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Could The US Default Due To A Complexity Catastrophe?

Could The US Default Due To A Complexity Catastrophe?

Definitely.

Front  page story in today’s Washington Post by Damien Paletta reports that “Treasury chief hurtles toward fiasco,” the fiasco being a failure to raise the US debt ceiling in time to avoid a default.  Trump has declared that Sec Mnuchin is responsible for this matter, which he should be, but somehow has not made a sufficiently definitive statement to keep his former Freedom Caucus big cheese OMB director, Mulvaney, from opining that Mnuchin is an out of it New York finance guy (Goldman Sachs even) who is not well connected in Washington, and he, Mulvaney, thinks that the dumb games he played as a Congressman threatening to default are appropriate for  somebody in charge of all this.

The deadline is approaching, although it might be somewhere between early September and mid-October, but at some point if the debt ceiling is not raised, the US will seriously default, something we have not seen, and I doubt that any deal Mulvaney might propose would get through this dysfunctional Congress.  And the article reports that while Mnuchin wants a “clean raise” before  the Congress really shuts down in August, well, according to WaPo, he does not have the “stature in Washington to press through a vote on a measure” supported by all previous Treasury Secretaries.  Indeed, the article is right that he may not be able to do so, and the US may well seriously default on its debt for the first time, something the gang that Mulvaney has belonged to has declared is no big deal. We may be about to find out if that is correct or not.

In thinking about this I have come to realize that part of the problem is that this is a very complicated issue, one that few people understand, and that this lack of understanding is self-propagating: that few understand it means that there are few who can teach those who do not understand it what it is about. The upshot is that an incredibly miniscule proportion of the US population has any remote idea what all this  is about, so are not  putting any pressure on these loud mouthed Congresspeople to behave resonably. If in fact there is a default and it leads to a global financial crisis that puts the world economy back into a serious recession, well, who could have known that, and who will be to blame?

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Another Personal Observation On Privatized Highways

Another Personal Observation On Privatized Highways

Last month I posted a personal observation on Trump’s plan to privatize infrastructure, noting especially how in the long run privately owned turnpikes in Virginia ended up in government ownership.  In the comments on that post there was discussion of the Indiana Toll Road, privatized a few years ago.  I have just ridden on it (yesterday), and I shall recount as an anecdote datum my less than pleasant experience, bad enough to make me want to avoid it entirely in the future.

I was driving west on it from Ohio.  I stopped in one of the new service areas to get some pizza.  Fancy roof, but only two eating places, Lagrange in the east.  OK, but nothing great.  I would say road condition about same as Ohio’s, but tolls higher, although not as high as in Illinois or Pennsylvania.  Anyway, I saw that I had enough gas to make it to the LaPorte service area in the western part of the state, so did not refill there or at the Elkhart one.  Nowhere did I see any signs or information about any problems with any of the upcoming service areas.

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Robert Samuelson At The Washington Post Is Bashing Social Security Yet Again

Robert Samuelson At The Washington Post Is Bashing Social Security Yet Again

Yet again.

I grant that he did not do  it at length or present a lot of clearly incorrect nonsense.  But bash Social Security he did, using an old ruse to do so, combining it with Medicare to invoke a long term deficit danger due to the two of them together, when in fact it is well known that it is the Medicare part of that projection of future spending that leads to all the scary looking deficit numbers, not the Social Security part.

Most of the column by Robert J. Samuelson today,”Everybody’s mad at somebody,” is a lament about political polarization in the US today, and the obnoxious effect this has policy making.  Fred Hiatt has a similar column, “Trump’s wasted opportunity,” although I would say that for once Hiatt avoided saying anything too silly, noting possible political compromises on a carbon tax, immigration policy, and tax reform, that might have been possible if Trump had been willing to be a nonpartisan leader, but that look unlikely to happen given his descent into cheap partisanship, as well as his general ignorance and incompetence.  Most of Samualson’s column deals with past history of compromises made and how we got to not doing that anymore. However, his misguided statement on Social Security appears in a single paragraph, which I shall quote in its entirety now, regarding supposed compromises or issues that need compromising that are not likely to be.

“To take two familiar examples: The Republican promise to repeal and replace Obamacare while also  reducing premiums and expanding coverage was never possible.  It was make-believe. Similarly, the Democratic refusal to deal with the escalating costs of Medicare and Social Security is crushing other worthy government programs – a strange position for a pro-government party.”

So here is RJS back to  playing the role of WaPo Very Wise Person, or whatever, calling for  a compromise between the supposedly equally unwise positions of  the two parties.  But, the hard fact is that his analysis of the impossibility of the GOP position is completely accurate.  He falls down when he gets to the Dem side.  Again, there is a rising trend of medical care costs, which affects Medicaid as well as Medicare. If he had replaced Social Security with Medicaid, he would have been much more accurate, and clearly we need some sort of program to get rising medical care costs under control

But throwing in Social Security there instead of Medicaid (which the GOP is trying to cut without cost controls, just throw people off) as part of their Obamacare repeal and replace, muddies the waters, although it fits in with the longstanding campaign by the WaPo ed board to slash Social Security. And it does have RJS back on his regular Monday spot playing that old game, even if  he did not make too much of a silly fuss about it this time.  But some of us have our eyes on him, and will call him out when he pulls this nonsense, when we catch him. And he was at it again here.

BTW, Happy Fourth of July, you all.

Barkley Rosser

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Comments on Profit and Capital

Comments on Profit and Capital

Yeah, I know, Marx wrote three volumes on this, and in 2014 Piketty published in English a more than 700 page book on it that ended up on the bestseller list, although neither of these resolved the long-running debates about the nature of profit or of capital, which continue to swirl.  We have seen recently someone claiming that distinguishing between retained and distributed earnings is the key to understanding profit, and failing to do so means all of economics as we know it is wrong. But then there have been many other views that this view does not remotely address.  Regarding capital itself, which profit is usually thought of as being one of the sources of income related to, let me quote the following that notes a range of views out there.

“What really is capital and what does it mean for value, growth, and distribution?  Is it a pile of produced means of production?  Is it dated labor?  Is it waiting?  Is it roundaboutness?  Is it an accumulated pile of finance?  Is it a social relation?  Is it an independent source of value?  The answers to these questions are probably matters of belief.”    From Catastrophe to Chaos: A General Theory of Economic Discontinuities, Kluwer, 1991, p. 125.

I leave it the imagination (or googling) of the reader as to who the author of that book is, although I note that the quotation appeared in the second edition of the book that came out in 2000.

So there are surface issues regarding the nature of profit and capital, and there are deeper issues.  This quotation lists some of the deeper arguments that have been made by different schools of economics. The “pile of produced means of production” is basically a Principles textbook orthodox position, which rules out financial definitions, with many “people in the street ” thinking it is an “accumulated pile of finance,” a later answer in the list.  People teaching intro econ courses like to pound on wrongness of this popular view, ultimately falling back on the argument that capital is a “factor of production,” which means that whatever it is one must be able to use it in actual production processes.” Machinery and buildings and other such “produced means of production” do that, so they count, and the building of them is what “real investment” is, not just somebody using some money to buy some financial assets, which is what the person in the street usually means by “investing my capital.”  We spend lots of time disabusing them of their delusions, we who know that “money is an illusion,” and that while finance is very important in the functioning of modern economies, piles of money or financial assets do not in and of themselves actually produce something.  Rather they are indicators and means for determining who gets to own those actually productive forms of “real capital,” oh to throw out another term.

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Muhammed Bin Nayef Bin Abdulaziz Al Sa’ud Confined To His Palace

Muhammed Bin Nayef Bin Abdulaziz Al Sa’ud Confined To His Palace

In Jidda, according to the New York Times today.  So the story about the now deposed 57-year old former Crown Prince of Saudi Arabia and former Minister of the Interior, Muhammed bin Nayef (MbN), putting out a video supporting his own removal appears to be phony propaganda.  The Saudis instead have been broadcasting a video of the new Crown Prince, 31-year old Muhammed bin Salman (MbS) kissing the hand of (MbN).  Presumably he did that back in the day when MbN was the Crown Prince and MbS was his supposed loyal deputy. We have no video of MbN kissing the hand of MbS.

As it is, the story also reports that when MbS’s elevation was announced, MbN returned to his palace to find his guards replaced by ones loyal to his successor.  He and his daughters have since been confined to the palace and also forbidden to leave the country, although the latter would seem to be impossible if they cannot leave the palace.

MbN has been replaced as Minister of the Interior by his nephew, Muhammed bin Saud bin Nayef, whose father is governor of the Eastern Province.  Reportedly US intelligence officials are “outraged” at this, having worked long and well with MbN, who was reportedly the key figure behind squashing al Qaeda in Saudi Arabia,  He is viewed by these people as very competent, and his successor has apparently no experience at all in the area.  Wonderful.  But these people are constrained from speaking openly because of the clear support by President Trump and his son-in-law, Jared Kushner, of the elevation of MbS, as well as his aggressive warmongering in Yemen, against Qatar, and also against Iran

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Saudi Succession Shuffle

Saudi Succession Shuffle

A not unexpected event has just been announced: 31-year old Prince Muhammed bin Salman bin Abdulaziz al-Sa’ud has been elevated from Deputy Crown Prince of Saudi Arabia by his father, 81-year old King Salman bin Abdulaziz bin Abdul-Rahman al-Sa’ud, to replace his 57-year old cousin, Prince Muhammed bin Nayef bin Abdulaziz al-Sa’ud.  The former Crown Prince is Minister of the Interior, a position he inherited from his father, the late Prince Nayef, who was Crown Prince prior to current King Salman, but died before the most recent king, Abdullah bin Abdulaziz bin Abdul-Rahman al-Sa’ud died at age 90 in 2015, so Salman got to be king and now has moved his younger son up ahead of his somewhat older nephew.  Muhammed bin Salman (MbS) is also Defense Minister, the position his father had taken in 2011 on the death of Prince Sultan, who was then also Crown Prince, with Salman prior to that serving as Governor of Riyadh province for 40 years.  MbS has by all accounts been running things in Saudi Arabia recently, being behind the aggressive war in Yemen that has gone badly and also probably the main orchestrator of both Donald Trump’s visit to Saudi Arabia and the move to diplomatically and economically isolate Qatar.  Juan Cole describes MbS as being “sloppy” and “unwise,” but he may be in position now to rule Saudi Arabia for a long time to come if this appointment is not reversed somehow by other members of the Saudi royal family.

It is possible that the trigger for this elevation has been reports in the last few days of the US Secretary of State, Rex Tillerson, and Secretary of Defense,  Mad Dog Mattis, turning increasingly against the campaign against Qatar pushed by MbS, despite Donald Trump’s repeated support for it via Twitter.  Not only did Tillerson sell Qatar a bunch of F-15s a few days ago, but yesterday Tillerson demanded that the Saudis and Emiratis (from UAE) present their specific demands of the Qatar regime.  It has been two weeks since they initiated this campaign against Qatar, with the clear support of Trump, but indeed they have neither issued specific demands that by satisfying them Qatar could bring about an end to this diplomatic and economic embargo, nor have they presented a shred of evidence of the Qataris financing terror groups, the supposed justification for all this, although pretty much everybody knows that it is a more general annoyance by the Saudis with their not just going along with whatever the Saudis want as well as in particular the Qataris being too friendly with Iran, although even the anti-Iran Tillerson and Mattis realize that the US is allied de facto on the ground in the war against ISIS, which the Saudis have done near zero to support, not to mention Qatar hosting the US major air base that is being used in the campaign against ISIS/Daesh.

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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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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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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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