The rumor that China might play its “rare earth card” was the rumor today that helped push down both stock and oil markets according to a variety of reports.  The trigger for this seems to have been a visit on May 26 by China’s president, Xi  Jinping, to a rare earth facility, along with some rumbling statements associated with that visit.  They may not do it, but the possibility of blocking exports to the US of exports of rare earth metals shows that China has potential weapons if Trump follows through with more vigorous trade barriers.  How serious is this threat?

It is probably not as serious as it might  have been a decade ago.  In 1990 a solid majority of these critical elements were produced outside  of China, with the US being a major source, particularly California.  But production here and in some other nations such as Australia was reduced substantially as mining of many of these involves substantial environmental damage.  At the same time China entered the opening and expanded production, getting to be the source of about 90 percent of all production by 2010.  However, due to events then increased efforts to increase production of them elsewhere, especially Malaysia, Australia, and South Africa, has reduced this to 70 percent.

A little over a year ago Mark Perry wrote this nonsense:

The chart above (thanks to Olivier Ballou) is an update of a chart we produced last year about this time, and shows the percent changes since January 1997 in the prices of selected consumer goods and services, along with the increase in average hourly earnings in this version … Blue lines = prices subject to free market forces. Red lines = prices subject to regulatory capture by government. Food and drink is debatable either way. Conclusion: remind me why socialism is so great again.

To which I reminded him of the Baumol cost disease and followed up with this. It is good to see that Alex Tabarrok has been thinking about this issue as has John Cochrane. Read their posts as there is a lot of great discussion but permit me to cite just this:

I assumed that regulation, bloat and bureaucracy, monopoly power and the Baumol effect would each explain some of what is going on. After looking at this in depth, however, my conclusion is that it’s almost all Baumol effect.

I have said this before, but am saying it again.  The clearest grounds for impeaching Donald Trump are not his obstruction of justice on which so much attention is being focused, but in my view his blatant and unequivocal acceptance of emoluments from foreign governments, with this most clearly evident at his hotel in Washington, with these emoluments the basis of lawsuits by the governments of Maryland and D.C. going forward slowly.  But somehow none  in Congress pushing impeachment have raised this issue as grounds for impeachment, even though this is something expressly forbidden in the Constitution of presidents.  What clearer grounds for impeaching a president could there be?

I think there are four interrelated reasons we have not seen much discussion of this matter.  One is that there has been so much focus on the Mueller Report, which focused on Russian interference in the 2016 election and the relation of the Trump campaign with that. While Mueller failed to find sufficient evidence of conspiracy, the door was left open for possible obstruction of justice, even though A.G. Barr has vigorously tried to slam it shut.  And then we have seen Trump apparently doing more of it as he tries to get his whole administration ignoring Congressional subpoenas.

Another reason for this focus is that charges on this were key in the move  to impeach President Nixon, with him being forced to resign as fellow Republicans made it clear they would support the move to impeach on these grounds.  Needless to say, today, with the  exception of Rep. Justin Amash of Michigan, no Republicans are supporting the move to impeach, a major  reason Speaker Pelosi continues to resist opening a formal impeachment inquiry, even as the pressure to do so rises.

A third reason is that Mueller apparently accepted the demand by Trump to recognize a “red line” around his personal finances.  Those are now increasingly coming under investigation, and we are beginning to see some of his tax returns. But an impeachable focus out of what may come has not fully come into  view, although possible money laundering of Russian oligarch money through Deutsche Bank is widely thought to have occurred and may soon be exposed. But is that impeachable as it all happened before Trump became president?

Which brings us to the fourth reason, we have never had a president ever in the 232 years since George Washington took his oath of office who has even remotely been suggested to have violated this very clear rule stated in the Constitution, not a poor one (and we have had a few not rich, if not outright indigent) nor a rich one.  None of them, until at least now.  We have not been able to think about this.

But now it is here, if partially buried in all the carryings on about so many other matters, especially this matter of obstruction of justice.  But here we have a president for the first time ever clearly taking money from foreigners while in office, and in the case of the Saudis in particular, who have dumped piles of money into the Trump Hotel in Washington, acted in ways the Foreign emolumenter wants, arguably against the interests of the US.  Did we need to have “Bone Saw” MBS take power in a coup supported by Trump and Kushner?  Should we be rushing to war with Iran at their behest?  Should we be continuing to arm them for their brutal war in Yemen?

I would like to see at least one of the people either running for president or stomping about in the Congress demanding impeachment bring this up.  This is a far clearer violation of the Constituton than anything else Trump has done.  This is exactly why the Founding Fathers both put the emoluments clause into the Constitution and gave Congress the power to impeach presidents.  If there is a “high crime and misdemeanor” the Founding Fathers would have had in mind when they did all this, is not violating the emoluments clause at the very top of the list?  Out with the crooked bumb!

Barkley Rosser

For the past several months, I have been pounding on the idea that the government shutdown, during which 800,000 jobholders were temporarily laid off without pay, had a much bigger impact on the economy than was originally thought.

This morning we get the following graph from Bank of America Merrill Lynch, which speaks for itself:

Of course, the workers got back pay when the government reopened – but if the 2:1 ratio holds, there wouldn’t be an equivalent “kick” from renewed spending. Which seems to have been the case, since the March +1.3% rebound in real retail sales didn’t make up for the -1.6% decline in December.

Former Supreme Court Justice John Paul Stevens, now 99 years old, has written a book, The Making of a Justice: My First 94 Years. Apparently he considers the  District of Columbia versus Heller decision to be the worst of all those that was made during his time on the Supreme Court, that one on  a 5-4 vote.  That decision upended the interpretations of the Second Amendment that had been in place since the amendment was adopted, with Stevens noting that in fact this longstanding interpretation reflected gun laws from even the colonial era.  That interpretation allowed for gun control legislation for civilians as it was always assumed that the opening phrase about “maintaining a militia” (by state governments) meant that the second phrase about “the right to bear arms shall  not be ingfringed” only applied to those in the military.  The Heller decision undid that, making the right to bear arms disconnected from the business about militias and essentially absolute.

Clearly Stevens feels guilty about what has happened since then, most clearly the epidemic of mass murders with high-powered weapons that were actually banned for civilian use for a decade after 1994, during when such mass murders happened at a lower rate than before or after.  That law was allowed to lapse, when instead the US should have extended it and followed a policy more like what Australia did by buying up outstanding such weapons, which was followed by a dramatic decline in gun-related homicides.   As it is, the US now has a far higher rate of per capita gun ownership than any other nation, more than twice as many as Serbia, the nation with the next highest such rate.

Amid the blooming flowers of May, each year sees the arrival of the Papers and Proceedings volume of the American Economic Review, containing short and sometimes punchy gleanings from the previous ASSA meetings.  Here are two abstracts of interest.  I haven’t gone through the papers themselves, so I can’t vouch for their methodologies, but the results they claim to have found are politically important.

Title: Student Debt and Labor Market Outcomes
Authors: Gerald Eric Daniels Jr. and Andria Smythe

We study the impact of student debt on various labor market outcomes, namely, income, hourly wages, and hours worked. Using the NLSY97 and a difference-in-difference approach, we find statistically significant differences in labor market outcomes for individuals who received a student loan versus those who received no student loan. We find that the difference in post- versus pre-college income is 8-9 percent higher for individuals that received a student loan relative to individuals who received no student loan. Further, we find evidence that this higher income is due to higher work hours.

Title: The Child Left Behind: Parental Incarceration and Adult Human Capital in the United States
Author: Laura E. Henkhaus

Exposure to parental incarceration is particularly prevalent in the United States, where about 7 percent of children have lived with a parent who was incarcerated. In this paper, I use nationally representative US data and apply partial identification methods to bound the likely effects of parental incarceration on education and labor market outcomes. Findings suggest that parental incarceration leads to substantially higher rates of high school dropout. Results provide some support for negative effects on likelihood of college degree attainment and employment in young adulthood. This work has important implications for criminal justice policy and social policies toward children.

I’ve been thinking about alternatives to capitalism for a long time now.  I’ve taught several courses on the topic and plan eventually to write up what I think I’ve learned, so naturally I was intrigued by the new book, The People’s Republic of Wal-Mart: How the World’s Biggest Corporations Are Laying the Foundation for Socialism (PRW) by Leigh Phillips and Michal Rozworski.  I picked up a copy and started reading it, intending to write a review for this blog.

Well, I stopped about a quarter of the way through.  It’s not worth my time or yours, and I briefly want to tell you why.

For over a hundred years, socialists have looked to the organization of capitalist businesses for a vision of what a post-capitalist society might look like.  The conception of socialism as a single, all-encompassing public enterprise was widely recognized by advocates and opponents alike.  Marxists in particular looked to each new management strategy as a building block for the socialist future, since Marx’s idea was that the new society will be the product of the old, when the forces of production are liberated from the old, confining relations of production.  Remember Lenin’s encomium to the “scientific management” of F. W. Taylor?

And so there has been much left wing debate over the years about what is progressive and valuable about management, and what needs to be discarded.  You would think someone writing a book on this topic today would review that literature to see what might be learned from it.  Not this one.