Relevant and even prescient commentary on news, politics and the economy.

Exiting the Planet

by Joseph Joyce

Exiting the Planet

The full impact of President Trump’s announcement that the U.S. will withdraw from the Paris climate accord will not be fully realized for years, and indeed, decades to come. But the withdrawal is part of a series of disavowals of international agreements and commitments that were created after World War II. It represents a fundamental change away from engagement with allies and partners in the global community to a mindset sees every interaction with a foreign partner as a zero-sum situation, with only one country benefitting from the dealing.

The administration’s actions can be analyzed in the framework offered by Albert O. Hirschman’s in Exit, Voice and Loyalty. A member of an organization or an agreement that commits its members to a course of action, who is dissatisfied with the current arrangements, can decide whether to leave (“exit”), or remain and seek to correct the perceived problems. Those with more basic loyalty to the goals or principles of the existing arrangement are more likely to choose the latter option. Clearly the Trump administration does not share the loyalty to the international liberal order.

This position has its roots in U.S. history. The country initially sought to avoid involvement in World War I, and it took years of German offenses (such as the sinking of the Lusitania) before President Wilson could obtain agreement to enter the war. However, the Senate failed to approve U.S. membership in the League of Nations, and during the 1930s there was little interest in opposing German expansion in Europe or Japanese incursion in Asia. Only with the bombing of Pearl Harbor could President Roosevelt receive approval to take up arms against Japan, and Hitler’s declaration of war on the U.S. solved the problem of justifying a European conflict at the same time.

These experiences and the emergence of the U.S. as a global superpower after the war led to a fundamental change in the U.S. position. John Ruggie and others have described the rise of multilateralism, a system of international alliances and intergovernmental organizations formed under U.S. leadership for the purpose of achieving shared objectives. In many cases, these were  global public goods. The institutions ranged from the United Nations to the North Atlantic Treaty Organization, and more recently, the Paris Accord. While the fortunes of these organizations and pacts fluctuated over time, they contributed to international peace despite a half century of “cold war” between the Soviet Union and the U.S. They also facilitated the process of economic globalization that accelerated during the 1990s after the disintegration of the Soviet Union and the entry of China into the global economy.

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Kansas Republicans abandon Brownback; raise taxes over his veto

Kansas Republicans abandon Brownback; raise taxes over his veto

Remember Kansas’s great tax-cutting experiment under Governor Sam Brownback? (Me, sarcastic?) As always in Arthur Laffer and Stephen Moore La-La Land, cutting taxes leads to economic nirvana. Except when it doesn’t, and it didn’t in Kansas.

I recently wrote about the idiocy of Investor Business Daily‘s criticisms of California, and Paul Krugman carried the ball further, citing me and bringing in a comparison with Kansas (Brownback and Jerry Brown both took office in 2011). As Kansas cut taxes and California raised them, Kansas managed to raise employment by 5% from 2011 to 2017, whereas California’s job growth was a rather more impressive 15% over the same period. As it turns out, Kansas’s problems weren’t limited to poor job growth.

As Alexia Fernandez Campbell points out at vox.com, one major change “eliminated taxes on owner-operated businesses, known as pass-throughs.” This created an incentive for people to switch from being employees to being separate businesses providing exactly the same services. Tax avoidance reduced tax revenue by an estimated 1.7%, while the total reduction in tax revenue was 8%. With losses of this magnitude, Kansas ran into persistent budget trouble. For this, it was rewarded by Standard & Poors with credit downgrades in 2014 and 2016. By contrast, California saw its credit upgraded by the rating agencies several times. Both states now have an AA- rating from S&P, which is the fourth-best rating but below average for U.S. states.

By this week, the Republican-supermajority Kansas Legislature had had enough. Overriding Brownback’s veto, the legislature passed a repeal of most of Brownback’s tax cuts, including the pass-through provision mentioned above. Hopefully the state will now be able to begin repairing its six-year fiscal nightmare.

Do I have to tell you that Laffer and Moore are the main advisers behind Trump’s tax plan, too?

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A Personal Observation On Trump’s “Infrastructure Week”

A Personal Observation On Trump’s “Infrastructure Week”

Yes, folks, you may have already forgotten it, but this has officially been Trump’s “Infrastructure Week,” highlighted by his proposal to privatize air traffic control in the US, and his trip to Cincinnati where he in general terms talked about the supposed virtues of privatizing highways, bridges, and airports, While he claims he wants to provide up to $200 billion in federal funding to draw forth a supposed $800 billion in private funding, the last time I checked his proposed budget supposedly cuts infrastructure funding.  So much for that big infrastructure boost!

As it is I want to comment on the proposal to privatize highways.  I shall briefly note that privatizing air traffic control might not be a bad thing, assuming that it is done properly.  Canada did so some years ago, and most reports have it that this has worked out pretty well.  Maybe it would in the US as well, although my confidence in Trump not to mess it up is pretty low.

Anyway, back to highways.  There has been some effort to do this in some states recently, with decidedly mixed results. But my observation is that over the longer haul it seems that outside of gated communities or private property, this does not work very well.  The historical record in the US is that if one goes back a few centuries, one finds many roads that were originally build and run by private companies.  Nearly all of these eventually reverted to some sort of government control at one level or another.  In particular in Virginia where I live, there were quite a few build in the 1700s, but during the 1800s they pretty much all reverted to some sort of government control. The private sector just did not do all that good of a job running them.

So, where is the personal angle in this? Last weekend I learned that the street behind my house here in Harrisonburg, VA, Bruce Street, a minor street that is one way and in my block only has houses backing up to it, was once one of these privately owned highways that was later taken over by the city.  I learned this while visiting with my daughter Sasha the oldest building in Harrisonburg, the Thomas Harrison House, which was originally the private residence built probably in 1770 of the person for whom the city is named.  It is a small limestone structure that has not been previously opened to the public like this, but the city has taken ownership of it from the Methodist Church across the street that had owned it for a long time (it had been used as a law office most recently).  The city is planning on turning it into a museum, and they have had archeologists from James Madison University excavating its basement, which was used as a kitchen during the days the structure was a house (up until the 1840s).  Anyway, they decided to open the basement up for the public to see as well as the many objects they have found there, including lots of animal bones.  So, visiting daughter and I made the visit to check it out.  The main archeologist, Carole Nash, is a good friend and gave a most informative talk.

And

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Class Resentment and the Center-Left, or the Politics of “We Are the 80%”

by Peter Dorman (originally published at Econospeak)

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:

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?

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The Cost of Climate Change: It’s Not About Psychology

by Peter Dorman   (originally published at Econospeak)

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?

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Trump Administration’s Infrastructure Plan

Via International Business Times (via RSN):

Trump Administration’s Infrastructure Plan Involves Privatizing America’s Assets and Selling Them to Goldman Sachs>/a>

President Donald Trump’s administration this week touted an infrastructure plan that would sell off public assets to private financial firms. Left unsaid in the White House promotional materials was any mention that the Trump aide who is overseeing the initiative comes from a Wall Street firm that says it is seeking to buy up the very same kind of assets the Trump administration plans to sell off.

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Ted Cruz failed to properly disclose Goldman Sachs loans: FEC

Via Salon, another Goldman Sachs story:

Ted Cruz failed to properly disclose Goldman Sachs loans: FEC

This has not been a good week for Republican Sen. Ted Cruz of Texas. First he is the butt of a cutting joke by Democratic Sen. Al Franken of Minnesota (who told “USA Today” that “I like Ted Cruz probably more than my colleagues like Ted Cruz, and I hate Ted Cruz”), and now the Federal Election Commission has ruled against him — unanimously, no less.

The three Republican FEC members joined the two Democrats to find that Cruz failed to properly account for loans he had received from two banks, Goldman Sachs and Citigroup, during the 2012 election, according to a report by Bloomberg. Cruz borrowed $1.1 million worth of loans from the banks during his Senate campaign in Texas, with the FEC determining that Cruz had loaned his campaign $800,000 from Goldman Sachs (where his wife Heidi works) and $264,000 from Citigroup.

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Fighting Zombies with Zombies

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.

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Trucking And Blue-Collar Woes

Paul Krugman talks unions:

Trucking And Blue-Collar Woes

MAY 23, 2017 5:11 PM May 23, 2017

What with everything else going on, this Trip Gabriel essay on truckers hasn’t gotten as much attention as it should. But it’s awesome — and says a lot about what is and isn’t behind the decline of blue-collar wages.

Trucking used to be a well-paying occupation. Here are wages of transportation and warehousing workers in today’s dollars, which have fallen by a third since the early 1970s:

Photo


Why? This is neither a trade nor a technology story. We’re not importing Chinese trucking services; robot truck drivers are a possible future, but not here yet. The article mentions workers displaced from manufacturing, but that’s a pretty thin reed. What it doesn’t mention is the obvious thing: unions.

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A thought for Sunday: no, Trump approval *still* isn’t imploding. BUT …

A thought for Sunday: no, Trump approval *still* isn’t imploding. BUT …

Democrats continue to delude themselves about Presidential approval polls — with one very big possible exception.

In the first place, can we all agree that Trump has had a particularly nasty last several weeks? Including firing Comey, blabbing secrets to the Russian ambassador, blabbing about our submarines to the Philippines’ now-dictator, compromising the intelligence sources of Israel (and then confirming it!) and later Britain, and reports of multiple occasions with multiple officials in which he blatantly appeared to be attempting to shut down a criminal investigation?

Can you imagine what the public opinion polling would look like after several weeks like that, for virtually any past US President, let alone if the president were Hillary Clinton?

Well, here is what Trump’s looks like as of today:


His approval stands at 41%, right in the middle of where it has been since he assumed office in January.

A variation of the Trump-support-is-imploding mantra showed up later in the week when FiveThirtyEight wrote that “Trump’s Base is Shrinking” based on strong vs. weak approval. Typically this is the graph that was shown:

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