It Takes Two

In his regular Washington Post column Josh Rogin laments that President Biden’s initiative to stabilize U. S.-China relations is failing:

The problem is that China’s actions do not match Xi’s words. The Chinese government has responded to the Biden foreign policy team’s repeated outreach attempts with antagonism, while doubling down on its military expansion, economic aggression, domestic atrocities and wholesale disregard for the international community’s legitimate concerns about all of this behavior.

When Secretary of State Antony Blinken met Chinese leaders in Anchorage, they lectured him publicly. When Deputy Secretary of State Wendy Sherman visited China to establish working-level ties, Chinese authorities criticized the United States in a news release before the meeting even ended. Beijing used former secretary of state John F. Kerry’s repeated trips to China to send a clear signal China won’t cooperate on climate change unless the Biden administration reverses every single Trump administration policy it finds objectionable.

I think that the administration’s essay to stabilize our relationship with China has been doomed from the start and Trump’s activities are only a minor component of that. To want to stabilize things both parties must like where matters stand as they are and I don’t honestly believe that either party likes the present state of affairs. Quite to the contrary of what Mr. Rogin suggests I don’t think the Chinese see the United States as a reliable negotiating partner. Why should they? For our part I don’t think we should like any order that the Chinese found worth stabilizing. There’s just no meeting of minds here.

I would add that under a Westphalian order how China handles its strictly internal affairs is completely up to China. Appeals to human rights or international norms are completely irrelevant. And we don’t even honor the Westphalian order but matters today are very different than they were 70 years ago when we set the present international order up to suit ourselves. And we don’t even honor that.

So, which is it to be? A Westphalian order or the post-war international order? Take your pick and be prepared to live with your choice. Or just do as we like and be prepared when the Chinese do the same.

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Status Report on Nursing

I found this post at The Conversation by Rayna M Letourneau on the problems facing the nursing profession interesting and informative.

I don’t really have anything additional to say about it. I think Ms. Letourneau calls out some interesting issues. I don’t have any solutions. IMO COVID-19 has aggravated problems that have been brewing for a long time.

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How?

Rather than responding to the various articles and editorials, pro and con, on the massive spending bills being drafted in the House, let’s talk ways and means a bit, shall we? To start out let’s look at a couple of graphs, courtesy of the Tax Foundation. The first is a graph of federal revenues as a percentage of gross domestic product:

and the second is state and local government revenues as a percent of GDP:

I want to point out some interesting things about them. The first is how constant the proportion of the private sector income the federal government has been extracting since 1950—it’s hovered right around 18%. Similarly, after 1970 the amount of private income state and local governments have extract has been right around 13%. What caused the sharp uptick in state and local taxing in the 1960s? I’m not really certain but it could possibly be related to the introduction of Medicaid. I’m open to suggestions.

The key point is that when the highest marginal rate on private income was around 90%, federal taxes brought in about 18% of GDP and when they declined to less than 40% they still brought in about 18% of GDP. What has varied over that period is spending and most of the difference was supplied by borrowing. Why has that amount been so persistent? Again, I don’t know. I think that some of it is political and some is practical. The practical part is that it becomes increasingly difficult to get Americans to pay taxes as they rise about 18% of GDP. The political part is that people start voting against tax-raisers at about that level.

So, Mr. or Ms. Congresscritter, you want to extract more than 18% in taxes for the federal government. There’s a lot you’d like to spend it on. How are you going to do it? Don’t tell me you’re going to raise the highest marginal tax rate—that won’t be enough. What else are you going to do? Or, more precisely, how are you going to keep your job if you do what you actually need to do to extract that much in taxes?

The Congressional Budget Office says we’re likely to run a $1.5 trillion this year. Unlike some I agree with the Modern Monetary Theorists to the extent that I believe we can run small deficits in perpetuity without adverse consequences. How small? No more than the increase in aggregate product which is running about 3%. $1.5 trillion is quite a bit more than 3%.

What do I think? I think that we should be willing to pay for what we want and we should constrain what we want to about 21% of GDP. There’s a lot you can’t when you maintain that level of discipline just as there’s a lot you can’t eat when you’re holding to a diet of fewer than 2,000 calories per day. Refusing to pick and choose is popular; making choices is hard. Which is why we’ll continue to live beyond our means.

What does that mean in practical terms today? It means that the progressives who are pushing the massive spending bills should be willing to try to extract an additional $350 or $500 billion per year in taxes and do whatever they need to do to accomplish that. I don’t think they will. I think they’d prefer to borrow us into default or inflation.

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The Fed’s Mandate

Federal Reserve Chairman Jerome Powell’s present term expires next year. The editors of the Wall Street Journal are unimpressed by his performance to date. Failings include

  • Potential ethical violations on the part of Fed governors
  • Inflation significantly in excess of estimates
  • Maintaining the easiest monetary policy in Fed history

They comment:

Wall Street desperately wants Mr. Powell to be reappointed to a new four-year term, and no wonder given how his policies have lifted asset prices. President Biden may agree, since there’s little tightening of policy on the horizon.

Notice how much the qualifications for a Fed Chairman have changed. It used to be that credibility on prices was essential. Now if you miss your consumer-price target by a mile, but keep asset prices inflated, you’re the favorite.

Famously, the Federal Reserve has a dual mandatw:

  • Price stability
  • Maximization of employment

Over the years that has transmogrified from the plain language of the empowering legislation first to maintaining a consistent rate of increase in prices and now to a consistent acceleration in increase in prices and largely ignoring employment. Neither of the two things it has been trying to do—”running the economy” and keeping equity values high—fall within their mandate. Mr. Powell either needs to start doing his job, resign, or be fired for nonfeasance.

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Fighting Back Against Oligopsony

I was prepared to disagree with Eric Posner’s New York Times op-ed, “You Deserve a Bigger Paycheck. Here’s How You Might Get It.”, on a variety of grounds including how you determine whether higher wages are “deserved” but I found myself agreeing with him materially. He opens by explaining something anyone with a rudimentary knowledge of economics knows: how a labor market with only a single employer (monopsony) or one dominated by just a few employers (oligopsony) will push wages down. Now we get to the good part:

Economists have understood these things since Adam Smith, who famously called wage-fixing by employers “the natural state of things, which nobody ever hears of.” But economists did not take this risk very seriously until recently, instead usually assuming that employers compete vigorously for workers. As a result, though the logic for using antitrust law to address market power is the same for monopsony as it is for monopoly, the legal community did not embrace the possibility that antitrust law should be brought to bear against employers, except in unusual cases.

But in recent years, thanks to the remarkable work of a diverse group of mostly young economists, this conventional wisdom was shattered. Exploiting vast data sets of employment and wages that had become available, they discovered that concentrated labor markets — that is, with one or few employers — are ubiquitous. In one paper, José Azar, Ioana Marinescu, Marshall Steinbaum and Bledi Taska found that more than 60 percent of labor markets exceeded levels of concentration that are regarded as presumptive antitrust problems by the Department of Justice. Numerous papers have made similar findings.

That isn’t just true in technology; it’s true in many sectors. And the consolidation that’s been going on for the last several decades has made it worse. Consolidation has been occurring at a rapid pace in all sorts of sectors, from media to health care. Recently, my wife and I investigated having our backyard fence replaced and, like good little consumers, we started looking for competitive bids. We found that there were far fewer companies to do the job than had been true just 15 years ago: many had been acquired or gone out of business. In many sectors that has been promoted and accelerated by globalization.

Here’s his prescription:

Antitrust law applies to “restraint of trade,” and courts agree that when employers enter cartels to suppress wages, they violate the law. Yet until a few years ago, there were hardly any antitrust cases against employers. The major exception was a 2010 case against Big Tech after Google, Apple and other companies agreed not to solicit one another’s software engineers. This was potentially criminal behavior, but the Justice Department slapped them on the wrist. (A subsequent lawsuit secured more than $400 million in damages for the workers.)

But it was the academic research, not the tech case, that finally woke the antitrust community from its torpor. In the past year, the Justice Department has brought several criminal indictments against employers for antitrust violations (the first ever). The Federal Trade Commission is pondering a rule to restrict noncompetes. State attorneys general brought cases against franchises and other employers that used no-poaching agreements and noncompetes. Congress is holding hearings next week on antitrust and the American worker. Private litigators have joined in as discoveries of abusive wage practices have piled up. For example, “Big Chicken” companies face lawsuits not only for fixing the prices of chicken but also for fixing the wages of their workers.

If the academic research on labor markets is correct, then millions of Americans are paid thousands or even tens of thousands of dollars less than they should be paid. Labor monopsony affects people at all income levels, but it is a particular problem for lower-income workers and people living in stagnant rural and semirural parts of the country.

with which I concur wholeheartedly. Sadly, it won’t be enough. We need to change our trade policies and legal immigration laws as well. Our present approaches are great for the Walmarts, Facebooks, and Amazons but not nearly as good for ordinary people.

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The “Party of the Rich”

Another post I wanted to share with you is this one at Full Stack Economics by Alan Cole. In it he lays out the case that the Democratic Party is now the “party of the rich”:

The growth of the high-income Democratic faction can’t be perfectly measured⁠—there is no database that exactly matches voters and their incomes⁠—but there are plenty of ways to see the trend indirectly.

For example, a Wall Street Journal analysis observed the changing patterns of presidential voting in the 100 richest U.S. counties. The Democratic share rises over time. Walter Mondale carried just 7 of them in his 1984 landslide loss. In his 1992 victory, Bill Clinton carried just 36 of the 100. Joe Biden carried 57 of them in 2020.

One of those 57 counties was Bergen County, New Jersey, just west of New York City. The northern parts of Bergen County are in New Jersey’s 5th Congressional District⁠—Josh Gottheimer’s district.

Political scientists sometimes look at a second demographic dimension, education, to get a more nuanced picture of the electorate. A 2019 study of realignment from Herbert Kitschelt and Philipp Rehm divides voters into four permutations of education and income levels:

I don’t think that’s completely accurate or, at least, it’s accurate but incomplete. I think that both parties are the “party of the rich”. You only need look at donor rolls to see the truth of that.

However, I think that the Democratic Party is the party of “intellectuals” to use the Austrian economist Joseph Schumpeter’s phrase. To get some idea of what is meant by this you might want to take a look at this old post of mine in which I quote a lengthy passage from Dr. Schumpeter’s most famous work, “Capitalism, Socialism, and Democracy”. The TL;DR of this is that there’s a distinct social class of highly educated and, generally, well-compensated individuals who will inevitably undermine both capitalism and democracy.

The problems I have with all of this is that most of these “intellectuals” are complete strangers to primary and secondary production and see their own area, tertiary production which is mostly consumption, as actually being production. They’re actually a pretty small minority in the society but they’re pushing the society in a way that benefits them and actually hurts most of the people in the society.

They’re very well-intentioned.

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Misoverestimated Again

You might find this post at Euro Intelligence by Wolfgang Münchau informative. It forms a sort of counterpoint to what you may have been reading in the U. S. media. Here’s the part that caught by attention:

The UK’s strategic realignment was not inevitable. It is to a large extent the result of how the EU conducted the Brexit talks. The EU leadership never missed an opportunity to criticise Brexit. Donald Tusk, former president of the European Council, aligned himself to the second referendum campaign in the UK. The EU could have, but did not, support MPs in the UK who sought compromise, like Kenneth Clarke or Stephen Kinnock.

The second mistake, even worse than the first, was the intent to force the EU’s regulatory system on the UK as a price for a free trade deal. At no point did the EU even consider what kind of strategic relationship it wanted with the UK after Brexit. The EU let anger over Brexit get in the way over rational decision-making.

The enormous cost of this stupidity is slowly becoming apparent. The UK will not flood the EU with cheap goods, as France had feared. The UK’s strategy is more subtle. It will gradually cut off from European security policy. It will also cut off from the GDPR data protection regime and financial regulation. The UK has invested more into artificial intelligence than any EU member states. It is a permanent member of the UN security council and the G7. What on earth was the EU thinking?

And no, Biden is not going intervene on the EU’s behalf in the current standoff over Northern Ireland. EU leaders have always underestimated Boris Johnson. And they always overestimated Joe Biden. A bad combination.

The EU’s diplomacy is driven by emotion and a superficial understanding of US politics, and UK politics for that matter. Why did the EU place so much hope, so publicly, into regime change in Washington last year? Donald Trump was loud and crass, but all he ever did to the EU, other than insult them, was impose tariffs. Europe never experienced anything nearly as hostile as Biden’s withdrawal from Afghanistan or the Aukus deal. But all of this was perfectly foreseeable.

Things he anticipates:

  • A change in the nuclear defense policy
  • Further decline of NATO
  • Increasing pressures on European defense spending

I have two questions and one observation. In the post Mr. Münchau alludes to Germany’s substantial trade surplus with China. I read conflicting reports on that, something between $1 billion and $26 billion, and I don’t know how to reconcile those estimates. Germany does run a trade surplus with China (not as large as Australia’s) but even $26 billion is not a particularly big component of a $4 trillion economy. That’s the source of my question: how much should Germany be willing to sacrifice to preserve its relationship with China?

My other question is about France. Was France really worried that the UK would “flood the EU with cheap goods”? That sounds like a miscalculation to me. I would think the French would be more worried about agricultural imports and about that they should be more concerned about Romania and the Ukraine.

And here’s my observation. I’ve never had myself referred to as an Anglo-Saxon before and I’m guessing that Joe Biden hasn’t, either. As the Anglosphere draws tighter I probably should get used to it.

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Mismatch

I found Rani Molla and Emily Stewart’s post at Vox.com on the mismatch between jobs being advertised and people being hired interesting and thought-provoking. Buried under a considerable amount of word salad (are Vox writers paid by the word?) there are some reasonable hypotheses about our present situation. Here’s the summary:

For some of the jobs available, people don’t have the right skills, or at least the skills employers say they’re looking for. Other jobs are undesirable — they offer bad pay or an unpredictable schedule, or just don’t feel worth it to unemployed workers, many of whom are rethinking their priorities. In some cases, there are a host of perfectly acceptable candidates and jobs out there, but for a multitude of reasons, they’re just not being matched.

There are also workers who are hesitant to go back — they’re nervous about Covid-19 or they have care responsibilities or something else is holding them back.

The result is a disconnected environment that doesn’t add up, though it feels like it should. The Bureau of Labor Statistics says there are 8.4 million potential workers who are unemployed, but it also says there are a record 10.9 million jobs open. The rate at which unemployed people are getting jobs is lower than it was pre-pandemic, and it’s taking longer to hire people. Meanwhile, job seekers say employers are unresponsive.

There are multiple mismatches going on:

  • A mismatch between the skills being sought by employers and the skills that prospective employees have.
  • A mismatch between the jobs on offer and the preferences of prospective employees.
  • A mismatch between the HR algorithms used to filter the large number of resumes employers receive and the reality of hiring.

I have been complaining about that last factor for decades. The filtering programs being used don’t necessarily result in finding the right workers. Rather they preference things that are easy to search for, they subsidize the training industry, they create an opportunity for an entire industry dedicated to tailoring resumes to pass the filters, and they give a competitive advantage to outsourced workers whose resumes it is impossible to check.

Update

One last point. Very low level jobs that require few skills are easier to match as should be obvious. My understanding is that about half of the jobs presently on offer fit that description.

As I have been saying for some time it may be that those jobs cannot and should not be filled. President Biden talks about “building back better”. That may mean a discontinuation of the decades-long emphasis on maximizing the number of minimum wage jobs. Don’t think that’s been emphasized? Both of the metrics used to gauge the status of the employment situation, the unemployment rate and the labor force participation rate, do that. Maybe we need an additional metric, something along the lines of a measurement of underemployment which will be devilishly hard to define.

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More About Booster Shots

As the pharmaceutical companies scramble to extend vaccination against COVID-19 to pre-teenagers and then to toddlers while preparing for third, fourth, or more shots for those already vaccinated in the developed world, in an op-ed in the New York Times physician Matshidiso Moeti urges the people of the developed world to think about Africa:

As the rich world rolls out Covid-19 booster shots, hundreds of millions of Africans remain dangerously exposed, still awaiting their first vaccine dose. This not only adds to the litany of harsh disparities we’ve seen around this virus, but it is also a scandalous injury to global solidarity and vaccine equity.

While early data on waning immunity is emerging around some vaccines, there’s no conclusive evidence to justify giving boosters to fit, healthy people. Third doses should be given only to the small number of people facing a high risk of severe illness and death, despite being fully vaccinated, including those with compromised immune systems. Boosters for the healthy are, effectively, a hopeful “why not.” Political decisions are getting ahead of science, diverting doses and leaving Africans with few options.

Giving healthy people boosters now is similar to sending a generous educational grant to a billionaire while others are scraping together their college tuition.

To date the “rich world” has been very good at promising to make vaccines available to developing countries but not nearly as good at delivering. Here’s the scorecard as of one month ago:

as reported by the Associated Press. I would think that the EU, Germany, France, Italy et all would want to ensure that people in African countries are vaccinated if only out of self-interest. Similarly, I think the U. S. focus should be on Mexico, Central America, and the Caribbean for similar reasons. To promise is good but following through on your promises is better.

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Policy Dysfunction

As I see it the immigration “policy dysfunction” from which the Biden Administration is rather clearly suffering is fully reflected in the Washington Post editorial criticizing the problem:

That’s largely what Mr. Biden has done for others, especially Central American families with children, tens of thousands of whom have been admitted to the United States this year. And he did so even as administration officials urged them not to attempt to cross the border illegally. That glaring disconnect, between official dissuasion and on-the-ground leniency, has been received by Haitian and other migrants as an invitation to take their chances on reaching the U.S. border.

Now the door has slammed shut for many of them in Del Rio, especially the Haitians, whom U.S. officials began loading onto deportation flights over the weekend. It is fair to ask why Haitian migrants, virtually all Black, are being subjected to expulsion on a scale that has not been directed at lighter-skinned Central Americans.

Haiti, reeling from crime, political upheaval, economic calamity and a devastating earthquake this summer, is in no shape to handle the return of thousands of deportees. Yet that is the burden Mr. Biden is imposing, evidently in hopes of deterring further waves of migrants. Under a public health rule invoked by the Trump administration at the pandemic’s outset, asylum seekers are being deported without hearings on daily flights to Haiti.

The policy is inhumane; equally, it is inhumane to incentivize migrants to risk the perilous, expensive journey across Central America and Mexico. Having mismanaged migration in its first eight months in office, which contributed to a two-decade-high surge in illegal border crossings, the administration clearly fears a backlash at the polls in next year’s midterm elections more than it fears the wrath of immigration advocates. Republicans, sensing electoral advantage, are using border “chaos” as a cudgel.

Many of the failings in the U.S. immigration system are reflected in the mess in Del Rio: the absence of any workable channel by which migrants could apply for asylum south of the border; the massive backlog and shortage of judges in migration courts, which means asylum applicants, once admitted, may wait two or three years for their cases to be heard; and the misalignment of high domestic demand for cheap immigrant labor with an inadequate legal supply of it.

I’ll stipulate that employers want to keep wages low. Should keeping wages low be federal policy? I don’t think so. What do the editors think?

Unfortunately for the editors’ worldview, there is no such thing as an immigrant job. There are, however, entry level jobs frequently taken by immigrants but not only by newly-arrived immigrants. Those jobs are also taken by earlier immigrants, by people just entering the workforce, by people who don’t have the skills for jobs that pay higher wages, or people who prefer those entry level jobs for one reason or another. Econ 101 would tell them that high demand would be reflected in rising wages for entry-level workers; the absence of rising wages for entry level workers until very recently, as the supply of such workers declined for a variety of reasons, many of them relating to the pandemic and the policy strategies taken in response to the pandemic.

Consequently, what is humane to newly-arrived Haitians (for example) is inhumane to people already holding those entry level jobs.

I have as much sympathy for the plight of Haitians as the editors but my preferred strategy for remediating their problems is somewhat different from that of the editors. I think conditions need to be improved in Haiti rather than bringing Haitians here. Sadly, Haiti was born dysfunctional and U. S. meddling in Haitian affairs has all too frequently served to make things worse. It won’t be easy but it will be more humane to more people than the strategy advocated by the editors.

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