Archive for September 2016


China is rebuilding America

Here’s the Los Angeles Times:

Winston Yan stood atop the largest real estate project of its kind in downtown Los Angeles, a monstrous patchwork of glass and concrete next to the 110 Freeway, and marveled at the bustle of workers, construction vehicles and cranes 38 stories below.

The scope of development in this mixed-use project, called Metropolis, is unprecedented for L.A. but quite familiar to Yan. As an architect and executive for Chinese real estate giant Greenland, he’s witnessed firsthand China’s dramatic urbanization in recent decades.

“It reminds me of what’s happening in Beijing and Shanghai,” said Yan, chief technical officer for Greenland’s U.S. subsidiary. “Now it’s happening here.” . . .

Chinese developers such as Greenland, Oceanwide and Shenzhen Hazens are pouring billions into the neighborhood, adding thousands of new residential units in soaring skyscrapers that will fundamentally change the city’s skyline. Since 2014, Chinese developers have been involved in at least seven of 18 land deals downtown in excess of $19 million, according to real estate firm Transwestern.

“When all these megaprojects are finished, they’re going to have to reshoot the postcard picture of downtown L.A.,” said Mark Tarczynski, executive vice president for Colliers International’s L.A. office.

This is the flip side of America’s CA deficit with China.  When countries like China runs a CA surplus, their domestic saving exceeds their domestic investment.  This excess saving flows overseas to finance investment projects in countries like America and Australia, where saving falls short of investment.  Hence Chinese money is rebuilding America.

As you might expect, Trump is horribly confused on this point.  Here’s Matt Yglesias, discussing the recent debate:

  • He also said the Chinese “are using our country as a piggy bank to rebuild China,” which isn’t even how piggy banks work, much less the US-Chinese economic relationship.

Trump has it exactly backwards.  Over at Econlog, I discuss the economist who has been feeding Trump this sort of misinformation about basic economic identities.  Yglesias also points to lots of Trump lies.  The phony stats are perhaps to be expected, but the bald faced denials of saying things that he actually did say, sets a new (low) bar for American politics:

  • “Donald thinks that climate change is a hoax perpetrated by the Chinese,” Clinton said. He protested. “I did not. I do not say that.” But it turns out he did.

  • “You even at one time suggested that you would try to negotiate down the national debt of the United States,” Clinton charged, to which Trump flatly replied, “Wrong.” But it turns out he did.

I actually recall him saying the second point, just a few months ago.  As with his public support for the Iraq War, truth means absolutely nothing to Trump.  In fairness, Clinton is also somewhat dishonest–Trump nailed her on the TPP.

As for Trump’s bizarre conspiracy theories on all sort of issues, I don’t even know what to say. (Chinese hoax?  Seriously?)  This sort of mental illness in a normal person might be viewed as amusing.  When the man with his finger on the nuclear triggers suffers from bizarre irrational delusions that foreign countries are trying to hurt us  . . . well that can’t be good, can it?

PS.  It’s kind of sad that wealthy Americans cannot seem to put aside the savings required to finance our investment spending, and instead we need to rely on the savings of poor Chinese.

PPS.  I didn’t watch the debate, because I find them unwatchable (and not just this one.)  Let me give you an example.  The press thought Trump did a mediocre job, but most agree that he was pretty strong during the first 15 minutes or so.  But if you look at the transcript, his first 15 minutes were just appalling, one lie after another, one inane statement about trade after another.  The piggy bank quote above.  The claim that Mexico’s VAT is a trade barrier, etc., etc.  Almost nothing he said was true, almost everything showed a complete lack of understanding of basic economics.  And this is what the press considers a “strong” performance.  It’s clear to me that the press is either too dumb to understand content, or cares only about style when making these judgments.  And maybe style is all that matters.  But in that case, why waste 90 minutes watching a debate?  There are much more entertaining ways to pass one’s time, like watching paint dry.

PPPS.  This caught my eye:

The Conference Board says that its consumer confidence index rose to 104.1, up from 101.8 in August. It was the strongest reading since the index stood at 105.6 in August 2007, four months before the beginning of the Great Recession of 2007-2009.

Not bad, for a country where “some great economists” think the unemployment rate is as high as 42%.

Seriously, we really need to stop talking like the US economy is still in “recession” and needs “stimulus”.  We do need a new monetary policy regime, but not because the current unemployment rate is too high.  We need a STABLE monetary regime. And supply-side policy reform (which neither candidate is advocating.)

Was the so-called “monetarist experiment” ever tried?

Jim Glass left this response to my (italicized) claim:

1. The Fed said it would start targeting the money supply, but it did not do so …. 1979-82 told us essentially nothing about the long run effect of money supply targeting. It wasn’t even tried.

I don’t understand you here. Certainly money supply targeting wasn’t tried over a long run, so one can’t see any long-run effect of it. But why do you say money supply targeting wasn’t adopted at all?

Volcker in his 1992 memoir “Changing Fortunes” explained why the Fed in 1981 had to change policy to money supply targeting from interest rate targeting, and went into considerable detail about the political resistance from the Reagan Administration that he had to overcome to do it, and the political ploys he used to do so. I don’t see why he’d make up such a detailed story about something that never happened.

Plus, looking at the M1 numbers for the period from Fred, one sees that after rising steadily pretty much from beginning of time, M1 peaked at $429 billion on 4/20/81, three months before the start of the recession, then went down a little bit, then bounced down a tiny tad and back up again repeatedly to hit pretty much exactly $429b again on 7/6, 8/10, and 10/12 thru 10/26 without ever going at all over $429b (or going below $423b). So on the dates three months before the recession started and then three months after it started, M1 was $429b, exactly unchanged. If the money supply wasn’t being targeted during that period, all those $429b numbers are a heck of a coincidence.

It’s certainly possible that the Fed was paying more attention to M1 than before.  I agree with that claim.  But there can be no dispute that they did not adopt Friedman’s proposal of a steady 4% growth rate in the money supply.  Indeed money growth actually became much less stable during 1979-82, which shows that Volcker moved policy even further away from Friedman’s ideal.  Now of course in a different sense you could say monetarism was adopted, as he used a tight money policy to control inflation.  That policy was a success.

But a money growth rule?  It’s never even been tried.  (And I hope it never will be tried, as it’s probably a lousy idea.)


Trump would raise taxes on struggling middle class families, so that billionaire real estate developers could get a massive tax cut.

Dylan Matthews has a great new post showing that Trump’s new tax plan would devastate the sort of Americans who have been struggling hardest with the new economy:

Batchelder provides several examples of families that would see their taxes go up under Trump’s plan. The biggest hikes number in the thousands of dollars, and are concentrated among single parents:

  • A single parent with $75,000 in earnings, two children in school, and no child care costs (because the kids are in school) would pay $2,440 more.
  • A single parent with $50,000 in earnings, three children in school, and child care costs of less than $6,000 would pay $1,188 more.
  • A married couple with $50,000 in earnings, two kids in school, and no child care costs would pay $150 more because of the bottom bracket’s increase from 10 to 12 percent.

Batchelder helpfully summarizes this in two tables, one for single parents:

Table: Single parent families facing tax increases under Trump

What will Trump do with this money that he takes from our struggling middle class? Slash income taxes from 40% to 15%, for (non-corporation) billionaire real estate developers like, well . . . like Trump himself.  Here’s Binyamin Appelbaum:

Mr. Trump proposed last year to sharply reduce the corporate rate to 15 percent, from 35 percent, and to apply the same rate to passthrough income. Democrats sharply criticized that proposal as a giveaway to the owners of passthrough businesses, a group that includes many real estate developers like Mr. Trump, because they would not need to pay a second round of taxes on dividends. The Tax Foundation says it would cost the government about $1 trillion over 10 years.

You should read the entire piece, it’s probably the most hilarious news article I’ve read in years.  (And Appelbaum is a deeply serious reporter.)

The Trump people aren’t even pretending that any of this is serious.  They basically admit to the reporters that it’s all a lie. I’m beginning to feel sorry for Larry Kudlow, he has no idea what he’s hitched his wagon to.

If the Clinton campaign were smart (which I increasingly doubt), then between now and election day they do nothing but run commercials of real people, showing how much their taxes would go up under Trump’s plan.  His tax people are so incompetent they don’t even know how to lie properly. They just handed her a juicy issue, on a silver platter.  Now watch her flub it.

This caught my eye:

The easiest short sales I’ve ever had in my life were the stocks and bonds of Donald J. Trump’s companies. … It was like numerous ocean liners hitting many icebergs repeatedly.  —   Jim Chanos, Kynikos Associates

Like his business career, a Trump presidency will be very good for Trump himself, and very bad for the companies country he runs.

Why should we live in a low rate world?

The Economist can be very good on monetary policy.  For instance, they’ve endorsed NGDP targeting.  And then there are other times.  Check out the subtitle of their new cover story on living in a low rate world:

Central banks have been doing their best to pep up demand. Now they need help

Actually, they have not been doing their best, and it’s not even debatable:

1.   The Fed raised rates last December, and just a week ago indicated that it is likely to raise rates again later this year.  Is that doing your best to inflate?

2.  The ECB and the BOJ have mostly disappointed markets this year, offering up one announcement after another that was less expansionary than markets expected.

So no, they are not doing their best.  If at some point they do in fact do their best, and still come up short, then by all means given them help.

And what should that “help” look like?  Simple, give them more policy tools.  I.e. a higher target, or the right to buy more kinds of assets.  Whatever help they need.

And then there is this:

To live safely in a low-rate world, it is time to move beyond a reliance on central banks. Structural reforms to increase underlying growth rates have a vital role. But their effects materialise only slowly and economies need succour now. The most urgent priority is to enlist fiscal policy. The main tool for fighting recessions has to shift from central banks to governments.

Actually, the Japanese have already shown that enlisting fiscal policy does not help.  In fact, Japanese NGDP growth has picked up a bit since 2013, despite the fact that fiscal policy has become tighter.  Instead of resigning ourselves to a low rate world, why not have central banks create a higher rate world, by raising their NGDP/inflation target?  And tell the banks to actually hit their targets.  A low rate world is a choice, not some inevitable fate sent down to us by the gods.

To their credit, they realize that infrastructure spending cannot stabilize a modern economy:

But infrastructure spending is not the best way to prop up weak demand. Ambitious capital projects cannot be turned on and off to fine-tune the economy. They are a nightmare to plan, take ages to deliver and risk becoming bogged down in politics. To be effective as a countercyclical tool, fiscal policy must mimic the best features of modern-day monetary policy, whereby independent central banks can act immediately to loosen or tighten as circumstances require.

But then suggest something even less effective:

Politicians will not—and should not—hand over big budget decisions to technocrats. Yet there are ways to make fiscal policy less politicised and more responsive. Independent fiscal councils, like Britain’s Office for Budget Responsibility, can help depoliticise public-spending decisions, but they do nothing to speed up fiscal action. For that, more automaticity is needed, binding some spending to changes in the economic cycle. The duration and generosity of unemployment benefits could be linked to the overall joblessness rate in the economy, for example.

Actually, a number of studies show that extended unemployment benefits make unemployment even higher. When President Bush made unemployment benefits more generous during the 2008 recession, Brad DeLong correctly predicted that it would push unemployment 50 basis points higher by Election Day. Another example occurred in 2014, when we saw job creation accelerate by about 700,000 (from 2.3 million in 2013 to over 3 million in 2014), after the extended benefits were eliminated.  Exactly the opposite of what Keynesians like Paul Krugman expected.

I have a better idea; have the BoE adopt a more expansionary monetary policy.  Their governors will warn that this will push inflation above target. OK, but make up your mind—do you want more demand, or not?

Should Hillary claim that she also opposed the Iraq War?

The Iraq War was a debacle.  Hillary supported it.  So wouldn’t it be in her interest to start claiming she opposed it?  Forget the morality of the idea; would it work as a campaign strategy?

Many people probably find the suggestion to be absurd.  Almost ludicrous.  But why?

They’d say she supported the war.  There is a paper trail showing her support.  She could never get away with claiming she opposed it.  Maybe so, but Trump also support the Iraq War, and did so publicly. Nonetheless, Trump does in fact claim that he opposed the Iraq War, and reporters do let him get away with it.  So why can’t Hillary?  Why the double standard?

Hillary’s core supporters include lots of smart/idealistic people like Paul Krugman, who would be outraged by Hillary lying about her support for the war. Yes, they let her shade the truth on murky personal questions like emails, but they’d be outraged by a bald-faced lie on a key policy issue.  She is seen as a competent manager of government (wrongly in my view).  In contrast, Trump is never seriously seen as someone who would actually govern the country. He’s running as a sort of troll, a way for voters to show their contempt for the establishment. The American Brexit. The truth value of his claims about the Iraq War have no importance, nor do his claims about the “40%” unemployment rate, or indeed anything else.  It makes no difference whether or not he favors a higher minimum wage, or infrastructure, or paying off the national debt in 8 years, or anything else.  He’s a troll, and all that matters is that he annoys the (global) establishment.

I’m a member of the global establishment, if you define the term loosely enough, and so I’m annoyed.  Not because his policies would hurt me, indeed they’d massively help my career.  Every day after January 20th would be like Christmas, as I got to watch the look on alt-right and supply-sider faces as they found out the truth about Trump. The blogosphere would go crazy.

Rather I’m annoyed because we have a track record here, and Trump people don’t seem to know it. Throughout history, there have been lots of right-wing demagogues who engaged in the big lie.  Today we see Duterte in the Philippines, Orban in Hungary, Putin in Russia, Erdogan in Turkey, etc.  A few years back we had Berlusconi in Italy.  In earlier decades we saw many others.

It never turns out well.  That’s what Trump supporters don’t get, it never turns out well.

Maybe Trump will be a first, but I doubt it.  (Of course left wing demagogues (Chavez, etc.) are usually even worse.)

PS.  I can already anticipate what commenters will say, but I know that deep down you guys don’t believe it.  Deep down even the most die-hard Trump supporter would be shocked if Hillary suddenly started claiming that she opposed the Iraq War.  So don’t waste your time denying it.  I don’t believe you.

PPS.  I would LOVE to see Hillary deny that she supported the Iraq War, in tonight’s debate.  As a prank, a way of making a point.  Trump would take the bait and insist she was lying.  But she could reply “how is that different from your lies about opposing the war”.  After the debate the news media would be all over the issue, and would end up claiming that both sides were lying.  It would be the big story—man bites dog.  Then Hillary could say she was “just being sarcastic”, which Trump always uses as a get of of jail free card, when he is caught saying something idiotic (and that he didn’t realize at the time was idiotic.)  She could say she was just trying to make a point—how ridiculous Trump’s lies are.

She won’t take my advice.  And I suppose she shouldn’t.  But it’s a nice daydream.

PPPS.  You want double standards?  Remember when Trump bragged about his sexual prowess in a GOP debate? Try to imagine a female candidate doing something comparable. It makes my head explode. I guess I have a double standard too.  (Any comments on the PPPS will be deleted.)