The King of Kowtow

I suppose the North Korean leader is the best example of someone who frequently demands that his subjects kowtow. But that’s basically for domestic consumption. What about governments that try to get foreigners to kowtow? In that class, there are only three countries that matter.

Number two and three are obviously China and Russia, in whatever order you choose. Russia demands subservience from former members of the Soviet Union, such as the Ukraine and Georgia. China demands that foreign companies censor speech that annoys the Chinese government. And they occasionally demand technology transfers as the price of investment.

But the US is far and away the biggest abuser of kowtow. We demand kowtow in so many different areas that I could write a book on the subject:

1. Sanctions. We sign an arms control agreement with Iran. Other countries cooperate. Then we elect a new president who abandons the agreement and then insists that all other countries follow his whim, despite the lack of expert opinion in his favor. No other country in the world is so arrogant in demanding that everyone agree with their foreign policy.

2. FATCA. We demand that other countries provide all sorts of private information on overseas Americans, or even people that aren’t actually Americans but happened to be born in the US. But when other countries ask us to reciprocate, we often refuse to share private information about their citizens. We are now the world’s leader in providing international tax shelters, often using state-registered dummy corporations. We demand the Swiss do what we say, but refuse to do the same. No other country is so hypocritical on tax issues.

3. Exchange rates. We demand that other countries set their exchange rates at a level that we approve of. When the Japanese tried to devalue in the early 2000s in order to escape from deflation, the Bush administration told them to stop. We get to tell the Japanese where to set their exchange rate, but they don’t get to tell us where to set our exchange rate. No other country in the world does this.

4. Industrial policy. We have all sorts of candidates, in both parties, advocating this or that industrial policy. From the discussion, you’d almost think that a country has the right to determine its own industrial policy. But that’s only true of the US. In the 1980s, we complained about Japan’s industrial policy, and today we complain about China. But how would we react if China started telling us how to run our economy? In this case, other countries do occasionally follow the US lead, but mostly in WTO-type disputes. The US is unique in demanding changes in industrial policy that are essentially unrelated to trade.

There are dozens of similar examples. It’s only fitting that the King of Kowtow has a new president who actually thinks he’s a king. Trump was enraged when a few “disloyal” Republicans had the temerity to criticize his obviously corrupt actions. But now even silence is not enough. No matter what he does, he wants GOP members of Congress to affirmatively praise his actions, regardless of how appalling they are. The level of obsequiousness that he demands would make a medieval despot like Tamerlane blush.

There are plenty of countries that are worse than Russia and China, and many more that are worse than the US. But these three countries stand out for their combination of power and arrogance. Look for India to join the club over the next few decades—they’re well on their way.

PS. Still don’t think Trump is worse than Nixon? How about this:

DOJ lawyers sought to invalidate that request for documents on Tuesday by claiming that a key legal ruling from 1974, which paved the way for the House to prepare impeachment articles against President Richard Nixon, should no longer apply, the outlets said.

The argument reportedly stunned Judge Beryl Howell, the chief district judge for Washington, DC.

Or this:

Patrick Cotter, a former federal prosecutor who was on the team that convicted the Gambino crime family boss John Gotti, said he’s struck by the parallels between Trumpworld’s handling of the impeachment controversy and the mafia’s playbook on pushing back against charges leveled against it. . . .

Michael Cohen, Trump’s longtime former lawyer, testified to Congress in February that the president runs his operation “much like a mobster would do.”

Former FBI director James Comey has frequently compared the president to a mob boss and said that when he first met Trump, he couldn’t shake the feeling that he felt he was dealing with the Cosa Nostra.

“It’s not about anything else except the boss,” Comey said while giving a talk at the 92Y in New York City last year. “It’s a fear-based leadership.”

FBI investigators who examined whether the Trump campaign conspired with Russia during the 2016 election also treated the case like they would an organized-crime syndicate, particularly through the use of cooperating witnesses.

Some of you thought my comments about Trump in 2016 and 2017 were hysterical, but everything I suggested is becoming obvious to anyone that isn’t blind. This is going to be fun.

You win by convincing the next generation of leaders

The UK government is about to appoint a new Governor of the Bank of England, as Mark Carney’s term is expiring. Oddsmakers have made Gerard Lyons the even money favorite to be picked, partly because he’s the only candidate who supported Brexit and partly because he’s known and liked by Boris Johnson.

Commenter wlb directed me to a Bloomberg interview where Lyons suggested that it was time to re-examine the BoE’s remit, particularly the question of whether they should stick with inflation targeting or consider a “money GDP” target.  I can’t be certain, but listening to him talk it’s hard not to reach the conclusion that he finds the latter option more appealing.  Otherwise, why suggest the need for reconsidering the BoE’s remit?

Meanwhile, in the US there are rumors that St. Louis Fed President James Bullard might be picked to replace Powell in 2020, assuming Trump is re-elected. Bullard has recently argued that NGDP targeting has several important advantages over inflation targeting.

It’s often said that the Keynesians didn’t win by convincing the economic establishment of the 1930s, rather they convinced a younger generation of economists who were open to their ideas.  Those economists took over the reins of power after WWII.

I see something similar happening with NGDP targeting.  It will succeed gradually, as more and more younger economists (who have no experience of the high inflation 1970s) see its advantages over inflation targeting.

PS.  Over at Econlog, I give the Fed advice on how to implement NGDP targeting.

Music to my ears

I’ve focused on advocating three major policy changes:

1. Target the market forecast.

2. Level targeting.

3. Do “whatever it takes” to achieve the target.

Obviously the Fed is now relying more heavily on market forecasts than in the past. In addition, average inflation targeting is being considered as part of the Fed’s review of its policy regime—that’s sort of like level targeting. So the other major challenge is getting Fed people to think in terms of a “whatever it takes” approach to policy, especially at the zero bound.

This is from a recent speech by Charles Evans, president of the Chicago Fed. I decided to bold the good parts:

In terms of a broad monetary policy strategy, I favor a powerful, full-throated commitment to follow outcome-based monetary policies aimed at achieving maximum employment and symmetric 2 percent inflation within a reasonable time. The best tactics to achieve these outcomes may change over time. For example, at times this approach could prescribe forward guidance with thresholds that need to be met before changing rates. At other times, it could prescribe overshooting our 2 percent inflation objective with momentum. The point is to focus on our objectives—and not on the specific operational tools used to obtain them.

Importantly, in a world where monetary policy is challenged by low equilibrium rates and elevated odds of hitting the ELB, outcome-based policy calls for a relentless focus on our symmetric 2 percent inflation objective throughout the cycle. We have to have a “do-whatever-it-takes” attitude toward policy all the time—in a downturn, when we are constrained by the effective lower bound, as well as in an expansion, if inflation remains stubbornly below our objective.

I recognize and accept that monetary policy will never be a panacea to all the negative shocks hitting the economy. But when it comes to price stability, the monetary authority has the sole responsibility for achieving an inflation objective. For us, that is symmetric 2 percent inflation.

My God! I could have bolded almost the entire quotation. It’s all “good parts”.

My favorite part is where Evans suggests that fiscal policy should play no role in achieving the inflation objective.

HT: Alex Schibuola

MMT isn’t helicopter drops

I see a lot of discussion of “MMT” by people who don’t seem to know what it is.  Here’s Bloomberg:

European Central Bank President Mario Draghi said the Governing Council should be open to ideas such as Modern Monetary Theory, while noting they’re closer to fiscal policy and should be directed by governments.

Draghi was responding to a question from European lawmakers about helicopter money and the best ways to channel funds to the economy in a way that helps inequality. He mentioned MMT and a recent paper by former Federal Reserve Vice Chairman Stanley Fischer — the adviser on Draghi’s doctorate — which said central banks should put money “directly in the hands of public and private sector spenders.”

“These are objectively pretty new ideas,” Draghi said. “They have not been discussed by the Governing Council. We should look at them, but they have not been tested.”

He added that such actions rely on decisions on distribution, and that’s not something for monetary policy.

It seems like Draghi doesn’t know what MMT is.  There no shame in that, I probably don’t either. But I do know one thing; MMT is not “helicopter drops” of money.  The term “helicopter drops” is actually just a metaphor for combined monetary/fiscal expansion, an option that has been discussed by monetarists and Keynesians for decades.  If you want to discuss helicopter drops (I don’t) then that’s fine, but please don’t call it “MMT”.

MMT is a theoretical model of the economy that has been widely ridiculed by economists on both the left and the right, and for very good reasons.  Thus (AFAIK), under MMT the rate of inflation is determined by fiscal policy.  If that were true, then central banks would be wasting their time in targeting inflation.

Inflation in the US has averaged 1.9% since 1990.  If MMT were true, then it would have been fiscal policymakers that caused inflation to be close to 2%, and not close to 0% or 5% or 20%.

Fiscal policymakers?

Our shameful silence on Hong Kong

As Hong Kong protestors bravely fight for freedom, America’s president remains silent, having promised Xi Jinping that he would not criticize China’s policies in Hong Kong. Instead he fights a trade war for bigger profits for America’s multi-billionaires and their so-called “intellectual property rights”.

In other news, the trade war that was “good and easy to win” doesn’t seem to be going so well:

Chinese officials are signaling they’re increasingly reluctant to agree to a broad trade deal pursued by President Donald Trump, ahead of negotiations this week that have raised hopes of a potential truce.

In meetings with U.S. visitors to Beijing in recent weeks, senior Chinese officials have indicated the range of topics they’re willing to discuss has narrowed considerably, according to people familiar with the discussions.

Vice Premier Liu He, who will lead the Chinese contingent in high-level talks that begin Thursday, told visiting dignitaries he would bring an offer to Washington that won’t include commitments on reforming Chinese industrial policy or the government subsidies that have been the target of longstanding U.S. complaints, one of the people said.

If we get to choose China’s industrial policy, does China get to choose America’s industrial policy?

Months ago I pushed back against the conventional wisdom that America had the upper hand in the trade war.  How’s my skepticism seem today?

And this morning, another example of what happens when you expel all the grownups from your administration:

Donald Trump has given the green light to a contentious Turkish military operation in north-east Syria against the main US allies in the battle with Isis, triggering alarm in Washington and Europe and plunging the campaign against jihadis into uncertainty.

Update:  Our Dear Leader is now providing reassurance:

PS.  Speaking of Chinese theft of our intellectual property, here’s an example I saw just 100 meters from where I stayed in Beijing:

PPS.  Speaking of Hong Kong, this SCMP article caught my eye:

Of the 1,000 sq km (390 sq mi) of land area in Hong Kong, only 7 per cent is zoned for residential use and 40 per cent is designated as public parks and green belts (25 per cent and 15 per cent respectively).

By contrast, although Singapore is 35 per cent smaller than Hong Kong, 14 per cent of the land is zoned for residential use, while only 9 per cent is earmarked for public parks and green belts.

And this:

Hong Kong needs to build a satellite town of 500,000 affordable homes quickly to defuse the present political crisis and alleviate the long-term housing shortage.