Things Change

When I read this article at The Straits Times, I wasn’t sure what they were actually complaining about:

South-east Asia is the world’s rice bowl. But climate change, with its unpredictable rainfall and warming seas, is causing harvests to dwindle.

Rising sea levels are threatening rice fields. Meanwhile, the region’s growing population is placing greater stress on existing farms.

While the region has managed to rapidly reduce the number of its people who go to bed hungry, around 60.5 million of the world’s undernourished still live in South-east Asia, according to a 2015 report by the United Nations’ Food and Agriculture Organisation.

The region’s food supply will come under more pressure, with its population tipped to grow from around 600 million today to almost 750 million in 2035.

It purports to be about climate change but I’m not so sure. What is causing Southeast Asia’s problem? Is it climate change, having “food autonomy” as a political goal, over-concentration on a single food source, or too many people trying to live on not enough land? All of the above?

The key point here is that with or without climate change things change. When your national strategy is as tenuous and risky as this article sounds to me, success is just a matter of dumb luck.


In the News

There is actually more news than you might gather from what the major news outlets are reporting. Here are some of the major stories.


DAESH is being rooted out of its last footholds in Syria. The Syrian government with the continuing assistance of its Russian and Iranian allies is preparing to oust anti-government rebels including Al Qaeda and DAESH from their last strongholds in western Syria and the Kurds would probably have removed DAESH from eastern Syria if they hadn’t had to devote so much energy to fighting off the Turks. The Turks are not our friends.


The first people from the “caravan” from Central America have made it as far as the U. S. border. Most of them still aren’t refugees by the standards of U. S. law but mostly economic migrants.

Chicago homicides

For 2018 Chicago’s homicide rate is unlikely to reach the terrible figures of 2016 or 2017 but is still higher than prior to 2016. We won’t really know the rate per 100K population until we have a better handle on the population which won’t happen until the decennial census. I suspect we’ll learn that Chicago’s population has declined a lot faster than had been thought.


Challenging the Orthodoxy

I would be remiss if I didn’t mention this article at the New York Times critiquing the claim that task cuts by the Trump Administration have resulted in faster economic growth. In summary while companies used some of their tax cuts to expand R&D, make other investments, or give bonuses to employees, a lot went to stock buybacks and executive bonuses.

My only real criticism of the article is that it intermingles the effects of the cut in the corporate tax rate with those of the cut in the personal tax rate too freely. The cut in the corporate tax rate did not create an increased federal fiscal deficit in any meaningful way. The most significant factors in the federal deficit are increased health care spending and the cuts in the personal income tax.

I supported cutting the corporate income tax. It should have been cut to zero. Companies spend billions or even tens of billions on tax avoidance and every dollar is a waste. If you insist on balancing the budget but won’t cut spending, do so by cutting the corporate tax rate and increasing the personal income tax rate to make up the difference.

IMO the most important thing about the present low unemployment rate with faster growth is that it exists. The Obama Administration signalled its willingness to accept slow growth multiple times. It was a recurring theme, sounded, for example, by the president in a 2010 60 Minutes interview and again in the administration’s 2013 budget: the “new normal” was one of high unemployment and slow growth.

The Obama Administration never achieved 3% growth let alone 4% growth.

Whether you think lower unemployment and faster growth was due to the efforts of the Obama Administration, was inevitable, or was a consequence of various actions of the Trump Administration, that we have low unemployment and faster growth are facts. It puts the lie to the view that we can no longer have low unemployment and growth faster. That should be a factor in future policy and politics.


Rise of the Zombies

I found this post by Bill Mauldin on “zombie companies” pretty interesting:

Debt can be useful when used wisely. And wisdom begins with being able to repay it.

So, if you have a debt-financed business, you should first have enough steady revenue to cover your other expenses and the interest on your debt. Then you should have a plan to reduce that debt.

If you can’t, something is wrong. And it turns out this is far more common than most of us think.

A new Bank for International Settlements study examined a database of 32,000 listed companies in 14 advanced economies to identify “zombie” businesses.

By their broad definition, a company is a zombie if it is…

at least 10 years old, and

  • its interest coverage ratio has been below 1.0 for three consecutive years.
  • That’s a low bar. Yet 12% of the public companies they checked couldn’t pass it.

Looking only at US listed companies, about 16% qualify as zombies. So, we are actually more zombie-friendly than our average global peers.

The percentage of zombie companies has risen sharply over the last 35 years. He never really addresses why there are so many more zombie companies than there used to be. My guess is that there are multiple reasons:

  • Debt is a lot more attractive than it used to be
  • Foreign competition
  • Dynamism in the economy, generally, has declined
  • Panicky governments are propping up an increasing number of companies
  • Banks have less incentive to get bad loans off their books than they used to

I’m open to other explanations. I think that zombie companies are probably a risk and they pose a risk that could land on us all at the same time. It’s probably better to address them now rather than when they actually become an issue.

Why are there so many zombie companies and what if anything should we do about them?


Soul Watch

While we wait to see what the new Democratic Congress will do, it will be interesting to see the leadership that emerges for that Congress. Will it be bright, new faces or will it be the same old Botoxed faces of not Baby Boomer but Silent Generation leaders while the bright, new faces are relegated to the back benches, waiting to be trotted out for photo ops.

I know where I’d put my money.


When Half Is Not Half

The slug below the caption on Michael Corbat’s op-ed in the Wall Street Journal is “Arguments about the balance of trade often focus only on goods. That misses half the equation.” There is no ordinary definition of the word “half” by which that statement is true.

Let me put this, as Alex Trebek says, in the form of a question. Imagine that U. S. services trade is one-third of our total exports of our total trade in goods and services and our trade deficit in goods is increasing six times as fast as our trade surplus in services. When will our trade in services reduce our overall trade deficit?

The answer, as even the most math-challenged among us should recognize, is never. This is a handy reference.

Or, in other words, the entirety of Mr. Corbat’s op-ed is moot. Let’s quote a bit of it anyway:

The U.S. trade deficit in goods was more than $800 billion last year. Since 1990, the U.S. has accumulated a trade deficit in goods of more than $12 trillion with the rest of the world. But focusing on these eye-popping numbers is a mistake. Year after year, the U.S.—like most other advanced and competitive economies—runs significant trade surpluses in services with its trading partners.

Last year the U.S. trade surplus in services came to more than $250 billion, bringing the total trade deficit down to around $550 billion. The Economic Report of the President issued in February put it this way: “Focusing only on the trade in goods alone ignores the United States’ comparative advantage in services, which rose as a share of U.S. exports to 33.5 percent through 2017.”

We got our start at Citigroup financing the international exchange of goods in the early 19th century. But today we work with thousands of companies that move both goods and services through the world economy.

Services are a primary driver of all advanced economies, but their contributions have long been ignored. In his 1776 treatise “The Wealth of Nations,” Adam Smith questioned the economic value of “churchmen, lawyers, physicians, men of letters, players, buffoons, musicians, opera singers and dancers.” He left bankers—and economists—off his hit list, but you catch his drift.

What’s changed in the 2½ centuries since Smith is a profound evolution in leading economies from manufacturing-dominated to services-heavy activity. In the U.S. today, services account for about 75% of jobs in the private economy and nearly all 22 million government jobs. In 2017 exports of services amounted to $730 billion and contributed close to 80% of gross domestic product.

His last paragraph is untrue in so many ways it’s hard to know where to start. The most important change over the last 250 years isn’t some spontaneous shift by “leading economies” from manufacturing to services. It’s the change from economies based on hard currencies to economies based on credit. You would think that someone in the banking industry would be self-aware enough and not so much of a fool as to realize that. It should also be noted that David Ricardo, the first great economist champion of international trade, acknowledged that when capital was portable between countries comparative advantage no longer operated and only absolute advantage was a factor.

At no point in the op-ed does he ever ask why leading economies have made that transition, not over the period of the last 250 years but the last 40 years? My answer is that we’re subsidizing the production of services and, as with any other subsidy, it results in a glut.

We presently subsidize the production of services to the tune of at least $2 trillion annually through means that range from cash subsidies to barriers to entry to the granting of monopolies while the governments of China, Japan, and North Korea are all subsidizing the export of goods. There’s a good reason for this: jobs. Over the period of the last 40 years we have lost millions more jobs in manufacturing and other goods production than have been created in the production of services that we export. Most of the service jobs we have created domestically have been of the bed pan emptying or fast food variety.


War Without Cause

In a post at the Atlantic Council Paul D. Miller beats around the bush a good deal without coming to terms with the reality that the U. S. entry into World War I was unjust. Here’s his conclusion:

If the Great War teaches us anything, it is that wars must be fought for a morally-defensible purpose—or not fought at all—and that once a war is won, its moral purpose must continue to animate our postwar efforts to build peace. To do anything less is to cheapen and trivialize the lives of those who fight the nation’s wars.

I think the jury is still out on whether democracies go to war with one another. It may depend on the operative definition of “democracy”. Is, say, Egypt a democracy? Is Russia? For that matter are we? I don’t think the lines are quite that bright.

Our complaint against the Central Powers was that their navy was sinking American ships that were carrying munitions to the Allies. The Germans held the moral high ground, not we. It’s no wonder that we lost interest in the war after the armistice was signed. We didn’t have any interest in it to begin with.

High moral purpose sounds nice and all but we should actually have a just cause before going to war. Promoting our own values at the expense of the other guy’s is not a just cause. And wars should never be elective. You should only go to war when you have no alternative.


What’s the Problem?

I disagree with RealClearPolitics’s Bill Zeiser’s assessment of a Facebook news censorship story. You can read the whole thing if you like but the gist of it is that Facebook put a “fake news” warning on a story that was factually correct because its title was slanted.

Facebook is a private company and not bound by freedom of speech constraints. It can censor stories it doesn’t like at will. Deal with it.

I believe that Mr. Zeiser’s problem with Faceook is that it exists, it is used as a primary news source by millions of people, it has an editorial bias (to which it is entitled), and it is easily bullied by people it generally agrees with to censor people it doesn’t agree with.

The solution to that is not kvetching about Facebook. It’s to boycott Facebook and cultivate your own news outlets. Social media are lousy for news because they don’t adhere to any ordinary journalistic standards. Increasingly, neither do the online presences of newspapers and television networks. It’s hard to accept anything as the unvarnished truth any more because there are so many brushes and empty cans of varnish sitting around. Journalistic fashion has rendered the division between opinion and fact very narrow indeed.

Facebook’s business model is extremely fragile and it’s a publicly held company. Hit ’em where it hurts. Otherwise kwitcherbichen.


There Is a Time and a Place

I don’t think that the editors of the Wall Street Journal get it. There is a time and a place for everything. While people are in the midst of losing their homes and firefighters are risking their lives fighting the fires is no time to look for root causes:

One problem with President Trump’s bullying rhetorical style is that he gives his critics reason to ignore him even when he has a point. Consider his weekend threat to yank federal funds from California amid its horrific wildfires.

Three fires are raging across the state, killing at least 31 people and scorching more than 200,000 acres, including the town of Paradise in the Sierra Nevada foothills. “There is no reason for these massive, deadly and costly forest fires in California except that forest management is so poor,” Mr. Trump tweeted. “Billions of dollars are given each year, with so many lives lost, all because of gross mismanagement of the forests. Remedy now, or no more Fed payments!”

Mr. Trump has no empathy gene even if he is right about forestry ills. Relentless winds and low air moisture make California’s fires harder to contain while development is putting more people in danger. But also fueling the fires is an overgrown government bureaucracy that frustrates proper forest management.

They’re being too easy on him. Make sympathetic noises and other than that STFU. There will be plenty of time to look for ways to prevent future fires later and doing so now serves no useful purpose.


A Better Foreign Policy

I agree with William Ruger and Dan Caldwell’s assessment at RealClearPolitics:

The veterans of our most recent wars distinguished themselves in challenging situations time and again. When we consider martial valor and individual sacrifice, we shouldn’t only think about our troops on the beaches of Normandy or Iwo Jima. We should also remember those who fought in dusty places like Fallujah, Baghdad, and Kandahar, displaying heroism to rival that of previous generations. Thus, we rightly honor their service today.

However, the tactical successes and individual bravery of American fighting men and women over the past 17 years cannot mask the broader failures of U.S. foreign policy since 9/11. Nor should they be used as justification to continue endless wars disconnected from U.S. security in places like Afghanistan.

The best way to honor the sacrifices of our post-9/11 veterans and their families is to make sure we pursue a foreign policy that only calls on our troops to fight when absolutely necessary for our safety, prosperity, and way of life. We shouldn’t ask people to risk everything for their country when what they are fighting for has little to do with U.S. interests or can only be connected to them indirectly via distorted or idealistic theories of the world. We dishonor veterans when we continue to pursue failed policies that can’t be clearly linked to why so many of them joined in the first place: to defend America and our freedom here at home.

They’re right. There are only two problems. We don’t agree on what a better foreign policy would be or, more precisely, elites think one thing while most Americans think another and the elites’ view is prevailing. And there’s no foreseeable path that leads us to a better foreign policy. Who would be its standard bearers? Democrats? These are the same Democrats who’ve intervened in a dozen places around the world since 2009. Republicans? It is to laugh.