I’ve always had a low opinion of our intelligence community, but I was nonetheless taken aback when commenter Mark directed me to the recent public assessment of election interference by foreign powers:

CHINA – We assess that China prefers that President Trump – whom Beijing sees as unpredictable – does not win reelection. China has been expanding its influence efforts ahead of November 2020 to shape the policy environment in the United States, pressure political figures it views as opposed to China’s interests, and deflect and counter criticism of China. Although China will continue to weigh the risks and benefits of aggressive action, its public rhetoric over the past few months has grown increasingly critical of the current Administration’s COVID-19 response, closure of China’s Houston Consulate, and actions on other issues. For example, it has harshly criticized the Administration’s statements and actions on Hong Kong, TikTok, the legal status of the South China Sea, and China’s efforts to dominate the 5G market. Beijing recognizes that all of these efforts might affect the presidential race.

Let’s work backwards:

Beijing recognizes that all of these efforts might affect the presidential race.

Says who? Do the spooks know this, or are they just speculating?

For example, it has harshly criticized the Administration’s statements and actions on Hong Kong, TikTok, the legal status of the South China Sea, and China’s efforts to dominate the 5G market.

So we are to believe that these public statements are an attempt by “China”, or is it “Beijing”, to tip the election toward Biden? The masterminds in Beijing realize that if voters find out that Trump spoke out against China’s crackdown on Hong Kong, they’d be more likely to vote for . . . Biden? Do the Chinese believe that the American public is favorably inclined toward the Chinese Communist Party, and doesn’t like it when our government takes a tough stand with China?

This stuff doesn’t even pass the laugh test. Start with the fact that a public complaint about US policy is not “election interference”. Then add in the fact that if they wanted to help Biden they would not complain about the Administration’s tough stance on China’s HK crackdown, rather they’d gloat about the fact that Trump encouraged the Xi Jinping to put vast numbers of Uighurs into concentration camps. Are we really to assume that that the Chinese are so clueless that they don’t know what sort of things will influence American voters? Or is it someone else who is “clueless”?

In the future, when I hear people tell me that I should “listen to the experts in the US government who understand the threat from China”, I’ll think back to this report.

And laugh.

PS. I need a vacation. Ever since the Italians elected Berlusconi I’ve have this perception that the world is getting steadily stupider. Or am I getting more senile? (Probably both.)

And check out today’s Bloomberg headline:

I wish I had a job that allowed me to “fix” racial wealth gaps. And what does “fix” mean? Eliminate?

Seriously, do I need to consult a psychiatrist? Is the whole world going crazy or is it just me?

PPS. And this:

After all, the president had told her in the Oval Office that he aspired to have his image etched on the monument. And last year, a White House aide reached out to the governor’s office with a question, according to a Republican official familiar with the conversation: What’s the process to add additional presidents to Mount Rushmore?

Dying would help.

Trump’s at it again:

President Trump on Saturday attempted to bypass Congress and make dramatic changes to tax and spending policy, signing executive actions that challenge the scope of powers between the White House and Capitol Hill. . . .

He mischaracterized the legal stature of the measures, referring to them as “bills.” Congress writes and passes bills, not the White House. The documents Trump signed on Saturday were a combination of memorandums and an executive order.

Actually, Trump is right; they are “bills”. The WaPo is confused because back when the US was still a constitutional republic it was Congress that passed “bills”, just as Congress appropriated money for border walls, set tariff rates, declared wars, etc. Now Congress gets to decide National Bird Watching Day.

The president said if he wins reelection he would seek to extend the deferral and somehow “terminate” the amount of taxes that are owed. The payroll tax funds Social Security and Medicare benefits, and it’s unclear what will happen to those programs without the money.

Why would these programs need tax money? Can’t we just borrow money to pay future SS and Medicare recipients? Trump understands MMT even if you guys still believe in myths like the need to actually pay for government programs.

PS. Yes, I know that this is all clown show stuff and that Trump’s not serious. But although Trump will never be an actual dictator, he certainly enjoys playing one on TV.

PS. Speaking of banana republics, file this under the good (Asia, Africa, Australia), the bad (Europe and Canada), and the ugly (US and Latin America.) Yup, we’re becoming a banana republic.

The administration has issued an executive order banning WeChat. Or at least we are told that it bans WeChat. But how would we know this? The order is so vague that literally no one knows what it means. Heck, the order is directed at a company that does not even exist!

The executive order appeared to have been drafted hastily: the company it names as a target for the ban, Tencent Holdings Ltd, Shenzhen, China does not exist. 

WeChat is a huge deal for the Chinese community in America, and not surprisingly this group is highly suspicious of the claim that this is about national security. I’m actually willing to believe that some US government officials are motivated by genuine national security worries (misguided in my view), but how can you blame people for conspiracy theories when the US president is literally trying to extort money from TikTok.

So all you tech experts that lecture me on not knowing anything about the field, please tell me whether Americans will be banned from using WeChat, or just banned from future downloads of the WeChat app. Also tell me whether the ban applies to personal communication on WeChat or just financial transactions. If there is a distinction, tell me why the distinction is being made. Also tell me whether Americans working in China will continue to be able to use WeChat. Also tell me whether US firms will continue to be able to supply Tencent. Also tell me whether the order applies to online gaming. Also tell me whether Apple will continue to be allowed to provide WeChat in its app store. (If not, there goes their China market.)

And finally, please tell me why the clown show in DC released this executive order before first thinking through what they are trying to do.

PS. The FT says:

One thing it cannot do is ban people from using WeChat; under the law which Mr Trump is invoking, the administration cannot block any personal communications which do not involve financial transactions.

Fine, but if you read the executive order the motivation is precisely that, we need to stop personal communication on WeChat:

Like TikTok, WeChat automatically captures vast swaths of information from its users.  This data collection threatens to allow the Chinese Communist Party access to Americans’ personal and proprietary information.  In addition, the application captures the personal and proprietary information of Chinese nationals visiting the United States, thereby allowing the Chinese Communist Party a mechanism for keeping tabs on Chinese citizens who may be enjoying the benefits of a free society for the first time in their lives.  For example, in March 2019, a researcher reportedly discovered a Chinese database containing billions of WeChat messages sent from users in not only China but also the United States, Taiwan, South Korea, and Australia.

What am I missing?

[Don’t forget to check out the new Mercatus paper on housing and monetary policy during the Great Recession. (Written by Kevin Erdmann and me.) Also, I rarely change my mind on monetary policy, but today I did (at Econlog).]

Over the past decade, I’ve frequently argued that this will be the century of “bubbles”. I use scare quotes because bubbles don’t actually exist—i.e. they are not a useful concept. Rather this will be a century full of asset price movements wrongly seen as bubbles.

Here’s yesterday’s FT:

A collapse in real yields — the return that bond investors can expect once inflation is taken into account — is rippling through global financial markets and driving record rallies in assets from gold to technology stocks, investors say.

Let’s go back to July 2011, and see why I expected a “bubble” century:

But (seriously) are stocks now overvalued? Because I’m an efficient markets-type, the only answer I can give is no. So why does Robert Shiller say yes? Apparently because the P/E ratio is relatively high by historical standards. And he showed that for much of American history investors did better buying stocks when P/Es were low than when P/E ratios were high. Of course hindsight is 20-20.

I’d rather not get into the minutia of all the various ways of calculating P/E ratios. And I have no idea where stocks are going from here. Instead I’d like to focus on three arguments for relatively high P/E ratios in the 21st century American economy (however you’d like to measure them):

1. Stocks have done very well since the 1920s, which suggests that 20th century P/E ratios were usually too low.

2. American companies are making lots of money in the worst recession since the Great Depression. This is partly because US multinationals are making huge profits in the developing world. And this suggests that traditional market indicators based on the ratio of US corporate profits to US GDP may be outdated. US GDP is no longer the relevant denominator. So “E” may be relatively high for the foreseeable future.

3. My most important argument is that low real interest rates might be the “new normal.” The most striking characteristic of the US economy over the past decade is the unusually low level of both nominal and real interest rates. And it’s not just because of the current “unpleasantness;” rates also fell to very low levels in the early 2000s. Why have people missed this story? I believe it’s because they’ve assumed the low rates are some sort of Fed policy, not a free market outcome. But if the low rates since 2001 were an easy money policy, then why didn’t we see high rates of inflation and NGDP growth? So money hasn’t been easy, which we should have [been] obvious all along, given that INTEREST RATES ARE NOT THE PRICE OF MONEY, THEY ARE THE PRICE OF CREDIT. And these low real interest rates should support a higher P/E ratio.

I am a market monetarist because it provides the framework for making sense of what’s happening in the macroeconomy and the financial markets. If you thought that interest rates were being “artificially” depressed by the Fed back in 2011, then you’d naturally expect them to “bounce back to normal” at some point. Those people may be in for a long wait.

PS. Recall all those bubble articles written in 2002, when NASDAQ had fallen below 1200? Back when people laughed at all the fools who (in 2000) had believed that it made sense to invest in companies with no profits, like Amazon? Who’s laughing now?

Once a week the family gets a pizza and the little boy always eats too much. Later he moans that his tummy hurts. When the father tells his son not to eat so much, the little boy responds that pizza is yummy. His dad understands “revealed preference”, and hence is not very sympathetic.

Back in the 1980s, we all thought it was great when Volcker got inflation down to 4%. At that rate, inflation was hardly even noticeable. I actually think 2% inflation is even better than 4%, but only a tiny, tiny, tiny, tiny bit better. There’s almost no difference.

Today, economists often moan that we are cursed with sluggish recoveries from recessions because of the zero bound problem with interest rates. If you point out that the zero bound problem could be easily eliminated merely by raising the trend rate of inflation enough to keep nominal interest rates positive, they moan that they’d rather keep the inflation target at 2%.

Revealed preference suggests that if they aren’t even willing to take a trivial and almost costless change in the inflation target to fix this supposedly really serious problem, then obviously the problem can’t be all that bad. I conclude that the economics establishment is not sincere; they must have a hidden agenda somewhere.

In order of preference, I favor:

1. A 4% NGDP level target combined with a “whatever it takes” approach to “target the forecast”.

2. A 4% inflation target and Great Moderation-style monetary policy.
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3. The current 2% inflation target.

So I don’t favor raising the inflation target to 4% as a first best policy. Lower inflation really is a little bit better. On the other hand, current policy is so bad that a 4% inflation target would be far better than current policy. Indeed it’s not even close.

PS. And please don’t say, “But they struggled to raise inflation to 2% during 2015-18, so what makes you think they could target 4%?” Yes, it’s tough to raise inflation during a period of time where the Fed raises its target interest rate nine times. LOL.