This Onion story from 2001 proved to be highly prophetic:

WASHINGTON, DC–Mere days from assuming the presidency and closing the door on eight years of Bill Clinton, president-elect George W. Bush assured the nation in a televised address Tuesday that “our long national nightmare of peace and prosperity is finally over.”

The political situation in the US, and indeed much of the world, has deteriorated steadily since the beginning of the century. And just when you think things can’t get any worse, they do.

This new story in Vox is the best piece of political analysis that I’ve read in years. The bottom line is that a group who believe in “authoritarianism” is on the rise in the US.  I won’t go into all the details, but suffice it to say that if you are a libertarian like me, you should be very worried.  They are essentially the exact opposite of libertarianism.  If they take over the GOP, then the situation for libertarians will be the bleakest since at least the Nixon era.  The silver lining (and it’s a very slim one) is that it might give a boost to the Libertarian Party.

In the early years of the Great Recession, I pointed to Australia as an example of enlightened monetary policy.  It hadn’t had a recession in 20 years. NGDP grew at a 6.5% annual rate between 1996 and 2006, and then continued growing at a 6.5% annual rate from 2006 to 2012.  Since then Australian NGDP growth has slowed substantially, for a variety of reasons:

1.  Population growth has slowed to 1.2%, from a peak of 2.2% in 2008. (It’s actually per capita NGDP that matters)

2.  Commodity prices have plunged, leading to a fall in the GDP deflator.  (Total labor compensation per capita is probably superior to NGDP in commodity-intensive economies.)

Back in 2009-10, my critics said that Australia was just a lucky country, benefiting from booming commodity exports to China.  OK, let’s test that theory.  How has Australia done in 2015?  Recall that in late 2014 and throughout 2015, global commodity markets plunged due to falling Chinese demand for Australia’s key exports (coal and iron ore), pushing Canada into a sharp slowdown and places like Venezuela into deep depression. Here’s a news report from December 2015:

Australia’s unemployment rate has fallen to 5.8%, the lowest level in 20 months, following the strongest two-month period of jobs growth in 28 years.

Now admittedly the two month data is very noisy, but over the past 12 months the Australian unemployment rate has fallen from 6.4% to 6.0%.  So much for the theory that Australia was bailed out by China in 2008-09.  What’s the new excuse going to be?  If it wasn’t commodities, why did Australia avoid recession in 2008-09?

If you don’t like unemployment data, JP Koning sent me a nice graph comparing Australia with its most similar rival—Canada:

Aussie RGDP is up 3% over the past 12 months, whereas Canada is up just 0.5%. And keep in mind that Canada is one of the best run developed economies, with one of the best run central banks—and the Aussies still blew them away.  Also recall that Canada’s economy has a larger manufacturing sector than Australia, and is thus less dependent on commodities.

Recall this anecdote:

Historical rumor has it that a subordinate once asked Napoleon, “What kind of generals do you want?” “I want lucky ones,” he replied.

I say, “Give me a ‘lucky country’s’ central bankers.”

PS.  Austrian readers may be interested in knowing that Australia’s monetary policy was much more expansionary than Fed policy during the years leading up to the Great Recession.  When will Australia pay the price for all that misallocation?  And Australia’s housing bubble was even bigger, but still hasn’t burst. When will the inevitable collapse occur?

And for all you protectionists out there, Australia’s run massive current account deficits for many decades. When I taught there in 1991, the Very Serious People told me that Australia’s day of reckoning was approaching. That was 25 years ago. So just how long can Australia keep selling condos to Chinese investors in exchange for manufactured goods?  And why do we call that sort of trade a “deficit”?  And just how many empty beaches do they have, where more condos can be built?

PS.  I notice there’s been a lot of recent discussion of Sweden’s 4.5% RGDP growth over the past year.  I do understand that GDP growth is more volatile for smaller countries, but that seems surprisingly high.  Might it be related to the inflow of 163,000 refugees (1.7% of Sweden’s population)?  In other words, a positive supply shock?

For weeks Trump supporters have been defending all of Trump’s most outrageous positions, often in my comment section.  They scoffed when I pointed out that his positions were absurd.  I’ve got some bad new for you guys; Trump’s starting to realize that I was right, his positions are loony:

Though for many weeks Trump has been telling crowds he would bring back the practice of waterboarding and other forms of torture that are “a hell of a lot worse,” he sent a statement to the Wall Street Journal on Friday promising to stay within the bounds of international law.

“[I would] use every legal power that I have to stop these terrorist enemies,” he said. “I do, however, understand that the United States is bound by laws and treaties and I will not order our military or other officials to violate those laws and will seek their advice on such matters. I will not order a military officer to disobey the law. It is clear that as president I will be bound by laws just like all Americans and I will meet those responsibilities.”

Less than 24 hours previously, Trump was on the debate stage in Detroit doubling down on his vows to kill civilian families members of terrorists, use waterboarding to get information out of prisoners, and bring back other forms of torture banned by international law. When debate moderators told him that former military and intelligence leaders have suggested that the U.S. military can and should refuse to carry out such orders if Trump becomes commander in chief, Trump responded: “They’re not going to refuse me…I’m a leader, I’ve always been a leader, I’ve never had any problem leading people. If I say do it, they’re going to do it.”

That’s not how his hero Putin would behave.  What happened to the macho tough guy?  I almost feel sorry for him, having to backtrack like a dog with its (undoubtedly very large) tail between its legs.

Perhaps if Trump’s supporters realize that he’s not going to kill the innocent children of terrorists, then there’s really no reason to vote for him.  After all, weren’t those absurd positions and that tough guy image what drove up his poll numbers?  I hope Trump doesn’t let us all down now.

PS.  And since when does Trump care about legal niceties?  Is he really going to back off from torture just because it’s illegal?  If so, then how can we trust him to put tariffs on Mexican products?  After all, even NAFTA critics think that plan is illegal:

“That 20% tax would be an absolutely straightforward violation of probably every trade law the United States has with any other country,” Joshua Meltzer, a fellow in global economy and development at the Brookings Institution, told msnbc.

“All of our existing agreements lock us into lower tariffs,” Claude Barfield, a scholar at the American Enterprise Institute who supports lowered trade barriers, told msnbc.

“Absolutely illegal,” Robert E. Scott, director of trade and manufacturing research at the Economic Policy Institute and a strong critic of past trade agreements like NAFTA, told msnbc when asked about Trump’s 20% import tax.

And then there is this:

“It’s absurd,” Scott said.

But I already told you that, didn’t I?

I keep having a nagging doubt that this is all a Pat Paulson-style scam.  Surely we are going to wake up some morning and Trump will tell us that he was just kidding, and had no intention of being President.  Or that he’s actually a Democrat, just pretending to be a fascist in order to get the GOP nomination, because he thought that’s what GOP voters wanted to hear.  After all, isn’t Trump acting more like Paul Krugman’s vision of what Republicans are like, than an actual Republican?  Even worse, might Krugman be right?

PPS.  I checked the county results in Massachusetts, the state that gave Trump his largest victory.  It turns out that he won by huge margins in even the most affluent counties of booming Massachusetts.  Trust me, this is not about economic hardship. What’s the matter with Kansas?  Apparently nothing.  Those low income Kansas Republicans are far smarter than their Massachusetts compatriots.

Update:  It’s happening:

Amid the sparring and free-flying insults of Thursday night’s Republican presidential debate, Donald J. Trump said he wanted to expand the number of visas available for highly skilled immigrants.

His remarks caused shock among some supporters who have seen Mr. Trump as a bulwark against an influx of foreigners taking American jobs.

Just as I predicted, he’s a Democrat pretending to be a fascist.  There’s a reason he supported Hillary in the past.  Picturing the “shock” among his supporters brings a big smile to my face.  I’m going to receive great joy watching how this thing plays out.  

What happened to the guy who tells the truth?

But on Thursday, responding to a question from Megyn Kelly of Fox News, one of the debate moderators, Mr. Trump said: “I’m changing. I’m changing. We need highly skilled people in this country

Got that, Trump supporters?  You low-skilled unemployed factory workers don’t fit into Trump’s grand plans to Make America Great Again. Greatness comes from smart Asian immigrants, not American students who don’t do their homework.

Finally, a post that is not about Trump!

When central banks do QE, asset markets respond as if it’s mildly stimulative.  But the overall effect is usually too little to hit the central bank’s target.

So do more!

Which reminds me that Mitt Romney’s recent speech seemed to (briefly) knock 10 points off Trump’s betting odds to win the nomination, but still left him the favorite.

So do more!

Have 95% of GOP Congressman and Senators get together and trash him.  Have the WSJ, National Review, Weekly Standard and other conservative outlets say they’ll endorse Hillary if Trump gets the nomination.  Just keep doing more until Trump is stopped.  And if you fail, then at least it was heroically.  Imagine if you don’t even try, and Trump tarnishes what little luster is left on the GOP’s reputation.

And speaking of Trump, Here’s Tyler Cowen quoting Ben Sasse:

Read Ben Sasse:

Statements from Trump: ***“We’re going to open up libel laws and we’re going to have people sue you like you’ve never got sued before.” ***“When the students poured into Tiananmen Square, the Chinese government almost blew it. They were vicious, they were horrible, but they put it down with strength. That shows you the power of strength. Our country is right now perceived as weak…” ***Putin, who has killed journalists and is pillaging Ukraine, is a great leader. ***The editor of National Review “should not be allowed on TV and the FCC should fine him.” ***On whether he will use executive orders to end-run Congress, as President Obama has illegally done: “I won’t refuse it. I’m going to do a lot of things.” “I mean, he’s led the way, to be honest with you.” ***“Sixty-eight percent would not leave under any circumstance. I think that means murder. It think it means anything.” ***On the internet: “I would certainly be open to closing areas” of it. ***His lawyers to people selling anti-Trump t-shirts: “Mr. Trump considers this to be a very serious matter and has authorized our legal team to take all necessary and appropriate actions to bring an immediate halt…” ***Similar threatening legal letters to competing campaigns running ads about his record.

And on it goes…

Is fear of regulatory reprisal from a Trump administration so unrealistic? I don’t think so.

And Nick Gillespie points out that the GOP created the Trumpenstein monster.

Maybe I’m grasping at straws, but this makes me a bit hopeful:

While still holding out dim hope that Sen. Marco Rubio (R-FL) can somehow deny Trump an outright majority of the delegates heading into this summer’s Republican National Convention, McConnell is preparing his colleagues for the strong possibility that Trump will be their party’s nominee. If that’s the case, then McConnell is advising endangered GOP Senate candidates to run negative ads against Trump “to create space between him and Republican senators seeking reelection.”

And check out this great John Oliver video, which utterly destroys Donald Drumpf.

Please insure that all comments are thoughtful, wise and dispassionate.  And please focus your comments on the main topic of this post—Quantitative Easing.

PS.  Oops, today’s Trump-free post is actually over at Econlog.

If you’ve read books like Pop Internationalism you know that international trade should not reduce employment.  Some are fooled by the GDP equation, which might seem to imply that net exports are a problem:

GDP = C + I + G + (X-M)

In fact, a trade deficit implies an equal sized surplus of investment over saving.  So a trade deficit does not reduce GDP.

There is one point that most skeptics are willing to accept—trade is not a problem if imports are balanced by exports.  This post is aimed at people who have one of two concerns:

1. Perhaps economic theory is wrong and trade deficits do somehow lead to lower employment.

2. Perhaps trade deficits don’t reduce the overall employment level, but they reduce employment in the tradable goods sector.

I don’t agree with these concerns, but I’d still like to take them seriously.  Consider the following question under the assumption that economists like me are wrong, and trade imbalances really do cost jobs.  The question is:

How many jobs has America lost over the past thirty years, in the worst case where jobs lost in the tradable sector are not offset by jobs gained in non-tradables?

In other words, what is the worst case for trade?

In 1985:Q4, the US trade deficit was 2.996% of GDP

In 2015:Q4, the US trade deficit was 2.865% of GDP

So the trade deficit has shrunk slightly over the past 30 years.  This means the answer to the previous question is:

In net terms, zero jobs have been lost in the tradable goods sector, as a result of trade deficits, over the past 30 years.  Whatever jobs losses have occurred has been due to other factors, such as technological progress.

Whatever has been reducing employment of tradable goods workers over the past 30 years, it hasn’t been trade.

In fairness, in the 3 decades before 1985:Q4, the trade deficit increased by 3% GDP.  So if you believe that trade deficits cause unemployment, then you might argue that workers were negatively affected during that earlier period.  I don’t believe that, I’m just saying that if you do believe that trade deficits cause unemployment, that’s the period you should be focusing on.  And even if I am wrong, obviously a 3% of GDP rise in the trade deficit doesn’t explain why the manufacturing sector has gone from over 30% of workers in the mid-1950s to about 8% today.

So if trade deficits aren’t a problem, are there any other channels by which trade could be a problem?  Yes.  Trade might affect income equality, reducing the relative wage of workers in the tradable goods sector.  That might reduce the labor force participation rate of workers in the tradable goods sector.  But again, that would have nothing to do with the trade deficit. Indeed it should be equally true of Germany, a country with a huge trade surplus.

PS.  I have a new post on China trade over at Econlog.