Month: February 2018

Better Gun Control?

The nation morns the senseless murder of 17 mostly young students at Marjory Stoneman Douglas High School in Florida. Everyone would like to find ways to make such attacks less likely in the future. Though we can understand the sentiments of the surviving students demanding “never again”, we know that that is impossible, just as we know that we cannot end death on our highways. In 2016 37,461 people died in the United States in car accidents while 15,094 died from guns, of which over 60% were suicides and 383 were from mass shootings.

Many things have been done to make automobiles and roads safer (car deaths per 100,000 dropped from 26.4 in 1969 to between 10 and 11 in recent years) but no one has proposed outlawing cars. What can be done to make America safer from guns?

David Hogg, one of the student survivors of the shooting said on CBS’s Face the Nation: “We’ve seen a government shutdown, we’ve seen tax reform, but nothing to save our children’s lives,…’’ Michael Udine, a county commissioner in Broward County, stated that: “Any politician who is coming to just talk or just to give their thoughts and prayers, that’s not needed,” Udine said. “Thoughts and prayers are not good enough anymore.” “The student activists repeatedly expressed optimism and hope for constructive conversations and changes to U.S. gun laws, “ but at this point the newspapers are not reporting the specifics of what those changes in gun laws should be. “Florida-students-plea-with-congress-its-about-the-guns

“Teenage survivors of the shooting, propelled by their haunting experience, announced the creation of “March For Our Lives” and what they hope will be a huge demonstration in Washington on March 24. On its new website, the group’s mission statement says: ‘Not one more. We cannot allow one more child to be shot at school.’ The more adult Priti Kothari, a child and adolescent psychiatrist based in nearby Boca Raton, stated that “The adolescent brain is searching for meaning, and these funerals offer a way for them to ask, ‘How can I be of service?’ ” Kothari said. “How does this anger turn into something that’s productive?” “Funeral after funeral…” Washington Post. This is the serious, non-partisan question that we are all asking.

E. J. Dione, Jr., presumable an adult, stated that: “ it’s a mark of political corruption when unaccountable cliques block solutions that enjoy broad support and force their selfish interests to prevail over the common good. On gun violence, the United States has become a corrupt failed state.” Mr. Dione’s rant illustrates just who difficult it is to have a serious discussion of this issue. “On-gun-violence-we-are-a-failed-state”

Gun laws must respect the second amendment of our constitution and should actually contribute to reducing gun violence. Thus we should start by examining the evidence on what actually has or might work to reduce gun violence.

Serious studies of the effectiveness of popular control measure have found little evidence that they would or have helped. “Gun-control-solutions-supported-by-experts”. Dan Mitchell has provided a series of articles summarizing some of these studies under the title “another honest liberal debunks gun control.” “Now-there-are-four-another-honest-liberal-debunks-gun-control”

Dan’s most recent in that series (linked above) quotes passages from Leah Libresco’s must-read column in the Washington Post.

“Before I started researching gun deaths, gun-control policy used to frustrate me. I wished the National Rifle Association would stop blocking common-sense gun-control reforms such as banning assault weapons, restricting silencers, shrinking magazine sizes and all the other measures that could make guns less deadly….

My colleagues and I at FiveThirtyEight spent three months analyzing all 33,000 lives ended by guns each year in the United States, and I wound up frustrated in a whole new way. We looked at what interventions might have saved those people, and the case for the policies I’d lobbied for crumbled when I examined the evidence.” “A-cure-for-mass-shootings-doesn’t-exist”

Part of the problem is that most of us don’t understand what differences between weapons are important and what are not. The term “assault weapon” is a meaningless one invented by gun control advocates. There is no coherent definition of such a weapon. The AR-15 used in Florida by Nikolas Cruz is a semi-automatic rifle (it shots one bullet every time you pull the trigger) with pretty much the same fire capacity as most any other hunting rifle. “An-assault-weapon-ban-won’t-stop-mass-shootings”

Maybe more stringent background checks of those wanting to buy guns would reduce the number of dangerous people getting them? Maybe, but will enforcement be rigorous enough? The FBI failed to follow up on trouble signs reported to it about Nikolas Cruz. The Florida mass shooter passed his background check. A waiting period would have made no difference as he bought his AR-15 semiautomatic rifle a year before his attack. “Florida-shooter-Nikolas-Cruz-bought-AR-15-legally” However, most gun deaths in the U.S. are suicides and restricting ownership is correlated with fewer suicides.

It also doesn’t help when politicians lie about the facts. The Washington Post’s fact checker gave Sen. Bernie Sanders four Pinocchios for repeating the lie that because guns can be sold at gun shows without background checks (not true) “Forty percent of the guns in this country are sold without any background checks.” “Though Sanders referred to the “gun show loophole,” not a single person surveyed said they obtained a weapon at a gun show without a background check.” “Bernie-sanders-resurrects-a-zombie-claim-on-gun-sales-without-background-checks” Nor is it true as claimed by former President Obama after the November 27, 2015 Planned Parenthood attack that the U.S. has the worst record of mass shootings. Obama claimed:  “I say this every time we’ve got one of these mass shootings: This just doesn’t happen in other countries.” The ten countries with a significantly worse record than the U.S. include Norway, France, Switzerland, Belgium, and Finland. “Comparing-death-rates-from-mass-public-shootings-in-the-us-and-europe”

If none of the restrictions on gun ownership or the types of guns that may be owned have demonstrated effectiveness in reducing gun deaths, especially mass shootings, what can be done that might be more effective? As with medical doctors, the first principle should be DO NO HARM.

One proposition, explored by Jeff Goldberg in the Dec. 2012 issue of The Atlantic, is to encourage a better-armed public to counter shooters. “Today, the number of concealed-carry permits is the highest it’s ever been, at 8 million, and the homicide rate is the lowest it’s been in four decades—less than half what it was 20 years ago.

“It is also illogical for campuses to advertise themselves as “gun-free.” Someone bent on murder is not usually dissuaded by posted anti-gun regulations. Quite the opposite—publicly describing your property as gun-free is analogous to posting a notice on your front door saying your home has no burglar alarm. As it happens, the company that owns the Century 16 Cineplex in Aurora in which 12 people were killed and 70 were injured by one gunman in 2012 had declared the property a gun-free zone.” “The-case-for-more-guns”

A powerful statement was made to a congressional committee by Suzanna Gratia Hupp who watched her parents shot to death by a madman and was angry that the law in Texas had required her to leave her hand gun in her car: https://www.youtube.com/watch?v=M1u0Byq5Qis

We still do not know the specific motive of Nikolas Cruz. But he was clearly emotionally “challenged” for which he had been receiving care. It is not possible to predict when one of the millions of American suffering emotional problems of one sort or another might turn mass murderer. When someone does, the only “remedy” at that moment is to shoot back as Goldberg and Ms. Hupp argue. Dan Mitchell has an excellent discussion and another real life example of this point. “Law-abiding-texans-gun-ownership-and-saving-lives”

What besides self-defense (confronting shooters with a gun) might be done that might offer some prospect of effectiveness?

David French in National Review presents the case for Gun Violence Restraining Orders (GVRO) that can be sought by members of the family or those close to the targeted individual on the bases of evidence (seeing or hearing something). “As with Felons, the dangerously mentally ill, perpetrators of domestic violence — these people have not only demonstrated their unfitness to own a weapon, they’ve been granted due process to contest the charges or claims against them. There is no arbitrary state action. There is no collective punishment. There is, rather, an individual, constitutional state process….” “Gun-control-republicans-consider-GVRO”

Another measure that builds on the same legal foundation of due process has been introduced by Republican Senator Jeff Flack and Democratic Senator Martin Heinrich. The bill would ensure that anyone convicted of domestic violence in military court couldn’t legally purchase a firearm, thus matching the existing prohibition for anyone so convicted in a civil court. “Flake-heinrich-introduce-bill-to-permanently-close-gun-loophole-used-by-texas-shooter” If neither of these measure make much of a positive contribution to reducing gun violence, at least they DO NO HARM.

Those who grow up in gun homes normally are taught to respect and use guns carefully. But are there other messages that might go in the other direction that we should be concerned about?

Mass shootings by young adults or children have a quite remarkable common theme that began appearing in the late 1980’s.  Children shooting other children began to increase and it was almost always in the head. Columbine was the first schoolyard mass shooting.  Almost all of the victims were shot in the head.  Shootings by children at schools or anywhere else were exceedingly rare until the introduction of first-person shooter video games. “Video-games-desensitize-to-real-violence”

The above and subsequent studies argued that the first person shooter video games greatly desensitized the player to violence.  While that, in and of itself is a problem, the effect is more profound on those with a spectrum of mental disorders. The impact is especially profound in those children with disassociative disorders as they are mentally able to disconnect their actions from the consequences.

The same studies on what creates or nurtures addictive behavior are being used by the scientists behind game makers to create just such experiences in video games.  Those with some forms of mental disorders, such as disassociative disorders, can lose themselves in a video gaming world.

It is note worthy that in most first person shooter video games you earn the most points with headshots. As we all know guns do not cause violence – people do.  And creating games that foster and nurture violent dissociative behavior in people and especially children can have real, quite undesirable consequences. Parents beware.

In many respects our problem with mass murderers is similar to our problem with highway deaths. It is not practical to ban cars any more than to ban guns for both legal and practical reasons. We are left looking for practical ways to diminish or mitigate the risks without throwing out the baby with the bath water. “Yes-this-is-a-good-time-to-talk-about-gun violence”

Feeding the Swamp

During his filibuster leading to last week’s brief government shutdown, Sen. Rand Paul (R-Ky.) stated that: “When Republicans are in power, it seems there is no conservative party…. The hypocrisy hangs in the air and chokes anyone with a sense of decency or intellectual honesty.” He was protesting the compromise two-year budget just passed by the Senate and awaiting passage in the House. This budget, now signed into law by President Trump, adds over $300 billion in additional government spending this year alone on top of the $1 trillion dollar deficit created by the recently passed tax cut. “Why-did-the-GOP-vote-for-a-budget-busting-spending-bill-because-voters-dont-seem-to-care”

A few congressmen reacted with more principle. “’I’m not only a ‘no.’ I’m a ‘hell no,’ ” quipped Rep. Mo Brooks (R-Ala.), one of many members of the Tea Party-aligned Freedom Caucus who left a closed-door meeting of Republicans saying they would vote against the deal.

“It’s a “Christmas tree on steroids,” lamented one of the Freedom Caucus leaders, Rep. Dave Brat (R-Va.).” “Right-revolts-on-budget-deal”

Why should we worry about adding to the public debt? The “deficit” is the shortfall of tax revenue below expenditures in one year. This is now forecast to average about one trillion dollars in each of the next two years. “Bipartisan-budget-act-cements-return-trillion-dollar-deficits”. Each year these annual deficits add to the outstanding U.S. national “debt” currently at $20.6 trillion dollars. Even before the recent tax cuts and last week’s expenditure increases, the Congressional Budget Office projected Federal debt held by the public at $25.5 trillion or 91.5% of GDP by 2027. But that figure omits debt held by the Federal Reserve, Social Security “trust” fund, and other government entities, which must also be serviced and repaid. When these are included as they should be, gross federal debt is projected to be $30.7 trillion or 110% of GDP by 2027 and 150% of GDP in thirty years and climbing. And to repeat, this is before the recent tax cuts and budget increases.

As our economy grows so does the government’s capacity to carry and service (pay the interest on) the debt. But on the basis of existing laws and policies our debt will grow faster than the economy forever. But of course that is impossible. At some point taxes must be increased or expenditures cut, or the government defaults on its debt. In fact the problem is worse than these figures suggest because they fail to include the future taxes or borrowing needed to cover unfunded government liabilities. These are commitments, such as future Social Security pension payments, for which existing financing falls short. For example, Social Security payments already exceed its annual revenue from the wage taxes of current workers and the so-called trust fund will run dry in fifteen years. That will add still more to the deficit and the debt.

Indeed, there are times when deficits are ok and even helpful. When the economy goes into recession the government should allow the deficit that naturally results from falling tax revenue and increasing safety net spending. These are referred to as automatic stabilizers. However, we are currently not now in that phase of the business cycle. We are now at its peak and if the government is to achieve fiscal balance over the cycle it must run budget surpluses at the peak to pay for the deficits during the slumps. The U.S. should now have a budget surplus and not the huge deficit presently experienced and projected. The White House’s announcement today (Monday) that it is giving up on the traditional Republican goal of a balanced budget in ten years is hardly a surprise when we are starting with a large deficit at the peak of the business cycle. https://www.washingtonpost.com/business/economy/white-house-budget-proposes-increase-to-defense-spending-and-cuts-to-safety-net-but-federal-deficit-would-remain/2018/02/12/f2eb00e6-100e-11e8-8ea1-c1d91fcec3fe_story.html?utm_term=.514757e9c8de&wpisrc=al_news__alert-politics–alert-national&wpmk=1

Senator Paul was rightly angry that not only was the need to face and correct this untenable future kicked down the road yet again, but the process of doing so was corrupt. Votes were bought by sticking in special tax and spending breaks for the constituents and friends of individual congressmen—the old earmarks by another name. “Budget-deal-retroactively-extend-several-expired-tax-provisions”. While it is true that the bipartisan budget deal wouldn’t have passed without these bribes, it shouldn’t have passed. Instead of draining the swamp the Republicans have joined with the Democrats to feed it. “In-big-reversal-new-trump-budget-will-give-up-on-longtime-republican-goal-of-eliminating-deficit”. And more repulsive is the fact that these are the same Republicans who rallied against spending during the Obama years. This is the hypocrisy Senator Paul lamented.

Congress has failed yet again to prioritize it’s spending to match the resources that taxpayers are willing to pay. The moral corruption of this way of doing business was reestablished and reinforced. As another example of blatant corruption, Presidents have rewarded (paid off) large contributors with Ambassadorships to nice places like London, Paris, and Rome (to name a few) for decades. This is pure corruption for which the country pays with lower quality representation and diplomacy than would be provided by Foreign Service professionals. Unfortunately we have grown used to it and barely notice it. This is dangerous.

All individual government expenditures and programs look worthwhile to at least some people, but at the expense of what? What do taxpayers or investors or other government programs give up to finance them. These are not easy choices and decisions but it is the job of our representatives to make these judgments in the best interests of the country as a whole. That is probably expecting more than they are capable of delivering, but it is their job. Those of you of Generation X, Y and Z will have to pay for this so you are the ones with an incentive to do something about it. We need more Rand Pauls. “The-5-biggest-losers-from-the-2018-budget-deal-are…”

Econ 101: What is a strong dollar?

Should the United States seek a strong dollar or a weak dollar? The answer to the previous question appears obvious but what exactly does a strong or weak dollar mean? As I write this the exchange rate of the dollar for the Euro is 0.80 Euros per dollar. Is that strong or weak? Three weeks ago (January 9) a dollar would buy 0.839 Euros. Was that too strong, about right or weak? On what basis should we judge that question? Eleven months ago the rate was 0.95 Euros per dollar. Ten years ago the rate was 0.62 Euro/USD. One thing that is clear is that the rate varies a lot and thus the price of American exports to the rest of the world and of imports by the U.S. from the rest of the world also vary a lot. This makes business planning difficult.

According to Your Dictionary: www.yourdictionary.com/strong-dollar

“strong dollar – Investment & Finance Definition. A situation in which the U.S. dollar can be exchanged for a relatively large amount of another currency. A strong dollar makes exports relatively expensive because foreign purchasers have to pay more, in their currency, for the goods.” This is a somewhat helpful definition.

According to Investopedia, “strongweakdollar”,

“A strong dollar occurs when the U.S. dollar has risen to a level against another currency that is near historically high exchange rates for the other currency relative to the dollar.” This is a useless definition.

Back in the gold standard days, the prices (exchange rates) of most currencies for most other currencies were fixed because the value of each currency was fixed to an amount of gold. It was important in those days for the balance of payments between countries (the net inflows and outflows of a country’s currency as a result of its imports and exports and investment flows) to be roughly balanced over the long run. In fixed exchange rate systems (like the gold standard) a balance of payments deficit was paid for by an outflow of the deficit country’s currency (ultimately gold). The resulting reduction in the money supply of the deficit country would reduce domestic prices, making domestic goods and their export prices cheaper and the domestic prices of imported goods relatively more expensive. Thus in deficit countries their now cheaper exports would increase and their now more expensive imports would decrease. These economic adjustments would correct (eliminate) the imbalance of external payments.

The above summary of the adjustment process under a gold or similar fixed exchange rate world draws on two features of prices and exchange rates. The first is that the prices of American goods to the French, for example, depend on the U.S. dollar prices times the exchange rate of the dollar for the Euro. If either the dollar price of a product increases or the exchange rate of dollars for Euros increases (it takes more Euros to buy a dollar), the product becomes more expensive in France. Similarly, under the same circumstances French goods become cheaper in the U.S. Thus the French will buy less from America and Americans will buy more from France. This will reduce any balance of payments surplus in the U.S. or worsen a balance of payments deficit.

The second feature is that other things equal an increase in the money supply in a country tends to reduce its purchasing power, i.e. to increase domestic prices in general (inflation). So a country with an external balance of payments deficit paid for by an outflow of its currency (gold) will reduce the money supply and thus prices in that country and eliminate the external deficit.

While we are at it, it should be clear that the external balance of payments that matters is between each country and the rest of the world. A balance of payments between the United States and Mexico, to take a random example, is totally irrelevant to whether currencies (gold) are flowing in or out of the U.S. on net.

Consider the balance of payments between one household and the rest of the world. The breadwinner or winners have a large balance of payments surplus with her or their employer(s)—their salaries—and a balance of payments deficit with every one else. The deficit with the grocery store will go on forever and simply doesn’t matter as long as all external deficits don’t excess the surplus with her employer (in the long run). President Trump, please take note.

In fixed exchange rate systems, the terms “strong” or “weak” currencies are generally not used. The overall balance of payments is the important thing. However, a strong currency might mean that it is “over valued” and thus producing a balance of payments deficit that will need to be corrected by a domestic deflation. This is what Greece had to do a few years ago within the single currency Euro area to restore its balance of payments equilibrium. A weak currency might mean the opposite—an undervalued currency that produces a balance of payments surplus, which will be eliminated by the domestic inflation resulting from a net currency inflow. Clearly neither a strong nor a weak currency is desirable. The ideal is a goldilocks middle ground of not too hot and not too cold but just right balance of payments balance.

Where currency exchange rates are not fixed to each other but determined in the foreign exchange market by the supply and demand for currencies, the adjustment of balance of payments surpluses or deficits occurs via adjustments in the exchange rate rather than net flows of currency in and out that increase or decrease domestic prices. Market exchange rates are determined not only by the imports and exports of a country (the trade balance) but also by investment motivated currency flows (capital flows). Thus monetary policy and interest rate differentials between countries can influence where investors chose to invest. If the Federal Reserve increases its policy interest rate and raises market interest rates as a result, unless the ECB also increases its interest rates, some interest sensitive investments are likely to move from Europe to the US, increasing the dollar’s exchange rate with the Euro in the process. The risks attached to investments are also important, and financial market disturbances abroad can often precipitate capital flows into the U.S. even with lower U.S. interest rates (the so called safe heaven phenomenon).

Central bank intervention to influence exchange rates for countries with floating rates is considered a violation of the rules of free trade. But when central banks raise or lower their interest rates without coordinating with other central banks this is exactly what happens. This makes it difficult to know whether a country is playing by the rules or not. But this surely pushes what can be learned in Econ 101 to its limits. You might consider Econ 201.

So what does a strong dollar or a weak dollar mean, and is a strong dollar a good thing? There is a sense in which we might speak of a strong dollar as meaning “a favorable terms of trade”. If a country’s international payments balance at prevailing exchange rates, a higher ratio of export prices to import prices enables the country to import more for given exports than when the (real) exchange rate is “weak.” This reflects higher domestic productivity relative to that of foreign competitors and such strength is clearly a good thing. I assume that this is what Secretary Mnuchin meant in his unfortunate discussion of weak and strong dollars at Davos last week.

If you are up to a deeper plunge, take note of the fact that the widespread use of the U.S. dollar in international reserves requires the U.S. to have a balance of payments deficit in order to supply the world with those dollars. This is one of several reasons why a truly international reserve asset such as the IMF’s SDR should replace the dollar in international reserves. See: “Why the World Needs a Reserve Assets with a Hard Anchor”