Ian Welsh

The horizon is not so far as we can see, but as far as we can imagine

Category: Economics Page 40 of 91

Trump on Health Insurance, NATO, and the EU

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On January 15, 2017

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Well, Trump keeps saying stuff, and people keep freaking out. He said a number of interesting things this weekend, let’s run through them.

The U.K. is smart to leave the bloc because the EU “is basically a means to an end for Germany.”

Yeah. Not so clear. BUT, there’s an element of truth here. Among the major European powers, Germany is the one who has benefited most from the EU, or rather the Euro (which England was not a part of). The Euro is not worth nearly as much as a German mark would be, making German exports far more affordable than they would be otherwise. Meanwhile, Germany has pushed hard for austerity policies, on the crazed moral point that countries which don’t run trade surpluses shouldn’t have good things. At this point, France, Italy, Spain, Portugal, and Greece would clearly all be better off outside the Euro–at the very least. Germany has acted monstrously over the past eight years, no more so than to Greece, but not only to them. About the only thing I agree with Merkel about was when she opened up Germany to immigrants (something Trump slams).

  • Trump said Bayerische Motoren Werke AG would face a 35 percent import duty for foreign-built BMW cars sold in the U.S. BMW should scrap plans to open a new plant in Mexico and build the factory in the U.S. instead, he was quoted as saying. BMW plans to start building 3 Series sedans at San Luis Potosí in 2019.

I have exactly zero problem with this. This is how much of the world economy was run prior to the rise of neoliberalism. If you wanted access to a market, you were expected to locate much of the production in the country, with foreign content rules in place. Often it was expected that, say, 60 percent of work and materials would be produced in the country to which you were selling.

  • NATO, he said, “has problems.” “It’s obsolete, first because it was designed many, many years ago,” Trump was quoted as saying about the trans-Atlantic military alliance. “Secondly, countries aren’t paying what they should” and NATO “didn’t deal with terrorism.”

I have believed, since the fall of the USSR and the release of the Warsaw Pact countries, that NATO should be dissolved. I have not changed my mind because Trump is now saying it. Let us be clear, the EU’s population is 508 million. When the UK leaves, it will be 447 million.

Russia’s population is 143 million.

The EU minus Britain has a GDP of 18.1 trillion (purchasing power parity), Russia has an economy of 3.5 trillion (ppp). Germany alone has a GDP (ppp) of four trillion.

Yeah, Europe can afford to pay for its own defense. It has a larger economy and a larger population than Russia. It isn’t even close. If Europe refuses to defend itself, I don’t see how that’s America’s problem, the only thing Europe really needs from America is a nuclear shield, and that need could easily be fulfilled another way (and France has nukes).

NATO is the main reason that Russia is a problem. The Russians were promised that NATO wouldn’t expand into the Warsaw Pact countries. That promise was broken, and when it became possible that the Ukraine would join NATO, Russia acted, because Russian generals believe that it is impossible to defend Moscow if troops start from the Ukraine.

  • On Russia, he suggested he might use economic sanctions imposed for Vladimir Putin’s encroachment on Ukraine as leverage in nuclear-arms reduction talks

This isn’t a bad thing. Good relations with the other massively nuclear armed state in the world are good, and America has zero interests of importance in the Ukraine. As for Europe, see above: They can defend themselves, and if they can’t be bothered, so be it.

Now, to be frank, I don’t believe it will be good insurance (I’ll be happy to be wrong), and I note that it is not healthcare for all, but insurance for all–insurance many may not be able to use. I also doubt it will be universal. But then Obamacare was insurance that many people can’t afford to use, so that alone doesn’t make it a worse plan than Obamacare was.

Still, the actual promise has potential to be better than Obamacare, because Obamacare was not actually insurance for everyone: Nine percent of Americas still lack insurance (this is down from about 14 percent before Obamacare).

If it’s better than Obamacare I will laugh like a hyena.

My read on Trump’s future is as follows: He either gets two terms, or he gets impeached in his first term. Most GOP Congress members would rather have Pence than Trump. BUT Trump’s followers are very faithful and as long as he remains popular, Congress would not dare to impeach him. They have to live in districts where he is popular, and not only their seats, but much more would be at risk if they were labelled traitors by Trump. Bear in mind that there’s no way Trump goes peacefully, or doesn’t call them out, he would fight to the end.

So Trump has to deliver to his base, or he’s done. Also, Trump wants to be adored. It is his deepest psychological need, as best I can see.

The risks with Trump remain high (especially in regards to his China policy); his tax cuts are deranged, the supreme court is going to be a disaster, but that doesn’t mean that his administration may not be successful enough for the people it needs to deliver for to get him his second term.

More than that, Trump is saying the things that no one else in power would say. I mean, he called out pharma as protected and said that’s over. He’s mostly right about NATO. He said in this interview that Iraq was the biggest foreign policy disaster in American history (that’s overstating it, but it’s the biggest since Vietnam).

It’s going to be an interesting few years. Strap in.

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The Continued Collision Between Trump and the Fed

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On January 10, 2017

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As I noted before, the Fed and the Trump admin are on a collision course. More evidence:

The Fed’s argument is that the unemployment rate is low enough that it is at the natural rate of employment which doesn’t cause wage-push inflation. As of December, that was 4.7 percent. (There are tons of problems with this, but we’ll ignore most of them, what matters here is what the Fed thinks.)

I am old enough to remember when an unemployment rate of five percent was considered a scandal, but no matter.

The fact is that the people who elected Trump aren’t feeling good. To make them feel good, Trump is going to have get the official unemployment rate lower than it is now, at least under four percent, and hopefully to three percent or lower and hold it there for some time, at least two or three years.

This stuff takes time to ripple through the economy, and it takes time for a tight labor market to push employers to both raise wages and to hire people who they consider marginal.

If the Federal Reserve raises rates if/when Trump’s policies (“fiscal,” in the above) start to work, they will be making sure he can’t deliver to his constituency.

This is a direct collision course.

Now let me say something simple. The Federal Reserve, for over 30 years, has deliberately crushed wages. This was policy. Policy.

The idea that the Federal Reserve should be able to sandbag the policy (“fiscal”) of elected representatives has always been anti-democratic and bogus. They work fastidiously to make sure the rich get richer, to bail out banks, and ensure their profits. Despite “full employment” supposedly being part of their charter, they have defined full employment to mean “employment pressure which doesn’t lead to general increases in wages faster than inflation.”

That is, they have deliberately set out to create stagnation and decline of general wages, while deliberately also ensuring that the rich get richer.

That’s what the Federal Reserve does in practice, and has done since the early 80s.

And that’s why, as with many of Trump’s other targets, I have no intention of defending the Federal Reserve. Yes, Trump is bad, etc. But the Federal Reserve needs to be broken to the will of government, and thus to democracy.

Since none of the “non-bad” or “not so bad” presidents did it, it will fall to Trump to do it. This will probably be the worst way to do something necessary, but so be it; none of the so-called “reasonable” people will do it, so it will be done by someone unreasonable (if Trump does it, this is not a fait accompli.)

Along with breaking the intelligence community (which could lead the world into an even worse situation, but a task that also falls into “needs to be done” category), Trump may well wind up being the most transformative President since Reagan, or even FDR.

This is what happens when the necessary actions which are not taken by “reasonable” people. They wind up being done by unreasonable people, and those unreasonable people may not be “unreasonable” in the way you like.

Keep an eye on this: If the Fed doesn’t blink and Trump doesn’t break them, he’s probably a one-termer.

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The Course of Empire by Thomas Cole

Cyclical vs. End-Time Thinking

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On January 5, 2017

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Eras come and go.

Civilizations come and go too.

There have been ecological collapses in the past. For example, one took out the Mayans, and it was self-inflicted. The same is true, on a lesser scale, for Mesopotamia.

Human history is cyclical. It’s only “up trend” in a very long view of things.

In the normal course of events, I would expect that Western civilization would fall. It’s, well, inevitable. I don’t even think it’s that far away in historical time. Might be this cycle, might be a couple hundred years, but we’re clearly coming to the end of our rope.

A civilization ends when it can’t handle problems that are totally obvious, because its ideology won’t allow it to deal with them. In our case, the ideology is economics and capitalism, which insists that decisions must be made based on what maximizes profit. Our ideology doesn’t recognize that profit is a social construction, and doesn’t take into account all the upsides or downsides of doing anything. This, combined with our moral belief that money is “good,” and that the more money you have the better you are, is killing our civilization. (These categories, expanded slightly, cover state capitalist societies like the USSR well enough.)

These problems are acknowledged; just as most of the problems which led to the fall of the Roman Empire were acknowledged, but we refuse to fix them. Every once in a while, an FDR will roll around and patch up one part of the problem, but, eventually, we go back to doing the same thing.

Normally this would amount to reactions like, “Oh well, sucks to live in such times.” Nations, societies, and civilizations come and go and it’s very sad, but it’s just how the world works.

The question is, “Is this time different?’

The argument is scale. We’re a global society, and we’re causing an environmental disaster that is magnitudes larger than any humans have caused before.

One argument is that, “Hey, people predict the end of the world all the time and they’ve always been wrong.”

Which is true, and that argument will be usable until humanity does go extinct (which, inevitably, it will, the question is only when) because it is a one-time event. That it has not happened to humans in the past does not mean it cannot happen. We’re currently driving many species to extinction. Each species goes extinct only once; species extinction due to environmental problems is dead common, and often due to environmental problems the to which the animal in question contributed.

My best guess is that this time is not the human extinction event, but I make that a matter of probability, not probability based on, “It’s never happened before,” (because it has, just not to us), but simply because I expect the climate and ecology will stabilize at a new norm and that the norm will likely be livable for humans.

I regard the loss of all coastal cities and lands as inevitable. We are going to lose the Antarctic ice shelf, and it is going to flood coastal lands. Due to the self-reinforcing part of the cycle, especially with relation to methane gas, that’s just going to happen–and probably sooner than we think.

Before then, we’re going to see widespread disruption of weather, which, combined with our overuse and poisoning of aquifers, will mean widespread food shortages, starvation, and mass migration of hundreds of millions of people in one go. There is no question in my mind that we will see wars for water, and they will be major wars.

There are a myriad of knock-on events which will occur, most of them bad. It will be particularly amusing (in, yes, a sick and sad but appropriate way) if Europe is plunged into an Ice Age. This seems quite likely, as the warm water current which keeps Europe much hotter than it should be could be cut off.

But there are reasons to believe that we’ll stabilize, and those humans who remain will go on. This isn’t a 100 percent thing. I believe there is a non-trivial chance we will drive ourselves into extinction, but I judge it as less likely.

On the other hand, I’ve rolled a lot of dice in my life, and I can tell you that the one, ten, or 30 percent probability you discounted can bloody well come up.

More to the point, while catastrophe is now inevitable, the scale of that catastrophe is not fixed and we can still do quite a bit to mitigate and prepare.

Clearly, we aren’t going to be doing any mitigating or preparing for the next four to eight years. The current generation of leadership needs to be replaced, either by youngsters or the last of the post-war liberals with integrity (Sanders and Corbyn are the representatives of that cohort; Sanders lost, Corbyn is polling badly, though I haven’t written him off).

This is where we are. Our civilization is heading into one of the periodic crises that civilizations go through AND, not coincidentally, we have an ecological disaster of unprecedented scale barreling down on us.  The first has so far made it impossible to deal with the second, but it is also our best chance, because it promises the possibility of new leadership with new priorities on the other side.

But we must find a replacement for our current economic ideology, as it has served us very badly. We are also going to need to take a hard look at our political ideologies, whether “democratic” or authoritarian, because they have performed no better, being unable to even so much as slow the onrushing night.

Life, in general terms, is going to spend a long time getting worse for a lot of people. There’s a lot of triumphalism about how great our world is, and stats to back it up (stats I don’t trust, but that’s another post), but even if it’s 100 percent true, this “greatness” is time-limited. It has already reversed for many people in the core hegemonic power, where we have had an absolute decline in years lived, as well as huge shocks rolling through the birthplace of our civilization, Europe.

Expect this. Bake this into your plans. Things are going to get worse, and you should be prepared for that, not just physically, if you can, but psychologically. Periods which are shit for decades or even centuries are common in human history, and people keep on keeping on.

Trump isn’t the end of the world, if the end of the world is coming. He isn’t even the start of the end of the world. He and various other events which will occur soon, are at most, the beginning of the end of this period of history.

At the other side of this crisis point, we will either have a society which can deal with these problems well enough to save hundreds of millions to a billion or two lives, or we won’t.

And that’s a set of issues far larger than Trump.

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Trump Is the Next Stage of the Disease

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On December 22, 2016

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One of the more common mistakes regarding Trump is to see him as something that came out of the blue; unheralded and strange.

Trump is a kleptocrat. The US is a kleptocracy. It “formally” became a kleptocracy when the Supreme Court ruled in Citizen’s United that money was speech. (It is ironic that Trump won with less money, but it doesn’t change this fact.)

America was pragmatically a kleptocracy in 2009, when Obama entered office and continued his predecessor’s policy of bailing out bankers, taking houses away from little people and not prosecuting bankers for clear crimes.

Punish the people without money; let the people with money walk.

Trump is a walkimg emoluments violation: He should be impeached month two of his term for his refusal to sell his company.

But he won’t be (though he may eventually be impeached if Republicans decide they’d rather have Pence as President, and that they don’t think Trump’s followers will personally visit their houses to discuss the issue).

Kleptocracies are run for the benefit of the rich. It is that simple. A monarchical kleptocracy like Putin runs, and like Trump seems interested in running, makes sure the peasants get something, which means it may feel slightly better than what came before it. (Putin is very, very popular and was so even before the recent wars for the simple reason that Yeltsin was far, far worse.)

But they are still kleptocracies. Trump’s first order of business is tax cuts, mostly for the rich. There is a report that his team has asked for information on funding of environmental groups, and Trump plans on shutting down NASA’s climate change group.

These things get in the way of making money; and because environmentalism was pushed during a period in which the economy was, for too many people, a negative sum game, it is also unpopular with his base.

But these things are extensions of the already-existing Republican party orthodoxy. Tax cuts and fuck-environmentalism is where Trump stands in solid agreement with the kleptocracy that already ran the country. These things are not what make Trump interesting, or unique, they are what make him simply another stage of the disease.

Understand that what we had in 2016 was a crisis point. There were three options. Clinton was for the status quo kleptocracy. More or less the same, with a bit more help for those hurting the most, like students.

Trump was for monarchical kleptocracy, minus globalism: add tariffs and one-to-one trade deals to the mix, change up the foreign policy, make sure some more people get jobs, while gutting worker rights in general.

Sanders was an opportunity to actually change some of the key domestic policies away from kleptocracy: While not ideal, he was clearly a change from the status quo in a kinder direction, and he came fairly close to winning the Democratic primary, despite an active conspiracy by the DNC to stop him (no, no, it meets the actual definition of conspiracy).

Of those three options, Americans chose Trump: a new stage of the kleptocratic disease. Double down on transfers to the rich, but let’s give more scraps to the poor and fuck over some foreigners to get those scraps while burning up the world even faster. (Obama was not good on the environment; he was bad, but Trump will be much, much worse.)

I am not panicking, or running around screaming. I regarded something like Trump as nearly inevitable, with a small, but real, chance to avoid him by embracing the populist left (in this case, championed by Sanders).

In fact, Trump is not as bad as what I expected. His victory, a squeaker, may wind up precluding Trump 2.0, that is, the guy who would run next time, having learned from Trump what was possible, but far more disciplined, focused, and ideological than Trump.

Trump has the support of some powerful ideologues (most notably Bannon), and he has a world view, inchoate as it is, but he’s a very flawed man. Despite being very good at getting what he wants, it is undeniable that he lacks discipline, focus, and a broad base of understanding. Nor does he self-identify as being ideologically driven. Bannon may want to be the Lenin of the right, Trump does not.

More to the point, because the actions of US elites (and the world’s), along with the repeated votes of US voters, kept pushing America down this path, for decades, I regard running around screaming as pathetic. It’s like running full speed at an oncoming train for five minutes, with plenty of opportunities to veer off, then complaining when you get hit.

Many Americans, and the vast majority of their elites, affirmatively chose, repeatedly, to take actions and institute policies which were most likely to lead to Trump. Those who opposed those policies lost, and a huge chunk of the population sat on the sidelines doing nothing.

There were many, many opportunities to turn away from this path; the largest was to NOT bail out bankers in 2009.

In 2009, I wrote the US off. I knew that Obama had affirmatively made the choice to save oligarchy from itself (quite different from FDR saving capitalism, but not oligarchy). I knew then that something like Trump was the most likely outcome, but I expected worse than Trump, so far, seems to be.

So running around screaming is ridiculous. This was a choice, made affirmatively, repeatedly. If Trump had lost to Clinton, Trump 2.0 would have tried in 2020 and almost certainly won. The US is a kleptocracy, and eventually the disease would move to the next stage, if not reversed.

What I seek to do now, with regards to Trump, is two things. The first is simply to understand him and his movement. We’re going to be living in his America; it’s his world, for some time, so we’d best figure it out.

The second is to poke people who didn’t and still don’t get it, because until enough people do, we will keep losing to kleptocrats (whose number includes both Clintons) and people like Trump.

These two things are meant to support realistic assessment of Trump, the US, and the world so that effective action can be taken.

I have a friend who, as a result of Trump, is leaving the US with his two children. He has carefully looked at Trump, made his assessment of the US’s future and chosen a course of action. That is effective.

Make your assessment, take your action. Stop the hysterics. I strongly recommend that many people, who are most worked up, take two weeks off the internet, except for unavoidable work related tasks. Calm down, think, and decide what you need to do for yourself and your dependents. Heck, depending on who you are, you might even be one of the winners from Trump (they will exist).

Then decide what you’re going to do. Understand the consequences of your actions. Make your assessment. If you really think Trump = Hitler you should be getting the fuck out or preparing to fight, and I do mean fight. If you don’t, what do you think he is?

Get real.

In the meantime, I will continue to keep an eye on Trump and his team and try to provide analysis without hysterics or panic. Fear may be appropriate (it is for some people, for sure), panic is not.

But it will be vastly harder to fix this if people keep pretending it wasn’t affirmatively chosen, and not just by people who voted for Trump this time, but by everyone who supported the previous status quo, starting around 1980. Kleptocracy is neoliberalism’s child, its logical end-result, and Trump is just a new stage in kleptocracy, and yes, many people worked hard for this including most people who voted against Trump.

Understanding how and why you got here is necessary to get out of here–not in one piece (it’s too late for that), but without losing any body parts you’ll really miss (always choose to lose a leg–the prosthetics are great).

Trump: Just another stage in the disease of kleptocracy, made inevitable by neoliberalism and affirmatively chosen by modern “liberal” hero, Barack Obama.

Own it.

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Clio, the Muse of History

Heaven on Earth: The Kindness Maxim

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On December 19, 2016

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In the past, I have noted that kindness is generally the best policy and always the best policy default. If you don’t have an ironclad reason not to be kind, be kind.

Let’s run through this.

People who are treated badly, become bad. The abused grow up to abuse. The sick make others sick and cannot contribute to society. Happy people are better to be around. Prosperous people can afford your products and services.

Happy, healthy, loving, and prosperous people are the people we want in our societies.

We evolved in bands. Forty to fifty people running around the Savannah. We would have been friendly to some other bands (those with whom we shared ancestors) and we were hostile to most other humans, who were our competitors. The level of hostility varied with carrying capacity; if resources were short because of too many humans, quite hostile, otherwise not very.

We did not evolve to take into consideration the needs of large groups of people. In order to do so, we evolved cultural methods: fictive kinship, culture, story, myth, and religion. These things created fictional identities which went beyond people we knew of or saw every day.

Theses are all hacks for a fundamental evolutionary problem: We’ve evolved to be pretty good to those we see all the time, and not to care much about people we don’t.

This was fine when were just a particularly clever animal. Even when we got to the point of making wholesale changes to the environment (usually through agriculture), the worst we could do is ruin a local ecosystem–we couldn’t mess up the world.

But, today, for good or ill, we live in that “interconnected world” and the “global society” everyone talks about. What happens to someone in Nigeria, Brazil, or China matters to me. Their happiness, their health, their prosperity affects mine.

And how they affect the environment affects me, too. How I, a first-worlder with a huge carbon footprint, affect the environment, affects them.

Their well-being affects mine. It is in my interest for them to be better off.

This isn’t what you’ve been told. Economics treats the world as a zero-sum game, a matter of managing scarcity.

The world has scarcities: resources, dumps for pollution like carbon, etc. But civilization isn’t, usually, a zero sum game. Instead, it’s usually negative sum or positive sum, or both. For some time for Westerners, and a few other developed nations, it has been positive sum, and there have been many other periods of positive-sum games.

My win is everyone else’s win.

Creating a good society requires both managing actual scarcities and understanding that actual scarcities are scarce, and that most things people want to do are positive sum. It requires turning most of what we do into positive-sum games. A good society is one in which “your win is my win” is made true far more often than not.

“We win together” is a prescriptive statement which must be made into a descriptive statement. (It is also a descriptive statement in general, because if my win isn’t your win more often than not, we don’t live in a good world.)

So humans must see beyond their identities, their tribes, and their nations, to treat all humans as people whom we want to be healthy, happy, prosperous, and loving. For their sakes and for our sakes.

But there is an additional step required to create a good society, a good world, a good civilization.

We must care for non-human life.

The mass-death of trees and plankton affects you, it affects me. The mass death of fish affects you, it affects me. The destruction of marshlands causes floods and reduces water quality; it affects you, and it affects me. Ecosystem collapse—well, you get it.

The problem here is that I’ve given you the rational argument.

Rationality is marginal. It’s not that humans can’t be rational, it’s that rationality is the lesser part of why we do things or how we make decisions. We make decisions based on emotions, and those emotions are based on our ideologies and identities.

Rationality, or “reason,” allows us to weasel out of doing the right thing too often. It is a tool for our emotions; emotions which right now scream: “My interests, my ideology, my identity, my people matter MOST!”

For a good world to exist, we must feel that other humans should be treated kindly simply because it is the right thing to do. We should be revolted by anyone going hungry, anyone being tortured, anyone being raped. The moment we think “They had it coming,” we’re on the wrong track. (Punishment is not the point, removing the ability of bad actors to continue to act badly is.)

And this principle needs to be extended to non-human life. We need to feel bad when animals are dying in large numbers and going extinct–bad enough to do something about it. We need to instinctively, by default, move to protect them. We should be as revolted by images of dolphins being slaughtered as we are by humans being slaughtered. If we kill for meat (and I eat meat), we should insist it be done humanely.

This must be based on values, principles, and identity, of feeling that humans and animals and even plants are all alive–and because they are alive, they must be treated with respect.

There are sound, pragmatic reasons for doing so; there are also sound moral reasons for doing so (read the Hidden Life of Trees). Anyone who doesn’t think most animals don’t feel pain, or don’t suffer, is on a profoundly unethical, immoral track.

This is the right thing to do, morally and pragmatically, and if we don’t figure out how to do it, we’re little better than bacteria that grow until they destroy their own environment and experience a great die-off.

Be kind. It creates the world you want to live in, and it may well save your life and the lives of those you claim to care about. By granting life the love you reserve only for a few, you give those few (and yourself, as it happens) their best chance at long life and prosperity–and grant it to your descendants as well.

The results of the work I do, like this article, are free, but food isn’t, so if you value my work, please DONATE or SUBSCRIBE.

The Course of Empire by Thomas Cole

The Lies at the Heart of Our Dying Order

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On December 16, 2016

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One should understand why people have lost trust in experts, the media, and politicians.

It is not difficult, it is the same reason people lost faith in Soviet Communism: Promises were made that turned out to be lies, those promises were not kept.

Soviet Communism was supposed to lead to a cornucopia and a withering away of the state. Instead it lead to a police state and a huge drought of consumer goods, and often enough, even food. Communism failed to meet its core promises.

The world order we live in was born in 1979 or 1980, with Thatcher and Reagan. It made a few core promises:

  • If the rich have more money, they will create more jobs.
  • Lower taxes will lead to more prosperity.
  • Increases in housing and stock market prices will increase prosperity for everyone.
  • Trade deals and globalization will make everyone better off.

The above core promises all turned out to be lies. It’s that simple. For the last 40-odd years, most of the population experienced either stagnation or decline.

Understand clearly: By 1979, people had lost faith in the post-WWII order. They were willing to try something new.
That “new” order has now betrayed too many people, and it is falling. It will continue to fail. We are in the twilight of neoliberalism (a longer article on that topic is forthcoming).

This is the reason why people are going for “fake news.” This is why people are willing to listen to demagogues. This is why people don’t trust the press–and why should they? The press has lied to them repeatedly, it is the original fake news. This is why people don’t listen when hundreds of economists say Brexit is bad–why should they? Most economists missed the housing bubble.

Neoliberalism has discredited everyone who bought in to it. Who didn’t buy into it? Well, the hard left and what people are now calling the “alt-right.”

So people are turning in those directions, though more to the right. Because people are ideologically and identity driven, and most are not intellectuals, what they look for are signifiers that someone is not like the people who screwed them, who lied to them for 40 years.

Trump does not talk like those people. Farrage does not talk like those people. On the left, Corbyn does not talk like those people and, to a large extent, neither did Sanders.

And so, people are turning to people who don’t parse like the “typical” elite. Many of those people are also selling them a bill of goods (Trump, to a large extent), or are nasty pieces of work (Trump, Alt-Right). To a lot of people, however, that doesn’t matter: They can’t take the pain any more. They are assured a long decline and they will take a flyer on anyone who might shake things up.

Lying is bad policy. It may get you what you want in the short run, or even the medium run, but it destroys the very basis of your power and legitimacy. Lying is what neoliberal politicians, journalists (yes, yes they are neoliberal), and their experts have done to themselves and they destroyed both their own power and legitimacy and that of the order they supported. No one with sense trusts them: If you trust these people, you have no sense, it is definitional. I always laugh when some idiot says, “But 90 percent of economists think X is bad.”
FAIL. They also missed the housing bubble. They lied or were “mistaken” about trade deals. Their opinion means nothing.

All this screaming about fake news is something I will take seriously when the New York Times, who helped sell the Iraq war based on “fake news,” is listed as fake.
The current order has very little credibility left, and they are losing more and more. Look at all the poll failures: Somehow, the polls almost always get it wrong against insurgents, not for them.
No, neoliberalism is dying, and its defenders are discredited, and both things deserve to be the case. That does not mean its death-throes will be pleasant (they won’t be) or that what replaces it will be better, just that it has run its course.

Those who supported it took their rewards: The top tier got filthy, stinking rich, their courtiers received good jobs and money, even as both disappeared for their victims. They will have to be satisfied with that, because posterity will be absolutely scathing to them, as it is to the generation leading up to World War I.
Lie repeatedly, fail to keep your promises, and things like Trump and Brexit will be the result. It is that simple.

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Federal Reserve Seal

Trump’s Coming Confrontation with Yellen and the Federal Reserve

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On December 15, 2016

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Okay, so the Federal Reserve, coincidentally, now that Trump has been elected, has decided that the economy is at full employment and they’ve raised rates.

The funny thing is, it’s true. Sort of. The unemployment rate (u-1) is low enough to be considered “full employment.” What that means is that the labor market is tight enough that, for the first time in Obama’s reign, workers actually got raises in 2015.

According to the economic policy regime which has run the Federal Reserve, and the US, since Greenspan, that can’t be allowed. The moment employment starts causing “wage push inflation” (wage increases faster than the general rate of inflation) it must be stopped.

Of course, out of Obama’s era, there has been only one good year so far (though 2016 will probably come in as decent), and the only reason the unemployment rate has improved is because millions of Americans gave up on finding a job. As a percentage of the population, there are about as many jobs as there were at the bottom of the last recession.

There was quite a bit of growth, but it didn’t make it into wages. The only way it will do so is if the labor market stays tight for years, because there are years (decades, really) to make up for almost all the gains going to the top few percent.

So, Yellen probably “should” have raised rates six months or so ago. She didn’t, probably because she’s Obama’s appointee–the same way that Bernanke didn’t when he “should” have because he was Bush’s appointee, and wanted a Republican to replace Bush.

Under Barack Obama, the deficit (how much the US pays on its debt) dropped, but the debt increased by $7.917 trillion (not including the first year, which he didn’t control). The deficit dropped because the Federal Reserve kept interests rates extremely low for years and years and bought up a pile of debt as well.

But the debt is higher than it has been, in relative terms, since the WWII debt splurge. And if Yellen raises rates, debt service charges will start to increase (not immediately, much of it is in longer term instruments).

More to the point, higher interest rates are meant to make sure that wages increases stop, the unemployment rate increases, and that (in effect) the economy never actually recovers from the financial crisis.

So Trump has a problem. He needs cheap money if he’s to have a good economy, and Yellen is ending the cheap money era–just as he’s been elected.

It’s not completely a coincidence, but it’s not entirely not a coincidence, and if I were Trump or his team, I’d be livid, and it looks like they are.

Worse, Trump has a big stimulus plan. It’s a bad plan, but it’ll still create some jobs, and Yellen has said:

“I would say at this point that fiscal policy is not obviously needed to provide stimulus to help us get back to full employment,” Yellen said.

That’s Fed speak for “spend the money if you want, but we’ll neutralize every dollar you spend.” Which, by the way, has been orthodox Fed policy since Greenspan and arguably Volcker–almost 40 years.

So, Trump (and Bannon) if they want a good economy and their stimulus to work, have a problem: Yellen and the Federal Reserve Board. And Yellen has stated she won’t step down till her term ends, in 2024.

They can do two things. The first is to wait, not for Yellen, but for the terms of other Federal Reserve members, to expire. Two slots of the six (seven with Yellen) are currently empty, he can fill those. That gives him two. One, Powell, is a Republican and may be amenable; and Fischer’s term expires June 2018. So by late 2018, Trump might have a Fed willing to cooperate with him–or at least not sandbag him.

BUT that’s quite a while, and assumes that Powell is amenable. It gives Trump only two years to make the economy work how he needs it to work, and means his first two years will be sandbagged by the Fed. Trump’s followers are not going to care what the reason is, they expect results.

The other option is hardball. Governors can be removed for cause. Trump can say they have performed badly (it’s not a hard case, and people who voted Trump and many others will agree) and remove them. This can then go to the Supreme Court, which, if Trump is smart, will then be firmly in Republican hands.

I will be frank: I would absolutely do this. I would have done it as Obama to Bernanke (if Obama had actually wanted a good economy, or to have banks go under) and I would do it as Trump. For four decades, the Federal Reserve has sandbagged wages and made sure the rich got richer. This is not even in question, and the financial crisis was only the largest proof of it, not nearly the only one.

I think this is coming. The Federal Reserve bows (and Yellen has been very clear she won’t) or the resisting Governors get booted.

There will be screams from Democrats and “liberals” and I will ignore most of them. As with ending the Trans-Pacific Partnership, this is the right thing to do, and it’s something that should have been done decades ago. Appointed technocrats sandbagging Congress’s fiscal policy and deliberately crushing wages was always evil.

Get out your popcorn, folks.

Oh, and these sort of stakes are why there is such a huge effort, abetted by the CIA (and opposed by the FBI) to make sure that Trump doesn’t take office.

Like it or hate it, he’s going to have to destroy much of how DC has done business for the last 40 years, and many people in power really, really don’t want this.

Don’t defend the Federal Reserve if you claim to care about workers, the middle class, or anyone under the top 10 percent or so. They have acted unutterably evil for decades, and if it takes another evil person to destroy their power, I’m fine with it. Frankly, the Federal Reserve should be placed under direct control of Congress with four year terms at most, and every central bank in the world should lose its “independence.” They have misused that independence to do little more than make the rich richer for decades and they are profoundly anti-democratic.

It’s a pity so much that has to be done will likely be done by someone like Trump, and that he’ll do much of it the wrong way to support terrible policies like tax cuts, but that’s what happens when the Left allows the Right to be the populist party, and chooses to be the party of bailouts and technocrats.

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Saudi Arabian Debt Will Not Be Among Safest in World

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On November 4, 2016

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Saudi Arabia is issuing 5, 10 and 30 year bonds.

The debt will be among the most secure in the world given the country’s strong balance sheet, net foreign assets, and ~$13 trillion worth of proven oil reserves.

…

On Wednesday, Saudi Arabia is set to issue its first wave of sovereign debt to foreign investors. The measure, first announced last November, is being offered in response to a historically severe compression and enduring slump in oil prices that has squeezed the nation’s fiscal budget. Accessing the debt markets can help mitigate short-term fiscal pressure and provide financing during a necessary bridge period to a more diversified economy.

Well, the five and ten years are safe enough.

Saudi Arabia’s problems are both inevitable, and caused by the new generation of leadership’s stupidity. Remember, Saudi Arabia, seeking to destroy the US fracking industry, is the one who broke the back of oil prices in the first place.

That said, the prices had nowhere to go but down anyway. The world is in a wave of austerity and options which avoid the use of oil are coming online. Somewhere in the early 2020s, electrical cars will be as cheap as gasoline cars.

Game over.

As for the bonds, Saudi Arabia isn’t going to “bridge to a more diversified economy.” Not going to happen. They simply import too much, and do not have enough domestic producers capable of replacing imports and creating new work. Nor are those conditions easy for them to create when their currency value is almost entirely based on vast volumes of resources, which means it isn’t providing the necessary feedback (low, low) to make production in the country viable.

Saudi Arabians have a joke: “My grandfather rode a camel, I drive a Mercedes. My grandson will ride a camel.”

Correct, in essence.

On the bright side, once they’re broke, the money flooding out to promote their particular take on Islam will subside to a dribble.

I expect economic collapse and civil war in Saudi Arabia. Within 20 years.

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