Category: News and politics

The College Admissions Scandals

A few weeks ago, Ito and I went to “Admissions,” the very well performed and thought provoking play by Joshua Harmon about affirmative action, at Studio Theater. Several friends had independently attended the play and suggested that we get together for one of Ito’s superb dinners and discuss it.  So we enjoyed an evening discussing the pros and cons of “affirmative action,” the “temporary” suspension of nondiscrimination legislation meant to repair and make up for discrimination against blacks that made them less prepared for college. It is a complex issue without obvious solutions. The play did an excellent job of fairly presenting all perspectives on this issue.

My opinion is that suspending, even temporarily, equal treatment (merit-based college admissions) of applicants to universities and colleges, as is done with affirmative action, is not the best approach to achieving equal treatment of all. It attempts to treat the symptoms of racial discrimination rather than the disease. First of all, private universities (unlike state schools using tax payers’ money) should be free to establish whatever admission policy they want.  Any school I would want to attend will want to include an element of diversity in its student body as an important element of the education they offer and will build that into its admission policy in whatever way it considered sensible.

And now we are confronted with the revelation that some of the rich and famous paid bribes to get their underperforming children into top schools. As stated in the Washington Post: “the scope and sheer shamelessness of an elaborate scheme in which some of the country’s richest people allegedly paid bribes to get their children into top U.S. universities is truly mind-boggling.” https://www.washingtonpost.com/opinions/the-college-admissions-scandal-should-prompt-broader-soul-searching/2019/03/13/f67aa986-45b5-11e9-aaf8-4512a6fe3439_story.html

This is shocking and unacceptable for the same reason I oppose affirmative action. It violates the principle and standard of merit in hiring people or admitting them to college. Our country is one of the wealthiest and most respected in the world because firms and organizations allocate jobs, positions, and resources in general on their merits (i.e. qualifications for the job, etc.). In short, people and other resources are put to their most productive use.  Obviously, this is not always the case. But firms that fall short of this standard suffer lower profits than if they had adhered to it. In short, in the private sector there is an economic incentive to employ the resources (including people) that best fit the needs being filled. Companies that employ their under-qualified relatives suffer lower profits as a result. Hiring or admitting people on the basis of merit is also our standard of fairness that is widely admired throughout the world.

Affirmative action is a deliberate departure from this standard as are the recently revealed bribes and test score cheating for college admission. In the first case it is an effort to overcome the damage of earlier discrimination against a once enslaved people. In the second case it is an effort to overcome the deficiencies of intelligence or character in our own children. A world in which we acquiesce to standards other than merit will always favor the already well off. We will never fully achieve the high standards of merit based appointments we have set, but we should never stop trying. A powerful strength of the private sector in a competitive free market economy is that the economic incentives are in the right direction.

American universities may never achieve a perfect admissions system completely based on merit and devoid of personal bias, but we should encourage them aim for it. The world outside of the academic environment is unfair enough when it comes to race, gender, sexual orientation and religion to name a few. Let us try to instill in the younger generation the understanding that hard work and smarts are what gets you ahead– not money, influence and certainly not the color one’s skin. And let’s promote attitudes and policies that encourage and reward such a reality.

Is Rep Ilhan Omar anti-Semitic?

U.S. Congresswoman Ilhan Omar, a Muslim Somalian immigrant, has been insisting that we need to publicly condemn Israel’s mistreatment of Palestinians in the West Bank and Gaza as well as in Israel itself. This mistreatment includes illegally occupying Palestinian land on which Jewish Israeli’s build so called “settlements,” excessive use of force against Palestinians protesting their treatment (since 2000 Israeli soldiers have killed 9 Palestinian, including women and children, for every Israeli killed by a Palestinian), and legally restricting the citizen rights of Israeli Arabs (i.e. imposing apartheid on Palestinians living in Israel) in an effort to keep Israel both democratic and Jewish with a “one state solution” that would make Jews a minority). All of my Jewish friends, including some Israeli Jews, also condemn these horrible acts. The issue is well summarized by Andrew Sullivan: http://nymag.com/intelligencer/2019/03/how-should-we-talk-about-the-israel-lobbys-power.html?utm_source=fb&fbclid=IwAR1B12R8xQ0PTQhRO3u2f0nPO2ssSPmdZCEbbYbnvWNByClY2zuNgXaV9TE

So why is Ms. Omar being condemned as an anti-Semite by some (those who, in my opinion, are simply diverting the conversation away from Israel’s bad behavior)? It seems to arise from her complaints that “‘I am told everyday that I am anti-American if I am not pro-Israel,’ Omar tweeted March 3 in response to critics. ‘I find that to be problematic and I am not alone.’” Washington Post 3/11/2019 https://wapo.st/2TEMzt9. More specifically, and this is where critics have focused, she has complained that the so-called Israel Lobby has blinded American’s to Israel’s bad behavior. “On Feb. 27, Omar told an audience at a town hall event in Washington, D.C., that accusations of anti-Semitism were meant to silence her criticism of Israel and the American Israel Public Affairs Committee.”  Ibid. In my opinion the charges of anti-Semitism reported in the above Post article, prove her point.

Some people were particularly offended by her reference to the “Dual loyalty” of many Americans (Jewish and non-Jewish) to both our own country and to Israel.  I do not respect anyone who uncritically agrees with anything and everything their hero says or does whether it is Trump, Putin, or Bibi (I like some of Trump’s policies and dislike others, but disrespect the man). The same goes for governments. Given the strong reaction (claims of anti-Semitism) of any criticism of Israel in earlier years in the U.S. (we now see a regression to those days) I was pleasantly surprised on my many visits to Israel that a critical public discussion of Israeli policies and behavior was far more open and honest there. We should not be surprised or concerned that organizations such as American Israel Public Affairs Committee champion a particular point of view. That is what they exist for (just as the Log Cabin Republican’s and other policy oriented groups exist to propagate a point of view). What is unusual is the amazing influence that AIPAC has had on American foreign policy, often against America’s best interest. If you are not aware of this read John Mearsheimer and Stephen Walt’s “The Israel Lobby and U.S. Foreign Policy.”

It is natural and usual for any of us with origins in another country (that would be most of us) to retain sympathies for the fatherland even when condemning bad things it might do. My Russian American friends, for example, can’t help smarting a bit at criticisms of Putin even when they fully agree with them. The country that gave us some of the world’s greatest literature and music has also given us the gulag, etc. But no one, at least no one I know, would dream of calling me anti-Russian when I condemn Putin.

I have not read every word from Rep Omar, but I have not read anything that suggests she is anti-Semitic. She has raised important points about the policies and behavior of the Israeli government.  President Trump’s, and for that matter his predecessors for many years, uncritical acceptance of Israel’s outrageous treatment of the Palestinians in their charge, should be challenged. Those diverting the discussion by labeling those of us who condemn Israel’s behavior as anti-Semitic are exploiting America’s very understandable sympathies for the horrors of the holocaust and a long history of anti-Semitism. But such charges and diversion are dishonest and a disservice to the best interests of the United States (and I would say of Israel as well).

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

 

 

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 Perspectives. 15 (1):125 44.  CiteSeerX 10.1.1.516.6543. doi:10.1257/jep.15.1.125. ISSN 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.

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.

Alex Jones

Alex Jones and his Infowars website have been removed and banned from YouTube, Facebook, Apple, and Spotify among the most popular social media platforms.  As of this moment, Twitter claims to be reviewing CNN claims that Jones and Infowars violate Twitter’s standards.  What should we think about this?

Jones has made many ridiculously false claims, such as the belief that Sept. 11 was an inside job, that the Sandy Hook massacre never happened and that Michelle Obama is a transgendered person with male genitalia.  “An InfoWars video posted in July 2018 falsely declared that the ‘CIA admits transgenderism is a plot to depopulate humanity.’” Twitter-Infowars-Alex Jones But accuracy and honesty haven’t been criteria for banning posts or President Trump’s tweeter account would have been closed long ago. Who is to decide whose lies can be tweeted and whose can’t?

Hate speech, which violates Twitter’s rules, is another matter, as is the promotion of violence.  Twitter’s rules state that it does “not tolerate” content “that degrades someone.”  President Trump violates this rule as well on a regular bases.

What should we do about the lies and hate that are regularly posted on the Internet?  I agree with Kimberly Ross who said that: “It is imperative that we don’t view those like Alex Jones, who peddle in fear-mongering and lies, as harmless. In fact, we should actively call out such appalling behavior….  We should never wait around for the Left to come in and clean up our side.  We should do that ourselves.  Individuals like Jones who manufacture outrage and spread falsehoods should find that the market on the Right for their wares is minuscule.”  Dont-defend-Alex-Jones-but-dont-let-the-government-get-into-censorship-either

Several important policy issues arise from this.  We should challenge what we believe to be lies and hatred ourselves.  Our First Amendment protection of free speech rightly prevents the government from deciding what is true and what is hateful and banning it.  Few of us would be happy letting Stephen Miller, a nasty minded White House Adviser, determine what could be posted on Facebook about American experience with immigrants.  Jonathan Rauch has updated his wonderful book Kindly Inquisitors: The New Attacks on Free Thought,in which he argues that the best defense against fake news and hateful speech is to exercise our free speech to challenge it.  Kindly-Inquisitors-Attacks-Free-Thought. See also his short essay on this subject:  “Who-will-regulate-hate-speech”.

Facebook and Twitter are private companies and should be free to set whatever policies for access that they want.  On the other hand they come close to being public utilities like telephone companies and Internet access providers who should not be allow to block access to the Alex Joneses of the world because they lie and spread hate.  This deserves further thought.

Turning to government to protect us from every unpleasantry we might encounter weakens us and takes us in the wrong direction.  Those who defend protecting us from hate speech with “safe zones” and “trigger warnings” reflect a paternalistic attitude toward the responsibilities of our government and of ourselves as citizens of a free society.  Like the well-meaning, but ultimately harmful, helicopter moms, we risk creating a society of wimps dependent on government for far more than is healthy for a free society.  Part of our training as we grow up and encounter a sometimes nasty world should be to stand up and challenge falsehood and hate when we encounter it.  Safe zones deprive us of such training.  It’s our job to counter lies and hate, not the government’s.

Econ 101: Trade Deficits, another Bite

Some years ago my friend Moritz Schularick and I were walking down a street in what is now called midtown Berlin (the former Eastern zone). Moritz asked me if I could explain why capital was flowing into the U.S. from developing countries when economic theory suggested it should flow in the other direction. At the time I didn’t have a very good answer. This note offers a better one.

We expect investors to put their money where the risk adjusted return is highest because that would maximize their profits. Wealthy countries like the United States have large capital stocks as a result of many decades of investment. Poor countries—especially the emerging economies—have much smaller capital stocks. Under those circumstances, the return to investing in more capital where it is relatively scarce is normally higher than where large investments have already been made. Economists call this the declining marginal return to capital. So the capital intensive, wealthier countries should have a lower return on investing in still more capital than would the poorer capital scarce countries. If the return to capital (interest rate) in emerging market economies is higher than in the U.S., capital should flow from the U.S. to promising developing countries.

I told Moritz that it must be that because of stronger institutions and property rights (rule of law) in the U.S. compared to many developing economies, investment in them was riskier to such an extent that the risk adjusted return was actually lower in developing economies. That may explain part of the reverse flow of capital into the U.S.

But two other factors might be even more important.

First we need to understand how capital flows from the U.S. to another economy. Consider American investments in Chile, a rapidly growing emerging economy with relatively good institutions and rule of law. American investors must buy Chilean pesos in the amounts to be invested. This will appreciate the peso some (one peso will be more dollars than before making American goods cheaper). Those pesos might be used to buy shares in a growing Chilean company. The purchase of these shares by an American might simply be a change in ownership (portfolio investment) or might finance new investment (Foreign direct investment—an actual increase in capital).

But what does the Chilean who sold her pesos for dollars do with those dollars? It simplifies without fundamentally changing the story to assume that the Chilean firm selling its share to an American acquired those dollars. The firm might buy U.S. treasury securities with these dollars (this is the simple swap of asset ownership of portfolio investments). But more likely it buys American machinery and equipment for its new investment. The U.S. “enjoys” a trade surplus as a result of these capital outflows. This is the traditional relationship assumed between the developed and undeveloped world. Capital flows from the U.S. to Chile.

Two additional very important factors have changed this story causing capital to flow backward from the Chiles of the world to the U.S. In my previous blog “Econ-101-trade-deficits” I explained the following relationship:

(M – X)   =   (I – S) +   (G – T),

which says that the trade deficit (imports-M- less exports-X) is equal to the savings deficit (investment-I- less saving-S) plus the government’s fiscal deficit (government spending-G- less its tax revenue-T). Uncle Sam has had a fiscal deficit every year since the Clinton administration surpluses (even currently when the economy is fully employed!) The rest of the world has helped finance our fiscal profligacy thus keeping US interest rates lower than they otherwise would have been and crowding out less of our private investment than such fiscal deficits would otherwise have caused. The rest of the world acquires the dollars to invest in the U.S. by selling more to us than they buy from us (i.e., via our trade deficit). So other things equal a smaller fiscal deficit or, god forbid, a fiscal surplus will reduce our trade deficit.

The other, often overlooked, cause of our trade deficits arises from the use of the U.S. dollar as the world’s primary reserve asset and thus the demand from foreign central banks to hold them in their foreign exchange reserves. They acquire these dollars via our trade deficit (and their trade surplus). Their demand for U.S. dollars appreciates the exchange rate of the dollar relative to foreign currencies making foreign goods cheaper in the U.S. and American exports more expensive abroad, thus creating our trade deficits and their surpluses (see my blog from last week linked above and/or this more extensive treatment; “Why the world needs a reserve asset with a hard anchor” Frontiers of Economics in China 2017, Vol 12 Issue 4, http://journal.hep.com.cn/fec/EN/10.3868/s060-006-017-0023-7).

It would be in our interest to replace the dollar’s use in foreign reserves with an internationally issued reserve currency, something I have been advocating for many years. The details for what this might look like and how it could be done are provided here: “Real SDR Currency Board”

 

 

The shriveling of U.S. influence

Today in Chile 11 of the original 12 countries that had signed the Trans-Pacific Partnership (TPP) multilateral trade agreement on February 4, 2016 are signing the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP or TPP-11 for short, i.e., the TPP minus the U.S.). Upon taking office President Trump promptly withdrew the United States from the agreement saying that it was “a bad deal”. In fact it modernized and raised the level toward U.S. standards in the areas of e-commerce, intellectual property protection, and dispute resolution. Though the agreement provided significant benefits to the U.S. and despite the U.S. withdrawal, the remaining participants (Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam) preserved the basic provisions of the original agreement while freezing 22 provisions of particular interest to the United State to facilitate its rejoining at a latter time should it return to its senses.  China and other Pacific Rim countries are also welcome to join if and when they meet the agreement’s high standards. This will not be easy for China should it chose to return to its earlier efforts to integrate into the rules of the world trading system.

The U.S. Congressional Research Service summarized the key provisions of the TPP as follows:

“The TPP would provide several principal trade liberalization and rules based outcomes for the United States. These include the following:

  • lower tariff and non tariff barriers on U.S. goods through eventual elimination of all tariffs on industrial products and most tariffs and quotas on agricultural products;
  • greater service sector liberalization with enhanced disciplines, such as nondiscriminatory and minimum standard of treatment, along with certain exceptions;
  • additional intellectual property rights protections in patent, copyrights, trademarks, and trade secrets; first specific data protection provisions for biologic drugs and new criminal penalties for cybertheft of trade secrets;
  • investment protections that guarantee nondiscriminatory treatment, minimum standard of treatment and other provisions to protect foreign investment, balanced by provisions to protect a state’s right to regulate in the public interest;
  • enforceable provisions designed to provide minimum standards of labor and environmental protection in TPP countries;
  • commitments, without an enforcement mechanism, to avoid currency manipulation, provide transparency and reporting concerning monetary policy, and engage in regulatory dialogue among TPP parties;
  • digital trade commitments to promote the free flow of data and to prevent data localization, except for data localization in financial services, alongside commitments on privacy and exceptions for legitimate public policy purposes;
  • enhanced regulatory transparency and due process provisions in standards setting; and
  • the most expansive disciplines on state owned enterprises ever in a U.S. FTA or the WTO, albeit with exceptions, to advance fair competition with private firms based on commercial considerations.”

No trade agreement (yet) is perfect and the TPP represented a significant improvement for the U.S. and its trading partners of existing agreements.

The 11 signers, in addition to embracing standards that will promote economic growth in their own countries in the long run also sought originally to enhance America’s role and leadership in the Asian Pacific area (i.e., as a counterbalance to the rising strength of China). With or without the U.S. more countries are expected to join the CPTPP after the governments of the current 11 have ratified it. At the top of this list are Taiwan, Thailand, South Korea, the Philippines, and Sri Lanka.

President Trump has chosen to retreat from American leadership in setting and helping to oversee the rules of international cooperation and trade. It seems unlikely that Wilbur Ross and Peter Navarro will give up their fixation on protecting a hand full of inefficient, uncompetitive American industries, so Congress should take back its constitutionally given authority over trade policy delegated to the President in the Trade Act of 1974. https://fas.org/sgp/crs/misc/R44707.pdf

China’s misbehavior can be better addressed using the rules and provision of the WTO in ways that would strengthen the rule based international order rather than weakening it as Trump is now doing with the use of the national security provision. If China is selling its aluminum below cost, i.e., dumping it, we should impose a tariff on China under WTO rules against dumping. The use of the national security provision of the WTO is laughable on the face of it and would weaken rather than strengthen the rule of law in the trade area.

Econ 101—Trade in very simple terms

Trade allows people and firms to specialize in what they produce. This enables them to be more productive. This raises the income (standard of living) of both the seller and the buyer (who must also sell something in order to buy something)—i.e. both the exporter and importer. https://wcoats.blog/2017/09/15/a-basic-human-right/  https://wcoats.blog/2016/12/22/save-trade/

So what does Trump’s steel and aluminum tariff do?

The American economy is now fully employed (ok, maybe some of those who left the labor market in recent years, not all of whom are old, can be coaxed to return). Thus if high tariffs on steel and aluminum make previously non competitive and inefficient American steel and aluminum producers competitive again, where will the workers come from to do that work? They must be attracted away from what ever they are producing now—lets call it good A. So we will produce less of good A, which was competitive without taxpayer subsidies or regulatory favoritism, in order to produce more steel and aluminum, which was not competitive before given tariff protection. Add it up and our overall income goes down. The economy over all will be less efficient, less productive, and our overall incomes and standard of living will be reduced.

This reallocation of our resources from more productive to less productive products will make owners of steel and aluminum companies and property owners around closed foundries happy. Trump-may-prosper-from-tariffs-even-if-this-faded-port-town-doesnt/2018/03/02/. But what about those who buy steel and aluminum made more expensive by the tariffs? What about Boeing and other aircraft manufacturers who are the fourth largest American exporters, whose products will now be more expensive and less competitive with Airbus, etc.? When steel tariffs were imposed in the year 2002, 200,000 Americans in steel using industries lost their jobs. That is more than the total of around 150,000 workers in the steel industry! “If-the-US-steel-industry-employs-150000-people-then-how-can-imports-threaten-500,000-jobs?”

Subsidizing inefficient industries with tariffs hurts consumers, who will have to pay the higher prices of aluminum beer cans, etc., as well as exporters like Boeing. We will all (except steel and aluminum producers) pay the cost of this increased inefficiency. Commerce secretary Wilbur Ross thinks we should just get over these modest increases in the costs of our purchase of goods that include steel and aluminum for the greater good of American steel and aluminum producers and the 150,000 people who work for them. In case there are children listening I am withholding what I would like to say to Mr. Ross.

Only 2.2% of our steel and aluminum imports come from China while Canada (hardly a security threat to the U.S.) provides 16.1% of our imports of these products: https://www.washingtonpost.com/world/the_americas/canada-top-exporter-of-steel-and-aluminum-to-us-flabbergasted-by-trumps-tariff-proposals/2018/03/02/7c906c2a-1e22-11e8-98f5-ceecfa8741b6_story.html?undefined=&utm_term=.294884487749&wpisrc=nl_headlines&wpmm=1. The rest of the world will not roll over and play dead. The EU is already preparing counter measures to punish American exporters to Europe. “EU-vows-to-hit-back-against-trump-in-trade-war”

Following the end of WWII the world, lead by the U.S., has built up mechanisms for promoting fair trade (first the General Agreement on Trade and Tariffs—GATT—now called the World Trade Organization—WTO). Where countries violate these rules, and China frequently does, they should be addressed via the WTO. American interests, and the world’s interests more generally, are served by strengthening the WTO not weakening it. Trump’s unilateral tariffs do not serve our interests. Not only has he persistently undermined free markets with his misplaced attack on bilateral trade deficits https://wcoats.blog/2017/07/23/the-balance-of-trade/ but he has systematically undermined the WTO and the international rule of law. Please, Mr. President, stop this nonsense before it gets even worse.

Trade wars are never good, and no one wins in the end. Instead we should be enforcing and improving the rules of trade via the WTO, which has helped lift  millions of people out of poverty and raised the standard of living of the average person.

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”