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The 2020 Presidential and Senate elections nowcast: reverting towards the mean

The 2020 Presidential and Senate elections nowcast: reverting towards the mean

Here is my weekly update on the 2020 elections, based on State rather than national polling in the past 30 days, since that directly reflects what is likely to happen in the Electoral College.

The theme this week is that Trump’s approval is reverting to the mean, and so are the Presidential polls.

Here is Nate Silver’s Trump approval vs. disapproval graph:

For most of the past month, Trump’s approval has been languishing at 40%, equivalent to the worst levels of his Presidency. But as always been the case before, his partisans come back to approving him after the immediate moment has passed.

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The Cold Warriors

I have no expertise in this field. This post will not be cluttered with links, because I will write from memory and not link to anything. I suppose in a way, this post is a slap in the face of Tom Nichols, who is a subset of the topic, is supposed to be an expert on the topic, and is the author of “The Death of Expertise“. I will attempt to explain how his errors are due to envy and neurosis.

Honestly, my trigger was lest nasty (and less based on envy). Someone asked in a Tweet what is the consensus on the old domino theory which lead to US involvement in the war in Vietnam (which is also called “the American war” by the Vietnamese). I will put my anti Nichols spite after the jump (note I advertised his book). His alleged field of expertise is preventive war. There, that’s another advertisement. Actually I think I will just post a separate post sniping at him.

OK so the Domino theory.

The logic was as follows. In 1938, France, the British Empire, and Czechoslovakia could have stopped Hitler. But all he demaded was the Sudetenland which was predominately inahabited by ethnic Germans. Nevill Chamberlain insisted on reaching an agreement. Benes and Daladier had to go along, so the chance to defeat Naziism with heavy but not immense losses was lost.

Heeeyyy wait a minute, wasn’t I supposed to be talking about the 1960s not 1938 ? Yes, but the first problem is that there are influential people in the USA for whom all years are 1938 (note I use the present tense — they are still around and are very dangerous).

The first key methodological assumption of the Domino theory is that all years are 1938 and all negotiations are held in Munich. The second is that Neville Chamberlain made every possible error, so, as long as one did the opposite of what he would have done, everything will be fine. The rest is commentary.

I now invite historians, experts in international relations and political scientists to contest my analysis (knowing that not very many read AngryBear).

The domino theory maintained that the USA had to stop the Communists in Vietnam or else they would move on to Cambodia, Laos Thailand, Burma, East Pakisstan, and India. The logic was exactly (and only) that it would have been better to fight Hitler at the old fortified border between Germany and Czechoslovakia than to let him take the Sudetenland, then the rest of Czechoslovakia then fight him in Poland. Notably, Hitler was surprised when France and Britain declared war on September 1 1939. The theory was that, restraint, compromise, or the most dreaded retreat would be perceived as weakness and make further aggression inevitable. One detail was overlooked. Hitler was one person, Kruschev, Mao and Ho Chi Minh were three different people. The USSR had advanced weapons, the PRC had huge armies, North Vietnam had no fear of either and knew how to play one off the other.

Then Kruschev was overthrown by the Red Army. The communist Soviet Union had not reached the advanced stage of Communist development which made a Communist military dictatorship possible later in Poland, so the generals gave power to a troika (sleigh pulled by 3 horses). The first among equals was Leonid Brezhnev. The USA still faced 3 adversaries lead by men incapable of pity. Brezhnev was incapapble of pity or any other higher mental functioning. He liked clowns. The one key qualification for being Kruschev’s second in command was being a total idiot (preferably lacking in ambition) and therefore being no threat. From then on, the anology should have been negotiating with Rudolf Hesse in Munich (Hesse was similarly chosen for his total idiocy).

Notably one of the challenges for the US war effort in South Vietnam was the fact that the Communist Pathet Lao effectively controlled Laos and Communist friendly (and superhumanly vain) Prince Norodom Sihanouk) controlled Cambodia. Notably this is a problem for the domino theory. The dominoes which were supposed to be knocked down by the fall of South Vietnam had already fallen. Their impact on Thailand was fairly minor (it might not have seemed that way to the Thai communists who fought and died in the jungle, but there were never many of them and almost no one noticed when they gave up and made peace (I forget the date)).

In contrast, US firm resoluteness in Vietnam made a large fraction of the world (and a substantial minority in the USA) hate the US government. It is also estimated to have caused 3 million deaths (from surveys decades later asking people if they had lost relatives).

During the resolute effort against the Hitler like world Communist movement, the USSR and the PRC fought a border war. They became each others’ most bitter enemies — the USA was not even number one on their enemies list. Soon after the final victory of the Vietnamese Communists, there was a brief war between Vietnam and the PRC. The enemy was the enemy of the enemy. The Soviet Chinese war occurred some time during the US war in Vietnam. It should have changed everything. But to completely reverse US policy, US policymakers would have to admit that they had made a mistake, and that is not possible.

The after aftermath is that Communist China became more capitalist than the USA and the USSR collapsed. Impressively right up to the collapse, US hawks insisted that there was a high risk of Soviet conquest of the world. Also impressively the people who clearly demonstrated that they were clueless gained status from the collapse, because it (coincidentally) occured while Ronald Reagan was in the White House. Oddly, some sincere people including Max Boot and Anne Applebaum took seriously Reagan’s claim to be a principled supporter of freedom around the world. I am not much older than they are and remember the distinction between acceptable authoritarians and unacceptabl totalitarians (in other words our sons of bitches and sons of bitches who weren’t ours). I remember the mockery of Carter’s human rights campaign. I remember the US alliance with Argentine fascist mass murderers in opposition to the fascists non mass murdering Sandinistas (currently in power to remind us of the utter worthlessness of the domino theory).

So how can we assess the scientific standing of the domino theory ? How does it compare with the Ptolomaic model of the solar system, the phlogiston theory of burning, the caloric theory of heat, and the four humors theory of health and disease ? Digressions after the jump.

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Q2 GDP does not bode well for early 2021

Q2 GDP does not bode well for early 2021

There are two components of quarterly GDP that are long leading indicators, giving us information about the economy 12 months from now. If you think, as I do, that it is likely there will be a new Administration in Washington next year, which will competently follow the science, then there is every reason to believe that by 12 months from now the pandemic will have been contained, and so the long leading indicators are more likely to be valid.

In that regard, this morning’s Q2 2020 GDP was not grounds for optimism.

As an initial matter, the GDP decline of -9.5% annualized was the biggest decline since the Great Depression:

The two forward-looking components of GDP are (1) private fixed residential investment, and (2) corporate profits. Because corporate profits are delayed by one more month, I use proprietors’ income as a temporary proxy. Let’s look at each in turn.

Real private residential fixed investment decreased by over 10% q/q. Real GDP decreased a little less than 10%:

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Democrats, please talk about carbon taxes

Or at least think about how you will talk about them in January . . .

It now seems likely that Joe Biden will win the presidency, and there is a reasonable chance that Democrats will capture the Senate as well.  If they do get unified control of the government, climate policy will high on their legislative agenda.  What is unclear is whether their approach will include a carbon tax.  This is troubling, because carbon taxes have very substantial economic and political advantages over other approaches to climate policy.

No doubt many Congressional Democrats understand the arguments for carbon taxes, although some progressives seem to be skeptical of using prices to reduce emissions.  Joe Biden’s climate plan says that “polluters must bear the full cost of the carbon pollution they are emitting”, which seems like an oblique reference to a carbon tax.  But so far Democrats have been avoiding the “t word” and instead emphasizing subsidies, direct job creation, and social justice, and this will make it difficult to switch gears after the election and implement a carbon tax.  The Democrats may be painting themselves into a rhetorical corner.

Any strong climate bill will face real challenges getting through Congress and maintaining political support.  Getting a carbon tax through Congress and preventing a public backlash will clearly require an effort to familiarize the public with the idea.  I believe this is possible, but Democrats (and Republicans) who support carbon taxation need to think about how and when this conversation will unfold.

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Privatization

Fear and Loathing

On the 17 July 2020, episode of Counterspin, Fair’s Janine Jackson interviewed True North Research’s Lisa Graves about attacks on the US Postal Service. ‘A Combination of Forces Puts Our Postal Service at Grave Risk‘ Jackson leads off talking about the recent appointment of Louis DeJoy, a big Trump donor, to be the new head of the US Postal Service. Upon being appointed, DeJoy promptly issued a series of memos calling for operational changes that many felt were intended to slow down mail delivery. Other recent Trump actions appear to also be intended to sabotage the US Postal Service. In that Trump has made Vote by Mail a big issue, some fear that he might try to nullify his losing the election by claiming that a slow vote count equals an indication of fraud, etc.

Graves’ research into attempts to sabotage the US Postal Service disclosed that for more than 50 years none other than Charles Koch has been funding efforts, at first to abolish, later to privatize, the US Postal Service. In addition to Koch, DeJoy, and Trump; Ronald Reagan, Reagan Administration official James C. Miller, Senators Susan Collins of Maine and Mitch McConnell of Kentucky, and George W. Bush have all taken a hand at this sabotaging and/or privatizing of the US Postal Service. Former Reagan Administration official, former American Enterprise scholar, James Miller, was later appointed to the Postal Board of Governors by George W. Bush with significant help from Senators Collins and McConnell. In 2005, Senators Collins and McConnell both helped push through the prepaid benefits requirement meant to sabotage the Postal Service. To date, some powerful actors have expended a lot of money, time, and effort attempting to abolish, privatize, or sabotage the US Postal Service.

What it means to want to abolish or sabotage something seems clear enough. The wanting doth bespeak an animus. Did these people hate the US Postal Service so much? Or, did they fear that it might succeed?

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Catching up with wages, income, and layoffs

Catching up with wages, income, and layoffs

Yesterday and today have seen several significant data releases. Let’s catch up.

Wages

The Employment Cost Index was released for Q2 this morning. This is a particularly important release because unlike the monthly “average hourly wages” number, this report normalizes by job category, e.g., it compares clerks’ wages in Q1 with clerks’ wages in Q2. So if clerks have experienced widespread wage cuts, it should show up here. Given the many anecdotes of wage cuts I have read and heard about since the pandemic began, I have been waiting to see what this number would be.

And the answer is . . . Wages did rise, albeit at one of the slowest rates in over 10 years, less than 0.4%, in Q2:

Because consumer prices fell close to -0.9% in Q2, in real inflation adjusted terms wages for equivalent jobs rose even more for the quarter:

I was expecting very bad news, so I will take this “less good” news with a sigh of relief.

Income

Personal income and spending for June were also released this morning. The bottom line is that income declined slightly, while spending rose:

Boosted by the $1200 relief check in April, and supplemental unemployment assistance of $600/month, income remains 5% higher than in February. Spending, meanwhile, has made up more than 1/2 of its April decline. This is also a positive – but one month ago. Since the supplemental payments end as of today, this picture is likely to change in the high-frequency data beginning in a week or two, although it won’t show up in the monthly data until August’s is released at the end of September.

Layoffs

Yesterday’s initial and continuing claims continued the recent string of bad news. While the important non-seasonally adjusted initial claims did make a pandemic low, these were still over 1.2 million for last week. On an adjusted basis, initial claims rose again:

Continuing claims for two weeks ago also rose on both an adjusted and non-seasonally adjusted basis:

In other words, both layoffs and unemployment are likely increasing. We’ll find out next week with the July employment report whether new hires and rehires continued to outpace layoffs, as they have in the past two months, or not.

So the good news – at least for now – is that we do not appear to be in a wage-deflationary spiral. The bad news is that the underpinnings of the good news has started to go away in the past few weeks.

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Three long-shot Senate races worth polling: Idaho, Nebraska, and South Dakota

Three long-shot Senate races worth polling: Idaho, Nebraska, and South Dakota

On Sunday I wrote that it would be really helpful to have statewide polling in some Senate races that look on the surface like safe bets for the GOP, but might actually be worth contesting.

The reason for this is that, not only are the 4 Senate seats most likely to flip from GOP to Democrat — Colorado, Arizona, Maine, and North Carolina — all showing consistent leads for the Democratic challenger in the past two months, but in several other States — most notably Iowa and Kansas — the democrat has *also* taken the lead, in the case of Iowa, a small but consistent one. In several other States — Alaska and South Carolina — the democrat has polled within striking distance in one or more recent polls.

Because there is no Senate polling available in other States, I have created a spreadsheet (below)  showing the 2016 Presidential result, and 2020 Presidential and Senate polling both in the contested States that we know of, and the States where we are flying blind. The final column is the direction of change comparing 2016 vs. 2020 Presidential polling followed by 2016 Presidential result vs. 2020 Senate polling. Discussion follows below the chart (numbers are %-ages):

State 2016
Presidential
Result
2020
Presidential
Polling
2020
Senate
Polling
2020
Change from
2016
Alaska T+14.7 T+3 D-9 D+11.7, D+5.7
Iowa T+9.4 T+1 D+2 D+8.4, D+11.4
Kansas T+20.5 T+12 D+1 D+8.5, D+22.5
Montana T+20.2 T+9 Even D+11.2, D+20.2
Nebraska-2^ T+2 B+7 N/a D+9, N/a
S. Carolina T+14.3 T+5 D-4 D+9.3, D+10.3
Idaho T+21.7 N/a N/a N/a
Nebraska T+25.0 N/a N/a N/a
N. Dakota T+45.7 T+17*(*Mar) N/a D+28.7, N/a
S. Dakota T+29.8 N/a N/a N/a
West Virginia T+42.1 T+35*(*Jan) N/a D+7.1, N/a
Wyoming T+46.3 N/a N/a N/a

^Congressional District

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A Republican Idea for Onshoring Pharmaceutical Intangible Assets

A Republican Idea for Onshoring Pharmaceutical Intangible Assets

Alex Parker reports on a proposal from Representative Darin LaHood:

As part of the next round of pandemic relief, House Republicans are pushing new incentives for companies to bring home offshore intellectual property — something that they contend could boost job growth but that critics see as another corporate giveaway … While the 2017 Tax Cuts and Jobs Act overhauled the federal tax code and eliminated many of the incentives for offshore income-shifting, it left the structures themselves intact, and companies have been reluctant to undo them as the law remains young.

I think we admitted these 2017 tax cuts for the rich were complex so permit me to slightly disagree with Mr. Parker’s excellent reporting. If the intellectual property (IP) were left offshore, the GILTI income would face a tax rate of only 10.5% whereas onshore IP would face that FDII rate of 13.125%. Why bring the IP back home and face a higher rate? But I interrupted Mr. Parker who basically notes all these nuances:

Current law gives companies plenty of reasons to onshore the intellectual property they spent decades pushing offshore in licensing and cost-sharing agreements. Income from intangible assets held domestically may qualify for a reduced 13.125% tax rate as foreign-derived intangible income. The same income, held offshore, may fall under the global intangible low-taxed income regime, which is meant to penalize companies for holding intangibles abroad. Those carrot-and-stick provisions ultimately ensure neutrality in decisions about where to locate IP, the TCJA’s authors said when it was passed. The TCJA also included a deemed repatriation that allowed companies to bring home offshore income after it had paid a one-time transition tax. But the intangible assets that generated that income were not brought home with it, and they must be repatriated under the normal tax rules. And companies still face a potential tax charge when bringing a valuable asset home. Upon repatriation, if the property has gained value offshore, the company’s taxable income will increase based on that gain for that year, depending on how it classifies the transaction. Even though it’s a one-time payment, it could be enough to discourage the transaction.

 

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International Factor Payments and the Pandemic

(Dan here…Joseph Joyce writes for Econbrowser)

International Factor Payments and the Pandemic

I have written a piece on international factor payments (migrants’ remittances, FDI income) and the pandemic for Econbrowser, the widely followed blog of Menzie Chinn of the University of Wisconsin and James Hamilton of the University of California-San Diego.

You can find it here:

http://econbrowser.com/archives/2020/07/guest-contribution-international-factor-payments-and-the-pandemic

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