Does this tape reveal the real Trump?

Harding directed me to a tape of a conversation between Trump and Wilbur Ross, which has received a great deal of media play.  Salon focused on the wrong issues, as you’d expect. They made a big deal out of the fact that Trump doesn’t care about food safety, unless it can be used as a protectionist weapon.  But the media seems to be missing the big story here.

For the past year there’s been a debate about whether the buffoon we see in public is the real Trump, or if it’s an act put on by an evil genius who was trying to demagogue his way to power.  (I’m told that Scott Adams is championing the second view.)

If the tape is accurate (and I have no idea if it is), then that debate is definitively settled.  In the conversation, Trump comes across as exactly the sort of buffoon that we see in public.  At one point he suggests that a 10% tariff could eliminate the budget deficit.  And he really seems to believe this stuff, as he thought that he was in a private conversation with Ross.  My favorite part, however, is when he explains how Japanese import barriers on food explain the difference in economic performance between the US (which has a per capita GDP of $57,294) and Japan (which has a per capita GDP of $38,894.)

You might be thinking, “OK, it doesn’t explain the entire difference, but certainly it helps explain the difference in economic performance, as those food import barriers prop up a very inefficient Japanese agricultural sector.”  That’s true, but the idiocy of Trump goes far beyond what you or I can imagine.  You see Trump believes that Japan is actually doing better than the US, and that barriers to farm imports help explain why.  It’s like Trump’s most recent information on Japan came from watching the anti-Japanese film Rising Sun back in 1993, which was the last time Japan was doing pretty well.

PS.  Last night Trump said he believed in free trade, and then in the next sentence pointed out that President Lincoln opposed free trade.  And then he said Lincoln was right.

I heard they used multiple speechwriters.  It showed.

PPS.  Last May I warned my alt-right commenters that Trump would stab them in the back on immigration.  Of course they didn’t believe me.  And now we have this:

The remarks came after Trump told reporters earlier in the day that the president would consider a compromise on immigration.

“If we are guided by the well-being of American citizens then I believe Republicans and Democrats can work together to achieve an outcome that has eluded our country for decades,” Trump said.

The positive overture from Trump on an immigration bill sparked immediate skepticism from Democrats on Capitol Hill, some openness from pro-reform Republicans and consternation from conservatives who have adamantly opposed overhaul efforts in the past.

Consternation?

The administration disclosed few details, but CNN reported that while Trump would oppose a pathway to citizenship for the estimated 11 million in the country illegally, they could obtain some sort of legal status that would allow them to stay. One exception to the citizenship stance could be the so-called Dreamers who came here illegally as children — a population of immigrants to which Trump has taken a particular liking.

I have to say that even I didn’t expect this to happen so fast, even before the wall was built.

Florida Sen. Marco Rubio, a Republican member of the bipartisan Senate Gang of Eight that crafted a comprehensive immigration bill four years ago, said he would “potentially” be interested in getting involved again in reform efforts . . .

People greatly exaggerate the impact of Presidents.  I predict little change in our policy on immigration, or almost anything else.

In China, the nominal wages are real

This is not fake news:

Average wages in China’s manufacturing sector have soared above those in countries such as Brazil and Mexico and are fast catching up with Greece and Portugal after a decade of breakneck growth that has seen Chinese pay packets treble.

Across China’s labour force as a whole, hourly incomes now exceed those in every major Latin American state apart from Chile, and are at around 70 per cent of the level in weaker eurozone countries, according to data from Euromonitor International, a research group.

And here’s a graph of real wage growth (not PPP adjusted):
Screen Shot 2017-02-28 at 6.13.32 PMWhy is this important?  Because year after year we see China pundits predicting a crash.  When it doesn’t happen, some people claim the GDP numbers are “fake news”.  The problem with these arguments is that the Chinese wage numbers (showing real wages growing at 10.5% annually over the past 11 years) are consistent with the reported gains in GDP.  So the Chinese government would have to get its 1.4 billion people to participate in The Great GDP Cover-up, by getting them to also lie to reporters about their wage gains.

My wife recently mentioned that her mother was now paying 35 yuan/hour (i.e. $5/hour) to her maid, a sum that her mother found completely mindboggling.  So what’s the theory? Is my mother-in-law participating in the cover-up, lying to her daughter?  Or maybe my wife is fabricating Chinese wage numbers, to make her homeland look good.  Perhaps I married someone in the Chinese propaganda ministry.

Hmmm . . . that would explain . . .

Seriously, it’s time for people to face reality.  China is not a bubble; it’s a very successful developing country. The GDP data is real, even if it’s nominal. China may well have a debt crisis at some point in the next decade or two, but like South Korea it will recover and move into the high income category.

PS.  If anything, the wage data suggests that China may be understating its GDP growth, as China’s reported GDP (PPP adjusted) is still well below the levels of Mexico and Argentina.

PPS.  When China’s crash does occur, you can be 100% sure I will have failed to predict it.  Just as I promise you I will fail to predict the next US recession.  And the next stock market crash.

Argentina, Chile and China

Scott Alexander recently linked to a graph showing PISA scores by country and by income deciles within countries. Three that caught my eye were Argentina, Chile and Uruguay. These are three countries with populations of Western European descent, and are also the only three countries in South or Central America with per capita GDPs above $20,000.  But the Southern Cone does appalling bad at taking PISA exams, scoring among the lowest of all countries on the list.  Argentina is even lower than (much poorer) Brazil and Tunisia, something I would not have expected.  Argentina also scores extremely low on indices of “Economic Freedom”.

Argentina’s an interesting case to think about.  It’s a sort of composite of the worst of Chile and the worst of China.  Chile scores extremely high on economic freedom, the only developing country in the top 10 (unless Estonia is viewed as developing).  Argentina ranks 156 out of 180.  China’s sort of the opposite of Chile.  It ranks pretty low on economic freedom (#111), but (probably) pretty high on PISA scores.  I say “probably” because the scores being reported are for Shanghai, which is definitely smarter than the average Chinese city or village.  Indeed Shanghai scores above any other country in the world, including high achieving city-states like Hong Kong and Singapore.  Nonetheless, based on other studies I’ve seen, I am confident that China would still do pretty well on a more national PISA exam.  Perhaps about at Vietnam’s level.  (Vietnam is roughly comparable to Finland, and far above the US, UK or Sweden.)

So Chile and China each have one good trait and one bad trait.  Argentina has the bad trait of each.  Argentina’s a classic example of a glass half full/half empty situation.  From one perspective, you might expect Argentina to be rich.  It’s mostly settled by Western Europeans (I think it might be the most Western European country in all of North and South America), and those countries are usually pretty developed.  But Argentina’s per capita GDP seems to be either lowest in the world for ethnic Western European countries, or second lowest (I had trouble getting racial data for Costa Rica.) A hundred years ago it was among the world’s richest countries.  It has a world-class port, and rail lines fanning out across some of the world’s most profitable farmland.  It’s got lots of mineral resources.  It’s technically sophisticated, completing Latin America’s first nuclear power plant way back in 1974.

Chile’s population is also primarily Western European, but considerably less so than Argentina.  Chile also scores very low on PISA, but not as low as Argentina.  And of course Chile has far more economic freedom.  (Just to complete the Southern Cone, Uruguay is in between the two in terms of education and economic freedom, and also GDP/person.)

China is poorer than the Southern Cone.  But that may be misleading; as it’s clearly growing faster and hasn’t reached the “middle income trap” that the Southern Cone seems to have reached.  China’s high PISA scores are consistent with the high scores in other ethnic Chinese/Japanese/Korean/Vietnamese areas, but NOT other parts of Asia.

I’d like to claim that some combination of economic freedom and PISA scores explains wealth, but I see too many exceptions.  Mexico scores higher than Argentina on PISA tests, and also far higher on economic freedom, but is poorer.  Why?

Sweden is much richer than Finland, despite doing dramatically worse on PISA, and being fairly similar on economic freedom.  Maybe the answer here is that PISA and “economic freedom” don’t always measure what we might assume.  Take the Heritage Economic Freedom Index.  Argentina is down there with countries like Uzbekistan, New Guinea, Niger, Haiti and Afghanistan.  I don’t know about you, but if I were opening a new winery, I think I’d prefer the Mendoza area to Afghanistan or Niger.  Indeed reading the Heritage description of Argentina makes me wonder why it ranks so low. As far as PISA scores, I wonder if they measure the sorts of skills required for a modern economy.  According to The Economist, Swedes are the most computer literate of this set of countries, despite scoring relatively low on PISA tests.

Screen Shot 2017-02-18 at 8.21.06 PM I do think both the Heritage rankings and the PISA scores are correlated with what we think they measure (which might be ease of starting businesses and keeping the wealth you create for the Heritage index, and ability to do complex jobs for PISA).  The question I have is whether the outliers we see, such as Argentina and Sweden, are due to flaws in these two metrics, or because there are other factors that influence development, which go beyond economic freedom and intelligence/education.

At the bottom, I have (IMF) estimates of GDP per person in 2016 for the top 91 countries.  A few things worth noting:

1.  The US continues to be inexplicably rich.  Among “normal countries” (i.e. not oil rich, tiny, multinational dominated and/or city states) only Switzerland scores higher.  And number three (Netherlands) is more than 10% lower than the US.  We are no longer top 10 in economic freedom, and our PISA scores are mediocre.  So why are we so rich?  Because we are large?  But lots of small Northern European countries are high on the list.

2.  Spain finally surpassed Italy, after many decades of gradually catching up.  Wait, wasn’t Berlusconi going to Make Italy Great Again?  Seriously, I wonder if a combination of population density and regulatory complexity make if much harder to do major projects in Italy than Spain, like large new real estate developments.  Can anyone confirm?

3.  South Korea is now very close to overtaking Japan.  That may be partly due to the fact that Koreans have lower taxes and work more hours.

4.  China finally overtook Brazil, and it looks increasingly like they will overtake Mexico by 2030, (allowing me to win my bet with Talldave.)

5.   Malaysia overtook Greece and will soon overtake Portugal.  It seems increasingly likely that Malaysia will escape the “middle income trap”.

6.  There used to be a lot of articles about how the former Soviet bloc’s transition to capitalism had failed.  But there are now 5 former communist countries that are richer than Greece and Portugal, with the Czech Republic leading the way.

7.  All you need to do is look at countries #31 to #35 to realize that GDP/person (PPP) can be extremely misleading.  I wonder about some of the figures.

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Why I disagree with most Americans about Trump

Commenters keep telling me that I have to stop being such an elitist, and listen to the gripes of the average American.  (Personally, I’d rather listen to the gripes of the average Bangladeshi.)  For example, take this recent poll:

Three weeks into Trump’s run as president, a poll was published by Public Policy Polling that illustrates the divide in the country: 46 percent of voters are in favor of impeaching Trump, and 46 percent are opposed.

So 54% of Americans either favor impeaching Trump or are undecided. I’m in the minority, with the 46% of Americans who are firmly opposed to impeaching Trump. What makes elitists like me unwilling to listen to the voice of average Americans? I think it’s because elitist intellectuals understand the importance of process.  It might provide momentary pleasure to impeach a president you hate, just as it would be nice to muzzle some neo-Nazi spouting off in your neighborhood.  But in the long run our society will be better off if we don’t follow our Latin American cousins, and instead adhere to clearly spelled out democratic procedures. One of those procedures is that we elect a president every 4 years, and that person can only be removed from office for high crimes and misdemeanors. (I don’t quite know what that means either, but I’m pretty sure it doesn’t apply to Trump . . . yet.)

I understand that “process” is something that only college professors care about, but that doesn’t mean it’s not important. Because I favor a rules-based regime, I’m ignoring the popular will on Trump and sticking with the 46% who favor sticking with Trump, for the moment.

Ironically, one of the many unappealing features of Trump is that he has zero understanding of the importance of process, indeed less so that any major American politician in my lifetime.  For Trump, it’s all about “winning”.

PS.  It’s kind of scary to think that 54% of Americans are even more deranged and unhinged about Trump than I am.  I have a below average amount of Trump derangement.

PPS.  When they say “high crimes and misdemeanors”, do they mean high crimes and high misdemeanors, or high crimes and all misdemeanors?  What are some examples of impeachable offenses that are not crimes?

 

How would consumers feel about the Federal government tripling the gas tax?

Even the previous 4-cent increase in the gas tax was controversial.  Now suppose the federal gasoline tax (currently 18.4 cents) was tripled.  I’d expect consumers to freak out over the news.  And yet even a 37-cent increase is relatively small compared to some of the wild gyrations in gas prices that we’ve seen in recent years.  So why would the reaction be so strong (assuming that I’m correct?)

I think the answer is that consumers know that gas prices gyrate up and down, but also that a gas tax is permanent.  Thus future gyrations would be around a trend line that is 37 cents higher than before.

Commenter Plucky directed me to a very good Tax Foundation article on the proposed border tax.  This caught me eye:

Another consequence of dollar appreciation is that debts denominated in U.S. dollars will become more expensive in foreign countries. This is because a foreign country or business would need to raise money in the local currency and convert it into more expensive dollars to pay the debt. Emerging markets may be hit hardest by this.[33] However, many policy changes in the United States and natural movements in the market have impacts on the value of the U.S. dollar that could impact dollar-denominated debts.[34] It isn’t clear why a border adjustment would be a special case.

I’d make two points here:

1.  A border tax would be relatively permanent.  The dollar would continue to fluctuate over the business cycle, but (so it is claimed) around a 25% higher trend line.  That’s a lot.  For instance it would give Canadian tourism a big advantage over American tourism.  Hawaii would find it harder to attract Asian tourists.  Ditto for Florida vs. the Bahamas.  It certainly won’t destroy our tourism industry, but don’t assume that 25% is not a big deal—it is.  How about our airlines?

2.  In the past, a strong dollar has often been associated with a relatively strong US economy.  Thus the pain of emerging markets having to repay dollar debts at a higher rate is partly offset by strength in EM exports.  This would be different, a sudden 25% jump in the cost of repaying debt, without the associated macro benefits.  Again, I’m not saying it would necessarily cause a debt crisis, but don’t assume that adding 25% to trillions in dollar debts is not a big issue.

PS.  I actually think the tax reform proposal has a lot of merit. Debt and equity would finally be on a level playing field.  But I still have a few lingering doubts about suddenly imposing an exchange rate shock of that size.  (Perhaps because I own some overseas mutual funds.  But then even US multinationals will see foreign profits translated back into US dollars at a considerably lower value, and yet the US stock market seems to be doing fine.  So who knows?)