The Susan Collins Excuse

I listened very carefully to Senator Collins as she detailed her excuses for letting Brett Kavanaugh become a Supreme Court Justice. Two aspects of her speech were particularly absurd and kind of appalling. Her claims that Kavanaugh is a moderate akin to Justice Stevens were beyond absurd. The most appalling aspect of her speech was how she dismissed the claims that Kavanaugh sexually abused women in high school and/or college:

Some of the allegations levied against Judge Kavanaugh illustrate why the presumption of innocence is so important. I am thinking in particular not at the allegations raised by professor Ford, but of the allegations that when he was a teenager Judge Kavanaugh drugged multiple girls and used their weakened state to facility gang rape. This outlandish allegation was put forth without any credible supporting evidence and simply parroted public statements of others. That’s such an allegation can find its way into the Supreme Court confirmation process is a stark reminder about why the presumption of innocence is so ingrained in our a American consciousness. Mr. President, I listened carefully to Christine Blasey Ford’s testimony before the Judiciary Committee. I found her testimony to be sincere, painful, and compelling. I believe that she is a survivor of a sexual assault and that this trauma has upended her life.

She believes Dr. Ford but then she went on and on like a defense attorney why she did not believe her when she clearly said it was Kavanaugh. But the real stunner was when she said this:

I do not believe that the claims such as these need to be proved beyond a reasonable doubt. Nevertheless, fairness would dictate that the claims at least should meet a threshold of more likely than not as our standard. The facts presented do not mean that Professor Ford was not sexually assaulted that night or at some other time, but they do lead more to conclude that the allegations fail to meet the more likely than not standard.

I guess “the facts presented” is the key aspect as we know the FBI was not allowed to pursue corroborating evidence, which is why this episode is clearly absurd. But does Senator Collins truly grasp this more likely than not concept? I’m an economist not a lawyer but I have worked with tax attorneys and accountants on the transfer pricing aspects of tax provisions under FIN 48:

Under the Interpretation, absent the existence of a widely understood administrative practice and precedent of the taxing authority, an enterprise cannot recognize a tax benefit in its financial statements unless it concludes that it is more likely than not that the benefit will be sustained on audit by the taxing authority, based solely on the technical merits of the associated tax position. In this evaluation, an enterprise must assume that the position (1) will be examined by a taxing authority that has full knowledge of all relevant information and (2) will be resolved in the court of last resort.

Let’s key in on “full knowledge of all relevant information”. I have seen multinationals trying to convince financial auditors not to impose tax reserves based on some suspect report that key intercompany prices are arm’s length and where material information was not disclosed. In my experience, the financial auditors would refuse to give FIN 48 clearance until this information was disclosed and properly evaluated. It is well known that the latest FBI inquiry literally ran away from material information that may have corroborated Dr. Ford’s testimony. So when Senator Collins raises this More Likely Than Not standard – she should know better given the fact relevant information was not properly explored. Nicole Belle makes a strong case that the Republicans even knew ahead of time that Dr. Ford’s allegations are true:

Don't Kid Yourself. The GOP KNOWS Kavanaugh Tried To Rape Someone ... The FBI notifies the White House of the letter to see if they want follow-up. The White House declines further investigation. But now they know. And now they pass it on to GOP operatives. Early August. So now, Kavanaugh, the FBI, the White House AND GOP operatives all know. BEFORE the hearing even begins. So now the PR campaign goes into overdrive.

Read the entire thing as it explains a lot of the Republican fake anger at Senator Feinstein, which was all a gigantic smoke screen to disguise the fact that the Republican operatives were doing all they could to demean Dr. Ford, pump up Kavanaugh, and evade any real investigation. Senator Collins little More Likely Than Not sort of puts this in the domain of civil litigation rather than criminal charges where the standard is:

preponderance of the evidence - n. the greater weight of the evidence required in a civil (non-criminal) lawsuit for the trier of fact (jury or judge without a jury) to decide in favor of one side or the other. This preponderance is based on the more convincing evidence and its probable truth or accuracy, and not on the amount of evidence. Thus, one clearly knowledgeable witness may provide a preponderance of evidence over a dozen witnesses with hazy testimony, or a signed agreement with definite terms may outweigh opinions or speculation about what the parties intended.

Suppose Dr. Ford chooses to file a civil lawsuit against Brett Kavanaugh and Mark Judge. What then? We would have actual discovery if this lawsuit is allowed. Then again I bet Kavanaugh would hire some slime ball lawyers to squash this lawsuit even if they had to take it to the Supreme Court where Justice Kavanaugh could file the fifth vote in favor of his own motion.

"Lock Her Up!!!"

For several years now we have all grown accustomed to the fact that President Trump likes to go to rallies of his supporters where they relentlessly chant the subject head of this post.  It has always referred to his opponent in the presidential election of 2016, the person who got about 3 million more votes than he did, even as he managed to win in the determining electoral college.  While I recognize that Hillary Clinton has many flaws, she has been investigated more times than I can count for many alleged offenses, some of which I suspect she is guilty of, even as some of them were pretty minor (see financial shenanigans back in Arkansas).  She also was subjected to many Congressional investigations by several committees for many alleged offenses, including her notorious getting emails in her home like her three predecessors did, although none of them were ever so investigated. She even had 8, really 8, investigations of her role in the Benghazi fiasco, these costing taxpayers many millions of dollars.  The final one involved her  sitting for 11 hours straight while a GOP led committee interrogated her, ending up with them looking like a bunch of exhausted foolish idiots while she looked  cool as a cucumber. The final bottom line is that none  of those investigations led to even an indictment for anything.

A peculiar sideshow on this is that among the more bizarre investigations of her, costing millions of US taxpayer dollars, was that in 1998 by the Starr group of the chance that she had been responsible for the death of Vincent Foster, who committed suicide on the GW Parkway.  The person advocating this investigation of a conspiracy theoty and engaging in it, only to find a big fat nothing, was none other than Brett Kavanaugh, apparently about to be confirmed to be the  next lifetime member of the US Supreme Court.

So now we come to why I am posting this.  This past Tuesday President Trump attended a rally in Mississippi where he mocked Dr. Christine Blasy Ford on her memory lapses in connection with her allegations about Kavanaugh sexually asssaulting her.  In fact Trump lied about certain parts of what she failed to remember, notably the year it happened and where in the house it happened, which in fact she reported under oath.  For this lying, Trump was rewarded with the chant he usually gets at his rallies, the chant usually directed at the not likely to be indicted or prosecuted or jailed Hillary Clinton, but now apparently at Dr. Ford, who even if her memonty is flawed is not remotely near being guilty of any crime, that now nauseating chant of "Lock he Up!"  And even after this abysmal display by Trump and his supporters, or perhaps more disturbingly precisely because  of it, Brett Kavanaugh will be sitting on the Supreme Court of the United States for a very long time.

Barkley Rosser 

I Was Wrong: US-Mexico Trade Deal Lives With Canada: USMCA Rarher Than NAFTA

At the last minute last night the US and Canada cut a deal, so now Canada is on on the deal to change NAFTA to USMCA.  I think the name change is the biggest part of it, even though Trump still claims that NAFTA was "the worst trade deal ever" and the new deal makes relatively minor changes in it, especially if one considers what would have been the case if the US had actually joined the TPP, as most of the environmental, labor, and intellectual property parts of the new deal (the environmental and labor parts largely improvements, if not too dramatic) were already agreed to by Mexico and Canada when rhey joined TPP, which they belong to along with all its other members aside from the US.

Beyond continuing NAFTA and adding the TPP parts, the main changes are in the auto industry and the dairy industry, the former mostly affecting Mexico, the latter mostly affecting Canada.  Between the restrictions on outsourcing and the $16 per hour limit on imports, there may be some shifting of auto parts production from Mexico to the US and possibly Canada as well.  This will lead to job losses in Mexico, but there may be some Mexican autoworkers who see wage boosts also.  The auto deal has little impact on Canada aside from Trump retracting his threat to impose tariffs, which was opposed by GM and Ford as well as the UAW thanks to the profound integration between the US and Canadian auto industries.

However, it must be noted that while there may be some increase in production and employment in the US auto parts sector, there is likely to be other damage to the US auto industry.  The new rules will increase costs on top of the existing steel and aluminum tariffs, which were not removed by this agreement, although both Mexico and Canada wanted them to be removed.  So  US consumers will be hurt, but the higher costs will make all auto exports from the three nations less competitive, and indeed US auto exports have been declining in recent months, something likely to accelerate after this deal really goes in.  It is quite unclear whether there will be a net gain or loss for employment in the US auto industry overall as a result of this.

Regarding dairy, well, Scott Walker gets some help in Wisconsin as indeed there will be some increased exports to Canada of dairy products, especially powdered milk and infant formula.  Apparently the opening is not as big as being advertised, and this looks to be where Trump made some give.  Probably overall US dairy industry is getting about 50% of what was asked for.  I note that dairy was never part of NAFTA, so I guess it will now officially be part of the new USMCA. 

I cannot leave this without noting that while the Canadian dairy industry has been heavily protected (and Canadian consumers might get a gain in lower dairy product prices), the US government has long subsidized the US dairy industry.  My favorite outcome of that was that the USDA long bought butter surpluses and piled them up in an underground "butter mountain" near Madison, WI.  Quite a few years ago that mountain caught fire and burned for about three months.  I think those subsidies have been reduced, but it is not the case that all the protectionism and subsidies have been on the Candian side rather than the US side.

Anyway, I prefer to admit that I am wrong upfront before somebody points it out, and I was on this one.  Lighthizer and others pulled out the deal at the last minute, even if it is not that big of a deal.

Barkley Rosser

I Believe Kellyanne Conway

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

I believe Conway because she spoke about this before, in October 2016, in an interview with Chris Matthews, right after the Access Hollywood tape of Donald Trump's "locker room talk" came out.

KELLYANNE CONWAY: I would talk to some of the members of Congress out there when I was younger and prettier, them rubbing up against girls, sticking their tongues down women's throats who - uninvited, who didn't like it.

CHRIS MATTHEWS: Yes. 

CONWAY: Yes, you're saying yes because you know it's true. They used to - 

MATTHEWS: No, I'm hearing it - I've heard the accounts, of course, but I want to ask you – 

CONWAY: They did - no, absolutely. And some of them, by the way, on the list of people who won't support Donald Trump because they all ride around on their high horse.

Conor Friedersdorf summed up that exchange at the time: "the GOP nominee’s campaign manager declared on national television that multiple prominent Republicans –– some who oppose Trump, and others, apparently, who support him –– perpetrated sexual assaults, and she knows their names."

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

Trump Destroys His Favored SCOTUS Nominee

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

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

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

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

Barkley Rosser

The US-Mexico Trade Deal Dies

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

As noted in previous posts here (Aug. 29, econospeak.blogspot.com/2018/08/marrying-nafta-and-tpp-us-mexico-free.html and Sept. 6, econospeak.blogspot.com/2018/09/has-trump-gone-over-the-edge-on-negotiating.html , sorry having trouble providing the links), top Republican senators such as No. 2 John Cornyn of Texas and others have said they will not approve a deal that does not include Canada, a reformed NAFTA.  Let me note that it was not impossible for this US-Mexico trade deal to form the basis of such a deal.  But, unfortunately, in the immediate aftermath of the announcement of the US-Mexico deal Trump announced that Canada must settle the negotiation on "our terms."  Oh.  The funny thing is that there was a possible deal.  The US was making demands of Canada about the dairy industry (never a part of NAFTA because it was so hard to make a deal) and Canada was making demands about the lumber industry, generally described as a dispute over "dispute resolution."  There were other issues, but these were the politically hard and sensitive  ones involving such places as Wisconsin and Quebec.  In the end it appears that no deal between the US and Canada has been made and probably will not be made in time for the Sept. 29 deadline.

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

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

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

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

Barkley Rosser

Catch 22.4

As the number of workmen that can be kept in employment by any particular person must bear a certain proportion to his capital, so the number of those that can be continually employed by all the members of a great society must bear a certain proportion to the whole capital of that society, and never can exceed that proportion. -- Adam Smith, The Wealth of Nations

An"invisible hand" reaches up out of the subterranean depths of that "whole capital" periodically to re-establish the "certain proportion," which lies somewhere between 20 and 25 percent. The average from 1948 to the end of 2017 was 22.43434%. It looks rather like this:

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

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

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

A Weak Defense of Citizen United: Ownership v. Control

Many thanks to Peter Dorman for highlighting Citizens United As Bad Corporate Law. I guess we had to endure this comment, which is a really weak rebuttal:

Corporate shareholders are most definitely owners; they alone have the authority to sell their shares or the company's assets. Their rights are based not on contract law but statutory rules of franchise. They are guaranteed rights of assembly abd representation, and they cannot legally surrender those rights even if they elect Directors who vote to do so.

My first thought to this attempted rebuttal was the complaints of condominium owners in San Francisco. They may own the rights to what is effectively an apartment but they have to deal with management as they really do not own the land. And even the land owner does not have that much control in a city where regulations control land use. My second thought involved the minority shareholders of Yukos Oil during Yeltsin’s Russia, which I noted in this related post:

AB noted yesterday that some of Sinclair Broadcasting’s shareholders were upset the decision of management to aid the Bush-Cheney ’04 campaign with free air time for another smear of John Kerry. Their stock, which was around $10 a share in early August, is trading now for about $7.30 a share.

Now I get that the corporate governance rules in the U.S. are not as pathetic as they were during Yeltsin’s Russia but the idea that an individual shareholder has any real control of how a corporation is run is quite naïve. Peter asked this commenter if he had read the paper. Had he done so, he might have noticed footnote 34 on page 19, which included a seminal paper by Ronald Coase entitled “the Nature of the Firm”. This paper initiated an entire literature on what this recent paper calls the “nexus of contracts theory”. If our commenter has not read this literature, he should.

A Few Thoughts on “Sorry to Bother You”

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

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

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

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

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

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

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

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

Citizens United, Thoroughly Debunked

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

That said, I was struck by this new critique of CU.  Its authors, Jonathan Macey and Leo Strine, base their analysis on a point I was familiar with in the context of economic debates over the Jensenian shareholder rights theory of the firm, but its application to CU is obvious once you think about it.  The article ranges over a number of topics, but here’s the core, taken from the abstract:

In this Article we show that Citizens United v. FEC, arguably the most important First Amendment case of the new millennium, is predicated on a fundamental misconception about the nature of the corporation. Specifically, Citizens United v. FEC, which prohibited the government from restricting independent expenditures for corporate communications, and held that corporations enjoy the same free speech rights to engage in political spending as human citizens, is grounded on the erroneous theory that corporations are “associations of citizens” rather than what they actually are: independent legal entities distinct from those who own their stock.....[C]orporations do not have owners, they have investors who have contract-based, financial interests in the firms and limited management rights.

The best ideas often seem obvious once they are put forward, but the trick is to see them in the first place.

Tower of EconoBabel

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

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

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

No. You tell me.

Mainstream Media Says Trump Triumphs Over Iran!

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

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

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

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

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

Barkley Rosser

Is the Ecological Salvation of the Human Species at Hand?

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

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

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

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

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

Georescu-Roegen's response to Solow, in the 1975 article, "Energy and Economic Myths" emphasized the distinction between growth and development:

…if we are talking about growth, strictly speaking, then the depletion of resources is inherent in the process by definition. Solow's exposition of why he thought The Limits to Growth was bad science relied on blurring the distinction between qualitative development and quantitative growth and counting the former as an instance of the latter. This sort of legerdemain is, of course, standard in so-called growth economics.[2]

In 1979, Jacques Grinevald and Ivo Rens translated "Energy and Economic Myths" and included it with two other articles on bioeconomics in a book titled Demain La Décroissance: Entropie – Écologie – Économie.[3] The term, décroissance occurs in the translation of a section in which Georgescu-Roegen criticized what he considered "the greatest sin of the authors of The Limits" -- their exclusive focus on exponential growth, which fosters the delusion that "ecological salvation lies in the stationary state."

In opposition to that view, Georgescu-Roegen argued, "the necessary conclusion of the arguments in favor of that vision [of a stationary state] is that the most desirable state is not a stationary, but a declining one (emphasis in original)." His argument was not that ecological salvation lies instead in a declining (or "degrowth") economy. It was that there can be no "blueprint for the ecological salvation of the human species." as he elaborated in the subsequent paragraph:

Undoubtedly, the current growth must cease, nay, be reversed. But anyone who believes that he can draw a blueprint for the ecological salvation of the human species does not understand the nature of evolution, or even of history -- which is that of a permanent struggle in continuously novel forms, not that of a predictable, controllable physico-chemical process, such as boiling an egg or launching a rocket to the moon.

Pessimistic? Perhaps, but it is less so if one keeps in mind Georgescu-Roegen's injunction against blurring the distinction between quantitative development and quantitative growth. There are no "built-in mechanisms," either of the price system, of the regulatory and tax regime or of a Green New Deal that can ensure ecological salvation because the latter requires not blueprint or a formula but "permanent struggle in continuously novel forms."

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

Decoupling the Derivative

"What Keynes Ignored"

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

Here is how Keynes "ignored" those "workaholic tendencies":

Yet there is no country and no people, I think, who can look forward to the age of leisure and of abundance without a dread. For we have been trained too long to strive and not to enjoy. It is a fearful problem for the ordinary person, with no special talents, to occupy himself, especially if he no longer has roots in the soil or in custom or in the beloved conventions of a traditional society. ... 

For many ages to come the old Adam will be so strong in us that everybody will need to do some work if he is to be contented.

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

The Minsky Moment Ten Years After

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

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

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

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

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

Barkley Rosser