Let’s Make a Deal With Chinese Characteristics

As I read this piece at The Hill by Arthur Dong on the emerging trade deal with China, I had a number of thoughts which I thought I’d share. I wonder if Professor Dong or the U. S. trade representatives realize what an enormous pile of codswollop this is:

While the trade settlement has not been formally announced, it is anticipated that China may modify its stance on some key U.S. priorities, namely:

  • China agrees to purchase more U.S. goods and services including energy and agricultural resources;
  • China agrees to open its domestic economy to greater foreign investment and reduced barriers to trade;
  • China agrees to open its cloud-computing sector to outside companies;
  • China agrees to enforce intellectual property rights and eliminate the requirement of sharing technology as a condition of entry; and
  • China agrees to an enforcement mechanism.

In the absence of a robust system of civil law in China, that’s a big pile of nothing. China will enforce the intellectual property rights of U. S. companies or “purchase more U. S. goods and services” for precisely as long and in precisely the quantities desired by the Chinese Communist Party or in other words President Xi who seems to be its Supreme Leader at this point. China is large enough that other than a few Potemkin deals that means nothing.

There are ways of addressing the intellectual property issue completely within the United States where there is a robust system of civil law. For example, any publicly-held U. S. company that surrenders its intellectual property for whatever access to the Chinese market they are deigned to acquire, as is their right should be required to report it to the U. S. federal government and all of that company’s intellectual property present and future should be deemed released into the public domain. Problem solved. Chinese espionage is another story. The federal government needs to take Chinese espionage much more seriously than it does.

As far as China’s managing its trade, imposing tariffs is the right solution. Until China’s economy is completely open to foreign competitors including its banking industry, we should impose tariffs in the amount of our trade deficit with China. Again—problem solved.

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The Fire

The church of Notre-Dame de Paris is still no doubt, a majestic and sublime edifice. But, beautiful as it has been preserved in growing old, it is difficult not to sigh, not to wax indignant, before the numberless degradations and mutilations which time and men have both caused the venerable monument to suffer, without respect for Charlemagne, who laid its first stone, or for Philip Augustus, who laid the last.

On the face of this aged queen of our cathedrals, by the side of a wrinkle, one always finds a scar. Tempus edax, homo edacior; which I should be glad to translate thus: time is blind, man is stupid.

If we had leisure to examine with the reader, one by one, the diverse traces of destruction imprinted upon the old church, time’s share would be the least, the share of men the most, especially the men of art, since there have been individuals who assumed the title of architects during the last two centuries.

And, in the first place, to cite only a few leading examples, there certainly are few finer architectural pages than this façade, where, successively and at once, the three portals hollowed out in an arch; the broidered and dentated cordon of the eight and twenty royal niches; the immense central rose window, flanked by its two lateral windows, like a priest by his deacon and subdeacon; the frail and lofty gallery of trefoil arcades, which supports a heavy platform above its fine, slender columns; and lastly, the two black and massive towers with their slate penthouses, harmonious parts of a magnificent whole, superposed in five gigantic stories;—develop themselves before the eye, in a mass and without confusion, with their innumerable details of statuary, carving, and sculpture, joined powerfully to the tranquil grandeur of the whole; a vast symphony in stone, so to speak; the colossal work of one man and one people, all together one and complex, like the Iliads and the Romanceros, whose sister it is; prodigious product of the grouping together of all the forces of an epoch, where, upon each stone, one sees the fancy of the workman disciplined by the genius of the artist start forth in a hundred fashions; a sort of human creation, in a word, powerful and fecund as the divine creation of which it seems to have stolen the double character,—variety, eternity.

And what we here say of the façade must be said of the entire church; and what we say of the cathedral church of Paris, must be said of all the churches of Christendom in the Middle Ages. All things are in place in that art, self-created, logical, and well proportioned. To measure the great toe of the foot is to measure the giant.

Let us return to the façade of Notre-Dame, as it still appears to us, when we go piously to admire the grave and puissant cathedral, which inspires terror, so its chronicles assert: quae mole sua terrorem incutit spectantibus.

Three important things are to-day lacking in that façade: in the first place, the staircase of eleven steps which formerly raised it above the soil; next, the lower series of statues which occupied the niches of the three portals; and lastly the upper series, of the twenty-eight most ancient kings of France, which garnished the gallery of the first story, beginning with Childebert, and ending with Phillip Augustus, holding in his hand “the imperial apple.”

Time has caused the staircase to disappear, by raising the soil of the city with a slow and irresistible progress; but, while thus causing the eleven steps which added to the majestic height of the edifice, to be devoured, one by one, by the rising tide of the pavements of Paris,—time has bestowed upon the church perhaps more than it has taken away, for it is time which has spread over the façade that sombre hue of the centuries which makes the old age of monuments the period of their beauty.

That is the opening of Chapter I of Book 3 of Victor Hugo’s novel, called in English The Hunchback of Notre Dame but in French Notre-Dame de Paris. The cathedral is a character in the novel, its most important character. Quasimodo is its genius loci. The passage in Latin Hugo quotes in the second paragraph is from Ovid and means, literally, “Time is gluttonous; Man more gluttonous”.

I do not weep for a building. Buildings may be rebuilt. I weep for Paris. I weep for France. I weep for Europe.

Without its history Europe is just a place—no better or worse than any other place. That history comes complete with wrinkles, scars, and sublimity.

The United States does not even have history. We have natural wonder, largely consisting of empty, undeveloped spaces and the creed on which our country was founded.

Many are quoting Emma Lazarus’s poem, engraved on a plaque on the Statue of Liberty, itself a gift to us from the French, from the children of France. They invariably quote the first phrase “Bring me your poor, your huddled masses” without quoting the second and more important second “yearning to breathe free”. It is not a poem about alleviating poverty. Those who came to the United States thinking its streets were paved with gold were mistaken. It is our creed that is important not wealth.

I weep for us.

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Notre Dame

When I first walked into Notre Dame cathedral what struck me most was the tremendous aura of spirituality it bore—greater than any other place I’ve ever been. I knelt to pray on the stone floor, worn smooth by a millennium of those who had come before and done the same.

It survived the Revolution; it survived World Wars I and II and who knows how many other wars and other catastrophes. The building may be rebuilt. Can that aura be rebuilt?

I seek to find something good in this terrible loss. I hope it moves a rebirth of the spirit of the French people.

Áve María, grátia pléna,
Dóminus técum.
Benedícta tū in muliéribus,
et benedíctus frúctus véntris túi, Iésus.
Sáncta María, Máter Déi,
óra pro nóbis peccatóribus,
nunc et in hóra mórtis nóstrae. Ámen.

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On Comments

It may be surprising to some but I read every comment made on this blog, generally refraining from responding to them but occasionally doing so. I get comments on even 15 year old posts with some regularity.

A common theme is to accuse me of willful ignorance for not lending credence to some conspiracy theory or other. As a blanket response to such comments let me observe several things:

  1. Not every post is about every thing.
  2. If you want to write about that, get your own blog.
  3. I try to give all sides of a question a reasonable hearing.
  4. Avoid the fallacy of onus probandi (burden of proof). It is up to you to provide good evidence for your views not up to me to disprove every theory for which little or no evidence exists.
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Why, Oh Why?

This October we will celebrate, if that is that right word for it, the 90th anniversary of the stock market crash from which many mark the start of the Great Depression of the 1930s which persisted despite strenuous efforts right up until World War II broke out, in the process changing our views about what the economy, politics, and government should do. It is one of the mileposts by which we reckon our history. There is before the Great Depression and after it.

There have probably been hundreds of books written trying to explain the depression, its causes, and why it persisted so long most completely forgettable but some, notably Keynes’s 1936 book Employment, Interest and Money, tremendously influential. We still don’t know and there are probably as many explanations as there are analysts, many of them, unsurprisingly, justifying views that the author held before engaging in his or her analysis.

I have little doubt that the same will be true of the Great Recession. Hundreds (at the very least) of books have already been written about it. This morning Robert Samuelson devotes his Washington Post column to commentary on the most recent salvo, by Ben S. Bernanke, Timothy F. Geithner and Henry M. Paulson Jr. Without reading it I feel confident in saying that it justifies all of their actions and blames every bad thing that happened on somebody else. Here’s a snippet from Mr. Samuelson’s commentary:

The book is a CliffsNotes for the crisis. The 129-page text provides a lucid chronology, followed by nearly 100 pages of charts and tables. The authors no doubt hope that their narrative buttresses their reputations. Still, most of their analysis rings true, with one glaring exception: their theory of what created the crisis.

Here’s one passage, “The story of how the crisis happened is . . . about risky leverage, runnable funding, shadow banking, rampant securitization, and outdated regulation.” A rough translation: Lenders lent too much, borrowers borrowed too much, and arcane financial instruments stymied regulators from stopping the process.

This is the conventional wisdom. It’s also wrong, because it mistakes the crisis’s consequences for its underlying cause. The cause lay in the delusional beliefs that the economy had changed so much that practices that in the past would have been considered risky were no longer so.

Everyone drank the Kool-Aid, so to speak. Economists argued that the business cycle had smoothed. They called this the Great Moderation. Recessions would be shorter and less severe than in the past. This seemed to be confirmed by the decade-long expansion in the 1990s, the longest in U.S. history.

Would it be too snide of me to suggest that the Great Recession itself and the long, phlegmatic recovery that followed shared a common cause, summarizable in four words? The Fed screwed up.

At the very least I think it is not unfair to blame the surge in the prices of financial instruments, e.g. the DJIA went from 11,000 to 26,000 today, on the Fed. That was the stated objective of the policy the Fed deployed to spur economic growth, blandly deemed “quantitative easing”. Translated: giving money to rich people in the hope that they would invest in the real economy. It has not succeeded, at least not in the domestic economy.

Whatever the causes of the Great Recession and the slowness of the recovery, very little has been done to change the system that was in place prior to 2008. Banks sustain even less risk than they did then, presumably in the hope that less risk will induce bankers to behave more responsibly.

My modest proposal is that there should be consequences for bad behavior. Consequences for managers, consequences for bankers, consequences for politicians, and consequences for Federal Reserve governors. It is only human for people to persist in their folly as long as they face no consequences for doing so. Managers, bankers, politicians, and Federal Reserve governors are far from philosopher-kings.

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What Fishing Subsidies Do

Against all odds the editors of Bloomberg have found something the United States is doing right:

Subsidies make it possible for enormous boats to travel long distances to fish the deep waters that lie far from any coastline. More than half of this high-seas fishing would be unprofitable without subsidies. Curtailing it would boost populations of migratory fish, helping to restock coastal fisheries.

China provides the biggest subsidies for overfishing. Japan, Spain and South Korea spend heavily also. But in the U.S., beginning in the 1990s, both political parties came to recognize the problem and pull back. For many years, Congress barred appropriations for new boat loans, and in the late ’90s and early 2000s even spent millions on buying back vessels, gear and fishing permits. These days, most of the government’s investment in fishing goes to research, monitoring and conserving fish stocks, and other beneficial activities.

The U.S. has pushed to end other countries’ subsidies. Prohibitions against them are included in both the Trans-Pacific Partnership (which the U.S. subsequently discarded) and the yet-to-be ratified United States-Mexico-Canada Agreement. The U.S. is also part of an ongoing effort at the World Trade Organization to cut subsidies for capacity. Agreement in that forum would be ideal, because it would encourage the broadest possible compliance. All this makes it especially counterproductive for the U.S. to change its approach.

We should continue doing it right. Not only should the United States not further subsidize commercial fishing, it should impose punitive tariffs on countries that subsidize commercial fishing, especially countries that subsidize commercial fishing as ferociously as China and Japan do with factory ships that virtually sweep all life out of the oceans. Paradoxically, such tariffs would encourage freer trade.

These are mercantilist countries who subsidize commercial fishing to maintain food independence and minimize their imports. Not only do their practices hurt the environment and us, they hurt developing countries. If they want to maintain food independence, let them. But there should be a steep price to pay for it.

And in case there are any hypocrisy-hunters out there, I oppose our own subsidies for cotton and sugar, too.

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The Best Old Sitcom I’m Watching

As I’ve mentioned before I subscribe to Amazon Prime. It’s not as worthwhile for us as it was when I was purchasing a lot of equipment and taking advantage of Amazon’s free two-day delivery but we continue to buy enough online that it’s still worthwhile.

One of the perks of Amazon Prime is Prime Video. You can stream thousands of different movies and television programs, some old, some new, some domestic, some foreign. I’m using Prime Video, for example, to brush up on my Russian by watching Russian television programs.

Recently, we discovered a gem of a Canadian situation comedy from the recent past that I’d never heard of: Corner Gas (2004-2009). We find it hysterically funny. It takes place in a tiny town in rural Saskatewan that consists, mostly, of a gas station and a cafe. Here’s the words to its theme song:

You can tell me that your dog ran away
Then tell me that it took three days
I’ve heard every joke
I’ve heard every one you’d say
You think there’s not a lot goin’ on
Look closer baby, you’re so wrong
And that’s why you can stay so long
Where there’s not a lot goin’ on.

If you’re on Prime (or find it somewhere else) check it out.

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The State of Higher Education, 2019

The infographic above was sampled from the organization Third Way’s assessment of the state of higher education in the United States in 2019:

This report examines whether US institutions of higher education are successful in educating and preparing the next generation of workers. Specifically, it looks at three critical measures of success: 1) college completion; 2) post-enrollment-earnings; and 3) loan repayment. It examines these outcomes at four-year, two-year and certificate-granting institutions. It also provides a breakdown by educational sector, including student success rates at public, private non-profit, and for-profit institutions. We also examine whether institutions are succeeding across multiple measures, as federally-funded higher education institutions should ultimately be leading most of their students to graduate, earn a decent living, and pay down their loans over time.

and it’s a pretty fair summary of their findings. They also find that many are unable to pay the educational debt they’ve acquired with the pay they’re bringing down with their degrees.

I wish the article only cited medians in the context of normal distributions and standard deviations. As it is there’s no way to determine the relevance of the median. They may be completely irrelevant as would be the case in distributions other than normal ones.

There is one interesting factoid in the piece. The majority of students of more than 10% of four year institutions cannot pay down the interest on their educational debt let alone the principal after five years.

Multiple different conclusions may be drawn from Third Way’s assessment. You could decide that more loan subsidies are in order. You could infer that non-loan subsidies are necessary.

My own conclusion is that the number of people pursuing higher education is considerably higher than the number of jobs that pay what people with higher educations might be expected to earn. One metric that might support my conjecture is whether employers are increasingly demanding degrees beyond bachelors of their applicants (they are). For too many young people higher education is no longer the key to a brighter future but a treadmill.

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The Shrinking Middle Class

I found this article at MarketWatch by Brent Arends about the shrinking U. S. middle class and anxiety over the same interesting, too. In it he has some useful information, for example, a definition of “middle class”:

The “middle class,” counted as people earning between 75% and 200% of the median income in each country, has shrunk since the mid 1980s from 64% to 60% of the population of richer countries.

61% of Americans were middle class by that definition in 1971 and 51% are now. The situation for millennials in their 20s is sharply different than it was for Baby Boomers when they were in their 20s. I can’t help but wonder whether that reflects economic or demographic change or both.

Here’s the conclusion of the piece:

“The recent stability in the share of adults living in middle-income households marks a shift from a decades-long downward trend,” he added. “From 1971 to 2011, the share of adults in the middle class fell by 10 percentage points. But that shift was not all down the economic ladder.”

I don’t find that encouraging. Maybe I’m perverse but a society congealing into an upper class, a lower class, and a struggling middle class, e.g. Mexico, considerably delineated by race, is not what I wanted or expected when I was in my 20s.

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The Real IBM

I’m sorry to say that Tyler Cowen lost me in the first paragraph of his post at Globe and Mail in defense of large tech companies:

It may seem odd, but it’s not unreasonable to say that the U.S. economy in the 1960s belonged to a company that, when it was amalgamated in 1911, was best known for its meat slicers, coffee grinders and systems to track employee punch cards.

The problem is that it tells a story that is either false or at best incomplete. All of the major typewriter manufacturing companies with the exception of IBM turned their manufacturing facilities to the production of machine guns and other military equipment during World War II. When WWII broke out Royal dominated the market. Upstart IBM used the war to develop the Selectric and when the war ended and Royal, Remington, and others returned to typewriters they had to play catch-up. They never really recovered.

The real story of IBM is that the company cleverly exploited the patent system to corral another development of the war—the digital electronic programmable computer by controlling the inputs (cards, electric keyboards) and outputs (cards, line printers). They never produced the best computers but they did enforce their patents ruthlessly and used them to dominate other markets, a clear misuse of monopoly power.

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