Monday, December 31, 2018

Marx for me (and hopefully for others too)

Yesterday I had a conversation about my work, about how and why I started studying inequality more than 30 years ago, what was my motivation, how it was  to work on income inequality in an officially classless (and non-democratic) society, did the World Bank care about inequality etc. The interviewer and I thus came to some methodological issues and to the inescapable influence of Marx on my work. I want to present it more systematically in this post.

The most important of Marx's influences on people working in social sciences is, I think, his economic interpretation of history. This has become so much part of the mainstream that we do no  longer associate it with Marx very much. And surely, he was not the only one or even the first to have defined it. But he applied it most consistently and most creatively.

Even when we believe that such an interpretation of history is common-place today, this still is not entirely so. Take the current dispute about the reasons that brought Trump to power. Some (mostly those who believe that everything that went on previously was fine) blame a sudden outburst of xenophobia, hatred, and misogyny. Others (like myself) see that outburst as having been caused by long economic stagnation of middle class incomes, and rising insecurity (of jobs, health care expenses, inability to pay for children's education). So the latter group tends to place economic factors first and to explain how they led to racism and the rest. There is a big difference between the two approaches—not only in their diagnosis of the causes but more importantly in their view of what needs to be done.

The second Marx's insight which I think is absolutely indispensable in the work on income and wealth inequality is to see that economic forces that influence historical developments do so through "large groups of people who differ in their position in the process of production", namely through social classes. The classes can be defined by the difference in the access to the means of production as Marx insisted but not only by that. Going back to my work in socialist economies, there was a very influential left-wing critique of socialist systems  which held that social classes in that system were formed on the basis of differential access to state power. Bureaucracy can indeed be seen as a social class. And not only under socialism, but also in pre-capitalist formations where the role of the state as an "extractor of the surplus value" was important, from the ancient Egypt to the medieval Russia. Many African countries today can be usefully analyzed using that particular lens. In my forthcoming "Capitalism, Alone" I use the same approach with respect to the countries of political capitalism, notably China.

But to underline: class analysis is absolutely crucial for all students of inequality precisely because inequality before it becomes an individual phenomenon ("my income is low") is a social phenomenon that affects large swathes of people ("my income is low because women are discriminated", or because African Americans are discriminated, or poor people cannot access good education etc.). To give a couple of examples of what I have in mind here: Piketty's work especially in "Top incomes in France" and Rodriguez Weber's book on Chilean income distribution over the long-term ("Desarrollo y desigualdad en Chile (1850–2009): historia de su economía política"). On the other hand, I think that Tony Atkinson's work on British and various other income and wealth distributions failed to sufficiently integrate political and class analysis.

This is also where the work on inequality parts ways with one of the scourges of modern micro- and macro-economics, the representative agent. The role of the representative agent was to obliterate all meaningful distinctions between large groups  of people whose social positions differ, by focusing on the observation that everybody is an "agent" who tries to maximize income under a set of constraints. This is indeed trivially true. And by being trivially true it disregards the multitude of features that make these "agents" truly different: their wealth, background, power, ability to save, gender, race, ownership of capital or the need to sell labor, access to the state etc. I would thus say that any serious work on inequality must reject the use of representative agent as a way to approach reality. I am very optimistic that this will happen because the representative agent itself was the product of two developments, both currently on the wane: an ideological desire, especially strong in the United States because of the McCarthy-like pressures to deny the existence of social classes, and the lack of heterogeneous data. For example, median income or income by decile was hard to calculate but GDP per capita was easy to get hold of.

The third extremely important Marx's methodological contribution is the realization that economic categories are dependent on social formations. What are mere means of production (tools) in an economy composed of small-commodity producers becomes capital in a capitalist economy. But it goes further. The equilibrium (normal) price in a feudal economy, or in a guild system where capital is not allowed to move between the branches will be different from equilibrium prices in a capitalist economy with the free movement of capital. To many economists this is still not obvious. They use today's capitalist categories for the Roman Empire where wage labor was (to quote Moses Finley) "spasmodic, casual and marginal".  

But even if they do not realize it fully, they de facto acknowledge the importance of institutional set up of a society in determining prices not only of goods but also of the factors of production. Again, we see it daily. Suppose that the world produces exactly the same set of commodities and the demand for them is exactly the same, but it does so within national economies that do not permit movement of capital and labor, and then does it in an entirely globalized economy where borders do not exist. Clearly, the prices of capital and labor (profit and wage) will be different in the latter, the distribution between capital owners and workers will be different, prices will change as profits and wages change, incomes will change too and so will consumption patterns, and ultimately even the structure of production will be altered. Indeed this is what today's globalization is doing.  

The fact that property relations determine prices and structure of production and consumption is an extremely important insight. The historical character of any institutional arrangement is thereby highlighted.

The last among Marx's contribution that I would like to single out—perhaps the most important and grandiose—is that the succession of socio-economic formations (or more restrictively, of the modes of production) is itself "regulated" by economic forces, including the struggle for the distribution of the economic surplus.  The task of economics is nothing less than global historical: to explain the rise and fall not solely of countries but of different ways of organizing production: why were nomads superseded by the sedentary populations, why did Western Roman Empire break into a few large feudal-like demesnes and serfs, while the Eastern Roman Empire remained populated by small landholders, and the like. Whoever studies Marx can never forget the grandiosity of the questions that are being asked. For such a student then using supply and demand curves to determine the cost of pizza in his town will indeed be acceptable, but surely will never be seen as the prime or the most important role of economics as a social science.

John Case
Harpers Ferry, WV
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Brexit Does Not Matter [feedly]

An interesting perspective on winners and losers and does-not-matter in Brexit, with some helpful British history included.

A chaotic Brexit could do great damage to ordinary people, as was the case with Britain's self-ejection from the Exchange Rate Mechanism of the European Monetary System in 1992. But those ordinary people will be overwhelmingly British. The days when Britain could move the world are long gone.

WASHINGTON, DC – The contours of the nineteenth and early twentieth century were defined in part by a series of consequential British foreign policy and economic decisions. As recently as 2007-2009, British policy affected global outcomes: whereas deregulation of the City of London contributed to the severity of the global financial crisis, British leadership at the London G20 summit in April 2009 ultimately proved a stabilizing influence. Today, however, despite all the political theater and dramatic rhetoric, Britain's impending exit from the European Union – Brexit – really does not matter for the world.Add to Bookmarks

The global economy may have hit a patch of uncertainty, but this is more due to the mercurial actions of US President Donald Trump, self-proclaimed "Tariff Man," who seems intent on undermining the credibility of the Federal Reserve, disrupting supply chains, and negotiating through random pronouncements. The eurozone is struggling to break out of its prolonged agonies, but the fundamental problem remains bad banking practices and potentially unsustainable public finances in some member countries. While Brexit may well prove an unfortunate idea for many inhabitants of the United Kingdom, the likely impact is lower British growth, not a significant disruption of regional, let alone global, trade.

It is hard to overstate British influence over global affairs after it became the cradle of the Industrial Revolution. From about 1750, British inventions created a wave of technological innovation that transformed how power was generated and how metal was worked. Railways and steam ships revolutionized transportation. Even when the center of innovation shifted across the Atlantic, British capital and emigration supported industrialization around the world.

Not all British contributions were positive, of course. Britain's rise as a global power was accompanied by the horrors of the Atlantic slave trade and the many abuses of colonial rule.

But there is no question that British actions – good and bad – were consequential for many people, some of whom lived far away. British alliances and willingness to intervene militarily shaped European wars, from Napoleon through the German invasions of France in 1870, 1914, and 1940. Neville Chamberlain's policy of appeasement – including his personal strategy and decisions at the 1938 Munich conference with Adolf Hitler – had a major impact on the timing, nature, and perhaps even the eventual outcome of World War II.

The UK's peak global influence was probably in 1940-1941, when it stood essentially alone against the seemingly unstoppable might of Nazi Germany. Ironically, America's entry into the war both tipped the balance decisively against Hitler and soon led to a complete makeover of the world economy.

The 1944 Bretton Woods conference made it clear that the era of European empire was over. Also gone was privileged trade within economic zones established by previous waves of imperial expansion. Post-World War II trading arrangements were determined by American preferences. With US business, labor, and politicians unanimous in wanting access to all markets, successive rounds of trade liberalization followed.

In 1945, the British Empire contained more than 600 million people, about one-quarter of everyone alive, making it (briefly) the most populous political entity ever on the planet. In subsequent decades, the UK's global impact was felt mostly through a combination of decolonization debacles, including the spectacular humiliation suffered during the Suez Crisis of 1956, and gross macroeconomic mismanagement. In 1976, Britain became the only country issuing an international reserve currency that has been forced to borrow from the International Monetary Fund during the (post-1973) era of floating exchange rates.

Nothing about this loss of global influence can be attributed to Britain's membership of the EU. Overall, Britain has done well from post-war trade, about half of which is currently with Europe. The UK's total trade (exports plus imports) was around 40% of GDP during the 1950s; it currently runs closer to 60%, with most of that increase occurring after the country joined the European Economic Community in 1973. More broadly, active participation in the global economy over the past four decades has helped close the gap (in terms of GDP per capita) with the United States.

Perhaps there is a mad version of Brexit that could have ramifications beyond British shores, but that seems far-fetched. Unlike Trump, no responsible politician in the UK really wants to restore protectionist tariffs to the level of the 1930s. Also unlike the US, no prominent official in Britain is keen to gamble again with the country's future by weakening financial regulation.

Most of the British political elite seems just as out of touch with global reality as their predecessors were in 1938, 1944, and 1956. The world has moved on, again. A chaotic Brexit could do great damage to ordinary people – as was the case with Britain's self-ejection from the Exchange Rate Mechanism of the European Monetary System in 1992.

But those ordinary people will be overwhelmingly British. The days when Britain could move the world are long gone.1

Simon Johnson, a former chief economist of the IMF, is a professor at MIT Sloan, a senior fellow at the Peterson Institute for International Economics, and co-founder of a leading economics blog, The Baseline Scenario. He is the co-author, with James Kwak, of White House Burning: The Founding Fathers, Our National Debt, and Why It Matters 

 -- via my feedly newsfeed

Bernstein: Questions we need answered in 2019 [feedly]

The Berenstain Bear of Economics charts an economists agenda for the new year.

Questions we need answered in 2019

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A Lazy New Year's Eve Morn on Twitter... [feedly]

A Lazy New Year's Eve Morn on Twitter...

A fascinating conversation on links between 'anti-monopoly-ism' and libertarianism in the post war world of economics

Brad DeLongGee, I Have Argued Myself From Half-Agreeing With @EconMarshall To 90% Agreeing With Him, Haven't I?_:

Suresh Naidu: Sorry that came out wrong, deleted. Straightforward: a substantial amount of economic power and inefficiency is not eliminated by deconcentration/free entry. Not clear, lots of problems are made worse by free entry/competition. Low margins mean harder to unionize. Innovation is done by big firms. On simple efficiency grounds things can get worse in market with advantageous selection (eg loans) or with any negative ext. It depends!

Mike Konczal: If we are worried about margins being too low, boy do I have exciting news for you:

Sure, but between that, Tobin's Q, "profit share", consistent rate of return under declining real rates, and the break of investment and profitability, something is broken. One can contest any of the individual methods, but together they paint a clear picture.

Suresh Naidu: The " always more competition" fix implies we want to expand output but it is not clear we do in every market (eg airline monopoly might be 10th best emissions regulation).

(((E. Glen Weyl))): 10th best reasoning is fine for policy technocrats, but I think a pretty poor basis for thinking about imaginaries for broad social change and democratic movement building. Imaginaries that move us beyond monopolistic corporate forms, but using market mechanisms, seem promising. I am talking about building coalitions and democratic discourse rather than just being technocratic experts.

Do you really think "allow monopolies to control the tobacco industry because it is a very mediocre way given our extremely imperfect and complex world to nonetheless somewhat control cigarette addiction" is useful way to be in discourse with a broad democratic public?

It seems to me that this sort of descent into endless technocratic 100th best calculation is precise the sort of bandage upon bandage reasoning with angels dancing on the heads of pins that people like @snaidunl usually decry as the worst sort of utilitarianism

Suresh Naidu: Right but my point was why antimonopoly politics, focusing on exercise of pricing power/market structure, are bad relative to more comprehensive criticisms of capitalist power and democratic remedies.

Marshall Steinbaum: Say what you will about antimonopolist politics, it most definitely was a "comprehensive criticism of capitalist power." That's exactly what it was—a fight for control over the process of economic production. Which the antimonopolists lost, for good reason (namely, they refused in the end to interpose state power against the power of capitalists).

(((E. Glen Weyl))): Anti-monopoly also uses the rhetoric of the free market to undermine capitalist power, which is often a far more effective strategy for building many libertarians have you won over, @snaidunl, with @DemSocialists?

Ilyana Kuziemko: Libertarians are incredibly rare outside of economics departments. I can imagine them as convenient anti-Trump allies, but given their views and their tiny numbers, is winning them over a high-return activity for a social movement?

Suresh Naidu: Right and too hard to distinguish real lovers of real freedom from reactionaries who like drugs

Ilyana Kuziemko: I mean, sure, intellectually it might be fun to try to convince libertarians (i feel like that's what I do on Twitter w most of my econ colleagues). But if you are serious about a social movement and have limited time/resources, it seems low on any to-do list.

(((E. Glen Weyl))): Frankly I could not disagree more. Most efficacious social movements are not 100% bottom up; they involve changing the ideas of elites in concert with building coalitions from below. And a very large chunk of elites build a lot of their identity around libertarian ideas.

Alice Evans: Just intervening on this one specific point, I wonder if that's true..? I think most social movements succeed not by changing elite beliefs about what's right/ wrong , but when by strengthening sympathetic but despondent people's collective efficacy that change is possible?

(((E. Glen Weyl))): I didn't say most, I just said many. I think the examples I offered are good ones. Most "poor people's movements" were quite different, but also had important interactions with elite movements.

Alice Evans: Oh for sure. For example, the PT in Brazil secured broad support so long as it was a win-win coalition, benefitting everyone, and thus was contingent upon continued growth. I was just cautioning against optimism about converting others. And instead pointing to the importance of building collective efficacy. Raising hopes that change is possible.

(((E. Glen Weyl))): My project is not one so much of "converting others" as building coalitions that speak in many languages, both the language of social democracy and the language of liberty which, btw, used to be the same thing.

Ilyana Kuziemko: Maybe it's a gendered thing but the whole « freedom» discourse just falls flat with me, personally. Some socialists have made the argument that "socialism is freedom" and I get it, and it's clever to expropriate a right-wing word, but I don't think it will move many people.

(((E. Glen Weyl))): I don't think it is a particularly gendered thing. Two of the people that self-identify or recently stopped self-identifying as libertarian who are both most prominent in the @RadxChange movement and who I most admire are both women, @devonzuegel and @rivatez.

(((E. Glen Weyl))): Literally all I was trying to argue is that willfully alienating and equating the deepest beliefs large sections of the elite with white supremacy is not a good strategy to help social democracy flourish.

Marshall Steinbaum: You might have noticed that I don't particularly care about "winning over" libertarians given their longstanding intellectual commitments, but ymmv

(((E. Glen Weyl))): I think that is wildly unfair, divisive and bigoted. There are enormous numbers of open-minded good people who self-identify as libertarians; I was once one of them. Writing them all off using guilt by association is no better than equating Islam with terrorism. I like a lot of Marshall's work, but it is this kind of attitude that I think is responsible for so much of the self-defeating nature of today's left. @rivatez @VitalikButerin

Marshall Steinbaum: If it is self-defeating to refuse to ally with white supremacy, then fine. Personally, I am moved by the contemporary criticism of the New Deal, which provided social democracy for white people & which white people burned to the ground rather than permit black people's inclusion.

(((E. Glen Weyl))): Are you equating libertarianism with white supremacy?

Marshall Steinbaum: I am indeed, with much in the historical record to back me up. For example: "the United States, with trivial exceptions, has never been a colonial country." —Milton Friedman

(((E. Glen Weyl))): Not just vaguely associating, but literally equating? So @tylercowen,@ThomasSowell and @JeffFlake are literally a white supremacists just as much as @RichardBSpencer is?

Marshall Steinbaum: There are flavors, but they all serve one another's purposes and are part of the same political movement, yes.

(((E. Glen Weyl))): This is a good piece, written by people who are either libertarians or until recently self-identified as such. So how does this count as proof that self-identified libertarians are all white supremicists?

Swole Porter: ...did you actually read it? Because it's a critique of the ways libertarians have long countenanced white supremacy as a primary motivation for many of their ideological fellow travelers.

(((E. Glen Weyl))): "Now, libertarian, individualist, and market-liberal ideas, concepts, slogans, and advocates aren't alone in having a history that is entangled with white supremacy. Hardly any set of social ideas in American intellectual history lacks such an entanglement." The guy is a self-identified libertarian writing for a site that was designed for self-identified libertarians advocating for building a liberatarianism that is genuinely libertarian and non-racialized. That such people exist and can be our allies is precisely my point.

(((E. Glen Weyl)))(: Marshall is equating libertarianism with white supremacy. I think this is roughly equivalent to equating socialism with Stalinism, conservatism with Nazism or Islam with terrorism. This attitude of some of the left is unbelievably destructive and dangerous. added,

Kim-Mai Cutler: Is there a theoretical world in which libertarianism /= white supremacy but the practical, real-world effect of libertarian policies over the last 40 yrs has been to extend white supremacy, given that different groups did not start out w/ equivalent resources & capital in the US?

Brad DeLong: I had thought that my brilliant-but-at-times-highly-annoying coauthor @Econ_Marshall was making a more sophisticated point—that here in America "libertarianism" is a Frankenstein's monster that got its lightning-bolt juice from massive resistance to the Civil Rights Movement. Dismantling the New Deal and rolling back the social insurance state were not ideas that had much potential political-economy juice back in the 1950s and 1960s. But if the economic libertarian cause of dismantling the New Deal could be harnessed to the cause of white supremacy—if one of the key liberties that libertarians were fighting to defend was the liberty to discriminate against and oppress the Negroes—than all of a sudden you could have a political movement that might get somewhere. And so James Buchanan and the other libertarians to the right of Milton Friedman made the freedom to discriminate—or perhaps the power to discriminate?—a key one of the liberties that they were fighting for in their fight against BIG GOVERNMENT. And this has poisoned American libertarianism ever since.

This—Marshall thinks, and I am more than half agree—is the right way to look at it.

For example, consider when Rand Paul Came out of the libertarian fever swamps to Washington began saying that he would have voted against the 1964 Civil Rights Act because it infringed On property holders' rights to discriminate: "This is the hard part about believing in freedom.... I'm sure you believe in the First Amendment so you understand that people can say bad things. It 's the same way with other behaviors.... In a free society, we will tolerate boorish people, who have abhorrent behavior..."

No "public accommodation" category for him!

No argument that if you hold yourself out as a provider of goods or services in the public marketplace you must then not discriminate on the basis of race.

Of course, Rand Paul then quickly learned not to say what he thinks. He quickly learned that it is a loser in America today and say that your libertarianism Includes a strident commitment to the right to discriminate on the basis of race—that having a belief in FREEDOM understood as the freedom to discriminate on the basis of race beats be done privately and quietly rather than publicly and loudly. And so now Rand Paul only says it in private.

It is now 65 years since Murray Rothbard and his ilk began trying to harness the lightning bolt of white supremacy to animate the dead tissue of their Frankenstein's monster of the anti-New Deal cause. Does it still matter? I think it does. I have heard a lot of people who call themselves "libertarians" say and sagely nod at others' saying that utility derived from satisfying a taste for discrimination is a proper thing to include in a social welfare function—and they are often the same people who are outraged at counting utility from redistribution, envy, or theft.

Gee, I have argued myself from half-agreeing with @Econ_Marshall to 90% agreeing with him, haven't I?

Marshall Steinbaum: It was inevitable.

Brad DeLong :-)

Oliver Beige: If you're trying to investigate the linkage between Rothbard and Peter Thiel, you should have a closer look at white flight suburbanization and how it shaped, among other things, Silicon Valley:

Kim-Mai Cutler: I wrote that...


(((E. Glen Weyl))) retweets: Ryan Lackey: Favorite 5 books that I read in 2018: The Bell Curve (Murray); Radical Markets (Posner); Eichmann in Jerusalem (Arendt); Influence (Cialdini); Principles (Dalio).

Brad DeLong: If you are trying to claim that white supremacy is not in inextricably intertwined with American libertarianism, it is really better not to retweet people who are excited by The Bell Curve and its strange sad fascination with genetic racial differences in IQ. This is what @Econ_Marshall means: you start out reading somebody, and then they have an unhealthy fascination with:

  • genetic racial differences in IQ, or
  • with how "public accommodation" doctrine is a grave and illegitimate overreach, or
  • know too much about the muzzle velocity of the Nazi armored battlewagon four.

I have found that if someone identified as a libertarian there was an unhealthy chance they would like to hang out with one of these groups.

Better, I think, in a benefit-cost sense, to confine you're reading and interaction to people who say that they feel the strength of libertarian arguments but who accept the label only with many many asterisks...

#publicsphere #economicsgonewrong #moralphilosophy #ontwitter #highlighted  

 -- via my feedly newsfeed

Tim Taylor: Joan Robinson on Poets, Mathematicians, Economists, and Adam Smith [feedly]

Joan Robinson

Joan Robinson studied under the British Marxist Maurice Dobb, but became famous as a prominent post-Keynesian economist ( She does not mention Marx, but he is present in the thematic and philosophical l linking of judgement, even 'science', to personal or class interests in all but laboratory and mathematical sciences.

Joan Robinson on Poets, Mathematicians, Economists, and Adam Smith

Joan Robinson, in her book Economic Philosophy (1962, pp. 26-28), offers a meditation on how Adam Smith perceived poets and mathematicians-- and then on how economist fall in-between Her argument is that mathematicians have an agreed-upon method for evaluating errors. Poets do not. And economists fall in between--which introduces a personal element into all economic controversies. In the passage that follows, I'm especially fond of two of her comments: 

"[E]conomics limps along with one foot in untested hypotheses and the other in untestable slogans."

"Keynes was singularly free and generous because he valued no one's opinion above his own. If someone disagreed with him, it was they who were being silly; he had no cause to get peevish about it."

Here's the fuller passage. Robinson writes: 
Anyone who says to you: 'Believe me, I have no prejudices,' is either succeeding in deceiving himself or trying to deceive you. ... [I]n the social sciences, first, the subject-matter has much greater political and ideological content, so that other loyalties are also involved; and secondly, because the appeal to 'public experience' can never be decisive, as it is for the laboratory scientists who can repeat each other's experiments under controlled conditions, the social scientists are always left with a loophole to escape through - 'the consequences that have followed from the causes that I analysed are, I agree, the opposite of what I predicted, but they would have been still greater if those causes had not operated'.

This need to rely on judgement has another consequence. It has sometimes been remarked that economists are more queazy and ill-natured than other scientists. The reason is that, when a writer's personal judgement is involved in an argument, disagreement is insulting.
Robinson then turns to quoting Adam Smith on poets and mathematicians:
Adam Smith [in the Moral Sentiments] remarks upon the different temperaments of poets and mathematicians:

"The beauty of poetry is a matter of such nicety, that a young beginner can scarce ever be certain that he has attained it. Nothing delights him so much, therefore, as the favourable judgements of his friends and of the public; and nothing mortifies him so severely as the contrary. The one establishes, the other shakes, the good opinion which he is anxious to entertain concerning his own performances.

"Mathematicians, on the contrary, who may have the most perfect assurance, both of the truth and of the importance of their discoveries, are frequently very indifferent about the reception which they may meet with from the "public. . . .

"[They] from their independency upon the public opinion, have little temptation to form themselves into factions and cabals, either for the support of their own reputation, or for the depression of that of their rivals. They are almost always men of the most amiable simplicity of manners, who live in good harmony with one another, are the friends of one another's reputation, enter into no intrigue in order to secure the public applause, but are pleased when their works are approved of, without being either much vexed or very angry when they are neglected.

"It is not always the same case with poets, or with those who value themselves upon what is called fine writing. They are very apt to divide themselves into a sort of literary factions; each cabal being often avowedly and almost always secretly, the mortal enemy of the reputation of every other, and employing' all the mean arts of intrigue and solicitation to preoccupy the public opinion in favour of the works of its own members, and against those of its enemies and rivals."
 Robinson then sums up:
Perhaps Adam Smith had rather too exalted a view of mathematicians, and perhaps economists are not quite as bad as poets; but his main point applies. The lack of an agreed and accepted method for eliminating errors introduces a personal element into economic controversies which is another hazard on top of all the rest. There is a notable exception to prove the rule. Keynes was singularly free and generous because he valued no one's opinion above his own. If someone disagreed with him, it was they who were being silly; he had no cause to get peevish about it.

The personal problem is a by-product of the main difficulty, that, lacking the experimental method, economists are not strictly enough compelled to reduce metaphysical concepts to falsifiable terms and cannot compel each other to agree as to what has been falsified. So economics limps along with one foot in untested hypotheses and the other in untestable slogans."

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Trump's China Strategy Isn't Working

an alternative bourgeois view, via Bloomberg, on Trump's trade war with China

Trump's China Strategy Isn't Working

The administration's scattershot approach is ineffective, if not harmful to U.S. interests. And it's only amplifying Beijing's nationalist tune.

December 30, 2018, 7:23 PM EST
Poking the bear. Photographer: Nicolas Asfouri/AF
Anne Stevenson-Yang is co-founder and research director of J Capital Research Ltd., a provider of investment advisory services.
Read more opinionFollow @doumenzi on Twitter

The Trump administration's willingness to push the Chinese harder on trade has struck a bilateral chord. Beijing is listening. So far, so good. Now the question is what the U.S. wants to achieve. Answer: the total destruction of China as a competitor.

That isn't a trade goal, and the demands being made contradict one another. This aim also unnecessarily awakens Beijing's deepest nationalist fears.

Unsure what to offer next – and convinced that the U.S. effectively persuaded Canada to take an executive at Huawei Technologies Co. hostage – China is falling back on familiar jingoistic strategies and rhetoric. Things are likely to get much worse from here.

Meanwhile, the U.S. economy is incurring pain that the Trump administration seeks to alleviate with a $12 billion bailout program to aid farmers. Pain may be worth enduring if something is being accomplished. But the only likely outcome is a reduction in trade and more expensive Chinese products. In other words, fat taxes on the American consumer.

Over the past few months, Chinese imports from the U.S. have dropped sharply, declining 25 percent in November, even as its exports to the U.S. continued to rise. The big falloff started in July, after Washington implemented the first list of China-specific tariffs.

Two Roads Diverged

China's imports from the U.S. have fallen amid the trade war, while its exports there keep rising

Source: Customs General Administration of China

The majority of U.S. firms polled by the American Chamber of Commerce in Shanghai reported that the trade war has hurt their profits and that non-trade barriers have increased. The policies, if anything, have supported more offshoring: 31 percent of the respondents said they were looking to assemble or source components outside the U.S. There is no evidence that cybersecurity or intellectual-property protections have improved for U.S. companies.

That's a big turnaround in sentiment from years past. So why the change of heart?

China started its economic opening with an all-fronts offensive to charm foreign businesses. Politburo members were told to doff Mao suits and put on ties and jackets. Beijing and Shanghai built luxurious hotels at the end of highways that led straight from their airports: Foreign investors never needed to encounter the inconveniences of China proper.

By the 1990s, every third-string corporate delegation from the U.S. hoping to manufacture ball bearings or Barbie dolls in China was given an audience with the top political leadership, and those of us working there met constantly with government representatives. It's no wonder that American corporations believed the country was on a trajectory toward better market access, more transparency and fairer competition.

A key turning point came when China discovered public markets. The decade between 2000 and 2010 was a heyday for Chinese IPOs – especially for state-owned enterprises, for which public markets seemed like a bottomless and benevolent well of cash. After Hu Jintao assumed leadership in 2003, he dispensed with all the government meetings for foreigners.

Another decisive moment was 2008, when the nation's measures to secure an optically triumphant Olympics established the machinery for tighter information control. That came in handy as the global financial crisis hit. With infrastructure stimulus appearing to rescue the economy, Beijing became convinced of the country's exceptionalism – a hubris that only affirmed the success of China's authoritarian model, and led to a new era of assertiveness.

In this way, China lost the support of foreign businesspeople, who have become disillusioned with the market, tired of the pollution, and now fear for their physical safety. (The detention of three Canadians in retaliation for the Huawei arrest looks like pure thuggery.)

Initially, it was startling and encouraging that a U.S. administration was finally willing to call China's bluff. Problems in bilateral trade genuinely run deep, and Beijing has a coordinated strategy of stealing U.S. technology and evading American export-control laws. Market access has in many ways deteriorated since the country joined the World Trade Organization in 2001 and made sweeping commitments to open up. The country subsidizes industries that then gain unfair advantages against competing foreign products.

But the Trump administration's attempt to address these problems isn't working. Its trade positions conflict with one another, and despite various theories, no one is entirely sure who speaks for the U.S. President Donald Trump started off by demanding that China reduce its trade surplus with the U.S. by $200 billion and threatened a series of tariffs on its goods. The U.S. trade representative is pushing forward a Section 301 action to address intellectual-property theft, while also claiming to be working to encourage "reshoring" by U.S. firms. The Department of Defense is focused on cyber-strategy; the Department of Commerce on export controls; the FBI on non-traditional espionage. In other words, there is a litany of complaints whose basic target is the whole Chinese economic and political system.

Many of these goals are incompatible. Enforcing U.S. export controls will necessarily decrease its shipments to China and therefore increase the trade deficit. U.S. tariffs, and the inevitable retaliation, are a disincentive to reshoring, as they raise costs. Enforcing intellectual-property laws promotes import substitution. None of this is to say that the laws shouldn't be enforced; the administration just needs to be clear on its goals.

There are a few ways the U.S. could adopt a constructive approach without relinquishing (most of) its goals.

Focus on intellectual-property theft: Drop demands about the trade deficit and firmly pursue IP enforcement and market-access demands. U.S. Trade Representative Robert Lighthizer is by far the most experienced and capable negotiator on the U.S. side. Treasury Secretary Steven Mnuchin, Commerce Secretary Wilbur Ross, and Trump should step out of the process.
Go after China's red aristocracy: The high-alarm reaction to Huawei Chief Financial Officer Meng Wanzhou's arrest is a clear sign that the country's blooded elite are the third rail of diplomacy. A more active Treasury Department focus on Chinese money laundering; more stringent enforcement of export controls; and swift sanctions on the country's sales to Iran and North Korea are important pressure points.
Strengthen CFIUS: The U.S. needs to trade access to its own market for entry to China's, especially in financial services. More stringent investment reviews via the Committee on Foreign Investment in the U.S. can be used as leverage.

China's political leadership rules at the pleasure of its military and security forces, a fact poorly appreciated in the U.S. Beijing's more regressive and nativist powers are held at bay when the country demonstrates strength, and even bellicosity. The Trump stance could easily trigger a backlash for which the U.S. is ill-prepared.
John Case
Harpers Ferry, WV
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House Democrats to Vote on Ending Shutdown as They Take Majority [feedly]

Bloomberg on the shutdown negotiations

House Democrats to Vote on Ending Shutdown as They Take Majority

House Democrats will use their new majority Thursday to vote on legislation to end the U.S. government shutdown without adding funds for President Donald Trump's border wall, but the GOP-controlled Senate already has signaled it won't act without White House consent.

The plan is to pass two separate bills, one reopening eight departments -- which have been closed since Dec. 22 -- through September 2019 and another temporarily reopening the Department of Homeland Security through Feb. 8, two House Democratic aides said Monday.

The partial government shutdown is an unwelcome gift for the new Congress, which opens Jan. 3 with the House and Senate politically split. Nancy Pelosi, who's expected to be elected House speaker Thursday, has said her party would vote on ending the shutdown on its first day in power. This would allow negotiations over Trump's request for $5 billion for a border wall to continue while the rest of the government would continue operating.

But the Senate doesn't plan to rubber-stamp the House plan.

"It's simple: The Senate is not going to send something to the President that he won't sign," said Don Stewart, a spokesman for Senate Majority Leader Mitch McConnell.

Senate Appropriations Chairman Richard Shelby said Sunday on CBS's "Face the Nation" that the House votes "would be probably an empty gesture. But that goes on in Washington every day."

Nancy Pelosi

Photographer: Andrew Harrer/Bloomberg

But as the shutdown drags on, some moderate Republicans may start pressuring McConnell to take a more active role by putting the House bill on the floor for amendment.

House Republicans will also have a role to play, even though they'll be in the minority. If some moderates start to balk at Trump's hard-line strategy, they could back a bill to reopen the government and raise the prospect of overriding a Trump veto.

There are three basic ways the shutdown that started on Dec. 22 could end: Trump gives up the $5 billion he wants for the wall, Democrats give Trump his wall money, or both sides come up with a face-saving deal. There are many options for that type of deal.

Here are some of the possible scenarios:

Democrats Win

Pelosi and Senate Minority Leader Chuck Schumer offered options to Trump during a heated Oval Office meeting on Dec. 11, including a six-bill spending package with a stopgap for Homeland Security and a full-year stopgap spending bill for all the closed federal departments.

On Monday, the two aides said the first House measure to be voted on Thursday would provide funding through September for the departments of Agriculture, Interior, Transportation, Housing and Urban Development, Treasury, State, Commerce and Justice, as well as related agencies. The measure will be based on bipartisan draft Senate bills. Disaster aid for hurricanes and wildfires would be handled separately, one of the aides said.

Democrats are aiming to pressure Senate Republican leaders to allow votes on the bills. The Senate unanimously approved an extension of Homeland Security through Feb. 8 before the shutdown began, only to see the bill die in the House after Trump rejected the plan.

The full-year spending bills for Interior, Financial Services, Agriculture, Transportation and Housing and Urban development passed the Senate in August on a 92-6 vote. The Commerce and Justice bill was approved in committee on a 30 to 1 vote.

Trump is dug in and isn't likely to accept the plan, which would provide $1.3 billion for border security on a pro-rated basis, though it couldn't be used for new fencing.

Stopgap Spending Into February

The Senate could hold up the full year spending bill and simply pass a stopgap bill for all nine departments through Feb. 8 passed. Such a bill passed the Senate on a voice vote earlier this month before being scuttled in the House by outgoing Speaker Paul Ryan and objections from Trump. As the pain of the federal shutdown increases and workers miss their Jan. 11 paychecks, this option could become more attractive. Lawmakers could also keep current spending levels into March or later.

Senate Compromise Revived

Lawmakers could revive a deal reached in August by Shelby and top Appropriations Committee Democrat Patrick Leahy to provide $1.6 billion for border barriers, including about 65 miles (105 km) of pedestrian fencing near the Rio Grande River. "I think $1.6 billion has a nice ring to it," said outgoing Senate Majority Whip John Cornyn just prior to the shutdown.

"A lot of people in retrospect will say we should have accepted that," Leahy told reporters on Dec. 19. The money could have been used only to build existing designs such as steel bollard fencing, and the barriers couldn't be built in the Santa Ana National Wildlife Refuge in Texas along the banks of the Rio Grande. This plan would let Trump claim the shutdown gained $300 million more in funding for border security than Democrats' $1.3 billion offer.

Pence Offer Tweaked

Vice President Mike Pence told Schumer on Dec. 22 that Trump could accept $2.1 billion for border barriers, plus a $400 million flexible fund for the president's "immigration priorities." Democrats dismissed the $400 million as a "slush fund" that could be used to mistreat migrants, and they called the offer hollow because Trump hadn't publicly endorsed it.

Still, this offer could become the seed for a deal if Trump endorsed it. Language could be added to limit the money to barriers that Trump could call a wall and Democrats could call a fence. Limits on the $400 million could direct the money to mutually agreeable uses. Trump met with Pence, White House budget director Mick Mulvaney and senior adviser Jared Kushner Friday night at Pence's residence for about two hours.

McConnell, prior to the shutdown, offered Democrats a deal allocating $1.6 billion for border barriers plus $1 billion for a flexible fund. A compromise could be reached by shrinking or eliminating the flexible fund and providing between $1.6 billion and $2.1 billion for barriers.

These options appear less likely since Trump on Monday said he has not abandoned demands for a concrete wall on at least part of the border.

Grand Bargain

Earlier this year, Schumer and Trump attempted to craft a deal on immigration that would have provided $25 billion for the wall in exchange for a path to citizenship for so-called Dreamers, young undocumented immigrants brought to the U.S. as children. That was scuttled after conservatives insisted on changes to legal immigration, and court challenges halted attempts to deport the immigrants. White House officials have said Trump could be open to this idea again, though Democrats say they don't trust Trump to complete the deal without adding demands at the last minute.

Trump Wins

The name of the game in shutdown fights is avoiding blame. Trump said in the widely televised Oval Office meeting on Dec. 11 that he would accept blame for any shutdown, but since it began, he's insisted that Democrats are at fault. On Sunday, he tweeted about a "SchumerShutdown." Democrats are in no mood to give in, making a capitulation to Trump the least likely scenario.

Slightly less implausible: Shelby floated a compromise in which Trump's $5 billion would be split into $2.5 billion for each of two years. Trump was said to privately back the idea, but Democrats rejected it because the money could be used for a concrete wall. Because Pence's Dec. 22 offer was lower than the $2.5 billion level, returning to this solution seems unlikely.

On CBS's "Face the Nation" on Sunday, Shelby urged both sides to stop the blame game and said Democrats should articulate what kind of border security they can support. Montana Democrat Jon Tester, on the same program, said he prefers technology and more manpower at the border to a wall.

 -- via my feedly newsfeed