US Policy On Iran After The Midterm Elections

A curious coincidence is that the US midterm elections happened one day after the US reimposed its second round of illegal economic sanctions on Iran, with the focus on oil, shipping, and banking, along with some other sectors.  Despite all but a handful of governments  around the world supporting Iran in this matter (despite apparently two attempted assassinations of opponents of Iran's government in European nations recently) against the US out of a hope to keep Iran following the JCPOA nuclear agreement as it has by all reports been doing, the impact of the midterm elections is probably to reinforce support for Trump's policy, even as mostly he lost support in the election.  The reason is that the most important location for serious critics of a president's foreign policy usually come out of the Senate, not the House of Representatives or governors.  So, even though the Dems have taken the House and gained governorships, the GOP gaiined in the Senate, and some of the GOPs leaving included the few Trump critics, notably departing Foreign Relations committee Chair, Robert Corker of TN.  This is the case, even as those GOP gains may only amount to a net two (Dem Sinema now ahead in AZ) or even only one (Nelson in FL may yet pull it out too).

Yet another reason the gains by Dems will probably not lead to much more pressure on Trump on this is that many Dems at least somewhat support his policy, especially those strongly influenced by the Israeli government.  Thus in today's Washington Post, a lead editorial (presumably by neoconnish Fred Hiatt) said there may be reasons for imposing some sanctions because of "malignant" policies by Iran, notably supposedly supplying missiles to the Houthis in Yemen, plus the Syrian government, and Hezbollah in Lebanon (there are doubts on the extent of all this), even as WaPo opposes the US withdrawing from the JCPOA and is highly critical of Saudi Arabia due to the murder of their journalist, Jamal Khashoggi, probably on orders of KSA Crown Prince MbS, a main enemy of Iran.  Indeed, members of both parties in the Senate have become unhappy with the Saudi war in Yemen and may move to cut US military support of the Saudi war effort there.  But this will probably have little to no effect on the reimposed economic sanctions on Iran.

As it is, the ultimate impact of the new sanctions is quite complicated with various cross-cutting effects that are already damaging the Iranian economy, but may end up having less impact than Trump would like.  The most important part of the sanctions involves Iran's oil exports, which US officials claim they would like to see go to zero.  Early forecasts had those falling to about a third of the about 2.8 million bpd of a few months ago, which anticipation helped push oil prices up substantially, with Brent crude topping $80 per barrel while West Texas intermediate crude topped $70 per barrel.  But the Trump administration has granted temporary waivers to 8 countries allowing them to continue importing Iranian oil for awhile, supposedly to avoid excessive disruption of global markers (while not officially announced, the Japan Times claims the 8 waivered nations are China, India, Japan, South Korea, Taiwan, Turkey, Italy [only EU nation on list]. and UAE [yes, that big anti-Iran oil exporter imports oil from Iran]).  As it is, with surging oil inventories in the US, prices have fallen sharply in the last two weeks, with Brent down to nearly $70 and WTI to nearly $60 , with some commenters today claiming that oil is turning into a "bear market."  While this clearly allows Iran to export more oil than previously thought for now, the price decline will hurt Iran.

A fundamental clash in this is between governments and the businesses based in their nations.  Only a handful of national governments officially support Trump in this policy, basically the odd group of Saudi Arabia, Israel, UAE, Bahrain, and apparently Egypt, with a few others sort of semi-supportive, such as Jordan, if with little enthusiasm.  Russia, China, Turkey, and the major EU nations all oppose Trump's policy.  While businesses in Russia in particular go along with their government's view, nearly all of those that are reasonably large in the EU nations are obeying the demands of the US government to cut back business relations with Iran, with poster  boys for this being Total and Peugeot from France out of fear of losing markets in the US or facing sanctions from the US government.  All of this has led to efforts in both China and the EU to set up alternative payment systems to avoid using US dollars and going through US-controlled financial intermediaries, a big conflict over this involving the SWIFT payment system, which the US would like to prevent Iran from using while the major European nations oppose this move by the US.  As it is, given the ongoing efforts by they EU nations to help Iran out, it seems especially unwise of Iranian intel agencies to be attempting to assassinate people in France and Denmark as they have reportedly done, albeit unsuccessfully so far.

A final point is that it is extremely unlikely that this policy by Trump will lead to Iranian leaders kowtowing to him and entering into any negotiations.  If anything, they might get pushed into pulling out of the JCPOA or create trouble for their enemies in various ways.  OTOH, it may be that the sanctions will not lead to as harsh impacts on the Iranian economy as forecast, whether this is due to the Europeans and Chinese setting up alternative payments systems, or due to Iran wriggling out of the sanctions whether due to waivers or through such maneuvers as barter transactions involving oil or the use of "ghost ships" that do not use any radio communications, something reportedly already going on.  We shall see how this all turns out, but for now Trump probably has gotten a modest boost of support for his policies within the US as a result of the midterm elections, much as I am not pleased to see this.

Barkley Rosser

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Monday Before The Midterms And WaPo Is At It Again

It is Robert J. Samuelson doing his usual schtick, albeit with some recognition of other issues, such as global warming and immigration.  But these are not what has his prime attention on the day before midterm elections in the US.  Moaning that "Everyone" will lose this election, his main focus is on the budget deficit, without a single mention of the Trump tax cuts.

We get, "Start with budget deficits. In fiscal 2018, the gap between federal spending and revenue was $782 billion, nearly 4 percent of gross domestic product (GDP). That's up $116 billion from 2017. Based on current spending and taxes, the Congressional Budget Office expects large deficits forever.     
With a 3.7 percent unemployment rate, no one can attribute these deficits to a weak economy.  Put simply, Americans want more government benefits and services than they're willing to pay for in taxes.....

Our leaders are making proposals that would worsen deficits. Trump backs more tax cuts [ah ha, that he passed some is implicitly recognized]; Democrats advance expensive new health benefits and guaranteed jobs for all [well, at least he did not call for cutting Social Security, as he usually does]."

OK, this could be worse.  He could have actually called for cuts in "entitlements" as he so often does.  But clearly after not mentioning that the deficit has swelled due overwhelmingly because of Trump's tax cuts, he implicitly puts forward cutting "government benefits" as at least equal to raising taxes in terms of dealing with budget deficits.  There is no end to it.

Barkley Rosser

Some Questions about the Ten-Hour Week

Three weeks ago, in response to the IPCC report warning that CO2 emissions had to be reduced to 45% of their 2010 levels by 2030 to avoid the possibility of global temperature rising above 1.5°C, I posted "The IPCC 1.5° C Report and the Ten-Hour Week," which offered the sketch of a plan for how to do that. I have no illusions that the IPCC or any other prestigious organization will latch on to this idea and seek to flesh it out with concrete policy proposals. In some respects, I offered the Ten-Hour Week more as a thought experiment, a way of thinking about the scope and scale of effort required.

I still think it is a damn good way to think about the problem and actually would be worthy of elaboration if only it wasn't "easier to imagine the end of the world than the end of capitalism." Several of my subsequent EconoSpeak posts -- "The Political Economy of the Working Class" "Absolute Decoupling and Relative Surplus Value: Rectification of Names" "Business As Usual: Running on Empty" and "Scratch That" -- have in fact been elaborations on the Ten-Hour Week thought experiment and the issues it raises.

I also posted it to the sustainable consumption discussion list, SCORAI, where it got some very perceptive questions from participants. With permission, I am posting the questions and answers below. Thanks for questions, comments and permission to Thomas Love, Professor of Anthropology, Linfield College, Oregon; John de Graaf, film maker and co-author of Affluenza, Seattle, Washington; Anna Berka, Research Fellow, Energy Centre, University of Auckland Business School, New Zealand; and William Rees, Professor Emeritus Faculty of Applied Science School of Community of Regional Planning, UBC, Vancouver, BC.

Tom Love:

Thanks Tom Walker for a compelling thought experiment.  Interestingly compatible with the analysis David Graeber takes in his recent Bullshit Jobs, wondering about the nature of work in late capitalism and why we work so hard, even when over a third of people in the UK and the Netherlands report that their work (for which they are sometimes well remunerated) makes no difference in the world.  The work week could be drastically shrunk with little apparent effect on overall economic performance. 

But I’m missing a step in your thinking here.  The kinds of bullshit jobs Graeber documents are almost all white collar bureaucratic positions, whether private or public.  So even taking all your simplifying assumptions into account, why would emissions reduce by a rate corresponding to hours worked?  Presumably agricultural and industrial labor would proceed pretty much as is, in current quantities, no? 

John de Graff:

I hope Tom [Walker] won't mind my jumping in here.  The bureaucratic jobs you mention pay better than many of the production jobs and the people who have them then spend on all sorts of consumer products, travel etc.  It's the total compensation/spending (eg. per capita GDP) that has the strongest connection to carbon footprint since there is no absolute de-coupling at all, and with relative decoupling, ecological and carbon footprints continue to rise (albeit more slowly) as GDP increases. The spending of the white collar workers drives the increases in production of the agricultural and industrial laborers.  It may not be a 1:1 effect, but Tom is absolutely right here.  A cut in these bullshit jobs will render much overproduction untenable, forcing shorter working hours in the ag and industrial sectors to prevent massive unemployment.  Am I getting this right, Tom?

Reply from Tom Walker (Sandwichman) to Tom Love:

"So even taking all your simplifying assumptions into account, why would emissions reduce by a rate corresponding to hours worked?" 

That is an excellent question and my answer is that initially emissions wouldn't reduce by a rate "corresponding to hours worked" but explaining why they wouldn't and why that is o.k. anyway would complicate matters more than I want to in a first volley. I am convinced that the first 25% or so of work-time reduction would actually be an efficiency measure that would have little downward effect on final output BUT would also shift investment away from capacity expansion because of the continuing nature of the work-time reductions and higher wage share of income. After that initial 25% or so, there will come declines in output, incomes, consumption and thus emissions resulting directly from, and corresponding to, the reductions in hours. At the lower end emissions reductions may be > 1:1 to reduction in hours. 

So to put some imaginary numbers on it (albeit grounded in very recent empirical research), Let's say the initial 11% reduction in hours in the U.S. corresponds with a 4% reduction in emissions. That might seem disappointing but its something... and it comes with an improvement in "work/life balance." The second year brings a larger emissions reduction but still less than 1:1. People are meanwhile learning that they don't need to work as much as they used to to get by. And so on.

Anna Berka:

Hello Tom, all,  

Thank you for elaborating the thinking behind limiting working time; that's the part of the degrowth agenda I've not yet been able to get my head around.   

Like others in this thread I also have some concerns around the effectiveness, ethics and political feasibility of this proposal that you may have already thought long and hard about:  

• Your reasoning seems to rest on the fact that a large number of middle and upper income earners could benefit from less work and less stuff, and don't know it - a fair point. It would result in downsizing, more family time, more community time - all good things. But limiting work hours hits low wage earners hardest; people who spend a higher proportion of their income on power, food and commuting, and are already just getting by. In many emerging economies or liberal market economies, low income earners may be working three jobs to cover the basic cost of living, and work life balance would seem of secondary concern. Under the scenario that you set out, it is likely that supply constraints would translate into higher prices (although to the extent to which there is unemployment, production could continue by simply hiring more workers on shorter term contracts) further exacerbating the problem. People would take to the streets.   

• It doesn't affect the super rich at all, and certainly not in proportion to their footprint - because they are not employed by anybody and do not work in the formal sense, except to reinvest their money.   

• It affects start-ups, social enterprises that are attempting to deliver positive change for instance by investing in clean technology (ie. doesn't it also put a break on the kind of innovation that we need?). In short, it seems a very indirect/convoluted way to reduce consumption of high emission goods, compared to for instance a carbon tax, which automatically directs investment towards low emission production.  

Like many other ideas in this area, we seem to hit a wall when consumption reduction measures fundamentally transgress notions of individual freedom that underpin democratic society today; and that now seem to be getting in the way of a livable future...
But limiting work hours hits low wage earners hardest; people who spend a higher proportion of their income on power, food and commuting, and are already just getting by.  

Reply from Tom W. to Anna Berka:

That is an excellent point -- and one that I have indeed thought and researched long and hard about. During the 19th century movement for the 8 eight hour day, Mary Steward coined a ditty: "Whether you work by the piece or work by the day, decreasing the hours increases the pay." Her husband, Ira, and his disciple, George Gunton worked out a theoretical explanation of this apparent paradox that was subsequently confirmed, empirically by the industrialist Thomas Brassey and theoretically by the neo-classical economist Sydney J. Chapman.  

To put it bluntly, the low wages of low wage earners are substantially a RESULT of overly long hours. Reducing the hours of work does not automatically increase the pay but it removes a formidable obstacle to higher pay. Whether they understand this or not, employers, RESIST shorter hours because they give workers more leverage in determining wages and other working conditions including subsequent reductions in hours. It establishes a virtuous cycle for worker power, which the employers understandably view with alarm. "Mainstream" economists have taken the side of employers to the extent of ignoring or suppressing the theoretical work in economics that supports the shorter work time argument and slandering policy proposals as "fallacious/" 

Yes, I have indeed thought long and hard (and longer and harder) about this and have written a background manuscript that surveys the arguments against shorter working time and their origins.

John de Graaf:

Anna, It shouldn't be either or.  For lower paid workers, the loss of hours should be at no loss of pay, with greater progressive taxes and earned income credits.  I for one would support a basic income guarantee as well.  But there can be no de-growth without cutting working hours.  Tom has been right on this for a long time.  And if it happens slowly, people get used to the income reductions (except for the poor).  see my piece, "Life Away From the Rat-Race."

Bill Rees:

Friends - 

Think about this. So far, this discussion assumes all else remains constant.  However, if the world takes the recent IPCC report seriously, and reduces fossil fuel (FF) use by nearly half in the next couple of decades, then there will be a massive shortage of energy (demand is actually 'scheduled' to rise by a quarter or more).  The fact is that wind, solar, etc., cannot substitute for many uses of FF and even if they could, the rate of investment required is beyond reach.  In short, there may well be a great increase in the demand for human labour just to provide the necessities.  

Of course, if the world doesn't take IPCC seriously, we'll see 3 Celsius degrees warming and catastrophic impacts that will .. 

(fill in your own blanks)

This should help.

Reply from Tom Walker to Bill Rees,

I agree that transition away from fossil fuels will require more hours of necessary work as well as far, far less hours of bullshit work and fossil-fueled work. In my thought experiment I conceded that "some of these reductions in working time could be reversed by de-industrialization — that is the substitution of less energy intensive but more labor intensive methods of production" but for the sake of brevity didn't go into the complexity of that de-industrialization. 

I am not actually advocating a Utopia of leisure, although it may seem like it. There are two more salient aspects to my thought experiment. One is the effect that a phased, coerced regulation of working time could have on transition from fossil fuel, with the transition to fossil fuel serving as the precedent. The other is translating the intangible and unimaginable -- the 45% reduction of carbon dioxide emissions -- into something that people can imagine: hours of work. Nobody sees or experiences carbon dioxide emissions. Almost everybody experiences work. The global carbon dioxide emissions intensity of paid employment has been remarkably stable over the past quarter century. So REPRESENTING tons of carbon dioxide as hours of work makes quantitative sense. 

One thing that I try to keep in mind at all time is Georgescu-Roegen's warning against the idea that there is a "blueprint for ecological salvation." The "ten-hour week" is not meant as a blueprint. It is meant in the spirit of G-R's eight-point minimal bioeconomic program, which concludes, incidentally, with the admonition: 

...we should cure ourselves of what I have been calling "the circumdrome of the shaving machine," which is to shave oneself faster so as to have more time to work on a machine that shaves faster so as to have more time to work on a machine that shaves still faster, and so on ad infinitum. This change will call for a great deal of recanting on the part of all those professions which have lured man into this empty infinite regress. We must come to realize that an important prerequisite for a good life is a substantial amount of leisure spent in an intelligent manner.

Trump Says Dems Support Venezuelan "High Taxes And Open Borders"

The  average tax rate in Venezuela is 25%. The average tax rate in the US is 26%.  Sorry, Trump, this is yet another lie by Trump, but what else is new on this?

I do not know the details of Venezuelan of immigration policies, but at this point in time the issue  in Venezuela is not immigrants freely arriving and causing economic problems, but just the opposite: people leaving in massive numbers leading to crises in all the neighboring countries of Venezuela.

So, bottom line: Trump not for the first time is totally full of it on all of this.

But now it is time to deal with the political-economic problem of Venezuela, a matter that may lead to some regular readers of this blog to differ with me.

Indeed, Venezuela has turned into a political-economic disaster: extreme hyperinflation with a plunging real output, with massive outmigration, so massive that the receiving nations (Columbia, Brazil, Guayana, Ecuador), have had serious public complaints.

So GOP standard stories have now focused  on Venezuela as the supposed world model of "socialism."  Oh gag on many issues. I have from the moment Hugo Chavez came to power I never supported him, a military guy who had attempted a failed coup.  I shall not name prominent economists who now are fumbling with the current awful situation. 

As it is, indeed for most of the time Chavez ruled the Venezuelan economy performed not too badly, and indeed had had reductions in inequality, long demanded for politically.   Even now, a substantial portion of the Venezuelan population is better off than in the past due to the Chavist policies, even as the general state of the economy is horrendously collapsing under his successor Maduro, who has suppressed normal democratic processes.  And while the economy maintained a not-too-bad performance while Chavez was in power, it has  totally collapsed under Maduro, his  successor.

Of course the critics have argued that the policies that led to this  hyperinflationary collapse were due to Chavez and not his pathetic loser  successor, Maduro. This is a more complicated matter, and gets to the systemic question: has Venezuelan policy been a world avatar of "socialism"?

Chavez avoided such claims, even as he cut a deal with Cuba for them to provide doctors for oil, a deal still in place last I heard. Regarding how "socialist" he was, a lot less than many would say, and that was not how  he described  himself  or his policies  He claimed a nationalist position derived from the great liberator of South America from Spanish rule, Simon Bolivar, who indeed did come from Venezuela.  So the original Chavismo was proclaimed by him to be "Bolivarianismo," a term that has now basically disappeared, for better or worse.

So how "socialist" has Venezuela been, with its failed Bolivarianismo?  Much less than either it  s fervent supporters or its far more numerous critics have  claimed.  In terms of the most hard core definition of socialism, state ownership of the means of production, the  most important part of the economy, the oil sector, was nationalized decades ago, back when Venezuela and Saudi Arabia cooked up OPEC in 1960.  There have been nationalizations since Chavez took power, but most of the Venezuelan economy not in the oil sector actually remains privately owned, not soicialist.

Which brings us to how Chavez and Maduro really messed up the economy. Yes, they imposed some dumb price controls here and there, since totally swamped by the  hyperinflation.  Yes, there were nationalizations of some firms, even as most of the economy remains privately owned and pays lower taxes than in the US. But the real problem was/is corrupt political cronyism, with the  crucial oil sector the central problem for the economy. And the bottom line on that as that when Chavez took power he fired the competent  managers of the state-owned  oil company and installed incompetent cronies who proceeded to destroy the Venezuelan oil industry.  I saw this from Day One and never supported Chavez or Maduro.

What we dealing with here is not socialism, but corrupt incompetence.  Venezuela is not a socialist economy more than it was before Chavez came to power.  It is just a corrupt loser oil exporter that has lost it.

Barkley Rosser


  

Scratch That

I made a mistake. And it's a good thing.

Following up on my Running on Empty post, I wanted to give a more finely-grained analysis of climate costs relative to GDP growth, so I returned to my sources to see who their sources were and how they did their calculations. Watson et al., compiled their estimate from National Centers for Environmental Information, "U.S. Billion Dollar Weather and Climate Disasters" and Paulina Jaramillo and Nicholas Muller, "Air pollution emissions and damages from energy production in the U.S. 2002-2011."

Jacobson, Delucchi et al. presented their estimates in two tables, broken down by country. I had taken what I thought was 15% of their global climate cost estimate but it turns out that my number was roughly double theirs. I may have taken their high estimate instead of the mean. Anyway their actual estimate was around $4 trillion in 2013 dollars. But that is not the mistake I am concerned with here.

The mistake came to light after I had all the carefully checked numbers, recalculated in 2012 dollars and I compared annual GDP growth to annual health and climate costs. Climate costs exceeded growth in 13 of the 28 years from 1990 to 2017. Over the entire period those costs offset 95% of reported real GDP growth. Or so the numbers claimed.

Then I tried a different tack. I subtracted estimated annual climate costs from GDP and then calculated annual growth. To my surprise the resulting annual growth was only somewhat lower. O.K., I thought, I'm starting from a much lower total in the base year and the year-to-year number reflects only the the annual increase in climate costs and not the annual cost.

So which calculation, then, is the "right" one? Year-to-year growth minus annual cost or Year-to-year growth of (GDP minus climate cost)? Neither! Both calculations rely on double counting of the sort that Irving Fisher warned about 112 years ago.

The problem is also illustrated by the relationship between GDP and Net Domestic Product. Annual growth of Net Domestic Product and Gross Domestic Product track each other pretty closely:

Meanwhile, look at what has happened to depreciation. It has nearly doubled as a percentage of GDP, from around 9% in the late 1940s to almost 17% in recent years.

Something that doesn't show up too well in the graph above is that most of the growth in depreciation relative to GDP has occurred in the last 48 years. So, doubling every half century we could have an economy in 125 years that runs entirely on depreciation! But that would be O.K. because GDP would be so much BIGGER then. Isn't that right, Professor Nordhaus? Professor Solow? Professor Krugman?

I don't have the solution to this computational problem, other than to point out that it is the inevitable consequence of a poorly-conceived metaphor for the "measurement" of heterogeneous good and services. The monetary yardstick is made of a highly elastic material and correction for changes in the cost of a basket of consumer goods (CPI) does not begin to address the real issue. GDP and GDP growth has become the increasingly opaque lens through which we view society and "the economy." It is a cracked, scratched, smudged, distorting lens that may not even enable us to tell whether what we view through it is upside up or upside down.

Business As Usual: Running on Empty

A little over a year ago, Robert Watson, former chair of the IPCC, and two co-authors published a report titled "The Economic Case for Climate Action in the United States." Based on trends over the past few decades, the authors estimated the current total annual cost in the U.S. of losses from weather events intensified by climate change and health damage from fossil fuel pollution to be $240 billion, which they described as "about 40 percent of current economic growth of the United States economy."

At around the same time, Mark Jacobson, Mark Delucchi and a carload of co-authors published an article in which they projected damages to health and property in the U.S. from climate change and pollution under "business as usual" to be around eight trillion dollars in 2050. A simple linear extrapolation between the two estimates suggests that the annual cost of climate change is increasing at around an 11 percent annual rate. Based on that extrapolation, the health and property damage cost of climate change can be projected to exceed annual GDP growth by 2026.

But wait. Watson's 40 percent figure compares average annual damage with some of the better recent years of growth. Even excluding years of recession and stagnation, in which growth was less than $240 billion, the remaining eight of the last 12 years averaged only around $430 billion a year in real GDP growth. Counting the recession and stagnation years, it's virtually break even.

But there's more. Part of that economic growth simply reflects expansion of the population. Real economic growth per capita in the U.S. has been even more anemic in the 21st century. Of course this means the cost of damage can be spread more thinly as well but the crucial point is still what happens to per capita income relative to the damage.

The future is hard to predict, so I tried a number of scenarios. First, if per capita growth continues at the rate it has since 2009, the U.S. has already entered the red zone where the cost of climate change exceeds growth by an increasing amount each year. If real per capita growth accelerates to 1.5 percent per annum that fateful point won't be reached until the year after next. A growth rate of 2 percent would postpone the day of reckoning until 2024, six years before the IPCC deadline for achieving net zero carbon emissions. To make it to 2030 without crossing permanently into the red would require a sustained rate of real per capita growth that hasn't been achieved since 1960-1970.

One more thing. As Andreas Malm wrote, the global warming effects of fossil fuel consumption are "seriously backloaded" and "substantially deferred." This year's climate damage is a consequence of actions taken decades ago and the greenhouse gases emitted today will not have their full impact until decades from now. How does one estimate, then, the contribution to intermediate consumption of the deferred cost of current emissions? How much should GDP be deflated to account for the artificial inflation of nominal value added by waste gases whose cost is off the balance sheet?

Let's assume that emissions in a given year contribute to 4 percent of climate change costs each year for the next 25 years. Why 25 years and why a constant percentage? Because it is better than attributing all of this year's cost to this year's emissions. Who knows? It probably makes more sense that choosing a "market-based" consumption discount rate of 4.3 percent. At any rate, considering the deferred nature of the climate costs moves the year in which GDP growth vanishes back. The 4 percent for 25 years scenario moves it back to 2007. The economy has literally been running on fumes for over a decade. Talk about "degrowth"!

It/s here. It's not going away. It only gets worse. The question isn't whether or not one "advocates" degrowth but whether or not one faces the stark reality and acknowledges the expiry of GDP growth and consequently the irrelevance -- and, frankly, mischief -- of the growth paradigm.

Failed Perceptions Of Economic Reality

It is long  viewed that what the electoral populace thinks of the state of the economy is an important factor in how they vote and electoral outcomes.  Prior to 2000 the state of the economy as measured by real per capita  GDP growth explained presidential election outcomes except in cases where there was a war (!940) or there was a party split (1912).  Personal scandals also played roles, with Ford's defeat in 1976 at least partly due to his pardoning of Nixon.  2000  and 2016 had personal scandal issues involved in outcomes that went against the state of the economy (although 2016 a closer call on that), although in both of those elections we had the electoral college installing a president not favored by the national popular vote.

Midterm elections are not so closely tied to economic conditions as they have certain patterns based on the president and when he was elected, with midterms generally not favoring presidents. Nevertheless, economic conditions do play a role, with Reagan taking a big hit in 1982, even as he won big two years later when the economy turned around.

So now we have the economy doing well in terms of GDP growth, a 4,2% growth quarter followed by a  3.5% one, looking better than many forecast, despite some negative signals such as recent bad performance of the stock market. How will all this play out in the upcoming midterm elections?

To be honest, I do not know.  But it strikes me that most of the electoral populace is not in touch with actual current economic reality. It goes on both sides. So, the side that I tend to favor tends to understate the returns people received from the GOP tax cut.  Now I did not and do not support this tax cut for various reasons, but indeed it did hand out money to the vast majority of the population.  But now by nearly 2 to 1, the US populace says they got nothing from it, and they oppose it as mostly giving money to the rich and adding to the budget deficit. All the latter is correct, of course, so it the populace are not complete fools. But in fact most of them did get some gain from this tax cut. But then, back in 2009-10 when Obama gave most of the population a tax cut, most of them did not notice  it and were unaware they had gotten it.  The hard fact is that people only notice big changes in their take home income, and neither Obama's nor Trump's tax breaks were big enough for most people for them to notice it.

Needless to say, while many did not notice the  tax cut  Trump gave them, those favoring Trump are not noticing that the vast majority of the US population has not seen increases in real per capita income.  Trump's tax cut for the majority of the population was too small to overcome the hard fact that real wages have remained largely stagnant.  GDP growth has been high in the last two quarters, but is declining, and  for a variety of reasons is likely to continue downwards.  The recent volatility of the stock market shows these concerns, ranging from Trump's trade wars, creeping inflationary trends, and rising interest rates, not to mention bad markets and slowdowns abroad.

Barkley Rosser

"The Opportunity Cost of Socialism"

Why is the Council of Economic Advisers producing party political propaganda for the GOP? As many folks have pointed out, the "report" is rather bizarre. My favorite part is Figure 1, which summarizes Milton Friedman's argument that people spending "their own money" are "more
careful how much to spend and on what the money is spent." This, of course begs the question of how that money came to be defined as "their own."

Let's complicate that story, though, with a couple more matrices: First, Prisoner's Dilemma:

Figure 2: Prisoner's Dilemma

Next, Elinor Ostrom's typology of property:

Figure 3: Typology of property

Figure 1 assumes that there is only one kind of decision situation and only one kind of good. Figure 2 introduces a different kind of decision situation and Figure 3 introduces three different kinds of goods. Are Trump's "economic advisers" really so ignorant of basic economic concepts beyond the most elementary textbook simplification?

How To Get Distracted From What Is Most Important

Of course as the midterm elections are nearly upon us, there is a rising cacophony of issues bubbling up, especially as Donald Trump attempts to excite his extremist base with base fears, while trying to distract most voters from threats by GOPs in Congress to cut the social safety net.  But smoe of the the new issues bubbling up are really more important than others.

So we are now going to have a spectacle every day from now to the election of having top stories on nearly all media focusing on this caravan of Hondurans approaching the US.  Trump declares this to be a national security crisis, which his fervent followers clearly hysterically accept.  But even if this entire group were allowed into the US, it would be no big deal, probably good for our economy and society. 

OTOH, we have the news over the weekend that Trump is planning to withdraw the US from the INF nuclear treaty, signed in 1987 by Reagan and Gorbachev.  The still living Gorby has declared that doing so is "stupid."  That is putting it mildly.  This appears to be the brainchild of super-hawk John Bolton, now in Moscow, where he is also soft soaping Russian meddling in US elections.  But talk is that if INF goes, so will New START, leaving almost no nuclear arms treaties in place between Russia and the US.  Yes, Russia has been reportedly violating the INF treaty in some cases, but is just throwing out an arms control apparatus that took so long to negotiate the way to go?  Bolton clearly thinks so, but he has also talked about how maybe we should use nuclear weapons, echoing loose similar talk coming out of some Russians earlier.  There is also talk of a renewed arms race, which our military-industrial complex would love.

Really, this seems to be coming basically out of nowhere.  Are we to return to a Cold War and arms race and fearing a nuclear war?  It took decades for Thomas Schelling to convince world leaders with nuclear weapons to foreswear the first use of them.  Now he is dead, and we are suddenly hearing all this loose talk and possible unraveling.  Frankly, this is far more dangerous than this Honnduran caravan, but it is back page news, and I fear most people are unaware of it, more worried about Central American immigrants than that the threat of nuclear destruction of the entire human species is suddenly increasing.  We must not be so easily distracted.

Barkley Rosser

Absolute Decoupling and Relative Surplus Value: Rectification of Names

Jargon is a heck of a drug:

If names be not correct, language is not in accordance with the truth of things. If language be not in accordance with the truth of things, affairs cannot be carried on to success.

The discourse of global warming/climate change is lousy with jargon. This rampant obfuscation gives science deniers rhetorical leverage and induces hallucinations about "Green New Deals" and "Environmental Kuznets Curves." "Decoupling," "rebound effects" and "externalities" are three terms that invite systematic incomprehension. The first two are dead metaphors and the third is an outright fraud -- there is nothing "external" about an externality.

A little reflection on what these terms actually refer to can help clarify what can and cannot be done about carbon dioxide emissions. From the perspective of shameless self-promotion, it can also help show why my policy proposal makes sense and others don't.

Kevin Hassett and Irwin Steltzer Join in on the Fiscal Dishonesty

Brad DeLong is annoyed at the latest from Irwin Stelzer:

Hassett and others in the administration point out that despite a hefty reduction in the corporate tax rate from 35 percent to 21 percent, government revenues rose by $3.3 trillion in the fiscal year just ended. In part this is because the economy is growing at around a 4 percent rate in response to the tax cuts and to a revival of animal spirits as entrepreneurs and corporate chieftains wake up in the morning wondering not what the government is going to do to them, but what it might do for them. So Trump may yet be proven right. And if that proof does not emerge by 2020, he an always blame the Fed. The problem, says Trump, is that spending rose even more, by $4.1 trillion.

Hassett is lying but let’s note so are the OMB Director and the Treasury Secretary as well as Speaker Paul Ryan:

He was basically lying to us hoping the public would be too stupid to realize that when the price level rose by 2.5% during the same period, we are talking about a 2% real decrease in tax revenues.

Yes nominal government spending rose by 3.2%, which represents only a 0.7% real increase. Spending and revenues both fell relative to GDP. Brad correctly notes:

his claim that under Trump economic growth is "around... 4%". It is not. GDP growth under Trump has been and is widely projected to be roughly 2.7% per year, not "around... 4%". Irwin Stelzer is a liar. Liars are not worth reading.

While true – Trump’s entire economic team has been lying but quoting nominal changes rather than real changes. So maybe Stelzer was talking about the increase in nominal GDP. Yes – that is dishonest but hey – everyone on Team Trump is doing this.

Fiscal Dishonesty from Paul Ryan (Surprise!)

We earlier noted that when our Treasury Secretary wrote this:

Government receipts totaled $3,329 billion in FY 2018. This was $14 billion higher than in FY 2017, an increase of 0.4 percent...Outlays were $4,108 billion, $127 billion above those in FY 2017, a 3.2 percent increase.

He was basically lying to us hoping the public would be too stupid to realize that when the price level rose by 2.5% during the same period, we are talking about a 2% real decrease in tax revenues. And it seems that some nitwit at CNBC was indeed that stupid. Yesterday I endured an appearance by Paul Ryan on CBS This Morning. No surprise that this dishonest weasel repeated the same lie:

Revenues are up this year. Believe it or not, we cut taxes at the beginning of the year, and we have higher revenues this year. Why do we have higher revenues? Because we have faster economic growth, higher wages, more taxes are coming into the government.

But let’s give credit to John Dickerson for calling Ryan on this intellectual garbage:

Dickerson pushed back, pointing out that when you account for inflation, some of the revenues from the previous tax policy, and the revenue that would increase from population, the revenues are lower than they should be.

I would say Dickerson nailed this liar but how did Ryan respond?

Let me just say it this way. We cut taxes and we have higher revenues coming into the government today still.

Got that? He just repeated his debunked lie. After all Paul Ryan has such total disdain for the public that he simply doubled down on this incredibly stupid dishonesty.

MBS Must Go

The grisly details of the murder of journalist Jamal Khashoggi now coming out make it clear that the one thing that would really clear the air would be for 33-year old Muhammed bin Salman bin Abdulaiz al Sa'ud (MBS) to be replaced as Crown Prince of Saudi Arabia and to be removed from any position of authority and power that he currently possesses.  Indeed, it would be wise if he were subjected to what he imposed on others whom he saw as in his way to assuming the  extreme level of power he currently has in KSA, to be confined to his palace under guard or perhaps in the Ritz-Carlton Hotel.  To make clear his removal from power it would also be appropriate to have da Vinci's painting of Salvador Mundi taken from him, which he is reported to have purchased through intermediaries for $480 million, a sign of the degree of corruption that he has personally engaged in.

It should be clear that MBS's crimes and mistakes go far beyond this awful mmuder by members of his personal bodyguard of Khashoggi.  The thousands of dead civilians in Yemen in the war there that he instigated as Defense Minister is at the top of the list.  But his idiotic embargo of Qatar and his hyper-aggressive attitude towards Iran (stupidly supported by the current US administration) are also on the list, along with his broader suppression of disssidents within KSA.  It may well be that a successor will continue the strongly anti-Iran policy, although some potential candidates have in the past urged negoatiating with Iran, including former ambassador to the US, Turki bin Faisal bin Abdulaziz al Sa'ud, for whom the now late Jamal Khashoggi once worked as a top staff aide.  However, for a variety of reasons this 73 -year old now Chair of the powerful King Faisal Foundation is unlikely to succeed MBS.

Obviously this is not very likely, given that this would have to be done by his father, 82-year old King Salman bin Abdulaziz bin Abdul Rahman al Sa'ud, who clearly strongly supports him, even as he has apparently overruled him on certain matters, most recently in insisting on the shutdown of the proposed sale of 5% of ARAMCO, a centerpiece of MBS's Vision 2030, an overly hyped economic reform plan that always had less of any significance to it than was loudly advertised in US media.  Nations overwhelmingly dependent on oil exports are always talking about "getting off oil," but they rarely succeed in doing so, and there is probably no nation more stuck on oil than KSA, given the low cost of extracting oil there (second lowest after Kuwait at barely $10 per barrel) and its vast reserves.

Of course, for now MBS appears to have the personal support by President Trump and his son-in-law, Jared Kushner, who may have quietly supported the coup through which he came to power.  It is fairly clear that this personal support is reinforced by MBS providing substantial funding to both the Trump Organization and the business activities of Kushner, although the full details of that are not fully known.

MBS has been praised for restricting the Mutaween religious police as well as letting women drive and opening cinemas.  If he were to go it is certainly possible the Mutaween might regain some of their power, but I seriously doubt any possible successor would undo the move to let women drive.  Indeed,,several of his possible successors had previously shown willingness to improve the status of women in KSA in various ways.

There are several possible successors who would not be either over the hill or widly conservative.  The most obvious would be the man MBS overthrew in what was essentially a coup in June, 2017 as Crown Prince, now 59-year old Muhammed bin Nayef bin Abdulaziz al Sa'ud.  He was widely respectes, including by those in the US who dealt with him, a former Minister of the Interior.  It was alleged that he had become addicted to a pain killer as a result of an assassination attempt against him, but it is unclear if this was true or not.  In any case, there are others who  are capable and would return KSA to its more collective form of leadership that did not engage in the sorts of barbaric activities that MBS has been doing.

A curious recent development not not widely reported out of STRATFOR is that MBS's full brother, Khalid, ambassador to the US, was recalled to Riyadh on October 15 and will not return to the US.  Whether this shows MBS getting rid of yet another potential rival or is a sign that MBS himself is in trouble is too soon to know.

Addenda:

One is that in today's (10/19) WaPo, the generally well-nformed David Ignatius reports that it looks like there is a serious split in the Saudi royal family. This probably is the moment to call for MBS to go.  Probably he will hang on, but it looks like he has some serious opposition.  The supposed most likely replacement would be one of his uncles, Ahmad bin Abdulaziz bin Abdul Rahman al Sa'us, born  in 1942, who was briefly Interior Minister some years ago, only to bee pushed aside by Mohammed bin Nayef bin Abdulaziz, who would become Crown Prince, only to be deposed in a coup by MBS.  Apparently Ahmad was a candidate and now is agaiin, although he has not held that many senior positions and holds none now, but is reportedly not corrupt and well liked.  His full brother, the youngest of the sons of KSA founder Abdulaziz, is Muqrin, born in 1945, who was Crown Prince prior ro Mohammed bin Nayef, ans has held many serious senior positions, including Director of the Mukhabarat inttelligence outfit from 2005 to 2012.  But, aside from having a Yemeni wife, he does not seem to be in the running, according to Ignatius, who posted a number of other sharp points.  Another thing going for Ahmad is that he is the youngest of the very powerful Sudairi Seven, with the only other one of those around being  the current king, Salman, MBS's father.  Presumably having his last full brother step in to replace MBS might have some appleal to Salman, who really does u.timately hold the cards on this.

Curiously, Ignatius made a rare errror in his column.  He siid that Ahmasd is the last of Abdulaziz's sons to survive.  In fact, including the king, there are nine of them, the oldest, Bandatr, having been born in 1923.  Most of them are viewed as being unacceptable for one reason or another.

A further curious and not widely reported item is that Jamal Khashoggi's paternal grandfather was Turkish.  That is a Turkish last name, and the "gg" is actually pronounced, "gchi."  The grandfather was the physician for old King Absulaziz, and Jamal had a wealthly and powerful uncle, Adnan Khashoggi, who was quite an operator. This adds a rather poignant touch to his being killed in Turkey while trying to marry a Turkish woman.

Fiscal Dishonesty from CNBC and Our Treasury Secretary

Is Jacob Pramuk on the White House payroll?

US budget deficit expands to $779 billion in fiscal 2018 as spending surges. The federal budget deficit rose 17 percent in fiscal 2018, according to the Trump administration. Spending jumped, and revenue only increased slightly following the GOP tax cuts. The Trump administration has pushed for dramatic budget cuts at several agencies and supported massive increases in military spending.

And that was just his headlines!

The deficit increased by $70 billion less than anticipated in a report published in July, according to the two officials. Federal revenue rose only slightly, by $14 billion after Republicans chopped tax rates for corporations and most individuals. Outlays climbed by $127 billion, or 3.2 percent.

He is getting his numbers from this report:

Government receipts totaled $3,329 billion in FY 2018. This was $14 billion higher than in FY 2017, an increase of 0.4 percent...Outlays were $4,108 billion, $127 billion above those in FY 2017, a 3.2 percent increase.

I have skipped the chest thumbing about the economy from Mnuchin and Mulvaney to focus on the stupidity ala CNBC. Real government spending barely kept pace with inflation, which is why outlays relative to GDP fell from 20.7% to 20.3%. Real tax revenues clearly fell in absolute terms and as a percent of GDP went from 17.2% to 16.5%. I guess this is what one gets when one lets Lawrence Kudlow become a chief economic adviser. But this kind of dishonesty is well known ever since Kudlow and his ilk tried to pull this intellectual garbage in the 1980’s. Does anyone at CNBC not realize the Trump White House is playing the same games with numbers? Never mind that the Treasury Department has decided to lead the way on some good old fashion rightwing nonsense.