Profligacy

At EconLib Scott Sumner points out something interesting and distressing: the federal deficit as a percentage of GDP relative to the unemployment rate is incredibly high. Historically, a low rate of unemployment is associated with a balanced budget. Not today. Here’s his prediction:

I stand by my claim that (at the time) 2019 fiscal policy was the most reckless in American history, even though each of the next 4 years ended up being even more reckless. In terms of vertical distance above the dotted line, 2020 was the very worst, then 2021, then 2023 (estimated—red dot), then 2022, and then 2019 (roughly tied with 2009.)

The consequence of the reckless fiscal policy will not be a financial crisis. Nor will it be a default. Even the permanent monetization of the debt is unlikely, in my view. The most likely consequence will be higher future taxes and slower economic growth. This will lead to reduced living standards. It might also push politics in a more “populist” direction, with consequences that are difficult to predict (but unlikely to be desirable.)

When you combine the extraordinary spending over the last four years in the presence of historically low unemployment rates, that’s the result. The problem I see is that a lot of the spending is “baked in”: interest on the debt, healthcare spending, and Social Security. We can reduce defense spending but doing so without reducing our commitments is hard to accomplish.

Raising taxes on the rich is easier said than done. You can raise the marginal rates but that won’t necessarily increase revenue. If higher taxes are indeed the likelihood, much of those will necessarily come in the form of increasing the taxes of the not particularly rich. They’re a lot easier to tax.

I wonder why Dr. Sumner doesn’t think that “permanent monetization of the debt” is the obvious solution to the problems that are being created?

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What’s Going On?

I would think we can all agree with this statement from the editors’ of the Washington Post’s remarks on the federal indictment of President Trump:

Something has gone deeply wrong when, in a historic first, federal prosecutors reach the point of filing criminal charges against a former and possibly future president.

Here’s what they think has gone wrong:

The 38-count indictment against Mr. Trump and an aide, unsealed on Friday, includes disturbing details: “Secret. This is secret information. Look, look at this,” the onetime commander in chief says in a transcript of a recording during which he described a “plan of attack” prepared by the Defense Department against a foreign adversary. His audience, according to the indictment, included a writer, a publisher and two members of his staff, none of whom had a security clearance. This was only one episode of gross mishandling of hundreds of pages of materials that included papers on U.S. nuclear programs and this nation’s potential vulnerabilities to attack.

Boxes were moved from a ballroom stage to a storage closet to a bathroom and shower, at one point spilling onto the floor (“Oh no oh no,” texted an employee). Mar-a-Lago hosted tens of thousands of guests at 150 social events, including weddings and movie premieres, during the time the documents were on the premises.

It’s not only the alleged cavalier treatment of classified materials. It is also the extensive effort to avoid compliance with legitimate demands, from which a clear, prosecutable picture of obstruction emerges. Consider Mr. Trump’s alleged instructions to valet and body man Waltine Nauta, also indicted, to hide boxes from his team’s attorney, the FBI and the grand jury; the suggestion to his attorney to make false representations to the FBI and grand jury as well as to conceal or destroy some of the documents called for in a subpoena; and the submission to the FBI and grand jury declaring all relevant documents had been handed over when they had not. Mr. Trump reportedly even asked after receiving a subpoena for the documents’ return: “Well look, isn’t it better if there are no documents?”

The editors of the Wall Street Journal on the other hand have a somewhat different view of what has gone wrong. Like the Post they open with something on which we presumably can agree:

Whether you love or hate Donald Trump, his indictment by President Biden’s Justice Department is a fraught moment for American democracy. For the first time in U.S. history, the prosecutorial power of the federal government has been used against a former President who is also running against the sitting President.

and then turn to their take on what has gone wrong:

The indictment levels 37 charges against Mr. Trump that are related to his handling of classified documents, including at his Mar-a-Lago club, since he left the White House. Thirty-one of the counts are for violating the ancient and seldom-enforced Espionage Act for the “willful retention of national defense information.”

But it’s striking, and legally notable, that the indictment never mentions the Presidential Records Act (PRA) that allows a President access to documents, both classified and unclassified, once he leaves office. It allows for good-faith negotiation with the National Archives. Yet the indictment assumes that Mr. Trump had no right to take any classified documents.

This doesn’t fit the spirit or letter of the PRA, which was written by Congress to recognize that such documents had previously been the property of former Presidents. If the Espionage Act means Presidents can’t retain any classified documents, then the PRA is all but meaningless. This will be part of Mr. Trump’s defense.

The other counts are related to failing to turn over the documents or obstructing the attempts by the Justice Department and FBI to obtain them. One allegation is that during a meeting with a writer and three others, none of whom held security clearances, Mr. Trump “showed and described a ‘plan of attack’” from the Defense Department. “As president I could have declassified it,” he said on audio tape. “Now I can’t, you know, but this is still a secret.”

The feds also say Mr. Trump tried to cover up his classified stash by “suggesting that his attorney hide or destroy documents,” as well as by telling an aide to move boxes to conceal them from his lawyer and the FBI.

As usual, Mr. Trump is his own worst enemy. “This would have gone nowhere,” former Attorney General Bill Barr told CBS recently, “had the President just returned the documents. But he jerked them around for a year and a half.”

That being said, if prosecutors think that this will absolve them of the political implications of their decision to charge Mr. Trump, they fail to understand what they’ve unleashed.

Let’s make a little list of the questions that have been raised by this matter:

  • Is the Espionage Act of 1917 applicable?
  • Is the Espionage Act of 1917 enforceable?
  • Is the Espionage Act of 1917 “seldom-enforced” and why?
  • Is the Espionage Act of 1917 constitutional?
  • Is the Presidential Records Act applicable?
  • Is the Presidential Records Act enforceable?
  • Is the Presidential Records Act enforced and why?
  • Is the Presidential Records Act constitutional?

These are matters of law, policy, and politics. Just for the record my view is that

  1. Either the Presidential Records Act shouldn’t exist, the Espionage Act of 1917 shouldn’t exist, or both shouldn’t exist and
  2. Intent should have nothing to do with it and
  3. If the Espionage Act of 1917 applies to presidents it raises serious separation of powers issues and
  4. If the Espionage Act of 1917 is applicable every living president should be indicted under it.

We already have prima facie cases that Presidents Trump, Biden, and Clinton are guilty of violating it and I think we can safely assume that every other living president has, too. Also probably hundreds of high-ranking officials past and present should be indicted for violating it. I have no problem with that.

There’s so much going on in this matter it’s hard for me to see it having been resolved before November 2024. The only way that might happen is if President Trump pled guilty and it’s hard for me to imagine that.

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Dissynergy

Speaking of working at cross-purposes, the editors of the Wall Street Journal remark on how the Biden Administration’s economic and environmental strategies are working against each other:

On Tuesday the U.S. Army Corps of Engineers revoked a Clean Water Act permit granted by the Trump Administration for the NewRange copper and nickel mine in Minnesota’s Duluth Complex. The area isn’t virgin land. The Duluth site is part of the fabled Iron Range, which provided 70% of the iron ore that America used during World War II.

“Minnesota’s Iron Range has played a vital role in helping build America,” candidate Biden proclaimed in September 2020. “U.S. manufacturing and mining was the Arsenal of Democracy in World War II. It must be part of the Arsenal of American Prosperity today, helping power an economic recovery for working families.” Apparently not.

His Administration picked the anniversary of D-Day to deep-six the NewRange mine, which would provide minerals to power electric vehicles and his green-energy transition. The U.S. will have to import the minerals from arsenals of autocracy like Russia and China.

In other acts of economic masochism, the Interior Department last month delayed a decision on whether to let Alaska build a 211-mile road to a critical minerals mining area. The project was initially approved by Trump regulators, but Biden officials agreed to conduct a second review after green groups sued. The Administration also recently put on ice a copper mine in Arizona.

And last Friday Interior removed from oil and gas development hundreds of thousands of acres of public land in New Mexico within 10 miles of the Chaco Culture National Historical Park. The Administration sided with green lobbyists over the Navajo Nation, which opposed the land withdrawal and stood to reap tens of millions of dollars in oil and gas royalties.

If coming up with good policies were easy, anybody could do it.

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The Chinese EVs Are Coming

in his Washington Post column Fareed Zakharia predicts:

Ten years ago, China exported a relatively small number of cars. Today, it is the world’s leading exporter of automobiles, handily ousting Japan from that position. It is especially strong in electric vehicles. Two of every three EVs made in the world are made in China. As we think about China’s weaknesses these days (and it has several), it is worth remembering China’s formidable strengths and the degree to which it is intertwined into the global economy. Nio’s cars are designed in Munich. It has research and development centers in San Jose and Oxford, England, as well as in Beijing and Shanghai. It does its manufacturing in Hefei, China.

At the present state of the art electric vehicles are more practical in China and Europe than they are here. Chinese commute distances are a fraction of those here.

There are other barriers as well. Here in the U. S. most states require that automobiles be sold through dealerships. It’s complicated but that’s the gist of it. In other words to get market penetration here it isn’t enough to have the cars to sell; you’ve got to build an organization and that can be tough. Frequently, foreign manufacturers forge relationships with auto companies that already have those organizations and I expect the Chinese to do that, too, but it won’t happen overnight. The Europeans are quite comfortable with protectionism which may prove a barrier to EVs manufactured in China.

I’ll keep my eyes opened.

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What Happened to the Dam?

At Responsible Statecraft Kelley Beaucar Vlahos’s take on the destruction of the Kalkhova Dam is similar to mine:

After news that the Nord Stream pipeline had been attacked on Sept. 26, 2022, Western leaders — including former U.S.officials and the Washington Post editorial board — laid the blame at the Russians feet, with the rest of the commentariat taking their cues. Those offering other explanations were called Putin apologists and fools. Over the course of the year, as the Europeans began investigating, officials quietly acknowledged that Russia was likely not behind the attack. Identifying the true culprit remained elusive.

After journalist Sy Hersh reported in detail in February that it was a secret team of special U.S. Navy divers, under orders of the Biden administration, that plotted and carried out the sabotage, he was, too, excoriated and called a crank and a Putin apologist. Still, no official explanation was forthcoming.

Then, unnamed government officials told the New York Times that a rogue group of anti-Russian Ukrainians had rented a boat and carried out the attack themselves, a theory that European leaders have distanced themselves from, and overall, has gotten little traction.

Fast forward to today. That the CIA might have known about a real plot by Ukrainians to blow up the pipelines that looks a lot like the Sy Hersh reported plan (only with Ukrainian divers and a rented boat) should send heads spinning and spines tingling. If the U.S. government knew of the plan why did Washington put the dogs on the scent of the Russians after the pipeline was actually destroyed? If it was the Ukrainian military, could the U.S. have stopped it? Was there some truth to Hersh’s claims and/or the rogue Ukrainian stories?

We may not know, ever, but this is all the reason why we should be more circumspect as the dam explosion story unfolds.

concluding:

The lack of information, which has been a constant throughout this war, should temper the impulse to let emotional or political considerations lead us to conclusions. But that seems to be what is happening again, even though we know, from the Nord Stream sabotage example, that all may not be what it seems right now, and taking a step back from the hot takes might be what’s best for the situation. That is not “Putin apologia” but good sense.

Sadly, “good sense” is unlikely to prevail in an environment in which anything but the straight party line is taken as a “Putin apologia”.

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When China Sneezes the World Gets a Cold?

It was first said by Metternich about France. For nearly all of my life it has been said (at least by Americans) about the U. S. Now Jeffrey Snider is wondering whether when China sneezes, the world gets a cold. From his post at RealClearMarkets:

According to government figures, there was a tidal wave of borrowing especially among Chinese corporates. Consumers were ramped up and ready then all manner of businesses would pile right on the roaring recovery.

And it never happened. If you believed the financial media, it was a done deal. Had you consulted with markets – any of them apart from stocks – you’d have known the truth the entire time.

Not only did recovery fail to materialize, very quickly even the mainstream tone shifted back to the level of last year’s dull thuds. China’s recovery wasn’t just faltering, worse than that the economy and financial system have since been giving off all the appearances of another drop and in the near run.

China is being sucked into the global recession with everyone else rather than Beijing’s shifting coronavirus enlightenment redeeming the world (oh, the irony).

The balance of the post is devoted to the next “pundit” attempts to convince us that China will save the world. Mr. Snider says the whole world is “anti-progressing”.

If you’re wondering what the point of this post might be, I think that depending on any country to “save the world” is foolhardy. The most we should expect from the Chinese is to save the Chinese. The French will save the French, the Germans will save the Germans.

The only country I know of that works persistently against its own best interests is the United States. I suspect that’s because of the several competing and conflicting interests. Sometimes one prevails; sometimes another. However, we shouldn’t expect that to be a reliable strategy. It will eventually fail.

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The Rule of Law

Since before Donald Trump was elected president, I have been critical of him. One of my criticisms has been that he didn’t understand the federal government and didn’t care that he didn’t. Of course that came back to bite him.

BTW don’t take that observation as a testament to my satisfaction with the federal government. IMO we’re in drastic need of a top-to-bottom housecleaning. I simply didn’t think that Donald Trump was capable of doing it and I think that has proven correct.

Now that he is under federal indictment I’ve been reading an enormous number of op-eds and editorials about it, many declaiming about the “rule of law” without understanding what that means. I’ve read both that the case against Mr. Trump is extraordinarily strong and the case against Mr. Trump is extraordinarily weak. I don’t think we’ll know until the text of the actual indictment is revealed.

If I were Mr. Trump’s lawyers I would be making a series of claims, for example that the statutes under which he has been indicted are unconstitutional, don’t apply to him, are vague, or that the Department of Justice doesn’t have jurisdiction.

The key point is that the law is what you can prove in court, what the court says it is, and what the jury will convict on rather than what you might want it to be.

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Indicted

You must surely know by now that President Donald Trump has been indicted on at least seven counts related to his retention of classified documents.

I do not rejoice in it. It does not horrify me. It does not surprise me.

We don’t know how this will unfold. Depending on events, it is possible that the case may end up before the Supreme Court.

We don’t know what its political impact will be. It may actually increase the likelihood that President Trump becomes the Republican Party candidate in 2024. Or it may eliminate that possibility. We just don’t know.

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Fixing Immigration

At RealClearPolicy Karina Lipsman writes about a proposed solution to the U. S. immigration problems:

For the first time in a decade, Representatives María Elvira Salazar (R-FL) and Veronica Escobar (D-TX) presented a bipartisan, sensible solution to the problems our country is facing. The introduction of their Dignity Act provides a complete solution to America’s immigration crisis, addressing the root causes of illegal immigration, providing dignity for undocumented immigrants living in the shadows, and ensuring that American workers are not left behind.

Like any sensible immigration legislation, the Dignity Act secures the border, mandates E-Verify, reforms the asylum system, protects Dreamers, and deals with undocumented immigrants compassionately. The Dignity Program allows undocumented immigrants to enter a new status where they can work and provide for their family while paying restitution to the American government and the taxpayer for a seven-year period. It also gives undocumented immigrants the opportunity to pursue U.S. citizenship if they so choose, conditional on both parties making good on their promise to secure the border first.

On the surface this looks promising but a lot can happen on its way to the House and Senate floors. I’d sure like to see a whip count on this bill. It appears to me to have a few inherent conflicts.

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We’ll All Lose

Here’s Karl Rove’s take on the 2024 election from his op-ed in the Wall Street Journal:

A May 24 Quinnipiac University poll put Mr. Biden ahead of Mr. Trump, 48% to 46%, among registered voters and Florida Gov. Ron DeSantis ahead of Mr. Biden, 47% to 46%. While these results point to a horse race in 2024, numbers deeper in the poll suggest Mr. Biden is in a precarious spot.

By 65% to 32%, registered voters think Mr. Biden is “too old to effectively serve another 4-year term.” This includes 69% of independents, 73% of whites with no college degree, 72% of men, 66% of voters 35 to 49 and 65% of those 50 to 64. Even 41% of Democrats agree, as do 47% of blacks, 75% of Hispanics, and 75% of voters under 35.

What over the next 18 months could improve these numbers? Democrats can’t keep Mr. Biden from constantly losing his train of thought or tripping over sandbags or stairs. Even if they could re-create his 2020 basement campaign, it wouldn’t change what voters already know.

Similarly, in the May 22 Fox News Poll, 64% said Mr. Biden wasn’t “a strong leader.” That stance is supported by 69% of whites, 65% of voters under 35, 75% of independents, 59% of Hispanics and 46% of blacks. Only 64% of Democrats believe their party’s nominee is a strong leader.

After 2½ years in office, what could alter that opinion before the election? Maybe an inspired response to a national crisis? It’s more likely Democrats and the country will get another year and a half of watching an increasingly feeble president.

This suggests that it will be essential for Team Biden to irradiate his GOP opponent to eke out a victory. As Mr. Biden often quotes his father, “Don’t compare me to the Almighty. Compare me to the alternative.” A Trump-led Republican Party will mimic the Democratic smash-mouth playbook. None of this is good for America, which needs its national confidence restored, not further eroded.

I don’t think the Democrats have that much to worry about. Mr. Trump is self-irradiating.

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