Archive for November 2016


The silence of the sheepish

Tom Brown sent me the following:

President-elect Donald Trump is drawing praise from the Ku Klux Klan, neo-Nazis and other white nationalist groups for appointing former Breitbart executive Stephen Bannon as his chief strategist.

“Perhaps The Donald is for real,” Rocky Suhayda, chairman of the American Nazi Party, told CNN in an segment that included interviews with several white nationalists.

. . .

Bannon told Mother Jones over the summer that his conservative news outlet was “the platform of the alt-right,” a far-right ideology that promotes white supremacy.

Under Bannon’s leadership, Breitbart ran headlines such as: “Bill Kristol, Republican Spoiler, Renegade Jew,” “Gabby Giffords: The Gun Control Movement’s Human Shield,” and “Birth Control Makes Women Unattractive and Crazy.”

So where’s the outrage?

With Dems and blacks:

Top Democrats – including House Minority Leader Nancy Pelosi of California, retiring Senate Minority Leader Harry Reid of Nevada – and anti-discrimination groups are ripping the president-elect for the choice.

Pelosi said the hire undermines attempts to unite the country.

“There must be no sugarcoating the reality that a white nationalist has been named chief strategist for the Trump Administration,” she said.

And the Southern Poverty Law Center released a statement Monday saying Bannon’s appointment goes “directly against Trump’s pledge to be a president to ‘all Americans.'”

What a bunch of killjoys!  Seriously, after reading that I was hoping for some similar outrage from the GOP.  Instead here’s what The Hill reported:

House Majority Leader Kevin McCarthy (R-Calif.) got into an uncomfortable back-and-forth with reporters Monday, when they read him a series of racist and misogynistic Breitbart headlines from Bannon’s time at the helm.

“The president has a right to select who he thinks is best to be able to move through,” McCarthy said.

The President absolutely has a right to pick whoever he chooses.  And Republicans have a 1st amendment right to criticize objectionable choices.  I can recall previous cases of presidential appointees who received a great deal of criticism, even by their own party.

This is exactly what I was getting at in my recent libertarian column.  There are so many people on the right who are tone deaf about racism.  We shouldn’t adopt the over-the-top political correctness that you see on campuses, but what’s wrong with insisting that top White House officials are not self described alt-righters?  Is that too much to ask?

PS.  In a way it’s weird for me to be doing these posts.  Most of the time I think the press is too sensitive about race, too eager to cry racism.  But now when it’s right in front of our eyes, lots of people on the right still can’t see it.  Or maybe they are like sheep, afraid of angering the big bad Donald Trump.

PPS.  I really hope Trump stops doing these things; I’m getting sick of talking about him.  And on economic policy the early signs are actually pretty positive.

PPPS.  Speaking of farm animals, how about those three cows!

PPPPS.  File this under “I hope he’s a quick learner“:

A source told NBC News that Trump asked President Barack Obama during their Thursday meeting how many White House staffers he could replace. And when the sitting president responded that Trump gets to staff just about the entire White House, the president-elect was surprised, NBC’s source said.

The Wall Street Journal reported a similar anecdote, but said that it was Trump aides who seemed “unaware” that the West Wing staff needed to be replaced after Obama’s departure.


Before the election, I pointed out that the Chinese government was not holding down the value of its currency, indeed just the opposite.  Here’s the FT:

“There aren’t going to be trade wars,” Wilbur Ross, the New York investor and Trump adviser, told US media last week.

Mr Ross argues that Mr Trump’s widely-quoted campaign threat to impose a 45 per cent tariff on Chinese imports — seized on by economists as the potential trigger for a trade war with Beijing — has been misunderstood and amounts only to negotiating tactics.

Such a figure would be dependent on a finding that China’s currency, the renminbi, was undervalued by 45 per cent, Mr Ross says. The International Monetary Fund has called the RMB fairly valued while US officials point out any recent intervention by Beijing in currency markets has been designed to slow a market-driven decline, arguably to the US’s benefit.


In other news:

A global bond market rout intensified on Monday while the dollar strengthened as investors bet that US president-elect Donald Trump’s mix of economic stimulus and protectionism will herald faster growth and the return of inflation.

Since Mr Trump’s surprise win in last week’s election, investors have begun to question long-held consensus forecasts for subdued inflation and mediocre growth that underpinned a rally in bonds over the summer. Yields on US, UK, German and Japanese government debt are now rising from record lows.

“Markets are betting that Trump will implement much of his domestic agenda of a fiscal boost and deregulation while ditching most of his international agenda of protectionism and ‘America first’,” said Holger Schmieding, chief economist at Berenberg.

There are actually two questions here.  Why did bond yields rise after Trump was elected, and what is the “new information” that caused much of the increase to occur in recent days, not immediately after the election (as the EMH might seem to predict).  Is there any new information?

I’m not sure, but my best guess is that as Trump’s camp sends out signals that it will be more “supply-sider” and less “populist”, that boosts RGDP growth expectations, and hence bond yields.  Fiscal stimulus may also play a role, but my hunch is that a big infrastructure program was already a given, and that the new information relates to the hints that the supply-siders are dominating the populists.  (Or perhaps the populism was a scam from the beginning, a way to get downscale white votes: “There’s nothing wrong with Kansas that huge tax cuts for billionaire NYC property developers can’t fix.”)

The swamp will be drained, right into the pockets of Trump’s buddies.

PS.  Now I’ll put on my “Colombo” raincoat.  “There’s just one thing I don’t understand.  If this was the plan all along, then why not just go with Jeb!, Ted, or Marco?  Why did we need Trump?  Is it nothing more than Trump’s ego?  Nothing more than Trump deciding he’d win by running as a populist xenophobe, but then implementing Mitt Romney’s program afterwards?”

Update:  Some commenters whined, “Sumner, you told us Trump wouldn’t win”, when I actually told them he had a 20% chance.  Some people think 20% probability events never happen.  I encourage all my commenters who complained to play Russian roulette.  In any case, here’s the closing price at the Hong Kong Stock Exchange today, from Yahoo:





The odds of all 7 digits being identical are one in a million.  Those sorts of coincidences happen thousands of times every day, all over the world. When you see an academic study that says a finding is significant at the 95% confidence level (one in twenty odds of being due to chance), you should make a mental note not to trust the finding, unless confirmed by multiple follow-up studies.

Update:  Msgkings pointed out:

Wanna flip your lid some more? The actual closing yield on the 10-year UST today was 2.222% on the CBOE. Put that together with today’s Hong Kong close.

So that’s 11 digits, and a one in 10 billion odds of all digits being identical.  That will happen again in those two markets in about another 28 million years.  But will we still have the 10-year Treasury, 28 million years from now?  How about NGDP targeting?

A quick note on inflation

The TIPS spreads are a useful indicator of inflation expectations.  But they are not perfect.  The spread can be distorted by lots of factors, including changes in the risk premium and sudden swings in commodity prices (the TIPS adjustment occurs with a lag, so actual changes in commodity prices show up as expected changes in the CPI.)

Today, the 5-year TIPS spread is 1.77%.  Because it is based on the CPI, it corresponds to roughly 1.5% inflation on the PCE, which is the inflation rate that the Fed actually targets (at 2%.)

So if you believe TIPS spreads accurately measure inflation expectations, you are forced to believe that investors currently expect inflation to fall well below the Fed’s target over the next 5 years.

Over the past 12 months the PCE inflation rate has run at 1.37%, so it’s likely that investors expect a pick-up in inflation over the next 5 years.  But that was probably true before the election as well.  The core PCE is running at 1.7%, and most experts believe the core is a better indicator of future inflation, as it’s not effected by transitory swings in commodity prices.  It’s not that food and energy “don’t matter”, of course they matter a lot for consumer living standards, the point is that their relative prices are roughly a random walk, and hence the core is a better tool for forecasting inflation.

To summarize, the recent headlines about “inflation coming because of Trump” are only half true.  Yes, the TIPS spread has widened since the election, and I think it’s very possible that the increase was in part caused by the election.  That suggests that monetary offset is not perfect, not 100%.  On the other hand, in absolute terms the magnitudes are still quite low.  I still think we are looking at a 2% inflation economy, or slightly below, as far as the eye can see.  If it has increased a bit, we don’t know why.  Is it fiscal stimulus, or the expectation that Trump will appoint another Arthur Burns in 2018, or both?  I simply don’t know.  TIPS spreads often move around for reasons that are poorly understood.

FWIW, I’ve argued for years that 1.8% inflation is the new normal, not because the Fed wants it, rather because the policy that the Fed thinks will give them 2% inflation will probably actually give them about 1.8%, on average. Two percent during good times and 1% to 1.5% during bad times.  The Fed always tends to assume good times ahead. The recent moves in TIPS spreads are potentially important, but I’d need more evidence to move me off my 1.8% forecast.

PS. If you use 10-year TIPS, the spread is about 15 basis points higher, still pointing to sub-2% inflation going forward.

PPS.  As always, a NGDP futures market would add useful information.

And so it begins . . .

During the campaign, I suggested that I had no idea what Trump would do as president, other than that it would probably bear little or no relation to his campaign promises, which were so erratic and impractical that they could not be taken seriously.  Here’s the FT:

But he asserted that the remaining 8m to 9m undocumented immigrants in the country were “terrific people” and that a decision about whether or not to deport them would only be taken later into his presidency.

Mr Trump said his long-proposed wall on the US border with Mexico could include “some fencing”. “For certain areas, I would [accept fencing] but certain areas, a wall is more appropriate. I’m very good at this. It’s called construction.”

He also suggested he would now try to keep certain elements of the Affordable Care Act — also known as Obamacare — when he rolled out his own healthcare initiative, including allowing children in their twenties to stay on their parents’ healthcare plan and ensuring that people with pre-existing conditions were still able to receive coverage.

So no wall along the entire border, no expulsion of the 9 million illegals who broke no laws while in the US (Obama’s policy too), and no repeal of Obamacare.  Three major promises broken today.  But I suppose even that’s debatable, as you can find moments during the campaign where he hinted that he’d keep some of Obamacare and that some illegals could stay.  Let’s just say that he gave his supporters a misleading impression, if they merely focused on the more controversial soundbites.  The “pre-existing conditions” aspect of Obamacare is right at the heart of the program. It’s going to be very hard to “get rid of Obamacare” and still have that provision.

The first two are big positives–kudos to Trump, while the Obamacare decision depends on what sort of alterations he comes up with.  Trump will probably want to just eliminate the unpopular bits, which will lead it to collapse more quickly than otherwise.  And that might or might not be a good thing, depending on what comes next.  (Single-payer under the next Democratic administration?)

He also appointed the publisher of the disgusting alt-right website Breitbart News as his “chief strategist”.  So the “bad Trump” isn’t going away anytime soon.

PS.  The FT also has an interesting piece by Larry Summers criticizing the fiscal stimulus plan being discussed by Trump advisers.  Larry is not a fan of “populist economics”.  Neither am I.

PPS.  Here’s how alt-right commenter Harding feels after reading the FT piece:


Please save libertarianism from the libertarians

Most intelligent people don’t like Trump.  Heck, polls suggest that most unintelligent people don’t like Trump. Nonetheless, I feel that libertarians often focus on the wrong issues regarding Trump, and this leads outsiders to wonder why we are so narrow in our focus.

Bob Murphy (who doesn’t support Trump) has a post reflecting on the lessons of the election.  I disagree with much of it, but I suppose all the points are defensible, taken one at a time.  Unfortunately, the overall impression is that libertarians are tone deaf.

Much of the post is devoted not to attacking Trump, but rather to attacking his critics or pointing out that some of his issues have merit.  Fair enough, it’s his prerogative to do so.  But when it comes to free trade Bob pulls no punches:

Immigration Policy Is Debatable Among Libertarians, but Trump’s Trade Rhetoric Is a Disaster. I personally think that much freer movement of people across sovereign borders would be a good thing, for Americans and foreigners, and both in material standards of living as well as intangible civil liberties. In particular, a giant wall to keep illegal immigrants out might make it that much easier for a future regime to keep dissidents in.

Having said that, I should acknowledge that libertarians are divided on questions of immigration. Although I agree with my colleague Ben Powell on the economics of greater labor mobility, some libertarians understandably worry about the negative consequences of letting in people who will vote for a larger welfare State.

Yet when it comes to the free movement of goods, then the Trump phenomenon is clearly misguided. As a free-market economist, I will unfortunately have to spend much more time during the next four years explaining to Americans why more regulations and taxes—levied on their choice to buy foreign products—won’t make America richer.

No discussion of the vile racism, misogyny, anti-disabled, anti-POW or anti-Muslim bigotry, beyond an allusion to Trump’s “boorish comments about women”.  Nothing on his pandering to the alt-right, or hiring the publisher of a leading alt-right outlet to be his campaign manager.  Nothing about his support for much worse types of torture than waterboarding.  Nothing about his comments that we should steal the oil of countries when we conquer them. Nothing about his support for assassinating the family members of terrorists.  Nothing about his embrace of brutal authoritarians like Putin.  Nothing about his promises to stop the media from printing anti-Trump stories. Nothing about his bizarre embrace of numerous nutty conspiracy theories.  Or his comments in favor of nuclear proliferation.  Or his contempt for facts, which I’m afraid goes far beyond the lies we see with even Hillary/Nixon-level politicians.

Look, I’m also opposed to tariffs on Mexican goods.  But when people read posts like Bob’s they are going to think that libertarians just don’t get it.  One defense is that Hillary is also horrible.  I agree, she’s much worse than Obama.  So put in a, “To be sure, Hillary also has many faults like militarism and support for the war on drugs” or something like that.  But Trump’s outrages go far beyond anything I’ve ever seen in American politics, and if we write posts mostly attacking his critics and then throwing in a few lines about tariffs, we are just giving ammunition to the people who troll libertarians as insensitive on issues such as race and gender (I don’t recall specific examples, but I’m thinking of people like Noah Smith, Brad DeLong, Paul Krugman, etc.)  Lots of female GOP intellectuals (who earlier criticized Bill Clinton) are disgusted right now with the GOP, and their reasons go far beyond “boorish comments”.  They don’t understand why the men in their party don’t get it.

Moving beyond Bob’s post, I’m glad those “sore losers” are out in the streets protesting Trump; I wish there were millions of people protesting (peacefully of course.)  I’d be disgusted with this country if people simply bowed down to Trump because he won.  The fact that he won more states than Hillary doesn’t magically transform him into another person; he’s still the appalling, disgusting, evil person he was on November 7th. A man with literally no good qualities (with apologies to Musil). All that’s changed is that he’s now a government employee.

Sometimes I wonder why we even have a public education system.  When I think back to all the “social studies” classes I took in high school, there were lots topics covered.  But much of the history (back in the 1960s and 1970s) we covered actually boiled down to one basic point: “Do not ever, ever, ever, ever vote for a demagogic politician who engages in the big lie, is contemptuous of civil liberties and demonizes minorities and foreigners. Just don’t do it.”  And if we can’t even get that one basic point, then can someone tell me what these civics classes are for?  What’s the point?  And please don’t tell me that all politicians are demagogues, of course that true to some extent.  But Trump’s a textbook definition of what we were warned to shun at all costs.

If libertarianism doesn’t rise to the occasion and loudly proclaim that Trump is completely beyond the pale, then we are going to make the same mistake those leftists made in the 1950s and 1960s, when they spent more time criticizing anti-communists than they did criticizing the unprecedented evil of global communism.  Of course Trump’s not that sort of threat, he’s probably too incompetent to do much harm (one key difference from Hitler), and our democracy is quite strong (another key difference).  Maybe he won’t even impose those tariffs—I have no idea what he’s going to do.  But in symbolic terms the issues are just as stark, and we need to reject Trumpism without any qualifications, even if Trump were to bring about small government and NGDP targeting.  Otherwise libertarianism will be tarnished by this sad episode of American history.

PS.  You might say I didn’t mention Hillary’s scandals.  That’s right, but I also didn’t mention’s Trump’s, which even more extensive.  Cheating on his taxes.  Using a charitable foundation for personal profit.  Creating a fraudulent “university” to scam students.  I agree that Hillary has scandals involving emails and the Clinton Foundation, but Trump is a walking non-stop scandal.  I didn’t think those were even worth adding to the list above, because I was trying to focus on the things that were completely outside the range of normal American politics.  Scandals are a dime a dozen.

PPS.  This is good news:

President-elect Donald Trump said in an interview to air on Sunday that certain areas of his promised border wall with Mexico, a key part of his White House campaign platform, could be fence instead.

Just as stupid, but cheaper stupidity!