Ian Welsh

The horizon is not so far as we can see, but as far as we can imagine

Category: Economics Page 30 of 89

Homelessness and Poverty Are Policy Choices

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On June 5, 2019

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The issue is simple enough. There are more empty homes than homeless. For example, in New York:


AirBnB, deliberate withholding, seasonal users, and I suspect, a lot of flippers and foreign buyers who rarely use the property.

All of these could be dealt with by political means: much higher taxes on empty homes, disallowing foreign owners who do not live in properties, cracking down on AirBnB by making hosts abide by hotel regulations, and taxes, among other things.

(I am fundraising to determine how much I’ll write this year. If you value my writing and want more of it, please consider donating.)

As with food, where we produce far more than we need, but people go hungry, homelessness in the first world, with the exception of a few individuals, is a policy choice. We have the homes, and can easily build more, but we let people go homeless or hungry (or without medicine) because we don’t care enough.

It’s one thing to ration actually scarce resources, but when there is surfeit, and people going hungry and homeless, society has lost its way.

Oncoming Recession and the Chinese/US Trade War

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On May 29, 2019

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Chinese and American flags flying together.

So, it’s been a long time since the last recession and indicators are turning negative. While this is never a science, odds are good for a recession in 2020 or early 2021 in the United States.

This is not due to the China/US trade war, but that conflict will make things worse. There is an argument for what Trump is doing. However, even if this has overall good effects for the US, in the long run there are significant dislocation costs when moving production back to the US and there are always going to be losers, because the US does sell a lot to China even if it has a trade deficit, and those people will lose markets. (Hello, soybean farmers!)

Meanwhile the Chinese are ratcheting up their rhetoric. Multiple newspapers have suggested embargoing rare-earths to the United States and this seems like a near certainty if there isn’t a deal soon.

Rare earths exist other places than China, but China has been able to mine them more cheaply than anywhere else, so no one has bothered to create significant production, as it isn’t profitable. China produces 80 percent of rare earths. So, if there is an embargo, other sources can be developed, but that will take time: again, dislocation costs.

The last time a rare-earth embargo happened, I noted that it was insane to have only one country producing all rare-earths and that sensible policy would subsidize production somewhere else just to avoid this scenario. But modern trade rules make subsidizing production of most items (except agriculture and defense) essentially illegal, so we have to wait for a crisis to do the sensible thing.

Chinese rhetoric around the trade war has become very serious, with the People’s Daily newspaper (official Communist newspaper) writing:

“We advise the U.S. side not to underestimate the Chinese side’s ability to safeguard its development rights and interests. Don’t say we didn’t warn you!”

…The expression “Don’t say we didn’t warn you!” is generally only used by official Chinese media to warn rivals over major areas of disagreement, for example during a border dispute with India in 2017 and in 1978 before China invaded Vietnam.

I’m going to discuss the oncoming new trade-era more in the future. For now, note that this isn’t just about Trump. Moves in this direction had already started under Obama (the Trans-Pacific Partnership was meant to isolate China).

(I am fundraising to determine how much I’ll write this year. If you value my writing and want more of it, please consider donating.)

What is different about Trump is that he prefers unilateral negotiations to multilateral (WTO) or plurilateral (a few countries).

This is not stupid. Out of anyone in a singular deal, the US will always be the stronger partner. It prevents other nations from ganging up on the giant, and trying to use numbers to make up for their weakness.

The US can almost always inflict more damage on any one other nation than that nation can on the US.

Again, not stupid; entirely rational and good negotiating tactics.The larger issue is that the US is, itself, dismantling a trade order created, largely, by the US. That trade order had significant disadvantages for the US working and middle classes, but it also was to their advantage geopolitically. The US chose who could industrialize or re-industrialize (its allies – Taiwan, Japan, Germany, South Korea), and so on.

This worked well for the US (not so much most other people) until the Americans got stupid and greedy under neoliberalism. Then, the US corporate class, looking at China, lost their heads: Especially as China went out of its way to make sure that various Americans made a lot of money helping China industrialize.

The difference, of course, is that China is the world’s natural leading power. Has been for most of the last two thousand years. China would be an actual competitor with the US, if it was allowed to get back onto its feet.

And it was.

As a Canadian, I have a dog in this fight. Canada is an American subject state, and we’ll be on the US’s side, because we won’t have a choice. Nor am I particularly a fan of how China is run.

But this is the cycle of great powers. There is always a new challenger, and the old Hegemon always resists (and is virtually always in a late Imperial stage of incompetence and corruption).

When giants clash, ants (you and me) are advised to beware.

Make money now, before the recession, if you can. If your income or wealth is tied to trade, try and mitigate your exposure.

Meanwhile, we may as well enjoy the show.

Everyone’s Noticed the Oncoming US/China Cold War

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On May 22, 2019

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Chinese and American flags flying together

Horowitz calls it a tech cold war, but it is unlikely to stay that way.

Cutting Huawei off from all non-open source Google services, including the Play Store, and not allowing it to buy US components is a huge blow to Huawei.

Huawei is ahead in 5G, and American allies have been reluctant to ban it, but the US can do great damage to China’s tech industry, because in many other ways it is still far behind America’s. (Horwitz is good on this.)

China has ways of retaliating. The most potent is to embargo rare earths. China did this once before and the WTO declared it illegal, but that won’t necessarily stop the Chinese from doing it again. The WTO, which is also under attack by the Trump administration, may not have the teeth necessary to stop the Chinese, especially as the US is scarcely innocent in the tariff escalation.

I’ve been on the Huawei situation for months, because I believed it was the first step in a dangerous escalation between the current hegemonic power and the challenging power.

The best book on the subject is Thucydides Trap, by Graham Allison. Allison also wrote a foreign affairs article on Thucydides Trap. The summary is that in the past 500 years there have been 16 similar challenges. Twelve of them led to war.

America was a particularly aggressive rising power: seizing huge amounts of Mexico, grabbing the Alaskan panhandle under threat of war with Great Britain (who couldn’t afford to move their forces away from the Germans, and so let Teddy Roosevelt, an aggressive asshole in foreign affairs, take it.)

And of course, America terrorized South and Central America, as it still does, while claiming foreign naval forces had no right to be in the Americas (an echo to China’s expansion in the South China Sea most Americans refuse to acknowledge.)

Now that America is the hegemonic power they want to stay the hegemonic power.

The current international order was mostly created when China was weak, recovering from arguably the worst position it had been in for 2,500 years.

The Chinese do not accept the current international order; created by America, with European help, after WWII as legitimate, because it was created almost entirely without their input when they were weak. Indeed, a clear-eyed realpolitik view is that America enforced the order because they were massively strong, then further enforced it after the collapse of the USSR.

Put aside all the bullshit, the Pax Americana, like all Pax’s comes out American force: the barrel of a lot of guns, and the boom of a lot of nukes.

So China is moving to retake what it regards as its rightful place in the world: The greatest nation in the world. America is doing what all hegemonic powers do when an upstart rises: Resisting.

This is not a temporary thing and it is not just a result of Trump. There are real differences, and the pivot to China as the big enemy began under Obama, not Trump. Ironically, the Trans Pacific Partnership (which Trump refused to ratify) was an effort to contain China.

Trump’s addition is a preference for unilateralism. Under mulitalternalism the Americans had found it harder and harder to get their way, as the failure of the Doha round of WTO negotiations showed.

One-on-one America is always greater than anyone else. It always has the advantage. Trump is not wrong about that. So he is using that might to “re-negotiate” with other nations, including China.

Meanwhile the Chinese have been forming their Belt and Road system, which is an alliance and trade organization substitute, meant to form deals 1:1 with other countries, and to create trade links, especially a land-route across Asian to Europe,  which will allow China to bypass America’s stranglehold on naval power, and especially on the Straits of Malacca.

And so on.

Let’s cut to the chase. There will be many tactical and strategic moves, but China is about as economically powerful now as the US. They are currently, overall, a middle income country, but many cities are high income.

Because China has three times the population of the US, if they can move their population to high income, they will have an economy about three times the size of the US.

They will win.

The US should think about that carefully, because if they oppose the Chinese at every point, when China becomes the hegemonic power, the US may find themselves treated badly. The Chinese won’t feel badly about it, at all, given how they feel about how China was treated when it was weak by Europeans and Americans.

The Chinese, meanwhile, should remember that their rise to hegemonic power isn’t certain, and that if it requires great power war in a world with nuclear weapons, that may go very badly for everyone involved.

Neither side, as an aside, are good guys. The Chinese are, domestically, creating a rather nasty authoritarian surveillance state. America domestically is a shit show for many, and it has been far more likely to go to war with other countries than the Chinese have.

In fact, while Chinese actions in the South China Sea are nasty, they are mild by rising hegemonic power standards, and certainly, so far, less nasty than how the US acted when it was the rising power.

A new cold war, with the world dividing into two blocs, would be shitty. A hot war would be worse.

But I’m not at all sure “cooler heads” will prevail. The simple fact is that Americans think they are the indispensable nation, and good people, and therefore have the right to rule the world. Meanwhile the Chinese nurse their own powerful sense of superiority, added to a massive feeling of grievance and ill-use. Nor can the Chinese Communist Party allow economic growth to falter without danger to their own power and legitimacy. If it does, be sure they will focus the anger at foreign enemies.

I’m not sure there’s much point being worked up by all this, mind you. Rising and falling hegemonic powers act like this, that’s just how it is. Most of us don’t have enough power to affect these events. Just be aware of them, and if you have some power, perhaps put your finger on the scale that at least avoids hot war.

The results of the work I do, like this article, are free, but food isn’t, so if you value my work, please DONATE or SUBSCRIBE.

 

The Sanders-AOC Bill to Cap Interest Rates At 15% Is Too High

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On May 17, 2019

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Sanders-021507-18335- 0004

All right, let’s get this out of the way: It’s better than the status quo.

But most credit card interest rates are about 20 percent or so, so this is about a five percent decrease.

Twenty percent is already insane. Given that banks have access to money, right now, at a little over 2.5 percent or so and have had it at less than one percent for most of the last ten years, it’s crazy low and would still leave them with a profit of 12.5 percent or so (minus administrative expenses).

That’s way more profit than anyone should earn for just lending money. Heck, it’s way more profit than almost anyone should earn for anything. Healthy economies have profit rates at no more than 5 percent or so, with profits for lending money less than those for actually doing things, a lot less.

So the interest rate cap for credit cards should be linked to the cost of the bank’s borrowing. Feeling generous to banks? Put it at four percent more than the Fed Funds rate. Remember that credit cards also charge merchant fees, which is how they make money off people who always pay their bills in free.

And any legislative act must count fees as part of the interest. Fees + interest charges are the actual interest rate of a card.

Lending money is the best business in the world to be in. Banks and other lenders, as the MMT people like to point out, don’t actually borrow money then lend it out, they create it out of thin air.

Any fool who can’t make a profit with the ability to create money out of thin air and lend it at four percent more than Fed Funds, shouldn’t be in the business–especially when they’re getting a fee for every purchase on the card.

When it’s easier to make money by lending than by doing, as well (which it is now, and has been for about 40 years) you don’t get as much actual new work, companies and innovation, because it’s safer and easier to just lend.

So being generous to banks and shadow banks is a recipe for economic stagnation. It also tends to push money towards the rich, because they are, after all, the people who can lend money (and borrow it cheap).

So, good first step on the part of AOC and Sanders, and it may be all they think it is possible to pass (much like the $15 minimum wage is inadequate and should have automatic yearly increases, but is still a good start), but it’s not enough. Not even close to enough.

The results of the work I do, like this article, are free, but food isn’t, so if you value my work, please DONATE or SUBSCRIBE.

 

It Is Impossible to Control Corporations Without 90%+ Progressive Tax Rates

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On May 10, 2019

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Probably 95 percent on any income over about a million, 90 percent on anything over 500K, honestly.

Dick Fuld earned about $69.5 million in 2007, the year before Lehman Brothers filed for bankruptcy in Sept. 2008. From 2000 to 2007, he was awarded about $889.5 million and cashed out about $529 million of that before the company went bankrupt.”

Why would Fuld, or any other executive earning millions of dollars a year care if their company went bankrupt?

The man walked away with 529 million dollars for seven years. It’s irrelevant to him that Lehman went bankrupt.

You cannot have a good economy, where executives plan for the future, unless they need their companies to continue to do well.

That means high, progressive tax rates on income, on capital gains, AND on unrealized capital and wealth, with no loops.

Taxes on unrealized capital gains and wealth are necessary because, without them, rich types don’t cash out capital; instead, they use loans to pay their bills. When you’re worth 500 million or even just a 100 million, banks are happy to lend, at under 2 percent.

Now, obviously this doesn’t apply to people who have all their securities in one company, but most rich diversify.

The larger point, however, is just that the rich are too rich, and that people who can get rich in a few years don’t care much if everything crashes after they’re rich.

The results of the work I do, like this article, are free, but food isn’t, so if you value my work, please DONATE or SUBSCRIBE.

Happiness, Love, and Terrorism

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On May 8, 2019

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So, we’re seeing more attacks by motorists. (edited since the Japanese attack turned out to not be an attack. Woops.)

Many years ago, decades ago, I used to wonder why people didn’t use cars and trucks directly in terrorist attacks, not just as vehicles for bombs. Automobiles are one of the only things government can’t take away from people, because our entire society is set up to require them.

John Taylor Gatto, amusingly, used the fact that everyone had cars and almost never deliberately hit anyone as proof that people could, basically, be trusted.

That’s breaking down.

Look, this is simple enough. Our lives suck ass. Despite Abe’s manipulated stats, living in Japan is hellish, even if you are in the system. If you aren’t in the system, it’s beyond hellish.

As for most of the West, most people haven’t had a raise in 40 years, and while inflation stats say, “Hey, that’s okay, because wages have slightly exceeded inflation,” that’s BS, especially in the US, where prices for everything you MUST have, like food, medicine, and housing have increased far faster than wages.

The culture has also moved increasingly to a surveillance culture. This isn’t just about government (cameras everywhere) or private companies who try to track everything we do and are pretty successful; it’s about us–with parents, for example, turning into helicopter parents who basically never let their children have unsupervised time without adults around.

And if you do try, well the cops and children’s services will take your children away from you.

In workplaces more and more electronic devices track what workers do minute by minute and in some cases, like Amazon warehouses, by seconds.

Meanwhile, we have an ideology which says that if you have money you deserve to have it, and if you don’t, you don’t deserve to have it. So not only do you get to be poor, you get to feel bad because you weren’t enough of a psychopath to climb the corporate ladder. (Yes, yes, a few people get rich without engaging in psychopathic behaviour. Maybe you’re one of them. You are an exception.)

Back in the 70s and even 80s, which I remember well, there were no security guards in most buildings. Most governments did not have blast barriers. You could just walk into legislatures. This is not an exaggeration.

We have created a hell world, then we wonder why people eventually freak out and do hellish things.

Why they take what little power they have and kill.

Oh yes, they shouldn’t, blah, blah, blah. Why you are in just as bad a place as they are and you haven’t, so they shouldn’t, because you are the measure of all things.

But human nature resides on bell curves. There are always going to be some people at the ends of the curves. Move the center 10 percent over and you get a lot more than a 10 percent increase in violence.

Who doesn’t commit violence?

Happy people who love the people around them and are looking forward to their future. Those people only commit violence when they or their loved ones are attacked, or if their government tells them to (the last one is rarely to their credit).

It isn’t more complicated than that. If you create a dystopian surveillance society, raise prices on things people need faster than wages will provide for and tell people they are bad people for not being successful when your society makes it harder and harder to be successful and worse and worse for those who fail, some of them are going to flip out.

Eventually, enough may lose patience and stop believing they are the ones who suck, and cause a revolution instead.

I just hope they kill the right people when the time comes. Because don’t think they won’t kill.

A reminder to any members of the elite reading this: Those who have more power have more responsibility. Your subjects are largely what you made them. You will eventually reap as you have sowed.

Indeed you are already, but so far most of this violence hasn’t hit you.

Don’t expect that to continue. More flip-outs are going to target people with power as time goes on.

Bank on it.

The results of the work I do, like this article, are free, but food isn’t, so if you value my work, please DONATE or SUBSCRIBE.

The Coming War with Iran?

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On May 7, 2019

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Image by Yuan2003

It may turn out that the worst thing Donald Trump ever did was hire John Bolton as his National Security Advisor.

Trump was already deranged on the subject of Iran, possibly because Jared Kushner is his son-in-law, and Jared is having a (presumably) platonic love affair with Saudi Crown Prince (and de facto ruler) Mohammad Bin Salman Al Saud. Saudi Royals both hate and fear Shia Islam, in part because the regions of Saudi Arabia with the oil are Shia.

So Trump unilaterally left the nuclear weapons treaty with Iran, and the Treasury department has made it illegal for any country to buy oil from Iran. Since almost all finance in the world goes through US banks, the Treasury can do this. Only firms which don’t use the SWIFT system can avoid the Treasury’s grasp.

These sanctions are having a terrible effect on Iran, and one which will grow even greater as the final waivers expire. There will be smuggling, but even so, Iran will be starved of foreign currency.

The US has also declared the Iranian military to be a terrorist organization, the first time part of a foreign government has ever received that designation.

And a carrier task group has been sent to the region, specifically as a warning to Iran.

It is well known that the NeoCons, of which Bolton is a prominent member, want a war with Iran, to remake the Middle East. (This is part of the same project which saw Iraq destroyed, and which fuel US-led regime change aspirations in Syria. A little further afield, Libya, while not in the Middle East, was similarly dealt with.)

The issue, as Escobar points out, is that a new alliance is rising. Its key members are China and Russia, but Iran is part of it as well. The Chinese Belt and Road Initiative is meant to create routes to Europe and a Chinese-led trade zone. It is meant to bypass the straits of Malacca (which the US can shut down at any time to strangle China), and the land parts will be a lot faster (though not cheaper) than sea transport.

Iran is a key part of this system.

Because other countries aren’t cooperating with the US when it tries to stop the B&R system (indeed, Italy just signed on), the US needs to actually destroy part of it.

Thus Iran.

This isn’t the only reason, needless to say, the NeoCons have wanted to destroy Iran for far longer than the B&R system has existed, but it is now an important consideration.

But what if Iran survives the sanctions? No one except the US is happy about the sanctions. Others may submit, but they don’t like it. The Chinese will do a huge end-run, as with the Russians. Even the Europeans are angry, and have created a “special vehicle” to avoid sanctions. (Consensus seems to be that it doesn’t do a good job and that if they’re serious they need to improve it.)

Because no one is happy, there’s going to be a lot of oil still sold. It may be enough to keep the Iranian government in power.

Then what?

Well, war, maybe.

The problem with that is that Iranians can shut down the Strait of Hormuz. There is no situation, short of nuclear glassing, in which the US can keep it open. That spikes the price of oil to hundreds of dollars a barrel, because, at that point, a quarter of the world’s oil cannot get to the market at all.

And that causes an economic and financial crisis, likely even larger than 2008, because it involves economic fundamentals.

So the question is whether or not Bolton, who is a true believer, can talk Trump into it.

And the answer is… I don’t know. Just don’t know.

But that’s a serious precipice on which we’re walking.

Even without war, this is a serious situation. The US’s continued abuse of its privileged position in the world payments system to sanction countries like Iran and Venezuela, even when other great powers disagree, means that the loss of that privileged position through the creation of alternatives is inevitable. It is already happening and only a matter of time before they become viable enough that major countries will simply be able to ignore the Treasury’s sanctions.

This is also true because other markets are large enough that access to the American market is no longer required. Especially if the EU comes onside with this, the ability to sanction is basically finished if the other great powers (and especially China), don’t agree.

This is, for the US, a late Imperial period. Don’t mistake it as anything else. And remember, very few countries manage to regain their pre-eminence or Empire. Britain lost one Empire and gained another, but it is an exception, and driven by a specific situation (first mover in the Industrial revolution) which has no modern parallel (no, the information revolution is not even a rounding error on the industrial revolution.)

The results of the work I do, like this article, are free, but food isn’t, so if you value my work, please DONATE or SUBSCRIBE.

Disney Explains that the Reason Poor Working People Are Poor Is Executives

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On April 25, 2019

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One of the most extraordinary threads I’ve read recently is Abigail Disney doing the math on how the Disney corporation could raise the income of its bottom tier workers.

The poor are poor because the rich are rich.

Disney was interviewed a while back, and these two questions and answers are germane to this conversation.

In what ways did your dad change, other than having a jet?Actually, having a jet is a really big deal. If I were queen of the world, I would pass a law against private jets, because they enable you to get around a certain reality. You don’t have to go through an airport terminal, you don’t have to interact, you don’t have to be patient, you don’t have to be uncomfortable. These are the things that remind us we’re human…

How did the jet change your dad? It wasn’t just the plane, but it’s not a small thing when you don’t have to be patient or be around other people. It creates this notion that you’re a little bit better than they are. And for the past 40 years, everything in American culture has been reinforcing that belief. We say, ‘Job creators, entrepreneurs, these are the people who make America great.’ So there are people walking around with substantial wealth who think that they have it because they’re better. It’s fundamental to remember that you’re just a member of the human race, like everybody else, and there’s nothing about your money that makes you better than anyone else. If you don’t know that and you have money, it’s the road to hell, no matter how much stuff you have around you…

See, here’s the thing, as I’ve pointed out in the past. Airport security is awful for one simple reason: No one who matters goes through it. They fly on private jets. On the rare occasion those people go first class, well, first class security is far less unpleasant than what the peons go through.

Any problem that does not affect elites, they do not act on, unless they can make money on it. (In which case, their solution is likely to make things worse.)

This is exacerbated by the fact that elites effectively live in bubbles: They don’t have ordinary people as friends. They don’t identify with the middle class or the poor, and if you don’t identify with someone, their pain doesn’t bother you. (This is why, in wartime, the enemy is demonized. It is also why slave owners mostly believed that blacks were were inferior, and subhuman.)

Iger is a bad, even evil man, for the same reason most high-level American executives are. He could easily make his employees lives better and give up nothing that matters (see Disney on what executives would sacrifice) but they don’t do it, because they don’t care about the pain of their “lessers.”

This is a matter of the structure of modern capitalist society, but it is also an affirmative choice by the executive class. In the 50s and 60s these sorts of executive excesses were both illegal and frowned on ethically. It was felt that earning so much more than regular people was actually immoral.

Later generations of executives didn’t see it that way. They felt that “greed was good,” that they “earned it” and that anyone who didn’t earn that much was a loser who was getting what they deserved. If they deserved more, the market would give it to them!

So they worked very hard to change corporate culture, buy government and change laws. For example, stock buy-backs, which are very good for executives with stock-option bonuses, used to be illegal. Then there’s the reduction in top marginal tax rates, the refusal to enforce antitrust laws and on and on.

It took a lot of work, by a couple generations of US executives and other rich people, to get here.

And now they’re rich, and  a lot of Americans are poor. And the reason other Americans are poor is that the rich are so rich. (Yeah, this isn’t the full argument, but the argument is easy enough: Buy the government and have it represent your class interests and everything else follows easily.)

And Bob Iger is evil, though I’m sure he thinks he’s a good person. But a lot of people are poor so he can be rich, and he and his executives could make their employees’ lives a lot better and give up nothing that matters to their own lives. When the situation is “I can help and I won’t even notice it” and you choose not to, well…

The results of the work I do, like this article, are free, but food isn’t, so if you value my work, please DONATE or SUBSCRIBE.

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