Archive for September 2017


Poverty does not cause social problems (and the cream rises to the top)

Pity poor New Hampshire:

Manchester is at the heart of New Hampshire‘s opioid epidemic, which has first responders, lawmakers and health care administrators scrambling for solutions before the situation spirals further out of control.

Though other New England states such as Vermont and Maine have seen spikes in opioid-related deaths, the granite state ranks No. 2 in the nation, behind West Virginia, for the number of opioid-related deaths relative to its population. It ranks No. 1, though, for fentanyl-related deaths per capita.

So what makes New Hampshire so special?  Why so many deaths of despair? Perhaps because it has arguably the most successful economy in the entire world, with extremely high income, high education and extremely low rates of poverty:

Pop quiz:

Which U.S. state had the highest median income in 2016? . . .

New Hampshire.

The Granite State’s median household income last year was a whopping $76,260, nearly 30 percent higher than the national median of $59,039, according to the Census. . . .

One of the chief drivers of New Hampshire’s high median income is its poverty rate, which is the lowest in the nation. Only 6.9 percent of the state’s residents live below the poverty line, compared with a national average of 13.7 percent (in Mississippi nearly 21 percent of people live in poverty).

New Hampshire’s workforce is also among the best-educated in the country, according to previously released census data. Better-educated workers tend to make more money.

New Hampshire also has a very low level of inequality.

Of course it’s silly to argue that affluence causes addiction—correlation doesn’t prove causation.  But it’s equally silly to suggest that people in West Virginia become drug addicts because they are poor.  There are a billion poor people (by American standards) in China, and very few are heroin addicts.

Liu Qiangdong is one example of a Chinese poor person who did not become a heroin addict:

Liu Qiangdong is making up for lost time — and with vertiginous speed.

Again, like so many of China’s new titans, Liu’s family was so poor that until he went to university aged 18 he only tasted meat once or twice a year. His family, peasant farmers in arid coal country, 700km south of Beijing, had a few rice fields but they also had to hand over the crop to the government; these were the dire days after the Cultural Revolution. “From June until September we were able to eat corn — cornmeal porridge for breakfast, corn pancakes for lunch and dry cornbread for dinner; cornbread so tough it made your throat bleed,” he tells me. “The other eight months we ate boiled sweet potato for breakfast, sweet potato pancake for lunch and dried sweet potato for dinner.”

Now he is 43 and worth nearly $11bn.

Yes, that’s anecdotal, but consider this:

Virtually every Chinese millionaire or billionaire is self-made because capitalist reforms to the centrally planned communist economy only began in the early 1980s and did not really take off until the 1990s. But the modern super-wealthy often turn out to be descended from an earlier capitalist class. Richard [Liu] is no exception. Before the 1949 revolution his family were wealthy shipowners who transported goods along the Yangtze river and the ancient imperial canal from Beijing in the north to Hangzhou in the south. They lost everything when the communists took over and were forcibly resettled at least twice. One academic survey found more than 80 per cent of Chinese “elites” (those with income at least 12 times higher than the average in their area) are descended from the pre-1949 elite. Richard puts this down to “family culture”.

“My parents and grandparents taught us a lot — not Chinese or maths but a sense of values, of how you should be and how you should treat others,” he says. They also drilled into him the knowledge they had once been very rich but everything had been taken away — a lesson all too relevant even now.

You often hear a debate about what would happen if everyone suddenly lost everything, and the entire population was equally poor.  Liberals claim that people like Bill Gates become rich because they come from upper class families, with all sorts of advantages.  Conservatives claim that even if income were made 100% equal, within a few years the rich would regain their position and the poor would fall back.  Mao’s China provided a near perfect test of this theory, and we now know that the conservatives are right about this issue.  The cream does rise to the top.

Of course this is not true in every single case.  Sometimes highly talented people have bad luck and end up homeless.  Occasionally an idiot will win $100 million in a lottery, or maybe even get elected President.  But on average the more talented, more ambitious and harder working people will tend to succeed.  Being born white in America does give a person some advantages, but that doesn’t really explain very much.  Certainly not income gaps between American whites and Asians, or between Christians and Jews, or between immigrant blacks and American born blacks, or between Korean-Americans and Laotian-Americans, etc., etc.

PS.  RIP Cassini.  This is my all-time favorite NYT article, and it contains almost nothing but pictures and a video. In my view, Saturn (and her moons) is the most beautiful object in the Solar System.  This is also worth examining.

PPS.  RIP Harry Dean Stanton.

“Our grass roots are very confused”

Isn’t politics fun?

“If you just dropped in from outer space, you wouldn’t know what the last eight months have been like,” said Rep. Peter King, R-N.Y., recalling the friendly exchanges between Trump and Schumer during the meeting with New York and New Jersey lawmakers.

That would be the same Schumer whom the president had previously slammed as a “clown” and “Cryin’ Chuck.”

And now?

“In some ways it’s almost like they were completing each other’s sentences,” King said.

On display at that chummy scene Thursday was the Trump who’s emerged in full this past week: Trump the independent.

A president who spent months catering to the Republican conservative wing now appears unbound by ideology and untethered by party allegiances.

It’s not a complete surprise to his fellow Republicans. They long have worried that Trump, a former Democrat, might shift with the political winds. But Trump’s overtures to Democrats have left Republicans in an awkward and perplexing position, undercut by their leader and unsure of what’s next.

“Our grass roots are very confused,” said Rep. Mark Meadows, R-N.C., head of the conservative House Freedom Caucus, on MSNBC Friday.

Grass roots “confused”?  Would those be the people who didn’t understand that Trump is a pathological liar?

And this:

Schumer announced on the Senate floor Thursday morning that Trump called him and asked how he could help advance legislation that would protect from deportation an estimated 800,000 immigrants who came to the country illegally as children.

Why am I not surprised?

Here’s what I wrote in April:

New predictions; contrary to campaign promises:

Trump won’t significantly change our trade relationship with Mexico and China.  China is not a “currency manipulator”.

Trump won’t do anything significant to help blue-collar workers.

Trump won’t repeal Obamacare, at best he’ll modify it.

Trump won’t significantly change immigration policy.

Trump won’t pay off the national debt.

Trump won’t significantly improve the economy.

Trump will hurt the GOP in the 2018 midterms.

Basically, Trump won’t Make America Great Again.  Instead he’ll mostly maintain Obama’s policies.  The economic performance will be similar to what it was under Obama.

Trump is bad in just about every possible away a person can be bad.  Fortunately some of those bad characteristics offset.  Thus his bad policy ideas are offset by his complete incompetence, which forces him to rely on experts.  Thank God there are damn few alt-righters who have the expertise required to be top policymakers.  It looks like people like Jared Kushner and Gary Cohn (who are basically Democrats) will run the show.

I’m sticking with these predictions (assuming Jared stays out of jail.)

PS.  Speaking of predictions, I’ve claimed that financial crises are unforecastable.  More specifically, I’ve been skeptical of predictions that China was about to collapse (while acknowledging that at some (unknown) point in the future they may have a financial crisis.)  Now it seems even the China bears are about to throw in the towel:

Investor Who Lost Millions Finally Gives Up on His China Bet

Mark Hart spent seven years and $240 million waiting on a crash in China’s currency.

He lost sleep. He lost clients. He damn near lost his sanity.

And now he’s lost his conviction: Hart, who called for a more than 50 percent yuan devaluation last year, has turned bullish on China and its currency.

An average rate of GDP growth of roughly 3% during the 2010s (as one expert predicted)?  I don’t think so.  More like 7.4%.


Amazon is not a macro phenomenon

I noticed a new post that pushed back against my claim that slow NGDP growth explains slow wage growth:

Amazon Has Become A Macro Phenomenon

.  .  .  There is no shortage of explanations on why low unemployment isn’t sparking any wage (and subsequent price) inflation, for instance, here are two of the most common explanations:

  • Low productivity growth
  • Low nominal growth and hence low inflation expectations

.  .  .

More convincing is Scott Sumner’s explanation that it is simply the result of low inflationary expectations, which keep wages in check. We see this even more in Japan, where the labor market is arguably considerably tighter but wages simply fail to take off.

The Amazon effect

But there could be another explanation, which centers around the huge size and growing influence of the online (and increasingly offline) behemoth called Amazon (AMZN).

Perhaps like Wal-Mart (WMT) before, Amazon exerts downward pressure on both wages and prices by its sheer scale and efficiency.

There are three problems with this explanation.  First, while rapid productivity growth in retailing might hold down inflation (if the Fed were targeting NGDP), it would not hold down wage growth.  Second, the Fed is targeting inflation, so rapid growth in productivity should boost NGDP growth, not reduce inflation.  And third, productivity growth is actually quite slow.  Although Amazon is an impressive company, it’s just a tiny share of GDP.

The economy is really, really big.  Don’t use micro reasoning to think about macro phenomena.

I keep going back to NGDP.  NGDP (i.e. monetary policy) explains the slow wage growth.  Period.  End of story.

Ceci n’est pas une pipe

Here’s Brendan O’Neill of the National Review:

Not content with harassing white people who wear their hair in cornrows and branding as “cultural appropriation” everything from college cafés serving sushi to Beyoncé donning a sari, now the new racial purists are coming for film director Kathryn Bigelow. Her crime? She’s a white woman. More specifically, she’s a white woman who dared to tell the story of the 1967 Detroit riots in her latest movie. It’s wrong for whites to tell black stories, apparently, because they can never truly understand those stories. It’s a profoundly philistine argument that exposes the misanthropy of the racial thinking that passes for radical commentary these days.

He’s right, but I think even he concedes too much:

A Variety cover story asked: “How could Bigelow — a white woman raised just outside San Francisco by middle-class parents and educated at Columbia University — understand and illuminate [this] kind of raw experience?” This movie speaks to “the problem with watching black pain through a white lens,” said a writer for the Huffington Post, as if Bigelow were reducible to her whiteness; as if she turned up to work on Detroit every morning thinking and behaving as a white woman, a racial creature, rather than as a storyteller. This is a “white filmmaker [using] the spectacle of black pain as an educational tool,” says the HuffPost, which is bizarre, since Detroit doesn’t feel educational at all: It invites both emotional and intellectual responses, but it never once feels like a lecture.

At Slate, Dana Stevens argues that film directors — and surely by extension, all artists — cannot escape their origins when telling stories: “The people behind the camera . . . will create a different film from a different perspective depending on the lives they’ve led and the bodies they inhabit.” Bodies — here we get to the ironically dehumanizing element of PC racial thinking, where people are mere skin, driven, sometimes without realizing it, by their bodies, their biology. “The fact of the filmmakers’ whiteness can’t help but inflect their depiction [of racial history],” says Stevens. Can’t help. This resuscitates the very fatalism that lay at the heart of older varieties of racial thinking — namely, that we are prisoners of race, that our racial origins shape how we view and act in the world.

I have no idea what it’s like to be a black or a woman, but I also have no idea what it’s like to be a white male—or more specifically a white male other than myself. For instance, I can’t even imagine what’s it’s like to be Donald Trump.  I have no idea what thoughts go through his mind.  I have no idea what aspects of my inner consciousness are general “white male experiences” and which aspects are specifically “Scott Sumner experiences”.

The key mistake of these philistines is to assume that a work of art is in some sense “about” the characters being depicted. In my view it makes no sense to talk about a work of art being about anything.  But if one insists, then I’d rather say it’s about the artist.  Consider these two paintings, both widely viewed as supreme masterpieces of the art form:

The smarter people who worry about cultural appropriation would say that Velasquez should not have done this painting, as he can’t possibly know what it’s like to be a black man.  The dumber people who worry about cultural appropriation would say the painting is OK, because unlike film, painting is not about the inner lives of its characters.

In fact, this painting is not a black man.  If anything, it is a Velasquez.

Similarly, the smarter foes of cultural appropriation would say that Velasquez has no idea what it’s like to be a woman:

People on the left sneer at the lack of cultural sophistication of many Trump supporters.  Then they concoct an ideology that looks at art with all the sophistication of a 8-year old. They would look at Magritte’s famous painting and not get the joke.

PS.  Maybe I was being too solipsistic in my previous remarks.  But if we can imagine what it’s like to be another person, I’d be far more comfortable putting myself in the mind of a (black) writer like Teju Cole, than I would trying to imagine being Donald Trump.  At least with Cole I find his expressed thoughts to be intelligible. I often feel the same way. Indeed compared to Trump, even Barack Obama has a sensibility closer to my own perspective on the world.

Is Trump a Chinese mole?

The WaPo is reporting that Vietnam is moving toward a pro-China position, out of desperation:

Vietnam’s fierce rivalry with China often exceeds any lingering resentment against the United States, which is now seen as a crucial counterweight to Beijing’s ambitions.

Yet the suspending of the Repsol drilling project has provided wary Vietnamese with a reason to believe their government is capitulating behind the scenes. Neither the Spanish company nor the Vietnamese government has offered an explanation for suspending offshore activities.

“There are so many rumors swirling around Repsol, as there always are when it comes to China and Vietnam. But there doesn’t appear to be any reason to do what they did other than pressure from Beijing,” said a prominent member of the international business community who frequently interacts with officials representing the three countries involved, who spoke on the condition of anonymity because he is not authorized to publicly speak about political matters.

If Vietnam did privately back down, he said, it has not been left with much choice since President Trump took office. “The U.S. really left Vietnam at the altar when it canceled TPP. What are they supposed to do?” he asked, referring to the Trans-Pacific Partnership, the trade deal that included Vietnam and explicitly excluded China. Trump had slammed the deal as a job-killer during the presidential campaign, and he withdrew from the pact just days after taking office.

At least we have a reliable ally in South Korea.  But for how much longer?  Here’s the Guardian:

Donald Trump has asked aides to prepare for US withdrawal from a free trade agreement with South Korea, it was reported on Saturday – a potentially stunning development at a time of tense confrontation with North Korea.

. . .

The decision is not final yet, and several leading members of the Trump administration are seeking to dissuade the president, according to the Washington Post, but the report added “the internal preparations for terminating the deal are far along and the formal withdrawal process could begin as soon as this coming week.”

Withdrawal from the 2007 trade deal (known as Korus) with one of Washington’s closest allies in Asia would be only the latest of a series of zig-zagging interventions by Trump amid the looming nuclear missile crisis that have caused bewilderment and alarm in the region.

.  .  .  withdrawal would be in line with campaign promises to tear up trade deals Trump has presented as disadvantageous to US workers. He has already ruled out joining the Trans-Pacific Partnership (TPP) . . .  as well as the Transatlantic Trade and Investment Partnership with Europe, and he is threatening to pull out of the North American Free Trade Agreement (Nafta).

Ian Bremmer, the president of the Eurasia Group, a political risk research and consulting firm, said that if Trump went ahead and withdrew from the agreement, “it would be a significant loss of US influence in Asia – nearly on par with withdrawal from the TPP”. . . .

“China would be the big winner, with [South] Korean president Moon [Jae-in] harder pressed to maintain present levels of security cooperation with the United States. If China is your key economic partner, there’s a lot less reason to listen to Washington.”

Putin’s gamble backfired.  Once it became clear that the Russians tried to influence the election, Congress turned against the Kremlin. The sanctions will stay in place.   China’s turned out to be the big winner from Trump’s stupidity.  Steve Bannon also looks like a fool, as the Trump/Bannon policy regime is delivering exactly the sort of Chinese hegemony that Bannon warned us about.

PS.  Perhaps Trump will put tariffs on Chinese steel, thereby assuring that Chinese manufacturers have a cost advantage over American companies that rely on our high priced steel.  Or maybe he’ll start a war with N. Korea.  The possibilities are endless when you are dealing with a mentally unstable president.