Category: Economics Page 32 of 89

So, unless you think that genetic potential is that unequally distributed (and can explain eras where this chart did not apply, as in the post-WWII decades), you can pretty much forget “meritocracy.”

Meritocracy is just a way of saying, “We test for the things the middle and upper classes have the resources to prepare for their children.” And that’s before we get to the extra opportunities having wealthier parents gives one simply from network effects.

Fairness and justice are obviously big issues, but just as bad is that many of these people might contribute in a huge way, and are never given the opportunity.

Stephen Jay Gould once said:

“I am, somehow, less interested in the weight and convolutions of Einstein’s brain than in the near certainty that people of equal talent have lived and died in cotton fields and sweatshops.”

These days, McDonalds, Walmarts, and Amazon warehouses…

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.

Actual Sovereign Nations and the End of the Unipolar Moment

By Ian Welsh

On November 3, 2018

Comments

This chart is a “sovereign nation” chart. Spot the only sovereign nation.

Japan could be a great power, but right now it is still an American subject state. South Korea obviously is, and so is India. Of these four, only China is sovereign. The rest have to do what they are told to by the United States.

This period is ending. The US (primary) and European (secondary) stranglehold on the world payments system WILL come to an end, and the world is most likely to split into two primary trade blocks.

Since things like the US-imposed Iranian sanctions are crimes (along with the strangling of various other countries, as is killing people–with reports of Iranians dying from shortages of insulin as a result of the sanctions), the end of the US unipolarity will be a good thing.

Those who abuse their power should lose it.

That does not mean that China is a nice and cuddly power either, but they have more respect for most other countries’ sovereignty than the US does and want a “great power” influence area, not a “superpower” area (i.e., they do not want to control the world).

The process of this split is ongoing. The recent NAFTA renegotiations were about breaking the near-satrapies to American will. Mexico gave in immediately, Canada crumbled under auto export tariff threats. You can tell this is about the split, because the new trade agreement, the USMCA, had in a clause intended to stop Mexico or Canada from having new trade deals with China.

This is the new world being born. It doesn’t have to be better than the old one, and may not be, but that doesn’t mean the old order doesn’t need to die.

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.

Trump’s Continued Collision with the Federal Reserve

By Ian Welsh

On October 22, 2018

Comments

Back around Trump’s election, I said that there would be a collision between him and the Federal Reserve. At the time, it was run by Yellen.

The fact is that the people who elected Trump aren’t feeling good. To make them feel good, Trump is going to have get the official unemployment rate lower than it is now, at least under four percent, and hopefully to three percent or lower and hold it there for some time, at least two or three years.

This stuff takes time to ripple through the economy, and it takes time for a tight labor market to push employers to both raise wages and to hire people who they consider marginal.

If the Federal Reserve raises rates if/when Trump’s policies (“fiscal,” in the above) start to work, they will be making sure he can’t deliver to his constituency.

This is a direct collision course.

Now let me say something simple. The Federal Reserve, for over 30 years, has deliberately crushed wages. This was policy. Policy.

So, Trump hired Powell, and Powell is doing what Yellen would have done. Trump, on October 11th, said that he wouldn’t fire Powell, but was only disappointed.

It’s unclear whether or not Trump can fire Powell, however he can fire all other members of the Federal Reserve board for non-performance of duties. The case isn’t as clear as back in, say, 2009, but the economy still isn’t good for large parts of America, a case can certainly be made.

More to the point, Trump should.

Yes, Trump is the source of all evil and anything and everything he does should be opposed, I know, but bear with me: The Federal Reserve should not be insulated from pressure from elected officials.

I know that orthodoxy says it should, but the fact is that, since 1979, the Federal Reserve has raised interest rates whenever it looked like wages were going to rise faster than inflation. The Federal Reserve, in other words, has crushed wages.

This is bad. It is at the heart of why we have the rise of the right, and so many other problems. Vast inequality, in democracies, always leads to political instability, and in democracies the purpose of the economy should be to create a good life for everyone, anyway.

Trump ain’t a good guy, but wages aren’t increasing for ordinary people. That means that whatever the nominal unemployment rate is, the US isn’t actually at full employment. If it was, there would be rising wages. It is that simple. To raise interest rates before there are even significant wage increases is malpractice, even by the usual standards of monetary policy–and the usual standards are already malpractice.

Just because one despises Trump, one should not allow the major part of economic management be run by people who despise ordinary people receiving wage increases, or, indeed, by “independent bodies.” Democracy means elected officials having control over real policy.

So, I hope Trump fires a bunch of Federal reserve members, I hope it goes to the Supreme Court, and I hope that those firings are upheld.

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.

How Over-priced Is the US Housing Market?

By Ian Welsh

On October 2, 2018

Comments

This is one answer:

The bottom line, then, is that it’s more overbought than it was in 2008.

If the government had not intervened to keep it over-inflated, it would likely have reverted to mean, but trillions of dollars were spent, and many laws were bent and indeed, broken, to keep house prices up.

Indeed, 2008 was used as a buying opportunity: Distressed homes were bought up at cents on the dollar, then rented or sold at inflated prices.

The entire economy is crooked: It is designed to favor the rich no matter who else that hurts.

There are little people who win, but they are fewer and fewer. And virtually no one below the age of 40 is a winner in this unless they are professionally involved, i.e., in on the scam.

Housing should never have been thought of as an investment. Houses should be for living in, and people who own them to flip them should be heavily penalized. Those who own them and leave them empty should have them seized by the government and auctioned. And, yeah, some form of rent control is needed in most places.

Of course foreign buyers must be kept out of the market. Housing is for people who live in the country; foreigners can rent.

As for mortgages, they should be dead boring; for most people fixed rated mortgages of 20 to 30 years fit.

None of this should be objectionable. But there are people making a lot of money out of the misery of other people, and parasites don’t like letting go of their hosts.

Parasitical economies–and most developed countries have one–exist by immiserating people.

This is the real reason for the current push for basic income: The parasite class is scared they may be about to kill the host, and want a government infusion to keep the poor and the (reduced) middle class stumbling on.

I don’t oppose a basic income, but understand that billionaires aren’t supporting it out of the goodness of their hearts. They expect to take every cent the government gives you.

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.

When Will the US Lose Control of the World Payments System?

By Ian Welsh

On August 31, 2018

Comments

One of the greatest powers of the United States, one which was hardly used before Clinton, is the ability to freeze people out of the payments system. When Argentina had its previous debt crisis, it cut a deal with investors: They took a haircut, and the government agreed to pay them the haircut. Some investors refused.

Later, that deal was effectively destroyed, because Argentina lost in a US court. As a result, they could not pay the investors who had taken the haircut–a US judge was able to cut a sovereign state off from paying its debtors. Argentina could only have access if it paid both those who took the haircut and those who didn’t.

Over the last 20 years, in particular, the US has enforced financial sanctions against a bewildering number of people and states. Right now, it is disallowing Venezuela from buying many foreign goods. (When “socialism” doesn’t collapse fast enough, the US is always on hand to give it a shove.)

During the Iran sanctions period, before the Iran nuclear deal, the US and the EU cut Iran off from the payments system, virtually wholesale. SWIFT, the electronic payments system headquartered in Brussels refused to cooperate, saying that it should not be used as a tool of politics.

But the EU threatened the board and senior SWIFT executives with criminal charges, and SWIFT folded.

Lots of Iranians died and suffered under those sanctions, just like Iraqis did under the sanctions in the 90s.

When the Iran deal was cut, the sanctions were eased.

But Trump, when he tore up the Iran deal, re-imposed sanctions. The EU disagreed, but many EU companies are obeying the American order because America has said that it will sanction both companies and individuals who disobey.

And even if SWIFT doesn’t cooperate as a body, the problem is that most payments at some point touch American banks. The moment they do, America jurisdiction cuts in. (This is how FIFA got hit for corruption by US law enforcement. None of the bribes had anything to do with the US, but payments went thru US banks.)

So Europe is considering creating a payments system which does not ever touch US jurisdiction:

Germany’s foreign minister has called for the creation of a new payments system independent of the US as a means of rescuing the nuclear deal between Iran and the west that Donald Trump withdrew from in May…

…“For that reason it’s essential that we strengthen European autonomy by establishing payment channels that are independent of the US, creating a European Monetary Fund and building up an independent Swift system,” he wrote.

This adds Europe to a group which includes Russia and China, along with virtually every nation who has been subject to US sanctions.

The thing is that such sanctions used to be fairly rare. But Clinton weaponized them against Iraq and every President since them has used them as a bludgeon. They are a way, like drones to punish countries and individuals and to ignore sovereign rights.

The MMT types go on and on about being sovereign in one’s currency, but the fact is that you aren’t sovereign if another country can cut you out of the payments system. And right now the only countries in the world that are sovereign in that sense are America, the EU and China. And the EU and China are only somewhat sovereign.

These punishments are extra-territorial, they are an imposition of US law on non US countries and citizens. They are possible only because the US is the world hegemonic power, and sits at the center of the world payments system. Venezuela can sanction, but no one cares unless they have assets actually in Venezuela.

This power has been abused, repeatedly, to interfere in business that is none of America’s business. One can say that it might have been used acceptably when the entire UN security council agreed (I disagree), but when it doesn’t, the US has acted anyway.

And so, now, every great power in the world, with the possible exception of Japan, wants to take that power away from the US.

About time, but it will take time. It isn’t just about virtual links, it is about physical links: it must be done over continental cables and thru satellites which are not American. The way current software acts doesn’t take that in account, and physical infrastructure as well as software needs to be built.

But I hope that Europe is serious, because combined with China and Russia this is something which can be done, and done fairly fast (within a decade, I’d guess.) The only problem is that the EU, too, likes having this power. Are they really willing to give it up? Because the best way to do this would be to create a system which cannot be sanctioned without the agreement of all the powers who create: a system which cannot be sanctioned unilaterally. Everyone involved should have a veto.

Time will tell if Europe and, indeed, other nations, truly want a system that none of them can use to punish others.

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.

Should Canada Concede to Trump in NAFTA Renegotiations?

By Ian Welsh

On August 28, 2018

Comments

So, Trump has been renegotiating NAFTA. Not necessarily a bad thing. He’s cut a deal with Mexico, says he’ll sign it without Canada.

Canada has three main sticking points.

It wants to keep the Chapter 19 dispute resolution system so that the US can’t unilaterally impose dumping and anti-subsidy penalties. This is a big deal, because the US is prone to do this stuff due to domestic pressure from industries, and with no check, it will do them more often. Not that Chapter 19 is that great; when the US loses Chapter 19 rulings it tends to just ignore them and impose duties anyway, as it did in the 2000s on lumber. Still, even a delay is good, and that delay has likely stopped a lot of tariffs over the years.

The second issue is IP.

Other hurdles include intellectual property rights, such as the U.S.-Mexico ten-year data exclusivity for biologic drug makers and extensions of copyright protections to 75 years from 50, all higher thresholds than Canada has previously supported.

Yeah, that’s just fucking awful. No thank you. 50 years is already way too much and who wants even higher drug prices in Canada. (US pharma, yeah.)

Finally there is the Canadian milk production system, which is horribly protective and freezes American milk out of Canada. But, well, our standards are higher for milk production, and as such, no, I don’t want change.

If Trump doesn’t get this, he promised auto tariffs, which will hit Southern Ontario hard.

I’m going to say that Canada shouldn’t give in on these issues. It’s not clear that Trump has the votes in the Senate to pass his bilateral Mexico-US deal, and even if NAFTA is lost, well, whatever. Being subject to American tariffs at the whim of any sitting President is not acceptable, nor are higher drug prices and shitty milk.

Canada gave up our world-leading aviation industry in the 50s, in essence, for the right to be part of the US automobile industry. It was a shitty deal then, because it made us dependent, and we are seeing that dependency now.

We’ll see how this plays out. I don’t know if Freeland and Trudeau have the guts to walk away and there certainly would be a cost. But Trump is not certain to be forever, and anything we give up now we are unlikely to get back in the near future.

There was a possible NAFTA renegotiation which would have been a win for all three countries, dealing with issues such as the right of private investors to sue governments for doing perfectly reasonable things like banning anti-cancer additives in oil, but that’s not the renegotiation Trump has chosen to do.

As such, I hope Trudeau holds the line.

Also, there are ways for Canada to retaliate. They are counter-intuitive, but real. I would start by slapping a huge export-tax on all wood products, and watch the US housing industry fall to its knees and the US economy tremble. That would involve some pain at home, but frankly, we can tax a little higher and subsidize those who lose, it’s not a big deal.

Trump’s the sort of person who only respects hardball. Play it, or crawl on your belly.

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.

No, the World Isn’t Getting Better for Everyone

By Ian Welsh

On August 24, 2018

Comments

We read, often, today, about how wonderful the world is. It’s the best time to be alive, and it’s just getting better!

The usual way this is “proven” is by saying that dire poverty is decreasing in the world. There’s a lot of problems with that, and the biggest one is that the definition of extreme poverty is too low.

According to Peter Edwards of Newcastle University, if people are to achieve normal life expectancy, they need roughly double the current IPL, or a minimum of $2.50 per day. But adopting this higher standard would seriously undermine the poverty reduction narrative. An IPL of $2.50 shows a poverty headcount of around 3.1 billion, almost triple what the World Bank and the Millennium Campaign would have us believe. It also shows that poverty is getting worse, not better, with nearly 353 million more people impoverished today than in 1981. With China taken out of the equation, that number shoots up to 852 million.

I’ve felt for a long time that his narrative was, to put it gently, bullshit. The full article is worth reading, because it goes into the way tiny statistical changes move the number in poverty by hundreds of millions of people. But the bottom line is that earning $1.25 a day isn’t enough, and anyone with common sense knows it isn’t enough.

Meanwhile, in India, we know that over the last 20 years, despite increased is GDP per capita, the average amount of calories being eaten is going down. And it’s not as if Indians, as a group, were overfed 20 years ago.

The truth is that neoliberal policies have been very bad for the developing world. Actual poverty decreased faster from 1945 to the mid 70s than it has since, and, although it’s not as important, GDP rose faster too.

The exception, of course, is China. But China did not implement the policies that the IMF and World Bank force on countries: The “Washington Consensus.” They did not open their markets wide, unpeg their currency, and move to cash crops and commodities. Instead, they, like all but maybe three countries larger than city states who have ever industrialized, pursued mercantile policies, managed trade, and moved steadily up the value chain.

This is the model Britain used. It is the model the US used. It is the model Japan used. It is the model South Korea used. Etc…nations only become free traders when they are mature industrially. And in most cases, when they do so, it is a mistake, though this goes profoundly against the current consensus ideology, which claims that free trade and monetary flows are virtually always a good thing.

Even before climate change, the world was getting worse for a lot of people. Not just for people in the developed world (though there is no question that Millennials in most first world countries are worse off than GenXers, who are worse off than Boomers were), but for people in most of the developed world.

You cannot wash the sins of the neoliberal consensus by adding in China’s numbers, when China didn’t follow it. And statistical games over a few cents are pathetic.

Things are bad now. They are going to get worse for more people than they get better, until we significantly change how we run our economies, and given the realities of climate change, maybe not even then.

Getting punch drunk on oil and coal for two centuries is all very nice. But all parties come to an end, and for a lot of people, this party included getting trashed by what amounted to home invaders.

It’d be nice if we figured this stuff out, and if we stopped lying to ourselves.

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.

Much of Western America Will Be Uninhabitable in 40 Years

By Ian Welsh

On August 21, 2018

Comments

Large parts of the US will be riven by permanent drought in the rather forseeable future. And fracking is making it worse… much worse.

The game-changing study from Duke University found that “from 2011 to 2016, the water use per well increased up to 770 percent.” In addition, the toxic wastewater produced in the first year of production jumped up to 1440 percent…

… first generation wells used three to five millions gallons of water, current third generation wells use ten to 30 million gallons….the federal government “forecasts a million more such wells in the next 20 years.”

Moreover, many of these wells are in western areas of the US, which are already water-stressed.

Plus, fracking tends to poison groundwater and aquifers, making those sources permanently unusable, no matter how much remains.

This is the sort of insanity which is routine today: Burning seed corn to heat the house. We know what we’re doing is insanely short-sighted. We know it will come back to burn us badly later on. We do it anyway because it makes money in the short term.

And, of course, in addition to the hydrocarbons it produces, which will increase global warming, fracking produces methane, an even more potent greenhouse gas than carbon dioxide.

What we should have done, in the 80s, is pushed hard on renewable energy, but we didn’t. What we should be doing now, oh, is the same thing, but we aren’t nearly as hard as we could be.

As an aside, the hidden truth of the solar miracle, is that it happened because of German subsidies. Solar wasn’t feasible, Germany made it feasible.

If the US had done that, it would have been feasible far, far sooner. But Americans wanted Reagan and “Morning in America” and endless suburbs full of SUVs.

And that’s what the US got. And so a large part of the US is going to become uninhabitable within the next two generations.

Meanwhile, hundreds of fires burn on the west coast of the US and Canada. This is climate change changing the ecology of local areas. This change will be permanent. The new ground cover will not be what was there before the fires.

Climate change is here. It is making itself known. It started with the great storms–more frequent and more powerful than in the past. It continues now with record high temperatures, especially in the arctic, and widespread forest fires. The arctic heat puts us in danger of massive methane releases from the permafrost and the ocean floor. If these releases happen, we can bend over and kiss our asses goodbye.

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

Category: Economics Page 32 of 89

Meritocracy? What Meritocracy?

Actual Sovereign Nations and the End of the Unipolar Moment

Trump’s Continued Collision with the Federal Reserve

How Over-priced Is the US Housing Market?

When Will the US Lose Control of the World Payments System?

Should Canada Concede to Trump in NAFTA Renegotiations?

No, the World Isn’t Getting Better for Everyone

Much of Western America Will Be Uninhabitable in 40 Years