Wednesday, August 16, 2017

Deep Structures of the Cultural Marxism Myth

Jeet Heer has posted a timely and excellent essay at New Republic titled "Trump's Racism and the Cultural Marxism Myth." In his essay, Heer recounts much of the background to the Higgins memo that I have documented here, here and here. Heer credits William S. Lind as the major popularizer of the myth, as have I in my blog posts. What I'm posting here extends the analysis and reveals significant background about personnel and timelines to the story.

In my most recent post, I started to probe further back into the myth's history with an examination of Eliseo Vivas's over-the-top invective against Herbert Marcuse since the late 1960s. Vivas was deeply offended by Marcuse's writing and expressed his displeasure in several articles and a book, Conta Marcuse. He was also a frequent contributor to the journals, Modern Age and Intercollegiate Review both of which are associated with the conservative organization, the Intercollegiate Studies Institute or ISI. From a snippet of a speech by ISI president T. Kenneth Cribb in Ellen Messer-Davidow's 1993 article, "Manufacturing the Attack on Liberalized Higher Education" I had the hunch that the ISI might offer a clue to the metamorphosis from Vivas's anti-Marcuse screeds to the full-blown cultural Marxism myth that appeared in Lind's pamphlet, Pat Buchanan's book, Higgins's memo and Anders Breivik's manifesto.

Cribb is a pivotal character in this saga. He was national director of the ISI from 1972 to 1977, then, after earning a law degree went to work for Edwin Meese during the Reagan campaign in 1980 and ended up Counselor to the Attorney General and subsequently Assistant for Domestic Affairs to President Reagan. After the end of the Reagan administration, Cribb returned to the ISI to serve as president of that organization from 1989 to 2011.
Krawattennazis Rich Higgins and T. Kenneth Cribb
In 1989, Cribb gave an address to the Heritage Foundation on "Conservatism and the American Academy: Prospects for the 1990s" in which he outlined his vision for a "sustained counteroffensive" on what he characterized as "the last Leftist redoubt, the college campus." Cribb painted a picture of relentless persecution and harassment of conservatives in American universities taken mostly from Peter Collier and David Horowitz's Destructive Generation: Second Thoughts about the Sixties. He boasted of the ISI's readiness for that counteroffensive:
In addition to saving a remnant that renews the font of conservative ideas, we are now strong enough to establish a contemporary presence for conservatism on campus, and contest the Left on its own turf. We plan to do this by greatly expanding the ISI field effort, its network of campus-based programming.
Cribb was unequivocal in his view that academia was "the one redoubt left to it [the left] by the successful conservative counterattack of the 1970s and 1980s." His promised counteroffensive was thus presented as a mop-up operation for the establishment of a "free" society, which is to say a traditionalist society freed of the nuisances of relativism and other non-conservative heresies.

Fifteen years into that mop-up operation, Cribb contributed a chapter to William Lind's Political Correctness: a Short History of an Ideology, the locus classicus of the cultural Marxism myth. Cribb's chapter was titled "Political Correctness in Higher Education." It presented anecdotes from conservative college newspapers affiliated with the ISI meant to illustrate the "alarming rate" at which "the freedom to articulate and discuss ideas" was being eroded by incidents of intolerance and corruption of the curriculum to downplay the significance of Western Civilization.

"While it would be easy to dismiss such demonstrations of intolerance as student pranks," he admitted, "these incidents are the surface manifestations of a more pervasive and insidious trend..." The headline outrage was the burning of "hundreds (sometimes thousands) of copies of conservative student newspapers."  He concluded his chapter with a brief account of the ISI's efforts to stem the tide of the alarming erosion of freedom. Along with other sections of the Lind book, whole passages from Cribb's chapter were 'cribbed' by Norwegian mass murderer Anders Breivik for his manifesto.

Curiously, there was no mention in Cribb's 1989 address to the Heritage Foundation of Herbert Marcuse, the Frankfurt School or cultural Marxism nor was there in the book by Collier and Horowitz book that Cribb had cited. "Politically correct" gets four hits though. Yet Horowitz  and Collier were active participants in 1960s New Left extremism. Similarly, ISI poster boy Dinesh D'Souza's Illiberal Education from 1991 contains one brief and not particularly scathing mention of Marcuse and one reference political correctness but no mention of the Frankfurt School or cultural Marxism.

The political correctness. cultural Marxism stew didn't get all its ingredients until the 1992 article, "New Dark Age: Frankfurt School and Political Correctness," whose author, Michael J. Minnicino, subsequently disowned his work as "hopelessly deformed by self-censorship and the desire to in some way support Mr. LaRouche's crack-brained world-view." That fine piece of Western Civilization scholarship was then taken over and reworked by Lind in 1997.

At last we have a doctrine, a vanguard organization, and a timeline. But most importantly, courtesy of the Larouche cult, we now have a suitably unitary devil-function. The "basic Nazi trick," as Kenneth Burke labeled "the 'curative' unification by a fictitious devil-function, gradually made convincing by the sloganizing repetitiousness of standard advertising technique." Helpfully, in a 1988 address to the Heritage Foundation,William F. Campbell explained why conservatives need such a devil-function:
But as first and second generation conservatives have always known, and had to live with as an unpleasant skeleton in the family closet, there is sharp tension, if not contradiction, between the traditionalist and the libertarian wings of the conservative movement. They have been held together primarily because of their common enemies, modern egalitarianism and totalitarian collectivism, which they both abhor. 
In 1988, when Campbell made those remarks, the Soviet Union still existed and could serve the primary role of common enemy, symbolizing the alien totalitarian destiny of domestic egalitarianism. After the collapse of the Soviet Union in 1991, a new enemy had to be conjured. The Higgins memo is testament to the contortions that must be endured to conjure that devil.

Tuesday, August 15, 2017

Why Is The Fed Raising Interest Rates As Fast As It Is?

I have a theory that at least some people at the Fed are supporting interest rate increases not because they are worried about incipient inflation that must be nipped in the bud in advance under a regime of inflation targeting, but because they are looking over the horizon and worrying about a possible recession in the not-too-distant future, and they want to be able to have interest rates high enough that they can then engage in lowering them as a stimulative policy tool under the circumstances.  If they are too low, then extraordinary measures will need to be used, and some of those measures may not be available in the future.

This theory is based on nothing solid at all, nothing.  I think that those who may be thinking this (and my likely candidate(s) would be people at the very top) are constrained in speaking openly due both to the current institutional arrangement of consensus decisionmaking within an established inflation targeting system with a 2% inflation target, not to mention pressure not to talk about possible future dangers.  The current line is that the economy is doing well, and certainly it is on the standard measures of unemployment and inflation, even if the former could be better and wages could be rising more rapidly.  Indeed, it is this good performance that is supposedly underlying the moves to raise interest rates and possibly "normalize" the balance sheet (which I doubt there will be too much action on).  But my theory is that for some of them it is a matter of trying to "normalize" on interest rates as well while the possibility of normalizing is possible, while the economy is doing fairly well and one can raise them without obviously slowing things down noticeably, so that indeed there will be the ability to lower them again in the future when necessary.

He did not put this theory forward, but it was reading the recent column by Larry Summers that appeared in the Washington Post on Monday was been linked to by Mark Thoma today (unable to make that link, sorry) and also can be gotten to at  He is focused on the upcoming ending of the term of his rival as Chair of the Fed, Janet Yellen, and is worried about who Trump will pick and what will happen.  While stating that he would have "preferred a slower pace of interest rate adjustment," he bottom lines that "Overall it has done well in recent years" (even though he did not get picked to be Chair).

While he thinks the economy is currently doing pretty well, looking forward he worries tha it is "brittle" with numerous dangers, and opines that there is a two thirds chance of a recession during the next Fed Chair's term.  He then notes how the still low interest rates will make it hard to use the interest rate tool to stimulate the economy, making it difficult for the Fed to do much.  He does not make the leap I did to the possibility that this fact may be on the minds of at least some people at the Fed, although they really cannot openly say it.

I agree with his concerns about what is coming due to the political situation, with "major risk now of presidential interference" in the Fed, and he makes disparaging remarks about the president quite reasonably so.  He also notes that the "temper of the times has turned against technical expertise in favor of populist passion." There is reason to be concerned about what he will do. 

But in the meantime some people at the Fed may be doing their best to make it possible for the Fed to do something in the future when the need will surely arise.

Barkley Rosser

Monday, August 14, 2017

Additional Remarks

Commander Bone Spurs was afraid that some of his supporters would be too thick to grasp the grudging, involuntary nature of his teleprompter recital. Just to make his bad faith perfectly clear, IMPOTUS tweeted additional remarks about his "additional remarks":

The "Narratives" of Higgins's "Warfare"

The word 'narrative' appears 41 times in the infamous Higgins memo, "POTUS and Political Warfare." Guys, it's time for some narrative critique. The narrative Higgins is most concerned about is something he calls "cultural Marxism," which he defines in a paragraph at the top of page four of the memo:
As used in this discussion, cultural Marxism relates to programs and activities that arise out of Gramsci Marxism, Fabian Socialism and most directly from the Frankfurt School. The Frankfurt strategy deconstructs societies through attacks on culture by imposing a dialectic that forces unresolvable contradictions under the rubric of critical theory. The result is induced nihilism, a belief in everything that is actually the belief in nothing.
What does this mean? I think what Higgins was trying to say is that the Frankfurt School's critical theory seeks to tear down Western Civilization societies by undermining Judeo-Christian culture.The Western Civilization and Judeo-Christian stipulations appear elsewhere in his manifesto memo. As an example of how this undermining is to take place, Higgins offered a series of quotes from Herbert Marcuse's 1965 essay, "Repressive Tolerance," in which, Higgins claimed, "Marcuse defined tolerance as intolerance."

In all fairness to Higgins, his interpretation of the Marcuse essay is probably not his. It is likely he never read the essay. The legendary characterization of Marcuse's essay is a set piece that has been passed down from conservative magazine article to conservative pamphlet to conservative blog post to conservative twitter screed for decades. Leaving aside the accuracy of the interpretation, the question Higgins left unanswered -- because presumably unasked -- is how did this obscure text become as diabolically pervasive and influential as Higgins claims it is?

For the answer to that question, we need to go to Higgins's sources, even though he hasn't explicitly named them and quite possibly doesn't know what they are. The political correctness, cultural Marxism, multiculturalism, repressive tolerance "narrative" is out there in the miasma.

I have previously documented the plagiarism link between cultural conservative William S. Lind's propaganda pamphlets and mass murderer Anders Breivik's manifesto. Now I would like to dig a little deeper and identify a grandfather meme: Eliseo's Vivas's "Herbert Marcuse: 'Philosopher' en titre of the New Nihilists." Vivas also wrote a polemical book, Contra Marcuse, but having read the article, I think I get the drift of his diatribe method of critique.

In "The Rhetoric of Hitler's 'Battle'" Kenneth Burke warned against "vandalistic" commentary on a text, even one as exasperating and nauseating as Hitler's Mein Kampf. Inflicting a "few symbolic wounds" on the text is more gratifying than it is enlightening. With "the testament of a man who swung a great people into his wake" it would be prudent to "discover what kind of 'medicine' this medicine-man has concocted, that we may know, with greater accuracy, exactly what to guard against..."

Sunday, August 13, 2017

"Rational" Optimism?

I just finished this long, rather convoluted meditation on “rational optimism”.  Must we admit the world is getting better, getting better all the time?

Really, there are two types of multidimensionality that need to be considered.  The first is that “better” is, if it’s anything, vector valued.  Many aspects of life go into its calculation, as well as the distribution of outcomes across places and peoples.  Typically some things will be getting better and others worse, so either we abandon blanket judgments or we propose weights.  Instead the discussion on both sides is a combination of hard (or hard-ish) numbers for particular indicators, like life expectancy and poverty, and vague aggregations like “most” or “in general”.

Second, the financial notions of alpha and beta are highly relevant to this discussion.  What matters is both the mean outcome of interest and the risk attached to it.  In a sense, the modern world has purchased yield (realized material benefits) at the cost of greater tail risk (catastrophic climate change, nuclear war).  This should be obvious, but the point is that reward cannot be evaluated apart from risk.

I’m not passing judgment on the bottom line (if there even is one), just saying that, if optimism/pessimism is a matter worth speculating on, we might as well do it in a disciplined way.

Saturday, August 12, 2017

The Buchanan-MacLean Controversy

The book, Democracy in Chains (with an even more lurid subtitle) by Nancy MacLean, a respected (until now) historian at Duke University makes a strong argument that the late James M. Buchanan of UVa, VaTech, and George Mason was the crucial link between the ancient states right racism of John C. Calhoun and the current Trump administration. From Calhoun, incredibly inaccurately labeled a "libertarian," through the Agrarian Populist literary movement that was popular at Vanderbilt where Jim wanted to go but did not (he went to Middle Tennessee State, a poor boy claiming to be a "socialist,"), Buchanan becomes supposedly an effective supporter of racial segregation in Virginia in the 1950s, and then becomes the inspiration for all of later Austrian libertarianism, having attended the opening meeting of the Mont Pelerin Society in 1947 (where they chose to be called "neoliberals"), and then after founding the Thomas Jefferson Center for Political Economy at the University of Virginia, and then running to  VA Tech in the early 70s, and then to George Mason in the early 80s, well, then he had a connection with the Koch Brothers, although this fell apart in the late  90s, but nevertheless he is the main link proving that Trump is a racist enemy of democracy.

This account has brought forth a massive counterattack from many current libertarians, much of it looking to me to be justified, involving many  serious factual errors.  I am not going to list them but note these sources for discussions of such matters: Munger, Horwitz, which includes other sources.  I shall try to deal with matters not covered by them, noting that I largely agree with their critiques.  The hard bottom line is that this may be a left version of  rightist climate change denial: those reading this book need to be aware of how deeply flawed and erroneous it is, although it makes some valid points.

So what is valid?  There is a very hard point that was not a main point in the book and has largely not been discussed, with most of the attention being on the deeply flawed account of Buchanan and G. Warren Nutter's role in the matter of 1950s Virginia school desegregation (more on that  later). The hard point is Buchanan's role in Chile.  MacLean is right that while there has been much been more publicity about the roles of Hayek and Friedman in Pinochet's regime in Chile, Buchanan's role there, nailed in by a crucial visit in 1980, may have been far more influential in forming the eventual  constitution, although this happened well after the original coup by Pinochet in 1973.  He played a key role in developing their constitution, which MacLean claims has anti-democratic elements that have in place defenses for the rights of capitalists that can only be overcome by two rounds of legislative votes. Yes, does put  a pro-capitalist tilt in there, but two  rounds of the legislature to overturn it?  In fact it was accepted by a referendum and has been amended numerous times since and reestablished a parliamentary democracy. Does not exactly look like Stalin or Hitler or Mao or  Kim Il Sung or something deserving the label "democracy in chains.".  But it is not  pretty, given all the blood Pinochet spilled, and just like Hayek and Friedman, Buchanan has this  matter on his late conscience, and it is notable that he never published anything on this, and aside from a meeting in Palo Alto right after he did it, he never publicly bragged about it or acknowledged it, although apparently he did so at that  meeting.  But maybe he realized that it was the stain on his career that it is, and he was  in the end embarrassed about it and wished to cover it up.

The second matter is the most controversial, and indeed is the centerpiece of MacLean's book.  This is the matter of his role with Nutter in 1959 in the school desegregation issue in Virginia, the one point regarding which an actual professional economist has come out for MacLean, namely Brad DeLong.  This is a much murkier matter, and after looking at it I see it as unclear with MacLean leaving out crucial  details, quite aside from ignoring crucial exculpatory evidence, even as she has some case.  This has to do with a report Buchanan and Nutter wrote to a specially appointed commission to deal with the school desegregation issue in 1959, in the context of Prince Edward County going for massive resistance against the 1954 Brown vs Board of Education SCOTUS ruling that led to the racial integration of public schools.  I think Buchanan should have signed the petition of VA academics supporting that ruling, but he did  not.  His proposal with Nutter suggested allowing vouchers for private schools along with  public schools, and MacLean and DeLong claim that this supported the effort to close down public schools in Prince  Edward County.  MacLean is right that at the time this did  effectively support that movement, although the Buchanan-Nutter proposal did not call for ending public education, and Buchanan has been in many places on record supporting the existence of public education, if with private school competition in the form of vouchers.

This  is  the central part of the book's argument, and it is the most heatedly debated, and I do not  have the bottom line on it, although it looks to me that MacLean has overstated her argument. A crucial issue has to do with race, obviously.  MacLean herself accepts that there is zero  evidence that Buchanan was himself a racist and that all of  this was just part  of his  supposedly libertarian/Koch/Trump view of the world. As it is, I think that whatever was really going on in 1959, the bottom line on Buchanan's views is given on p. 56 of her book where she grants that he supported "voluntary" and "local" desegregation based on local conditions, which she then effectively dismisses with a remark that he did not know what was going on in Arkansas and elsewhere, a comment that looks to me to be seriously stupid, to be very blunt.  Bottom line here is that Buchanan and Nutter may have effectively played a role in supporting the pro-segregationists in Virginia in 1959, but that was not their  position.

What about major problems with MacLean's arguments?  I shall note three, starting with one noted by others and effectively granted by MacLean herself.  This is the claim she makes in the final chapter that Tyler Cowen supports suppressing democracy.  This is based on a quote she supplies that was definitely taken out of context, a context where it was clear that the content of the isolated quote was contradicted by what immediately followed it.  Even those who have supported MacLean's book on Facebook such as Gary Mongiovi have agreed that MacLean was simply out to lunch on this matter, although while she has recognized that the quote is problematic, she has not fully retracted her argument related to it.  This is almost certainly tied to Cowen being director of the largely Koch-funded Mercatus Center at George Mason, with this being sort of the final piece de resistance of her book and argument, supposedly from racist anti-democratic John C. Calhoun to supposedly anti-democratic and implicitly racist Koch-funded libertarians at George Mason and Donald Trump.

A second problem reflects that MacLean is not an economist and seems to seriously misunderstand public choice theory, with her views on rent seeking being a strong example.  In discussing rent seeking, a concept originated by Buchanan's important coauthor, the  late Gordon Tullock, and labeled by the centrist liberal development economist, Anne Krueger, she consistently identifies the supposed rent seekers as politicians seeking voting support from activist liberal groups such a unions and civil rights groups, especially the latter, whom the the supposedly anti-democratic tendndencies of Buchanan are directed against.   But in fact in public choice theory the rent seekers are priviate interest groups that use government to create artificial monopolies, which generate the rents these groups are seeking.  It is really a quasi-Marxist view that sees capitalists using the government to enhance their  corrupt  profits.  It is ironic that I have seen public choice economists show up at URPE social gatherings at meetings to discuss how they have this in common with the radical left URPE folks, opposition to corrupt use of the government by rent seeking private interests.  I am not sure the URPE  people were all that open when I saw this, but there is no doubt that MacLean simply is completely wrong here and totally misrepresents public choice theory on this point, although the strongly pro-free market stance of both Buchanan and Tullock can easily mislead people on this.

Finally we have her misuse of the term "libertarian," which is also a central part of her argument, that there was this stream of essentially anti-democratic racist thought and action going straight from John C. Calhoun through the Agrarian Populist literary movement through James Buchanan and public choice theory to Koch-funded modern libertarians who are responsible for Trump and all he represents, an argument essentially made in the opening chapter, where she has Buchanan starting the Thomas Jefferson Center at UVa and his memo with Nutter being crucial centerpieces of this wholel strand.  The problems with this are numerous.  For starters, Buchanan never was a libertarian, even if he was somewhat sympathetic to their position, and he certainly was not a more radical anarcho-capitalist type of libertarian.  Public choice theory does analyze how government agencies and actions may be corrupt and self-interested and involve rent seeking, but most public choice theorists certainly argue that the state has legitimate roles in society and the economy.  Like the Austrian Hayek, whom Buchanan respected although he was not himself an Austrian, he preferred the label "classical  liberal," which MacLean at one point recognizes but simply dismisses as not being a useful term because of all the confusion with how Americans use the term "liberal." But this was indeed what both Buchanan and Hayek called themselves.  Hayek specifically rejected the term "libertarian" in his famous essay "Why I am not a Conservative," with Buchanan himself later writing a similar one entitled "Why I am Also not a Conservative," although MacLean for discussions of what was going on in Virginia in the 1950s that "libertarian" and "conservative" were essentially the same.  Oog.

As it is, MacLean seems to be unaware that the origin of the term "libertarian" was originally from the left, coming out of France, with there actually being people who identified themselves as "libertarian communists" in the 1920s.  There are still people who consider themselves to be "libertarian socialists," with Noam Chomsky being perhaps the most prominent example.  It was only in the 1950s that the term began to be used by people more on the political right than the political left, but still people like Hayek and Buchanan did not identify with it or use it for themselves.

This problem continues right up to the present situation, where indeed the Kochs claim to be libertarians, as does Tyler Cowen.  I agree with her that they have been supporting many things I do not support and have been massively influential with their massive funding campaigns over a long time in many places.  But I note that indeed they have supported some things I support out of their libertarianism, including prison reform, drug legalization, liberal approach to immigration, enlightened views on gay rights, and relatively dovish foreign policy, among some others, even as they support many other things I do not like, some of which Donald Trump supports, such as rolling back environmental regulations and crushing labor unions.  But when MacLean links the Kochs with Trump there is indeed a further problems: they did not support him, certainly not in the GOP primaries, where reportedly they preferred  pretty much anybody but him, although it would appear that they may have made at least some peace with him since he entered office.  But they disagree with him on many of his policies, see the list above of things they support I agree with and which Donald Trump by and large disagrees with.

What this represents is something that MacLean is clearly unaware of but which is important, that there is a major split within the Austrian School of Economics and among libertarians themselves, with the public choice people really on the side of all this, something that makes her main argument all the more ridiculous.  This is the split between the Rothardian-Misesians and the Hayekians.  The former, more influenced by the late Murray Rothbard than by von Mises really, have their great base at the Ludwig von Mises Institute (LvMI) in Auburn, Alabama, whereas the latter pretty much have their main HQ these days at George Mason University, precisely the crowd that MacLean has her story end up with.  These former are much more inclined to Trumpian views on race and immigration in particular, and they actually fit her main argument much better, also defending neo-Confederate "Paleo-Conservative" ideas.  Thus they are fine with the argument that a business owner has the right to discriminate against someone on racial (or gender) grounds.  Curiously one of the politicians closely linked to the LvMI who has expressed such views is none other than Ron Paul, who long opposed civil rights legislation when he was in the US  Congress representing an East Texas district, and the longtime director of the LvMI, Rockwell, was his former chief of staff.  These are the people who fit MacLean's story, but the split between them and the George Mason Hayekians has been steadily widening, with the matter of Donald Trump adding to this, as basically none of the Masonites supported him, while quite a few of the LvMI crowd have done so.  MacLean seems really to be amazingly misinformed and misguided about crucial aspects of this whole matter, quite aside from her errors regarding the work of the late James M. Buchanan himself.

Barkley Rosser

Friday, August 11, 2017

The Higgins Memo, Anders Breivik and the Lyndon LaRouche Cult

Back in 2011 after mass murderer Anders Breivik slaughtered 77 people in Norway I had a look at his "manifesto" because I  had heard that it spun a conspiracy theory around "cultural Marxism," multiculturalism, "political correctness" and the Frankfurt School. It turned out that the document was largely plagiarized from "Political Correctness: a Short History of an Ideology?" by William S. Lind, who at the time he wrote his pamphlet was Director of the Center for Cultural Conservatism at the Free Congress Foundation. It also turned out that Lind's "short history" was also largely cribbed, in his case from an article published in 1992 in a Lyndon LaRouche  cult journal called Fidelio. The author of that article subsequently repudiated both his article and his association with the LaRouche cult.

Rich Higgins, the author of the May 2017 memo, "POTUS and Political Warfare," was in the strategic planning office of the National Security Council until soon after his memo was discovered and read, presumably by General McMaster, he was given the option to resign and then escorted out of the building. Higgins memo rehashes all the old Lyndon Larouche, William S. Lind, Anders Breivik rigmarole.

I'm not going to repeat that all here. I wrote about it in a series of posts at Ecological Headstand in July and August of 2011 and revisited the topic in an EconoSpeak post from August 2015, Politics of Pastiche: "voters... need someone to fire all the political-correct police". One fascinating aspect of this story is that Frankfurt School historian Martin Jay had an encounter with Lind and wrote about it in Salmagundi,"Dialectic of Counter-Enlightenment: The Frankfurt School as Scapegoat of the Lunatic Fringe."

The "lunatic fringe" is now installed in the White House. Although Higgins, Ezra Cohen-Watnick and Derek Harvey were fired, according to the Foreign Policy article:
In the meantime, however, the memo had been working its way through the Trump White House. Among those who received the memo, according to two sources, was Donald Trump Jr. 
Trump Jr., at that time in the glare of media scrutiny around his meeting with a Russian lawyer at Trump Tower during the presidential campaign, gave the memo to his father, who gushed over it, according to sources. 
In a comedy of errors, Trump later learned from Sean Hannity, the Fox News host and close friend of the president, that the memo’s author had been fired. Trump was “furious,” the senior administration official said. “He is still furious.”
See also Chip Berlet's summary from August 2011 of Breivik's Core Thesis is White Christian Nationalism v. Multiculturalism.

Thursday, August 10, 2017

The Financial Crisis Tenth Anniversary

Yesterday, August 9, is being widely proclaimed as the tenth anniversary of the beginning of the financial crisis that fully crashed in September, 2008, with the recession that began at the end of 2007 plunging more profoundly and widely after that.  The specific event on August 9, 2007 was the limiting of withdrawals from US mortgage backed hedge funds by the BNP Paribas bank in Paris.  In a post yesterday, one of the leading analysts and prophets of the crisis, Dean Baker, noted that BBC erroneously claimed that housing prices in the US began falling after that date, when in deed Dean accurately notes that it was the decline in housing prices starting somewhat earlier that led to this action by BNP Paribas ten years ago. 

As one of those who analyzed what was going on better than most and with better timing, I link to my post of July 11, 2008, which analyzed what had been happening and forecast a full-out  crash coming soon, which indeed occurred a bit over two months later.  The title of that post is "Falling from the Period of Financial Distress into the Panic and Crash."  I note that the unpublished paper I cited in that post by me with Mauro Gallegati and Antonio Palestrini, "The Period of Financial Distress in Speculative Markets: Interacting Heterogeneous Agents and Financial Constraints," was finally published in Macroeconomic Dynamics in Feb. 2011, vol. 15, pp. 60-79.  A few comments now.

1)  Regarding the matter of the housing market bubble, everybody, including Dean Baker, always cites the numbers provided by the Case-Shiller index of housing prices in the 10 and 20 largest municipalities.  This is indeed an excellent source, but it is not the only one, and it is arguably biased because of its focus on large metropolitan areas.  A much broader index is that estimated by the Federal Housing Finance Agency.  Whereas the Case-Shiller index peaked around June, 2006, the FHA one peaked in January, 2007, over a half year later.  The FHA index is arguably more representative of the broader market, although it is probably true that the worst of the speculative markets and crashes were in larger metro areas, with declines in some of those already at down 10 to 12 percent by August, 2007, as Dean accurately notes in his post.  But even now I rarely see anybody citing the FHA index, with the occasional exception of Calculated Risk.

2)  Regarding the behavior of the Fed in the crash, Dean is right to pound on them not getting that the housing bubble was a problem and that the decline from its peak was a problem threatening a recession, indeed a major one, although they were clearly getting worried after the beginning of the period of financial distress ten years ago, especially as mortgage financiers began going belly up one after another.  As it is, the one person at the Fed who seems to have seen the danger earlier than any other, although she was overruled and later went along with some of the Pollyanna policies, was Janet Yellen.  Needless to say, I have praised her forecasting abilities on several occasions, and she was calling the housing bubble from 2005 on.

3)  In terms of the behavior of the Fed at the time of the crash, there had been some preparations for it, mostly by people at the New York Fed, and indeed the various alternative entities the Fed rolled out temporarily after the hard crash were cooked up in advance by them.  However, the most important thing the Fed did remains widely unknown and unadvertised, although I have posted on it previously, and it has been publicly reported on, it not on front pages anywhere ever.  That would be the half a trillion dollar save the Fed did for the European Central Bank, taking a bunch of very bad assets onto the Fed balance sheet, which were then gradually and quietly rolled off over the next six  months to be replaced by Mortgage Backed Securities.  The euro was crashing, and the ECB was facing the threat that both BNP Paribas and Deutsche Bank were in danger of failing.  This was the immediate danger that could have led to a full blown global financial crash of a 1931 level or worse.  This save was probably the most important thing the Fed did to keep the crisis from bringing about another Great Depression, although it remains not well known, partly because both the Fed and the ECB did not want it advertised.  A good account of this can be found in Neil Irwin's book, _The Alchemists_. 

There is so much more I have to say about all this, but these are a few items that either were not well known at the time or have been largely forgotten since.

Addendum:  Could link to both other posts and cite a bunch of papers, but will not.  So, a bit more on all this is that according to Minsky and Kindleberger there are three kinds of bubbles: ones that go up and crash suddenly and more or less totally, ones that go up and then go back down again without a hard crash, and ones that go up and reach a peak and then go into a period of financial distress and then later crash.  The vast majority are the latter, which was the pattern for the main financial markets as called by me, peak ten years ago, a year and a month of period of financial distress and then crash.  Oil did the first pattern back then, peaking at $147/barrel in June, 2008, then plunging to the low 30s by November before recovering.  Real estate followed the second pattern, going back down the way it went up.  This is because residential homeowners have emotional investment in their houses and refuse to believe or accept the falling prices after the peak. So they do not sell, and volumes collapse rather than prices.

Barkley Rosser

Wednesday, August 9, 2017

Avik Roy Claims Reagan Embraced Universal Health Care Coverage

Avik Roy entitles his latest spin with:
Why Ronald Reagan Embraced Universal Coverage: ‘No one in this country should be denied medical care for lack of funds,’ said the Gipper.
Here is more from this select reading of history:
Take the example of health care. Most readers of Olsen’s book will be surprised to learn that Reagan embraced universal coverage. In “A Time for Choosing” — Reagan’s celebrated conservative manifesto delivered at Goldwater’s 1964 Republican National Convention — Reagan declared, “No one in this country should be denied medical care for lack of funds.” In a speech to the Phoenix Chamber of Commerce — in Goldwater’s backyard — Reagan said, “Any person in the United States who requires medical attention and cannot provide for himself should have it provided for him.” While Reagan opposed “compulsory health insurance through a government bureau for people who don’t need it or who have . . . even a few million dollars tucked away,” he championed the Kerr-Mills Act of 1960, a law introduced by two Democrats that gave federal money to states with which to provide medical care for the elderly in need. Reagan said that he was “in favor of this bill — and if the money isn’t enough, I think we should put up more.”
But wait you say – what about this speech? Roy continues:
In the 1960s, Reagan opposed Medicare for two principal reasons: participation was mandatory, and because Medicare spent scarce taxpayer funds to subsidize coverage for wealthy people — even millionaires — who didn’t need the help. The Reagan approach to health-care reform is worth revisiting. It could involve repealing Obamacare’s individual mandate, and repealing a similar mandate that forces people to participate in Medicare. It could involve a robust system of tax credits and health savings accounts to help the poor afford the coverage and care that they need, instead of forcing them to depend on single-payer programs like Medicaid. And it could roll back federal subsidies — whether through Medicare or the tax code — for those who don’t need them. A coherent Reagan-style reform could dramatically reduce federal spending and taxes, especially over the long term, by focusing our expenditures on those who are truly in need.
Rather than looking at some cherry picked quotes from the 1960’s, why not look at the actual record during the Reagan Administration:
Even as the number of uninsured Americans climbed significantly, the administration had no interest in proposals for universal health insurance. It looked at Medicare, as many in Congress did, primarily as a budgetary problem and a potential source of fiscal savings. Nor was the primary concern with system-wide medical spending. That broader focus gave way to a narrower emphasis on how to contain federal spending on Medicare and Medicaid in the context of rising budget deficits. Meanwhile, conservatives promoted pro-competitive healthcare policies that relied on market incentives, consumer choice, and competition between private plans to restrain spending on medical care.
In other words we have tried what Roy advocated and the results were that the number of Americans without health insurance increased. The dissatisfaction with the health care system during the Reagan-Bush41 years led to the election of Harris Wofford to the U.S. Senate as he basically ran on one issue – a progressive health care reform agenda. This Salon discussion reminds us of the health care debate that followed, which belatedly led to Obamacare. Obamacare admittedly needs some serious enhancements if not major changes in a progressive direction. But Avik Roy’s argument that we should do this Reagan style is nothing more than revisionist history.

Wednesday, August 2, 2017

The Output Gap per the Gerald Friedman Defenders

Menzie Chinn back on February 20, 2016 had some fun with the defenders of that awful paper by Gerald Friedman (who never even bothered to estimate potential GDP as of 2016 and how it might grow over a decade):
One thing that should be remembered is that the trend line extrapolated from 1984-2007 implies that the output gap as of 2015Q4 is …-18%...I want to stress that estimating potential GDP and the output gap is a difficult task.
It is a difficult task and perhaps the CBO estimate of the gap is understating it. But to pretend the potential GDP would continue to grow by some akin to 3.4% from 2000 to 2015 is just absurd. Well it seems this crowd has “updated” their trend line analysis. J. W. Mason writes:
This alternative measure gives a very similar estimate for the output gap as simply looking at the pre-2008 forecasts or extrapolating from the pre-2008 trend. “Our estimates imply that U.S. output remains almost 10 percentage points below potential output, leaving ample room for policymakers to close the gap through demand-side policies if they so chose to.”
The ‘alternative measure’ comes from an interesting new paper:
The fact that most of the persistent declines in output since the Great Recession have parlayed into equivalent declines in measures of potential output is commonly interpreted as implying that output will not return to previous trends. Using a variety of estimates of potential output for the U.S. and other countries, we show that these estimates respond gradually not only to supply-side shocks but also respond to demand shocks that have only transitory effects on output. Observing a revision in measures of potential output therefore says little about whether concurrent changes in actual output are likely to be permanent or not. In contrast, some structural VAR methodologies can avoid these shortcomings, even in real-time. This approach points toward a more limited decline in potential output following the Great Recession.
While it is true that this new paper suggests that the output gap may be as large as 10%, Mason’s back flip is not justified for two reasons. First of all, the authors of this new paper are very critical of any crude trend line analysis. But more importantly – notice how the Gerald Friedman crowd substantially changed its tune on what trend line they should be using. Alas – the level of intellectual dishonesty in defense of what Gerald Friedman wrote a year and a half ago may be worse than the original paper.

Tuesday, August 1, 2017

Is Mick Mulvaney "The Most Dangerous Man In Washington"?

This claimed by Catherine Rampell on the Washington Post ed page today, with a column entitled what is in quotes in the title of this post, with the answer being caveated as only being true after "the tweeter-in-chief," clearly the most dangerous man in Washington.  Mulvaney is the Office of Management and Budget (OMB) chief who has been questioning the need to raise the debt ceiling and voted against doing so on a regular basis when he was in Congress.  While Treasury Secretary Mnuchin wants a "clean" increase in the debt ceiling, Mulvaney has been saying since at least May that such an increase must be accompanied by "crippling spending cuts," unlikely to be accepted by Congress, thus threatening to bring a default.

On Sunday on Jake Tapper he sided with the declaration by Trump that nothing should be passed by the Congress until a Repeal and Replace of Obamacare is passed.  Given that this  does not look very likely at all, such a position also clearly signals a lack of concern about what might happen if the debt ceiling is not raised in time, which is probably mid-October at the very latest.

In an earlier discussion on this, some have argued that this might not be any worse than one of those "government shutdowns" we have previously seen, which did not amount to much. Social Security checks went out, the military kept operating, with aside from some bureaucrats in Washington being told to stay home the main thing the public saw was temporary closures of national parks.  In contrast, Rampell argues that a failure to raise the debt ceiling would be followed by "a constitutional crisis, political and global financial crisis."

As it is, during the 16 day shutdown in 2014, according to  OMB stats, about $2.5 billion was not paid to furloughed workers, although then paid later after the shutdown was over.  However, something is off here, as that is equal to about 25 days of a $3.7 trillion overall federal budget.  It is unclear how such programs as Social Security and Medicare were being paid, much less the interest on the national debt under these circumstances. Perhaps those 16 days were timed just right to catch two paychecks covering a 30 day period, which still does not quite cover things.  Maybe this wonder can be repeated, but offhand I am skeptical, even if  Rampell is overstating things.

Barkley Rosser

Understating Trump's "Achievements"

I regularly hear and see on media and the internet that Trump "has accomplished nothing in six months" or variations on that, with some of these remarks focusing more on his legislative agenda, with discussions about whether it is "dead" or not here after only six months, which is either a very long time or a very short time.   I think this rhetoric is both unwise and inaccurate. It is unwise because it suggests that we want his agenda to be passed, to the extent we know what it is (specifics for large parts of it are missing). Such talk simply encourages the Trujmpisti to push harder to pass all their awful plans.  Thus we should be glad that Obamacare is still in place and not encourage the bums to continue to try to replace it with one of  their half-baked plans that will throw lots of people off their  health  insurance.

As for inaccuracy, while it is true that a lot of big ticket items on the legislative agenda remain stalled, notably in the areas of health care, tax "reform," financial sector "reform," and infrastructure, in fact Trump has done much damage with his executive actions, mostly involving undoing Obama regulatory actions, quite aside from getting Neil Gorsuch on the SCOTUS, which is very important and has already led the SCOTUS to partially support his awful Muslim ban.  In any case, while withdrawing from the Paris climate accord is mostly symbolic, he and his underlings have made many moves in the environmental area, none of them good, making it easier for companies to pollute and redirecting research towards fossil fuels and much more. His moves in the immigration area have been awful, although Obama did a lot more deporting than we remember. Nevertheless, although supposedly he was going to focus on deporting criminals, the focus of Obama, he is deporting any illegal immigrant he can get his hands on, and the implementer of his draconian immigration policy is now his chief of  staff.  Prison reform is out the window for now, even though this was an area where liberals and conservatives have agreed in recent years something should be done.  His cutting back on public parks and monuments and the crazy stuff coming out of his education dept, well,the list goes on.

The economy has continued to improve on many fronts, and Trump has loudly bragged about and taken credit for this.  But this is clearly just an extension of  what was going on for some time under Obama, with indeed Trump's failure to implement much of his supposed economic agenda from trade to fiscal policy changes leaving the Obama policies in place.

Trump supporters are now pointing to the end of ISIS control in Mosul as a foreign policy success for Trump.  Needless to say this looks like the economic policy debate, with the military strategy that ended up with the victory in Mosul having been put in place by Obama and barely changed by Trump.  I guess we can credit him with not messing that one up.

OTOH, most of the rest of his foreign policy is an embarrassment, a joke, or just a plain disaster. Popularity of the US has collapsed around the world.  While his visit to France did not lead to any obvious mess there, his visit to the Middle East led to the disastrous Saudi-led embargo against Qatar, and his visit to Poland led to the government implementing a plan to end the independence of the judiciary.  No wonder the British do not want him calling on them.  However, it must be admitted that in a few areas things are not as bad as they might be because somebody convinced him not to follow through on campaign promises, including to start massive trade wars with Mexico and China, although he seems to be moving towards something along those lines, and very importantly maintaining the nuclear accord with Iran, although all reports have him very unhappy that he has had to certify that those darned Iranians have been keeping their side of  the bargain.  He really would like to sanction them even harder and who knows what.

And as for US relations with Russia and policy towards it, well, probably the less said the better.

In any case, let us not encourage him and his followers to "be successful" by "achieving his agenda."  The less of it achieved, the better off we shall be.

Barkley Rosser

Sunday, July 30, 2017

The Masters Always Deal Themselves the Trumps

More Feargus O'Connor (1844) on labour's objections to machinery (see my earlier post on Crowding Out and the Social Overhead Costs of Labor for more context and analysis):
And now, sir, let me state my principal objections to the unrestricted use of machinery. First, it places man in an artificial state, over which the best workman, the wisest man and most moral person, has no control. Secondly, while it leads to the almost certain fortune of those who have capital in sufficient amount to command those profits, made up, as you admit, by the reduction of wages; upon the other hand, it leads to uncertainty in the condition of the employed, against which he is incapable of contending. Thirdly, it disarranges all the social machinery of which formerly individuals were necessary items, families formed branches, and small rural districts important sections of the one great whole. Fourthly, the present fluctuations give rise, in good trade, to an augmentation of artificial classes, if I may so call them, who have no natural position in society, but are merely called into existence by present appearances, trade upon nothings, traffic in fiction, and, like your order, speculate upon what they may retire upon when trade begins to flag. Hence we find each fluctuation in trade followed by a new race of shopkeepers, who are grasping in prosperity, compound when appearances change, and retire when adversity comes, leaving a vacuum to be filled up by the next alternation from panic to speculation. 
And now, as the thread of our dialogue has been somewhat broken, I beg to submit a summary of my objections to machinery. Firstly, the application of inanimate power to the production of the staple commodities of a country must inevitably depreciate the value of manual labour; and every depreciation of the value of man’s labour in an equal degree lowers the working-man in the scale of society, as well as in his own esteem: thus making him a mere passive instrument, subservient to any laws that the money classes may choose to inflict, to any rules the owners may impose, and satisfied with a comparative state of existence. I object to machinery, because, without reference to the great questions of demand and supply, the masters can play with unconscious labour as they please, and always deal themselves the trumps. I object to machinery, because it may be multiplied to an extent whereby manual labour may be rendered altogether valueless: I object to machinery, because under its existing operation you admit the necessity of emigration, better ventilation, education, improved morality, manners, habits, and customs of the working classes, thereby showing that a slate of recklessness, ignorance, want, and depravity exists; which, as I before said, you admit to be consequences of the present system.
While the inevitability of each of O'Connor's objections is subject to debate, the crucial issues at stake for him are the sociological and psychological effects of the unrestricted use of machinery on communities and individuals, under its existing operation. The specter of the "job-killing robot" plays a minor and only contingent role: "it may be multiplied to an extent whereby manual labour may be rendered valueless." Even that objection can readily be interpreted as more significantly about a loss of social status and psychological esteem rather than a wholesale elimination of jobs.

Saturday, July 29, 2017

Extreme Contempt

Donald Trump has engaged in so many outrageous statements and conduct that it has become very difficult to remember which of  those were really the most outrageous, the most morally contemptible, the ones that should have led his supporters to have abandoned but they did not, the ones that merited above all others the most Extreme Contempt.

The events of the last 24 hours have clarified for me what was the moment in 2016 when Trump crossed the line, when he committed an act of Extreme Contempt that should have lad to every Republican worth anything above a sewer of morally contemptible and disgusting garbage to have rejected this worst of all people to have occupied the White House.  That moment was when he dissed John McCain as a loser for having been captured by the North Vietnamese during the Vietnam
War.  I think the only way fervent Trump supporters can justify their existence on this planet after that particular outburst is to simply ignore it and forget about it, which is what I am sure the vast majority of them have done,  But the events of the last 24 hours have brought this matter back into focus, and while I really do not know, I think that it is quite likely that when we get to the bottom line, and we are indeed now at a very serious bottom line, Donald Trump's ultimate desecration of any moral  consciousness when he dissed McCain for becoming a deeply tortured POW has come back to haunt him and defeat his pathetic and incoherent effort to overturn the Obama health care legacy.

Let me be clear that I have many disagreements with McCain, and many things he has done personally.  But the man's days are now shorter than most of ours.  Yeah, maybe it will all go away and he will still be a Senator a decade from now.  But more likely he will follow the late Ted Kennedy, who apparently had the same sort of "aggressive" brain cancer he has, and, well...

So, let me confess that I know John McCain.  About a decade ago I sat next to him on a long airplane flight and we discussed climate change.  He had a reasonable view in my mind, and indeed when he ran against Obama, his position was only marginally less progressive/reasonable than Obama's.  I actually gave him my card offering to give advice, although I never heard from him later.  Of course he has gone silent on this issue more recently as his party has gone off the deep end on denying the very existence of global warming, on the  list of many others where, well, tsk tsk.

So, let us get to the really serious. McCain has been going back and forth on the heath care issue, a man about to die and having surgery on taxpayers money, a man who is by far the most serious Republican senator there is currently by several orders of magnitude, and not just because he is a former presidential candidate of the Republican Party in 2008.  No, he is serious beyond all of them for  his experience, much bragged about by his party in 2008, as a POW in Vietnam, where he experienced Extreme Torture, leading him to stand unequivocally and without a shred of doubt that torture is completely unacceptable, morally and practically.  I applaud his declaring and maintaining this position throughout the Bush admin when torture got approved during the Iraq War.  On this matter he has absolute and unassailable credibility beyond all critics, and I applaud him for this.  I shall add that this is a matter that is personal. My wife was tortured by the former Soviet government, and I have also been tortured in a distant land I shall not name and of which I shall not speak. Unsurprisingly, my wife and I have deep personal support for McCain's unequivocal position on this matter to totally oppose torture in all circumstances everywhere period.

As regards the Extreme(ly) Beneath Contempt Trump, he got out of going to Vietnam by claiming a phony ailment, something he had on his foot, or was it on his knee? Some sort of obtrusion or extrusion, that nobody in the known universe ever heard a word of ever after (or before).  So, when Donald Trump had  the unmitigated and astounding and immoral nerve and gall  to critricize McCain for being shot down out of the air over Vietnam to  be profoundly tortured far beyond anything either my wife or me remotely experienced, well, this was so far beyond the pale that when Trump's remarks were first reported, I thought "this it is."  But it was not.  His supporters just kept on supporting  Soh we live with the consequences of this profound moral degradation of America.

And to conclude this post, I think that for all his wobbling and vacillations, when it got down to  it, and John McCain looked at the bottom line of the "skinny repeal" proposal, well, he may have been looking at the facts on the ground, but, personally, I think it got down to Trump finally getting his punishment for his utterly morally unacceptable Extreme Contempt when he fundamentally and hypocritically mocked John McCain for being shot out of the sky and profoundly tortured.

Barkley Rosser

Friday, July 28, 2017

Crowding Out and the Social Overhead Costs of Labor

Another strange twist in the convoluted lump-of-labor saga. Chartist leader Feargus O'Connor refuted the "Treasury View" -- aka "crowding out" -- in 1844. O'Connor's tract is long-winded and sentimentalized an idyllic past but it also contains some cogent analysis of why workers were (and should still be) wary of the exploitative use of technology by capitalist firms.

O'Connor's critique took the form of a dialogue, which parodied and refuted an earlier dialogue, "The Employer and Employed," that had been published in Chambers's Miscellany of Useful and Entertaining Tracts. In the Chambers dialogue, the mill owner, Mr. Smith explains to a worker, Mr. Jackson, how the immutable laws of economics harmonize their interests. Smith's elaboration of the doctrine of wages was described elsewhere as "right orthodox, and admirably clear too." I will return to O'Connor's rebuttal in more detail later, but first I would like to set the stage by briefly reviewing the contemporary relevance and the historical background of the central argument in the two dialogues.


I teach at Evergreen State College.  Early this spring I became alarmed at the rapid deterioration of collegiality and respect for dissent on campus, and I drafted a letter which I hoped to circulate for signatures—but I sat on it.  I thought: not enough faculty would be willing to sign and this would just expose how isolated I was in my concern.  Or: the letter would only add to the momentum for polarization, since, despite its protestations, it wouldn’t be seen as simply a statement about democratic norms.  Or: the timing wasn’t right, and I should hold onto it for a more propitious moment.  Or: maybe I was just looking for excuses.

So for what it’s worth, which isn’t very much at this point, I’m posting it here.  This draft was dated April 3, 2017, a bit shy of two months before the outbreak of student protests.

* * * * * *

This letter is prompted by the perception that the atmosphere at Evergreen is being poisoned by political and communication processes that are antithetical to the principles this institution was created to uphold.  In particular:

1. A number of recent email exchanges have been highly inappropriate.  A public distribution list should not be used for lengthy threads intended to “resolve” a contentious issue.  It should not be used to impugn the character of any member of our community, nor should it use praise for community members as a signal that dissenting views are to be viewed as personal attacks.  We should all bear in mind that ignoring a post you regard as misguided is always an option and usually the best one.

2. One of Evergreen’s five foci is “learning across significant differences”.  It is normal that there should be significant differences among us on nearly every issue we face, and it is normal that they should be expressed in a variety of venues.  By all means, we should make reasoned arguments for positions we support, but closing off or even discouraging the expression of dissent should play no role.  This principle holds not only before decisions are taken, but also after: that’s democracy.

3. Even though we often disagree deeply, we owe each other the presumption of good faith.  This institution cannot prosper on any other basis.  We are all vulnerable to misperceptions due to unacknowledged biases, but this is not a reason for not listening to one another or failing to treat each other as colleagues.

4. In seminar students often have to cope with heated differences of opinion, and sometimes their comments are out of line.  We try to respond constructively, without suggesting that anyone be ostracized or points of view withheld.  We owe the same consideration to our colleagues that we expect students to extend to their peers.

Tuesday, July 25, 2017

The Hassett-Laffer Curve and that Norwegian Outlier

My earlier post needs a better title and a clear reason why Norway’s corporate profits were near 10% of its GDP even as it had a lower statutory corporate profits tax rate than nations like Australia or the U.S. Mark Thoma calls Norway an outlier:
Since it looks like all that's been done here is to draw a line through an outlier, Norway … I haven't actually run the regression, but it looks clear to me that revenues rise with tax rates, and the fit also looks better than in the first graph. Toss out Norway, and the fit looks even better
But we can do better when we realize that the statutory tax rate often fails to capture the totality of how profits are taxed in any particular nation. KPMG provides corporate profits tax rates by nation over the 2003 to 2017 period by nation with footnotes such as this one for Norway:
Special rules may apply petroleum companies and in the power sector
Let’s compare two nations: A and N. A has a statutory rate = 30% but allows half of its profits be sourced in tax havens. N has a statutory rate = 28% but has no tax haven profits. Instead it applies a 78% tax rate on petroleum and power sector companies. Oliver Milman notes:
Norway’s oil piggy bank is worth more than the GDP of Switzerland. More even than the US’ gargantuan annual military budget .... In Norway, companies drilling for North Sea oil pay a 78% tax rate on income, compared with a corporate tax rate of 28%... By contrast, the much-derided Minerals Resource Rent Tax placed a 22.5% “super profits” tax on coal and iron ore producers. But the nature of the system meant that it raised very little money. But the nature of the system meant that it raised very little money. Indeed, last financial year it raised nothing at all and was projected to bring in just $450m this year. This kind of flaw isn’t that surprising when, uniquely among businesses, the mining companies were allowed to write their own tax code by a callow Labor government terrified of marauding mining magnates on the back of Utes.
Let’s assume both nations have profit to GDP ratios equal to 30% but different tax rules. A would be expected to collect taxes equal to only 4.5% of GDP but N would likely collect taxes equal to 9.9% if 3% of its GDP faces this 78% tax. As our simple model explains the Norwegian outlier – you might protest I’m being unfair to Australia as their profit tax/GDP ratio was 6% not 4.5%. You see the Australians have been more aggressive at closing loopholes and enforcing transfer pricing. A is actually America as the U.S. allows for things like REITs and S corporations and has a weaker record of enforcing transfer pricing. Wasn’t this what this Angrybear post?:
First – if you are wondering why the US rate is 39.3% rather than 35% – think state income taxes. Of course, US corporations often don’t pay a 4.3% effective state tax rate as tax planning plays such as Delaware Intangible Holding Companies (can your say transfer pricing) allow opportunities to lower this effective tax rate. At the Federal level, US corporations used to have that FISC/EIE game and now have a Section 199 game. So if you tax director has you stuck with a 39.3% effective tax rate – fire him now. That Swiss rate of 21.3% might look low but it is not as low as the 12.5% Irish rate. So why are so many US based companies shifting intangible profits to Switzerland rather than Ireland? Could it be that the Swiss Federal rate is only 8.5%? The alleged 21.3% rate contains a high local government rate. Only thing is that a lot of companies are located in the Swiss equivalent of Delaware. Also note that the Mexican corporate profits tax is lower than the US rate. So why do many companies try to source more income in the US and less in Mexico (can you say transfer pricing again). It seems that the Mexican government imposes a tax on profits to pay for their version of Social Security. The WSJ’s amateurish graphs and all the regressions in the world are not that impressive unless one addresses two matters. The first matter is the above concern regarding measuring effective tax rates.
Bottom line –these regressions (or phony curves) across nations with different tax systems can be misleading. But note Norway lowered its tax rates to 24% overall and 74% on oil profits so if our model is right, their tax/GDP ratio should drop to 8.7%. Time will tell!

Saturday, July 22, 2017

Kevin Hassett and Donald Luskin Do Not Understand Norwegian Tax Law

Brad DeLong reminds us of Kevin DOW 36000 Hassett second dumbest moment giving credit to Mark Thoma for the original take down of Hassett’s Laffer trick:
The Wall Street Journal says Kevin Hassett has discovered the Laffer curve, but I think these data might say something else ... The blue line is supposed to be the Laffer curve, but this is far from compelling. Since it looks like all that's been done here is to draw a line through an outlier, Norway (an outlier that in other contexts we are told to ignore because it is an outlier, e.g. see below), and since this is clearly not the best fitting line to these data, here's another possibility ... I haven't actually run the regression, but it looks clear to me that revenues rise with tax rates, and the fit also looks better than in the first graph. Toss out Norway, and the fit looks even better
A lot of people had a lot of fun pointing out how dumb this graph was including Kevin Drum:
And one more thing. Just for laughs, take a look at what the Journal’s barmy graph drawing implies: Norway, with a corporate tax rate of about 29%, generates enormous amounts of corporate tax revenue. But then, since it’s the only way to get an upside-down U out of the data, the graph goes nearly vertical. Even the Journal’s editorial writers, normally a pretty barefaced bunch, were apparently too embarrassed about this economic singularity to follow the right side of their graph to its logical conclusion, but we can: at a rate of about 33% corporate taxes produce no revenue at all. An increase of a mere four percentage points destroys tax revenue entirely! Mirabile dictu! A junior high school geometry student would be embarrassed to produce work like this. But not the Wall Street Journal editorial page. Or the American Enterprise Institute, which created it in the first place. They apparently think their readers are too dumb to see what they’re doing.
Of course Donald Luskin tried to defend Hassett’s nonsense. As Kevin Drum does remind us, however, that Norway “generates enormous amounts of corporate tax revenue” even though its corporate tax rate is less than 30%. But this is incomplete as Oliver Milman reminds us:
In Norway, companies drilling for North Sea oil pay a 78% tax rate on income, compared with a corporate tax rate of 28%.
Norway produces and exports a lot oil. President Trump is also hoping we can export a lot of natural gas, coal, and oil. Maybe the right thing to do is to follow Norway’s lead and raise the tax rate on these profits.

Thursday, July 20, 2017

Another Personal Observation On Privatized Highways

Last month I posted a personal observation on Trump's plan to privatize infrastructure, noting especially how in the long run privately owned turnpikes in Virginia ended up in government ownership.  In the comments on that post there was discussion of the Indiana Toll Road, privatized a few years ago.  I have just ridden on it (yesterday), and I shall recount as an anecdote datum my less than pleasant experience, bad enough to make me want to avoid it entirely in the future.

I was driving west on it from Ohio.  I stopped in one of the new service areas to get some pizza.  Fancy roof, but only two eating places, Lagrange in the east.  OK, but nothing great.  I would say road condition about same as Ohio's, but tolls higher, although not as high as in Illinois or Pennsylvania.  Anyway, I saw that I had enough gas to make it to the LaPorte service area in the western part of the state, so did not refill there or at the Elkhart one.  Nowhere did I see any signs or information about any problems with any of the upcoming service areas.

So, two miles before the LaPorte service area on the sign for it was draped a cloth saying the area was closed.  Indeed, when got there, it was torn up, presumably to build a new one like what I saw before, not that big of an improvement.  It was OK for trucks to park there, but no gas.I had 10 miles of gas left in my car. Got off at the next exit to go into  LaPorte to get gas.  There was a machine to take the payment, no attendants,, two machines actually.  One would not take my card. Managed to back out and go into the other one, which took my card, but would not take my credit card.  I did have  cash which it took, but there I am fiddling around while my gas is running low.  Had to go around a closed road to get to LaPorte.  Fortunately I got to a gas station with one mile of gas left in my tank.

On returning following the detours, could not reenter the Indiana Toll Road and had to go further to get onto I 94, but given my experience with it, I was not all that unhappy not to be on it.  Maybe this is just an odd case, but I have to say I was not impressed with how these private owners of the toll road are managing it, not at all an obvious improvement.

Of course, Trump has completely stalled out on doing anything about his infrastructure plan, with even his air traffic controller privatization plan sitting there doing nothing, although, of course, his proposed budget does cut actual ongoing infrastructure projects that will shut some of them down, mostly for non-auto transportation systems in urban areas like Pittsburgh.  When I continue to see commenators talking about how his infrastructure plan might stimulate the economy, I am not sure whether I should laugh or cry.

Barkley Rosser

Tuesday, July 18, 2017

Could The US Default Due To A Complexity Catastrophe?


Front  page story in today's Washington Post by Damien Paletta reports that "Treasury chief hurtles toward fiasco," the fiasco being a failure to raise the US debt ceiling in time to avoid a default.  Trump has declared that Sec Mnuchin is responsible for this matter, which he should be, but somehow has not made a sufficiently definitive statement to keep his former Freedom Caucus big cheese OMB director, Mulvaney, from opining that Mnuchin is an out of it New York finance guy (Goldman Sachs even) who is not well connected in Washington, and he, Mulvaney, thinks that the dumb games he played as a Congressman threatening to default are appropriate for  somebody in charge of all this.  The deadline is approaching, although it might be somewhere between early September and mid-October, but at some point if the debt ceiling is not raised, the US will seriously default, something we have not seen, and I doubt that any deal Mulvaney might propose would get through this dysfunctional Congress.  And the article reports that while Mnuchin wants a "clean raise" before  the Congress really shuts down in August, well, according to WaPo, he does not have the "stature in Washington to press through a vote on a measure" supported by all previous Treasury Secretaries.  Indeed, the article is right that he may not be able to do so, and the US may well seriously default on its debt for the first time, something the gang that Mulvaney has belonged to has declared is no big deal. We may be about to find out if that is correct or not.

In thinking about this I have come to realize that part of the problem is that this is a very complicated issue, one that few people understand, and that this lack of understanding is self-propagating: that few understand it means that there are few who can teach those who do not understand it what it is about. The upshot is that an incredibly miniscule proportion of the US population has any remote idea what all this  is about, so are not  putting any pressure on these loud mouthed Congresspeople to behave resonably. If in fact there is a default and it leads to a global financial crisis that puts the world economy back into a serious recession, well, who could have known that, and who will be to blame?

So let me get personal on how severe the lack of knowledge about this is, which is exacerbated by the fact that few media talk about it at all, or if they do so, it is with massive  ignorance.  So, over the Fourth of July weekend I was with extended family. A niece is a prominent journalist in Washington. Her brother, a nephew, was the top performer in high school on a statewide math test in California.  He is  now a wealthy high level computer game programmer in Silicon Valley.  They asked me if there was a threat of recession, as some other family members were claiming, and I said the most serious near term threat for  such would be a default by the US  failing to raise its debt ceiling, leading to a global financial  crisis.  It became clear that both of these very smart and well-informed people knew nearly nothing about this  issue. If they do not, well, probably less than 1% of the US population does, which makes it all the more likely that full-of-themselves ignorami in the House  Freedom Caucus will be all too happy to put Secy Mnuchin in his place when he comes calling for a "clean debt ceiling increase."

Why is this so hard?  Well, one thing is that few  Americans know, and neither my very well-informed and super smart relatives did, that the US is the only nation in the world to have such a stupid thing as a debt ceiling.  The vast majority of professional economists think it should be eliminated.  Congress effectively decides on this when it passes a budget, and this is just an extra nonsensical conundrum.  It is  a historical arttfact from a century ago, when right after  the 1913 passage of the amendment allowing the personal income tax, the US went into WW I, which was not supported by many in the Congress, the Congress imposed this idiotic debt ceiling to retain control over the budget  during wartime. When the war ended, it was not repealed, and we have been stuck with it since, with the vast majority of  both the Congress and the public thinking it is something sacred and important and stuck in marble, when in fact it was an unfortunate mistake that should have been repealed a century ago.

Regarding what will happen if we default, I  do not know, as that could follow many paths. But a serious catastrophe cannot be ruled out, and if  it  comes to pass it may be at least partly due to how complicated this whole thing has become, with neither the public nor most of  the Congress at all aware of what is involved here.  So, we could indeed end up with a complexity catastrophe, and if we do, let us hope that it is not too severe.

Barkley Rosser

Sunday, July 16, 2017

"Those Of You Who Are Old Enough Will Really Get This"

I am adding yet more  to my most recent two posts where I am complaining about this essentially side remark that Larry Summers made in his commemoration of his late uncle, Kenneth Arrow, in which he reports that at the party celebrating Arrow's Nobel Prize in 1972, Summers's other uncle, the late Paul Samuelson was supposedly "discussing how stupid  Joan Robinson was."  As it is,  I should have added to my quote from his talk in the last post what immediately followed that snide and inappropriate remark.  It is the title of this post: "Those of you who are old enough will really get this."  This was then followed by "And they were discussing the turnpike theorem and the maximum principle and the Hamiltonian and whatever."  After that, Summers then moved on to how they continued to  discuss these matters until all the guests were gone and their wives were waiting there impatiently for them to wrap it up, with Larry himself, then a sophomore at MIT, also waiting so somebody could take him back to his dorm.

I think this additional remark  is also worthy of note for  being inappropriate.  It essentially reinforces the idea that it was perfectly reasonable  for Samuelson to have discussed "how stupid  Joan Robinson was." After all, sufficiently senior insiders would "really get this," the strong implication being that of course Samuelson was right about Robinson, and these wise insiders would agree.

Except, of  course, any truly knowledgeable insiders there, and there may well have been some as some of those involved in the Cambridge capital controversy, particular Eytan Sheshinski, who was specifically mentioned in another part of Summers's talk  and who has long been based in Israel, would know  that Summers was being very misleading, that whatever Robinson's level of intelligence,she and her allies in Cambridge, UK had won the debate, the controversy, with Samuelson having admitted that they had and subsequently changing his line about the appropriateness of using the concept of aggregate capital, even if  the rest of those at MIT, especially Robert Solow,  simply ignored this and continued on their merry way using the concept, even though Solow himself showed it be very weak in explaining anything about economic growth.  In any case, few grad schools even teach about this controversy anymore  while continuing to  shove aggregate neoclassical production functions down the throats of unwitting grad students, hence Summers himself recognizing that one needs to be "old enough" to know to what he was referring to when he in effect inaccurately made it look like Samuelson had legitimate grounds for his snarky remark.

In discussing these two earlier posts in comments over on Economists View, RGC linked to the Wikipedia entry on all this. A curious tidbit near the end of that Wikipedia entry on the Cambridege capital controversy is that it quotes one of  the participants, Edwin Burmeister, in 2000 stating that he and Leland Yeager in a 1978 Reply had admitted that assuming smooth substitutability of factors did not  eliminate the possibility of capital-reversing. However, the 1978 cite does not appear in the References.  As it was, it was in Econoimic Inquiry and was a reply to my "Continuity and Capital Reversal: Comment," which had appeared in the Jan.1978 issue of Econoimic Inquiry, which was on a 1976 paper by Yeager (which had won a prize) in Economic Inquiry on capital theory.  Yeager had made the false claim that such smooth substitutability would eliminate those annoying capital theoretic paradoxes in a properly formulated Austrian model.  I showed that he was wrong, and he and Burmesiter admitted it in their Reply to me (they were both at UVa at the time while that was my first year at JMU).

Yeager's 1976 paper in Economic Inquiry was "Toward Understanding some Paradoxes in Capital Theory."

J. Barkley Rosser, Jr., "Continuity and capital-reversal: comment," Economic Inquiry, 1978, 16(1), 143-146.

He and Burmeister's Reply (Yeager first coauthor) was "Continuity and Capital  Reversal: Reply," Economic Inquiry, 16, 147-149.

Barkley Rosser

More On Larry Summers Distorting Intellectual History

I would have included what follows in the previous post, but was afraid of putting too much into one post.  So, a bit more.

Here is the precise quote from Summers's talk about the conversation between Ken Arrow and Paul Samuelson on the evening of the celebration in 1972 in Cambridge, MA.

"Almost everybody left and Paul and Kenneth were discussing turnpike theorems.  Kenneth was discussing aspects of Pontryagin's maximum principle.  Paul was discussing how stupid  Joan Robinson was."

So somehow Larry Summers thought that it was appropriate at this ultimate commemoration of Ken Arrow at the Tel Aviv Institute for Advanced Studies to pull out of what was reported to be a very long discussion that had their wives getting quite impatient, and which Larry himself noted was, well, the two Nobel prize winners in the room going on and on as I am sure they did about all sorts of matters, many of them highly mathematical, that Larry decided to quote as the one contribution by his other uncle, Paul Samuelson, this snide remark about Joan Robinson, which looks pretty ridiculous and hypocritical in light of his humiliating admission only six years earlier that this "stupid" Joan Robinson had been right and he had been wrong.

Let me add some not so well known further weird details about all this.  The first is that after Paul Samuelson walked down Mass Ave from Harvard to MIT after the anti-Semites at Harvard refused to hire him there, in the first year that he was in charge of admitting potential grad students at MIT he rejected his future quasi-brother-in-law* for admission to the grad program, yes, rejecting Kenneth J. Arrow, right up there in stupid decisions along with approving of that incorrect paper on the surrogate production function by various of his grad students in the QJE that led him to  confess about the "foundations of sand" upon which economics is supposedly based.  (Among those accepted in that class instead of Arrow was Lawrence Klein, a future Nobel Prize winner and Samuelson's first PhD student.)

Yeah, pretty embarrassing. As it was in the end, Samuelson was more worried about Arrow-Debreu(-McKenzie) general equilibrium theory, which he did not do, than he was about Robinson and the Cambridge capital theory controversies, and so he hired Duncan Foley, who got his PhD from Herbert Scarf at Yale, to come to MIT and help him teach grad micro  theory there. Duncan did  that, later going to Stanford and falling into heterodox Marxist sin and not getting tenure there. But Samuelson got his  new orthodoxy, which was taught to  people like Krugman and Akerlof and Varian, and  others, establishing neoclassical orthodoxy, although it still lacked game theory.

Regarding Arrow and the Cambridge capital theory debates, to the best of my knowledge, he never said a word about them.  He coauthored a famous book on general equilibrium with Frank Hahn in 1971, with Hahn playing a defender of neoclassical theory, although granting much to the Robinson crowd.  That Samuelson's defense was to retreat to heterogeneous capital being the true way to go is ultimately profoundly ironic, given that he rejected his future quasi-brother-in-law for entrance to MIT's grad program, the general equilibrium guy whose model was ultimately totally decentralized..

In any case, Summer's tossed-off quote from Samuelson looks really shameless, aside from being historically seriously intellectually misleading. Why did he do  this?  I do not know, but it is shameful.

*The parents of Lawrence H. Summers both worked at the Philadelphia Fed, with his father also at U. Penn, and the inventor of the concept of PPP international measurements. His mother,Anita, was the sister of Kenneth J. Arrow, and his father the brother of Paul A. Samuelson.  His father, Robert changed the name from Sanuelson to Summers in an effort to avoid anti-Semitism when he arrived in the US .  Robert kept it, but Paul decided to retrieve the original name, which is why Larry is Summers rather than Samuelson.

Barkley Rosser

Larry Summers Reports That In 1972 Paul Samuelson Complained About "How Stupid Joan Robinson Was."

Ohmigod, he really did this. At the Institute for Advanced Study in Tel Aviv, during a major conference honoring his profoundly wise and honorable uncle, the late Kenneth Arrow, Larry did this. The vast majority of his talk is an outstanding discussion of Ken Arrow as an economist and a person, full of interesting details, all leading to the conclusion that his uncle was both one of the most brilliant economists who ever lived as well as a deeply wise,  personable, morally incorruptible, and all but impeccable as well as just a plain nice guy.

I did not know Ken nearly as well as him, of course, but  all that I ever saw of him, as well as everything I have heard of him personally through my sources, completely supports this.  To the extent he had noticeable faults they were those of an absent-minded professor who is also  a genius.  He paid no attention to obvious simple things.  He was out of touch with various mundane realities, sometimes embarrassingly so.  I shall add a detail not  in Larry's account that I have from a primary source.  In his old age he would sometimes wander the halls of the Stanford econ dept with his fly unzipped. Nobody ever suggested or remotely thought that there was any ill intent in that.  It was like Joe Stiglitz before he became a big star, tying his shoelaces together, something a distracted and brilliant person far beyond anybody around him would do out of absent-mindedness, although Arrow was far beyond Stigitz intellectually and historically, not even close.

So let me deal with the odd matters where on such an august occasion Larry made such an ass of himself.  One is a matter of debate, and he put it out there: he and Arrow disagreed with how the post-Soviet transition should be handled.  He recognizes that Ken disagreed with his policy as Treasury Secretary under Bill Clinton in the mid-to-late 90s about how to deal with the former USSR.  He approved AID funds for Andrei Shleifer and a few others to "assist" in the transition process there, which ended up with Harvard University paying out over $22 million to end a suit by the US Treasury Dept against Shleifer for his conduct there. Summers's attempt to cover for Shleifer, involving him lying in an open meeting to the senior members of the Harvard faculty was the bottom line on why Larry was fired from being Harvard's president.  Unsurprisingly, his wise uncle Arrow knew better, but, of course, Larry did not remotely tell the story of what went down there, implying that Ken was somehow unwisely out of touch with US policy as determined by him.  (Dave Warsh has written decisively on this matter.) Ooooooooooooooog.

Which brings us to this astounding and utterly despicable bit about Joan Robinson and his other uncle, the late Paul A. Samuelson.  So the bottom line outcome of the Cambridge capital theory debates as they came to a head in 1966 in the QJE was that Samuelson's effort to  paper over the critique about aggregate neoclassical production functions coming from Joan Robinson and Piero Sraffa was wrong.  He admitted it in his "Summing Up"paper in the fall 1966 issue of the QJE when such figures as Garegnani and Pasinetti showed that the attempt to dismiss the general presence of capital theoretic anomalies, more precisely, the general presence of non-monotonicity  in the steady-state relations between the rate of profit and level of long term per capita consumption implied that "the foundations of economic theory are based on quicksand."

The bottom line is that he admitted he was wrong in his claims about the "surrogate production function," and that Joan Robinson and Piero Sraffa were right.  In many later publications he maintained this position.  Indeed, when I first met him personally in the early 70s and confronted him with all the details of the Cambridge Controversies in the Theory of Capital, he admitted that Cambridge, UK was right.  He completely disarmed me at that point, of course.  Yes, Joan Robinson and Piero Sraffa were right.  Capital is only meaningfully discussed as being heterogeneous, ironically a position that Hayek came to before he abandoned the topic.  What could I say?

Oh, but now we have his nephew in the venue of honoring his other uncle, the deeply impeccable Kenneth Arrow, reporting this snide wisecrack from Paul Samuelson.  I have no doubt that Paul Samuelson made the remark, frustrated undoubtedly as he was with this most serious intellectual defeat of his entire (and very long) career.  The occasion was a party celebrating Arrow's receipt of the Nobel Prize in 1972 at a point in time that the only other US  Nobel recipient was Paul Samuelson. They were discussing all kinds of mathematical issues long after all the guests were gone and their  wives were bored, and here we have Samuelson making inappropriate and nasty remarks about the woman who intellectually humiliated him. But somehow Larry Summers decided in his remarks on Ken Arrow at this very serious and offical commemoration to ever so quietly slip this utterly unjustified jibe at Joan Robinson in.  Really, this is shameful.

Barkley Rosser