James Carville, political consultant to the Clinton campaign in 1992’s victory, is a walking sound-byte machine. One of his most famous: “It’s the economy, stupid.” Here’s another one:

If there was reincarnation, I wanted to come back as the president or the pope or a .400 baseball hitter. But now I want to come back as the bond market. You can intimidate everybody.

Keep that in mind if you read former Federal Reserve Governor Kevin Warsh’s op-ed in the Wall Street Journal about what the bond market is telling us. Here’s a snippet from his opening:

Hold short-term interest rates at current levels, and threaten to raise them if inflation morale doesn’t improve. That’s current Federal Reserve policy. The trouble is that the central bank doesn’t set interest rates anymore. The bond market does.

and here’s its kernel:

The coming supply of Treasury securities required to fund U.S. government deficits will likely be substantially larger than official estimates. And purchasers of Treasury debt will demand higher yields, at least until something breaks in the economy.

First, on the supply side. The government currently funds $33 trillion of outstanding debt at an average interest rate of about 2.9%. Funding costs on the growing debt burden are forecast to average only a fraction of a percentage point higher over the next 10 years, according to the Congressional Budget Office. I’ll take the over.

The bond market is signaling heightened uncertainty about the range of possible outcomes. If the Fed’s recent rosy economic forecasts for growth and inflation are wrong and a recession ensues, there will be a gusher of new debt. Every additional 1-point increase in interest rates will add more than $2.5 trillion of expense in the next decade.

Next, on the demand side. After the global financial crisis, four of the largest purchasers of Treasury debt were price-insensitive. That is, they were buying Treasury debt for policy reasons—economic, geopolitical or regulatory. Price didn’t matter. How fortunate. These buyers, however, have largely exited the market. The Fed bought about a quarter of all Treasury debt in the past decade but warns that its Treasury holdings will shrink for at least another year.

China, another massive buyer in recent years, is unlikely to sell its existing holdings at a loss. But don’t expect Chinese leadership to do the U.S. any favors by showing up in size at the next Treasury auction. Japan’s domestic growth profile is the most robust in decades. The lion’s share of its excess savings will stay closer to home. And after the banking debacle in March catalyzed by Silicon Valley Bank, the largest banks—firmly overseen by their regulators—are no longer keen to load up on “risk-free” long-dated Treasury bonds.

He says pay more attention to the bond market than to what the Fed is doing.

I think that China’s “massive buying in recent years” depends on what you mean by recent and what you mean by massive:

and here’s Japan’s:

Were those adjusted to constant dollars they would look even worse.

Will much higher yields, as the bond market seems to be telling us, lead to the Chinese and Japanese resuming their purchases of U. S. Treasuries? Frankly, I doubt it.

Source of data: UN World Population Prospects Data Portal

I’m puzzled by Thomas Fazi’s latest piece at UnHerd. It purports to claim that NATO and Ukraine cannot win a prolonged war of attrition and simultaneously to assume that it will. Here’s what I think is the kernel of the piece:

The prospect of an Afghanistan-style war of attrition is worrying for a number of reasons. Firstly, because, if Ukraine had little chance of winning a blitzkrieg-style counteroffensive, it has even less chance of winning a long-term war of attrition, given Russia’s advantage in manpower and its ability to produce more artillery and ammunitions than Ukraine and the West combined (Russia’s current ammunition production is seven times greater than that of the West). “If the war goes on for long enough with this intensity, Ukraine’s losses will become unbearable,” a senior French official told the Wall Street Journal in February.

And second, because as the conflict drags on, and potentially escalates, direct Nato involvement in the conflict — and thus the risk of an all-out war between Nato and Russia — will inevitably increase. Europeans should be especially worried by the prospect of a long war: if American military assistance starts to wane, Europe will need to carry more of the burden. Indeed, it would appear that the EU has already taken its cue from events on the other side of the Atlantic. On Monday, two days after the no-deal in the US Congress, the EU’s foreign ministers paid a surprise visit to Kyiv to express their unwavering support for Ukraine.

Why does he think that, if the U. S. curtails its support for Ukraine, Europe, i.e. Germany, France, and the United Kingdom, will pick up the slack? His conclusion directly contradicts that:

If this seems foolish, let alone dangerous, we can find some solace in the fact that reality would appear to be standing in the way of this plan. There is, after all, simply no way for the EU to plug the gap — in military, financial or political terms — if Washington scales back its support. For those of us who yearn for peace, the EU’s dysfunction might be, for once, a silver lining.

Doesn’t experience tell us that Germany and France, in particular, are more likely to seek some sort of accommodation with Russia rather than picking up the slack should the U. S. end support for Ukraine?

My view continues to be that we should continue to support the Ukrainians but that we should audit Ukraine’s use of our support more closely and use whatever leverage our support provides to encourage the Ukrainians to settle for some armistice short of their stated strategic objectives. As to Ukraine’s objective of ensuring long-lasting security, I think that’s impossible and know of no realistic proposals for accomplishing it.

Sometimes I don’t think the editors of the Washington Post read the Washington Post. In their editorial they assert that there are some straightforward strategies for increasing life expectancy:

Fixing the country’s life-and-death problem, in this light, will require confronting some of its broadest and deepest rooted issues. But focusing on incentives to promote better health, so that the tide moves with the project instead of against it, will provide a manageable place to begin.

After considering and rejecting many of the ideas that motivated the ACA, they finally light on raising the taxes on tobacco and imposing taxes on processed foods, for example, on foods containing high fructose corn syrup. Somehow I doubt that the decline in our national life expectancy was caused by tobacco or high-fructose corn syrup. Maybe we’re accumulating new bad habits faster than we’re shedding bad old ones.

Unmentioned is that there is evidence that religious people live longer.

My own view is that for the very young, health care may well be the deciding factor on whether you live or die, for the young adults up to middle age behavior is probably the most significant determining factor, while for the elderly heredity is of increasing importance.

Why did Jim Fixx die at 52? He did a lot of things right—some very right and yet he died in early middle age. His father had died at 43 and it has been found that he was predisposed to the heart problems that caused his death and he had behaved very poorly as a young man.

I consider myself fortunate in my choice of when I was born and who my ancestors were. Childhood care enabled me to survive past childhood, my own good judgment (and the bad examples of several of my ancestors) persuaded me to avoid some of my ancestors’ bad behaviors, and barring those bad behaviors or even in spite of them the ancestors whose DNA I’ve inherited tended to be quite long-lived. We tend not to be predisposed to the diseases of aging, e.g. arthritis and heart disease. I’ve already outlived my father, all of my grandparents, and I’m catching up to my great-grandparents.

So, the House of Representatives has removed Speaker Kevin McCarthy. My reaction was materially the same as James Joyner’s: now what? Mr. McCarthy has said he won’t seek the speakership again. There won’t be a vote until next week.

IMO the Republicans have shot themselves in the foot. I fail to see how a new speaker will accomplish anything other than stalemate. That’s what a very closely divided House in which neither side will vote with the other means.

I must say that I disagree pretty drastically with George Friedman’s assessment of the war in Ukraine:

The U.S. reached its goal, while Russia and Ukraine have not and will not. However, neither have they been crushed. Ukraine is now a divided country but enough of it is intact to claim victory, and Russia has pushed past its old border enough to claim a small victory. Both could claim humanitarian reasons for ending the war.

But now the dead creep. They gave their lives for nothing but the pretense of victory, as no rational person will think of the outcome as contempt for the dead. So having fought and defended for coming on two years, how the war ends is reasonably clear. How long will it take for the leaders to admit what is obvious? Everyone lost this war, and in due course so will the leaders. And that is what will delay the inevitable peace.

We agree in that everybody will lose. I disagree that the United States has gained anything. It may even be that Russian military strength has actually grown—there’s nothing like field experience to hone military doctrine. Furthermore, it illustrated the limits of economic sanctions and the futility of trying to teach others the American way of war.

At Foreign Affairs three scholars, Zongyuan Zoe Liu, Michael Pettis, and Adam Posen, weigh in on what has produced the Chinese economy’s present situation. All three are worth reading but my views align most closely with Mr. Pettis’s:

The problems facing the Chinese economy are not the consequence of recent policy shifts; they are the almost inevitable result of deep imbalances that date back nearly two decades and were obvious to many economists well over a decade ago. They are also the problems faced by every country that has followed a similar growth model

In particular China has depended, like the Soviet Union before it, on moving relatively unproductive labor from agriculture to manufacturing. Unlike the Soviet Union it did so without reducing agricultural production, a notable triumph.

But that has run out and it won’t produce the additional growth it needs to transform China into a high income country through malinvestments. And malinvestments are inevitable in a planned economy, particularly with incentives that local officials have.

Twenty years ago I believed that China could transform itself adequately. Now I’m not so sure.

In his Wall Street Journal column Walter Russell Mead predicts that, in the event he is re-elected, President Trump’s second term foreign policy will be “Trumpier”:

A second Trump term would almost certainly be “Trumpier” than the first. For much of his first term, Mr. Trump surrounded himself with well-known conservative foreign-policy figures and senior military leaders, often deferring to their advice. More experienced, more confident in his own judgment and less deferential to others’ expertise, Mr. Trump likely will fill senior positions with people who reflect rather than challenge his instincts and priorities.

There will be resistance from inside the government, but this time around it won’t come from senior officials, only from career civil servants in the Pentagon, State Department and the Treasury, aided by allies in the intelligence world. Expect explosive leaks, bureaucratic slow-walking and a permanent state of trench warfare in the government machine.

suggesting he’s likely to drive a wedge between the U. S. and our NATO allies, focus more closely on the Western hemisphere (immigration in particular, and devote less attention to climate change.

If he’s trying to scare me, he’s not succeeding.

In the wake of my post on the anniversary of Healthcare.gov, I was gratified to see Megan McArdle devote her Washington Post column to a consideration of the the effectiveness of the ACA in reducing healthcare spending. Short version: it hasn’t been particularly effective.

This is not because people haven’t tried hard enough. Obamacare contained a lot of elements that were expected to realize significant cost savings while actually improving the quality of care.

Among the strategies considered was innovations in preventive care. Despite the considerable sums of money spent that hasn’t been effective:

Preventive care turned out to cost more than it saved, in part because doctors may need to treat a lot of minor conditions to prevent one serious health crisis.

Here are some of the other missteps:

Expanding the number of insured turns out to make emergency room visits rise, not fall, because newly insured people worry less about the cost. A program to reduce hospital readmissions among Medicare patients may have killed thousands, as hospitals tried to avoid admitting patients who might trigger a readmission penalty. A plan to promote new insurance co-ops, a kind of voluntary public option, saw almost all of them fail within six years.

BTW declines in life expectancy are not due to COVID-19:

Source
unless COVID-19 is a time traveller since the decline began in 2014.

She concludes that controlling healthcare costs is politically impossible:

It’s not that we don’t know ways to save money. The system could be run more efficiently by reducing slack, but this would make people wait longer for many tests and treatments, as Canadians and Brits do. Doctor salaries, which averaged $316,000 in 2021, could be trimmed to the levels of German doctors ($183,000) or those in Britain ($138,000). The government could mandate lower drug prices, which would result in Americans losing access to medicines that aren’t worth making at the mandated price, as well as many that aren’t yet developed.

The problem is that these savings aren’t free. Nor are many other potential savings that space prevents me from naming, and that you are perhaps even now preparing to shoot me an email about.

The savings come attached to significant other costs, making them too politically expensive to contemplate. Try to cut doctors’ salaries almost in half, and they will freak out. Tell everyone else that they can’t have the fancy new drug they just read about, or that they have to wait half a year to see a specialist, and they will freak out, too. Politicians know this and won’t take the risk.

Sadly, that dodges the question: can healthcare costs continue to rise? Increasing healthcare spending was one thing when, as in 1960, we devoted 5% of GDP to it. Spending 20% of GDP on it is a different matter.