Should Virginia Governor Northam Resign?

After first apologizing for his college yearbook picture in blackface (next to someone in a KKK costume), then denying that it was him in the picture, why hasn’t Governor Ralph Northam resigned? I think that it is because he knows in his heart that he is not a racist. No one can read the Washington Post account of his childhood and college years and think that he is. https://wapo.st/2MW4ndp

The unfolding story raises a number of important points or lessons, if you will (I am always an optimist).  Should adults be held accountable for views or behavior in their youth—i.e., are we able to grow in our understanding and change our views?  Should the prevailing understanding and attitudes of earlier times influence how we “judge” earlier behavior, i.e., does context matter? George Washington and Thomas Jefferson where slave owners, after all. These questions are relevant more generally (think of the confirmation hearings of Presidential nominees for the Supreme Court and other important positions).

Northam’s now famous yearbook picture immediately raised several questions in my mind.  Before making judgements about Northam’s attitudes on race I wanted to know, among many other questions, what was in his mind when that picture was taken (or if not him, put on his yearbook page).  What message did he think he was sending? My first reaction, clearly not the reaction of many others, was that he was making fun of the KKK.  I have the same question about blackface more generally and those fun musicals and minstrels with black-faced white singers and dancers. When did black face become an affront to blacks or should I say African Americans?  This question is thoughtfully explored by John McWhorter in a must read piece in the February Atlantic Monthly https://www.theatlantic.com/ideas/archive/2019/02/mark-herring-and-grey-zones-blackface/582355/. According to Wikipedia: “In the United States, blackface had largely fallen out of favor by the turn of the 21st century, and is now generally considered offensive and disrespectful.”

As I grew up in California, “Negro” was the polite term for “African American.” It sharply contrasted with the derogatory term “Nigger,” the very sight of which outrages me.  But fashion evolved. As an undergraduate at the U.C. Berkeley in the 1960s we switch from Negro to Black, to keep up with evolving fashion.  One of my favorite columnists in the 1980s and 90s, William Raspberry, an African American opinion writer in the Washington Post, wrote a column I liked a lot bemoaning the ever-changing fashion in referring to Negros, Blacks, People of Color, African Americans, etc.  He said that changing the name is less important than changing the reality of the status and treatment of minorities in America.

Prejudice reflects ignorance.  It is best overcome with knowledge. Familiarity is an important source of knowledge. Large numbers of people cluster with their own ethnic or religious group and thus have little direct knowledge of “others”. Those who thought badly of “niggers” or “faggots” generally didn’t know any. They feared what they did not know. Black-faced performers began to introduce blacks to many whites. Though they were often buffoonishly stereotyped, they were non-threatening and were thus likeable. People often fear what they do not know.

In a step up from blackface Amos and Andy in the sitcom of the 1950s were played by real African Americans.  They were heavily stereotyped but lovable. No one could fear them. In the 1970s we progressed to the Jeffersons and in the 1980s to the Bill Cosby Show. With familiarity, baseless fear dissipated.  TV encounters were increasingly complimented with real live encounters.

Something similar happened with gays. TV first introduced homosexuals as silly but harmless hairdressers or fashion designers. For many of us looking back the stereotypes are borderline offensive (no offense to effeminate hairdressers). But gays gradually became more present in television and in our surroundings and less threatening. Then we were introduced to the comedy show Will and Grace who progressed gay images toward the idea of successful and diverse people living in New York. They were funny and approachable people we would be comfortable to hang out with. People began to discover that their uncle George or Aunt May were gay and were OK with that. Will and Grace performed a similar service for gay acceptance by a wider public as had Cosby for African Americans.

Context matters and people learn and evolve. My own opinion of Governor Northam has evolved from thinking that, of course, he should resign to thinking that he shouldn’t. https://wapo.st/2SBEyoy

 

 

Posted in Discrimination | Tagged , , , , , , , , , , | 2 Comments

Tariff Abuse

The U.S. constitution gives Congress the authority to enact and control tariffs (taxes on American consumers of imported goods and services).  Over the years Congress has increasingly delegated that authority to the executive branch (the President) under certain specified circumstances. Section 232 of the Trade Expansion Act of 1962 gives the President the authority to restrict (impose tariffs on) imports that threaten national security without the need for congressional approval.

Last year President Trump imposed a 25 percent tariff on steel imports and a 10 percent tariff on aluminum on the grounds, confirmed upon the President’s prompting by the Commerce Department, that relying on steel from Canada and the EU (fellow NATO members) was a threat to our national security.  If this were a skit on “Saturday Night Live” we would have a good laugh, but unfortunately it is for real.  It is the launching of a very ill-advised trade war by a President who had promised when campaigning for office to reign in executive overreach.  Sen. Ben Sasse, Republican from Nebraska, called Trump’s decision “dumb.”

Trump’s stated motive was to restore American jobs to an industry in which we are relatively inefficient. The few additional workers in steel and aluminum resulting from these tariffs were outweighed by the loss of jobs in industries dependent on these now more expensive metals as inputs. Bestowing financial favors on a selected group to the detriment of the rest of us can rightly be called corruption. https://wcoats.blog/2018/09/28/trade-protection-and-corruption/  Such policies do not reflect America First. They reflect My Friends First.

Trump has apparently asked the Commerce Department to “evaluate” whether importing cars is a national security threat that would allow him to impose tariffs on them without Congressional consent. So much for rolling back executive overreach and any consideration of the national interest.

Both Republicans and Democrats may have had enough of this.  “While the Trump Administration ponders whether to claim that imported Volkswagens threaten national security, some on Capitol Hill are trying again to rein in the President’s tariff powers.”  WSJ: “Two-bills-to-defend-free-trade”

Two bills have been introduced in the House that would shift the responsibility of determining if an import is a national security risk from the Commerce Department, which naturally leans toward protecting American commerce, to the Defense Department, which should better understand real security risks. “The stronger bill was introduced last week by Senator Pat Toomey, the Pennsylvania Republican….  Mr. Toomey’s bill would require Congress’s blessing. Once a tariff is proposed, lawmakers have 60 days to pass a privileged resolution—no Senate filibuster to block consideration—authorizing it. No approval, no tariff.” WSJ 2/9/2019  A somewhat weaker bill has been introduced by Senator Rob Portman, Republican from Ohio, on the grounds that it has a better chance of passing over a Presidential veto.

Please write your congressional representatives to support one of these bills (preferably the Toomey bill) before this President fights another war that we all lose.

Posted in trade | Tagged , , , , , , , , , , | Leave a comment

The Wall: Form or Substance?

Most Americans support legal immigration into the United States (preferably more and better targeted than now) and oppose illegal entry. Controversy has arisen over how best to limit the illegal sort (to say the least).

The border between the U.S. and Mexico runs almost 2 thousand miles. By 2009 580 miles of fence or wall had been built for the purpose of reducing illegal entry of people and drugs. This grew to 654 miles by 2017.  Leaving aside the many controversies over the environmental impacts of fencing a border that runs through Indian reservations, and environmentally sensitive areas (“In April 2008, the Department of Homeland Security announced plans to waive more than 30 environmental and cultural laws to speed construction of the barrier.” Wikipedia), we must ask whether a fence/wall on even half of the border will significantly reduce, much less stop, illegal entry into the U.S. and whether it is the most cost-effective way of doing so (electronic “fences” are also now being deployed). The Economist magazine estimated that it may have “reduced the number of Mexican citizens living in America by only 0.6%.” “The-big-beautiful-border-wall-America-built-ten-years-ago”  About half of all illegal emigrants arrived in the U.S. legally by boat or plane and overstayed their visas.

Where there is a will, there is a way. Illegal immigration is reduced when conditions (incomes and security) in a potential immigrant’s home country are improved, when legal channels of immigration widened, and when illegal entry and residence are made less attractive (riskier).

While the North American Free Trade Agreement (NAFTA), which came into effect in 1994, benefited the United States, it improved living standards in Mexico and Canada as well, President Trump’s condemnations notwithstanding.  Over its first 20 years Mexican trade with the U.S. and Canada more than doubled. (Burfisher, Mary E; Robinson, Sherman; Thierfelder, Karen (2001-02-01). “The Impact of NAFTA on the United States”Journal of Economic Perspectives15 (1):125 44.  CiteSeerX 10.1.1.516.6543doi:10.1257/jep.15.1.125ISSN 0895-3309.)  Per capita income (GPD) in Mexico increased 37% and in the U.S. 52% between 1993 and 2017.

An example of Trump’s misuse of data was provided by his statement during his recent State of the Union Address when he claimed that: “One in three women is sexually assaulted on the long journey north”, referring to the Mexican caravans to the U.S. border.  The data comes from the Doctors Without Borders, who reported that of the 57 women caravaners who sought their medical care one third “said they were “sexually abused” on the journey, not “sexually assaulted” as Trump says.” This is not even in the same ball park.  “Fact-checking-president-trumps-state-union-address”

On multiple occasions over the last 20 years sensible bipartisan immigration reform laws were proposed but never passed. We badly need to adopt some such reforms in order to meet the labor market needs of the U.S. economy and to settle the legal status of earlier illegal immigrants (including the Dreamers).  See my earlier comments on such reforms:  https://wcoats.blog/2017/02/12/illegal-aliens/  https://wcoats.blog/2018/01/11/our-dysfunctional-congress/

The most challenging component of the policies to reduce illegal immigration are policies to make illegal status as unattractive as possible. In short, a barrier to illegal status that immigrants can’t climb over, tunnel under, or walk around. Illegal status should be very unattractive. Illegal residence should not have access to any, other than emergency, welfare services. People generally immigrate to the U.S. in search of a better life. That generally means a better paying job than they could find at home.  Employers who hire undocumented workers should be heavily fined (especially if the employer happens to be the President of the United States).  Efforts to deny services and jobs to illegal immigrants should not intrude on the privacy and lives of legal residents however recently they might have arrived. Our conflicted approaches of overlooking illegal status, reflects our failure to have adopted sensible laws for legal immigration.

America is an attractive place to live and we have benefited greatly from the best and the brightest who have chosen to come here (legally).  For our own sake and for the sake of those who might come we need to improve the process and widen the door for legal immigration while making the illegal sort less attractive.

Posted in immigration, trade | Tagged , , , , | 5 Comments

Central Banking Award

As a monetary policy expert working at the IMF when the Soviet Union dissolved I had the exciting and fulfilling opportunity of leading technical assistance missions to the central banks of Bulgaria, Kazakhstan, Kyrgyzstan, Moldova and Slovakia and building on those experiences to a number of post conflict country central banks (Bosnia and Herzegovina, Croatia, Kosovo, Serbia, Afghanistan, Iraq, and South Sudan). I am grateful to the IMF and the wonderful colleagues I worked with for these opportunities and now I am grateful to the Central Banking Journal for acknowledging this work with its “Outstanding Contribution for Capacity Building Award.”  I will received the award in London March 13.   Award announcement

 

Posted in Money | 3 Comments

Brett Michael Kavanaugh

The mash up between Christine Blasey Ford and Brett Kavanaugh has produced very strong opinions for and against the claims of each. Our views on the veracity of each are based on our emotional assessments of the testimony of each. Unless the FBI interviews contain new facts, there is no evidence to confirm Prof. Ford’s claim that Kavanaugh sexually assaulted her nor evidence to confirm his claim that he didn’t. This is the horrible fact for acts, or alleged acts, with no witnesses (Ford claims Mark Judge witnessed the events she describes but he denies it).

This is the sad situation of “She said—he said” for which there seems no easy remedy. Actual rape generally produces evidence (semen) if promptly reported. But we have come to understand why many women do not promptly report their assaults. Memories and evidence fade with time. The sworn statements of Prof. Ford and Judge Kavanaugh have holes and inconsistencies and you will believe the one you choose, for whatever reasons, to believe. Prof. Ford can’t remember where or when her assault occurred or how as a 15 year old girl she got there or returned home. Her fear of flying didn’t prevent her from doing a lot of it, etc. Judge Kavanaugh’s choirboy depiction of his youth doesn’t square with the police report of a bar brawl he started in college and testimony of roommates and classmates of his hot temper when drunk, etc.

“Democrats, the left, and various other anti-Kavanaugh persons can thank attorney Michael Avenatti for this outcome, at least in part.

“The spotlight-stealing lawyer, who also represented Stormy Daniels, is responsible for drawing the media’s attention to Julie Swetnick, an alleged victim of Kavanaugh who told an inconsistent and unpersuasive story. Swetnick’s wild accusation provided cover for fence-sitting senators to overlook the more plausible allegation leveled by psychology professor Christine Blasey Ford, and to declare that Kavanaugh was being subjected to false smears.” “Brett Kavanaugh-Michael Avenatti Collins”

The sad consequences for the reputations of Ford and Kavanaugh, tragic as they are, are compounded by the despicable behavior of both the Republican and Democrat parties. The refusal of the Republican controlled Senate to confirm President Obama’s Supreme Court nominee, Merrick Garland, was a shocking breach of protocol. “Even before Obama had named Garland, and in fact only hours after Scalia’s death was announced, Senate Majority Leader Mitch McConnell declared any appointment by the sitting president to be null and void. He said the next Supreme Court justice should be chosen by the next president — to be elected [eight months] later that year.” “What-happened-with-merrick-garland-in-2016”-NPR

The Democrats have behaved as badly: “Sen. Bob Casey and Senate Minority Leader Chuck Schumer also announced that they opposed Trump’s pick without knowing whom the president had selected.” “Democrats-race-to-oppose-trumps-scotus-nominee-even-before-name-announced” Senator Feinstein’s withholding of Prof. Ford’s letter accusing Kavanaugh until the last minute was either stupid or malicious.

Sadly we didn’t have much of the debate we should have had about Kavanaugh’s judicial qualifications and judicial philosophy. He is clearly highly qualified as was Judge Garland who as Chief Judge of the United States Court of Appeals for the District of Columbia Circuit headed the same court on which Kavanaugh has sat for the last 12 years. His job, he says, is to fairly interpret and enforce the law, not make it. Is he an originalist or texturalist and what do those mean?

Since 9/11 and The Patriot Act we have lived in a semi surveillance state that violates our constitutional rights to privacy and due process. As an official in the W Bush White House, Kavanaugh helped write the Patriot Act and later as a Federal judge he ruled to uphold parts of it that many of us consider unconstitutional:

“In a ruling in the U.S. Court of Appeals for the D.C. Circuit, Kavanaugh ruled that ‘the Government’s metadata collection program is entirely consistent with the Fourth Amendment.’ He also later stated ‘that critical national security need outweighs the impact on privacy occasioned by this program.’ Again, a rather odd conclusion for a staunch ‘constitutionalist’ to support.” https://fee.org/articles/the-constitutional-reasons-to-oppose-kavanaugh-for-the-supreme-court/?utm_campaign=FEE%20Weekly&utm_source=hs_email&utm_medium=email&utm_content=66477479&_hsenc=p2ANqtz–ZykcA0d1RgLgdKULIW6mqsBca_Mo6JDsC32-QU_CuMj4Tjcd7zNZA3lLuA0j1VucrH83ejT1Zrte2fKpGKnJS7qGN6w&_hsmi=66477479

But in most areas of protecting constitutionally protected rights or constitutionally mandated restraints on government, Judge Kavanaugh has been on the side of strict constitutionalism. While constitutional scholars are divided over just what a proper adherence to the constitution in the twenty first century should means, there is almost universal agreement that former justice Antonin Scalia helped sharpen the debate around that question.

The left wing historian and activist Howard Zinn puts the issue of judicial philosophy of SC judges in perspective in the following article. https://progressive.org/op-eds/howard-zinn-despair-supreme-court/

I assumed that he was writing about Judge Kavanaugh. After reading it I was surprise to realize that it had been written thirteen years ago. Mr. Zinn died in 2010.

Britt Kavanaugh’s scrutiny by the Senate has been ugly and painful. The Senate’s abandonment of traditional procedures, with their checks and balances, first by the Democrats and now by the Republicans is shortsighted and regrettable. The lack of deference to the President when consenting to his or her choices for her government is recent and regrettable. But most regrettable of all is the divisive lack of commitment to service to the nation as a whole rather than narrow partisan interests by our congressional representatives and our tweeting President.

Posted in Government, News and politics | Tagged , , , , , , , | Leave a comment

Trade protection and corruption

Starting with the repeal of the Corn Laws in England (tariffs on grain imports) in 1846, cross border trade and incomes blossomed. “Global life expectancy in the past 175 years has risen from a little under 30 years to over 70. The share of people living below the threshold of extreme poverty has fallen from about 80% to 8% . . . . Literacy rates are up more than fivefold, to over 80%. Civil rights and the rule of law are incomparably more robust than . . . only a few decades ago.” From The Economist’s 175 anniversary issue September 13, 2018: “A-manifesto-for-renewing-liberalism”

Post World War II trade agreements reflected a process of progressive reductions in tariffs and other impediments to trade. Unfortunately and misguidedly, President Trump has reversed this trend by introducing new tariffs and raising old ones. Import tariffs are taxes on American consumers. Why is Trump doing this? He says that he wants to bring manufacturing jobs that have moved off shore back to the U.S. by making their output cheaper than taxed imports.

As the U.S. economy is fully employed (there are currently more job openings than people looking for work), increasing employment in one area can only occur by reducing it in one or more other areas. Starting with Trump’s 25% and 10% tariffs on steel and aluminum, the shift from imported steel and aluminum to domestically produced steel and aluminum as a result of tariff protection is only possible by shifting workers from other more productive activities lowering the value of over all output. Given that these products are inputs into some American exports, which are thereby made more expensive, it is estimated that more jobs will be lost than created. “Econ-101-trade-in-very-simple-terms”

The U.S. has already imposed steep tariffs on China’s steel and aluminum to offset Chinese government subsidies to its steel and aluminum industries and thus we import almost no steel and aluminum from China. Trump has justified his new steel and aluminum tariffs on national security grounds thus bypassing usual World Trade Organization (WTO) rules for justifying tariffs. It stretches credibility, to say the least, to claim that depending on Canada and Mexico for steel is a security risk, not to mention that existing domestic production by itself exceeds our military needs. “Trump-says-steel-imports-are-a-threat-to-national-security-the-defense-industry-disagrees”

Some claim that Trump’s tariffs and threatened tariffs are just part of his negotiating strategy to achieve fairer trade agreements by a free traders at heart. This is belied by the fact that steel and aluminum tariffs remain on Mexico even after tentative agreement on a NAFTA replacement/update with Mexico. The question is why would someone benefit one small sector of the economy while imposing much larger harm on the economy more generally? The short answer is corruption.

Corruption in this context refers to bestowing benefits on a few at the expense of others in exchange for something else. In government, corruption generally takes the form of vote buying, though sometimes it is for personal financial gain. My bottom line here is that in addition to reducing an economy’s output and thus its resident’s incomes by protecting inefficient or less competitive industries, tariffs and other forms of economic protection reflect, or at the least open the door for and encourage, corruption.

When the government has or takes the authority to tax or exempt from tax individual industries or firms, it invites, if not begs for, corruption. Read the story of the Dixon Ticonderoga pencil company and weep. “How-dixon-ticonderoga-has-blurred-lines-of-where-its-pencils-are-made”

Posted in Economics, trade | Tagged , , , , , , , | 3 Comments

Their Turkey and Ours

“Recep Tayyip Erdogan believes high interest rates are the cause of inflation, not the remedy for it”  The Economist May 19, 2018 “How-turkey-fell-from-investment-darling-to-junk-rated-emerging-market”

During the 1990s the inflation rate in Turkey averaged around 80% per annum varying between 60% and 105%.  Over that period interest rates on its 3-month treasury bills averaged about 30% above the inflation rate reaching almost 150% in 1996.  The economy grew rapidly in real terms with real GDP growth averaging 8% per annum between 1995-7.  But growth depended heavily on borrowing abroad in foreign currencies.  Banks were poorly regulated, and heavily exposed to foreign exchange risk and to government debt.  Obviously, Turkey’s nominal exchange rate depreciated at about the same rate as its inflation rate in order to preserve a stable real exchange rate.

In the wake of the Asian and Russian debt crises in 1997 and 1998 foreign investors became more risk averse and capital inflows into Turkey were reduced sharply slowing down economic growth from 7.5% in 1997 to 2.5% in 1998.  A serious earthquake in Turkey’s industrial heartland in August 1999 further deteriorated Turkey’s economic performance.  The combined impact of the two pushed the economy into a deep recession, shrinking GDP by 3.6% in 1999.

With support from the International Monetary Fund (IMF) in 1999-2003 the Turkish government reigned in its spending and monetary growth and reduced its inflation rate to 10% by 2004. I was a member of the IMF’s Turkey team at that time and remember the long sleepless nights very well. Turkey’s interest rates followed inflation down and, in fact, its real interest rates (nominal interest rate minus its inflation rate) fell from 30% to negative rates as the economy stabilized. During this transition, a number of state owned enterprises were privatized, 18 insolvent banks were intervened, and debt and the financial sector were restructured and strengthened.  Within a few (rough) years the economy was growing rapidly with low inflation and low interest rates.  In 2017 real GDP grew 7.0% though inflation had crept back up to 11.1%.

Following Turkey’s and the rest of the world’s recession in 2009 the country reverted back to its bad old ways.  “Recep Tayyip Erdogan signed a decree easing access to foreign-exchange loans for Turkish companies.  The new rules lifted restrictions that barred companies without revenue in hard currencies from doing such borrowing—as long as the loans exceeded $5 million.”  How Erdogan’s push for endless growth brought Turkey to the Brink

Erdogan observed the low interest rates, low inflation, and high growth and apparently concluded that low interest rates caused low inflation rather than the other way around. Every economist knows that interest rates incorporate the market’s expectation of inflation over the period of a loan in order to establish a market clearing real rate of interest.  In 1996 when a borrower was willing to pay 130% interest and a lender was not willing to accept less it was because they expected 80% to 90% inflation per annum over the life of the loan.  The very high real rate (130% – 80% = 50%) reflects the risk premium of getting it wrong.

Central banks can, if inflation expectations adjust slowly, push real rates down temporarily by lowering nominal market rates below their equilibrium rate.  Doing so, however, increases the rate at which the money supply grows eventually increasing inflation and forcing nominal interest rates higher than they would otherwise have been.

Under political pressure from Erdogan, the central bank of Turkey has kept interest rates lower (and thus money supply growth greater) than are consistent with its inflation target of 5%.  In the last few years inflation has drifted up reaching 11.1% in 2017.  Markets have grown uneasy about the economic situation in Turkey and when the Central Bank failed to increase its policy interest rate last month from 17.75% investors began selling off Turkish bonds and withdrawing funds from the country.  Its exchange rate plummeted.  From January of this year the Turkish lira depreciated from 11.7 per dollar to 16 lira/USD at the beginning of July and to 21 lira/USD on the 22ndof August. Erdogan’s wrong-headed misunderstanding of the role of interest rates is pushing Turkey over the precipice of bankruptcy.

Meanwhile here in the United States, President Trump apparently attended the same school as Erdogan. After breaking a several decades old protocol against commenting on or interfering with the Federal Reserve’s monetary policy when he stated last month that he didn’t want to see the Fed increase its policy interest rate, he did it again a few days ago. “Trump-escalates-attacks-federal-reserve”  Trump’s advice is wrong. The Federal Reserve needs to continue raising its policy rate back toward normal levels (3% to 4%) before inflation momentum becomes any stronger. Real interest rates are still negative (less than the inflation rate).  The Fed should have started increasing rates several years earlier.

Posted in Debt, Money | Tagged , , , , , , , , , | Leave a comment