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

Sunday thoughts on how awful

It’s Sunday, so I take a break from nerdy econ analysis and speak my mind.

Last November 9 we woke up to a living nightmare. The next four years were bound to be awful. The only question was, how awful?

The very tiny silver lining as of now is that, so far, it has been about as limited an awful as it could reasonably be.

The simple fact is, those things that the Executive could worsen all on his own, he is doing so. But those things that require Legislative action or Judicial approval have either not materialized or have been stopped in their tracks.

The Executive has almost unlimited freedom of action in foreign policy, so it was a foregone conclusion that China and Russia were going to seize the opportunity to expand their power and influence, and they are doing so. Taiwan is already suffering diplomatically, and it isn’t a good time to be one of the Baltic States either. The EU is looking aghast at Trump’s view of NATO, and will probably vivify their moribund “European Defense Force” at least until 2021.

It is also pretty clear that Trump means to erase Obama from the history books, if for no other reason than Obama humiliated him at the 2011 White House correspondents dinner. So every Executive Order or program undertaken by Obama is being systematically obliterated. This includes deferral of action against illegal immigrants/undocumented workers. There’s not much that can be done there, but even so, the Courts have occasionally stepped in, and Trump himself seems to want to allow the Dreamers to stay.

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Is Trump’s Apprenticeship Program Like His Infrastructure Program?

Is Trump’s Apprenticeship Program Like His Infrastructure Program?

It looks like it might be in a crucial way.  Both involve lots of rhetoric about expanding programs that many support, apprenticeships and infrastructure.  However, on looking at them closer to the extent we can see anything specific aside from the rhetoric, it looks like they involve actual cuts in funding support for existing programs related to both apprenticeships (and more broadly worker training and retraining) as well as for in-process infrastructure projects such as those funded by CIG, in favor of vague plans for  some sort of private support for these programs, apprenticeships or infrastructure.

As it is, it looks like the rhetoric and privatization proposals for apprenticeships are much vaguer than those for infrastructure.  For the latter we have had the specific proposal to privatize air traffic control, a proposal that has previously gone before Congress only to draw opposition from GOP senators, not all of those  yet on board, along with supposed tax breaks for privatizing other parts of the infrastructure.

What is supposed to constitute the support for the private replacement for  the currently publicly supported apprenticeship programs is much less clear, although one suspects that it will be the usual GOP panacea, some tax breaks.  I  suspect that we shall have to wait and see, which is ironic given that supposedly Trump was pushing this recently at least partly to distract us all from his self-incrminating tweets, but those tweets have so distracted his own administration that they seem increasingly unable to formulate any sort of detailed or  concrete plan for any real policies, if they ever were able to do so.  And this latest rhetoric on apprenticeships is just another embarrassing example of this floundering incompetence.

Barkley Rosser

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When Somebody Called “Mad Dog” Is The Only Adult In The Room

When Somebody Called “Mad Dog” Is The Only Adult In The Room

In the last few days it has come to pass that twice US Secretary of Defense, James “Mad Dog” Mattis has shown himself to be the only adult in the room in the Trump administration.  His first such exhibition of adulthood came during the bizarre spectacle of Trump’s first full televised cabinet meeting.  Trump openly demanded verbal obeisance from those assembled, promptly delivered by all but one in the room, with some of them embarrassingly effusive, such as Reince Priebus declaring it to be a “blessing” to serve Trump.  Ugh.  Even SecState Tillerson chimed in with a relatively perfunctory bit of praise for Trump.  Only Mad Dog Mattis refused to go along, making a statement praising US military personnel around the world without a single word about Trump.

And then we have the under reported event yesterday that I saw on Juan Cole’s blog that Mattis signed a $12 billion dollar deal for F-15s with Qatar.  Now I am not in general a big fan of  these Middle East arms deals with anybody, but in this case this blatantly goes against Trump’s absolutely stupid and probably corrupt (Saudis paid $270,000 in hotel bills at Trump’s hotel in Washington since Trump took office) support for the Saudi move to blockade Qatar and pressure it into  going along with Saudi aggression in Yemen and more generally against Iran.  Both Tillerson and Mattis made verbal statements last week arguing for a more balanced approach there, only to have Trump double down on supporting this very stupid policy.  Tillerson is  not able to cut deals independently supporting Qatar, but Mad Dog Mattis has just done so.
Maybe Trump will fire him, but I kind of think that maybe even he is  not quite that stupid in the current circumstances.  So there we have it, having to thank somebody nicknamed “Mad Dog” twice in a few  days for being the much=needed adult in the room.

Barkley Rosser

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Retail sales disappoint — but don’t hyperventilate about it

Retail sales disappoint — but don’t hyperventilate about it

There certainly is a  lot of information to unpack from this morning’s retail sales and inflation reports, and what they mean for wages and jobs.  I’ll address them in separate posts.

First, retail sales.  They certainly were a disappointment, coming in at -0.3% nominally and -0.2% in real terms.  That being said, the monthly reports are somewhat noisy.   We commonly get several of these a year, as shown in this graph of the monthly change in real retail sales for the last 7 years:


There have been 9 worse monthly reports than this just over the last 3 years!

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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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No, record job openings in JOLTS do not mean that everything is Teh Awesome!

No, record job openings in JOLTS do not mean that everything is Teh Awesome!

Once again most of the commentary on yesterday’s JOLTS report for April was that job openings jumped, so everything is Teh Awesome!

<  Sigh  >

To recap one more time…

In the one and only complete business cycle that we have for this data:

  • First, hires peaked. They started a long plateau in 2005, making a 3 month peak in late 2005, with no meaningful progress thereafter.
  • Second, quits peaked. They started to plateau in early 2006, making a 3 month peak in spring 2006, with no meaningful progress thereafter.
  • Finally, openings peaked in Q1 2007

Hires and quits are the only *hard* economic data in the series. “Openings” can be aspirational trolling for a future bank of resumes or, worse, designed to fail and lay the groundwork for cheap  H1-B foreign slaves.

So, here is the entire history of hires and quits:

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Trump Blows Up The Gulf Cooperation Council (GCC)

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).

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