I can barely identify a single aspect of Con Coughlin’s piece at The National, reflecting on Saddam Hussein’s invasion of Kuwait 30 years ago, with which I agree:

One of the more memorable features of the global reaction to Saddam Hussein’s invasion of Kuwait 30 years ago, in August 1990, was the almost universal condemnation that followed.

In a response that would be almost unimaginable today, countries with diametrically opposed outlooks and political systems came together to form a truly multinational coalition – one that would eventually succeed in achieving its ultimate objective of liberating Kuwait from Saddam’s brutal occupation.

That’s true as far as it goes but I think you should look a little more deeply. Our notional European allies, China, and the Arab countries of the Middle East will all come together when what we’re doing furthers their own national interests. When what we’re doing doesn’t, they won’t.

Let’s start with the Arab countries. In their entire history as a people the Arabs have only been united in goals for about 500 years and that was a millennium ago. Over that millennium they’ve been occupied by the Turks, the Russians, the French, the Brits, the Germans, and, most recently, the United States. The reason? When they’re not ruled by someone else, they’re at each others’ throats.

Saddam was a threat to all of his neighbors and they knew it. Of course they’d join an effort against him after he invaded Kuwait. Similarly, Kuwait was a major source of oil for European countries and they were concerned about an increasingly powerful Saddam Hussein disrupting that. Most did not join us in our invasion of Iraq because they were more worried about instability in the Middle East than they were about Saddam Hussein. In other words they didn’t see it as in their interests.

Here’s a bit of interesting news. The head of the Teachers Retirement System, Illinois’s largest public employee pension fund, has resigned. Crain’s Chicago Business reports:

An investigation by led by former U.S. Attorney Zachary Fardon has led to the ouster of the head of the state’s largest government pension plan.

The huge Illinois Teachers’ Retirement System confirmed this afternoon that Executive Director Richard Ingram resigned after the board received results of a review into “performance-based issues” from Chicago law firm King & Spalding, where Fardon is now a partner in the firm’s government investigations practice.

TRS spokesman Dave Urbanek said the probe was headed by Fardon and results were presented to the board late last week.

TRS earlier today had announced that Ingram resigned on Aug. 3, three days after the TRS board placed him on administrative leave “due to performance issues covered by his employment contact.”

Urbanek said he did not know whether the investigation presentation was oral or written, or whether it has been completed. And he said he is not authorized to say whether the review involved any possible financial impropriety or alleged failures of leadership.

Ingram has not been available for comment.

A TRS statement said the vote to place Ingram on leave was unanimous, and TRS Chief Investment Officer Stan Rupnik will take over as interim executive director.

TRS covers pensions for 124,000 working and retired public grade and high school teachers in Illinois, including all districts except Chicago Public Schools.

According to the agency’s last annual financial report, it concluded fiscal 2019 on June 30, 2019, with $53.3 billion in assets but $134.4 billion liabilities, leaving it with a funded ratio of just 40.6 percent.

In a preface to the report, Ingram openly discussed the possibility that TRS could go “insolvent,” a development he blamed on consistent underfunding by state government. The same report, however, disclosed TRS’ return on assets in fiscal 2019 plummeted from $4 billion to $2.6 billion.

Should the fund become insolvent, the teachers should not concern themselves. One way or another the state is on the hook for the pensions. The ones who should be worried are Illinois residents.

Illinois’s public pensions have many, many problems. For years the state deferred its notionally mandated payments into these funds. That creates a hole hard to dig out of. Poor returns on investments are just the icing on the cake.

In the particular case of the TRS its structure, in which the individual districts set pay rates while the state is on the hook for the pensions, creates some very perverse incentives. But, as I say, it’s not the teachers’ worry—it’s the taxpayers’.

For the record, Mr. Ingram’s pay as head of the TRS was $300,000 per year for which he is eligible for a $225,000 per year pension. The taxpayers are on the hook for that, too. Sweet gig.

At The American Interest Nils Gilman provides a first person account of a wargaming of the 2020 election which presents a very depressing likelihood:

I helped organize and participated in the Transition Integrity Project last December to assess and guard against the risk of irregularities in the November election. In June 2020, our group conducted scenario planning exercises to model different election scenarios: a big Trump win; a big Biden win; a Biden squeaker; and a truly ambiguous or uncertain result.

Teams were assigned to play the Trump campaign and the Biden campaign, Democratic and Republican elected officials, the media, the judiciary, and the executive branches of government. A group of more one hundred people participated. Recruited from across the political spectrum, they included a Democratic former governor of a swing state (Jennifer Granholm of Michigan), a former Republican National Committee chairman (Michael Steele), a Democratic former presidential Chief of Staff (John Podesta), a Republican former Presidential speechwriter (David Frum), a Republican former Vice Presidential Chief of Staff (Bill Kristol), a former Democratic head of the Civil Rights Division at the Department of Justice (Vanita Gupta), as well as many senior political operatives, former government officials, and members of the media.

In the scenario exercises, which unfolded over a series of turns designed to simulate the period between November 4 and January 20, each team had a chance to make “moves,” which other teams would debate and counter, with the results adjudicated by a roll of the dice. Following methods common among military wargamers, disaster preparedness experts, and other policy planners, we designed this structure to uncover how the dynamic interactions between competing teams, as well as sheer luck, might produce unexpected results.

The bad news: in each scenario other than a Biden landslide, we ended up with a constitutional crisis that lasted until the inauguration, featuring violence in the streets and a severely disrupted administrative transition. The good news: we also learned a great deal about how to prevent the worst from transpiring. There were six major takeaways.

concluding

The next administration will face a number of thorny conundrums in this regard. To take one example: while the country needs to systematically challenge white supremacists and dismantle extremist networks, it is also true that we need a strategy to bind up the wounds that the country has suffered over the last few years. And these two goals are in tension with one another. Likewise, should Biden succeed in taking office, one of the most immediate questions he will face will be what to do about members of the former administration who have committed egregious abuses of power. Should the incoming Department of Justice pursue criminal charges for any wrongdoing they may find, or challenge pardons Trump may issue to himself or others on his way out the door? On the one hand, pursuing criminal charges will be seen by the right as mere political revenge, further poisoning the political atmosphere. On the other hand, letting them walk away scot-free risks further entrenching a culture of political impunity.

One option worth exploring is possibility of a Truth and Reconciliation Commission, something South Africa used to confront the legacy of Apartheid in a way that enabled restorative justice. Major factions of both parties feel as if the victory of the other represents an existential risk to their way of life. Restoring the democratic promise of the United States above all will require rebuilding a shared narrative of trust and collective security.

Read the whole thing. What I find most depressing about it is that the worst outcomes could be prevented by the Democratic leadership but the signs suggest they don’t wanna.

I recommend Carmen and Vincent Reinhardt’s excellent piece on the present economic downturn at Foreign Affairs. Their thesis: we may be in the middle of the first truly global depression and digging out of it may be a long, hard slog because there are really no bright spots. Read the whole thing. So much of it is good it’s hard to excerpt. Some snippets:

Although dubbed a “global financial crisis,” the downturn that began in 2008 was largely a banking crisis in 11 advanced economies. Supported by double-digit growth in China, high commodity prices, and lean balance sheets, emerging markets proved quite resilient to the turmoil of the last global crisis. The current economic slowdown is different. The shared nature of this shock—the novel coronavirus does not respect national borders—has put a larger proportion of the global community in recession than at any other time since the Great Depression.

and

Although dubbed a “global financial crisis,” the downturn that began in 2008 was largely a banking crisis in 11 advanced economies. Supported by double-digit growth in China, high commodity prices, and lean balance sheets, emerging markets proved quite resilient to the turmoil of the last global crisis. The current economic slowdown is different.

or

In its most recent analysis, the World Bank predicted that the global economy will shrink by 5.2 percent in 2020. The U.S. Bureau of Labor Statistics recently posted the worst monthly unemployment figures in the 72 years for which the agency has data on record. Most analyses project that the U.S. unemployment rate will remain near the double-digit mark through the middle of next year. And the Bank of England has warned that this year the United Kingdom will face its steepest decline in output since 1706. This situation is so dire that it deserves to be called a “depression”—a pandemic depression.

or

Although any kind of prediction in this environment will be shot through with uncertainty, there are three indicators that together suggest that the road to recovery will be a long one. The first is exports. Because of border closures and lockdowns, global demand for goods has contracted, hitting export-dependent economies hard. Even before the pandemic, many exporters were facing pressures. Between 2008 and 2018, global trade growth had decreased by half, compared with the previous decade. More recently, exports were harmed by the U.S.-Chinese trade war that U.S. President Donald Trump launched in the middle of 2018. For economies where tourism is an important source of growth, the collapse in international travel has been catastrophic.

concluding

There is no one-size-fits-all solution to these political and social problems. But one prudent course of action is to prevent the economic conditions that produced these pressures from worsening. Officials need to press on with fiscal and monetary stimulus. And above all, they must refrain from confusing a rebound for a recovery.

I’ll only add one observation. The American consumer, on whom so many countries around the world depend as a fundamental economic strategy is Hors de combat. I’m worried about our increasing position as the world’s greatest extender of credit. Our high unemployment rate does not make us a particularly attractive target for immigration although that may not make any difference as people in the Caribbean, Mexico, and Central America become increasingly desperate.

The editors of the Wall Street Journal comment on the most recent Bureau of Labor Statistics Employment Situation Report:

Friday’s employment report for July shows the labor market continues to improve, despite a setback from the surge in coronavirus infections this summer in the South and West. The progress should continue without overly strict lockdowns and policy mistakes by Congress.

The private economy created 1.46 million jobs and the unemployment rate fell to 10.2% from 11.1%. But the labor-force participation rate fell a mere 0.1 points to 61.4%. This suggests that the surge of workers returning from the sidelines in May and June slowed as of mid-July when the labor survey was taken.

The most troubling sign is the growing share of long-term unemployed (27 weeks or more), which rose 1.3 percentage-points to 9.2%. The share who have been unemployed between 15 and 26 weeks also nearly quadrupled to 39.6%. Millions who were laid off before the pandemic or who lost jobs amid the sweeping government lockdowns remain on the sidelines.

One reason is that the $600 a week in federal enhanced unemployment benefits has allowed two-thirds of the unemployed to make more than they did working, according to a recent University of Chicago study. In Michigan the median worker who lost a job has been collecting $969 more each month. Businesses have reported difficulties rehiring workers due to the enhanced benefits. The best decision Congress could make is not extending the $600 enhancement that expired on July 31. Better to help states extend the duration of benefits rather than increase the amount.

Meanwhile, the wide variation in state jobless claims is striking and isn’t getting enough attention. The share of the workforce receiving benefits in the week ending July 18 hit 18.1% in California, 16.3% in New York and 15.2% in Connecticut compared to 3.6% in Idaho, 4.5% in Utah and 4.9% in Alabama. (See the nearby table.)

Note the much higher rates in states that locked down their economies for longer. Arizona (7.9%) has made progress against its serious summer flare-ups by closing bars and mandating face masks, while New Jersey (12%) is experienced another surge of infections despite keeping restaurants, gyms and bars closed.

closing with the anodyne:

Keeping the virus under control will be necessary to give Americans confidence to work and spend. But the states that do this without imposing policies that create mass unemployment will do the best by their citizens.

As usual Illinois is average (11%). The emphasis above is mine. I agree with that observation. Why are some states seeing more jobless claims than others? The answer is important and “lockdowns were longer there” isn’t actually very explanatory. If the job losses in those states are permanent, it would be crucial to know that early on.

I disagree with this characterization by Megan McArdle in her latest Washington Post column:

One way to think about normal recessions is that they happen when everyone realizes they’re not as rich as they thought they were going to be. The resulting uncertainty is heightened because some people will have made risky bets on that brighter future and now can’t pay them off. In the aftermath, it’s normal to focus on disciplining excess risk-taking and other forms of moral hazard either by the market or government regulation, so that the government’s efforts to mitigate the damage don’t end up encouraging future folly.

None of which is relevant in a virus-induced downturn. We’re not trying to hasten our adjustment to a more stable economic equilibrium; the best we can do is spread enough money around for everyone to muddle through until we reach a vaccine, or herd immunity.

There are presently three relief plans being discussed: President Trump’s, the Congressional Democrats’, and the Congressional Republicans’. President Trump’s plan does little for the unemployed. The most charitable interpretation of the Democrats’ plan is that it’s intended to help people who don’t have jobs conjoined with a futile attempt to stimulate the economy. If the objective were to “spread enough money around for everyone to muddle through”, we would adopt the Congressional Republicans’ plan. The smaller stipend they’re willing to offer is plenty to keep people from starving. Any notion that we can prop up the economy while locking it down is facile.

But I don’t agree with the “muddle through” objective. I think that we should have four objectives:

1. Return the economy to normal to the greatest degree possible without being reckless. As long as health care resources are not being strained, increasing numbers of cases of COVID-19 are a reality we need to learn to deal with.
2. Take whatever additional actions are necessary to keep the unemployed from desperation.
3. Resolve the supply chain problems impeding the production of PPE, materials for testing, etc. by executive order if necessary.
4. Focus our attention on mitigating the risks of death for blacks and Hispanics due to COVID-19. Find things more actionable than “systemic racism”.

Holding up any other objectives is just picking winners and losers.

Illinois Gov. J. B. Pritzker has issued a directive to fine businesses in which mask requirements are being violated. WGN News reports:

Pritzker said his administration is filing new emergency rules to require businesses and schools to enforce the mandatory face mask rules — or be fined.

The governor issued a statewide mask mandate on May 1 for most people in most public settings, but enforcement has been an issue.

According to Pritzker’s office, businesses that don’t comply with the mask mandate will be given a written notice warning. If they don’t voluntarily comply, businesses will then be given an order for patrons to leave the property “as needed to comply with public health guidance and reduce risks.”

Currently, the governor said the only way to enforce the rules is by revoking a business’ license. He thinks this is the way to go to try and get more compliance. The legislation he signed Friday will help front line workers and those trying to make sure people follow the states distancing and mask mandates.

Some critics call the proposed rules a slap in the face.

Perhaps not coincidentally the governor is facing an order to appear or face criminal prosecution over his abuse of emergency powers. From ABC 7 Chicago:

CLAY COUNTY, Ill. (WLS) — Governor JB Pritzker has been ordered to appear in court over a legal challenge involving his statewide action during the coronavirus pandemic.

The governor is accused of violating a ruling that states he does not have the authority to extend an emergency order beyond 30 days.

Weeks ago, a judge in downstate Clay County sided with Republican State Representative Darren Bailey regarding the legal challenge.

Pritzker is facing a warrant for his arrest unless he shows up in court next week to explain why he should not be found in contempt.

The governor retorts that it’s a political stunt. He’s right. It is political. And it could easily be sidestepped by conforming with the law, seeking the approval of the legislature for his actions or getting the legislature to change the law granting him emergency powers.

Although the number of cases of COVID-19 being diagnosed in Illinois has been rising, the number of deaths due to the disease has remained flat for over a month. The resources of health care facilities are not being strained in any area of the state by COVID-19 patients. The only explanation I can come up with for the governor’s actions is that he is willing to destroy Illinois’s economy and society in the pursuit of an impossible goal—halting the spread of SARS-CoV-2 in the absence of a safe, effective, affordable vaccine.

At Bloomberg Noah Smith has noticed that COVID-19 (or governments’ response to it) is not just threatening our lives, health, livelihoods, and social fabric. It’s challenging economic doctrine as well:

The big question is when, if ever, this aggressive government action starts to incur negative consequences, such as rapid inflation. Macroeconomists should be investigating this question vigorously. But so far, interest in the question has seemed strangely muted among mainstream academics.

Before the financial crisis of 2008, the dominant academic model of the business cycle held that there was a tradeoff between inflation and unemployment — a new version of what’s known in economics as the Philips Curve. By managing interest rates, mainstream theorists argued, the central bank would navigate serenely between the rocks of inflation and the shoals of unemployment. There was not much room for government debt in that model.

The 2008 recession seemed like it might present a huge challenge for this paradigm, but most macroeconomists met the challenge by simply patching up the old models. They shoehorned in a financial sector, and allowed that when nominal interest rates approached zero, fiscal stimulus along with quantitative easing would have to be brought in.

But that still left the question of what the limits of stimulus and QE would be. Mainstream economists realized that because the government can use monetary policy to lower interest rates and even finance government borrowing directly, there would never be a real risk of sovereign default; if private investors stopped buying Treasuries and rates started to rise, the Fed could pick up the slack. The only real constraint on government action was the possibility of inflation, if the Fed created too much money.

He presents a few graphs to support his point but, for one reason or another, neglects to include what I would think is the one that’s most interesting:

As you can see from the graph above there’s a lot more money than just one year ago. Where’s the inflation? There are several possibilities. Maybe we’re in a “Wile E. Coyote” moment, suspended in mid-air, just waiting for the inevitable crash landing, as depicted in the illustration at the top of this post.

There are rather clearly increases in some commodity prices, e.g. gold, but not in others, e.g. oil, wheat, or in the DJIA. Maybe inflation is there and showing up just in a few places. Note that graph of M3—the enormous increase in the money supply over the last few months isn’t that large when placed in perspective.

Mr. Smith does consider my greater fear—hyperinflation:

Instead of spinning theories that effectively just say that hyperinflation will happen at some unknown point, macroeconomists could look at countries that do experience hyperinflation, or come close but manage to avert it. They should use these historical and international examples to learn lessons about when and where and why this sort of catastrophe happens, and how it can be prevented. But the seminal work on hyperinflation continues to be economist Thomas Sargent’s 1982 paper “The End of Four Big Inflations.” This paper, in addition to being four decades old, draws all its examples from Central European economies in the aftermath of World War I — very different circumstances than the economies of today.

New work on hyperinflation is urgently needed. One key question is whether runaway inflation happens slowly enough that the government can reverse course in time, or whether it’s instantaneous and catastrophic. Another question is whether direct monetary financing of new government borrowing is a trigger for hyperinflation. A third is whether and how capital flight is involved. A fourth is how the type of government spending changes whether markets expect deficits to be temporary or permanent. There are many other important questions besides these.

I can answer the first of those questions. The historic record suggests that the onset of hyperinflation is likely to be sudden. I can’t answer the other three questions.

Something else that the federal government’s response to COVID-19 is challenging is what I have deemed “folk Keynesianism”—the idea that you can spur economic growth just by putting more money into people’s pockets. That hasn’t happened, either. That doesn’t surprise me because you can’t spur greater personal consumption by putting money into people’s products while preventing them from buying by closing down retail stores and doctors’ offices and expect to maintain the health of the economy at the same time.

There is a strong racial disparity in the mortality due to COVID-19. Blacks and Hispanics have much higher mortality rates than whites. For just how great a disparity, consider these findings by APM Research Lab:

• Black Americans continue to experience the highest overall actual COVID-19 mortality rates— more than twice as high as the rate for Whites and Asians, who have the lowest actual rates.
• Adjusting the data for age differences in race groups widens the gap in the overall mortality rates between all other groups and Whites, who have the lowest rate. Compared to Whites, the latest U.S. age-adjusted COVID-19 mortality rate for:
  • Blacks is 3.7 times as high
  • Indigenous people is 3.5 times as high
  • Pacific Islanders is 3.1 times as high
  • Latinos is 2.8 times as high
  • Asians is 1.4 times as high.

I realize that it is an article of faith for some that the disparity is entirely due to racism in one form or another but that does not seem to be the case. As I have pointed out before, the findings of an NBER researcher found that the disparity remained even when you controlled for education, occupation, commuting patterns, or access to health care.

As I have said for some time, I think that differences in susceptibility and mortality due to COVID-19 are multi-factorial and include not only age, access to health care, income, and occupation but that there are non-occupational behavioral and genetic factors as well. I think we need to address all of the controllable factors that lead to increased numbers of blacks dying of COVID-19 and not just those we’re comfortable with. We also need to consider the possibility of racial variation in treatment strategies. Taboos do no one any good.

In Illinois the deaths per 100K population for blacks has been 141 while for whites it has been 35. That’s just about the same for whites as Ireland or the Netherlands although not as good as Germany. In California the death rate due to COVID-19 among whites has been about the same as Germany’s. But the death rate in Illinois per 100K population has been worse than that of not just any European country but any country in the world. What that suggests is that, if Illinois is to lower its death rate due to COVID-19, we need to pay more attention to racial disparities not less.