Does Anyone Know?

It’s been a long time since I’ve been in Germany. The last time I was there you could find french fry stands practically everywhere. In a typical stand you could order your French fries (pommes frites) with catsup, mustard, mayonnaise, or a glop called “curry sauce”. The mustard wasn’t that bright yellow atrocity consumed in the United States. German mustard was usually flavored with horseradish.

Do they still have french fry stands in Germany?

BTW, the french fries you could get from street vendors was better in Paris. A lot of things are.

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The Price

At RealClearPolicy Yevgeniy Feyman argues that the price of a single-payer plan in the United States would be to reduce the number of people employed by about 10% of the labor force:

When we take Thorpe’s more realistic assumptions and apply the same approach, the fully-implemented plan reduces employment by a whopping 11.6 million full-time equivalent workers. Under these assumptions, the average marginal tax rate would grow from around 22 percent to 42 percent, while the average total tax rate would increase from 11 percent to 31 percent. At the upper end of income, total tax rates would be far beyond 50 percent. And none of this factors in state and local taxes.

Of course, some of drop in employment might be considered “voluntary.” Some would stop working because they no longer needed to be employed to receive health insurance — escaping “job lock,” as House Minority Leader Nancy Pelosi once put it. But others would simply find it meaningless to put in extra hours or look for more lucrative positions when so much of their earnings get sucked away as taxes.

That echoes the despair I expressed in an earlier post. There is no longer such a thing as moderate, practical healthcare reform. Healthcare in the U. S. is just too darned expensive.

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The Way Forward

I agree with Matt Bai’s assessment at Yahoo of Hillary Clinton’s campaign to date:

To this point, Clinton has run a campaign that’s all about her bona fides, and nobody’s swooning. If she’s still defending her Wall Street speeches and whining about the vast right-wing conspiracy a few weeks from now, the nomination could very well slip away from her, again.

but I disagree with his prescription for her:

Clinton’s best move now is to lash herself tightly to the man who once beat her and hope it’s enough to ride out the wave.

I think that’s a drastic misreading of the mood of the electorate. Let me put it a different way. If Barack Obama could run for a third term he’d probably be defeated. Look at the trend line on his two election campaigns and you’ll see what I mean.

No, I have three suggestions for Hillary Clinton: ground game, ground game, ground game. She’s got to get the voters who support her out to vote. Easy to say; hard to do.

She’s a lousy campaigner, a lousy candidate. Her main strength is the organization she’s got backing her and that’s what will drag her across the finish line.

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Is the Polish Wearing Thin?

Whether you agree with her or not I suspect you’ll find Camille Paglia’s latest op-ed at Salon, on the turn that feminism is taking with respect to Hillary Clinton’s presidential campaign, entertaining. Here’s a snippet:

When and how did Hillary allegedly become a feminist icon, as so many young women evidently think? Her public prominence has always been based not on any accomplishment of her own but on her marriage to a charismatic politician, now in his dotage. Her speech at the United Nations Fourth World Conference on Women in Beijing in 1995 listed the limitations and atrocities suffered by Third World women and children, but her call to “move beyond rhetoric” has lacked a discernible follow-through. Moreover, in a central passage of that speech, every sentence about Hillary’s encounters with needy women began with “I”, unsettlingly prefiguring her over-use of “I” in her current campaign, in contrast to Bernie Sanders’ ego-transcending focus on sparking a populist movement of political reform.

Read the whole thing.

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Will Economic Downturn Spread to the U. S.?

In his latest column in the Washington Post, Robert Samuelson reviews the bad news from around the world and summarizes:

All this has revealed weaknesses in emerging-market economies that were camouflaged by the commodities boom. Brazil is struggling with high inflation, big budget deficits and a corruption scandal involving Petrobras, the national oil company. China is striving to “rebalance” its economy — shifting “from industry to services, from exports to domestic markets, and from investment to consumption,” as Lagarde put it. These problems are not superficial or easy to solve; they take time.

I think that he drastically understates the problems that Chinese mismanagement of their own economy have caused for the rest of the world. China’s greatest problem isn’t birthing pains—the struggle to “rebalance”, as he puts it in scare quotes, its economy. It’s debt overhang with local governments and businesses borrowing money to plow into airports with no arriving flights, cities with no inhabitants, and factories for whose goods there is no demand and the deadweight loss associated with all of that excess capacity. It’s capacity so excessive that not only does it exceed present demand it exceeds global demand for the foreseeable future.

One of the problems with deadweight loss is reluctance to write it off as sunk. I don’t China will be any more eager to do that than a U. S. company would or than you or I would. Consequently, it’s likely to take decades of sub par growth for China to deal with it.

He then warns:

The United States cannot isolate itself from these realities. The weakening global economy would be less important if the U.S. domestic economy were booming. It isn’t. Americans spend cautiously because they’re still spooked by the shock of the 2008-09 financial crisis and Great Recession. Consumers try to protect themselves against a recurrence by raising their saving and reducing their debt. Businesses do likewise by skimping on investment projects. A recent Wall Street Journal story carried the headline: “Big Firms Hit Brake as Profits Slump.”

I have several issues with that. First, he doesn’t quantify anything. I’d like to see some numbers. IMO economic contraction caused by the decline in Chinese demand for raw materials for its factories and, important for Germany, new factories will have some effect on us. Just how much effect depends on just how exposed we are to both. My intuition is not very. Our economy is over-balanced in the direction of personal consumption which, fortunately for us, tends to insulate us from downturns in foreign economies.

Second, the decline in business investment to which he alludes didn’t begin in 2007 or 2008 or 2009. It started all the way back in 2000 and was the greatest reason for the economic contraction of the early Aughts. American companies have become accustomed to profits without capital investment but it has little to do with the Great Recession and I see no rational reason that American companies would invest in the future less because of international trade they don’t have.

I think that the most significant way in which an economic downturn will affect us is through mass migration. All of those people in floundering emerging economies probably aren’t going to sit around feeling sorry for themselves. Some will pull up stakes and head for better prospects which includes us. That we don’t have much use for more workers will not deter them.

I honestly don’t know what to do about that. My inclination is to think that those talking about a hiatus in immigration to the U. S. by Muslims aren’t thinking big enough. We should slow immigration to the U. S. by everybody. I think it’s pretty likely that we’re entering a very difficult period for the whole world. As I said elsewhere, put your trust in God, my boys, and keep your powder dry.

In a later post I’ll address some of the lessons we should have learned over the last couple of decades but haven’t. Suffice it to say I wish Mr. Samuelson would put some meat on the dry bones he’s left us. I just don’t see China’s economic problems as ours.

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When Debt Makes Sense

…and when it doesn’t. You borrow to time-shift consumption, i.e. so that you can consume today rather than consuming in the future. There are times when that makes sense. For example, when what you’re purchasing, e.g. a house, is likely to appreciate in value. Or when you expect your earnings to rise so that it’s easier for you to pay off the loan in the future. It helps when there are no good ways to save, e.g. when there are no good investment opportunities or when the cost of saving is too high.

It makes no sense to borrow to pay ordinary operating expenses. That’s the context of this remark from the editors of the Wall Street Journal:

This is the same sorrowful spectacle Chicago’s school system put on last year. When it failed to get a state bailout for a looming pension payment in 2015, it borrowed some $600 million. Now, unable to pay back what it already owes, the system last week did a $725 million bond sale at an 8.5% interest rate, a large premium over what other borrowers can pay. Mr. Emanuel blames Mr. Rauner’s bankruptcy talk for the premium.

8.5% is a lot of interest and we’re presently experiencing a period of historically low interest rates. The CPS is paying such high rates because its credit rating is very low, which is another way of saying that investors wonder if they’ll be paid back. My back-of-the-envelope calculation says that’s $50 million a year. That might make sense if Chicago’s revenues were expected to increase over time but that’s not the case.

Chicago’s population has declined in every decade since 1950 except for the decade from 1990 to 2000. The smart money is on Chicago’s population declining in the present decade. Fewer people means less revenue for the city and fewer people to share the debt burden. If the real incomes of the people who remain are shrinking (as I suspect to be the case—that’s hard to ferret out), more debt is being borne by fewer Chicagoans who are decreasingly able to bear it.

Chicago’s public schools serve fewer students than they did in 2000 but not only do the real per student costs continue to rise the total real costs do as well. There’s something wrong with this picture.

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Hillary’s Quandary

I wonder whether the pundits have realized yet the quandary in which Hillary Clinton finds herself. More public exposure doesn’t help her for any number of reasons not the least of which is that she’s thoroughly unpleasant. Just recently sending surrogates out hasn’t had the desired effect because her surrogates are unpleasant, too.

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The Candidates of Anger

I don’t have a great deal to say about the outcomes of the New Hampshire primaries which I’m sure you’ve all read about other than to point out that the winners have something in common: they’re both the candidates of angry voters. There’s a lot to be angry about.

They’re angry that the jobs that Americans won’t do are in fact jobs that Americans are training their replacements to do. If anything gives the lie to the notion that the H-1B visa employees coming in have skills that can’t be found domestically, that’s got to be it. If they had the skills, they wouldn’t need training.

They’re angry that they’re being promised good jobs if only they get college educations only to find that there are no jobs for people with the skills they’ve gained and they’ve become slaves to the debt they acquired in the process of getting those college educations.

They’re angry that even in small town America even the most trivial chore has become difficult because the people supposed to assist them don’t speak English or are incomprehensible in English.

They’re angry that kids are being murdered by the government rather than helped by it.

They’re angry that invading Middle Eastern and Central Asian countries hasn’t made us any more secure and there doesn’t seem to be any way out.

They’re angry that nine years later most of the counties in the United States haven’t recovered from the Great Recession and that those that have are either in oil-producing states or the counties near Washington, DC or that state capitols are located in.

Do I need to go on? They’re angry.

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Saving the Best for Last

In an article at the Wall Street Journal on the economics of illegal immigration it takes them a while before they get to the good part:

The labor shortage has caused some wages to rise. Carlos Avelar, a placement officer at Phoenix Job Corps, a federal job-training center, says graduates now often mull two or three jobs offers from construction firms and occasionally start at $14.65 an hour instead of $10.

At DTR Landscape Development LLC, the firm’s president, Dick Roberts, says he has increased his starting wage by 60% to $14.50 an hour because he is having trouble finding reliable workers.

One immigrant-heavy industry, construction, has added about 15,000 jobs in Arizona since 2011 and now has total employment of 127,000, according to the Bureau of Labor Statistics, half the number of 2006. Employment in farming, which also depends on immigrants, has rarely exceeded 9,500 since 2008, according to the bureau, whose numbers mainly cover workers on large farms.

Mr. Knorr, the pepper grower, says he planted just 120 acres last year, down from as many as 550 in years past, because he couldn’t find enough harvest workers.

Some peppers he was unable to harvest by Thanksgiving turned red on the vine—“chocolate,” in farmer parlance. That made them useless to salsa makers, who want only green peppers. He plowed the plants under.

He says mechanization is his future. He continues to pour time and money into a laser-guided device to remove stems from peppers, which pickers now do by hand in the field. Another farmer in the area developed a mechanical carrot harvester.

Mr. Knorr says he is willing to pay $20 an hour to operators of harvesters and other machines, compared with about $13 an hour for field hands. He says he can hire skilled machinists at community colleges, so he can rely less on migrant labor.

“I can find skilled labor in the U.S.,” he says. “I don’t have to go to bed and worry about whether harvesting crews will show up.”

Of course individuals and companies who’ve built their business models around an unlimited supply of new, cheap workers are going to have a painful transition ahead of them. That’s the one sentence description of the balance of the article.

The question is what kind of country do you want to have? A country of low wages and high immigration or one of higher wages and low immigration? It’s our decision to make. Or at least it should be. We know what Mark Zuckerberg, Bill Gates, and Warren Buffett want.

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China’s Way Forward

At The American Interest Martin Wolf has what strikes me as a good post on the hazards facing China in its path to further economic development. Here’s a snippet:

A discontinuity in China’s economic growth is now far more likely than it has been for decades. Moreover, such a discontinuity might not be brief. The challenge facing policymakers is, after all, huge. They need to re-engineer a highly unbalanced and slowing economy without letting it crash. Many analysts, suspicious of Chinese statistics, think the situation is already far worse than official sources suggest, with growth running at closer to 4 percent than 6 percent.8 If so, the investment rate is even more radically unsustainable than now appears to be the case.

Something that goes unmentioned by Dr. Wolf: for China’s growth strategy to continue it much become much more dependent on its own domestic markets and I would argue that it must open those markets to foreign trade in a way that has never happened in China’s history. There just isn’t enough economic activity outside of China for economic activity inside of China to grow five-fold which seems to be the Chinese authorities’ target on the basis of trade.

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