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Children make the bestest hostages

Children make the bestest hostages

Criticisms of Trump in the business press are especially instructive, because they have no obvious partisan motivation. So Josh Barro’s article at Business Insider this morning, castigating his “bully-and-threaten approach to dealmaking,” is particularly noteworthy. He writes:

Donald Trump has a negotiating tactic he really likes: Threaten to do something someone else will really hate, and then offer to stop if they give you what you want.

Call it the “Why are you hitting yourself?” approach to diplomacy.

(More broadly, I would say that Trump threatens settled norms and agreements in all spheres precisely because others have come to take them for granted, and so have let their guards down.)

After noting that he has imposed tariffs on “national security” grounds even against US allies as a tactic to gain concessions renegotiating on existing trade agreements, they turn to the issue of immigration:

… [H]e has threatened to end the DACA immigration program, then ramped up the separation of asylum-seeking immigrant families, in an effort to press Congress to remake immigration law on his terms, including building a wall. ….

Trump’s theory of immigration politics [is that] if he shows a willingness to be more cruel, he thinks that will force Democrats to the table, and that they will essentially bribe him into not mistreating vulnerable people by enacting immigration policies he’s long wanted.

Look at this hostage I’ve taken, he thinks. How could they possibly let me shoot it?

Like Dreamers and SCHIP recipients, the children of migrants are the most vulnerable, innocent, and helpless of all. Deliberately inflicting suffering upon them will call forth tidal waves of sympathy (witness the White House press conference the other day). So to the amoral and those without consciences, they become the perfect hostages. For that very reason, we should expect that children will be targeted again and again and again throughout the Trump presidency, and that once he has pocketed the ransom, the moment that he the ability to renege on the deal, and take the same hostages all over again, he will do so. Thus, for example, already we hear that funding for SCHIP, which was agreed to for 6 years under the February budget deal, is nevertheless again being zeroed out by the House GOP’s proposed budget for next year.

 

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May retail sales come in strong

May retail sales come in strong

Real retail sales for May came in strong, up +0.6% just in the month:

As the graph shows, this is on trend for the entirety of this expansion, and is also a new high, surpassing that of last winter.

Per capita real retail sales also made a new high, an indicator that the expansion is likely to continue at least one more year:

 

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Is Strengthening Labor Good for Development?

Is Strengthening Labor Good for Development?

Servaas Storm, who’s always worth reading, has posted on the INET website a summary of a new working paper he coauthored.  This issue goes way back with me—I first started looking into and writing about the labor rights/wage/trade/development nexus back in the 1980s.  Working on my own, I had a lot of false starts, and I’m happy to see others digging much more deeply today.

I won’t comment on the substance of this paper, but I think an important piece is missing: how dual economies articulate, and in particular the role of clientelism.

Countries in which formal sector jobs are highly valuable but scarce, in a sea of abundant but unremunerative informal employment, have to have some mechanism for allocating them.  Some classic economic models to the contrary, it never happens through lotteries.  My hypothesis, based on what I’ve seen and read, is that the predominant mechanism is clientelism.

A brief digression: Most of the literature on clientelism appears in political science, where it refers to the exchange of votes for personally targeted services or transfers by politicians.  I use the term to refer to a much broader phenomenon, the exchange of personally targeted benefits in return for the performance of loyalty between patrons and clients.  Patrons have access to resources from which they can supply benefits to clients, while the extent of client loyalty is a determinant (but not necessarily the only one) of how many resources a patron can command.  Conceptually, the client-patron relationship is a dyad, although clientelist systems are constellations of such exchange relations across whole populations: many dyads, multiple levels (patrons are clients of higher-level patrons), competing networks.

A large gap between formal and informal employment increases the tendency for clientelism to expand as an allocative system.  Clientelism is not all bad—it can moderate frictions that market or formal administrative processes generate—but to the extent it replaces these “modern” alternatives it reduces social efficiency.  For instance, allocating scarce formal sector jobs through client-patron exchanges is relatively harmless if the people getting the jobs are no less qualified than those left out of the system, stuck in the informal sector.  If clientelist networks override formal qualification (administrative) or competitive performance (market) criteria, however, they degrade outcomes.  It’s a matter of degree.

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Gas- and housing-powered inflation mean real wages are going nowhere

Gas- and housing-powered inflation mean real wages are going nowhere

This morning consumer price inflation for May was reported at +0.2%. YoY inflation was 2.8%. This is tied for the highest in six years (blue):

The cause of the increase was primarily twofold — and neither one reflective of wage inflation. First, gas prices have increased by over 20% in the past year (red, right scale above).

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Update: wholesalers’ sales and inventories — it’s all good

Update: wholesalers’ sales and inventories — it’s all good

Another slow start to the data this week, so let’s take a look at relationship I haven’t updated in awhile.

Total sales in the economy are broken up into three categories: manufacturers’, wholesalers’, and retailers’. We’ll get retail sales, the biggest component of the three, later this week.

But wholesalers’ sales and inventories were released last week, and are a useful coincident barometer. They are a better measure than manufacturers’ sales, since those have been very much secularly affected by the adoption of just-in-time inventory controls.

The important thing to remember is that sales (blue, left scale) lead inventories (red, right scale).  Here’s both for the last 20 years:

Note than in addition to the two last recessions, sales also plateaued first in 2012 slightly before inventory growth did, and again during the “shallow industrial recession” of 2016. As of April, both sales and inventory were both rising, a very typical result during an expansion.

 

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Backstabbing Over Cows

Backstabbing Over Cow

What is it with cows?  I mean their flatulence does add to global warming, but they seem so benign, chewing their cud while producing milk and meat.  Why is it that national leaders get into fits of backstabbing over them, or especially over all that milk they produce?

Well, of course, that is it; they produce a lot of it, and a variety of products come from the milk, which sometimes markets do  not want as much of as some of the other products. This is probably the main reason that in international trade agreements, where highly protected and subsidized agriculture is always a difficult topic, dairy products are often at the top of the list.  For years, the predecessor of the EU, the EEC had “butter mountains” from all the excess butter governments bought to stabilize the market and keep the Danes and the  French from stabbing each other in the back too viciously.  The US also  had a butter mountain problem for a long time, much of it stored in Madison, Wisconsin where it caught fire back in 1991 and burned for 8 days.  Yes, we must protect those Wisconsin Dairy State cows as Trum is struggling to dop!

Back in 1972, when I was a grad student at U of Wisconsin, then Wisconsin Senator William Proxmire thought briefly of running for president (he didn’t in the end) and showed up at the econ department one time to give a speech.  For those who do not know, he was very popular and although a Dem had a bipartisan appeal.  A major part of this was a reputation he had for being very clean and not taking money from special interests.  He had an image of saving taxpayers money as he handed out “golden fleece” awards to people or entities he determined were wasting public funds.  So, of course, in his speech “The Prox” went on and on about all his money saving efforts.  At the end one prof asked him, “Senator Proxmire, if you are so much for efficiency and saving money, why do you support dairy import quotas?”  To this The Prox just smiled and said, “Well, after all, I am the senior senator from the state of Wisconsin.”

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Robert J. Samuelson Also Exaggerates Social Security Problems

Robert J. Samuelson Also Exaggerates Social Security Problems

Not really a surprise, after all, it is Monday, and RJS has been at this for quite a long time at his post at WaPo.  But the recent release of the Trustees’ Report has not only gotten the Associated Press all bent out and shrieking “insolvency,” but I think with the push coming from the recent massive tax cuts that are swelling the budget deficit, the usual old gang of “cut the entitlements!” VSPs are out in force and raging pretty hard.  So Samuelson is denouncing “The Cowardice of the political class,” just unwilling to cut those benefits like they should, darn them, and calling for us “to rewrite the contract between the generations,” even thought about the only new thing in the report is that indeed Medicare is looking more financially troubled, and it has always been in much bigger trouble than Social Security.  But it and Medicaid involve medical care, and we know that is a political nightmare, so time to go  after those Social Security benefits in the name of helping out those young people by cutting their future SS benefits now, because otherwise they might get cut later.

Dean Baker has an excellent post on this today (I am never abler to link to him for some reason) at Beat the Press, and makes lots of valid and excellent points about how totally misguided RJS is, which I shall not repeat here.  I shall simply pound the point in more with some further observations.

One is that while RJS starts out going on about the Trustees report as if it is telling us something new, it really has no new news about Social Security.  While he hyperventilates quite dramatically, late in the column he admits that “The trustees’ reports don’t help us much, because they focus on the minutiae of various trust funds rather than fundamental questions about the proper role of government” (which should not be to help old people so darned much!).  Darn.  The “us” here, of course is all these ranting VSP ninnies who keep crying out that the sky is falling so the benefits must be cut, but the report simply does not say anything of the sort or particularly support such a push.

Also near the end, RJS does admit that “Yes, taxes have to go up…” but that is it on the tax issue, with not a whisper about the massive tax cut we just had.  No, undoing that nonsense is not the priority, it is cutting those darned benefits now! Maybe we could have cut the benefits more gradually if we had started way back when the VSPs started all their whining about this, but no, now only drastic action will forestall SS recipients in 2034 receiving real benefits equal to what they do now (no, RJS has never heard of the Rosser equation, poor thing).

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What Causes Recessions? A Physicists’ Complex Systems Model

by Steve Roth

What Causes Recessions? A Physicists’ Complex Systems Model

I received some very interesting comments from Yaneer Bar-Yam to my recent Evonomics post— “Capital’s Share of Income is Far Higher than You Think.” He pointed me to his very interesting paper, “Preliminary steps toward a universal economic dynamics for monetary and fiscal policy.”

I’m using this space to reply with with some stuff that can’t display in that comments space.

I haven’t gotten to the full-boat, multipart reply that I have floating in my head, but wanted to get back on two items for the nonce, a question plus a response on recession prediction:

1. What is the function in this model that “causes” capital gains? This always strikes me as the core problem in a complete SFC model where flows (including holding gain “flows”) balance to and fully explain (change in) net worth: if you can write a reaction function that predicts asset-price changes, you’re a very rich person… 😉

2. The recession-prediction based on investment/consumption ratio misses a bunch of recessions (false negatives). Contrasted here with a personal favorite: every recession since 1970 has been preceded by a year-over-year decline in real household total assets/net worth. (Including liabilities to arrive at net worth instead of just using assets adds no predictive value). Click for FRED.

This predictor is seven for seven. Though: there are two recent false positives — shortly following the 2001 and 2008 recessions.

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The Wage[s]-Lump Doctrine — still dogma after all these years

The Wage[s]-Lump Doctrine — still dogma after all these years

“The wage-fund doctrine was the quintessential product of what Marx termed vulgar political economy; a dogma concealing real economic relations, on the one hand, and justifying them, on the other. It was a transparent effort to disarm the working-class movement, and an attempt (largely successful) to rally public opinion behind bourgeois resistance to the demands of working people for a better life. It was the principal ideological weapon in the arsenal of capital in its disputes with labor over the level of wages.” — Kenneth Lapides, Marx’s Wage Theory in Historical Perspective

The lump-of-labor fallacy CLAIM is the wage-fund doctrine in disguise. The fallacy claim’s conclusions about the ultimate futility of workers’ demands are indistinguishable from the doctrine’s conclusions.. Only the premise from which those conclusions are deduced has been altered. Instead of asserting a certain quantity of work to be done, the fallacy claim attributes that fixed assumption to a designated scapegoat: workers, unions, populists. The claimants’ own assumptions are left undefined, as an amorphous “in reality.”

That undefined “reality” is a given amount of capital for employing workers that can only be increased or decreased as a result, respectively, of a decrease or increase in the cost of labor. That is to say, a wage-fund lump!

The wage-fund doctrine was debunked in 1826 by Sir Edward West. It was “recanted” in 1869 by John Stuart Mill. The lump-of-labor fallacy CLAIM was shown to rely on the discredited fixed wage-fund assumption by Charles Beardsley in 1893. So why do economists (& CEOs) still cling to this dogma?

Because it conceals real economic relations, on the one hand, and justifies them, on the other.

Because it disarms working-class movements and rallies public opinion behind bourgeois resistance to the demands of working people for a better life.

Because it is the principal ideological weapon in the arsenal of capital in its disputes with labor over the the hours of work.

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Sanction Trump not Bourbon

This post “America’s allies should respond to steel tariffs with targeted sanctions on the Trump Organization” by Matthew Yglesias is brilliant (even though he is mainly agreeing with the prior brilliant article by Scott Gilmore “Trade sanctions against America won’t work. Sanctioning Trump himself might.”

The proposal is so brilliant and the case for it so clear, that, I think, each title is enough to convey the idea.

Yglesias elaborates while quoting another Canadian

In light of the unusual combination of geopolitical absurdity and delicacy that the situation poses, at a press conference last week, Canadian Prime Minister Justin Trudeau reached into the bag of rhetorical clichés we normally see American officials deploy against authoritarian regimes abroad:

I want to be clear on one point: Americans remain our partners, our allies, and our friends. The American people [are] not the target of today’s announcement. [skip]

While it’s a good speech, the reality is that Trudeau’s policy countermeasures are aimed at the American people, [skip]

A better path would be to take Trudeau’s analysis seriously — America’s allies should come together and retaliate against Trump rather than retaliating against the American people.

So why are they missing trump and hitting Harley’s and Bourbon ?

The argument of Gilmore and Yglesias is obviously correct. Not only would sanctions directed at Trump be effective, they would also be fair. Bourbon distillers and motorcycle workers bear no guilt, so it is unfair to punish them (also standard practice in trade wars but still unfair).

I’m afraid that what this really shows is that in the struggles among the powerful, the little people are pawns. Sanctions on Trump personally would cause pain to fewer people (I think a (modest) majority of US citizens woud actually be pleased). They would be vastly more effective, because Trump is totally egocentric. But they would be, and are perceived to be, a dangerous escalation.

Directing the punishment at innocent peons is a way of showing it is nothing personal (while saying it is personal). Just a normal policy debate.

Sanctions on Trump personally would be less extreme in that they would directly hurt fewer people, but they would be perceived as very extreme, because the person hurt is present at the G-7 meeting.

Sanctions on individuals are not part of normal trade conficts. There are sanctioned individuals, but they are not members of the club (many are Iranian some are Russian).

after the jump, I move on to a 2 tweet long philosophical digression (which focuses on what I imagine to be the topic of Yglesias’s senior thesis).

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