Friday, November 17, 2017

ARAMCO CEO Is Delusional

Financial Times reported yesterday that Amin Nasser, the CEO of the Arabian American Oil Company (ARAMCO, currently 100% owned by the Saudi government, although originally founded by four former US oil company majors), has declared that investors should feel pleased that Crown Prince Muhammed bin Salman has arrested and purged over 200 Saudi princes, government officials, and private businessmen.  This is because this was strictly an anti-corruption move, and foreign investors can be assured that there will now be no corruption in the Kingdom. Really, he said this.

Now I declared in my post title that Nasser is delusional, but I doubt it.  I suspect that he is a very smart guy. The question is whether he can convince any potential buyers of the upcoming possibly $2 trillion Initial Public Offering of 5% of ARAMCO stock that indeed this purge sends a good signal to them about buying ARAMCO stock.  Wow, the nation will now be rid of corruption, and, no, future investor, you need have no fear of being arbitrarily arrested or having your assets seized by MbS, none whatsoever, not that you were worrying about those things previously, but now you really do not need to worry about them at all.

Of course on the very same page of the FT there was another article about how MbS's purge has rattled world oil markets, with oil prices now sharply falling after sharply rising after he made his purge.  Nobody knows what the implications are or what the heck is going on, but, hey, no problem, no need to worry, Inshallah bukra maalesh (God willing tomorrow no problem, a fave line in KSA).  In any case, Nasser's public statement will undoubtedly completely reassure everybody, and all will become extremely calm before we know it.

Oh, there is also the matter of where this IPO will happen, touted to be the largest in history.  New York and London stock exchanges have actually been competing with each other to host it, but in fact in the end this may not be such a good idea and they may not be in the running for real anyway.  According to the FT the Saudis are also considering Hong Kong and Tokyo, but at the end of the article it was floated what I have all along expected and predicted: that the IPO will be handled out of Riyadh's own exchange with specially targeted sales to specially targeted individuals, with a lot of them being local big money Saudis.  So maybe Nasser's speech was not for all the foolish foreigners, but for the well-off locals: buy when we tell you to or else you can join the officially designated-to-be-corrupt 200 plus..

Barkley Rosser

Monday, November 13, 2017

Stranded Assets Rewind

There’s a Dangerous Bubble in the Fossil-Fuel Economy, and the Trump Administration Is Making It Worse...
"In reversing many of Obama’s keystone climate and environmental policies, Pruitt and Trump are conveniently ignoring these market signals in order to help out the fossil-fuel millionaires and billionaires who put them in office. Their actions could have disastrous consequences, not only for the climate but also for the global economy."
Where are the economists on this? Oh, right -- talking about tax cuts and Fed rate hikes. Using Economist's View as my sample, I found no links whose title indicated it was about the stranded assets carbon bubble in the two weeks following publication of the above article by Carolyn Kormann in the New Yorker on October 19th. Zero. 

I actually think that Kormann is unduly optimistic in her analysis. My suspicion is that there was already a massive carbon bubble prior to the 2016 election that was being wound down excruciatingly slowly. The election of the coal-guzzling orange groper stopped that winding-down in its tracks and ushered in a fossil-fueled feeding frenzy at The Last Chance Texaco.

And where are the economists?

Sunday, November 12, 2017

Saudi Crown Prince Attempts To Destabilize Lebanon

Of course that is not what Muhammed bin Salman (MbS) or his mouthpieces claim, but it is pretty much what every commentator I have seen outside of Saudi Arabia thinks is the likely outcome of his most recent actions, taken on the heels of his purge/arrests of over 200 people, with apparently more possibly about to be swept up in a supposed anti-corruption drive, although as Anne Applebaum put it, "In some countries a person is charges with corruption and then arrested, while in others they are arrested and then charged with corruption, with Saudi Arabia being among these latter."  An unfortunate aspect of the current situation is that there are many loose ends and uncertainties, with many people in Lebanon making accusations that are being denied by Saudi authorities, but with no credible denials of the charges coming from those most affected and involved.

What KSA has done is invite the premier of Lebannon, Saad al-Hariri to visit KSA and then have him announce Riyadh his resignation from that position.  While he seems to have said little of any substance in his resignation speech and has said basically nothing since then nor made any public appearances that I am aware of, Saudi authorities said that the reason for this resignation was that he was in danger of being assassinated by Hezbollah or other enemies, which had happened to his father Raif in 2005, making this suggestion/accusation have some credibility.  Raif had also been premier, a position guaranteed to a Sunni as part of the Syrian government and Hezbollah, the latter a longstanding relationship.

As it is, nobody in Lebanon has accepted al-Hariri's resignation, including the members of his own party, the Forward Movement, although they have so far defended the Saudis against criticism of their actions.  All the major political figures have demanded that he return to Lebanon so that he can resign there if he so wishes, including both his rivals such as Aoun and Nasrallah, the Hezbollah leader, as well as the members of his party.  Those in the rival parties, although all in the coalition together, have charged the Saudis with putting al-Hariri under house  arrest and forcibly preventing him from returning to Lebanon.  What he actually can do or wants to do is unknown.

It is reported today in WaPo that the Saudis have forced al-Hariri to step down for not confronting Hezbollah and trying to reduce Iranian influence in Lebanon and its ruling coalition.  Reportedly they are trying to convince his older brother, Bahaa, to take over as premier, but Bahaa is refusing so far.  They also have urged other brothers (I do not know how many there are) who are hanging out in KSA (where their father made over a billion dollars) to return to Lebanon to support this effort and to pick a fight with Hezbollah.  So far apparently none of them have responded favorably to these entreaties.

I shall only briefly note that MbS has been making a variety of seriously dumb moves.  I guess we shall have to wait and see if his purge/arrests of over 200 high level Saudis will work out internally beyond simply temporarily cementing his power and wealth.  However, his two foreign ventures prior to this matter have turned into complete botches, with one a full-blown disaster.  That would be Yemen, where a massive cholera outbreak is happening, along with famine, both of these aggravated by the recent blockade put in place against the Houthis. MbS started a war against them two years ago, with all the noise being that they would make short work of the Houthis, but it has not come to pass, only a massive humanitarian disaster. Of course, President Obama supported this war by KSA against Yemen, if not as enthusiastically as President Trump reportedly has.

The other botch, not nearly as humanly destructive, has been the Qatar farce, with MbS leading UAE, Bahrain, and Egypt into their boycott and embargo and numerous demands against Qatar for being supposedly too friendly with Iran (who is also supposedly behind the naughty Houthis in Yemen).  Needless to say, Qatar has not only completely succeeded in not falling or giving in to KSA, and indeed has become much friendlier and more openly so with Iran.  So, MbS seems to have a terrible track record regarding foreign affairs, and this move towards Lebanon seems to be his stupidest move yet, more obviously a hopeless botch upfront even more than these other two, which many thought would succeed when he first got them going.  This Lebanon venture is hopeless, although it could bring war in Lebanon with death and destruction, just as has happened in Yemen.

Trump has supported the war in Yemen, the purge/arrests of top Saudis, and also the move on Qatar, although his top foreign policy people have tried to undo the latter.  However, so far he has had nothing to say about this Lebanon move, while SecState Tillerson has come out against it.  Maybe on this one, even he is aware that MbS is messing up big time.  We shall see.

Barkley Rosser

Addendum, 11/13: An article in Washington Post this morning reports that Saad al-Hariri gave an hour long interview yesterday in Riyadh on his own TV station.  He said he is free to move about, resigned "without being coerced," and will return to Lebanon "soon."  He said his resignation will provide a "positive shock" and demands that for him to withdraw his resignation, Hezbollah must "commit to remaining neutral in regional conflicts."  Reportedly Hezbollah has provided training for Houthi forces in Yemen, which may be of special concern for the Saudis.   Reactions from Lebanon seem to be all over the place, although nobody in al-Hariri's party seems to be fully supporting his story, while also not specifically denying it.

A curious note is the following in the article, which I shall simply quote without comment:

"At times his eyes appeared to dart away from the interviewer, Paula Yacoubian, to a man behind a window of the studio."

Friday, November 10, 2017

Freedom of Speech for Fascists?

I just finished reading the Chronicle of Higher Ed’s profile of Mark Bray, author of Antifa: The Anti-Fascist Handbook.  I don’t know how accurate it is as a portrayal of Bray and his ideas, but it seems like a sober, fair-minded overview of the debate over anti-fascist tactics and freedom of speech.

What the article doesn’t say, however, is that there are two very different bases for opposing public appearances by white supremacist and similar groups.  One is dangerously wrong, the other, which Bray presents, makes much more sense.

First the wrong approach, that groups should not be permitted to express themselves in public if they cause emotional distress to me or other people I care about.  You hear this one a lot: speech that I find demeaning is a form of violence, and there can’t be freedom for it.  There’s no difference between saying something horrible to me and punching me in the face.  No freedom for one, no freedom for the other.

This argument has its roots in a mindset that has become popular in much of the left, that the ultimate political goal is equal well-being for all, that well-being is essentially having a positive emotional state (or not being in a state of stress/despair/fear/etc.), and that actions should therefore be judged by the emotional response they engender, especially among marginalized groups.  It’s a deeply subjectivist conception of life and politics, one that puts feelings above “objective” conditions like economic status, access to social or institutional networks, risk of physical harm, or other measurable outcomes.  In fact, the primacy of subjective feelings is often asserted by denying the very possibility of “objective” anything.  (Objectivity is said to be a tool of knowledge/power to silence the oppressed.)

From a logical point of view, the identification of personal well-being with a series of transitory positive emotional states is indefensible.  First, there’s more to life than that.  Second, and crucially, one’s subjective emotions at one moment are weak predictors of future happiness; those much-derided objective conditions do a better job on that front.  As a teacher, I sometimes engender frustration in students, temporarily lowering their emotional hedonometer.  If I’m doing my job well, this is more than compensated by increased learning, which will be of more benefit down the road than an extra hour of emotional ease.  Feelings matter, a lot, but not at the expense of everything else.  And speech that causes negative feelings can’t be evaluated just on that basis; you have to think about the other consequences, direct and indirect, of listening to it, allowing it but not listening, or not allowing it at all.

Politically, the ideology that subjective feelings are everything is catastrophic.  It’s a claim with a long history on the repressive right: if students don’t recite the pledge of allegiance each morning at school my feelings are insulted, or if they burn a flag, or if professors denounce America, or if athletes take a knee.  It’s the same argument, just a different group’s feelings being hurt.  The only counterargument of the left is that some people’s feelings (people of color, gender nonconforming, etc.) count more than others’ feelings, but really, do you want to hang your politics on this?

At the deepest level, the struggle for social change butts up against the force of cognitive dissonance.  People have made commitments to the existing order.  They have dedicated their lives to getting a job and moving up, if they can.  They or their parents or children have served in the military, exposing themselves to horrific risks of violence (and not just speech) with often horrific results.  They have supported politicians hoping to get a better break on some government policy.  Then a social change activist comes along and says, these commitments were wrong, or fruitless or not good enough.  You should make different commitments, to a different economic or political system.  Whatever else activists may say, they are asking the people they are talking with to absorb the psychic costs of seeing their past actions in a harsher light—to cope with cognitive dissonance.  In the extreme case, imagine trying to convince the parent of someone who has died in a war of aggression that this death was in vain.  It’s not easy.

Serious activism can’t elevate subjective feelings to an all-important position.  You’d have to hang it up before you even get started.  Activism always confronts denial, a defense mechanism of the emotions.  It’s based on a view of the world that there really are objective conditions that need to be changed, whether that makes you psychically comfortable or not.

But the second argument, the one that Bray seems to embrace, comes from a different place, the paradox of tolerance.  If we want a free society, at some point we may have to restrict the freedom of those who want to get rid of it.  Fascists, religious fanatics and other extreme authoritarians are what we have to worry about.  Complete, unlimited freedom for these groups to organize and express themselves exposes the rest of us to a serious risk, one that has resulted in tyranny in countries that were once freer.  This is Bray’s point, and he has in mind the rise of fascism in Europe during the 1920s and 30s.  Of course, since it’s a paradox we’re talking about here, it’s important to keep both ends of it in mind: intolerance for the intolerant is also a form of intolerance.  This should lead us to keep the “good” intolerance close to its necessary minimum.

And what is that?  It’s complicated.  And people can disagree.  Which specific speakers should not be given a public forum at universities?  Which rallies should not be permitted?  The answer is not none, and it’s not “everyone who pisses me off”.  It depends on how we assess the risk to our future freedom if these events take place.  The paradox of intolerance gives us a framework for talking about it rationally.

It also gives us a basis for discussing the role of direct action—what aware citizens ought to do when their institutional authorities fail to act.  But that discussion is fundamentally political: what’s right is what has the best chance of protecting and extending our freedom in light of its consequences.  That’s the context for thinking about direct action tactics.

Thursday, November 9, 2017

President Trump Must Release His Tax Returns

I know, boring boring boring old news.  But now that he has had his hind end kicked by the recent off-off election results, it is time to get real.  He has managed to cover up massive amounts of crimes and violations of ethical norms because he has violated so many.  Nobody could keep track of them. But now that he has his behind kicked, and Mueller is zeroing in on him, it is time for him to deal with his most important violations and 'fess up.

So, in my view the biggest violation of them all has been his refusal to release his tax returns.  Of all the humongously numerous violations of ethical norms and actual laws, this refusal on his part increasingly becomes clear to be the most important.  Of all the mistakes the American people made in electing this worst president ever elected, this is the worst mistake of all, electing a person who refused to release their tax returns.

There are two clear reasons why he must release his tax returns, and I call on all media to begin demanding relentlessly and repeatedly, every day, even though the media views this as a dead and boring issue, that President Trump release his tax returns. The way I see it, every day that passes that he does not release his tax returns is another day piling up that he should not only be removed oa as  president, but that  he should be put in jail for a very long time.

So the first reason is just obvious and immediate.  The Republicans in Congress have proposed a major change in the US tax system.  It is not obvious that any such change is needed, given that the economy is doing pretty well, but, anyway, we have the biggest proposal for a tax change since 1986.  I am not going to get into the details of this proposal or how it is far less worthy than the one in 1986s, which it is, but there is this screaming out loud problem that this proposal appears to  have at least five if not more provisions that personally benefit him and his family, possibly to the tune of one than a billion dollars. 

However, the American people do not know and cannot know the exact size of this massive benefit he will personally receive until he releases his personal tax returns, which he promised to do and has not done so.  This tax proposal should not be passed until he releases his tax returns and lets the American people know just exactly how much he and his family will benefit from this tax proposal, misleadingly labeled a "reform."

The second reason is one he will resist more, but it is just sitting out there and stinking.  It is the matter of just how much money he owes Russians.  This may be why he will resist really hard releasing his tax returns, and why he had done so so fervently previously.  After all, when one of his returns did get out (from 2005, I think), he jumped on bragging about how he had taken advantage f all loopholes he could to pay as little as he could.  He said it showed what a good businessman he was, and lots of people bought this, and it distracted from this more unpleasant issue of his multiple financial relations with various Russians.

It may well be that this latter issue is why he refuses to release his tax returns.  But I thin kthat the former matter is why the American people must  now demand that he release them.  He and his family stand to gain from this proposal in the billions of  dollars.  Maybe the people and the  Congress will decide that this is just fine.  But we should know how our utterly corrupt and incompetent president and his family will gain from this current proposal before it is passed.

The American people must demand that President Donald J. Trump release publicly all of his tax returns as have all presidents for the last 40 years, including even Richard Nixon when he was under impeachment proceedings.  There is no longer any excuse for him not to do so, and this demand is so supreme it must override all the ongoing minor controversies and infelicities that are constantly being put forward by this worst by a longshot of all American presidents.

Release your tax returns, Donald Trump, or resign as president!

Barkley Rosser  

Tuesday, November 7, 2017

An Important Centennial

Today marks the centennial of the Great October Socialist Revolution, known when I was young in the US as the Russian Revolution, and also perhaps more accurately described as the Bolshevik Coup. On March 8, 1917, people rose up from the streets behind women marching on International Womens' Day, leading troops to refuse to fire on them, a real revolution, which led to the overthrow of Tsar Nichoalas II and the putting in place of a democratic government eventually led by Alexander Kerensky.  He failed to end the war with Germany, and riding on a peace and "land to the peasants" platform, Lenin led the Bolshevik coup on November 7 that overthrew Kerensky's regime. Peace was made with Germany, and peasants did take land from aristocrats, even if more than a decade later they would have to give it up during the Stalin agricultural collectivization.  Arguably this taking of land by peasants did constitute a revolution, and certainly a different regime was put in place, the first officially inspired by the socialist ideas of Karl Marx.  Many would say that it would fail to follow ideals laid forth in Marx's writings, especially the horrors under Stalin, although others would argue that the bad things that followed were inherent or implied in his writings, if not explicitly there.

In any case, given the many Marxist-Leninist revolutions that followed, with the world's largest nation currently ruled by a party that adheres doctrinally to this view, which has recently been reinforced officially by a party congress, the second Russian Revolution in November is of world historical significance, for better or worse.  It is curious that in Russia itself it is currently viewed with mixed feelings.  There is a special this week on TV on Lenin, which is apparently showing his life with warts and all.  There is also one on Trotsky as well, amazingly enough, although he played a far more important role in the revolution than did his great rival for power, Stalin.

Views of these figures now in Russia are not what one might have expected.  Indeed, both Lenin and Trotsky are viewed as mixed figures, partly good, partly bad.  The figure who is undergoing full-blown rehabilitation with the support of Vladimir Putin is in fact Stalin, now viewed favorably by 50% of the population. Bookstores are full of books praising him to the skies.  Of course it is not his role as a great communist or socialist leader that is emphasized.  It is his role as the leader of the nation in the victorious Great Patriotic War against Germany ruled by Adolf Hitler.

Which brings us to how this centennial was celebrated earlier today in Moscow, which ceremonies I have now watched on RT.  Putin was not there, nor Premier Medvedev.  There was no mention of Lenin or Trotsky or Stalin. Rather there was a military parade that focused on the city of Moscow itself, with the highlight and emphasis being on recreating the November 7, 1941 parade in Red Square that presaged by just under a month the counterattack against the German troops then just a few miles outside of Moscow, a successful counterattack that coincided with Pearl Harbor and indeed was able to happen because of the non-aggression pact between the USSR and Japan, which allowed the Soviets to bring troops from Siberia, who were represented by soldiers in white uniforms, along with others dressed in historical costume.  The main part honoring this counterattack was preceded by older history, with people in period costumes depicting the Alexander Nevsky resistance against the invading Teutonic knights, people resisting the Polish conquest of Moscow in 1613, also ones resisting Napoleon in 1812, and, with the only reference to the centennial itself, some depicting partisans defending Moscow during the civil war that followed November 7, 1917, and then those depicting the World War II troops in great detail.

The whole thing was overseen by the mayor of Moscow, who spoke, with some WW II vets sitting next to him and receiving flowers.  It closed with current military cadets marching, followed by some WW II  tanks and armored vehicles that parked themselves in the square at the end.

There lingers the question of what would have happened if there had been no Great October Socialist Revolution.  Presumably this would have involved either Kerensky or perhaps Kadet leader Kornilov making peace with Germany soon enough to forestall Lenin being transported by the Germans to what was then Petrograd.  It is impossible to know what would have followed, although Kerensky's own political ideology looks to have been a variant of social democracy.  But it is questionable whether he could have pulled off making Russia a Sweden, with some sort of military dictatorship of some sort probably more likely in the longer run, although probably not a restoration of the tsar.  From those who praise Stalin and really like this celebration that just happened, the question arises if this alternative history would have involved Hitler coming to power and starting World War II, and would this alternative Russia have been able to defeat him.  There might not have been as large of a steel industry to build those tanks for Stalingrad and Kursk, but there also would have probably been more people around, including leaders of the military who would not have been purged as they were by Stalin in the 1930s  In any case, we shall never know.

Barkley Rosser

Saturday, November 4, 2017

Saudi Crown Prince Consolidates Power With Anti-Corruption Arrests

Everybody is against corruption, so it has become the new cool way to concentrate power in dictatorial societies to engage in an anti-corruption drive, as Putin and Xi Jinping have done.  Actually corrupt people may well be arrested, but somehow included in the set of those arrested are rivals of the leader who are conveniently disposed of.

So we now see it in Saudi Arabia, where Crown Prince Muhammed bin Salman has been leading a special anti-corruption committee approved of by the Saudi ulama, and now it has arrested 11 princes accused of corruption.   As in other countries, many of them, possibly all of them are guilty, but included among them are some rivals of Muhammed's for power, and, indeed the full set of names has not been released.

The most important in terms of being a rival is the now former commander of the SANG, the Saudi Arabian National Guard, which was long commanded by Prince Meti bin Abdullah, son of the long time former King Abdullah.  Before Meti commanded SANG, Abdullah did so for decades and had the HQ of SANG on his own palace grounds within a wall.  SANG has long been the rival military in Saudi Arabia to the regular military under the Defense Department, which has been under the control of the crown prince since his father became king, succeeding Abdullah.  SANG has a base among the tribes, and it was SANG that finally defeated the Muslim Brotherhood (Ikhwan) uprising in 1979 that had led them to seizing control of the Grand Mosque in Mecca.  Abdullah was SANG commander at that time, and he had the reputation of having excellent relations with tribal leaders.  His sone was clearly a threat and rival to the crown prince, and now he is out.  The commander of the Saudi navy has also been replaced, although not clear if he has been arrested.

Among the others who are out is the Minister of the Economy, and among the arrested is one of Saudi Arabia's wealthiest men, Prince al-Waleed bin Talal.  His father was long the leader of the secularizing and liberalizing faction among the sons of Saudi Arabia's founder, Abdulaziz. 

The crown prince has also  been making speeches about how he wants to encourage a moderate form of Saudi Islam.  I wish him luck on that, and his move to allow women to drive starting next June does provide some credibility on this front, although probably with major limits.  As it is, Saudi Arabia is apparently funding the building of many madrassas in Southeast Asia, including Bangladesh and Indonesia, where the local forms of Islam are far more moderate than even a moderate form of Saudi Wahhabism would be.

In any case, under the guise of cleaning up corruption, which he may be doing at least partly, it looke like Crown Prince Muhammed bin Salman is cementing his power, following in the footsteps of such role models as Vladimir Putin and Xi Jinping.

Barkley Rosser

Wednesday, November 1, 2017

The Virginia Governor's Race

I rarely talk directly about specific political races, but I live in Virginia where in less than a week there will be the most closely watched election in the nation for governor.  It is very close, and the Republican, Ed Gillespie, might well win, even though his Dem opponent, Ralph Northam, leads by narrow margins in most polls.  Sound familiar?  Sure, but why am I going on about this?

It is because even the pro-Dem national media seems to have bought into inaccurate characterizations of Northam's positions.  Most specifically, Chris Matthews on Hardball just had a guest on and they both were repeating the false claim that Northam supports taking down all Confederate monuments in the state, although accurately noting that this is a tough issue in the Commonwealth that Gillespie has been using to effect against Northam.  If Gillespie wins, this issue will be part of it.

The problem is that Northam's position is not that they should all be taken down, although he has expressed dislike of the Confederate monuments.  His position is that this is a matter of local control over locally controlled statues, which is the case.  He has said he would take down those "at the state level," but there are very few Confederate monuments put up at the state level.  As a matter of fact, current state law is against local control, asserting that local municipalities do not have the right to move such monuments.  This is a live and hot issue in Charlottesville, where the city council voted to move the statues of Robert E. Lee and Stonewall Jackson off public parks.  However, they city has been blocked from doing so thanks to court rulings based on current state law.  This effort to move the statues is what led to the demonstrations and rioting and death in Charlottesville in August.

Of course the latest is that a Latino activist group has been forced to withdraw an ad against Gillsepie since the terror attack in New York yesterday.  That ad showed minority children running from a pickup truck with a Confederate flag flying and a pro-Gillespie sign on it.  Sure,  nasty,  but then we did see somebody killed by a Nazi running a car over somebody. Yeah, the ad was pushing the edge, but the hard fact is that the GOP has been running nasty and false ads against Northam relentlessly, which I am sick of seeing, which may be why I am boring everybody with this whiney post.

So, the Gillespie ads have been charging Northam with supporting the MS-13 gang, with horrendous photos of prisoners in El Salvador covered with ugly tattoos, with charges that Northam supports sanctuary cities, of which there are a big fat zero in Virginia.  There have also been scads of ads from the NRA against Northam, although some of these look sort of silly, at least to somebody like me who does not like the NRA.  So they have one where they show Northam saying, "I have a D- rating from the NRA," with them then shattering that with "That is a lie! He has an F!" but he was speaking to people against the NRA and he has spoken strongly against the NRA, but clearly the NRA is trying to get its people out to vote.

Another worry I have is a supposed "boredom" reported by WaPo about the race, which is why I worry that this darned New York terror attack and all these statues and NRA ads will get the Trump supporters out while the Northam people sit at home going "ho hum" like we have seen in so many off-presidential years.  I admit that I shall be totally disgusted if the Gillespie wins with these ads, which are repeated three times in a row.  They even have Northam aiding child pornography.

Barkley Rosser

Tuesday, October 31, 2017

Barzani Out, Puigdemont In Belgium

It seems that the two recent independence referenda have largely collapsed.  One was in Iraqi Kurdistan, with President Massound Barzani having it done with the eye that it would give him leverage in negotiations with the Iraqi central government.  That did not work, with the referendum triggering the central government to move to seize control of the oil producing areas the Kurds had controlled and quite a bit of other territory they had controlled, especially Kirkuk.  Barzani had not stepped down two years ago when he was supposed to.  Two days ago he announced he will step down from his position.  Looks like this is basically over.

Then we have Puigdemont, the prime minister of Catalunya/Catalonia.  He also put in place a probably badly timed and unwise independence referendum.  This was followed up on the weekend by the Catalan parliament voting for independence, even though many polls suggest a majority do not support independence (although a solid majority voted for the independence referendum, with a a low turnout).  Now the central government has cancelled the Catalan government and imposed direct central rule.  Puigdemont has fled to the Flemish part of Belgium where he has been given asylum.  So, it looks like this independence referendum has also ended up as a disaster.

I note that in my earlier posts I expressed more sympathy with the Kurdish declaration, even as it looked like very bad timing for it.  I had and have much less sympathy with the Catalan one given the level of autonomy they have over so many areas, with the main effect being a selfish economic result that would have them no longer sending money to poorer parts of Spain. The amount of self-righteousness on their part in regard to this I find pretty indefensible. The Kurds have suffered far more at the hands of those who rule them than have the Catalans, even accounting for the old Franco period when indeed the Catalans did suffer vicious repression, although I do not support violence on the part of the Spanish central government to impose their direct control.

Barkley Rosser

Saturday, October 28, 2017

Everything Is Going Great, So Let's Change It

Well, the actual headline on the front page of the Washington Post below the fold today reads, "Economy shows strong growth, could provide GOP momentum."  The strong growth is the 3.0% annual growth rate of GDP in the third quarter (supported by a strong stock market), with the momentum not being the obvious point that this might lead to general popular electoral support in the future for the GOP, but more specifically that this somehow might aid the GOP in Congress to change the current apparently successful fiscal and monetary policies inherited from Barack Obama.  Everything is going great, so let's change it.

On fiscal policy, of course, this refers to the still not clearly formulated tax change ("reform" in the words of the GOP).  As we know cutting taxes for the rich is the one thing that seems to unite the party, so gosh darn it, they will probably do it, even if it takes a lot of effort.  As expected all those loud fiscal hawks from the Obama period are now fine with adding at least $1.5 trillion to the national debt, which will probably end up being more as some of the revenue increasing parts of the possible plan look like they may not pass.  After all, while Trump says the middle class will gain, indeed everybody, is going to get the hugest tax cut ever and it will pay for itself somehow.  But estimates have 80% of the cuts going to the top 1 or 2%, given the emphasis on cutting corporate taxes.  Anyway, here we have a pretty good growth performance that supposedly justifies a move to change the tax policy and system that has existed while this good performance happened.  Frankly, I do not know what the effect on growth will be as a result of whatever they pass, as they will pass something, although I doubt it will be all that big one way or the other on aggregate growth.

The more amusing part of this is the argument apparently been given by Treasury Secretary Mnuchin and others in the last few days that is decidedly ironic.  It is that the stock market increase we have seen has at least partly been fueled by the expectation of a nice big corporate tax cut that will boost profits, along with all the deregulation that has been going on .  So, the argument goes, if the tax plan (or some tax plan, heck, anything) is not passed, well folks, that nice stock market increase might be threatened.  No tax plan passed, well, maybe a sharp decline of the stock market!  I find this hilarious, although it might be true.  The stock market has begun to look a bit elevated, near the boundary of getting into bubble territory by some measures, so, you had better watch out!

The other matter has to do with monetary policy.  Everybody, including even Lou Dobbs, is telling Trump to reappoint Yellen, oh, with the exception of some House Republicans who want John Taylor and apparently Mnuchin who favors current Fed governor, Jerome Powell, a Republican appointed by Obama, who reportedly would more or less follow the Yellen policy, although be more open to ending the regulations on banks that Obama put in, which Yellen has publicly supported.  On Lou Dobbs' show, Trump said he had spoken with Yellen, and he kind of likes her, but also that he "wants to make a mark," which he indicated hurts the chances of Yellen, and WaPo yesterday said it is now down to just Powell versus Taylor.  I mean, hey, she was appointed by Obama, and simply nothing that Obama did must be allowed to stand, even when you have all sorts of Wall Street Republicans saying she should stay, and even populist looney Lou Dobbs as well.  Gotta go so Trump can make his mark and complete the changing of everything Obama, even though it is all just going so great.

BTW, this is just the opposite of what is going on in China.  There, everything is going great, so we are going to change not a bit of it, except for some of the leaders.

Barkley Rosser

Friday, October 27, 2017

A Serious Misreading of Coase

Corey Robin is very insightful about a lot of things.  I think his take on conservatism, that the thread running through it is opposition to attempts to demolish pre-existing hierarchies, explains ideological twists and turns that would otherwise remain mysterious.  Don’t take this post as an expression of anti-Robinism.

But CR seriously misreads economic texts that abut political theory.  I felt this way about his analysis of Hayek, which simply ignores the centrality of his lifelong revulsion at Vienna-school-style positivism, with its echoes in a certain style of economic formalism.  (Yeah, Hayek bought into a lot of the elitism of the right, but so did nearly every other conservative; that’s not what made him consequential.)  And now he gives us a terrible interpretation of Coase.

According to CR, “Coase divides the economic world into two modes of action: deal-making, which happens between firms, and giving orders, which happens within firms.”  He then goes on to paint Trump as an über-Coasian, at least in his own self-presentation, since these are the only types of action he recognizes.  I won’t dispute the portrait of Trump, but Coase?  Not a chance.

Coase is proposing a theory of the make-or-buy decision which faces every firm.  (This is the case even for firms in a socialist economy, assuming they can transact in some way with other enterprises.)  What goods does a firm produce internally, and what do they acquire from the outside?  Do you hire your own accountant, or do you buy the services of some accounting firm?  Does Toyota make its own seat cushions for its cars, or does it get them from a supplier (or group of suppliers)?

Coase assumes that going out onto the market is always best, in the sense that someone out there can do it better and cheaper than you can (or at least no worse and more expensive)—this is the market creed, with competition and all that—so there must be some other consideration at work.  He says the missing ingredient is transaction costs: sometimes the cost of negotiating and enforcing a contract, which is what “buy” implies for inter-firm business, is so great as to negate the intrinsic benefits of using the market.  The reason firms exist and have the boundaries they have (the result of a myriad make-or-buy choices), according to Coase, is the variegated presence of transaction costs.

(Oliver Williamson goes one step further and identifies the most crucial such cost as that of ensuring that one’s counterparty doesn’t lie, cheat, steal or hold you hostage to exploit your reliance.  CR might take note that the Williamson interpretation of the authoritarianism of the firm is essentially the same as Marx’s, except that Williamson thinks the boss is the repository of virtue.)

What makes CR’s reading of Coase so strange is that, in a Coasian world, “deals”, understood as singular, complex transactions that absorb immense effort in negotiation and enforcement, should be rare.  Only a failure of competition, due for instance to barriers thrown up by a regime of intellectual property rights, would put firms in a situation in which they had to submit to deal-making rather than internal production.  Businesses, if they followed Coase’s formula, would shun deals to the maximum possible extent.

The core problem with CR is that he doesn’t see that, for Coase, a “deal” is a very different creature from a routine market transaction, and this difference is what the whole theory is about.

Incidentally, there are many problems with Coase’s formulation.  Here are the two I believe to be the most important: (1) Coase assumes a unitary entrepreneur who owns the firm, profits from its success, and is the fountainhead for the entire order-issuing apparatus.  This is the case for many small and medium-sized enterprises but fundamentally false for most of the corporate world.  To some extent, the transaction cost theory can be tweaked to adapt to the corporate economy, but in the process it loses much of its explanatory power.  (2) Coase focuses on what I regard as a secondary aspect of the existence (why do firms exist?) and boundary (make or buy) problems.  Transaction cost factors are real but pale in importance beside the role played by the presence or absence of interaction effects between activities.  Firms exist in the first place because they bundle activities that would have little value (and would therefore not be undertaken) separately.  Or, if you prefer formalism, they exist to internalize nonconvexities.  This is equally an explanation for make-or-buy choices.

Coase’s analysis was compelling for economists because it reconciled nonmarket organization (the internal coordination of firms) with the assumption of the efficiency properties of a competitive market.  The much stronger argument based on nonconvexities is a harder sell because it also calls into question the premise of market efficiency.

Wednesday, October 25, 2017

Marxism-Leninism In China Update

The once-every five years Chinese Communist Party conference is now over.  It appears that Xi Jinping has not identified an heir to himself as his two predecessors did at the time of this equivalent meeting during their presidencies.  Furthermore, unlike either of them, Xi has joined Mao and Deng Xiaoping in having his work identified in the Chinese constitution as being an official part of Chinese ideology.  Most observers consider this a sign that even if Xi gives up one or maybe even two of his official positions, he is likely to continue to be the Paramount Leader in practice beyond the next five years.  A key part of his thought is the superior role of the Communist Party and its foundation on Marxist principles, even if a mixed economy is to be followed, "socialism with Chinese characteristics."  So, the assertion of Marxism-Leninism in China by Xi apparently means a justification for him to remain in power in China for the indefinite future.

The obvious way that Xi could pull off staying in power without changing the constitution would be to hang on to being Party Secretary as well as Chair of the Central Military Commission.  The job that has a two term limit is President, with him just starting his second five year term as that.  In five years he could easily select somebody who  is willing to obey him to replace him as President while he hangs on to the other two positions, which have no term limits to them.  The one rule he will have to break, although apparently it is not in the constitution and merely a recently accepted policy, is the upper age limit of 68.  That is apparently for all positions.  In five years he will be 69, so that would have to go as a rule, at least for him.

Barkley Rosser

Monday, October 23, 2017

Corporate Profit Tax Cuts and Wages: the UK Experience

Kimberly Clausing and Edward Kleinbard have each written some interesting papers on transfer pricing. Here they team up on a different topic:
The President’s Council of Economic Advisers claims that slashing the corporate tax rate to 20 percent would boost the average American’s wages by $4,000 per year (“very conservatively”) — and perhaps by as much as $9,000. If true, that would be a remarkable gain for working Americans. Unfortunately, it’s extraordinarily unlikely to be true. The two of us can think of dozens of objections to the CEA claim, presented in an official report, but perhaps the place to start is with the United Kingdom, which has already run this experiment. Over the past decade, the United Kingdom has slashed its corporate tax rate, in several steps, from 30 percent down to 19 percent. At the same time, the United States has kept its corporate tax rate constant at 35 percent. Like the United States, Britain has a large open economy, investors in British firms come from all over the world, and Britain provides a sound legal and regulatory environment.
They next document the decline in real median wages in the UK since the UK began its experiment with lower corporate tax rates. They then note:
Of course, the UK example is just one case, but this comparison is a great deal more relevant to the CEA’s claims than the slapdash comparison it presents near the start of its report. The report compares US wage growth over three years to wage growth in 10 unnamed “low-tax” developed economies. But the United States is simply not comparable to small-economy tax havens like Ireland and Switzerland. What’s more, the CEA comparison focuses on average wage growth, while our chart uses median wages.
Their critiques of what the CEA under Kevin Hassett continue. But let’s stick to the idea of using the experiences of other nations who have also reduced corporate profits taxes. KPMG provides corporate profits by nation over the 2003 to 2017 period. Other nations have followed the UK lead. For example, Japan’s rate has been lowered from 42% to less than 31%. One has to ask why didn’t the CEA do comparisons based on nations like Japan and the UK. Update: This CEA report touts Figure 1:
the covariation between the trajectory of inflation-adjusted wages and statutory corporate tax rates (Federal and sub-Federal) between the most-taxed and least-taxed developed countries (OECD) over recent years, visible in Figure 1, is indicative of these papers’ findings. Between 2012 and 2016, the 10 lowest corporate tax countries of the OECD had corporate tax rates 13.9 percentage points lower than the 10 highest corporate tax countries, about the same scale as the reduction currently under consideration in the U.S. The average wage growth in the low tax countries has been dramatically higher
Figure 1 shows the average real wage growth from 2013 to 2016. A lot of these nations have had low corporate tax rates for years so why only show the latest four years? And the term “dramactically” strikes me as hyperbole. One also has to ask what role does transfer pricing abuse play into the measured series? I get what Kimberly Clausing and Edward Kleinbard meant by:
Of course, the UK example is just one case, but this comparison is a great deal more relevant to the CEA’s claims than the slapdash comparison it presents near the start of its report. The report compares US wage growth over three years to wage growth in 10 unnamed “low-tax” developed economies. But the United States is simply not comparable to small-economy tax havens like Ireland and Switzerland.

Thursday, October 19, 2017

Remembering Black Monday

The largest single one day decline in percentage terms of the Dow-Jones average (22.6%) happened 30 years ago today, on October 19, 1987.  It was a Monday, hence "Black Monday."  Although unlike after the second largest such one day decline in percentage terms (12.8%) on October 28, 1929, the US economy did not go into a decline, much less anything remotely resembling the Great Depression.  Indeed, the very next day, after starting to decline further in the morning, the market turned around and starting rising, led by the futures and options markets in Chicago.  Although the market would decline far more between August, 2007 and March, 2009 at the front end of the Great Recession, there was no single day during all that when the market fell nearly as much as on either of these two days listed above.

Robert Shiller has written an interesting column in the New York Times about Black Monday (linked to by Mark Thoma on Economists View).  He did a survey after it happened of participants and found that they were driven basically by pure panic.  The Brady Commission report said that it was about the trade deficit and a possible tax change, and also program trading via portfiolio insurance.  Yes, Shiller says that latter was some of it, but in fact he determined that fear of it was probably more important than the actual program trading.  There was very little going on with fundamentals, but vague rumors and reports set off a huge crash, the biggest one day one ever, even if in the end it did not really amount to much.  But Shiller says it can happen again (and, if he were alive, the late Hyman P. Minsky would probably agree).

Let me add a few observations of my own, based on things I was working on back then and have since, if with less attention than Shiller.  In particular I was worrying about how one could model such financial market crashes by considering financial markets as complex nonlinear dynamical systems.  The big candidates for helping to understand such phenomena coming out of that field were catastrophe theory and chaos theory.  As it happened, October 1987 was around the time that chaos theory was at its height as the intellectual fad du jour.  Indeed, it sort of looked like maybe chaos theory might be useful.  It is famous for the "butterfly effect," where supposedly a butterfly flapping its wings in a rain forest in Brazil can cause a hurricane in Texas. So, this apparent lack of anything really major happening in the economy or the markets prior to Black Monday brought forth a lot of commentary along the lines of "Wow, this looks like the butterfly effect and chaos theory!"

Well, the heyday of chaos theory has passed.  For better or worse, the econometrics of identifying whether or not a time series is actually chaotic or not is pretty hairy.  There are no significance tests.  Lots of time series, including plenty of financial ones, that exhibit the basic characteristics of having a butterfly effect (sensitive dependence on initial conditions, a positive Lyapunov exponent, to be more technically precise).  But estimated models based on these do not do well forecasting, not much better than random walks.  Actually, the nature of such butterfly effects is that if they exist, one should not expect to be able to make good forecasts. In any case, even though many such time series look like they might chaotic, we have all lost interest.  But, as it is, quite aside from all that, I do not think chaos theory is(was) really the best explainer of what happened on Black Monday.

Rather, of the family of complex dynamics, I think the relevant one was and is catastrophe theory, which was very much out of fashion at that time.  Let me note that as a sub-part of bifurcation theory, catastrophe theory is back in various parts of economics and ecology and other related disciplines. Pretty much any nonlinear system that shows multiple equilibria will be subject to bifurcations and dynamic discontinuities as they move from one basin of attraction to another.  While the economy did not collapse after Black Monday, and the stock market did not continue to decline, it remained well below where it had been prior to Black Monday for quite a long time.

I note that the very first paper in economics that used catastrophe theory was the second paper ever published in the Journal of Mathematical Economics back in 1974.  Without getting into the technical details, I note that it drew on a much older setup long discussed in the financial markets literature, one where two sets of agents were identified.  One was fundamentalists whose behavior is stabilizing and tends to push the market back toward its fundamental (assuming there really is such a thing), while the other set are the chartists or trend chasers, whose pursuit of bubbles as they rise and their dumping of assets when they fall tend to destabilize the market.  The paper, "The Unstable Behavior of the Stock Exchanges," was written by E. Christopher Zeeman, a major figure in the mathematics of catastrophe theory.  His story was one of a shifting balance of dominance in the market between these two sets of agents, with stability and instability oscillating back and forth within a cusp catastrophe setup, which included the possibility of a market crash.

I note that this basic sort of setup had been modeled in the 1950s by people like William Baumol in long forgotten papers without any fancy nonlinear dynamics.  More recently complexity economists have developed models that follow this Baumol-Zeeman approach, such as the Santa Fe stock market model using agent based modeling in the 1990s, by people like Blake LeBaron and William (Buz) Brock, along with others.  Models with multiple agents who shift their strategies according to recent performance and move back and forth between stabilizing behavior and destabilizing behavior are all over the place and continue to be studied, if not necessarily getting published in the top journals. But these models look pretty good as ways of analyzing these sorts of dynamics.

Addendum:  One other outcome of Black Monday also was that it was the beginning of the end for the dominance in economic theory of the rational expectations axiom.  Yes, it is still around and strong in the whole DSGE modeling world.  But increasingly people take more behavioral assumptions seriously, and Black Monday was a body blow to ratex big time.

Barkley Rosser