The RBA as firm and policymaker

Here is the Financial Times:

Australia has created 1m jobs over five years and its economy is growing at a healthy 3.1 per cent a year, but for workers the “lucky country” has lost some of its shine. Wages growth is stuck near record lows and household debt is among the highest in the developed world.

Average wages grew 2.1 per cent in the year to the end of March, below the 3.5 to 4 per cent levels that Australians enjoyed during a decade-long commodities boom that ended in 2013.

This is causing concern at the Reserve Bank of Australia, which has warned that weak household income growth and high debt posed a risk to the economy. “The crisis is really in wage growth,” Philip Lowe, the RBA governor, cautioned last year as he implored workers to demand higher wages to stimulate the economy.

A few comments:

1. Australia has now gone 27 years without a recession, despite wild swings in the markets for its key commodity exports (iron, coal, food, etc.)  So much for the theory that good monetary policy cannot smooth out the business cycle.  So much for the theory that housing bubbles cause economic instability.  So much for the theory that decade after decade of massive current account deficits are a problem. The naysayers have been telling me “you just wait” since I began blogging in early 2009.  I’m still waiting, and the Australian expansion keeps rolling along.

2.  The RBA is confused.  It is concerned about slow nominal wage growth, but it is the RBA itself that determines Aussie nominal wage growth.  If it wants wages to grow faster, then it should raise the Australian NGDP growth rate.

The consequences of low wage growth are not restricted to workers. Mr Lowe, RBA governor, has warned of a cascade effect whereby it contributes to weak inflation, which keeps interest rates at record low levels — a trend that pushes up asset valuations and social inequality.

Weak wage growth also damps spending by households and restricts income tax collection by the government, which is betting on a rapid recovery of wages growth to 3.25 per cent by 2019-20 to meet its pledge to return the budget to surplus.

Nope, low wage growth, low inflation, low interest rates and slow spending are all caused by slow NGDP growth, aka tight money.

It also poses a risk to industrial peace. Last month, Australia stopped printing money for the first time in 107 years due to a strike at Note Printing Australia, a wholly owned subsidiary of the RBA. Workers are demanding a pay rise of at least 3.5 per cent and have rejected an offer of 2 per cent.

“The RBA is lecturing businesses on the need to lift wages but is refusing to offer its own workers a decent raise,” said Tony Piccolo, regional secretary of the Australian Manufacturing Workers’ Union. “Governor Lowe needs to practice what he preaches.”

The RBA is both a firm and a policymaker.  The RBA as policymaker is confused as to why nominal wage growth is so slow.  The business side of the RBA is fully aware of why this is occurring. It’s “the market”, i.e. slow NGDP growth, which is holding down wage growth.

Cults are the norm

Trump is not a particularly interesting person.  The Trump cult, however, is very interesting.  I’ve been following American politics pretty closely since 1968, and I’ve never seen anything remotely like this.  (Although obviously this sort of political cult is common in other countries.)

What differentiates a cult from a normal religion?  It’s not really about the theology.  Cult beliefs may seem bizarre, but even ordinary religions hold beliefs that seem strange to an outsider.  Rather it’s about the behavior of the cult members, the blind adherence to the cult leader, the willingness to do or say or believe anything they are told.  Nothing less than 100% devotion is acceptable.

A congresswoman from Alabama named Martha Roby has been a strong supporter of Trump’s policies since he was elected in 2016.  And yet she faces a stiff primary challenge from a Trumpista candidate (and will face a runoff election).  Her sin was strongly criticizing Trump’s “grab them by the pussy” remark during the 2016 campaign.  In the Trump cult, there is simply no place for a conservative pro-life Christian woman who doesn’t believe that rich and powerful alpha males should be allowed sexually harass women.

In South Carolina, Mark Sanford’s sins were far worse.  He actually stood up for traditional GOP small government ideas, and was soundly rejected in a recent primary.  He seems confused by what’s happening:

“We’re at an interesting inflection point in American politics,” he said in an interview. “If somehow dissent from your own party becomes viewed as a bad thing, then we’re not really vetting and challenging ideas in the way the founding fathers intended.”

Broadening his argument, Mr. Sanford said America was meant to be “a nation of laws, not men” and that “we weren’t a cult of personality.”

Yes, “we weren’t”.  And this:

The stalled efforts to rein in a protectionist president have led to cries of frustration from Republican free traders bemused by what they see as a growing fealty in the party to Mr Trump at the cost of longstanding party ideals.  “We are in a strange place . . . It’s becoming a cultish thing, isn’t it?” Bob Corker, the Tennessee Republican behind the effort to impose congressional oversight on Mr Trump’s national security tariffs, told reporters after his measure failed.

There’s that word again.  Paul Ryan and a bunch of his colleagues (including Corker) saw the writing on the wall and decided to exit politics.

From an American perspective, this does all seem quite bewildering.  But remember, this is the norm throughout most of the world, throughout most of human history.  Cults are normal; classical liberalism and the enlightenment are unusual.  It’s the period before 2016 in advanced countries that is the outlier.

Trump’s cult is now so securely established that he is increasingly emboldened to push the envelope.  He can now joke about the fact that he lies all the time, without budging the unshakable conviction of his supporters

“Honestly, I think he’s going to do these things. I may be wrong; I mean, I may stand before you in six months and say, ‘Hey, I was wrong,’” he said during a press conference, adding, “I don’t know that I’ll ever admit that, but I’ll find some kind of an excuse.”

 [I fantasize about an episode of Fox News where Trump says “Let’s face it Sean, I lie all the time”, and Hannity replies “No you don’t, Mr. President”]

Interestingly, there was one Fox News contributor who did escape from the cult.  Ralph Peters is a war hero who was much loved by conservatives as long as his fire was directed at Obama.  But after resigning from Fox he sent this letter:

Four decades ago, I took an oath as a newly commissioned officer. I swore to “support and defend the Constitution,” and that oath did not expire when I took off my uniform. Today, I feel that Fox News is assaulting our constitutional order and the rule of law, while fostering corrosive and unjustified paranoia among viewers. Over my decade with Fox, I long was proud of the association. Now I am ashamed.

In my view, Fox has degenerated from providing a legitimate and much-needed outlet for conservative voices to a mere propaganda machine for a destructive and ethically ruinous administration. When prime-time hosts–who have never served our country in any capacity–dismiss facts and empirical reality to launch profoundly dishonest assaults on the FBI, the Justice Department, the courts, the intelligence community (in which I served) and, not least, a model public servant and genuine war hero such as Robert Mueller–all the while scaremongering with lurid warnings of “deep-state” machinations– I cannot be part of the same organization, even at a remove. To me, Fox News is now wittingly harming our system of government for profit.

As a Russia analyst for many years, it also has appalled me that hosts who made their reputations as super-patriots and who, justifiably, savaged President Obama for his duplicitous folly with Putin, now advance Putin’s agenda by making light of Russian penetration of our elections and the Trump campaign.

I would have expected conservative intellectuals to be immune to this sort of cult, but just the opposite is true.  Hardly a week goes by when I don’t receive an envelope from some conservative think tank saying something to the effect; “Please help us support our great President, who is being unfairly attacked by the biased liberal media.”  That’s funny, when I watch CNN or read the NYT I mostly see a media that is correctly pointing out that Trump is a pathological liar. (Obviously with an occasional inaccuracy.)

It would be interesting to do a google search of all the cases of “increasingly cult-like behavior” and then find the correlation with “ends well”.  I’d guess a Venn diagram of those two concepts does not show a lot of overlap, but heh, there’s always a first time.

PS.  I hope it’s clear that when I talk about the Trump cult, I’m not talking about Trump voters.  There are plenty of Trump voters who admit that Trump is a highly flawed individual, but hold their nose and vote for someone who will deliver corporate tax cuts and conservative Supreme Court members.  I’m talking about the people who believe that Republicans who are not blindly obedient to Trump must be excommunicated from the party.  Even many alt-right people are not in the Trump cult, as they actually care about certain issues.

PPS.  And please don’t engage in “whataboutism”.  I’m fully aware that even normal politics has some cult-like tendencies, just as even normal religions do.  Thus the GOP tends to kick out pro-choice people and the Dem’s kick out pro-life people.  That’s normal politics, as long as its based on issues.  As with almost everything of interest in the social sciences it’s a matter of degree.  What pushes the Trump cult into new territory is the almost cavalier disregard for Trump’s actual policy positions.  Tough on Iran, appeasement for North Korea, massive spending increases, tax cuts, and whatever else he decides on a given day—it doesn’t even matter to the Trump cult. All that matters is whether you are with Trump or against him.  Like any totally random individual, Trump will guess right on some issues and wrong on others.  If you think this is about the issues, you are completely missing the point.  As Sam Harris pointed out in a recent interview (see below) we shouldn’t support Trump in 2020 even if his first term ends with nothing but one brilliant success after another.

PPPS.  Speaking of Trump, I stumbled across a long interview with Sam Harris (by Dave Rubin), someone I’d heard a lot about but have not actually got around to reading.  I found it pretty interesting.  The first (least interesting) part involved Harris bashing the liberal media for excessive political correctness.  The second part involved Harris bashing Trump.  By that point I realized his views weren’t too far from mine; against excessive liberal PCism, against dishonesty among intellectuals, fed up with Twitter shaming, and strongly against Trump, although I also sensed that there are probably some areas where I would disagree. In the third part Harris discussed consciousness from a Buddhist perspective, which makes sense to me.  And in the fourth part he discussed atheism and his views on Jordan Peterson.  He mentioned that he will soon have several long conversations with Peterson (someone else I’ve heard a lot about but haven’t gotten around to reading) so I’ll have to try to catch that.  These two seem to have just the right amount of overlap and differences to make the conversation interesting.  Harris reminds me a bit of Peterson in the sense that both have a certain charisma in the way they speak, which you’d miss if you just read the transcript.

Love this tweet

Vaidas Urba directed me to this tweet from Vitor Constâncio, who’s term as the Vice President of the ECB just ended. Also recall Bernanke’s recent advocacy of level targeting.

Screen Shot 2018-06-13 at 11.06.06 AMLove it!

PS.  Here is the link embedded in the tweet:

https://www.ecb.europa.eu/press/key/date/2018/html/ecb.sp180504.en.html

Learn from Mencken

It seems to me that people are too depressed by Trump.  Yes, he’s far and away the most appalling individual ever to achieve high political office in the US, but that doesn’t mean we can’t get some enjoyment out of the spectacle.  Think about the amusement that Trump provides in a typical day. Just yesterday he said (regarding Kim):

He really wants to do something I think terrific for their country. . .

I do trust him, yeah.

When Bush said something similar about Putin he could be forgiven on several grounds.  First, we hadn’t seen this sort of presidential naiveté toward a Russian leader since the days of FDR. And second, Putin wasn’t yet anywhere near the brutal dictator he is today.

With Trump there’s no such extenuating circumstances to prevent us from falling on the floor laughing.

Then we wake up this morning to find Trump proclaiming that North Korea is no longer a nuclear threat, and Sean Hannity believes him.  How is that not funny?

And this tweet is just to, to, to funny to pass up:

Screen Shot 2018-06-12 at 8.00.48 PMJust to be clear, I’m not one of those grammar snobs.  I think good grammar is overrated and of course I make lots of mistakes here. But while I occasionally mix up ‘to’ and ‘too’, I’ve never done so in a tweet accusing a Hollywood actor of having a low IQ.  Come on Trumpistas, even you guys have to find that a little bit amusing.

I don’t doubt for a moment that David Brooks is a far better person that HL Mencken.  But Mencken was funnier.  You can’t go through your entire life in just one mode, even a wholesome mode.  Sometimes you just have to indulge your inner cynic and enjoy the crazy spectacle.

Yes, it’s appalling to have an ignorant, bigoted, misogynistic president.  But tens of millions of women and Hispanics voted for him and if they can survive 8 years of Trump you should be able to as well.  For some reason that I cannot fathom, God has favored and protected this crazy country for more than 240 years, and I think he’ll do so for 6 more years.  Remember, as bad as Trump is, presidents just don’t have much influence over the course of events.

So relax and enjoy the spectacle.

PS.   And speaking of enjoying life, don’t get too upset about poor Anthony Bourdain.  I miss him as much as any of his other fans, but he packed more into his 61 years than you or I could do in 600 years. Tony would be appalled by all this handwringing in the media. He had a good run.

In a book on Korea, Simon Winchester made this observation:

A sixtieth birthday is a special thing in all those countries that have come under the maternal influence of old China, Korea very much included. The body is then deemed to have passed through the five twelve-year zodiacal cycles — the yukgap, as the sixty-year period is known — that constitute the proper life span of the human being.  Once someone has successfully completed the span — as old mother Hwang had done three years before — then all time beyond is regarded as a marvellous bonus: you retire from active life, take your respected ease as an elder, let your children make you as comfortable as they can, and let filial piety take over the reins of your life.

Don’t be like me, planning to do all sorts of wonderful things when you retire, and then finding out that past age 60 your body and mind are too broken down to do the things you planned to do.  Plan your life as if you will die at age 60.  That’s enough time.

PPS.  While I’m not a grammar snob, if I ever reach the point of my commenters who think that any sentence containing the word “insult” is ipso facto an insult, please tell me to just stop.

Update:  The North Korean state media is now more accurate than the White House:

North Korean state media lauded the summit as a resounding success, saying Trump expressed his intention to halt U.S.-South Korea military exercises, offer security guarantees to the North and lift sanctions against it as relations improve.

Yup, Kim won.

Art of the troll

Update:  There is a new podcast online where I’m interviewed on neoliberalism.

Jim Geraghty of the National Review is usually somewhat more sympathetic to Trump than I am, but raised his eyebrows a bit after Trump’s recent antics:

Trump and his fans believe he’s demonstrating “toughness” in ways that previous presidents couldn’t. Perhaps. The question is, what happens after you’ve demonstrated your toughness? Does the other side capitulate, or does the other side dig in? No doubt it’s cathartic to visibly rage at the other side, but does it get you where you want to go?

Trump now interacts with the prime minister of Canada the same way he lashes out at Rosie O’Donnell, Mika Brzezinski, or Attorney General Jeff Sessions, by ripping into him on Twitter: “PM Justin Trudeau of Canada acted so meek and mild during our @g7 meetings only to give a news conference after I left saying that, ‘US Tariffs were kind of insulting’ and he ‘will not b- pushed around.’ Very dishonest & weak. Our Tariffs are in response to his of 270% on dairy!”

Trump’s trade adviser, Peter Navarro, raged on Fox News Sunday: “There’s a special place in hell for any foreign leader that engages in bad faith diplomacy with President Donald J. Trump and then tries to stab him in the back on the way out the door . . . that’s what bad faith Justin Trudeau did with that stunt press conference.”

Talk about turning it up to eleven. When U.S. policymakers tell a foreign leader that there’s a special place in hell waiting for him, it’s usually a brutal dictator who’s committed atrocities and human-rights abuses.

[Actually, the Trump administration reserves phrases like “very honorable” for brutal dictators who imprison hundreds of thousands of people in Nazi-like concentration camps, where women are brutally raped, tortured and starved and children born there have to live out their entire lives in prison.  Hell is reserved for Trudeau, who expressed displeasure with US steel tariffs that treat Canada as an enemy, not Kim (or Putin or Duterte or any of the other thugs that Trump likes.)]

It’s not clear to me if Trump is very bad at making deals, or is simply not interested.  Maybe he thinks his fans just want to see 8 years of trolling, with nothing substantive accomplished.  But there is one overlooked side effect of all this—it severely undercuts international Trumpism.  Consider the plight of poor Doug Ford, who had been gaining on Trudeau in recent months:

“We will stand shoulder to shoulder with the prime minister and the people of Canada,” Doug Ford, the Trump-like renegade who was recently elected premier of Ontario, wrote on Twitter.

That’s sort of like if in 2016 Trump had been forced to say he was standing shoulder to shoulder with Obama.  By making the attacks on Canada so over the top and absurd, the Canadian populist right is humiliated, and virtually forced to rally around the despised Trudeau.

When a small country is next to a very big country, the citizens of the small country usually know far more about the big country than vice versa.  Americans may not know that Trump lies about trade with Canada (and even admits doing so), they probably don’t even care.  But I’m pretty sure that a lot of Canadians know that the US runs a trade surplus with Canada, and that Trump is lying when he claims that Canada and the EU have much higher tariff rates than the US, and do care about the attacks.  That’s the nature of small countries.

If your nationalism is based on unfairly demonizing foreigners, then it will inevitably run up against the nationalism of foreign countries.  Thus while leftists like Sanders and Corbyn might view themselves as allies, two similarly placed nationalists will eventually be at each others throats.  People with similar interests often become friends.  But if your similar views are “everyone else is inferior to me”, that’s not much of a basis for friendship, even with someone with similar views.  That’s why global nationalism will burn about, just as the earlier version in the 1930s was eventually discredited.

PS.  Predictions for the Korea summit:

Kim wants the US to allow him to keep his nukes.  To do this, he’s intending to make a few minor concessions in unimportant areas, and then issue some sort of vague promise to go nuclear free in the long run.  Sort of like the promises North Korea made in earlier decades.

Kim wants to create a scenario where he doesn’t have to worry about an attack from the US, and perhaps the economic sanctions are made less severe.

Iran does not have nukes, but faces severe economic sanctions.  Kim wants the reverse, to keep his nukes and to avoid strong economic sanctions.

My prediction is that either Kim will get what he wants, a sort of “Peace in Our Time” capitulation from the US on the nukes, or else the talks will fail to produce anything substantive.  In other words, I predict the US will fail to achieve its objective.

There’s been some discussion of long-range missiles, but that’s a side issue.  In the unlikely event that North Korea ever uses a nuke against the US, it would make far more sense to smuggle it into LA or NYC inside a bale of marijuana.