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

Israel: Demography vs. Democracy

Preliminary election results from the Israeli elections are due in a couple of hours and no one who follows this even a little bit imagines that the path going forward is anything but fraught with uncertainty. Indeed it is not clear that given the polling that any stable government can be formed. But what is clear is that on this election day Netanyahu threw down on democracy. He is openly appealing to his base that the existential threat to Israel is a get out the vote campaign among ‘Israeli-Arabs’ aided in his view by foreign NGOs and hostile states.

In an American context this is exactly parallel to shouting “ACORN!” and “New Black Panther Party!” and “Aztlan!” Except where the latter cries are only an implicit (tho barely hidden) appeal to an old idea that ‘American’ = ‘Anglo-American Judeo-Christian’ that ‘dares not say its name’ Israel is officially committed to being a Democratic Jewish State. Well there is nothing democratic about voter suppression among those citizens of your country that are not Jewish (in the case of Israel) or ‘American’ (under the definition used by much of the American Right).

Israel faces some stark choices today. There is a path forward that yields an actual Democratic Jewish Israel. It runs through the Two State solution. There is another path that yields a simple Jewish State of Israel. It runs through a policy of Permanent Occupation of the West Bank and Gaza and perhaps through disenfranchisement of the ‘Israeli-Arab’ population of Israel proper. And for those of a certain Real-Politik frame, which at this point certainly includes Netanyahu, this may be workable and realistic, at least under the medium term. After all the apartheid regime of South Africa ‘worked’ (in the sense of supplying well-being to the white minority) for decades. As did in many ways and seen from the same perspective did Pinochet’s Chile over the same time period. And in both cases the U.S. government gave explicit support to both those regimes under the Kirkpatrick Doctrine.

But foreign policy ‘Realism’ or not what was clear to all was that neither South Africa or Chile was a democracy. Which wasn’t a problem to the Kissingers and Reagans and Kirpatricks then or to the Boltons and Kristols now. And it is certainly possible that U.S. governments going forward will simply embrace Israel under a Netanyahu policy of Neo-Apartheid as just being the ‘realistic’ thing to do. But as in the past it will make a mockery out of our claims to back ‘Democracy’. Because Israel will not be small d ‘democratic’.

Netanyahu threw off is cloak of deception by announcing that under no circumstances would there be a Palestinian State along side Israel. He doubled down by declaring an emergency for his party followers in the form of ‘Israeli-Arabs’ actually exercising their rights as citizens to a vote. That combination makes it impossible to have a Democratic Jewish Israel that permanently includes the West Bank. Such a State can be Democratic or Jewish but not both. (Not even if every European Jew exercised his or her right to Aliyah – another stop-gap policy Netanyahu has been pushing.)

It will be an interesting few hours, days and weeks ahead.

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Is the US getting addicted to extremely low interest rates ?

Uber wonk Matt O’Brien writes about The “weird way people talk about zero interest rates”

He discusses Gillian Tett discussing her conversations with those who O’Brien calls the “the masters of the universe.” They don’t like the Fed’s extremly low interest rate policy. They can’t claim that loose monetary policy has causes excessive inflation, so they have to be creative. I don’t think they did a very good job.

“they think the real risk, as Tett puts it, is that ‘low rates become ingrained into the consumer and corporate psyche” and “become increasingly hard for policymakers to remove.'”

I guess the word “psyche” is usefully abstract. I can’t prove that this hasn’t happened without reading consumers’ and corporations’ minds (especially hard in the case of the corporations which don’t, technically, have a psyche. However, it is possible to see if housholds or corporations (as 2 wholes) are becoming addicted to extremely low rates. An entity is dependent on low rates when it builds up debt which it can’t service at higher rates.

So has the period of extremely low interest rates lead to a dangerous buildup of debt ? The answer is obviously no (especially to masters of the universe).

Here is the ratio of the debt of households and non-profits to GDP


This is a household (and non-profit) sector kicking the debt habit, or, more exactly, being kicked by the debt built up before the extremely low interest rate policy started. The effect of extremely low rates engrained in consumers’ psyches is that they borrow short term or at flexible rates. This was a problem back when safe interest rates were well above zero. It isn’t now.

How about the corporate psyche balance sheets ? Here is a graph of total liabilities o and financial assets of non financial corporationscorporatedebtaddiction

(sorry I am having some trouble with browsing to add a new series in new Fred so financial assets are calculated as total assete minus non financial assets). Notice that they have higher financial assets than total liabilities. This is not a non financial corporate sector addicted to extremely low interest rates. Also note that liabilities were greater than assets when the Fed started extreme monetary policy.

This is an economy in which households are deleveraging and corporations are building up financial assets in spite of extremely low interest rates. Obviously O’Brien is right

The mistake that Wall Street, and even some famous economists, make is getting this causality backwards. They think that lower rates are what’s messing up the economy, rather than reflecting the fact that it’s already messed up, and that raising rates will make this better.

I only doubt his polite assumption that it is a sincere mistake. Either they are fools or they are trying to fool us. I know how I’d bet.

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More evidence low taxes didn’t create the Celtic Tiger

The Tax Justice Network has just inaugurated a new blog, Fools’ Gold. It just came out with an excellent piece on taxes and Irish economic success in the “Celtic Tiger” era, written by Nick Shaxson. As I argued in 2011 and in my book Investment Incentives and the Global Competition for Capital, Ireland had low taxes for decades with nothing to show for it, with no improvement relative to EU-15 GDP per capita in 1958-87.

The Fools’ Gold piece updates the data to 2013. Take a look at its Chart 1, which provides a great visualization of Irish income per capita, tax rates, and developments in the European Union.

Chart 1: Ireland’s GNP per capita, relative to European GNP per capita, 1955-2013. 

invisible hand


In addition, the chart shows the significance of EU funds flowing into the country, though it only covers the Common Agricultural Policy (CAP) monies. It does not include the Structural Funds, which Frank Barry (via Shaxson) puts at almost 3% of gross domestic product from 1989 to 1999, or about the same as the CAP. The importance of the European Union, in terms of both trade access and transfers, is hard to understate.

Unfortunately, as Shaxson writes, true believers in the low tax myth, and the architects of its tax haven policies, are still in control of Irish policy. So we have scores of billions of dollars of profits hidden in Ireland and continuing pressure to lower tax rates in the rest of the European Union, and the United States, too, despite the fact that low taxes didn’t cause Irish economic success at all.

Don’t forget to follow Fools’ Gold!

Cross-posted at Middle Class Political Economist.

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Advice and Consent of the Senate

Continuing my efforts to demonstrate that a little knowledge of the law is a dangerous thing (and adding a superfluous Wald to the name of the AngryBear competent to discuss this) I wonder how and why Senators decided that the President must seek their advice and consent before performing any foreign policy (including for all I know officially expressing the wish that foreign heads of state have a happy birthday).

The phrase appears twice in The Constitution in Article II Section 2 describing the athority of the President.

He shall have Power, by and with the Advice and Consent of the Senate, to make Treaties, provided two thirds of the Senators present concur; and he shall nominate, and by and with the Advice and Consent of the Senate, shall appoint Ambassadors, other public Ministers and Consuls, Judges of the supreme Court, and all other Officers of the United States, whose Appointments are not herein otherwise provided for, and which shall be established by Law:

In the actual relevant text, advice and consent is required to make treaties and appoint ambassadors. There is nothing about involving the Senate in negotiations or even informing the senate about the progress of negotiations. There is no requirement that the US representative at the UN (usually called the ambassador to the UN but not so called by the UN) seek the advice and consent of the Senate before voting in the Security Council.

It is clear that under the constitution, relevant treaties (such as the convention establishing the United Nation) and current law, secretary of State Kerry does not need the advice and consent of the Senate to negotiate with foreign minister Zarif.

The possibly Logan act violating 47 non traitors didn’t even claim that negotiating without their participation is improper in their outrageous letter.

The argument appears to be “listen to me me meee” because I am bored with negotiating with even more insane representatives in the House to keep the government open.

I guess I am irritated by those who seek Ballance by insisting that the Obama administration provoked the 47 Senators (by doing what every administration in the past 75 years has done).

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Why didn’t Clinton set up two email addresses for herself, one for her personal emails, the other for her work emails, on Just wondering.*

In many ways, [Clinton] did a good job at her press conference on Tuesday. The part of her speech talking about her daughter’s wedding and her mother’s funeral arrangements being off limits, that certainly resonated. She absolutely was right when she said, “No one wants their personal e-mails made public.”

Hillary Clinton Is Turning Into Richard Nixon and Bill Belichick, Matt Taibbi, Rolling Stone, today

One thing that surprises me about analyses of Clinton’s press conference is the apparent consensus among pundits, including some liberal ones who are not supportive of her, that she was effective in gaining empathy for her desire to keep her personal emails from public view, so that no one wonders why, then, she (unlike most people who work for organizations) chose to commingle her personal and work emails not just on one server but in a single email account. She was, after all, absolutely right when she said, “No one wants their personal e-mails made public.” Ergo, ….

No dispute whatsoever: No one wants their personal e-mails made public.  Which is why (presumably) most people who work for organizations—private or government—take pains to separate their private correspondence from their work correspondence, by using their work email account mostly* for work-related correspondence, and their personal account entirely or almost entirely for personal emails.

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The Phillips curve in 3 dimensions, animated

by New Deal democrat

The Phillips curve in 3 dimensions, animated

– Yesterday I wrote that the Phillips curve might best be considered as three-dimensional, where the third axis was commodity prices, and in particular Oil.  A shock to underlying commodity prices would also “shock” the unemployment vs. inflation trade-off, moving the curve along the third dimension.

Thanks to the help of a reader, I am able to show you this animated gif of the Phillips curve.  The X axis is the unemployment rate, the Y axis is YoY headline CPI, and the Z axis is YoY PPI commodity prices.

Since there are many points with the same UNEMPxCPI (x,y) value, the mean PPI for those values was used.  As you can appreciate, the distribution is noisy, so as my correspondent noted, the “data does not suggest a smooth function.”

With that introduction, here is the Phillips curve in 3 dimensions as an animated gif;

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Global Stability, National Responsibilities

by Joseph Joyce

Global Stability, National Responsibilities

The global financial crisis demonstrated clearly how the flow of money across borders could deepen and widen a financial crisis. A decline in U.S. housing prices led to a re-examination of the safety of financial securities based on them and an implosion in credit markets as financial institutions sought to re-establish their soundness by shedding the securities that were now seen as toxic. These institutions included European banks that had purchased mortgage-backed securities and other collateralized debt obligations. Eventually the emerging markets were brought into the vortex by capital outflows that disrupted their own financial markets. But are we ready to change the rules governing global finance if they impinge on national sovereignty?

Andrew Haldane, chief economist of the Bank of England, spoke last October about the need to manage global finance as a system. He identified four areas that require strengthening: global surveillance, improvements to national debt structures, the establishment of macro-prudential and capital flow management policies, and improved international liquidity assistance. Advances have been made in all these areas since the crisis.

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The Phillips curve in the 21st century (or, The Phillips curve as a 3 dimensional foil)

by New Deal democrat

The Phillips curve in the 21st century (or, The Phillips curve as a 3 dimensional foil)

This is my third post about the possibility of the Fed raising rates as early as June.

In the first post, I pointed out that both wage growth and inflation are at historic, half-century lows. Further, the heightened number of involuntary part-time employees and those who want a job now, but have completely given up looking, suggest additional slack as compared with other instances of 5.5% unemployment, There is not the slightest pressure on inflation from wages at present.

In the second post, I showed that since the turn of the Millennium that CPI inflation, ex-Oil, has never exceeded 3%, even with 4% unemployment or 4% YoY wage growth.  Further, it is likely that core inflation in the next 12 months will actually decrease somewhat as the collapse in oil prices feeds through the economy.

Now let’s look at the 21st century Phillips curve, i.e., the tradeoff between inflation and unemployment.

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What is to be done with the 47 non traitors

The 47 senators who wrote their absurd ignorant improper and (almost) unprecedented letter in an attempt to undermine Nuclear negotiations between Iran and the (5)+1 are not traitors. The Constitution defines treason

“Treason against the United States, shall consist only in levying War against them, or in adhering to their Enemies, giving them Aid and Comfort.” – Article III section 3. US Constitution (Guy with a quill pen:Philadelphia) 1787.

I am not the only picky nerd who made a big deal about the word — Mark Kleiman did to.

However they did violate the Logan Act (1 Stat. 613, 18 U.S.C. § 953, enacted January 30, 1799) (or Kleiman link above)

Any citizen of the United States, wherever he may be, who, without authority of the United States, directly or indirectly commences or carries on any correspondence or intercourse with any foreign government or any officer or agent thereof, with intent to influence the measures or conduct of any foreign government or of any officer or agent thereof, in relation to any disputes or controversies with the United States, or to defeat the measures of the United States, shall be fined under this title or imprisoned not more than three years, or both.

The only possible loophole through which they might evade criminal liability is “authority of the United States,” but, as Senators, they have the authority to give the president advice and consent but not to advise the Iranian foreign minister to mistrust what he might have heard from the US secretary of state.

The Logan act is clearly unconstitutional (as noted by Kleiman). It was directed against Dr John Logan who was, at the time, a Pennsylvania state legislator (hence I’m sure covered by some sort of legislator’s immunity). After the controversy, he became a US Senator.

I think that Barack Obama should propose that Congress repeal the clearly unconstitutional Logan Act. I think he should reassure the non-traitorous 47 that he will instruct the Justice Department to exercise prosecutorial discretion and defer action until a bill repealing the Logan Act has been considered. I think his proposal should include a passionate denunciation of The Logan Act and defence of the right of all people (including senators) to warn foreigners not to trust the State Department.

This would not be smart politics, and it would not affect policy, because the Logan Act has never been enforced.
But it sure would be fun.

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