Archive for July 2022


Nonsensical thoughts on the hearings

I rarely watch TV (outside sports), but yesterday I watched a couple hours of the Jan. 6 hearings, which were a lot of fun. A few reactions (not to be taken seriously, and not even even consistent with each other):

1. Incredibly biased hearings:

I was stunned by how one-sided the hearings were. Yes, most of the committee members were Democrats, but two Republicans completely dominated the proceedings. And at least in the 2 hours I watched, every single person testifying was a Republican. Not one Democrat was allowed to tell their side of the story. The lopsided bias in the witness list was almost comical. Even Trump’s own family was allowed to testify.

Given the GOP bias, it wasn’t surprising that Bloomberg reported:

Plenty of Republican party actors are still solidly in Trump’s camp. The best comic relief from Thursday night’s session came from the House Republicans’ Twitter account, which declared early in the hearing, “This is all heresy.” 

Well . . . it is heresy when you challenge the leader of a religious cult. Isn’t it?

2. Two types of Republicans:

The hearings made it very clear that Trump supported the violent mob that invaded the Capitol, and indeed egged them on. He encouraged the mob to go after Pence, and indeed at one point the Secret Service members defending Pence feared for their lives. But Trump just wouldn’t stop; he kept telling the mob that Pence had betrayed them.

To give you an idea as to how biased and one-sided the hearings were, not a single witness defended Trump’s support for the mob. That’s right, 100% of the witnesses, even his own family members, opposed his decision to support the mob. Many of the rioters would have defended Trump, but the committee cherry picked a few that opposed the attack on the Capitol.

The entire hearing was almost laughably one-sided. Couldn’t they call a single witness defending Trump’s actions? Instead, all we got were a series of RINOs, including much of the White House staff, left wing media figures such as Sean Hannity and traitorous family members like Ivanka and Jared and Donald Jr.

3. Lies, damned lies, and bold-faced lies:

Everyone lies. So why does Trump seem different? One exchange that caught my eye nicely encapsulates what makes Trump different from even a relatively dishonest politician like Nixon. Kevin McCarthy phoned him and asked him to call off his supporters. Trump responded that the mob were not his supporters, they were Antifa. McCarthy responded that they were in fact Trump supporters. Not missing a beat, Trump responded that it seemed like the rioters cared more about the stolen election than did McCarthy.

That kind of bold faced lie requires a certain type of arrogance. Trump knows he’s lying, and knows the other guy knows he’s lying. But Trump also knows that McCarthy will eventually kowtow to him, no matter how much Trump abuses him. He knows that McCarthy is no Liz Cheney.

Another howler was Trump’s statement of something to the effect that, “Everyone knows I won by a landslide.” A normal liar might argue that vote fraud in three states prevented Trump from a narrow victory in the electoral college. Or even that, “Most people secretly know I won by a landslide, but there might be a few deluded Democrats who actually believe Biden won.” But that’s a wimpy lie, unfit for a larger than life figure like Trump. His lies must be not just false, but utterly preposterous. Hence “Everyone knows I one by a landslide.”

4. The history books of 2050

I began to wonder what the history books of 2050 will say. There’s no doubt in my mind that the January 6 events will dominate their coverage of the Trump administration, just as Watergate dominates the Nixon period and Teapot Dome dominates the Harding coverage in history books. In all of US history, only eight times has a senator voted to convict a president of his or her own party. In all eight cases, it was Trump they voted to convict. That’s impressive!

But then when students get to the next chapter they’ll see that Trump was elected again in 2024. How will teachers explain this fact to students? American history is supposed to be a story of progress. We make mistakes, but we learn from those mistakes. So why was Trump re-elected in 2024?

5. Showtime

It had to be Liz Cheney who put together that bit that began by showing Josh Hawley pumping his fist in support of the Trump mob, and then immediately after showed him running like a frightened child through the Capitol fearing for his life.

I don’t agree with Liz Cheney’s politics, but I’d vote for her in a heartbeat. The voters of Wyoming are lucky to have such an impressive woman representing them.

PS. Here’s the FT:

Each of the committee members — seven Democrats and two Republicans — has taken the lead for a different part of the investigation. But those who have worked with it say that behind the scenes Cheney was the one making many of the most important decisions. . . .

Some of those close to Cheney believe that some of the star witnesses would not have testified had it not been for her. Bill Barr, Trump’s former attorney-general who has provided some of the committee’s most explosive testimony, served in the same cabinet as her father under president George HW Bush.

“There is no way Barr could have got away with saying no to Liz Cheney,” said Barbara Comstock, a former Republican member of Congress and longtime friend of Cheney. “The problem for a lot of these senior Republicans with Liz being there is they could run from the committee but they couldn’t hide.” . . .

Cheney has hinted that she might launch a presidential run in 2024, but experts say she is unlikely to win a Republican nomination or a general election. Instead, her main achievement might be empowering someone else to take on Trump now that he has been wounded by the committee.

“There is going to be a big field of Republicans running in 2024 thanks to the work of Liz Cheney,” said Comstock. “They should all get to their knees and thank her — although they won’t.”

Yup, this was a GOP show. The Dems cannot seem to do anything right. They are equally inept at politics and public policy.

The worse, the better?

Lenin felt that way about Czarist Russia, but is that how the Democratic leadership should feel about the GOP?

Apparently, the Democratic Governors Associations is with Lenin. Here’s Reason:

Yesterday was Maryland’s primary election day. The winner of the Republican gubernatorial primary was supported by both former President Donald Trump and the Democratic Governors Association. Why is that? . . .

In Pennsylvania, Democratic nominee Josh Shapiro ran ads boosting Republican candidate Doug Mastriano, a state senator who insists the 2020 presidential election was stolen. Mastriano ultimately won the nomination, and now has a fighting chance of winning not just the governorship, but the power to hand-pick a secretary of state who may throw the 2024 election into chaos. . .

[T]he DGA spent $1.2 million on an ad targeting Cox, more than twice what Cox had raised to that point. The ad highlighted Trump’s endorsement, and claimed Cox was “fighting to end abortion in Maryland” and “will protect the Second Amendment at all costs, refusing to support any federal restrictions on guns, even pushing to put armed guards in every school.”

While likely horrifying Democrats, the ad goosed Cox’s prospects among Republicans: He ultimately beat Schulz by more than 15 percentage points. Like Mastriano, Cox participated in the January 6 Capitol riot, busing people to Washington ahead of time and tweeting “[Vice President Mike] Pence is a traitor” after protesters had already breached the building.

The GSA strategy is too cynical even for someone like me. After all, Democrats are Americans, aren’t they? It’s inevitable that the Dems will win some elections and lose some elections. When they lose, wouldn’t it be better if the victorious GOP opponent were not evil?

It’s bad enough that the GOP is being taken over by right wing nuts. The fact that the Democrats are encouraging this shift is even worse. Just one more indication that America has become a banana republic.

Bloomberg has the following headline:

Good News for Democrats: Even Republicans Are Tiring of Trump

I don’t believe that; the betting markets still show Trump as being almost twice as likely to win the next presidential election as is the next most popular candidate (which is not Biden, in case you are interested.) But if the DGA is correct, then news of Trump’s (alleged) falling popularity should be discouraging to Dems. After all, it would be easier for the Dems to beat Trump than DeSantis. (To be clear, I don’t believe they’d beat either. I’m just saying that Trump is clearly the weaker candidate.)

PS. I read that some of the MPs that support Rishi Sunak strategically voted for Liz Truss, believing her to be the weaker foe in the next round. Betting markets now have Truss as the favorite to beat Sunak.

PPS. Was it a mistake to unify Italy? The country seems increasingly dysfunctional. Let’s not forget that it all began in Italy with the election of Berlusconi. By “it”, I mean the banana republicization of much of the world. Italy was the canary in the coal mine, heralding that the 21st century was going to suck.

Forza Italia! Yeah, how’d that work out?

No, the eurozone doesn’t have a similar inflation problem

The US is currently experiencing 9.1% CPI inflation, while the eurozone has 8.6% inflation. That sounds pretty similar, doesn’t it?

In fact, the inflation in the eurozone is much different from inflation in the US. In the US, we have both stagflation and boomflation. The eurozone has mostly stagflation, as their NGDP growth rate since 2019 has not been particularly high (2.67%/year since 2019:Q4).

You can see the difference by looking at inflation as measured by the GDP deflator:

In the US, the inflation rate for final goods is 6.9%, whereas in the eurozone it is only 3.3%. Europe’s 8.6% consumer inflation is mostly imported goods.

Which inflation problem is worse? It depends what you mean by “worse”.

The eurozone is suffering more in terms of current living standards, as nominal income growth in the eurozone is far lower than in the US.

In terms of bad monetary policy and future macroeconomic instability, the US has a much worse inflation problem.

Trade freely and carry a big stick

In at least one respect, I’m more hawkish on China than almost anyone else. For instance, I’d like to see the US add Japan, S. Korea, Australia and New Zealand to the Nato alliance. According to the FT, this move is currently outside the Overton Window:

Beijing has repeatedly warned against the creation in Asia of any Nato-like military bloc, a prospect that security experts said was very unlikely since countries in the region have highly varied interests and strong economic ties with China. . . .

“It would complicate calculations for China if they need to think about not only the alliance with the US, but also the 30 members belonging to Nato,” said Yoshikazu Hirose, an expert on the alliance at the National Defense Academy in Japan.

Unfortunately, Nato expansion into East Asia seems unlikely to happen:

Stephen Nagy, senior associate professor at the International Christian University in Tokyo, said there would be limits to co-operation between Nato and its new partners.

“I think they would welcome any kind of diplomatic, financial and resource investment into Nato to push back against Russia,” Nagy said. “But do the Nato members want South Korea, Japan, Australia and New Zealand in their relationship and as equals sitting at the table? I’m not so sure.”

Over at Econlog, I frequently argue that Nato is just about the best thing that ever happened. As far as I’m concerned, the more the merrier—as long as the more don’t include countries hell bent on invading their neighbors and annexing territory, or countries without secure borders. If Kuwait had been a member of Nato back in 1990, both the Gulf War and the Iraq War never would have happened. Ultimately, the entire world will become members of Nato. Unfortunately, I won’t live to see that day.

In contrast to my super-hawkish Nato views, I’m dovish on trade. Indeed I’m disgusted by the US attempt to destroy China’s high tech sector by bullying smaller countries:

The US is pushing the Netherlands to ban ASML Holding NV from selling to China mainstream technology essential in making a large chunk of the world’s chips, expanding its campaign to curb the country’s rise, according to people familiar with the matter. 

Washington’s proposed restriction would expand an existing moratorium on the sale of the most advanced systems to China, in an attempt to thwart China’s plans to become a world leader in chip production. If the Netherlands agrees, it would broaden significantly the range and class of chipmaking gear now forbidden from heading to China, potentially dealing a serious blow to Chinese chipmakers from Semiconductor Manufacturing International Corp. to Hua Hong Semiconductor Ltd

American officials are lobbying their Dutch counterparts to bar ASML from selling some of its older deep ultraviolet lithography, or DUV, systems, the people said. These machines are a generation behind cutting-edge but still the most common method in making certain less-advanced chips required by cars, phones, computers and even robots. 

When countries behave peacefully, we should have as much economic integration as possible. When countries invade their neighbors, we should punish them as much as possible. We need many more free trade blocs, a bigger Nato to protect smaller nations, and much more effective sanctions on Russia.

This study caught my eye:

New work by Giacomo Magistretti of the imf and Marco Tabellini of Harvard University also exploits falling air-transport costs to tease out the causal effect of trade on both attitudes towards democracy and the overall political orientation of a country. They find that stronger economic ties indeed facilitate the transmission of political values—but only if said values are democratic.

The effects are big. People who grew up during periods when their home economy traded comparatively more with democracies appear to be much more drawn to open regimes than those who came of age under opposite circumstances. 

And how about this:

In March the Commerce Department humoured a request by Auxin Solar, an American manufacturer, to check if Chinese companies were circumventing anti-dumping tariffs. Duties had originally been imposed by Barack Obama, then extended by Mr Trump; Auxin claims that firms are dodging tariffs by making parts in China but assembling modules in their South-East Asian factories.

The effect is that a small American firm is obstructing more than 300 projects, according to a tally by the Solar Energy Industries Association, a lobby group. Some developers cannot get their hands on kit. Others find that costlier gear has put their construction deals in the red. NextEra told investors in April that up to 2.8 gigawatts of solar and battery projects planned for this year, equivalent to around a tenth of its intended renewables investments in 2021-24, would be delayed. American assemblers of solar panels, it said, were sold out for the next three years. America’s largest solar project, spanning 13,000 acres of Indiana, has been postponed. NiSource, the utility behind it, will instead delay the retirement of two coal-fired power stations to 2025.

PS. To head off a common criticism, the so-called “free rider problem” with Nato is a myth. Even if all Nato members were to merely spend 2% of GDP in defense, no non-member would dare to invade Nato. Who wants to take on roughly 2/3rds of the world’s military power, all alone? It’s not a concern.

PPS. Glad to hear that Sweden and Finland are about to join. Nato will become better than ever. And this shows that Russia’s invasion of Ukraine was never about Nato (which Ukraine was not about to join), it was about Russian nationalism. Instead of complaining about Nato, Russia should become a civilized nation and join Nato.

Ends, not means

I get tired of the endless and meaningless debate about where the Fed should set interest rates, or whether they should be doing Quantitative Tightening. What matters is the policy regime. Where does the Fed want the price level to be 5 years from now? How about NGDP? (FAIT would have done that. What a pity it was dropped.)

Today, the Fed is like a wandering sailboat. When pushed off course by the wind, there’s no attempt to get back on course. No one knows its destination. “We’ll try 75 basis points and see where we are.” Good luck with that.

A year ago I suggested that if we had a recession, it would most likely be caused by an excessively expansionary monetary policy. Commenters were perplexed. Wasn’t the previous recession caused by tight money? Yes it was, but ask yourself what sort of policy failure makes a switch to tight money more likely? Now do you see my point?

Over the past year, we have had an overly expansionary monetary policy. And while a recession is far from inevitable (they are nearly impossible to predict), almost any reasonable person would now judge the risk of recession to have increased sharply. This is exactly what I was warning you about.

A sensible policy would be to set a clear path for the nominal aggregate being targeted, and commit to come back to that path after missing the target. Commit to do “whatever it takes” to achieve the target path. This recent article in The Economist reminded me of the importance of whatever it takes:

In 2012 Mario Draghi, then the head of the bank, made an impromptu promise to do “whatever it takes” to save the euro. According to research by Michael Ehrmann of the ecb and Alena Wabitsch of Oxford University, the words generated high traffic on Twitter among non-experts, suggesting they had cut through. The genius of the statement, other research suggests, was that it focused on the end (“preserve the euro”) rather than the means (“buying bonds”), which is easier for the public to understand.

Focus on the ends, not the means. Until you have a clear goal, the policy instruments won’t be very effective.