Free Trade is Marching On

Here's a story for those who think Free Trade is a Western conspiracy forced on poor non-Western nations in order to exploit them. First, that 44 African nations are pursuing a free trade pact (in addition to many regional pacts that already exist) doesn't support that. Second, I don't see why Free Trade being "Western" matters. Either it's good or bad; who thought of it first is irrelevant. And I'm not even sure it is Western. Back in the day, the Middle East was a center of global trade when Europe was a peripheral backwater. I bet at least one non-European thought trade barriers were dumb before Adam Smith did; it's such an obvious conclusion. 

Also, the TPP, which includes many non-Western countries, lives on. All of its original members, minus the US, are continuing negotiations. They renamed the pact the CPTPP, probably so protectionists will have a harder time thinking up anti-CPTPP chants than they did with the TPP. The deal has gotten even better without the US, as the length of time intellectual property protections last has been reduced. Can't wait 'til we join it.

Intellectual Property, Tariffs, Trade, and History

     In addition to the recently announced tariffs on steel and aluminum imports from most of the world, today Trump put tariffs on $60 billion worth of Chinese imports. The justification is Chinese theft of intellectual property. Intellectual property is just a misleading framing in our legal system of ideas as property. Since ideas are non-rival (using an idea doesn't prevent anyone else from using it), the need for property right protections isn't readily apparent to me but I digress.

     The Industrial Revolution started in the US when some guy, Samuel Slater, stole "intellectual property" from the UK by memorizing the designs of textile mills. He built a mill in the Northeastern US; other industrialists took notice and built similar mills. It is to humanity's great benefit that Slater did this (out of self-interest btw). The spreading of new technology undermined the UK's monopoly power in this industry, increasing competition and delivering greater benefits more widely.

     Now China is doing the same, but we get mad about it. It does not harm the average worker that China is doing so, just the opposite. It harms would-be monopolist capital owners who want to be shielded from competition in order to reap un-earned economic rents at the expense of everyone else. 

In another moronic statement, Trump claimed:

"Our Nation was founded by farmers. Our independence was won by farmers. And our continent was tamed by farmers." 

     This fits in to the narrative about shielding capital owners from competition because farmers love that shit. But don't believe the hype. First, regarding our  founding farmers, I believe he means slave owners. To quote Hamilton (the musical), "we know who's really doing the planting." The instigators of the revolution were an alliance of Southern plantation owners and Northern merchants. Both groups resented the mercantilist trade restrictions the UK was placing on the colonies. 

     Now the last sentence about taming the continent, I guess maybe. Farmers were always right behind the soldiers and militias that carried out the genocidal land grab that formed our nation's boundaries (not that they're unique among Americans in benefiting from genocide). Sounds like we only care about property rights when its our own property.

Baltimore Brew Publishes Names of Cops Who Are (probably) Defrauding the City

     Baltimore Brew has published a list of 60 officers with high overtime pay from FY 2012 to 2017. Given what's already known, these cops probably lied on their timesheets in order to defraud the city out of millions of taxpayer dollars. In knee jerk defenses of the city's god-awful police force, people say we need the police, the thin blue line. Well, we do not need  criminals on that wall. We need a city free of parasites. The Brew published a profile on eight of the most egregious fraudsters, who all still work for (well, not really work, are employed by) the police department.

     Also, once again, the Baltimore Sun seems to be slacking. Here's an example, for a different story, of the Sun reporting a story the Brew first broke without crediting the Brew. Baltimore Brew is a better Baltimore news source.

The Trade Balance Doesn't Matter Anymore

In a world of fiat money and floating exchange rates trade deficits / surpluses are not macroeconomically relevant. They have no implications for employment or GDP growth. Bilateral trade balances are especially meaningless. A country with a trade surplus will still have some bilateral trade deficits (at least in practice, I don't quite remember if it is theoretically impossible, or just very unlikely to occur). Tariffs are a regressive tax paid by US consumers for the benefit of a select group of incumbent US capital owners.

Yes, being a Fascist Collaborator is Wrong

John Kelly, the former Secretary of Homeland Security, did such a good job keeping brown people out of the country that he was picked to be White House Chief of Staff. He recently joked about his promotion(?):

"The last thing I wanted to do was walk away from...being the secretary of homeland security, but I did something wrong and God punished me, I guess."

What could he have possibly done wrong? Oh yeah, that's right, collaborate with fascists and help implement their bigoted, idiotic policies. Burn in hell.

PS Speaking of which, peace out Gary Cohn, hope it was worth it asshole.

Free Trade Forever

Free trade is a net benefit. Exporters are more productive and pay higher wages on average. And imports are the whole point of trade (we can make the exports ourselves duh). Reducing barriers to imports increases competition, leading to lower real prices / higher real wages.

Even if the globalization of trade was a bad thing, nationalist trade barriers are a nonsensical solution. Some money spent on imports goes to domestic firms that sold the products. Some money spent on "made in the USA" products goes to foreign firms that produced intermediate inputs. Trade barriers decrease competition, and increase the cost of production and consumption, which harms the poor the most for the benefit of a minority of incumbent capital owners.

Follow up on Mayor Pugh

How did I miss the most important reason for being sick of Mayor Catherine Pugh? Namely, she supports "tough on crime" legislation that would increase prison sentences. Basically, she wants to go back in time and try an idea that did not work, and is not responsible for the vast majority of the decline in crime. What decline in crime increased incarceration was responsible for was temporary, as most incarcerated people eventually get out of jail.

This idea from 30 years ago is probably being advocated for because they are lazy, simplistic solutions that don't take a lot of effort to think up and don't have a direct up-front cost to the city, like after-school programs would.

This fresh new thinking could make Pugh a star of the Democratic party. Seriously, it'd be nice to have a mayor who didn't suck for a change.

I'm Already Sick of Mayor Pugh

     It's no surprise that Baltimore has/had some awful leaders, like City Comptroller for Life Joan Pratt, who think openness is a bad thing. I used to feel like former Mayor Stephanie Rawlings-Blake (SRB) got a bad wrap on account of the city's dismal police force, but then I found this story I missed: SRB forced the head of the Office of the Inspector General (OIG) to resign because he was successfully saving city taxpayers millions by uncovering "fraud, waste, and abuse", aka corruption. He was forced out and the OIG effectively neutered because he investigated one of the Mayor's friends for sexual harassment and misuse of funds by a top-level official. So fuck SRB, and all the corrupt politicians that steal our tax money.

     Speaking of which, what's this got to do with Pugh? First she's perfectly happy to let the OIG rot away instead of risking action against corruption in city government. Maybe if there was an effective OIG, she wouldn't have used city funds to hire a $240 per hour media consultant for herself, or hired some 26 year old guy who was on The Voice to set up a youth arts program. 

     When asked about a report recommending reforms to get the OIG up and running again Pugh said "What is this? I haven't read the report...That's about the past." That sounds kinda like a Trump quote would. At least all Shelia Dixon stole (that prosecutors could prove anyway) was $600 in gift cards for poor families. My grandma liked to say we get the politicians we deserve, my favorite iteration when referring to voters (and this is pre-Trump) was "you're stupid, you should have known better, and you got what you deserved." Turnout in local elections is pathetically low in Baltimore. If you don't vote you're stupid, should have known better, and the rest of us don't deserve this. Vote or die, please[1].

     You may have noticed all the links I used were from BaltimoreBrew.com, which is a great news source for local Baltimore news. It's better than the Baltimore Sun, which has done a terrible job covering these issues and is a shadow of its former self.

Trump on the Opioid Crisis

"There is an answer. I think I actually know the answer, but I'm not sure the country is ready for it yet. Does anyone know what I mean? I think so."

Omg what a fucking moron.

The Tax Plan's Impact on the Trade Deficit

I've argued previously that international accounts don't really matter and have no implications for aggregate demand, employment, well-being, etc. Though it must be said it that getting imports is the whole point of trade. By definition we make our own exports, so we it's not like we can't get our hands on them without trade. Whereas imports are products we don't make, but still want. They're the whole point. Basically imports aren't bad and don't reduce well-being, in fact they increase it by this logic.

Anyway, according to the Wall St. Journal, the tax plan could potentially halve the trade deficit by reducing the incentive of firms to artificially shifting profits abroad. "Independent research suggests the legislation could...deliver a one-shot 1% or greater boost to annual gross domestic product. This shift would be an accounting effect rather than a change in actual business or worker income." 

This is supposed to happen because some US firms, instead of creating a "separate" entity that "owns" the firm's intellectual property in a lower tax jurisdiction, for example, for the purpose of attributing profits to the entity outside of the US, will no longer play that shell game due to lower tax rates in the US. This means the official trade deficit figures are presently artificially inflated. So this is a good aspect of the bill if it works as predicted (sounds like a kinda big if to me), but it won't really make any Americans better or worse off. 

As far as the effect on GDP, if it reduces our current account (trade plus net investment income and transfers) deficit, our capital account (net foreign investment plus changes in official reserves) surplus must decrease by the same amount (they are always equal, its just accounting, see prior posts). Both investment and net exports impact GDP so I wouldn't expect much difference, unless I'm misunderstanding something.

Hopefully it will make the dumb fascist asshole president happy and temper his idiotic protectionist instincts. You did it sir! It worked. The jobs came back, now who cares about getting rid of NAFTA or the WTO or any of your other dumbass ideas? Unfortunately, his supporters may not notice that this is an accounting trick leaving them no better off and actually think that being a blowhard is all it took to reduce the trade deficit. But maybe they'll notice that it was a change in our own policies that did the trick and not tearing up international agreements that our own exporters would rather keep.

Happy 10 Years Since the Start of the Great Recession

     The Great Recession started 10 years ago! Where does the time go? It was really an amazing thing, in a horrible way. The next most recent recession that is comparable is the Great Depression, hence the naming. It was just as severe a blow to our economic system, and has many eerie parallels to the Great Depression, such as the rise of fascism afterwards. But because we have made undeniable and, dare I temp fate, irreversible progress, the impact on our economy in terms of the decline in GDP and employment were many times smaller. 

     Make no mistake, the asset market collapse and financial crisis that led to the Great Recession was severe enough to cause a Great Depression if not for the economic progress we've made. But we still have so far to go, as evidenced by the damage we were unable to prevent. I feel confident in predicting we will get better still; the next century's Great Recession will look like a small re-adjustment to us, while still being the largest economic crisis in the future's modern times.

Anyway, here's a graph of a few important macroeconomic indicators indexed to the fourth quarter of 2007, the prior economic peak:

Employment is total non-farm employment, Poverty is the # of people under the poverty line, Annual Average Wage and NGDP are in nominal dollars (not adjusted for inflation). Notice how employment took the biggest hit, longest time to recover, and slowest growth overall. That's not unprecedented, it usually takes longer to recover and is limited in the long term by population growth. 

Republicans Find 137 "Economists" Who are Sell-outs or Idiots

137 "Economists" signed a letter fawning over the Republican tax proposals. It is reproduced below with my comments in brackets.

Dear Senators and Representatives: [I think a comma is the correct punctuation here]

"Ask five economists," as the Edgar Fiedler adage goes, "and you'll get five different answers." [strong start]

Yet, when it comes to the tax reform package aimed at fixing our broken system, the undersigned have but one shared perspective: Economic growth will accelerate if the Tax Cuts and Jobs Act passes, leading to more jobs, higher wages, and a better standard of living for the American people. If, however, the bill fails, the United States risks continued economic underperformance.

[So I can buy that growth could be boosted – if the Fed doesn’t cancel out this fiscal stimulus with monetary tightening, which it probably will – and some higher wages and maybe jobs in the short run but as the economy basically at full employment it won’t do much.]

In today's globalized economy, capital is mobile in its pursuit of lower tax jurisdictions. Yet, in that worldwide race for job-creating investment, America is not economically competitive.

[The second sentence is complete crap. In the worldwide race for investment, the US has a large and persistent capital account (investment) surplus. Real interest rates in the US are at historic lows, which means we aren’t starved of capital or access to financing for investment. How the hell any economist could miss this is beyond me.]

Here's why: Left virtually untouched for the last 31 years, our chart-topping corporate tax rate is the highest in the industrialized world and a full fifteen percentage points above the OECD average. As a result of forfeiting our competitive edge, we forfeited 4,700 companies from 2004 to 2016 to cheaper shores abroad. As a result of sitting idly by while the rest of the world took steps to lower their corporate rates, we lowered our own workers' wages by thousands of dollars a year.

[This is the part I find most agreeable, which isn’t saying much. Our statutory corporate tax rate is the highest in the OECD. When it was first set there it was among the lowest. It should be reduced for the sake of competitiveness. However, basically no corporation pays the statutory rate – its full of loopholes, deductions, credits, etc. So many corporations in fact pay little tax. A bill that eliminated loopholes while reducing the statutory rate would increase efficiency, competitiveness, and simplicity without necessarily reducing revenue. As all taxes eventually fall on a person, this can be done without reducing progressivity. None of the Republican proposals do this.]

Our colleagues from across the ideological spectrum – regardless of whether they ultimately support or oppose the current plan – recognize the record-setting rate at which the United States taxes job-creating businesses is, either significantly or entirely, a burden borne by the workers they employ. The question isn't whether American workers are hurt by our country's corporate tax rate – it's how badly. As such, the question isn't whether workers will be helped by a corporate tax rate reduction – it's how much.

[I don’t understand how the burden could be entirely borne by workers. The share of total income going towards capital owners is increasing over time. Some of the burden would have to fall on labor, some on capital, unless they think shareholders are workers. These are the worst economists ever.]

The enactment of a comprehensive overhaul – complete with a lower corporate tax rate – will ignite our economy with levels of growth not seen in generations. A twenty percent statutory rate on a permanent basis would, per the Council of Economic Advisers, help produce a GDP boost "by between 3 and 5 percent." As the debate delves into deficit implications, it is critical to consider that $1 trillion in new revenue for the federal government can be generated by four- tenths of a percentage in GDP growth.

[This is complete bullshit. Not seen in generations? So we’re going to grow faster than we did after WWII when the workforce was rapidly expanding and we were much poorer than today? This is insane. I wouldn’t make such a claim about policies I like. As far as the GDP boost, I don’t see how it will improve long run growth. But whatever. That “3 to 5 percent” figure is in the “long run”. The $1 trillion figure is over 10 years, the cost will be ongoing beyond the 10 years. They’re comparing apples to oranges here. These economists are either dumb or unethical sell-outs.]

Sophisticated economic models show the macroeconomic feedback generated by the TCJA will exceed that amount – more than enough to compensate for the static revenue loss.

[Maybe some models do but not any of the ones any credible analysts who specialize in tax policy use (such as the CBO and JCT). Also, the $1 trillion figure is what the JCT came up with after doing dynamic scoring, not static scoring. Again, dumb as fuck or shameless liars.]

We firmly believe that a competitive corporate rate is the key to an economic engine driven by greater investment, capital stock, business formation, and productivity – all of which will yield more jobs and higher wages. Your vote throughout the weeks ahead will therefore put more money in the pockets of more workers [Oh well if they firmly believe it].

Supporting the Tax Cuts and Jobs Act will ensure that those workers – those beneficiaries – are American.

[UUUGGHHHH. 1, it doesn’t fucking matter what nationality beneficiaries are so long as the economy is improved and 2, they won’t all be American regardless. Large corporations are typically multinational, with multinational owners who will benefit from a lower corporate tax rate.]

"A Hated Tax but a Fair One"

The cover article in the latest issue of The Economist argues in favor of death taxes. It's quite fair in theory: you don't need the money anymore and death happens to everyone. I said this a couple months ago just sayin.

Also what if it isn't fair is taxing income, consumption, and investment more fair? Gotta tax something some amount.

Happy Election 2016 Anniversary!

     Since it's "modern day presidential" to keep bringing up the election, here's a hot take: Jill Stein is a nationalist, populist, isolationist, protectionist, executive power loving, anti-science, anti-EU shill for Russia who's only ever led a protest chant. And yes, I’m still bitter about last November, when enough people who could’ve stopped Trump voted for Stein instead.

     Like Trump, Stein is an anti-EU Brexit supporter. Like Trump, she is anti-science, having recklessly raised questions as to the safety of vaccines (they’re safe), effectiveness of homeopathy (it’s not), dangers of Wi-Fi (none), and safety of GMOs (they’re safe – though our patent laws and oligopolistic market structure mean there are negatives involved, just not safety issues). Instead, she’s said that scientists studying these issues should prove they aren't harmful rather than be satisfied with finding no evidence of harm. Oddly for a “scientist” (she went to Harvard Medical School, but doctors strike me as more of skilled practitioners than scientists), she doesn’t seem to realize you can’t prove a negative.

     Like Trump, Stein has falsely accused the Bureau of Labor Statistics of faking unemployment data to make the economy look better than it really is. She also advocated removing the Federal Reserve’s independence, which would send markets tanking and, to take the example of governments with politicized Central Banks, would lead to a loss of monetary stability, a short-lived inflationary boom, and inevitable bust. In 2012, she advocated not increasing the federal debt ceiling, which would've caused the US to default on its debt despite having the ability to pay. Her excuse was that she supports raising taxes on the rich and reducing military spending (i.e. austerity) to keep from going over the limit. I somewhat agree in general with both of those proposals however, at the time it was literally impossible for that to be done before the debt ceiling was breached. And what was her plan for getting that through congress and what would she do if congress didn’t just go along with her wishes? She was either being disingenuous with the voters or is a fool. 

     Like Trump, Stein has cast doubt on the fact that Russia interfered in the 2016 election and suggested it is a conspiracy theory the democrats invented. She literally called allegations that the Russian plot to interfere in the 2016 election included her “fake news” and called for Hillary to be prosecuted instead. In fact the Russians did purchase ads on social media boosting her candidacy. There is presently no evidence she colluded, but she did have meetings with Russian officials at Russia Today (read Russian state media) sponsored events before the election. One such event was in Moscow when she was photographed sitting at Putin’s table along with Michael Flynn, the disgraced former national security adviser. Stein claimed there were no translators so she didn’t really talk to any Russians. This is bullshit. Putin, like many Russians, can speak English, as can his spokesman Dmitry Peskov, who sat right next to Stein. Why you lyin' Jill? Flynn got paid tens of thousands of dollars to be there; I wonder what Stein got out of it.

     Stein stated “I have never said that Hillary Clinton was better or worse than Donald Trump” and “they’re not different enough to save your life, to save your job, to save the planet.” Now, I could make all the obvious arguments why Hillary was better than Trump[1], but the only one that matters is that Trump is a fascist. To say there is an equivalency between him and a status-quo democrat like Hillary insultingly devalues every genuine accusation of fascism. Like Trump, it’s clear that Stein was at least one of Putin’s useful idiots, at most she too betrayed her country for personal gain. 

     So, again, thanks a lot everyone who thoughtlessly voted for her. Or perhaps it wasn't thoughtless, and Stein voters have, like Stein herself, more in common with Trump than they’d like to admit. Jill Stein is Trump without the bigotry. That makes her much better than Trump (I would never say something so stupid as “Stein is no better or worse than Donald Trump”), but still an overall awful candidate with terrible policies that will set our country back. Not to mention she has zero qualifications to lead combined with no ability to enact her agenda. Hillary was unfortunately the best option in the general election, and the only viable one, to oppose what Trump stands for. If having a populist-nationalist president mattered more than having one who wasn’t a white supremacist, then Stein was your candidate. And hey, you’ve actually gotten a good bit of what you wanted anyway.

Jerome Powell is Unqualified to be Fed Chair

     Jerome Powell has been nominated by Trump to be Chairperson of the Federal Reserve. Now for Trump, who is an ignorant dim-wit on a good day, Powell is not horrible. But he is nevertheless unqualified for the position. His most relevant experience is the fact that he is currently a member of the Board of Governors of the Fed, a job that he was, at the time, even more unqualified for. Powell doesn’t have any economics degrees. He has a BA in political science and a JD, so nothing relevant.

     Some may argue that his experience in Wall Street banks is relevant and qualifies him for the job. But that’s like saying my experience in economics qualifies me to be an investment banker; it just isn’t so. Business and economics are not the same, just as finance and monetary economics are not the same. The job of the Federal Reserve is to stabilize the macroeconomy. Banks only matter in this because they expand the broad money supply through lending and fractional reserve banking. If the banks all crash at once the money supply shrinks and so does the economy. But if the Fed cancels out the monetary effect of a banking collapse through expansionary policy, the banks are irrelevant in a macro sense. The ins and outs of finance don’t matter here just as the retail sector doesn’t, but the ins and outs of monetary economics do.

     Ben Bernanke is one of the world’s leading monetary economists, and indeed made similar arguments before he was Fed chair (while he was Fed chair he adopted the Board’s views as his own to minimize panic rather than admit the other idiots on the Board (many of whom were appointed by Obama) were keeping him from doing what he would have preferred). Paul Krugman said the same thing before he turned pop. You may think finance matters because the Fed manipulates interest rates. But interest rates are merely a symptom as well as a communication tool so that all the chumps, such as bankers, who would otherwise be hopelessly lost vaguely know what the Fed is saying. When the Fed says it is going to increase interest rates, it really means it is going to tighten monetary policy such that nominal interest rates rise to x level in the short run, and vice versa.

     Here’s an example of why Powell is unqualified: earlier this year Powell said below target / low inflation was a “kind of mystery” given low unemployment. Any economist should know that there is not a stable relationship between unemployment and inflation over time (see graph). In the 1930s there was high unemployment and inflation, same with the 1970s. 

     Here’s why it isn’t a mystery. There is what economists call the “natural rate” of unemployment. The labor market will tend towards this rate in the long run. Say you have a massive recession and tight monetary policy, or that monetary policy doesn’t loosen past a certain point because of a mistaken belief in the “zero lower bound”. Unemployment won’t stay above the natural rate forever, people will be willing to work for less rather than make nothing. The economy will add jobs and inflation will stay low because monetary policy isn’t expansionary enough for it to increase. That is the Great Recession recovery in a nutshell. It certainly isn’t a mystery that inflation has been slow to increase while the Fed has been tightening monetary policy, which it’s been doing ever since it started tapering QE3. This isn’t a mystery to me because I’ve studied economics. How should one run a bank? I have no idea, beyond lend at a higher rate than you pay depositors and supply a level of output such that MC=MR. 

     You know who is qualified to be Fed Chair? Janet Yellen. She's a PhD economist[1],and has one of the most successful records of a Fed Chair. Inflation is about at the Fed’s target, unemployment is low, and this expansion is almost the longest in US history. And she has, so far, succeeded where all other rich world central banks have failed: tightening monetary policy after the Great Recession. The Euro Zone central bank tried to and had to backtrack, as did Sweden's central bank. I know we would disagree on theory here and there, but you can’t argue with results. That she was not re-appointed is a break with recent tradition among presidents, since Reagan, of keeping the prior appointee for another term[2].

     In arguing that Powell is a safe pick, pundits point out how similar his voting record has been to Yellen [3]. So why replace her? In addition to Trump despising powerful women and having no qualms about politicizing independent institutions, Powell is a Republican former Wall Street banker seen as softer on bank regulation, which Trump’s Wall Street patrons like. What could go wrong? Powell’s lack of relevant knowledge won’t matter much in “normal” times, but he may be lost in a crisis, at the mercy of whoever he believes is making the strongest argument about a subject he is ignorant of.

     That being said, he is the least worrisome of the speculated contenders (besides Yellen), and certainly not the worst appointment Obama made to the Board.