Archive for January 2017


We need to keep “bad dudes” out of America

I saw Trump administration official Stephen Miller on a CBS interview, explaining that the recent travel ban was aimed at keeping out people with bigotry towards any sexual orientation, race, or class of people.  So what kind of bigoted person does Stephen Miller have in mind?  Steven Bannon? Or maybe this guy:

Miller went on to complain, in a column titled “Political Correctness Out of Control,” about the availability of condoms on the Santa Monica High School campus. He took issue with the administration’s acceptance of gays and lesbians, later writing that “just in case your son or daughter decides at their tender age that they are gay, we have a club … that will gladly help foster their homosexuality.” He griped that his fellow students weren’t being required to recite the Pledge of Allegiance, or to learn how heroic their predecessors were. Maybe American soldiers shouldn’t have killed Indians? Miller asked, sarcastically.

And just who is Stephen Miller?

According to Richard Spencer, the white nationalist alt-right founder, he and Miller met each other and clicked as members the Duke Conservative Union (DCU). In October, Spencer told Mother Jones that “Miller helped him with fundraising and promotion for an on-campus debate on immigration policy that Spencer organized in 2007 featuring influential white nationalist Peter Brimelow.” Another former member of the DCU confirmed to Mother Jones that Miller and Spencer worked together on the event. At meetings of the Conservative Union, Miller “denounced multiculturalism and expressed concerns that immigrants from non-European countries were not assimilating,” a former DCU president told the magazine.

“It’s funny no one’s picked up on the Stephen Miller connection,” Spencer said. “I knew him very well when I was at Duke. But I am kind of glad no one’s talked about this because I don’t want to harm Trump.”

But don’t worry, it’s not as if this 31-year old alt-right scum has any influence in the Trump administration:

Now that Bannon and Miller are ensconced in the West Wing — Trump lovingly refers to them as “my two Steves” — their influence seems limitless. For instance, Bannon and Miller not only devised Trump’s controversial travel ban; Miller in particular spent Saturday directing how it would be implemented, overruling Homeland Security officials and insisting, according to reports, that green card holders would also be barred from entering the country unless granted waivers on a case-by-case basis. On the same day, Miller “effectively ran the National Security Council principals meeting” — an unprecedented move. In terms of policy, Miller — who knows his way around Capitol Hill and remains close to Sessions, Trump’s attorney general nominee — is probably even better positioned than Bannon to steer Trump in his desired direction, even though he’s a less familiar boogeyman among liberals.

Miller running NSC meetings?  Heh, what could go wrong?

Regarding the travel ban, do I even need to point out any longer that the lies keep coming:

“If the ban were announced with a one week notice, the ‘bad’ would rush into our country during that week,”  Trump said in a follow-up tweet. “A lot of bad ‘dudes’ out there!” That’s also inaccurate: the refugee screening process can take up to two years, and new visas can already take weeks. The only individuals who could have immediately “rushed” back to the United States are permanent residents, whom the administration now says should not be affected by the executive order.

For some comic relief, here’s Trump’s “trade expert” discussing how the Germans enjoy debasing their currency:

Germany is using a “grossly undervalued” euro to “exploit” the US and its EU partners, Donald Trump’s top trade adviser has said in comments that are likely to trigger alarm in Europe’s largest economy.

Peter Navarro, the head of Mr Trump’s new National Trade Council, told the Financial Times the euro was like an “implicit Deutsche Mark” whose low valuation gave Germany an advantage over its main trading partners. His views suggest the new administration is focusing on currency as part of its hard-charging approach on trade ties.

In a departure from past US policy, Mr Navarro also called Germany one of the main hurdles to an American trade deal with the EU and declared talks with the bloc over a US-EU agreement, known as the Transatlantic Trade and Investment Partnership, dead.

I’ll give Navarro credit on one point.  He recognizes that the eurozone’s current account surplus is bigger than China’s (not to mention that Mexico runs a large current account deficit.)  So he’s not one of those Pat Buchanan-types who blames all our trade problems on non-white countries.

Update:  Lars Christensen has a much more complete takedown.

Gideon Rachman explains how the Trump Presidency has completely messed up Britain’s Brexit strategy:

The reality is that the UK is now faced with a US president who is fundamentally at odds with the British view of the world. For all the forced smiles in the Oval Office last week, the May government certainly knows this. For political reasons, Boris Johnson, the British foreign minister, is having to talk up the prospects of a trade deal with Mr Trump.

Yet only a few months ago, Mr Johnson was saying that Mr Trump was “clearly out of his mind” and betrayed a “stupefying ignorance” of the world.

Were it not for Brexit — a cause that Mr Johnson enthusiastically championed — the UK government would be able to take an appropriately wary approach to Mr Trump. If Britain had voted to stay inside the EU, the obvious response to the arrival of a pro-Russia protectionist in the Oval Office would be to draw closer to its European allies.

Britain could defend free-trade far more effectively with the EU’s bulk behind it — and could also start to explore the possibilities for more EU defence co-operation. As it is, Britain has been thrown into the arms of an American president that the UK’s foreign secretary has called a madman.

In the declining years of the British empire, some of its politicians flattered themselves that they could be “Greeks to their Romans” — providing wise and experienced counsel to the new American imperium.

But the Emperor Nero has now taken power in Washington — and the British are having to smile and clap as he sets fires and reaches for his fiddle.

And finally, Paul Krugman:

Everyone, from small nations who thought they were protected against Russian aggression, to Mexican entrepreneurs who thought they had guaranteed access to our markets, to Iraqi interpreters who thought their service with the U.S. meant an assurance of sanctuary, now has to wonder whether they’ll be treated like stiffed contractors at a Trump hotel.

If you are someone (like me) who values rules over discretion, the Trump years will not be good.

Need some more comic relief?

Trump is even worse than Scott Alexander assumes, but will do far less harm than he expects

My mailman is great.  But suppose he were horrible.  And suppose I went on a one hour rant about his miserable service at a cocktail party.  And suppose my listener said “You must have mailman derangement syndrome, given how well the stock market has done there’s no way he could be that bad.”  I’d probably roll my eyes.

When Bernanke retired I thanked him for his service, and pointed out that he tried to nudge the Fed in the right direction.  Commenters were incredulous; “How can you praise him when you trashed Fed policy?”  They don’t know how hard it is to move a big bureaucracy.

Most people think Bush got us into the Iraq War.  I blame the US government.  I think the government decided to go to war, and if Al Gore had been elected then his proposed foreign policy czar Richard Holbrooke would have pushed Gore into the war.  (Holbrooke was very hawkish on the Iraq War.)

Although the Iraq War was a disaster, the US stock market did very well after 2003.  Ditto for stocks during 2009-13, despite inadequate Fed stimulus. Now people sometimes ask me how Trump can be so bad, given that the stock market is rising, the sky is not falling, and the 7 plagues of Egypt have not hit us.  The answer is simple–the power of Presidents is vastly overrated.  It’s tempting for humans to try to personify deep, powerful historical forces, but it’s usually wrong.  (As usual, Hitler may be an exception.)

I agreed with Tyler Cowen when he suggested that Scott Alexander was too easy on Trump regarding the racism charge.  In my view, Trump really is a racist, or at least acts like one.  So I have a much lower opinion of Trump that Alexander does. At the same time, I don’t think Trump will have anywhere near the negative impact that Scott expects:

Now that Trump has started enacting his terrible policies, a bunch of people on Twitter are saying that my past posts on Trump “haven’t aged well” or that I must be feeling really bad about them right now.

I’ve never been the slightest bit of a Trump supporter. Since he came onto the national stage, I have called Trump “a bad president”, “randomly and bizarrely terrible”, “an emotionally incontinent reality TV show host”, and “an incompetent thin-skinned ignorant boorish fraudulent omnihypocritical demagogue”. I’ve accused him of “bizarre, divisive, ill-advised, and revolting” rhetoric, worried that his election might “lead directly to the apocalypse [or] the fall of American democracy”, and called his administration “a disaster”. I’ve urged blog readers to vote for literally anyone except him and to donate money to the ACLU to stop him. If you want to accuse me of being pro-Trump, or even lukewarm on disliking Trump, I don’t know what else to tell you.

But I really sympathize with this from Alexander:

Apparently saying it a million times is not enough for some people. I’m afraid there’s a mood affiliation effect going on here – that if I say Trump didn’t cause 9-11, then people can only hear “SCOTT SAYS TRUMP ISN’T THAT BAD!”. Arguments aren’t soldiers, and Trump can both not cause 9-11 and be bad for lots of other reasons.

The vast majority of my commenters do not know how to read for content; they indulge in mood affiliation.  “Sumner said Trump was horrible, so if Trump does something good, or if stocks rise, then Sumner was wrong.”  What’s so pathetic about these people is that they are mostly right-wingers who hate Obama.  They’d never in a million years assume that Obama had anything to do with the massive increase in stock prices during the 8 years he was in office.  But Trump gets full credit for the relatively small increase in stock prices since the election.  Okaaay. . . .

People need to grow up, on both sides of the spectrum.  Liberals need to understand that the country will be fine.  Trump will be followed by his opposite, just as Nixon was followed by Jimmy Carter.  That’s the way American politics always works.  And conservatives need to realize that a president can be horrible, even if the stock market is going up.  There is no contradiction.

After all, the President is just a federal employee, like my mailman.

PS.  Just to be clear, I’ve always said there is a small chance that Trump does something horrible, like get us into a nuclear war through his unstable personality and unpredictable foreign policy.  A slightly higher chance than if someone else were president.  So don’t take this as saying we shouldn’t worry at all.  But the odds are that life will go on.  Something like a 10% tariff on all imports would knock a couple tenths of a percent off GDP growth, but that’s hardly more than a rounding error.  And yet it’s still a very bad idea!  Worth getting “deranged” about.

PPS.  Yes, the recent travel ban is a horrible policy, but 400,000 in prison for drug crimes is two orders of magnitude more horrible.

PPPS.  I’ll bet almost all bloggers sympathize with Scott’s complaint at some level.  We’ve all been misunderstood by commenters in a similar fashion.  (In fairness, I often misunderstand commenters, partly because I read too quickly.)

More than 3000 Americans killed (in America) by terrorists from countries where Trump has business interests. Zero from the “evil seven”.

This is looking more and more like the gang that couldn’t shoot straight.  I don’t expect them to get things exactly right—this is the US government we are talking about—but 3000 deaths at the hands of terrorists from the countries we ignore and zero from the countries we singled out?

Last month when I flew back to Boston, I waited in 4 lines at Logan Airport.  First, a line for using passport machines that were supposed to “save time” (but don’t.) Then a much longer line for passport control.  Then a shorter line at customs, and then another long line for a taxi (due to the government’s taxi cartel.)  While waiting, I had plenty of time to think about how lucky I was that we didn’t need permission from the US government to leave the country, just enter.  So Americans still have a tiny bit of freedom left.

Not much longer:

The Trump administration executive order on immigration has most widely been reported to temporarily ban visas for people from Iran, Iraq, Libya, Somalia, Sudan, Syria and Yemen — even for those who have been living in the U.S. in valid employment or student status but who need new visas for re-entry.

What’s getting less attention is section 7 of the order that demands immigration controls when you leave the U.S. not just when you arrive.

Just imagine how pleasant the travel experience at America’s state of the art international airports will be once this goes through:

Trump can insist on this by executive order because the law already allows for it and has for 21 years. It hasn’t happened largely because of how expensive and impractical it is.

Most cost estimates (suggesting under a billion dollars) involve the acquisition of biometric scanners and additional federal staffing, but not the physical renovation of every international airport that would be necessary.

Right now there’s no structural channel that travelers are forced to go through. Passengers would have to be forcibly routed through departure immigration. There would have to be a physical separation between domestic and international flights.

One way to do this would be to require what are effectively separate domestic and international piers, in some cases passengers might have to depart security and re-enter the airport. In other cases there might be an immigration transfer check between piers. So there’s construction costs and staffing costs, and it would increase the hassle and time necessary at the airport including increasing minimum connection times between flights — a tax on airlines.

The Obama administration was working on a similar plan . . . with a goal of implementing nationwide in airports by 2020.

Lovely.  Remind me why we were going to build all this “infrastructure”?  Was it to make our lives more enjoyable, or to provide more space for sadistic jerks at the INS, TSA and other federal agencies that like to harass us?

PS.  They tell us to get there 2 hours early on international flights.  What will it be when this goes through?

Don’t confuse free trade and trade deficits

Here’s Benjamin Cole:

As David Glasner recently noted, no plank of orthodox macroeconomics is more sacred today than that international free trade is good, and that even large and chronic trade deficits don´t matter.

But an overlooked 2012 paper from the New York Federal Reserve, entitled House Price Booms, Current Account Deficits, and Low Interest Rates, raises serious concerns about chronic trade deficits, particular given the deeply entrenched ubiquity of property zoning.

This is not true.  The claim that large trade deficits do not matter is certainly not “sacred”, indeed many economists disagree.  But even if it were true, this makes no sense.  Trade deficits are one thing, and free trade is another.  Both the US and Germany have relatively free trade, but we have a large deficit (although much of that is measurement error) and Germany has a large surplus.  The cause of our current account deficit is saving/investment imbalances.  If you want a smaller deficit you do not install tariffs, you install pro-saving (or anti-investment) fiscal policies.  You encourage saving by lowering the tax rate on capital income, and you reduce government dissaving by making the budget deficit smaller.  Yes, tariffs could reduce the budget deficit by a tiny amount, but it’s an extremely inefficient way of doing so.

If you are worried about trade deficits, the last thing you should be doing is protectionist trade policies.

The paper posits, “One of the most striking features of the period before the Great Recession is the strong positive correlation between house price appreciation and current account deficits, not only in the United States but also in other countries that have subsequently experienced the highest degree of financial turmoil.”

The short story is this: When a nation consumes more than it produces, and imports the difference, it must sell assets to finance the shortfall. Foreigners are especially keen on the perceived security of real estate, and, of course, can leverage up with the ready assistance of domestic banks.  The term “commercial bank” has become a misnomer, as more than 75% of U.S. bank lending in is on property. Thus, huge trade deficits equal huge capital inflows into domestic real estate.

Property Zoning

The universal culprit in this trade-deficits-results-in-house-price-booms scenario is property zoning, a feature of modern economies deeply embraced by both the propertied and financial classes, but (consequently?) rarely a topic in macroeconomic discussions.

To mix metaphors, property zoning is the Achilles Heel of macroeconomic blind spots.

Without property zoning, nations such as Australia, Canada and the United States could produce more housing to soak up the foreign capital inflows, even after those flows are leveraged five-to-one by domestic banks. The U.S. runs about $500 billion a year in trade deficits.

But with ubiquitous zoning, house prices soar to equate supply and  demand, generating inflation and reducing living standards of the domestic population.

Ben is right that lots of people complain about foreigners snapping up real estate (more so in places like Sydney, Vancouver and London, than in the US.)  But he’s wrong about the economics.  Housing construction during periods of house price booms like 2005 is far higher than during house prices busts like 2009-12.  The irony here is that the very same protectionists who complain that foreigners don’t buy enough of our cars, thus depriving Detroit auto workers of jobs, also complain that foreigners buy too many of our houses, thus providing jobs to our construction workers.

Den ganzen Beitrag lesen…

Can anyone explain the proposed border tax/subsidy?

It seems like there are new questions being raised almost every day.  Previously I asked whether the border tax/subsidy scheme would apply to service imports and exports.  I never got a clear answer.

John Cochrane raises an even more important issue.  The House proposal is not a stand alone tax and subsidy, but rather a revision of the corporate income tax. Here’s Cochrane:

The corporate tax reform question has gotten mixed up with the border adjustment issue. Several readers have asked for my opinion. I have to admit I’m confused. Feldstein likes it Summers hates it. If sold as a VAT, which is border adjusted it makes sense. But it’s not a VAT — wouldn’t apply to non-corporate business and, I hope dearly, not to direct imports and services. When I read some of the other blogs it seems like a complex mess ripe for exploitation by clever tax lawyers. Perhaps it’s not as bad as a uniform tariff (not much could be worse), but that’s weak praise.

Anyway, I’ve spent a day or so trying to figure it out, and can’t get to solid ground. That by itself seems an important weakness. I’m not the smartest person on earth, but I am a reasonably trained economist, and I have put a day into figuring this out. Tax reform ought to be really simple, and transparent to the American people, if for nothing else to put out the smoldering fire that people feel the system is rigged and fancy people with fancy lawyers are getting away with murder.

I buy stuff directly from overseas and have it shipped to my house.  I’m not a corporation—will I have to pay a border tax?  Do I have to report eBay packages to the Treasury?  If John’s right that this only applies to corporations, it will create massive distortions.  And if the House GOP can’t get someone like John Cochrane to understand their proposal then it deserves to fail.

Update:  Ant1900 directed me to a appear by David Weisbach, which is outstanding.  Looks at all of these issues in detail.  Best tax paper I’ve ever read.

I also recommend Cochrane’s discussion of the corporate income tax, which is excellent.  We both favor consumption taxes.  Some of his commenters suggested that consumption taxes are regressive.  That’s not true, they are proportional to consumption.  Yes, they are regressive if compared to income, but since income is a meaningless concept, you want to compare them to consumption, which is what matters.  The optimal tax system is something like the following:

1.  Start with Pigovian taxes on negative externalities (such as a carbon tax), which produce a deadweight gain.

2.  Add a small land tax.  The rate should be by area, not value, with different rates for each zip code, depending on average property value by zip code.

3.  There should be a 25% VAT, with an exemption for education and training classes.  That levels the playing field between human and physical capital formation.

So far the tax is roughly proportional.  But it should be strongly progressive for utilitarian reasons.  That is achieved with the fourth leg of the system:

4.  A steeply progressive wage tax, that goes from strongly negative rates for low wage jobs to strongly positive rates for high wage jobs (perhaps topping out at 75% for wage earners making more than $100,000,000/year.)  Recall that in the long run a wage tax is identical to a VAT—they are both consumption taxes.

If needed, of if negative wage taxes are too administratively complex, the additional progressivity can come from a (modest) lump sum rebate to people over 18, so that no one below the poverty line has to pay any VAT.

In my proposed system, most people with wage jobs (like me!!) don’t have to fill out any 1040 forms.  Self-employed and those with large capital income would still need to do tax forms, to make sure wage income is not being falsely classified as capital income. (I.e. “capital income” from companies that employ you should be viewed as wage income, unless proven otherwise.) I hope it goes without saying that there are no deductions for business lunches.  That’s consumption.

That’s my federal tax system.  Local governments like New York City currently have highly regressive property taxes, where the rich pay a far lower rate of tax on their property than the poor.  That should be reversed, those $100 million penthouses should pay higher rates of property tax than Archie Bunker.