No walls, no limits

[This post will make more sense if you first read my new Econlog post.]

Zimbabweans have shown that there are no limits to the amount of inflation that a central bank can create.  BOJ Governor Kuroda agrees:

Bank governor Haruhiko Kuroda said things were looking brighter as exports and factory output gather steam — the bank said they were “sluggish” in a November statement.

That was its first upgrade to its view on the economy since May 2015.

The negative impact of a slowdown in emerging economies and Britain’s vote to exit the European Union were fading, Kuroda said.

“There were headwinds in the first half of the year, but they’ve now disappeared,” he added.

Japan has been on an unsure recovery path and the central bank remains way behind reaching a two percent inflation target that is a cornerstone of government efforts to revive the economy.

There are also questions about whether the BOJ can keep buying government bonds at the current pace without shocking debt markets.

Kuroda on Tuesday brushed aside talk about tapering the BOJ’s massive 80 trillion yen annual asset-purchase scheme and suggested there was no limit to what measures the BOJ can take. “We have to press on with strong monetary easing to reach the inflation target as early as possible,” he said.

“I do not subscribe to the view that policies face limits, like walls standing in the way.”

The metaphor I like is a prisoner sitting for years in his cell, assuming the door is locked.  Then one day he tests the door, and finds that he can walk out any time he wishes.  His imprisonment was all in his mind.

Some central banks see iron bars, others see no limits.

Trump’s dilemma

In recent decades, more and more of the nation’s wealth has been concentrated in large cities with “information–oriented economies”, such as New York, the Bay Area, LA, Boston, Seattle and Washington.  Now we are beginning to see some of the effects of this, as a physical transformation of these cities is underway.  I see the effects every time I drive into Boston—each year it looks like a richer city than the year before.

Over the years, I’ve argued that cities like New York don’t upgrade their infrastructure because they would rather spend the money on social services.  (By “they”, I mean powerful special interest groups; who knows what the voters think?) But now NYC is becoming so rich that there is private money available for infrastructure:

new york’s JFK airport is set to receive a vast overhaul, designed to transform the hub into ‘a unified, interconnected, world-class’ complex. announced by governor cuomo, the project also seeks to improve road access and expand rail mass transit to meet projected passenger growth. the scheme will be funded by up to $7 billion USD of private investment, with the governor endorsing a further $1.5-$2 billion in spending by the state department of transportation to improve surrounding roadways.

Screen Shot 2017-01-22 at 5.54.18 PMIn a former rail yard called “Hudson Yards” they are building a “yuuge” project, with baubles like this:

Screen Shot 2017-01-22 at 5.46.43 PMIt looks like the atrium of a large building, or perhaps a painting by Escher. Actually it’s a $150 million piece of public art, which will adorn the big new commercial development on Manhattan’s West Side:

Screen Shot 2017-01-22 at 5.59.45 PMTrump will eventually face a dilemma.  He says he wants private funding of lots of big projects—and this is one of the few areas where I believe him.  I think he’s a builder at heart, with the sort of edifice complex we used to associate with Roman emperors.  But the question is where?  If we rely on private money, these big projects will tend to be in the richer, information-oriented big cities.  But, with the exception of a few Sunbelt cities like Houston, these are exactly the sort of places that despise Trump.

I don’t doubt where advisers like Steve Bannon would stand on this issue.  He favors the “real America” of the rust belt, and would like to revive those areas.  But Trump is a New Yorker, and the easiest way to get big infrastructure projects off the ground is to use private money, and do them in places like NYC.

So does The Donald want to try to “Make New York Great Again”, and probably succeed, at the cost of helping the areas that hate him?  Or should he try to “Make Michigan and Ohio Great Again”, to help his base, and probably fail?

Over the next 12 months we’ll get the answer—keep a close watch on what Congress does, not what politicians say they are doing.

Pepin County was one of the most liberal (white rural) places in America

In my previous post I mentioned that the upper Midwest is the only place where old people are more liberal than the young.  Politico has an excellent article on Pepin County, Wisconsin, a small rural county in northern Wisconsin, which helps explain what’s going on.  The county voted for the Democratic presidential candidate in every election from 1976 to 2012.  That means they voted against Reagan both times, even as Massachusetts voted for Reagan both times.  That’s how liberal Pepin County is.  Almost the exact opposite of what used to be called “ultra-conservative” Orange County, California (Now Hillary country).

If you had told me that Pepin County voted for Trump I would not have been totally shocked.  After all, that region has been gradually trending red. What did shock me is that Trump won Pepin County by a massive landslide—59% to 35%.  Quite a change in just 4 years.

Not consider the following.  Pepin County has had a steady inflow of people over the past few decades.  Were these unpopular minorities, which caused the county to turn conservative?  No, it’s still 98% white.   The migrants were liberals from the Twin Cities, just over the state line.  So now you have an already very liberal area, which then receives a substantial inflow of very liberal people from liberal Minneapolis/St. Paul, and then the country suddenly ends up ultra-conservative?

As Donald Trump takes the oath of office—a phrase that still has the power to make those on the left shudder in shock—an easy way to process the election is that people in rural areas all over America loathe Washington and New York and San Francisco and Hollywood and finally had a chance to show it in a big way. But Pepin County is one of those rural areas, and the resentment isn’t just directed at the coasts. It’s local. Here, the urban elite isn’t a faceless, distant other: It’s the enclave of liberal, mostly Twin Cities newcomers who have moved here over the past few decades—not just an abstract political imposition, but an actual physical presence. It has spawned anger and bitterness, a simmering undercurrent of alienation among many people locally born and raised. It has made “Democrat” mean something it didn’t mean a generation ago. And it was made manifest on November 8.

.  .  .

“We have found a whole community here,” said Pat Carlson, Wally Zick’s wife, “of very like-minded—it’s going to sound elite—but bookish, artsy, I’d say compassionate … organic foodies, the whole nine yards. It’s all transplants. It’s mostly liberals.” As for this election, and the locals, she continued, “I think they thought the liberal elite was looking down on them, and I guess, in some ways, we were. Because we couldn’t believe anybody would vote for Trump.”

Zick described a fault line here between the old and the new, the people who have lived in the county forever and the move-ins from over the Minnesota border, clustered primarily on the southwestern end of the county. “They don’t come here,” Zick said. “We don’t go there.”

“We don’t know them,” Carlson, 72, said.

“I could ask them, ‘Why did you vote for Trump?’” Zick said. “Then what would I do about it?”

“You don’t want to make them mad,” Carlson said.

Unemployment is only 3%, but people who want good jobs tend to leave:

The 2 percent of the population in Pepin County that isn’t white are mainly Mexicans who milk the cows now, instead of the people who used to: the sons and daughters of the farmers. These migrant laborers have been fixtures on farms in Wisconsin for going on 20 years, and few locals are clamoring for their jobs. “The white boys won’t do that kind of work,” not anymore, Mesch told me. But none of that changes the fact that one page of the county’s weekly newspaper packed with pictures of dads with their kids and the deer they shot is followed by another page stocked with classified ads that say things like “NIGHT MILKER WANTED,” “Hablo Espanol.”

Meanwhile, many of the smartest, most enterprising youth from Pepin County—as in so many counties like it—have been leaving for college and never coming back.

The Democrat’s social agenda pushed lots of people over to the GOP:

John Andrews, 68, was the sheriff in Pepin County for 28 years. He is a Republican. He used to be a Democrat, though—and not just any Democrat, but the boss of the Pepin County Democrats, the position currently held by Bruce Johnson. Andrews told me he switched parties in the mid-2000s after the newcomers started coming to the meetings. “They actually took over the party,” he said.

He agrees with Komisar’s opinion concerning the overemphasis on “the social agenda.”

“When the people came in—and the things that they were trying to push on the rest of us—that’s why I left,” Andrews added. “I didn’t want to deal with these people. I didn’t want to be a part of what they were a part of. You’re talking about people from the Cities who are very progressive. I call them tree-huggers, a bunch of tree-huggers. They referred to us, meaning the people who’ve lived here and worked here all our lives, as a bunch of hicks. They just think they’re a little bit better than everybody else, and that we’re not as smart.”

And the following is very different from when I lived in Wisconsin:

At the top of the pole was an American flag. Right below the American flag was a Confederate flag. It’s not something Myklebust had seen before.

Helen Kees, 65, Pepin County born and raised, called the Confederate flag at that house and others she saw elsewhere around the county “a new thing.”

When I lived there, Wisconsin was a liberal state that looked down on “dumb, redneck southerners”.  The following passage discusses the state I recall, which is now dying out very rapidly:

In Pepin County, I met predominantly two kinds of Clinton voters: the Twin Cities progressives, and aging farmers or their descendants. Alex Johnson is the Democrat who said Trump had lit Pepin County “on fire.” He’s an earnest farm kid who was salutatorian at Pepin High. And he’s a Democrat—because his father was a Democrat, and his father was a Democrat because his father was a Democrat. And that was because of the Depression, when a lot of people needed help, and farmers in Pepin County and elsewhere got some from President Franklin D. Roosevelt and the federal government.

Phyllis Seyffer grew up in Pepin County, too. “My dad was a solid Democrat, a dairy farmer,” she told me. Why? “The Depression,” she said.

When I sat down with John Caturia, a retired dairy farmer, he said the same thing: “A generation ahead of us went through the Depression, and the Democratic Party brought it out of the Depression and gave people some hope and gave them a chance to make a living.”

Alex Johnson is 24. But Phyllis Seyffer is 74. And John Caturia is 86. “There aren’t very many of them left anymore, people my age,” Caturia said.

This is only a small selection of the article; I’d encourage you to read the whole thing, especially if you are a Democrat trying to figure out how to rebuild your party.

PS.  Tiny Pepin County is home to a famous American writer.

PS. The way the Politico article discussed the decline of old liberalism in rural Wisconsin reminded me of this Economist article about Ohio, again showing confusion among old-style liberals as to why others are leaving the fold:

The decline of institutions has directly enabled Mr Trump’s rise among unionised workers. Ohio’s construction unions have endorsed Mrs Clinton, and in recent elections Mr DiGennaro reckons that would have been enough to ensure around 80% of his 7,500 members voted Democratic. But he expects 40% to vote for Mr Trump on November 8th—and that was before visiting the worksite. “It could be higher”, he said afterwards. “Thank God the blacks and Latinos can see through Trump’s bullshit. I’m embarrassed by it.”

Another enabling factor is that the bullshit was already familiar to millions of whites, because of the decline of another important institution, the mainstream media. Many of Mr Trump’s supporters are more likely to get their information from right-wing blogs and talk-radio shows, which for the past two decades have been pushing hateful slanders against liberals, immigrants and non-whites. It can be disconcerting at Mr Trump rallies to hear how thoroughly their nonsense is believed. “I can’t think of anything Trump could do that would stop me voting for him,” said Suzy Carter, a computer programmer in Delaware, who was convinced Mrs Clinton had had “over 100” people killed, which made her decision to vote for Mr Trump an easy one.

A year ago I speculated that minorities would save us from Sanders and Trump. They saved us from Sanders, but not Trump.  What the heck is wrong with white people!

PPS.  Timothy Taylor has a very good article on what it would take to convince him that he was wrong about Trump.  During the campaign I made two claims:

1.  I have no idea at all what Trump will do as President.  I still don’t.

2.  If he does what he campaigned on, or even close to it, he’ll be a disaster.

I believe there is basically no chance he’ll do what he campaigned on, so that won’t be an issue.  Thus there’s really nothing that could make me change my views of Trump, except obviously in the sense of clarifying things that I was previously uncertain about.  So far the signs are not good:

1.  I think his campaign was despicable demagoguery, and I’ll still think that if he turns out to be a better President than Washington.

2.  I think his behavior as President-elect is the worst I’ve ever seen, and I’ll always think that.

3.  I think his inaugural address was a despicable xenophobic rant, blaming foreigners for our self-induced problems, and I’ll always think that.

Perhaps I’ll later think he was a great President.  Anything is possible, and that would be a very good outcome.  But I almost certainly will not re-evaluate my past views, unless he does what he said he would do, and the economy turns out fine.  (In that case I’ll say I was wrong.) But he won’t do what he said he’d do.  He won’t pay off the national debt in 8 years.  He won’t renegotiate the national debt.  He won’t expel 11 million illegals.  He won’t get rid of Obamacare.  He won’t enact the tax cut he promised me.  He won’t assassinate family members of terrorists.  He won’t get Mexico to pay for the wall.  He won’t try to prosecute Hillary Clinton.  He won’t do a hundred other things he said he’d do.  His success will depend on what he actually does.

But his campaign was a disgrace, and always will be.

HT:  Tyler Cowen

Inexplicable knowledge

Is it possible to know something, and yet be unable to convincingly explain how you know it?  I think so.

[Just to be clear, when I say “I know something” I mean that I believe I know it. But then what else could it mean?]

David Henderson recently said:

Like Scott, I doubt that the CIA was behind the JFK assassination, but all I have is doubt. I don’t have the certainty that Scott has and I don’t know what’s behind that certainty.

Just to be clear, I’m not completely certain of anything.  But basically David is right; I claim to “know” that the CIA did not conspire to assassinate Kennedy, with 99.9% certainty.  And yet I cannot explain why I know this.  So do I?  Let’s use an analogy of a picture of Trump’s face, made out of 10,000 dots, or pixels if you prefer.  I might look at the picture and say it’s obviously Trump.  But how do I know that?  None of the individual pixels looks anything like Trump.  Rather it’s the cumulative effect of all those pixels that creates the likeness.

When we go through life we accumulate an enormous amount of information.  Each piece of information is like a dot, and together it gives us a complex worldview that tells us that some ideas are plausible and some are not.  The best I could do is use an analogy, something David would agree with.  I might say that I know that the American Girl Scouts leadership council was not behind the Kennedy assassination. If that didn’t work, pick a conspiracy that was even more far fetched—David’s grandmother.  At some point he’d accept the idea that one might know something because the alternative is too implausible, or at least most people would.  But of course that wouldn’t help at all with the CIA (which really does do nasty things.) The problem is that our life experiences give us each a different set of facts, and a different brain to process those facts.  I see a different CIA from the one David sees.

When I was much younger—like 3 months ago—I used to think it was a productive use of time to try to convince someone that Trump’s a demagogue, because . . . well, because he’s obviously a near perfect dictionary definition of a demagogue. But it’s pointless. For every fact you cite, they’ll point to other non-demagogue politicians who do something similar, at least on occasion.  Trump’s demagoguery is like the picture with 10,000 pixels, you either see it or you don’t.  No single example of the big lie, or of demonizing minorities and foreigners, or of unrealistic promises, or macho posturing, is going to convince anyone, because they’ll always be able to explain it away.  After all, politics is a very messy business.  And each argument is just one dot.

This also relates to monetary policy.  I know that monetary policy was too tight in 2008 and 2009 and that the Fed could have adopted a policy that led to faster NGDP growth.  But if asked to explain how I know this, I’d have trouble explaining my belief.  I lack an elevator pitch.  I could tell people to read my entire blog, from end to end.  But that’s 1000s of pages of argument, and it still wouldn’t even come close to explaining my belief, which also depends on decades of reading economic theory, economic history, and the history of economic thought.  That reading creates the brain architecture or grid that determines where I store all the various facts that I come across, and explains why I often just “know” that a commenter’s facts are wrong, without having actually checked. That doesn’t mean I don’t try to convince people (in the blog I do the best I can), just that it’s very difficult to do.

On the other hand I strongly recommend that people not try to explain their beliefs on the Kennedy assassination, or 9/11, or why Noam Chomsky is wrong about US foreign policy, or why Trump is a demagogue, or why free will doesn’t exist, or why Scott Alexander is brilliant, or what it means to “know something”, unless you enjoy pointless debates.  The odds of convincing anyone are so small that it’s not worth the effort.

PS.  I don’t believe that ‘inexplicable knowledge’ is the right term, but am not sure what is.  What I have in mind is not just tacit knowledge, as it can also involve reading books or articles.

PPS.  I was going to do a post on Trump’s nominees, which so far are mostly lousy. But it’s probably not worth the effort.  So I’ll just do a PS. Confirm them.  In politics, I always try to put principle over expediency.  So although I don’t like many of the nominees, I’ve always felt that Presidents have a right to pick the people who will serve them, unless something truly awful turns up.  I didn’t think it was fair to prevent those women from serving as Attorney General back in 1993, just because of various “nanny-gates”, and I’m not going to change my views just because Trump is President.

PPPS.  Vox recently published this piece by Sherri Underwood:

I remember the precise moment that I realized I regretted voting for Donald Trump.

It was during his 60 Minutes interview after the election. I was, like everyone else, shocked that he had won. It seemed so unlikely based on the polls and the confidence the media had that he would lose. It was a pleasant surprise, and I went to bed on election night thrilled that he would be our president.

But sitting on my couch, sipping coffee as I watched the interview, I saw with my own eyes who Trump really was as a person. He backtracked on one of his signature campaign promises: pursuing an investigation into the Clinton email scandal. It’s not that I want Clinton to be crucified or “locked up” — it’s the nonchalance with which he went back on his word after hammering it repeatedly during the campaign. The ease and quickness with which he reversed his position shook me to my core. I realized in that moment that I had voted for a demagogue. And it was sickening.

Three months ago I would have mercilessly mocked her stupidity.  Now I respect her much more than I respect myself.  Writing that article took courage.  Not surprisingly, she’s a Midwesterner.

PPPPS.  Speaking of the Midwest; Minnesota, Iowa and Wisconsin were three of the most liberal states in the country back in 1988, going for Dukakis while Illinois and California went for Bush.  This fascinating factoid from the National Review suggests they are about to turn red:

In the Upper Midwest, demographic trends have lent a hand: In 2004, Iowa, Wisconsin, and Minnesota were among the few states in which the oldest white voters were the most liberal, and the generation born of the Great Depression has been dying off.

Those old hippies are the Dukakis voters.  The Wisconsin I grew up in is gone—just faded memories.  And one more dot to slightly rewire the political map in my brain, which has both spatial and temporal dimensions.

BTW, Politico has a piece on Pepin County, Wisconsin that is the single best article on the election that I have read.  I will do a post.

Update:  Regarding Trump’s alleged demagoguery:

Screen Shot 2017-01-20 at 5.10.56 PM

Why you should believe the Chinese GDP data

[There’s a much better China post just put up at Econlog.]

Here’s a typical news story about China:

Red-handed: China province admits faking economic data

A Chinese official has admitted his province falsified its economic data for years, state media said Wednesday, vindicating long-held suspicions that China has been cooking the books.

So why do I believe the Chinese GDP data?  Lots of reasons:

1.  This headline refers to provincial data.  For years, if not decades, the Chinese central government has admitted the provincial data is inflated.  For any given year, if you take an average of provincial GDP growth rates you end up with a figure that is substantially above the national growth rate.  How is that even possible? The answer is simple; the national government knows the provincial data is inflated (as provincial officials are given promotions based on success in boosting GDP) and hence the national figures are developed using a completely different data set.

2.  How plausible is it that Chinese GDP would keep growing at the same astronomical rate, year after year?  Not very, but that’s not what the data shows.  RGDP growth has slowed from over 14% in 2007, to 10.6% in 2010, to about 6.7% today.  In contrast, US GDP growth has stayed right around 2% every single year since 2010.  It’s true that quarter-to-quarter changes in China are small, but that’s partly an artifact of their smoothing technique (reporting year over year figures) and partly due to China’s size and high degree of diversification.  Also keep in mind that if the level of Chinese growth were inflated by, say, 13.7% every single year, due to reporting biases, then the growth rate would not be distorted at all.  You need increasing distortions to consistently inflate growth.

3.  Everywhere you look, you see micro level data that tells a story of extraordinary growth.  China going from a trivial part of the global economy, to a place that absorbs almost 1/2 of global output of key commodities.  A place where auto sales have exploded:

Screen Shot 2017-01-18 at 9.59.30 AMNote that these figures would be almost impossible to fake, as they are also available broken down by company.  Would Ford, GM and VW be telling their stockholders completely phony stories of massive auto sales growth in China?

Everywhere you look you see a similar story, an explosion of urbanization.  Infrastructure built at a phenomenal rate.  The China I visited in 2009 was a completely different country from the China of 2002. Here’s an example:

To appreciate the extent of China’s high-speed rail ambitions, take Mr Gu’s dreams and multiply them many times over. Less than a decade ago China had yet to connect any of its cities by bullet train. Today, it has 20,000km (12,500 miles) of high-speed rail lines, more than the rest of the world combined. It is planning to lay another 15,000km by 2025 (see map). Just as astonishing is urban growth alongside the tracks. At regular intervals—almost wherever there are stations, even if seemingly in the middle of nowhere—thickets of newly built offices and residential blocks rise from the ground.

Ditto for the world’s largest expressway system, built almost overnight.  Enormous growth in subways, airports and other types of infrastructure.

Yes, there are sectors like steel and coal that have recently struggled, but there are also sectors growing faster than average, such as services, which is now more than 1/2 of GDP.

Obviously I don’t know that RGDP growth in China is exactly 6.7%, but I also don’t know the exact growth rate in India, the US, and especially in Ireland.  All GDP data is flawed.  But when you look at the spectacular changes occurring in China, a figure of 6.7% seems very reasonable.

PS.  The Economist article on China’s high-speed rail is excellent, with the first half devoted to its successes and the second half to its wasteful excesses.  They consistently have some of the most balanced pieces on China.  If you simply read China bulls or China bears, you will have no idea what’s actually going on in the country.