Archive for July 2019


Voters, progressives, and philanthropists

Consider the following story:

A couple of progressives were sitting in a Starbucks in Seattle, lamenting the state of public policy.  The government was raising enough revenue to address many social problems, but the vast majority of domestic spending went to middle class entitlements.  Another big chunk of spending went to the bloated military budget.  Much of the small foreign aid budget went toward our military allies, not the global poor.

Bill the businessman overheard this conversation and was touched by their lament.  Bill suggested an idea:  “How about if I impose a private tax on every single operating system for PCs, and then consult experts on effective philanthropy.  I’ll give the money where it will do the most good.”

Bill then talked his friend Warren into imposing a tax on all financial transactions, and also donate the funds to charity.  The idea spread rapidly.  Mark put a tax on social media advertising, which raised vast amounts of money.  Jeff imposed a private tax on internet retail transactions, while Larry and Sergey put a tax on search advertising.

The progressives said that’s all very nice, but the money is still far too small to address “unmet needs”.  And yet they kept losing elections to populist candidates that promised to spend the money on the sorts of things that made average voters feel more comfortable, such as middle class entitlements, and also programs that made America seem like a Great Power, such as the defense budget and military aid to Israel, Egypt and Pakistan.

Then the progressives decided that if you can’t beat them, join them. Because they could not get Americans to vote for candidates who favored helping the less fortunate, the progressives decided they’d start favoring policies that helped the middle class, programs that ignored the needs homeless Americans and hungry Africans.

The progressives decided to advocate expanding federal health care programs from the poor and elderly to the broader population, at such a huge cost that it would absorb most of the revenue that could be potentially be raised with higher taxes.  In addition, they decided that all Americans should pay taxes to pay off the debts of the relatively well off minority that graduate from college.

Thus the 21st century saw a very unusual phenomenon. Billionaires became bleeding heart progressives, donating hundreds of billions of dollars to the world’s neediest people.  The progressives became power hungry politicians, grasping for votes wherever they could find them.

Of course that’s just a story.  You’ll have to read the news media to find out what’s really going on in America.

The National Review on the Republican Party

Here’s David French, writing in the National Review:

I believe Ilhan Omar is a toxic presence in American politics. Her critiques are deeply misguided. But she should temper her critiques because they’re wrong, not because she’s an immigrant. . . .

The near-total silence (at least so far) from GOP leaders is deeply dispiriting. Do they not understand the message the leader of their party is sending — especially to America’s nonwhite citizens? Do they not understand that racial malice as a political strategy isn’t just an ultimately losing proposition but also deeply divisive, picking at the scabs of America’s deepest political, cultural, and spiritual wounds?

Later French suggests that they do understand, but are cowards:

There are many GOP leaders who, quite frankly, understand that they criticize even the president’s racist speech at their own peril. The grassroots have spoken. Loyalty to the president must be absolute, or one risks a primary challenge. Yet individual voters have responsibilities as well, and they must understand that extraordinary loyalty to a malicious man broadcasts their own disdain for their fellow citizens. . . .

Trump is fully employing malice as a political strategy. It’s not clever. It’s not shrewd. It’s destructive and wrong. The fact that so few Republicans can muster enough courage to state this obvious truth speaks to a sad reality — the rot extends far beyond 1600 Pennsylvania Avenue.

I pray that the Republican Party is a vast collection of cowards.  The alternative is too horrible to contemplate.

Another day, another racist rant

Here’s Trump:


Is Trump getting even worse? Is that even possible?

Three of the four Congresswomen attacked by Trump are not even immigrants:

The nativist rhetoric, “go back to your country,” is often used in racist, Xenophobic and Islamophobic attacks, including a recent hate crime in New York City last week where a Hispanic woman was attacked and told, “You’re here taking jobs from Americans.” . . .

The four progressives included Alexandria Ocasio-Cortez of New York, Ayanna Pressley of Massachusetts, Rashida Tlaib of Michigan and Ilhan Omar of Minnesota. The women of color were born in the United States, except for Omar who became a refugee in 1991 when a brutal civil war devastated Somalia, a predominantly Muslim country in East Africa, where at least one American among the 27 died in a terrorist attack Saturday.

It’s true that millions of Trump supporters are not racist. But it’s also true that those Americans who do hate Muslims and Mexicans and other immigrants absolutely love Trump. They adore him. Why is that?

Perhaps these racists misunderstand Trump when he tells women of color who were born in America to go back to their own country. Perhaps it’s all just a terrible misunderstanding.

Market bullies

I generally don’t like bullies, but I’ll make an exception for market bullies. Here’s the FT, from a few weeks back:

“I just don’t see the case for rate cuts, but [the June Fed meeting] was the most dovish outcome we could have had [without] an actual rate cut,” said Gregory Peters, a senior portfolio manager at PGIM Fixed Income. “Markets are bullying the Fed, and the Fed is responding.”. . . 

And assuming the central bank does trim rates, will this be a precautionary move to bolster growth at a time of passing weakness, or will it solidify concerns over the slowing economy, leading markets into browbeating the Fed into a full rate-cutting cycle?

Translation of first paragraph:  The markets are signaling a fall in the natural rate of interest, and the Fed is responding. 

Translation of the second paragraph:  If the Fed cuts rates more slowly than the natural rate is declining, the resulting economic slowdown may trigger more rate cuts. 

And from yesterday’s FT:

While some investors see the Fed’s move as unjustified given stronger US economic data, the rosiest data points have been overshadowed by tumbling bond yields and a yield curve that has been inverted since the end of May.

“There is really no good excuse for cutting rates at all,” said David Kelly, chief global strategist at JPMorgan Asset Management. “They’re doing so to avoid a market meltdown.”

Seema Shah at Principal Global Advisors said: “The Fed is cutting rates not in response to the economy, but in order to avoid a market fallout . . . The Fed put itself in a corner. We’ve had a run of stronger data which at any other time would not have led them to cut rates.”

Translation: The Fed has rejected the conventional wisdom that they should respond to actual economic data and accepted the market monetarist argument that market forecasts are the most reliable guide to policy.

Is this what winning feels like?

We still have a long way to go. The Fed is increasingly willing to use market forecasts, but is doing so in an inefficient fashion. As time goes by, they’ll look for better ways to incorporate market forecasts into the policymaking process. And when they look around for better options, they’ll discover that market monetarists have been thinking about these issues for more than 30 years. Most likely, however, they’ll start with the guardrails approach.

Most news articles on the Fed are focused on the wrong issue. They look at a strong economy and see no need to ease monetary policy. Maybe that’s correct. But in order to keep monetary policy stable in a world where the natural rate of interest is falling rapidly, the Fed needs to cut rates. So don’t ease policy; cut interest rates to avoid tightening policy. How many times does it need to be said that interest rates are not monetary policy?

Based on this blog, I’d say, “apparently a lot”.

Some misconceptions about Taiwan

I often see misconceptions about Taiwan:

1. People sometimes suggest that the majority of the population is native Taiwanese, and that a small group of “Chinese” who came over after the 1949 communist revolution ruled over this Taiwanese majority for decades.

2. People sometimes suggest that Taiwan claims to be an independent country, but China won’t recognize that claim.

Neither assertion is true.

Let’s start with the term ‘Chinese’. This could be defined in several ways. One definition is “residents of China”. By that definition, all Taiwanese residents are technically Chinese, as both China and Taiwan technically regard Taiwan as being part of China. At least that’s their official position.

But most people around the world, both Chinese and non-Chinese, use the term ‘Chinese’ in a different way. The term generally refers to an ethnic group called the “Han”. Thus people contrast “Chinese” residents of Malaysia with Malay or Indian residents of Malaysia. Or they contrast “Chinese” with “Tibetan” or “Uyghar” residents of the PRC. In everyday speech, “Chinese” generally means Han.

Using this definition, Taiwan is more “Chinese” than the PRC. Taiwan is over 95% Han, whereas the mainland is about 91% Han. Only a tiny portion of Taiwanese are native people.  As an analogy, East and West Germany were separate countries, but both places were mostly German. Residents of both North and South Korea are Korean. If there is an argument for Taiwanese independence, it should not be based on the myth that the “native Taiwanese” are somehow ruled over by “Chinese”. That would be as absurd as saying “Fujianese” people are ruled over by the Chinese.

On the second point, the Taiwanese constitution says there is only one China, and it includes both Taiwan and the mainland. (Also Mongolia, BTW, which is a rather silly claim.)

I’m a pragmatist, and thus I’m perfectly happy with the current arrangement. Taiwan is much richer and freer than the mainland, so it’s no surprise that they don’t want to unify at the moment. It would be a horrific mistake for the PRC to suddenly force the issue with an invasion. But it also makes sense to view re-unification as a long run goal, to be achieved peacefully after the mainland has achieved levels of prosperity and freedom that are roughly on par with Taiwan. Just as East and West Germany eventually reunified peacefully, and North and South Korea will likely eventually unify peacefully.

Maintaining the aspiration of eventual reunification will have the advantage of minimizing the risk of a ruinous war, which might be triggered by a rash decision of Taiwan to declare independence.

PS. Of course you can make the argument that Taiwanese are now a separate ethnic group, having lived apart for so long. But in that case you must make the same argument about Korea, which split in two at almost exactly the same time. Koreans have lived under vastly different conditions, even more different than the two groups of Han Chinese. And yet I see very few people denying that both North and South Koreans are indeed “Korean”.