Yes, I think so. It was his tweet on Monday when he took credit for the move by Saudi Arabia and some other Arab nations to cut diplomatic relations with Qatar. He claimed that it was his visit to Riyadh, his strong support for going after Iran, and supposedly his demand that these nations stop financing terrorists. I think he is right. I do not think these nations would have made this move without this strong support from Trump, who supported the move in his tweet as well, although we cannot be sure about this. But Qatar had not done anything recently to newly aggravate the Saudis and others. Indeed, most reports have that it provides no state support for terrorists and has made some moves to crack down on private citizens doing so, although perhaps not as much as some other Gulf states, but more so than Kuwait, which has not had its diplomatic relations cut. And while the Saudis have claimed that Qatar is too friendly with Iran, in fact the Qataris have 1000 troops in Yemen helping the Saudis fight the Houthis, who are supposedly supported by Iran.
Of course more recently Trump has been offering to have this dispute settled or negotiated by one or another of his top national security officials, most of whom were in Australia when he made his tweet. If they had had advance warning of his tweet, they might have pointed out to him that Qatar hosts the main US air base and CENTCOM in the Gulf, from which US planes combatting ISIS take off. Probably they did get around to pointing this out, which may be why he is now offering to help negotiate a solution. But I suspect that the Qataris are not too keen on using his good services for this.
I also think that his visit and statements triggered the killing of protesters in Bahrain right after the visit and also the arrest of several thousand people in Egypt. Both of these nations are among those joining Saudi Arabia in cutting diplomatic relations with Qatar. What I am not sure of is whether his visit had any connection with the ISIS attack on Tehran, probably not, but who knows? Of course his statement of "sympathy" to Iran has been outrageous and received as such by the Iranians. And while Trump and the Saudis and the Israelis claim that Iran is the leading state sponsor of terrorism in the world, the most recent estimate has about 94% of terror attacks being carried out by Sunni Muslims, not Shia ones such as the majority of the population of Iran is. And, indeed, this ISIS attack on Tehran has been reportedly carried out by Iranian Sunnis.
Oh, another place where Trump may have had some influence is on the outcome of the British election. He is very unpopular there, and while maybe the Tories would have lost anyway, May's strong identification with Trump certainly did not help her, especially with him also making an outrageous and inaccurate tweet attacking London Mayor Khan, and then doubling down on it. It is not out of the question that this last shenanigan may have been the straw that broke the back of the failed Tory effort to retain their majority in Parliament.
Friday, June 9, 2017
Thursday, June 8, 2017
Class Resentment and the Center-Left, or the Politics of "We Are the 80%"
I’ve just read the suitably downbeat piece by Thomas Edsall about the travails of the Democratic Party in today’s New York Times. Edsall, citing a recent symposium of political strategists in The American Prospect and a report by Priorities USA, a DP polling outfit, describes the widespread abandonment of both the center and the left by a wide swath of the American working class. As he says, it’s not just that working class (non-college) Trump voters have opted for “populism”; their political disposition radically excludes activist government programs, multiculturalism, and other principles that no one on the left could reasonably run against.
Evidence from public opinion polls depends on the questions pollsters take to the people. Questions are framed in particular ways to test the suppositions in the pollsters’ minds, which means it’s difficult to find evidence for suppositions they aren’t considering. That in turn means that those of us with different hypotheses can only speculate, at least until the stories we tell get enough traction that pollsters and focus group organizers decide to test them out.
A further caveat is that the population is extraordinarily diverse, and almost any hypothesis is going to be true for someone. The question is not who is “right”, but how influential particular political trends are among various portions of the electorate, in combination with other trends.
So here is one approach, based on a quote Edsall culled from Nick Gourevitch, a contractor for Priorities USA:
When the left thinks about inequality and the legitimate grievances of the working class, its target is generally “Wall Street” or the “billionaire class”. The pitchforks should be waved at the one percent of the one percent, the tycoons who wield inordinate influence over government and get policies that enhance their wealth and power at the expense of the rest of us. But the “populist” vote in 2016 went for a billionaire (or someone who claims to be while hiding his tax records). What gives?
I suspect most people upset with inequality tend to blame the class directly above them, the one they interact with most. If so, consider a rough four-class model of the US. On the bottom are the poor and the precariate, desperate to make ends meet month to month or even day to day. Relatively few of them vote, and when they do they tend to go for Democrats because they know how much they depend on social programs. They are driven less by ideological fervor than flat out necessity. Above them is the main portion of the working class. They are vulnerable to shocks like severe accidents or illnesses or regional economic downturns, but for the most part they don’t feel they have to vote for reasons of personal protection or benefit; they have the luxury of ideological voting. They’ve gotten shafted for generations. Going up the ladder, the next group we find is the upper-middle class, roughly the upper 20%. They’ve had some periodic stress, but overall they’ve made out rather well. Nearly all the economic growth we’ve experienced in this century has gone to them. They tend to have economic views in line with their station and otherwise adopt a relatively cosmopolitan perspective, itself a reflection of their roles in the “new economy”. And at the top is the capitalist class, those who own or control the bulk of society’s wealth. While no cutoff is perfect in identifying them, they represent approximate the upper .01% of the income distribution. They play the largest role in funding and positioning the two major political parties.
Now here’s the thing: what happens if classes blame the one above? If you’re in the upper-middle class and you’re angry about how unequal this society has become, your target is the ultra-rich. There’s no one else to blame unless you want to denounce yourself and your friends. Hence “we are the 99%”. But if you’re in the main portion of the working class, and you feel the country has become fundamentally unfair, you’re likely to take it out on the upper-middles. These are your direct bosses, people in government offices that give you a hard time, teachers who send notes home with your kids, and media people who tell you how backward and misguided you are. Those are the “liberals”, the ones who think more education and a cushier job gives them the right to ignore you. Whenever the problems of lousy jobs or no jobs comes up, their one solution is to tell you to go back to school, get better grades this time, and be like them. Resentment is not hard to come by.
My experience in the classroom is that few students from working class backgrounds even know there is a capitalist class or that it has influence. They see the country being run by folks like me, and politics comes down to whether you think that’s good or bad.
So what about racism and nativism? The dynamics are complicated, but I suspect an aggravating factor, and one that brings economics and bigotry together, is that the push for multiculturalism and cosmopolitanism is seen as coming from the upper middle class. From a purely logical or empirical point of view, there’s not much basis for the notion that working class hardship is the result of affirmative action, immigration or even specific trade deals (with the possible exception of the accession of China to the WTO). Most of it is about the evolution of capitalism, which has resulted from a range of political decisions and non-decisions under the guiding influence of the capitalists themselves. But if economic protest takes the form of resenting the class one rung above, the fact that the upper middle class is strongly identified with liberal values and programs is how economics and culture come together for a large number of workers.*
Incidentally, the campaign of Hilary Clinton was disastrous from this perspective precisely because it combined an aggressive advocacy of cultural liberalism with an economic outlook oblivious to the problems faced by the majority of the population. It was practically an advertisement for right wing populism.
Again, all of this is speculative. I have no evidence to back up any of this, other than personal observation, and that may be wrong too—I might be misinterpreting what I hear. But it would be interesting to do some opinion research to find out if there’s an element of truth.
*Note that I use the term “working class” and not “white working class”. The Democrats have suffered an erosion of support across the working class, and it would be a mistake to assume that workers of color automatically favor government programs to aid people of color worse of than them or more liberal immigration policies—or at least that their advocacy is strong enough to convince them to cast a vote.
Evidence from public opinion polls depends on the questions pollsters take to the people. Questions are framed in particular ways to test the suppositions in the pollsters’ minds, which means it’s difficult to find evidence for suppositions they aren’t considering. That in turn means that those of us with different hypotheses can only speculate, at least until the stories we tell get enough traction that pollsters and focus group organizers decide to test them out.
A further caveat is that the population is extraordinarily diverse, and almost any hypothesis is going to be true for someone. The question is not who is “right”, but how influential particular political trends are among various portions of the electorate, in combination with other trends.
So here is one approach, based on a quote Edsall culled from Nick Gourevitch, a contractor for Priorities USA:
So it may be that within economically distressed communities, the individuals who found Trump appealing (or who left Obama for Trump) were the ones where the cultural and racial piece was a strong part of the reason why they went in that direction. So I guess my take is that it’s probably not economics alone that did it. Nor is it racism/cultural alienation alone that did it. It’s probably that mixture.How to think about this interaction?
When the left thinks about inequality and the legitimate grievances of the working class, its target is generally “Wall Street” or the “billionaire class”. The pitchforks should be waved at the one percent of the one percent, the tycoons who wield inordinate influence over government and get policies that enhance their wealth and power at the expense of the rest of us. But the “populist” vote in 2016 went for a billionaire (or someone who claims to be while hiding his tax records). What gives?
I suspect most people upset with inequality tend to blame the class directly above them, the one they interact with most. If so, consider a rough four-class model of the US. On the bottom are the poor and the precariate, desperate to make ends meet month to month or even day to day. Relatively few of them vote, and when they do they tend to go for Democrats because they know how much they depend on social programs. They are driven less by ideological fervor than flat out necessity. Above them is the main portion of the working class. They are vulnerable to shocks like severe accidents or illnesses or regional economic downturns, but for the most part they don’t feel they have to vote for reasons of personal protection or benefit; they have the luxury of ideological voting. They’ve gotten shafted for generations. Going up the ladder, the next group we find is the upper-middle class, roughly the upper 20%. They’ve had some periodic stress, but overall they’ve made out rather well. Nearly all the economic growth we’ve experienced in this century has gone to them. They tend to have economic views in line with their station and otherwise adopt a relatively cosmopolitan perspective, itself a reflection of their roles in the “new economy”. And at the top is the capitalist class, those who own or control the bulk of society’s wealth. While no cutoff is perfect in identifying them, they represent approximate the upper .01% of the income distribution. They play the largest role in funding and positioning the two major political parties.
Now here’s the thing: what happens if classes blame the one above? If you’re in the upper-middle class and you’re angry about how unequal this society has become, your target is the ultra-rich. There’s no one else to blame unless you want to denounce yourself and your friends. Hence “we are the 99%”. But if you’re in the main portion of the working class, and you feel the country has become fundamentally unfair, you’re likely to take it out on the upper-middles. These are your direct bosses, people in government offices that give you a hard time, teachers who send notes home with your kids, and media people who tell you how backward and misguided you are. Those are the “liberals”, the ones who think more education and a cushier job gives them the right to ignore you. Whenever the problems of lousy jobs or no jobs comes up, their one solution is to tell you to go back to school, get better grades this time, and be like them. Resentment is not hard to come by.
My experience in the classroom is that few students from working class backgrounds even know there is a capitalist class or that it has influence. They see the country being run by folks like me, and politics comes down to whether you think that’s good or bad.
So what about racism and nativism? The dynamics are complicated, but I suspect an aggravating factor, and one that brings economics and bigotry together, is that the push for multiculturalism and cosmopolitanism is seen as coming from the upper middle class. From a purely logical or empirical point of view, there’s not much basis for the notion that working class hardship is the result of affirmative action, immigration or even specific trade deals (with the possible exception of the accession of China to the WTO). Most of it is about the evolution of capitalism, which has resulted from a range of political decisions and non-decisions under the guiding influence of the capitalists themselves. But if economic protest takes the form of resenting the class one rung above, the fact that the upper middle class is strongly identified with liberal values and programs is how economics and culture come together for a large number of workers.*
Incidentally, the campaign of Hilary Clinton was disastrous from this perspective precisely because it combined an aggressive advocacy of cultural liberalism with an economic outlook oblivious to the problems faced by the majority of the population. It was practically an advertisement for right wing populism.
Again, all of this is speculative. I have no evidence to back up any of this, other than personal observation, and that may be wrong too—I might be misinterpreting what I hear. But it would be interesting to do some opinion research to find out if there’s an element of truth.
*Note that I use the term “working class” and not “white working class”. The Democrats have suffered an erosion of support across the working class, and it would be a mistake to assume that workers of color automatically favor government programs to aid people of color worse of than them or more liberal immigration policies—or at least that their advocacy is strong enough to convince them to cast a vote.
Tuesday, June 6, 2017
Reverse Yankee Bonds and Dornbusch Overshooting
Suppose you are the CFO of a U.S. company that needs to borrow $1 billion over the next 5 years for a planned expansion and you are receiving interest rate quotes near 4.75 percent. Why so high you ask since we are in the era of low interest rates. The banks explain that you have been given a BB credit rating by Standard & Poor’s so they have added 3% to the 1.75% interest rate on U.S. government bonds. This upsets you, however, as you have been hearing stories like this :
Apple announced in an SEC filing that it would issue €2.5 billion in euro bonds, the proceeds of which will be used to fund share buybacks and dividends to be paid in dollars. These bonds will come in two tranches: €1.25 billion of 8-year notes and €1.25 billion of 12-year notes, with coupon payments of 0.875% and 1.375% respectively.They got to borrow at even longer terms and yet they received such low interest rates? Well part of this story relates to the fact that Apple has a better credit rating but much of it relates to the low interest rates on German government bonds from the expansionary ECB policies. While interest rates on 10-year U.S. government bonds have been near 2.25% lately, interest rates on 10-year German bonds closer to 0.25%. Our story is about “reverse Yankee bonds”, which represent U.S. companies borrowing Euro denominated corporate bonds:
Issuance of these “reverse Yankee” bonds – euro-denominated bonds issued by US companies – has surged because the cost of borrowing in the Eurozone has plunged to ludicrously low levels. Even for the riskiest non-investment-grade corporate debt – called junk bonds, for good reason – the average yield is currently 2.9%. This chart of the BofA Merrill Lynch Euro High Yield Index (data via FRED, St. Louis Fed) shows this Eurozone absurdityThe story also suggests that expected inflation in both the U.S. and Germany is near 2% so the Euro rates are negative in real terms:
they won’t even compensate investors for the loss of purchasing power based on the current rates of inflation: 2.2% in the US and 1.9% in the Eurozone.Is this an absurdity or an opportunity? If you decide to borrow in Euros, you might negotiate an interest rate near 2.6% even with your BB credit rating as the interest rate on 5-year German bonds is approximately negative 0.5%. Great deal – right? Well Paul Krugman reminds us of the Dornbusch overshooting story:
Rudi asked what would happen if a central bank for some reason suddenly and permanently increased the money supply. In the long run, just about all economists agreed that this would lead to an equal proportional rise in the price level and depreciation of the currency. In the short run, however, prices are clearly sticky, and expansionary monetary policy reduces interest rates. So what happens to the currency? As Rudi pointed out, the fall in the interest rate would induce investors to move their money abroad unless they expected the currency to rise. And the only way that could happen was for the currency to depreciate past its long-run value – to overshoot – so that it could be expected to appreciate back to that value over time.This describes what the ECB did, which lowered Euro based interest rates and led to a jump devaluation of the Euro. The interest rate differentials we have been describing may very well be the compensation for the expectation appreciation of the Euro with respect to the dollar. If so, the expected cost of borrowing in Euros is not lower than interest rates on bonds denominated in dollars.
Monday, June 5, 2017
Trump Blows Up The Gulf Cooperation Council (GCC)
Well, maybe it has blown itself up, but Trump's supposedly triumphant visit to Saudi Arabia looks to have exacerbated underlying tensions within the six-member Gulf Cooperation Council (GCC), whose members include Saudi Arabia (KSA), Kuwait,Qatar, Bahrain, the United Arab Emirates (UAE), and Oman. This was the part of Trump's overseas trip that most US media has accepted as being a nearly great performance without any goofups (the trip steadily going downhill after that), with him getting over $100 billion in arms sales to the Saudis, and, aside from theatrics like sword dancing and holding glowing globes, getting to lecture 50 Muslim Arab leaders about what to do about terrorism, while also supporting their Sunni animus against Iran, this last part being what has led to the most recent problems. What has happened most recently, is reported by Francis Ghiles of OpenDemocracy as linked to by Juan Cole, with even more serious details reported by Washington Post reporter Kristen Coattes Ulrichesn (this link is to Marginal Revolution Monday assorted links, go to the one called "The cut-off that is Qatar," sorry original WaPo link not working for me). This is also a followup to my earlier post here about Trump's Saudi visit.
According to Ghiles, the split has opened up dramatically thanks to Trump siding strongly with the most hawkishly anti-Iran members of the GCC. Those nations happen to be Saudi Arabia and the UAE, both of which are actively involved in the disastrously bogged-down war in Yemen, where evidence is weak that Iran is even providing anything significant to the Houthis who currently control northern Yemen and the capital of Sana'a and are Zaydi Shia. Many reports show a major humanitarian disaster unfolding in that nation, which appears to be in the process of splitting into at least three, if not four, failed pieces, with the UAE apparently supporting South Yemen secessionists who recently took control of the airport in Aden (not clear what Saudis think of that,; this last bit not in any of the linked posts). The key players are Saudi Deputy Crown Prince, Mohammed bin Salman (MbS), and the Abu Dhabi Crown Sheikh Mohammed bin Zayed (Abu Dhabi one of the 7 emirates in the UAE), both of whom have gotten close to Jared Kushner. Another nation more or less in their camp, if not quite as close to Kushner, is Bahrain, home to a US naval base, where the ruling minority Sunni monarchy killed a bunch of peacefully demonstrating Shia a few days after Trump left Riyadh, having promised not to "lecture" them about human rights (although he was prepared to lecture US allies in Europe about all sorts of things).
So the big news that Ulrichsen presents is a bizarre campaign in various social media and regular media, especially in KSA and UAE against Qatar, claiming that its Emir Tammim made a speech on May 23 to a graduating group of military cadets in which he supposedly said that Iran was a "stabilizing presence in the Gulf," that Hama was the legitimate ruler of Gaza, and complained about "tense" relations with the Trump administration.. Indeed, these claims were apparently made on Qatar TV on May 24, only to be retracted and taken down soon after. The Qataris claim that this report was hacked into Qatar TV, and observers at Tammim's talk claim that he never said any of this. But this report spread widely in the Arab world, being repeated in Egypt, Libya, and some other locations as well, and apparently both the Saudi and UAE media have continued to pound away with this story even as the Qataris are claiming it never happened and that they were hacked. A serious irony is that to the extent this is all about Qatar being insufficiently anti-Iran, especially in Yemen, Qatar sent 1000 troops to Yemen in 2014 at the special request of Mohammed bin Zayed (MbZ), who apparently personally lobbied Tammim hard on this.
In any case, whether or not there is tension between the Trump administration and Tammim, he has not visited Washington, while MbS and MbZ have done so several times, and they clearly have the ears of Kushner and Trump, as well as Trump's hands on that glowing globe. With his strongly anti-Iran talk in Riyadh, Trump has exacerbated the divisions within the GCC, where, apparently Qatar has been in open disagreement about the seriousness of the Iran threat with KSA, UAE, and Bahran for some time.
What about the other two GCC members not openly caught up in this? Presumably they are somewhere in between these others, and apparently at least somewhat sympathetic to the Qatari view that Iran is not quite the big threat that KSA has been claiming, with the Saudis the big dogs in the GCC, which they have long viewed as their rump puppies who should do as they are told. Indeed, there have been scattered reports that Kuwait in particular has been less keen on all the loud anti-Iran rhetoric, with them having some special credibility as they are the GCC nation second closest to Iran, so that if Iran is in fact contemplating some invasion as MbS has loudly claimed, Kuwait would be a likely target, if nothing else to be on the pathway for an army to get to KSA after briefly passing through Iraq where it borders the Persian Gulf (last time Iran invaded a neighbor was in the 1820s).
Oh, which leaves the ever-so quiet sixth GCC member, Oman, which actually has a border with Iran and shares the strategically crucial Strait of Hormuz through which all the oil coming out by sea from the Persian Gulf passes through. They also neighbor Yemen as well as KSA and UAE. They are not reported to have said anything, and almost certainly will not, and they have no troops in Yemen, where they are staying uninvolved. But nobody wants to mess with them for at least two reasons. One is the obvious matter of their sharing the crucial Strait of Hormuz with Iran. The other is that they do not share the Sunni sectarian biaz against Shia Iran. They are the only nation in the world not to be led by a Muslim sect that is either Sunni or Shi'i, the Ibadi sect. As a result, they prefer to stand back from this insane Sunni-Shia war, although, partly to keep the Saudis and UAE off their backs, they are formally in the GCC and regularly approve resolutions approved by its fellow members. But Oman goes its own way, if ever so discretely.
Probably the most important sign of their willingness to act independently although also secretly, is that it was through their auspices that the initial contacts were made by the Obama administration when it began to approach Iran about engaging in the ultimately successful negotiations that led to the nuclear deal, a deal strongly opposed by both KSA and Israel on the surface, but amazingly enough not yet undone by Trump, despite his having denounced it during the campaign as "the worst deal ever made." On that matter, Putin may have been a good influence, whose foreign minister, the ineffable Sergei Lavrov, played a crucial role in getting that deal done. Paris agreement supported by all nations on the planet except Syria and Nicaragua? Not a problem blowing it off. But somebody has gotten to Trump to convince him to leave alone the Iran nuclear deal, even as he has ramped up anti-Iran rhetoric in a way that has apparently triggered or encouraged this blowup within the GCC, and let us hope that he continues to leave it alone. But Oman is having none of these wild anti-Iran shenanigans, and nobody is going to mess with them about it.
Barkley Rosser
According to Ghiles, the split has opened up dramatically thanks to Trump siding strongly with the most hawkishly anti-Iran members of the GCC. Those nations happen to be Saudi Arabia and the UAE, both of which are actively involved in the disastrously bogged-down war in Yemen, where evidence is weak that Iran is even providing anything significant to the Houthis who currently control northern Yemen and the capital of Sana'a and are Zaydi Shia. Many reports show a major humanitarian disaster unfolding in that nation, which appears to be in the process of splitting into at least three, if not four, failed pieces, with the UAE apparently supporting South Yemen secessionists who recently took control of the airport in Aden (not clear what Saudis think of that,; this last bit not in any of the linked posts). The key players are Saudi Deputy Crown Prince, Mohammed bin Salman (MbS), and the Abu Dhabi Crown Sheikh Mohammed bin Zayed (Abu Dhabi one of the 7 emirates in the UAE), both of whom have gotten close to Jared Kushner. Another nation more or less in their camp, if not quite as close to Kushner, is Bahrain, home to a US naval base, where the ruling minority Sunni monarchy killed a bunch of peacefully demonstrating Shia a few days after Trump left Riyadh, having promised not to "lecture" them about human rights (although he was prepared to lecture US allies in Europe about all sorts of things).
So the big news that Ulrichsen presents is a bizarre campaign in various social media and regular media, especially in KSA and UAE against Qatar, claiming that its Emir Tammim made a speech on May 23 to a graduating group of military cadets in which he supposedly said that Iran was a "stabilizing presence in the Gulf," that Hama was the legitimate ruler of Gaza, and complained about "tense" relations with the Trump administration.. Indeed, these claims were apparently made on Qatar TV on May 24, only to be retracted and taken down soon after. The Qataris claim that this report was hacked into Qatar TV, and observers at Tammim's talk claim that he never said any of this. But this report spread widely in the Arab world, being repeated in Egypt, Libya, and some other locations as well, and apparently both the Saudi and UAE media have continued to pound away with this story even as the Qataris are claiming it never happened and that they were hacked. A serious irony is that to the extent this is all about Qatar being insufficiently anti-Iran, especially in Yemen, Qatar sent 1000 troops to Yemen in 2014 at the special request of Mohammed bin Zayed (MbZ), who apparently personally lobbied Tammim hard on this.
In any case, whether or not there is tension between the Trump administration and Tammim, he has not visited Washington, while MbS and MbZ have done so several times, and they clearly have the ears of Kushner and Trump, as well as Trump's hands on that glowing globe. With his strongly anti-Iran talk in Riyadh, Trump has exacerbated the divisions within the GCC, where, apparently Qatar has been in open disagreement about the seriousness of the Iran threat with KSA, UAE, and Bahran for some time.
What about the other two GCC members not openly caught up in this? Presumably they are somewhere in between these others, and apparently at least somewhat sympathetic to the Qatari view that Iran is not quite the big threat that KSA has been claiming, with the Saudis the big dogs in the GCC, which they have long viewed as their rump puppies who should do as they are told. Indeed, there have been scattered reports that Kuwait in particular has been less keen on all the loud anti-Iran rhetoric, with them having some special credibility as they are the GCC nation second closest to Iran, so that if Iran is in fact contemplating some invasion as MbS has loudly claimed, Kuwait would be a likely target, if nothing else to be on the pathway for an army to get to KSA after briefly passing through Iraq where it borders the Persian Gulf (last time Iran invaded a neighbor was in the 1820s).
Oh, which leaves the ever-so quiet sixth GCC member, Oman, which actually has a border with Iran and shares the strategically crucial Strait of Hormuz through which all the oil coming out by sea from the Persian Gulf passes through. They also neighbor Yemen as well as KSA and UAE. They are not reported to have said anything, and almost certainly will not, and they have no troops in Yemen, where they are staying uninvolved. But nobody wants to mess with them for at least two reasons. One is the obvious matter of their sharing the crucial Strait of Hormuz with Iran. The other is that they do not share the Sunni sectarian biaz against Shia Iran. They are the only nation in the world not to be led by a Muslim sect that is either Sunni or Shi'i, the Ibadi sect. As a result, they prefer to stand back from this insane Sunni-Shia war, although, partly to keep the Saudis and UAE off their backs, they are formally in the GCC and regularly approve resolutions approved by its fellow members. But Oman goes its own way, if ever so discretely.
Probably the most important sign of their willingness to act independently although also secretly, is that it was through their auspices that the initial contacts were made by the Obama administration when it began to approach Iran about engaging in the ultimately successful negotiations that led to the nuclear deal, a deal strongly opposed by both KSA and Israel on the surface, but amazingly enough not yet undone by Trump, despite his having denounced it during the campaign as "the worst deal ever made." On that matter, Putin may have been a good influence, whose foreign minister, the ineffable Sergei Lavrov, played a crucial role in getting that deal done. Paris agreement supported by all nations on the planet except Syria and Nicaragua? Not a problem blowing it off. But somebody has gotten to Trump to convince him to leave alone the Iran nuclear deal, even as he has ramped up anti-Iran rhetoric in a way that has apparently triggered or encouraged this blowup within the GCC, and let us hope that he continues to leave it alone. But Oman is having none of these wild anti-Iran shenanigans, and nobody is going to mess with them about it.
Barkley Rosser
Scott Pruitt Lies to Chuck Todd
DangItIowa and I both endured the Meet the Press interview with the EPA Director:
Scott Pruitt was on Meet the Press today and claimed that 70,000 “coal sector” jobs have been added in the US since 4th quarter of 2016, with 7,000 created in May 2017 alone. I don’t know Scott Pruitt’s definition of the “coal sector” but his claim was in response to Chuck Todd asking if President Trump had made an empty promise to coal miners about bringing back the coal industry. Here are the facts, from the Bureau of Labor Statistics, about the gain in US coal mining jobs since 4th quarter of 2016. There were 49,300 coal mining jobs at the end of September 2016 and there were 51,000 coal mining jobs at the end of May 2017 — that’s 1,700 jobs added. And only 400 of those jobs were created during May 2017.This was not even his worse spinning in my view. Pruitt kept telling Chuck Todd how the U.S. was lowering carbon emissions whereas the Chinese will not be required to do so for years. Chuck Todd as usual was completely unprepared and never noted the fact that per capita CO2 emissions in 2016 were 16.4 metric tons for the U.S. but only 7.6 metric tons for China.
Sunday, June 4, 2017
"It Depends on How We They Value Time"
Peter Dorman calls attention to a NYT Upshot column by Neil Irwin about the cost of climate change. For Irwin, the question can be framed as a matter of discounting, "A dollar today is worth more than a dollar tomorrow and a lot more than a dollar in 100 years. But what discount rate you set determines how much more."
As Irwin admits, the discount rate is a "business concept." His conclusion, then, follows exclusively from a business concept of "how, as a society, we count the value of time." Why are we compelled, as a society, to count the value of time in accordance with the business concept of discounting? Because there is no other concept of time? No, there are other concepts of time. More specifically, there is a concept of time directly opposed to and critical of the business concept of time. Labor time.
What discounting is to the business concept of time, alienation is to the labor concept of time. Alienation refers not to "feelings" of alienation but to the sale of one's own time -- and consequently autonomy -- to another.
For every human being -- as for the wage worker -- there are 24 hours in a day, 168 hours in a week, 8760 or 8784 hours in a year. These are fixed amounts. You can't put it in a bank and get it back in 20 years with interest. You can't take it with you and you can't convey it to your heirs in a will. Today is here today and gone tomorrow.
The discount rate concept has nothing to do with the qualitative experience of time by humans and everything to do with the quantitative accumulation of money by property owners. Framing the cost of climate change as a contest between different discount rates is totalitarian. We live in a totalitarian society in which the non-business concept of time is invisible. Neil Irwin sounds like a thoughtful person. It simply didn't occur to him that there was any other relevant concept of time than the business concept.
That is why the climate is changing. And that is why not enough will be done about it. Because it all depends on how capital values time.
As Irwin admits, the discount rate is a "business concept." His conclusion, then, follows exclusively from a business concept of "how, as a society, we count the value of time." Why are we compelled, as a society, to count the value of time in accordance with the business concept of discounting? Because there is no other concept of time? No, there are other concepts of time. More specifically, there is a concept of time directly opposed to and critical of the business concept of time. Labor time.
What discounting is to the business concept of time, alienation is to the labor concept of time. Alienation refers not to "feelings" of alienation but to the sale of one's own time -- and consequently autonomy -- to another.
For every human being -- as for the wage worker -- there are 24 hours in a day, 168 hours in a week, 8760 or 8784 hours in a year. These are fixed amounts. You can't put it in a bank and get it back in 20 years with interest. You can't take it with you and you can't convey it to your heirs in a will. Today is here today and gone tomorrow.
The discount rate concept has nothing to do with the qualitative experience of time by humans and everything to do with the quantitative accumulation of money by property owners. Framing the cost of climate change as a contest between different discount rates is totalitarian. We live in a totalitarian society in which the non-business concept of time is invisible. Neil Irwin sounds like a thoughtful person. It simply didn't occur to him that there was any other relevant concept of time than the business concept.
That is why the climate is changing. And that is why not enough will be done about it. Because it all depends on how capital values time.
Saturday, June 3, 2017
Mankiw v. Mankiw on the 1981 Tax Cut
Greg Mankiw’s first macroeconomic textbook correctly noted that the mix of Volcker’s tight monetary policies and the 1981 tax cut led to a fall in national savings driving up real interest rates and crowding out investment and net export demand. Yes – there was some messy short-run Keynesian events but his early account captured the long-run effect of what was an anti-supply-side fiscal policy. But now Mankiw sings the Keynesian praises of the 1981 tax cut:
When Mr. Reagan moved into the Oval Office in January 1981, the economy had recently experienced a recession. The recovery was just six months old. Unemployment was still elevated at 7.5 percent. Worse yet, another downturn was on the horizon. Within six months, the economy would again be in recession. Unemployment rose to 10.8 percent at the end of 1982, its highest level since the Great Depression. In August 1981, Mr. Reagan signed into law a bill that phased in tax cuts over three years. These cuts helped usher in a robust recovery. By the end of 1988, as Mr. Reagan was leaving office, the unemployment rate had fallen to 5.3 percent.Revisionist history or just plain intellectual garbage? Yes – Volcker engineered what was supposed to be a temporary recession in 1979 but was reversing his tight monetary policy even before Reagan took office. The reason we had the 1982 recession was that the FED overreacted to the ill-advised Reagan stimulus. The reason the economy later recovered was that the FED later reversed course. Volcker had kept asking the Reagan White House to end their toxic mix of tax cuts for the rich and offsetting monetary restraint. Greg Mankiw knows this all too well so why would he write this nonsense?
When George W. Bush became president in January 2001, he faced a situation that, in some ways, was similar to that of 1981. (Disclosure: I was one of his economic advisers from 2003 to 2005.) The economy was heading toward a recession, attributable largely to the bursting of the dot-com bubble. From March 2000 to April 2001, the tech-heavy Nasdaq composite average lost about two-thirds of its value. A recession officially began in March 2001. Unemployment rose from 3.9 percent at the end of 2000 to 6.3 percent by the middle of 2003. Without the tax cuts President Bush signed into law, unemployment would have probably gone higher.That must be the reason but then his defense of the 2001 tax cut has a couple of problems. The FED recognized the same events and was actively lowering interest rates even before this tax cut. But OK – a little more consumption demand may have been in order. The real problem, however, is that the rest of Team Bush was selling this tax cut as a means for raising national savings but Mankiw insists it was designed to lower national savings. And we thought they had multiple and conflicting reasons for invading Iraq. But why write about this now?
Yet Mr. Trump faces a vastly different set of circumstances. The economy has not experienced a recent recession…The Federal Reserve is responding to these events by raising interest rates. It believes, correctly in my judgment, that incipient inflation is a greater risk than recession. Keynesian pump-priming is not what the economy needs now. The main macroeconomic problem the nation faces is slow productivity growth, which in turn leads to slow growth in average incomes. Increased budget deficits would only make this problem worse. They would cause the Fed to raise interest rates even faster than otherwise. Higher interest rates would discourage capital investments, further depressing productivity.The old Greg Mankiw resurfaces! Of course some of us wonder if we are really at full employment and hence are critical of the recent increase in interest rates. Brad DeLong strikes the right tone:
today’s weak inflation outlook suggests that the Fed’s monetary policies, in combination with fiscal policies, are not providing sufficient stimulus for the US economy – as was the case in 2013. Unfortunately, the FOMC does not appear to be particularly concerned about this possibility. Among FOMC members, Neel Kashkari, the impressive president of the Federal Reserve Bank of Minneapolis, is the only one who has dissented, calling on the Fed to pursue more stimulative policies. The FOMC’s blind spot stems from the fact that it is relying more on its assessment of the labor market, which it considers to be at or above “full employment,” than on noisy month-to-month inflation data. But “full employment” is a rather tenuous and unreliable construct.In lieu of more monetary stimulus, a little fiscal stimulus now might be a good thing. But if we go big on infrastructure investment then we would likely have all the fiscal stimulus we need for full employment and more. Mankiw’s title might suggest a tax cut would be nice but I would argue tax cuts for the rich would be the wrong form of fiscal stimulus.
The Cost of Climate Change: It’s Not About Psychology
You know there are problems with economics when things that are perfectly reasonable in the context of economic theory are clearly absurd once you step out of it. Case in point: the claim in today’s New York Times piece by Neil Irwin that the economic cost of climate change vs the actions we’d need to mitigate it depends on “how, as a society, we count the value of time.”
In economics? Yes. The present value of climate and climate mitigation costs depends on the discount rate, the extent to which we devalue something a year from now because it’s a year away. That’s how you do a cost-benefit analysis. It really matters for climate policy because the costs tend to be upfront and the benefits decades or even centuries down the road. Economists wrack their brains over how to select exactly the “right” discount rate to perform these calculations.
But think about it for a moment. While there’s a “technical” aspect to time preference—investing today can result in measurable returns over time—the discount rate also depends on psychology: how present-oriented are we? How much do we live in the here and now rather than looking down the road and preparing for tomorrow? We all occupy different places on this classic grasshopper-ant continuum, and we usually shift our position over the course of our life cycle. Yet how does this psychological characteristic, either individually or socially, affect the economic consequences of acting on climate change, or not? It certainly affects the kinds of choices we’re likely to make, but the consequences?
The whole point of Aesop’s grasshopper-ant fable is that there’s a real world that both insects inhabit, with consequences that don’t depend on their psychology at a moment in time. Grasshoppers are not better off because they follow the myopic dictates of their grasshopper brains. This was obvious 2500 years ago, and it’s obvious today. Economists’ obsession with identifying the “right” discount rate for cost-benefit calculations is a product of their own warped world (the logical and empirical craziness of welfare economics) and has nothing to do with rational decision-making about how to adapt to ecological constraints.
(Image source: smallkidshomework.com)
Friday, June 2, 2017
Trump’s Confusion Regarding Chinese Coal
Jonathan Chait listens to President Trump so we don’t have to:
China will be allowed to build hundreds of additional coal plants. So, we can’t build the plants, but they can, according to this agreement. India will be allowed to double its coal production by 2020. Think of it. India can double their coal production.Trump seems worried that China will be stealing our coal jobs by exporting their coal to us. There are several problems with these claims. Brad Plumer notes:
Over the weekend, the Chinese government ordered 13 provinces to cancel 104 coal-fired projects in development, amounting to a whopping 120 gigawatts of capacity in all. To put that in perspective, the United States has about 305 gigawatts of coal capacity total. The projects that China just ordered halted are equal in size to one-third of the US coal fleet.China produces a lot of coal because they consume a lot of coal. Their consumption of coal peaked in 2014 but has been falling since then:
Coal consumption fell by 4.7 percent year-on-year in 2016, and the share of coal in the country's energy mix slipped to 62.0 percent, down 2.0 percent year-on-year, the National Bureau of Statistics said in a report. Overall coal production also fell, dropping 9.0 percent to 3.41 billion tonnes in 2016. The data suggests that "coal consumption probably peaked around 2014," according to a statement from environmental group China Dialogue.China actually imports coal but even those imports may be declining. The U.S. is a net exporter of coal as reported by Census. While we import about $3 billion per year of coal, coal exports soared to over $7 billion in 2012. These exports fell to just over $4 billion in 2016 but this decline was not due to China but rather the competition from natural gas. Since Trump is big on bilateral trade balances maybe he should note that we are a net exporter of coal to China. Of course if China decides to consume less coal over time, we will export less coal to them even as they cut back on their own production.
Thursday, June 1, 2017
Mick Mulvaney Attacks the Credibility of the CBO
Tierney Steed notes that the OMB Director is not happy with how the CBO scored TrumpCare:
It’s become the knee-jerk reaction for Republicans, in light of an ugly Congressional Budget Office analysis of their Obamacare repeal bill, to point the finger at the non-partisan research agency instead.Office of Management and Budget Director Mick Mulvaney took it a step further this week, by questioning the abilities of Holly Harvey, the head of its health analysis division, to be non-partisan. “At some point, you’ve got to ask yourself, has the day of the CBO come and gone?”So who should score these things? I wonder if Menzie Chinn will nominate Stephen Moore?
Wednesday, May 31, 2017
Pronoun Madness
I have been assiduously following my institution’s recommendations regarding preferred student pronouns. Students announce their pronouns on the first day of class. We all commit to remembering not only their names and faces (always a burden for me) but also their pronouns. In class discussion we have little signs on our desks with name and pronoun identifiers.
I find this extremely annoying, but not because I’m bothered by the freedom of my students to define their gender as they choose. Far from it. What irks me is that we have to go through so much bother because of the shortcomings in our language. Rather than spend so much energy on pronouns, why not change the language?
Simply eliminated gendered pronouns from English—poof. We could all get along just fine with a generic, formerly plural they-them. Less to remember and stress about. This reform would be even more welcome in languages like French, German and Spanish that are gendered through and through and throw up so many more barriers to well-meaning language learners like myself.
And for reciprocity, and to make it a package deal, the US could switch to a metric system at the same time.
Peter Dorman (he/him)
I find this extremely annoying, but not because I’m bothered by the freedom of my students to define their gender as they choose. Far from it. What irks me is that we have to go through so much bother because of the shortcomings in our language. Rather than spend so much energy on pronouns, why not change the language?
Simply eliminated gendered pronouns from English—poof. We could all get along just fine with a generic, formerly plural they-them. Less to remember and stress about. This reform would be even more welcome in languages like French, German and Spanish that are gendered through and through and throw up so many more barriers to well-meaning language learners like myself.
And for reciprocity, and to make it a package deal, the US could switch to a metric system at the same time.
Peter Dorman (he/him)
Monday, May 29, 2017
The Protests at Evergreen State College, Un-Foxed
Right wing media sources have been all ablaze in the past few days with stories about PC-inspired thuggery at Evergreen State College. Unfortunately, there hasn’t been objective reporting on these events to set the record straight, and unless saner voices speak out there is a risk the Fox version will be the only one most people know.
I teach at Evergreen, and I have been present for most of the fireworks (and the slow burn that preceded it). I’m no expert, but I also have no particular axe to grind.
Although racial issues have been a part of Evergreen’s history from the beginning, the last year has seen a significant increase in tensions. A group of faculty and staff, initially calling themselves the Diversity and Equity (now the Equity and Inclusion) Council, formed to spearhead a drive for reforms. They had difficulty agreeing on just what needed to be done, but they converged on a demand for annual mandatory diversity training for all faculty. This proved to be divisive and did not get majority support at a faculty meeting, leading to a sense of frustration and polarization. Social justice activists came away convinced that discussion and persuasion were fruitless, and only a top-down, administration-led approach would get results. This in turn exacerbated tensions with faculty who were concerned about a more general drift away from faculty governance at the institution.
One consequence was an email battle, which quickly devolved into the Council and its supporters against a lone “anti” voice, Bret Weinstein, an evolutionary biologist. Using a campus-wide list, Weinstein repeatedly argued that the Council was imposing an atmosphere of intimidation, a claim with an element of truth but which was delivered with what can charitably be described as insufficient awareness of his own assumptions and biases about race and racism.
The triggering event on the email front was a decision to alter the format of the college’s Day of Absence/Day of Presence observation in 2017. DOA/DOP is a longstanding college tradition. On DOA students, staff and faculty of color are invited to meet off campus to discuss the state of racial awareness and progress; on DOP everyone is invited to discuss these issues together. For the current iteration it was decided to encourage those of color to meet on campus during DOP and invite others to a small, limited capacity off-campus event, a symbolic “flip”. No one was required to do anything; it was all about invitation. This seems to have pushed a button for Weinstein, who responded with an email (falsely) attacking the organizers for instructing whites to leave campus, a charge he embedded in a more sweeping claim of reverse racism. The email wars heated up and then subsided; for several weeks it appeared the matter had been dropped.
But meanwhile a number of students of color and their supporters were organizing behind the scenes. They were upset about several incidents involving the campus police, particularly one in which two black students were taken into custody following a heated verbal exchange over racial issues in the student cafeteria. There was also buzz among students that a number of the faculty were displaying racial and gender bias in the classroom and anger about Weinstein’s email. Last week they launched their protest by invading Weinstein’s class and shouting at him to either apologize or resign. Someone (Weinstein says it was a student, the protesters say it was Weinstein) called the campus police, and further ugliness ensued. (This has all been captured on video.) Then the protesters moved on to the administrative offices of the college and engaged in an off-and-on sit-in. No police were called in response to this. Protesting students also disbanded a faculty meeting and herded the faculty to the site of their sit-ins, apparently worried about a police attack and hopeful that faculty presence would forestall it.
The immediate effect for Weinstein was banishment from the campus. Students peppered the buildings with graffiti denouncing him as a racist, and campus police told him he should stay away for his own safety. He held classes with his students off-campus. There may also have been threats against some of his students, but protesters deny this charge, and the truth can’t be determined at this point.
The email war reignited, and one of the faculty most closely associated with the protests posted a message on Facebook that was at best ill-advised in its vituperation against Weinstein’s partner (also an Evergreen faculty member). Meanwhile, Weinstein did himself no favors by agreeing to be interviewed for Fox News, during which he made exaggerated claims about the situation on campus.
George Bridges, the president of the college, has responded to the protests by supporting a number of initiatives (including the mandatory diversity trainings), but also demanding that personal attacks cease.
My purpose in relaying this information is to provide as objective a narrative as possible. I have strong views of my own, but I’ve kept them out. All I want to say at this point is that racial injustice is a pressing issue at Evergreen, I appreciate the attention students have brought to it, but I also think they have barely scratched the surface of the real problems, and a lot of the behavior on all sides has been unhelpful.
I teach at Evergreen, and I have been present for most of the fireworks (and the slow burn that preceded it). I’m no expert, but I also have no particular axe to grind.
Although racial issues have been a part of Evergreen’s history from the beginning, the last year has seen a significant increase in tensions. A group of faculty and staff, initially calling themselves the Diversity and Equity (now the Equity and Inclusion) Council, formed to spearhead a drive for reforms. They had difficulty agreeing on just what needed to be done, but they converged on a demand for annual mandatory diversity training for all faculty. This proved to be divisive and did not get majority support at a faculty meeting, leading to a sense of frustration and polarization. Social justice activists came away convinced that discussion and persuasion were fruitless, and only a top-down, administration-led approach would get results. This in turn exacerbated tensions with faculty who were concerned about a more general drift away from faculty governance at the institution.
One consequence was an email battle, which quickly devolved into the Council and its supporters against a lone “anti” voice, Bret Weinstein, an evolutionary biologist. Using a campus-wide list, Weinstein repeatedly argued that the Council was imposing an atmosphere of intimidation, a claim with an element of truth but which was delivered with what can charitably be described as insufficient awareness of his own assumptions and biases about race and racism.
The triggering event on the email front was a decision to alter the format of the college’s Day of Absence/Day of Presence observation in 2017. DOA/DOP is a longstanding college tradition. On DOA students, staff and faculty of color are invited to meet off campus to discuss the state of racial awareness and progress; on DOP everyone is invited to discuss these issues together. For the current iteration it was decided to encourage those of color to meet on campus during DOP and invite others to a small, limited capacity off-campus event, a symbolic “flip”. No one was required to do anything; it was all about invitation. This seems to have pushed a button for Weinstein, who responded with an email (falsely) attacking the organizers for instructing whites to leave campus, a charge he embedded in a more sweeping claim of reverse racism. The email wars heated up and then subsided; for several weeks it appeared the matter had been dropped.
But meanwhile a number of students of color and their supporters were organizing behind the scenes. They were upset about several incidents involving the campus police, particularly one in which two black students were taken into custody following a heated verbal exchange over racial issues in the student cafeteria. There was also buzz among students that a number of the faculty were displaying racial and gender bias in the classroom and anger about Weinstein’s email. Last week they launched their protest by invading Weinstein’s class and shouting at him to either apologize or resign. Someone (Weinstein says it was a student, the protesters say it was Weinstein) called the campus police, and further ugliness ensued. (This has all been captured on video.) Then the protesters moved on to the administrative offices of the college and engaged in an off-and-on sit-in. No police were called in response to this. Protesting students also disbanded a faculty meeting and herded the faculty to the site of their sit-ins, apparently worried about a police attack and hopeful that faculty presence would forestall it.
The immediate effect for Weinstein was banishment from the campus. Students peppered the buildings with graffiti denouncing him as a racist, and campus police told him he should stay away for his own safety. He held classes with his students off-campus. There may also have been threats against some of his students, but protesters deny this charge, and the truth can’t be determined at this point.
The email war reignited, and one of the faculty most closely associated with the protests posted a message on Facebook that was at best ill-advised in its vituperation against Weinstein’s partner (also an Evergreen faculty member). Meanwhile, Weinstein did himself no favors by agreeing to be interviewed for Fox News, during which he made exaggerated claims about the situation on campus.
George Bridges, the president of the college, has responded to the protests by supporting a number of initiatives (including the mandatory diversity trainings), but also demanding that personal attacks cease.
My purpose in relaying this information is to provide as objective a narrative as possible. I have strong views of my own, but I’ve kept them out. All I want to say at this point is that racial injustice is a pressing issue at Evergreen, I appreciate the attention students have brought to it, but I also think they have barely scratched the surface of the real problems, and a lot of the behavior on all sides has been unhelpful.
Wednesday, May 24, 2017
Fighting Zombies with Zombies
Larry Mishel and Josh Bivens enlist zombie government policy ponies in their battle against "the zombie robot argument":
Technological change and automation absolutely can, and have, displaced particular workers in particular economic sectors. But technology and automation also create dynamics (for example, falling relative prices of goods and services produced with fewer workers) that help create jobs in other sectors. And even when automation’s job-generating and job-displacing forces don’t balance out, government policy can largely ensure that automation does not lead to rising overall unemployment.The catch here is that the displacement of workers by technology and the investment that re-absorbs workers displaced by technology are largely, but not entirely, independent factors. "Government policy" in the quoted paragraph is just another name for investment. Hans Neisser observed in his 1942 article on technological unemployment that "it is impossible to predict the outcome of the race between the two [investment and displacement] on purely theoretical grounds."
The conclusion is inevitable: there is no mechanism within the framework of rational economic analysis that, in any situation, would secure the full absorption of displaced workers and render "permanent" technological unemployment in any sense impossible.The "robot apocalypse" is neither impossible nor inevitable. It is probably unlikely, but unlikely things do happen, especially when people become complacent about the impossibility of unlikely things happening.
Some Saudi-US History
Given Donald Trump's new commitment to support military adventurism by Saudi Arabia in Yemen and more generally against Iran, it might be worth reconsidering how this alliance developed.
The beginning for Saudi Arabia was in 1744 when a wandering radical cleric, Mohammed bin Abdel-Wahhab met up with a local chieftain, Mohammed bin Saud in the village of Diriyah, whose ruins are now located in the suburbs of the current Saudi Arabian capital, Riyadh. Wahhab converted Saud to his cause of spreading the strictest of the four Sunni shari'as, the Hanbali code, throughout the world, and this remains to this day the ideology of the House of Saud, the ruling family of Saudi Arabia, with this ideology widely known as Wahhabism. The territory ruled by the early Saudis expanded to cover a fair amount of the Nejd, the central portion of the Arabian peninsula, but when they threatened control of Mecca in 1818, ruled by Egyptians under the Ottomans who collected the moneys gained from pilgrims visiting there, the Egyptian leader, Muhammed Ali, invaded the Nejd and destroyed Diriyah. The Saud family moved to the next village over, Riyadh, and reconstructed their small state, which expanded again in the mid-1800s, although near the end of the century they were defeated and exiled to Kuwait by the rival Rashid family from Hail to the north of Riyadh.
In 1902 the 27 year old family leader, Abdulaziz bin al-Rahman bin Faisal al Saud, reconquered Riyadh and would eventually establish the modern Kingdom of Saudi Arabia (KSA) through marital and martial conquests, with its modern boundaries established in 1932, and Abdulaziz (known in the West as "Ibn Saud") bearing the title of King and Protector of the Two Holy Places (Mecca and Medina), which he had conqurered in 1924. He would have 43 sons, and today's king, 81-year old Salman, is one of the last of them, and Abdulaziz would die in 1953. It should be noted that Saudi Arabia was independent of the Ottoman Empire, and was one of the few parts of the Muslim world that did not fall under the rule of a European power, along with Turkey, Persia/Iran, and Afghanistan.
In the early years, especially in the 1920s, he sought outside advice and support from the British, especially St-John Philby, the rival at Whitehall of T.E. Lawrence, and the first European to cross the Empty Quarter of the Arabian peninsula. Philby was especially helpful during the revolt by the combined forces of the Rashidi and the Ikhwan (Muslim Brotherhood) whom Abdulaziz managed to defeat in 1929, with the rebels pushing an ultra-fundamentalist line against Abdulaziz (an replay of this revolt occurred 50 years later in 1979, with the Ikhwan seizing control of the Grand Mosque in Mecca for a time). Philby would convert to Islam and take several wives. He was also the father of later Soviet spy, Kim Philby.
The first interest by anybody in the US came out of two agreements in 1928 and 1929, the Red Line Agreement that gave the territories of the former Ottoman Empire to a set of British and French companies, and then the As Is agreement of 1929 between Sir Henri Deterding of Royal Dutch Shell, Baron John Cadman of Anglo-Persian (now BP), and Walter Teagle of New Jersey Standard (now Exxon Mobil) at Deterding's Achnacarry Castle in Scotland. These agreements amounted to an early effort to divide up the oil producing world in a cartel. Out of this, Jersey Standard got Saudi Arabia, although at the time oil had not been discovered there. It would be in 1938 by geologists from Jersey Standard, and agreements for production with cash payments for Abdulaziz in gold bars were made. In 1948, Abdulaziz would become the first leader of an oil-producing nation to succeed in getting a 50-50 profit sharing agreement, and as oil production surged there in the 1950s and after, the money would begin to flow into Saudi Arabia providing the basis for its modernization, even as it retained its highly traditional and strict version of Wahhabist Islam and Hanbali shari'a law code.
While Saudi Arabia initially favored Nazi Germany at the beginning of World War II, much like Iran then, it gradually shifted to the Allied side, with FDR declaring the protection of Saudi oil reserves a US national interest in 1943, and the Saudis officially declaring war on Germany in early 1945. It is widely viewed in KSA that the alliance was sealed in 1945 when FDR was returning from Yalta shortly before his death and met briefly on a boat in the Suez Canal with King Abdulaziz, producing a famous photograph of the two of them smiling and shaking hands, shortly before FDR's death. And indeed, despite some ups and downs, the alliance has held since, with oil at its center.
Given that, the nature of the relationship has changed substantially over time. One major change, signaled initiallly by that 50-50 profit sharing agreement in 1948, was an increase in Saudi control over the oil aspect of it, with OPEC founded in 1960, which would impose a quadrupling of oil prices in 1973 in the wake of the Saudi oil export embargo against the US for the US supporting Israel in the Yom Kippur war of that year. Prior to that embargo, KSA had managed to nationalize ARAMCO, the Arabian-American Oil Company, which produced the oil in Saudi Arabia, the original owners of ARAMCO being Jersey Standard, New York Standard (Mobil, now merged with Exxon), Texaco, and California Standard (now Chevron). These companies, especially Exxon Mobil, continue to have an active relationship with ARAMCO, but the Saudis have been in control of their oil and their oil industry since the beginning of the 1970s. This shifted the relationship to being one more of the US becoming the protetctor of KSA, providing it with arms as the petrodollars poured in, and this aspect of the relationship has reached a new height with this latest visit and arms deal, arranged by former Exxon Mobil CEO and now SecState, Tillerson.
It is worth noting also that for most of the postwar period probably the major irritant in the Saudi-US relationship has been Israel, which even now KSA does not recognize, and Trump's flight from Riyadh to Tel Aviv was the first such direct flight on that route ever. Israel supporters for many years complained about "Arabists" in the US State Department who were more oriented to worrying US oil interests in the Middle East and especially in Saudi Arabia. But today there is now an alliance of convenience between KSA and Israel in their mutual dislike of Iran.
Which brings us to the current situation. I personally think that the current Saudi leadership has gone off the rails in their anti-Iran attitudes. The differences are both sectarian and ethnic, Sunni versus Shi'i Islam and Semitic Arabs versus Indo-European Iranians, with this manifesting itself in a regional power struggle. But this is a relatively recent conflict, only getting going since the 1979 Islamic Revolution in Iran, and only getting really hot with the overthrow of Saddam Hussein by the US under George W. Bush. It was the Saudis who convinced Bush's dad not to go to Baghdad to overthrow Saddam in the 1991 Gulf War, arguing that he kept a balance of power as a Sunni Arab leader against Iran. And they argued with Bush, Jr. not to go in for the same reason, although they would support the US effort modestly once it happened, even though it aggravated Osama bin Laden and al Qaeda against the Saudi monarchy for supporting the US so openly (even though the US had supported the decision by then Saudi intel chief, Turki bin Faisal, to send bin Laden to Pakistan to aid in the anti-Soviet campaign in Afghanistan). But the replacement of a Sunni-led regime in Iraq by a Shi'i led one supported by Iran has upset the Saudis greatly. They also do not like Iranian support of Assad in Syria, who appears to have won his war against largely Sunni rebels, many of them supported by KSA, and now the Saudis are bogged down in a war in Yemen against local Zaydi Shi'a, whom they claim (not with full credibility) are being supported by Iran. So they, and the Israelis, want the US to join them in an anti-Iran crusade.
I think we are at a dangerous moment here. The nuclear deal with Iran is the most importantdeal that Obama made, and even the Saudis and Israelis know it. What they do not like about it is that it meant that the economic sanctions on Iran were relaxed. But most of those sanctions were only put on to get Iran to the nuclear negotiating table. There is no way they can be reimposed without Iran returning to having a nuclear program. The most influential person in KSA now appears to be the son of King Salman, 31-year old Mohammed bin Salman, Deputy Crown Prince and Defense Minister, who gets lots of good press in the US. But for all the talk of reform, he has not moved to let women drive or to desegregate workplaces by gender. He seems to be a warmongering hothead who has pushed this so far fruitless and destructive war in Yemen, which has led to incipient famine in that nation as well as its likely falling apart into pieces. He has even talked about "taking the war to Iran," which we can only hope that he will not be tempted to do with all those fancy arms that he is buying from the US. Trump, or whoever is in charge of US foreign policy in the near term, will really have to both defend the nuclear deal with Iran and resist this warmongering push by our longtime erstwhile ally. Let us hope that this is done.
Barkley Rosser
The beginning for Saudi Arabia was in 1744 when a wandering radical cleric, Mohammed bin Abdel-Wahhab met up with a local chieftain, Mohammed bin Saud in the village of Diriyah, whose ruins are now located in the suburbs of the current Saudi Arabian capital, Riyadh. Wahhab converted Saud to his cause of spreading the strictest of the four Sunni shari'as, the Hanbali code, throughout the world, and this remains to this day the ideology of the House of Saud, the ruling family of Saudi Arabia, with this ideology widely known as Wahhabism. The territory ruled by the early Saudis expanded to cover a fair amount of the Nejd, the central portion of the Arabian peninsula, but when they threatened control of Mecca in 1818, ruled by Egyptians under the Ottomans who collected the moneys gained from pilgrims visiting there, the Egyptian leader, Muhammed Ali, invaded the Nejd and destroyed Diriyah. The Saud family moved to the next village over, Riyadh, and reconstructed their small state, which expanded again in the mid-1800s, although near the end of the century they were defeated and exiled to Kuwait by the rival Rashid family from Hail to the north of Riyadh.
In 1902 the 27 year old family leader, Abdulaziz bin al-Rahman bin Faisal al Saud, reconquered Riyadh and would eventually establish the modern Kingdom of Saudi Arabia (KSA) through marital and martial conquests, with its modern boundaries established in 1932, and Abdulaziz (known in the West as "Ibn Saud") bearing the title of King and Protector of the Two Holy Places (Mecca and Medina), which he had conqurered in 1924. He would have 43 sons, and today's king, 81-year old Salman, is one of the last of them, and Abdulaziz would die in 1953. It should be noted that Saudi Arabia was independent of the Ottoman Empire, and was one of the few parts of the Muslim world that did not fall under the rule of a European power, along with Turkey, Persia/Iran, and Afghanistan.
In the early years, especially in the 1920s, he sought outside advice and support from the British, especially St-John Philby, the rival at Whitehall of T.E. Lawrence, and the first European to cross the Empty Quarter of the Arabian peninsula. Philby was especially helpful during the revolt by the combined forces of the Rashidi and the Ikhwan (Muslim Brotherhood) whom Abdulaziz managed to defeat in 1929, with the rebels pushing an ultra-fundamentalist line against Abdulaziz (an replay of this revolt occurred 50 years later in 1979, with the Ikhwan seizing control of the Grand Mosque in Mecca for a time). Philby would convert to Islam and take several wives. He was also the father of later Soviet spy, Kim Philby.
The first interest by anybody in the US came out of two agreements in 1928 and 1929, the Red Line Agreement that gave the territories of the former Ottoman Empire to a set of British and French companies, and then the As Is agreement of 1929 between Sir Henri Deterding of Royal Dutch Shell, Baron John Cadman of Anglo-Persian (now BP), and Walter Teagle of New Jersey Standard (now Exxon Mobil) at Deterding's Achnacarry Castle in Scotland. These agreements amounted to an early effort to divide up the oil producing world in a cartel. Out of this, Jersey Standard got Saudi Arabia, although at the time oil had not been discovered there. It would be in 1938 by geologists from Jersey Standard, and agreements for production with cash payments for Abdulaziz in gold bars were made. In 1948, Abdulaziz would become the first leader of an oil-producing nation to succeed in getting a 50-50 profit sharing agreement, and as oil production surged there in the 1950s and after, the money would begin to flow into Saudi Arabia providing the basis for its modernization, even as it retained its highly traditional and strict version of Wahhabist Islam and Hanbali shari'a law code.
While Saudi Arabia initially favored Nazi Germany at the beginning of World War II, much like Iran then, it gradually shifted to the Allied side, with FDR declaring the protection of Saudi oil reserves a US national interest in 1943, and the Saudis officially declaring war on Germany in early 1945. It is widely viewed in KSA that the alliance was sealed in 1945 when FDR was returning from Yalta shortly before his death and met briefly on a boat in the Suez Canal with King Abdulaziz, producing a famous photograph of the two of them smiling and shaking hands, shortly before FDR's death. And indeed, despite some ups and downs, the alliance has held since, with oil at its center.
Given that, the nature of the relationship has changed substantially over time. One major change, signaled initiallly by that 50-50 profit sharing agreement in 1948, was an increase in Saudi control over the oil aspect of it, with OPEC founded in 1960, which would impose a quadrupling of oil prices in 1973 in the wake of the Saudi oil export embargo against the US for the US supporting Israel in the Yom Kippur war of that year. Prior to that embargo, KSA had managed to nationalize ARAMCO, the Arabian-American Oil Company, which produced the oil in Saudi Arabia, the original owners of ARAMCO being Jersey Standard, New York Standard (Mobil, now merged with Exxon), Texaco, and California Standard (now Chevron). These companies, especially Exxon Mobil, continue to have an active relationship with ARAMCO, but the Saudis have been in control of their oil and their oil industry since the beginning of the 1970s. This shifted the relationship to being one more of the US becoming the protetctor of KSA, providing it with arms as the petrodollars poured in, and this aspect of the relationship has reached a new height with this latest visit and arms deal, arranged by former Exxon Mobil CEO and now SecState, Tillerson.
It is worth noting also that for most of the postwar period probably the major irritant in the Saudi-US relationship has been Israel, which even now KSA does not recognize, and Trump's flight from Riyadh to Tel Aviv was the first such direct flight on that route ever. Israel supporters for many years complained about "Arabists" in the US State Department who were more oriented to worrying US oil interests in the Middle East and especially in Saudi Arabia. But today there is now an alliance of convenience between KSA and Israel in their mutual dislike of Iran.
Which brings us to the current situation. I personally think that the current Saudi leadership has gone off the rails in their anti-Iran attitudes. The differences are both sectarian and ethnic, Sunni versus Shi'i Islam and Semitic Arabs versus Indo-European Iranians, with this manifesting itself in a regional power struggle. But this is a relatively recent conflict, only getting going since the 1979 Islamic Revolution in Iran, and only getting really hot with the overthrow of Saddam Hussein by the US under George W. Bush. It was the Saudis who convinced Bush's dad not to go to Baghdad to overthrow Saddam in the 1991 Gulf War, arguing that he kept a balance of power as a Sunni Arab leader against Iran. And they argued with Bush, Jr. not to go in for the same reason, although they would support the US effort modestly once it happened, even though it aggravated Osama bin Laden and al Qaeda against the Saudi monarchy for supporting the US so openly (even though the US had supported the decision by then Saudi intel chief, Turki bin Faisal, to send bin Laden to Pakistan to aid in the anti-Soviet campaign in Afghanistan). But the replacement of a Sunni-led regime in Iraq by a Shi'i led one supported by Iran has upset the Saudis greatly. They also do not like Iranian support of Assad in Syria, who appears to have won his war against largely Sunni rebels, many of them supported by KSA, and now the Saudis are bogged down in a war in Yemen against local Zaydi Shi'a, whom they claim (not with full credibility) are being supported by Iran. So they, and the Israelis, want the US to join them in an anti-Iran crusade.
I think we are at a dangerous moment here. The nuclear deal with Iran is the most importantdeal that Obama made, and even the Saudis and Israelis know it. What they do not like about it is that it meant that the economic sanctions on Iran were relaxed. But most of those sanctions were only put on to get Iran to the nuclear negotiating table. There is no way they can be reimposed without Iran returning to having a nuclear program. The most influential person in KSA now appears to be the son of King Salman, 31-year old Mohammed bin Salman, Deputy Crown Prince and Defense Minister, who gets lots of good press in the US. But for all the talk of reform, he has not moved to let women drive or to desegregate workplaces by gender. He seems to be a warmongering hothead who has pushed this so far fruitless and destructive war in Yemen, which has led to incipient famine in that nation as well as its likely falling apart into pieces. He has even talked about "taking the war to Iran," which we can only hope that he will not be tempted to do with all those fancy arms that he is buying from the US. Trump, or whoever is in charge of US foreign policy in the near term, will really have to both defend the nuclear deal with Iran and resist this warmongering push by our longtime erstwhile ally. Let us hope that this is done.
Barkley Rosser
Monday, May 22, 2017
Output Optimum and the Roller Coaster of Immiseration
Following up on my post from two weeks ago, Immiseration Revisited, I built a spreadsheet replica of the marvelous Chapman diagram. In addition to lines on the page, the replica provides me with tables of numbers that I can add, subtract, multiply and divide in accordance with the conceptual logic of the diagram.
The chart below shows the results of some of these calculations. The red curve graphs cumulative gross "output" and green curve subtracts the value of foregone leisure and the pain cost of fatigue and wear and tear from output to calculate net "income" (green). The length of each vertical line measures the values of output and income, respectively for a work week of the length indicated by the scale on the x-axis.
I have set the hypothetical "output optimum" work week at 48 hours in deference to the diagram's 1909 vintage. Assuming such an optimum and taking the conceptual diagram's proportions literally, the ideal length of a work week for a laborer would be 36 hours. That is the point at which the value of foregone leisure and the pain cost of additional work begin to outweigh the additional earnings from the longer week. A workweek of 40 hours marks the threshold beyond which the value of foregone leisure alone exceeds the additional wage earnings.
If the optimal output workweek was 40 hours, the corresponding ideal length of workweek for the worker would be 30 hours, again assuming the reasonableness of the diagram's proportions. There is, of course, only impressionistic evidence for the general shape of the curves and not for the accuracy of the proportions depicted. Nevertheless, the derived calculations indicate a steep acceleration of the discrepancy between output and worker welfare beginning well in advance of the output optimum.
Calculations based on the diagram suggest that by working 34 percent more hours per week, the employee can look forward to "enjoying" 29 percent LESS net benefit. If the actual cost to workers of working longer is even half or a third of those estimates, this still would represent a significant deviation not only from what Lionel Robbins dismissed as "the naïve assumption that the connection between hours and output is one of direct variation" but also from the equally indefensible premise of a consistently proportional relationship between work effort and reward.
(Most) Economists Balk
In a recent article, "Whose preferences are revealed in hours of work," John Pencavel noted the "radical change in economist's thinking about working hours" following the 1957 publication of H. Gregg Lewis's article, "Hours of Work and Hours of Leisure," Earlier textbooks attributed reductions in hours to pressure from trade unions, either directly through collective bargaining or by legislation promoted by organized labor. The earlier textbooks also addressed the effect that hours of work have on productivity, with reductions in hours usually leading to increases in hourly output and sometimes even to "no decline in total daily output."
In later textbooks, the orthodoxy followed Lewis's explanation that workers choose their own hours, based on their preferences for income or leisure. The connection between output and shorter hours vanished, as did the role of trade unions in achieving reductions of working time. But, Pencavel wondered, "If 'employers are completely indifferent with respect to the hours of work schedules of their employees,' [as Lewis had posited] why did employers oppose so resolutely workers' calls for shorter hours?"
In a footnote, Pencavel also mentioned that in Lewis's 1957 model, employers face no obstacle "to replacing shorter hours per worker with more workers." This is an interesting point because many economists' arguments against the employment potential of shorter working time rest on claims that workers and hours are not suitable substitutes. That conclusion is reached by smuggling back in the output/hours relationship concealed in a Cobb-Douglas production function with the Robbins/Hicks "simplifying assumption" that the current hours of work are optimal for output, so that any reduction of hours would result in a reduction of output. It is difficult to imagine how both of these things can be true at the same time.
Although the earlier textbooks and economists acknowledged the connection between hours of work and output, most were silent on the discrepancy -- or at least the magnitude of the discrepancy -- between an output optimum and worker welfare. Cecil Pigou, Philip Sargant Florence, Lionel Robbins, John Hicks and Edward Denison treated the output optimum as the economic ideal. Richard Lester and Lloyd Reynolds, authors of "institutionalist" labor economics textbooks, showed more sympathy to trade union arguments but did not emphasize the discrepancy between the output optimum and worker welfare.
Sydney Chapman clearly distinguished analytically between worker welfare and the output optimum but his presentation was obscured by digressions that dwelt on shift-work as a palliative and on the philosophical necessity of paying more attention to the non-tangible aspects of culture. Clyde Dankert clearly distinguished between the output optimum and worker welfare but had the rather eccentric view that although "maximization of worker satisfactions" rather than output should be the social objective, shorter hours would have to be postponed "in view of the current cold war situation." Only Maurice Dobb clearly and concisely stated what was at stake (although he left out the increasing value of leisure):
The chart below shows the results of some of these calculations. The red curve graphs cumulative gross "output" and green curve subtracts the value of foregone leisure and the pain cost of fatigue and wear and tear from output to calculate net "income" (green). The length of each vertical line measures the values of output and income, respectively for a work week of the length indicated by the scale on the x-axis.
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| "Big Dipper": the Roller Coaster of Immiseration |
If the optimal output workweek was 40 hours, the corresponding ideal length of workweek for the worker would be 30 hours, again assuming the reasonableness of the diagram's proportions. There is, of course, only impressionistic evidence for the general shape of the curves and not for the accuracy of the proportions depicted. Nevertheless, the derived calculations indicate a steep acceleration of the discrepancy between output and worker welfare beginning well in advance of the output optimum.
Calculations based on the diagram suggest that by working 34 percent more hours per week, the employee can look forward to "enjoying" 29 percent LESS net benefit. If the actual cost to workers of working longer is even half or a third of those estimates, this still would represent a significant deviation not only from what Lionel Robbins dismissed as "the naïve assumption that the connection between hours and output is one of direct variation" but also from the equally indefensible premise of a consistently proportional relationship between work effort and reward.
(Most) Economists Balk
In a recent article, "Whose preferences are revealed in hours of work," John Pencavel noted the "radical change in economist's thinking about working hours" following the 1957 publication of H. Gregg Lewis's article, "Hours of Work and Hours of Leisure," Earlier textbooks attributed reductions in hours to pressure from trade unions, either directly through collective bargaining or by legislation promoted by organized labor. The earlier textbooks also addressed the effect that hours of work have on productivity, with reductions in hours usually leading to increases in hourly output and sometimes even to "no decline in total daily output."
In later textbooks, the orthodoxy followed Lewis's explanation that workers choose their own hours, based on their preferences for income or leisure. The connection between output and shorter hours vanished, as did the role of trade unions in achieving reductions of working time. But, Pencavel wondered, "If 'employers are completely indifferent with respect to the hours of work schedules of their employees,' [as Lewis had posited] why did employers oppose so resolutely workers' calls for shorter hours?"
In a footnote, Pencavel also mentioned that in Lewis's 1957 model, employers face no obstacle "to replacing shorter hours per worker with more workers." This is an interesting point because many economists' arguments against the employment potential of shorter working time rest on claims that workers and hours are not suitable substitutes. That conclusion is reached by smuggling back in the output/hours relationship concealed in a Cobb-Douglas production function with the Robbins/Hicks "simplifying assumption" that the current hours of work are optimal for output, so that any reduction of hours would result in a reduction of output. It is difficult to imagine how both of these things can be true at the same time.
Although the earlier textbooks and economists acknowledged the connection between hours of work and output, most were silent on the discrepancy -- or at least the magnitude of the discrepancy -- between an output optimum and worker welfare. Cecil Pigou, Philip Sargant Florence, Lionel Robbins, John Hicks and Edward Denison treated the output optimum as the economic ideal. Richard Lester and Lloyd Reynolds, authors of "institutionalist" labor economics textbooks, showed more sympathy to trade union arguments but did not emphasize the discrepancy between the output optimum and worker welfare.
Sydney Chapman clearly distinguished analytically between worker welfare and the output optimum but his presentation was obscured by digressions that dwelt on shift-work as a palliative and on the philosophical necessity of paying more attention to the non-tangible aspects of culture. Clyde Dankert clearly distinguished between the output optimum and worker welfare but had the rather eccentric view that although "maximization of worker satisfactions" rather than output should be the social objective, shorter hours would have to be postponed "in view of the current cold war situation." Only Maurice Dobb clearly and concisely stated what was at stake (although he left out the increasing value of leisure):
...trade unionists in the nineteenth century were severely castigated by economists for adhering, it was alleged, to a vicious 'Work Fund' fallacy, which held that there was a limited amount of work to go round and that workers could benefit themselves by restricting the amount of work they did. But the argument as it stands is incorrect. It is not aggregate earnings which are the measure of the benefit obtained by the worker, but his earnings in relation to the work he does — to his output of physical energy or his bodily wear and tear. Just as an employer is interested in his receipts compared with his outgoings, so the worker is presumably interested in what he gets compared with what he gives. A man who works longer hours or is put on piece-rates, and increases the intensity of his work as a result, may earn more money in the course of the week; but he is also suffering more fatigue, and probably requires to spend more on food and recreation and perhaps on doctor’s bills.To compare "what s/he gets" with "what s/he gives" requires above all some way of estimating the value of what is given relative to what is being received. One may even suggest that constructing those estimates was the job economists should have been doing instead of castigating trade unionists and other advocates of shorter hours for adhering to a vicious "lump-of-labor" fallacy. Heck of a job, economists!
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