fuels.  The result is that Germany has both record-setting increases in renewable capacity and hardly any reduction in carbon emissions.

All of these examples have a common theme: governments seem unable to frame climate policy in any terms other than subsidies for corporate investment and profit.  A biofuels initiative is easy to advance, since it funnels public money to agribusiness.  The only ETS element that had any effect is the one that temporarily increased electricity prices and allowed privately-owned utilities to reap all the profits.  Energiewende supports firms that invest in the renewable sector but overlooks firms that continue to profit from burning carbon.

The common denominator is overweening capitalist power.  Climate policy is constrained by the determination of wealth-holders to protect and expand their wealth.  An effective response to the threat of a climate catastrophe, on the other hand, would unavoidably deplete their wealth—not only the stranded assets of the fossil energy sector but a range of other investments that would be devalued by a rapid shutdown of oil, gas and coal.  (I’ve done a back of the envelope estimate that the wealth hit to non-energy assets would be approximately as great as that to carbon energy.)

So I’m on board with what Stephens is against but not what he’s for.  Rather than dismiss all action on the climate front as misguided, I would like to see the non-wealth-obsessed interests in society mobilize to overcome capitalist power.

Against the Subjective Theory of Knowledge

The story begins in France, post-1968 and post-decline-and-fall-of-the-French-Communist-Party.  The legitimacy of power in France, the country of the Grandes Écoles, historically depended on claims to expertise, and the Communists had offered a pole of opposition based on “scientific” Marxism.  When Communism collapsed, how could the French left oppose power?  The response was to refound the movement on a posture of radical subjectivism: the experts’ claims to truth, derived from their so-called master narrative, would be refuted by a deeper truth derived from the subjective experience of the oppressed.  Their subjectivity would no longer be reduced to a chunk of data to be processed by the ruling experts; no, being the very substance of truth, it would be available only to those who had actually lived this experience and would have precedence over all external claims.  Take that, technocrat!

This radical subjectivism was smuggled into the United States, wrapped in innocent-looking volumes of cultural criticism, where the context was different.  Elite claims to power in the US are not generally based on expertise in the French manner, and in any case there had been a deep debate between Left and Right over the question of democracy versus technocracy in the 1920s, Dewey against Lippmann.  The US Left, in the decades following this debate largely adopted the optimistic view that radical democracy could embrace expertise, and the belief that science and political radicalism are compatible can still be seen in current activism over climate change, among other topics.  (True, a minority current on the left appeared in the 1970s which challenged scientific claims to knowledge, and it still exists, but it has little political influence.)

Initially the subjective theory of knowledge presented itself in the American context as a more radical assertion of freedom and personal difference.  It fed a pre-existing expressive conception of what it means to engage in political action, which has always had an appeal in the US, but before long it attached itself to identity politics.  According to the new subjectivism, racism came to be understood as the result of a discourse grounded in white non-experience of racial oppression, and so also sexism, a product of male discourse.  Such oppression, it was believed, could be challenged only by counterposing to these discourses of exclusion the truth inhering in the experience of people of color, women and other marginalized groups.  In this process the critique of expertise became a critique of rationalism applied to issues involving identity.  Rationalism was regarded as a rigged contest, a fig leaf for the dominant discourse, against which resistance could be grounded only in direct personal experience.  If you didn’t have the experience of oppression, no matter how cleverly you argued, you couldn’t know, and if you had it no one could tell you otherwise.  Voice was not a means for putting forward evidence; voice removed the need for evidence.

To be very clear, I am not arguing against subjective experience as a basis for knowledge.  Experience is real, and so is the meaning we attach to it.  An examination of racism or any other social problem would be seriously incomplete and probably misguided if it didn’t take account of how this condition is experienced subjectively.  I am not making a case for a supposed “objective” approach to understanding (a false ideal), nor for categorically putting externally observable data above subjective self-report.  That would be extreme.

Nevertheless, two types of problems have arisen from adhering to the opposite extreme that privileges subjective experience beyond all other forms of knowing, one at the individual level and the other collective.

The individual problem is that our experience, and the inferences we draw from it, is often a poor guide not only to the external world but also ourselves—who we are, what motivates us, and how we interact with others.  Cognitive psychology is nothing if not a litany of human foibles.  Autobiography is valuable, but not necessarily more truthful than biography written by others.  Your friends can tell you things about yourself you scarcely imagined.  A foreigner can often observe aspects of a culture that are invisible to those immersed in it.  Knowledge from within is valuable, but so is knowledge from without, which means radical subjectivism is lousy epistemology.

This problem has practical consequences.  In the 1980s America went through a period in which the subjective reports of children concerning possible child abuse were privileged over virtually any external evidence, and the result was the persecution of many innocent daycare workers and a wave of dubious “repressed memory” denunciations of parents.  Of course, many children were and are abused, and many adults are culpable, but the categorical privileging of child testimony or memory over all other forms of evidence clearly resulted in gross injustices.  The same critique can be applied to recent formal and informal determinations of violation and oppression on the basis of gender and race that privilege the self-reports of the (presumably) violated and oppressed.  When Rolling Stone messed up in its false exposé of “A Rape on Campus” two years ago, for instance, it had clearly been led off the rails by its assumption that the rape testimony of a woman possesses an existential truth that normal journalistic evidence-gathering cannot evaluate—but testimony can be wrong, even if it is offered in all sincerity.  Again, this is not to devalue what people say they have experienced; personal testimony is always crucial evidence.  But it can’t be the only evidence, or even the evidence that overrules all other.  Us humans are simply too fallible.

The collective problem exists because individual experiences vary.  It’s one thing to hear the testimony of a single voice describing what it means to be oppressed, but when issues like racism and sexism are discussed at a social level, how can the subjective experiences of thousands or even millions of individuals be combined into a composite voice to settle issues in dispute?  After all, if each experience is its own truth, without some further processing you would have a very large number of different truths, many of them contradictory.  There’s no escaping the need for an organization that offers its own voice on behalf of the many, so the rest of us can learn this composite truth.  But who gets to do this, and what experiences do they incorporate or set aside?

The politics of this representation is always fraught.  Sometimes open competition breaks out between different groups that each wish to express the general subjectivity but selected and combined according to different criteria.  Even when groups giving voice to identity are united there is often tension between individuals whose subjectivity is downplayed or ignored and the groups that claim to speak for them.  Given the underlying philosophy of radical subjectivism, there is no basis for individuals to contest the selection process that may have excluded them, since there are no criteria for selecting subjectivities, which in any case is not supposed to happen.  (No group openly states it performs this role; their rhetoric is always universal.)  Thus identity dissidents are effectively expelled from the entire framework.  Conservatives actively seek to locate these individuals, offering them support so they can draw them into their network.  The biographies of many black conservatives, for instance, fit this pattern.

As much as I respect the role that subjective knowledge needs to play in everyday life and social science, I think the extreme version, which holds that subjective experience is immune from challenge by any other mode of knowing, is causing great damage to the left.  The first step in freeing ourselves from it is to recognize it for what it is.

Climate of Complete Incomprehension

I finally got around to reading the NY Times new “responsible conservative”, Bret Stephens’, call for skepticism and moderation on climate change.  He adopts an attitude that exudes reasonableness and rejection of hubris.  Complicated modeling is an uncertain business and often fails; just look at Hilary Clinton’s Big Data campaign gurus.  Climate change is such a difficult, uncertain business, so why don’t liberals just back off and stop invoking a “scientific consensus” to bludgeon common people who don’t think decarbonization is the be-all and end-all?

If this is the outer limit of right-wing sanity, we’ve really got our work cut out for us.

First off, the guy seems to live in a binary, pre-probability universe.  At least, that’s the only sense I can make of a paragraph like

Anyone who has read the 2014 report of the Intergovernmental Panel on Climate Change knows that, while the modest (0.85 degrees Celsius, or about 1.5 degrees Fahrenheit) warming of the earth since 1880 is indisputable, as is the human influence on that warming, much else that passes as accepted fact is really a matter of probabilities. That’s especially true of the sophisticated but fallible models and simulations by which scientists attempt to peer into the climate future. To say this isn’t to deny science. It’s to acknowledge it honestly.

Well, yes.  I’ve read the latest assessment reports and the ones that preceded them, and it’s true that each claim is assigned a rough probability.  But to counterpose “fact” and “probability” is to really not understand how modern science works.  Science is always a matter of probability.  When I do a statistical test, I don’t sum it up by saying that it proves that my result is a “fact”, but that I can assign a provisional probability to it, or a confidence interval or (best yet) a plausible probability distribution around my best guess of what’s going on.  This is the basis for all modern work in the empirical sciences, and singling out the use of probabilities by IPCC as somehow demanding less credence or urgency is to demonstrate his own ignorance.

And there’s more.  Implicit in the entire piece is that the uncertainty is one-sided, that climate change might be as bad as the models predict, or it might be a more minor problem.  It never dawns on him that probability distributions have two tails, and the consequences of foregoing climate action might be much more severe, catastrophic even, than the mean prediction suggests.  This makes it clear that Stephens’ use of “probabilistic” to denigrate concern on climate change is pure ideology: he’s using the word to blow smoke over the issue rather than to illuminate it.

This is just op-ed #1 from their new guy, but it already looks like the Times has hired a hack.

Shorter hours -- If not now, when?

The litany of shorter work week prophecy is prodigious. Keynes famously predicted a 15-hour work week for "our grandchildren" in 1930. Fifteen years later, in a letter to T.S. Eliot, Keynes parenthetically suggested a 35-hour work week for the U.S. in the immediate post-war period.

In 1961, Clyde Dankert cited a New York Times article from 1949 in which a "well known labor economist" predicted a 20-hour work week by 1990 and a ten hour week by 2050. Eight years later, a vocational educator forecast the 20-hour week by 2000. Also in 1961, Dankert himself suggested 1980 as the year by which, "the thirty-hour workweek should be widely established and some progress made toward the twenty-five-hour week." Three years later, he was somewhat more circumspect, "In time we should reach the 30-hour week and even the 25-hour week, but despite all the talk about the leisure society, that time is not now and will not be for quite some years.

In a 1957 newsletter, First National City Bank of New York calculated that it would take 31 years to achieve a 32-hour work week if productivity increased at an average of between two and three percent a year and if workers chose to take the benefits in the same proportions of wages and hours as they had from 1909 to 1941. Alternatively, a four-day work week could be attained in eight years if productivity gains were applied exclusively to work time reduction. A similar calculation had been made by Fortune editor, Daniel Seligman in 1954:

A calculation made by Fortune for the years since 1929 suggests that in the past quarter-century U.S. workers have been taking about 60 per cent of the productivity pie in the form of income, about 40 per cent as leisure. Assuming that the four-day week for non-agricultural employees will be attained when the total work week is in the vicinity of 32 hours, that productivity continues to increase at an average of 2 or 3 per cent a year, and that something on the order of the recent 60-40 ratio for income and leisure continues in effect, the 32-hour week should be spread throughout the whole non-farm economy in about 25 years. 

As did the City Bank forecast, Seligman noted that the shorter work week could be achieved even sooner if workers were willing to forego wage increases.

In fact, productivity gains from 1954 to 1979 averaged 2.4 percent per year. From 1957 to 1988, annual productivity gains averaged 2.2 percent. Assuming 40 percent of actual historical productivity gains, ten paid holidays, and four weeks annual vacation, a 32-hour workweek should have been realized by around 1990 -- aside from the likelihood that progressive reduction of the hours of work would have accelerated productivity gains.

Using the same assumptions, the work week in 2016 should be around 26 hours. Or perhaps people would prefer to continue with the 32-hour week and take three months annual vacation. These calculations overlook the fact that reduction of the hours of work had already stagnated in the early post-war period. If we backdate the 40 percent of productivity reduction to 1950, the 32-hour mark could have been reached seven years earlier.

Edward Denison estimated that 10% of historical productivity gains could be attributed directly to hours reduction. The chart below factors in that additional 10% productivity gain and compares actual average annual hours, 1950 - 2015 with potential hours if reduced according to Seligman's and Denison's assumptions:

But you can't have it now. You just can't. How about a tax cut for the richest, instead?

Is Authoritarian Nationalism Mostly A Rural Phenomenon?

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

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

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

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

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

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

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

Barkley Rosser

Reader Mail and Rand A'Pauling

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

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


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


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

Financial Times Messes Up On Italy

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

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

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

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

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

Ciao you all.

Barkley Rosser 

Poland: "What Are These People Complaining About?"

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

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

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

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

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

Barkley Rosser

Learning from The Great Recession....NOT

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

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

Are you kidding me?

Gibberish

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

Jennifer Rubin, WaPo

Trump and right-wingers who have never heard of the lump-of-labor fallacy seek to construct a false narrative to explain real hardship caused by a whole variety of issues, including automation, a skills mismatch and education inadequacy. We would hope the poll is a positive sign that Americans grasp that “the world is not a zero-sum game where natives must lose out in order for immigrants to gain — or vice versa.”

Isabel Sawhill, Brookings Institute

One problem is that when people look at the labor market, they often come to the wrong conclusion. They see well-paid jobs in manufacturing or elsewhere disappearing. They conclude that there are simply not enough jobs to employ everyone who wants to work. Their implicit view of the world is that there are a fixed number of jobs and that it will be impossible to supply everyone with a reasonable livelihood. Economists call this “the lump of labor” fallacy. This way of thinking is a fallacy because the number of jobs in the economy depends on how much people are spending and investing, that is on the total demand for goods and services.

Chris Yapp, Open Democracy

Technology advances both destroy and create work. In the long run, technology often creates more jobs than it destroys. In the short term, while we cannot see what those new roles may be the “lump of labour fallacy” often becomes a central concern. The argument is that there is a fixed amount of work, so if some is automated the amount of available work must reduce.

Stuart Anderson, Reason.com

The central flaw in arguments alleging a negative impact on native employment due to the presence of foreign scientists and engineers is that they are based on the "lump of labor fallacy" – or the notion that there is a fixed number of jobs in the economy. Hence, the argument goes, if you increase the number of workers, you get lower wages and rising unemployment. But high-skilled tech workers grow the economic pie by boosting productivity, encouraging more investment and increasing entrepreneurship. Overall, they create jobs.

Economists call this “the lump of labor” fallacy. Trump and right-wingers who have never heard of the lump-of-labor fallacy seek to construct a false narrative to explain real hardship caused by a whole variety of issues, including automation, a skills mismatch and education inadequacy. The central flaw in arguments alleging a negative impact on native employment due to the presence of foreign scientists and engineers is that they are based on the "lump of labor fallacy" – or the notion that there is a fixed number of jobs in the economy. In the short term, while we cannot see what those new roles may be the “lump of labour fallacy” often becomes a central concern. Economists call this “the lump of labor” fallacy.

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

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

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

See also LUMPO'

Turkey And The Trend To Authoritarianism

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

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

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

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

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

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

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

Barkley Rosser

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

See also "Boundless Thirst for Surplus Labor"

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

Frik Els wrote last year on what on the surface might seem as good news for Zambia:

Last week Glencore announced plans to invest more than $1.1 billion in its Mopani copper complex in Zambia over the next two years. The investment, which will help improve the mine’s operational efficiency and extend its life, is credit positive for the Southern African nation because it will help drive growth says ratings agency Moody's. Glencore’s expansion and upgrade plan for 75%-owned Mopani will return output to 110,000 tonnes per year by 2018 and reduce costs at the same time and will enable the Swiss mining and trading giant to "take advantage of the potential for a gradual recovery in copper prices over the next three to five years." Glencore acquired the historic Mopani complex in Kitwe province in 2000 after the mine was privatized and has since spent $3 billion on the project.

Copper prices were less than $1 per pound in 2000 but rose to almost $5 per pound by 2011. They fell to around $2.30 per pound but have been on the rebound. One would think this Mopani mining affiliate of Glencore is getting not only jobs in Zambia but also a lot of tax revenues given all these economic rents from high copper prices. Christian Aid, however, has been accusing Glencore of transfer pricing abuse:

The first signs that something may have been seriously wrong with the taxes of Glencore's Zambian subsidiary emerged in early 2011, with the leak of a draft report by auditors Grant Thornton and Econ Poyry. It has never been clear who leaked the report. Even by the standards of 2015, when revelations about multinationals' tax affairs are commonplace, the 23-page document is an extraordinary one. It highlights irregularities around the mine's operational costs, revenues, transfer pricing, employee expenses and overheads and covers the years 2006-7 and 2007-8. The auditors who wrote it also complained bitterly about the obstructiveness they faced when they attempted to do their job, which was commissioned by Zambia's tax authority, the ZRA. "It should be noted that the international team leaders have not experienced such a lack of compliance in any other country, and Grant Thornton Zambia confirmed that this attitude is also not typical for other industries/companies in Zambia," they said. Glencore has always dismissed the report as a flawed draft which contained major mistakes and it and Mopani have always denied wrongdoing.

Maybe this report prepared on behalf of the Zambian government does not tell the whole story but one would think Glencore should be asked to present its own analysis of the transfer pricing issues. And maybe Donald Trump should release his tax returns. But one has to wonder what Peter Navarro and Wilbur Ross think about this investment in the Mopani copper mines especially if most of the economic rents can be so easily diverted to Switzerland tax free.

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

At Noahpinion:

A lot of people have trouble wrapping their heads around the idea that the basic "Econ 101" model - the undifferentiated, single-market supply-and-demand model - doesn't work for labor markets. To some people involved in debates over labor policy, the theory is almost axiomatic - the labor market must be describable in terms of a "labor supply curve" and a "labor demand curve". If you tell them it can't, it just sort of breaks their brain. How could there not be a labor demand curve? How could there not be a relationship between the price of something and how much of it people want to buy?

Funny thing is this is pretty similar to what Sandwichman is saying in Boundless Thirst for Surplus-Labor. The "lump of labor" is a partial equilibrium model and rebuttals to the "fallacy" also invariably rely on partial equilibrium models. They are both wrong.