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1. Here’s Bloomberg:

Knee-jerk retaliation runs the risk of violating WTO rules and exposing G-7 members to charges of hypocrisy. While that may not faze US leaders, they should understand that they will have an easier time persuading other nations to unite behind a common effort if it’s aimed at preserving the rules-based system of global trade, not demonizing China. To fight bullying, there’s no need to become a bully.

I’m afraid it’s too late; both political parties now favor bullying smaller nations.

2. Words of wisdom (on China) from Warren Buffett and Charlie Munger.

3. The FT reports that unemployment is falling in Greece:

“The macroeconomic progress has been undoubtedly mad in the past four years in terms of growth, reduced unemployment and falling debt-to-GDP ratio,” said Dimitris Papadimitriou, professor of political science at the University of Manchester.

“The flip side is the cost of living . . . Greek average wages remain very low despite the fact that unemployment has come down, leading to the second-worse purchasing power in the EU, only better than Bulgaria,” he added.

The use of “despite” makes me smile. Sort of like when the NYT reported that prison populations were soaring despite a fall in crime.

4. Niall Ferguson has a Bloomberg piece entitled:

When You’re in a Cold War, Play for Time

A few weeks back, I wrote a post making a similar point:

Because of the way that we perceive time, when we are in the midst of a problem we don’t tend to perceive it as a blip in history, which will soon be replaced by another set of concerns. For this reason, there can be real benefit to foreign policies that “kick the can down the road,” if we are able to avoid outright war. Today, it seems as though places like Russia, China, Iran, North Korea, Cuba and Venezuela will never become free. But who knows what the world will look like in another 30 years.

5. New Hampshire used to grow faster than Massachusetts, for some pretty obvious reasons. It had no income tax, and is right in the path for suburban overflow development outside of the crowded Bay State. But in the 2010s, Massachusetts started growing faster than New Hampshire. That puzzled me, until I read this post by Matt Yglesias:

Okay, it’s New Hampshire. It’s not for us urbanists, and it doesn’t seem like there’s much demand for dense urbanism there. But how about “normal” detached single-family housing — a house and a yard that’s near another house with another yard? Well, it turns out that lots smaller than one acre are only allowed on 16% of the state’s buildable land.

So in this case it’s not smart, walkable urbanism that’s been banned across the majority of New Hampshire — it’s suburbanism.

6. Back in the days of Margaret Thatcher, I thought of the Tories as the pro-growth party and viewed Labour as anti-growth. Now things seem to have flip-flopped. Here’s The Economist:

Labour is posing as the party of Builders. Places that most support housing are in the places Labour needs either to hold or win back at the next general election, according to Mr Ansell’s study. Support for home-building is concentrated in London and smaller cities as well as in Scotland and the so-called Red Wall, a ribbon of northern constituencies that Labour lost in the 2019 election. Plenty of natural Labour supporters may balk at building. But this is a fight the party wants to have. For Labour, nimbyism is another abstract noun to be abolished, like crime or poverty.

The Conservatives have ended up as a party of Blockers.

When it comes to British growth prospects, housing is pretty much the only issue that matters.

7. I was directed to a tweet by Paul Krugman:

By this logic 2022 should have been a recession year. No, you cannot ascertain the stance of monetary policy by looking at interest rates, which would be “reasoning from a price change”. To be fair, the same applies to money supply growth, which was the key variable in Lucas’s 1972 business cycle model. Velocity is too unstable.

8. Here’s why I don’t believe the AI hype:

If people thought that the technology was going to make everyone richer tomorrow, rates would rise because there would be less need to save. Inflation-adjusted rates and subsequent GDP growth are strongly correlated, notes research by Basil Halperin of the Massachusetts Institute of Technology (MIT) and colleagues. Yet since the hype about AI began in November, long-term rates have fallen. They remain very low by historical standards. Financial markets, the researchers conclude, “are not expecting a high probability of…AI-induced growth acceleration…on at least a 30-to-50-year time horizon.”

That’s not to say AI won’t have some very important effects. But as with the internet, having important effects doesn’t equate to “radically affecting trend RGDP growth rates”.

9. The FT has a piece on how the US is losing ground to China in Latin America:

The US and EU, meanwhile, have been focusing on corruption, democracy, the environment, human rights and the risks of doing business with China. The EU’s Global Gateway initiative, envisioned as a response to the BRI, has pledged just $3.5bn to Latin America.

Among the US’s talking points with Latin America is an entreaty to avoid 5G phone networks built by China’s Huawei, which is sanctioned by Washington — but US and European alternatives to Huawei are often more expensive.

A Latin American foreign minister last year compared the American approach to the Catholic religion, telling the Financial Times that “you have to go to confession and you still may end up being damned”.

The Chinese, by contrast, were like the Mormons who “knock on your door, ask how you are feeling” and “want to help”.

Of course the US has been explicitly trying to sabotage Huawei, and in doing so is indirectly damaging the economies of Latin America. But at least they get to hear our sanctimonious lectures on human rights!

10. Another FT story warns that our war on China’s chip industry might backfire:

Speaking to the Financial Times, Jensen Huang said US export controls introduced by the Biden administration to slow Chinese semiconductor manufacturing had left the Silicon Valley group with “our hands tied behind our back” and unable to sell advanced chips in one of the company’s biggest markets.

At the same time, he added, Chinese companies were starting to build their own chips to rival Nvidia’s market-leading processors for gaming, graphics and artificial intelligence.

“If [China] can’t buy from . . . the United States, they’ll just build it themselves,” he said. “So the US has to be careful. China is a very important market for the technology industry.”

“We don’t hate the Chinese people”

Anti-Chinese bigotry seems to get worse each year. The leading contender for the GOP presidential nomination mocks people with Chinese names. Biden’s Washington is increasingly hysterical about the China threat.

Some people push back by claiming that they object to the Chinese government, not the Chinese people. If only that were so. Here’s Bloomberg:

The American Civil Liberties Union sued Florida over a law championed by Governor Ron DeSantis that bars most Chinese citizens from buying homes in the state.

The law, set to take effect July 1, violates the equal protection and due process guarantees under the Constitution by prohibiting landownership based on “race, ethnicity, color, alienage, and national origin,” according to the suit filed Monday in federal court in Tallahassee.

The ACLU sued on behalf of four Chinese citizens, claiming the law “stigmatizes them and their communities, and casts a cloud of suspicion over anyone of Chinese descent who seeks to buy property in Florida.”

More than a dozen state legislatures have introduced similar bills, with many targeting people from China, the ACLU said.

Hardly a day goes by without a news story describing how DeSantis wants to ban one thing or another. One day he bans corporations from setting their Covid policies. Another day he restricts the freedom of teachers to talk about gender issues. The next day he’s restricting the speech rights of Disney. Then an abortion ban. Then he tries to prevent Gainesville from deregulating to allow more homebuilding. He’s against legalizing pot.

Why are Republicans so opposed to freedom?

Bill Dudley on monetary policy lessons

Bill Dudley has an excellent column in Bloomberg:

More importantly, the Fed has yet to adequately recognize two important ways monetary policy contributed to the crisis.

First, by committing to keep short-term interest rates near zero until the economy reached full employment and inflation exceeded 2%, the Fed ensured that it would be very late in tightening monetary policy. When inflation overshot, it had to raise rates faster and higher than it would if it had been more preemptive. As a result, it delivered a significantly larger shock to banks’ funding costs and to the value of the banks’ longer-term investments.

Second, the Fed’s quantitative easing program, by exchanging cash for securities, flooded the banking system with reserves and deposits. In the low-rate environment of 2020 and 2021, this naturally tempted some banks to boost earnings by buying higher-yielding, long-term, fixed-income assets.

But I disagree with Dudley’s conclusion:

I see three lessons for the Fed. First, the Federal Open Market Committee should consider financial stability risks in its monetary policy decisions. 

Dudley correctly observes that the same Fed policy that led to a bad outcome for banking also led to a bad macroeconomic outcome. The alternative policy that he recommended would have led to a better macro outcome. Focusing like a laser on stable NGDP growth won’t eliminate banking problems, but at least it will avoid having monetary policy exacerbate those problems.

PS. Speaking of Bloomberg, it really annoys me when reporters misstate the Fed’s inflation target, which applies to the PCE, not the CPI:

US consumer prices rose 0.4% in April with headline CPI up 4.9% on a year-on-year basis, its first reading below 5% in two years. That’s still well above the 2% level targeted by the Fed as central bank officials juggle the need to curb rampant inflation against a potential recession and banking sector angst.

Fun with conditional probabilities

The political betting markets get wackier each day:

Where to start? Consider that the following statements are all true:

1. Trump is the likely GOP nominee.

2. Biden is the likely Democratic nominee.

3. Biden would probably beat Trump.

4. The GOP is likely to win the 2024 election.

Welcome to the counterintuitive world of conditional probabilities. The explanation is simple. There’s a non-trivial probability (almost 40%) that someone other than Trump will win the GOP nomination, and they would be highly likely to beat Biden. That’s why Biden is the odds on favorite to lose in 2024, despite that fact that he’ll probably face someone that he would beat. Isn’t conditional probability fun?

BTW, did you notice that Trump being found liable for sexual assault barely dented his popularity?

The “race” for president is like two octogenarians with walkers running in an Olympic 100 meter dash. A clown show.

The next thing I noticed is that among all 330 million Americans, Robert Kennedy is the 4th most likely person to be the next president. Here’s what Kennedy is famous for:

1. He’s a famous anti-vaxxer.

2. He’s been lavishly praised by people like Steve Bannon and Tucker Carlson.

And yet, he’s more likely than the current vice president to be the Democratic nominee in 2024.

BTW, Tucker Carlson is more likely than Mike Pence to be the next president.

And you guys ask me why I think we are becoming a banana republic.

PS. I suspect these markets are not exactly comparable, as some figures appear in the nomination markets but not the election market, and vice versa.

PPS. Richard Hanania makes some of the same points as I’ve been making regarding Trump’s personality cult, albeit much more cogently.

The conservative intellectual bubble

Most conservative intellectuals rejected Trump long ago. The few that remained are now jumping ship. Here’s Andrew McCarthy of the National Review:

I am as certain as I am writing this that Donald Trump will never again be elected president of these United States.

Understand that, while I could no longer in good conscience vote for Trump, I am not a Trump hater. For eight years, I defended him when I believed he had been wronged (from the 2016 “Russia collusion” nonsense through Alvin Bragg’s recent indictment farce). I’ve been a harsh critic the many times when he has deserved it, but I’ve applauded Trump-administration policies and, in particular, his judicial nominations. I voted for him twice. I wrote a “Trump: Yes” endorsement in National Review’s 2020 election issue (in contrast with Ramesh Ponnuru’s “No” and Charles C. W. Cooke’s “Maybe”), reluctantly concluding that Trump’s incorrigible flaws were worth abiding as the price of maintaining the solid governance of his Republican subordinates rather than enduring a Democratic presidency with Biden as a figurehead and tool of woke progressives.

I can’t do that anymore.

Bad news for Trump? Not really. The conservative intellectual establishment is now almost totally out of sync with rank and file conservatives, who remain highly loyal to Trump. Polls suggest that Trump has not been hurt at all by the antics of January 6th or by his longstanding support for Putin. He trails Biden slightly in the polls, but not by as much as immediately before the 2020 election that he came within a whisker of winning. And these polls are occurring during a period of 3.5% unemployment—what will they look like during the next recession?

It’s not unusual for elites and the rank and file to diverge, even within a given political party. But this degree of divergence is truly unprecedented. I’m not entirely sure why this is occurring, but I suspect it has something to do with the fact that intellectuals are less likely to become members of a personality cult.

I’m not a conservative, but something similar seems to be happening within the libertarian movement, where intellectual libertarians have rejected the hard right faction that recently took over the Libertarian Party. Unless things change, in 2024 I’ll be forced to vote for a Democratic presidential candidate for the first time in my life. Bad news for Biden, as I’ve never supported a winning presidential candidate.