Changing the Trajectory

In his Washington Post column about our present federal spending trajectory George Will does a lot of throat-clearing about big numbers, the history of the national debt, etc. before getting to the meat of his argument:

Writing in the Wall Street Journal, John Greenwood, chief economist at Invesco in London, and Steve H. Hanke, professor of applied economics at Johns Hopkins University, note that by the Federal Reserve’s broadest measure of the quantity of money, the annual growth of the money supply averaged 5.8 percent over the 10 years from 2010 to 2019. Since last February, however, the quantity of money has increased 26 percent. And, they say, “we already know that the money supply will likely increase by at least another $2.3 trillion over the current year” — nearly 12 percent, which is twice as fast as the 2010-2019 average.

Should we call all this “stimulus”? The economy’s problem is not inadequate aggregate demand. The surge in the saving rate signals pent-up demand poised to erupt when vaccinations allow the economy to open up and begin supplying demands, from restaurant meals to airplane tickets. A letter writer to the Wall Street Journal illustrates the folly of a gusher of untargeted government spending:

“How can sending checks to a retired couple whose combined income has remained steady at $150,000 a year in any way address the problems we currently are facing? A household with school-age children and adults who are now working at home and drawing the same (if not higher) salaries they did in 2019 would be much better served by programs aimed at getting schools reopened rather than receiving a stimulus check.”

There are significant constituencies for increased spending and, as we have learned, no constituency whatever for fiscal prudence. The principles that I would advocate using in forming your views on the subject include:

  1. The best knowledge we presently have is that a public debt overhang impedes economic growth. The debt is right around 100% of GDP right now.
  2. Our present system in which the Federal Reserve buys most of the bonds from the Treasury and pays for them by expanding their own balance sheet is a perpetual motion scheme. Whatever your theory about why it will work it won’t work.
  3. Our present system exacerbates income and wealth inequality which I believe has a corrosive effect on society.
  4. Consumption is not investment. Getting a degree in art history may enrich your life but it’s consumption not investment. A public investment would be making our power grid more resilient or enabling it to serve future needs. I don’t believe that building more interstates is investment. It was in 1960 but now it’s just consumption.
  5. Increased federal spending distorts economic risks and rewards and impels people to make what would otherwise be unwise judgments, creating deadweight loss. When our economy was growing rapidly we could afford a little more deadweight loss. It isn’t growing rapidly any more and hasn’t been for some time. Also, see above about economic growth.
  6. What we’re doing now is risky. Maintaining our present course has many constituencies but if the worst happens the most vulnerable of those constituencies will suffer the most and we won’t be able to mitigate that with more spending.
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Longest-Serving Legislator Replaced By Shortest-Serving Legislator

Well, that didn’t take long. The chap appointed to replace Mike Madigan has resigned after just two days in office. From Patch.com:

CHICAGO — Mike Madigan’s choice to succeed him in the Illinois House resigned two days after being appointed amid at least one allegation of unspecified inappropriate conduct.

Edward Kodatt was sworn in Saturday as 22nd District state representative with the support of Madigan and 13th Ward Ald. Marty Quinn. Kodatt is a staff assistant in their ward office, where he has worked since 2017, according to city data.

“After learning of alleged questionable conduct by Mr. Kodatt, it was suggested that he resign as state representative for the 22nd District,” Madigan and Quinn said late Tuesday in a joint statement. “We are committed to a zero tolerance policy in the workplace.”

Must be something in the water. Or whatever it is they’re drinking.

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Decoupling

I was struck by this passage at RealClearPolicy from Charles Freeman of the U. S. Chamber of Commerce and Daniel Rosen of the Rhodium Group about the cost of decoupling the U. S. economy from China:

In the semiconductor industry, losing access to Chinese customers would cause $54 billion to $124 billion in lost U.S. output, risking more than 100,000 U.S. jobs, $12 billion in R&D spending, and $13 billion in capital spending. For the U.S. chemicals industry, the potential cost of the imposition of tariffs alone ranges from $10.2 billion in U.S. payroll and output reductions and 26,000 lost jobs, to $38 billion in output losses and nearly 100,000 lost jobs.

I couldn’t tell whether they were arguing for or against. High as they appear those are trivial numbers. Total U. S. output was around $21 trillion in 2019 and total capital spending around $2 trillion. Around 140 million people were employed in 2019. If they’re trying to scare me they aren’t doing a very good job.

That’s actually the entire source of our problem. The benefits of trade with China are completely asymmetrical in China’s favor. The benefits have nearly all been captured by large corporations while the costs have mostly been borne by ordinary people. And we haven’t even touched on the how much COVID-19 has cost the United States.

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Are We Creating a Perfect Storm?

At City Journal Charles Fain Lehman worries that a $15/hour federal minimum wage will have the unforeseen consequence of a major youth crime wave:

A surprising body of research links increases in the minimum wage to increases in criminal offending by those most likely to lose jobs as a result of the wage hike. One analysis concluded that raising the federal minimum to $15 could create crime costs of up to $2.5 billion—a bill that would be borne disproportionately by the very people whom the wage hike is meant to help.

There are other developments that should be considered:

  • no school remote learning
  • not arresting people let alone prosecuting people for committing petty crimes has become a matter of policy in some places
  • cutting police budgets
  • electing states attorneys who don’t believe in enforcing the law (certainly the case here in Cook County)
  • general boredom and agitation due to the COVID-19 pandemic

Are we creating a perfect storm?

Footnote:

Here in Chicago the rates of homicides, shooting, carjackings, and violent crime generally are running well ahead of last year which ran well ahead of 2019 while arrest rates have fallen. Many of the perpetrators of these crimes are believed to be juveniles.

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Why Are Big State Governors So Terrible?

This morning I’ve seen bitter complaints and calls for the impeachment of Andrew Cuomo (New York), Gavin Newsom (California), and Greg Abbott (Texas). The first two in that list are Democrats and the third a Republican so it’s not that Democrats are bad but Republicans good. New York, California, and Texas are very big states. Between them New York and California account for 18% of the U. S. population while Texas accounts for another 9%.

At Reason.com Lisa Wolfe says that the problem is that the wrong people have been elected governors:

As Cuomo and Newsom face deserved condemnation and maybe even real consequences for their pandemic malfeasance, it’s worth remembering that the two combined make decisions affecting a collective 60 million people, or about 18 percent of the U.S. population. The pandemic—and subsequent deprivations of liberty in the form of cyclical lockdowns—are too-late reminders that we ought to be choosy not just about who sits in the Oval Office, but also the governor’s mansion.

and that’s an issue I’ve pointed to myself. Over-emphasis on national politics and the federal government contribute to the infantilization of state and local governments. To many people they just don’t seem that important which couldn’t be farther from the truth. Other than with respect to foreign policy and the military it’s the White House that just isn’t that important—it’s Congress that important nationally. With the exceptions of your Social Security benefits, your Medicare/Medicaid benefits, and your federal income taxes, nearly everything that touches your daily life falls within the purview of state or local governments.

I would add to the infantilization of state and local government and that the jobs are just too big for the men that the jobs are too big for anybody. It’s no accident that the best-run states are a lot smaller. Federalizing things more will hurt, paying more attention will help, but maybe states need to be chopped up into more manageable units.

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America May Be Back But To What?

In his Wall Street Journal column William Galston rains on Joe Biden’s “America is back” parade and underscores a point I made earlier:

President Biden set out to declare a triumphant U.S. return to the trans-Atlantic alliance. “America is back,” the president said in his speech this week to the Munich Security Conference. The leaders of France and Germany promptly made it clear that the four years of the Trump presidency had changed the relationship.

he goes on to explain:

Underlying the muted response to Mr. Biden’s speech is what the European Council on Foreign Relations calls a “massive change” in European public opinion toward the U.S. The group’s recent poll finds: “Majorities in key member states now think the US political system is broken, that China will be more powerful than the US within a decade, and that Europeans cannot rely on the US to defend them.”

These beliefs are driving fundamental changes in European policy preferences. “Large numbers think Europeans should invest in their own defense,” the poll found, “and look to Berlin rather than Washington as their most important partner. They want to be tougher with the US on economic issues. And, rather than aligning with Washington, they want their countries to stay neutral in a conflict between the US and Russia or China”—a stance endorsed by at least half the electorate in each of the 11 countries surveyed.

I believe that the Biden Administration is proceeding under incorrect assumptions. During and following World War II, European countries were our clients. Japan was our client. Israel is our client. None of them are or have ever been our allies other than on paper. They’ll follow our lead so long as where we’re leading them is where they want to go anyway.

Rather than focusing on rebuilding diplomatic bridges we should concentrate our energy and attention on building actual bridges and rebuilding the U. S. economy. The countries of Europe are operating under incorrect assumptions of their own. They’re assuming that if they maintain neutrality or throw their lot in with China they’ll be eaten last but make no mistake. They’re on the menu, too.

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What Does Biden Want?

In his Washington Post column Henry Olsen critiques the present “COVID-19 relief” bill:

Biden has merely put a happy face on a strongly progressive agenda. Many of his executive orders — including canceling the Keystone XL pipeline and reentering the Paris climate accord — simply repeal former president Donald Trump’s actions. House Democrats have introduced the administration’s comprehensive immigration bill with no substantive GOP input, and they are also pursuing a ludicrously partisan rewrite of election law (H.R. 1). Initial talks with a group of 10 Republican senators over a compromise to Biden’s $1.9 trillion covid-19 relief bill have fizzled. Democrats are now moving to pass the massive proposal using the reconciliation procedure that allows a fiscal bill to pass the Senate with only a majority vote instead of the 60 votes needed to surmount a filibuster. Biden’s nice talk can’t wholly mask this nakedly partisan drive.

and observes:

Good negotiators follow a few simple rules. First, get leverage and use it to shape the contours of the deal. Second, have something on the table that you can give up that the other party values a lot. Third, use initial negotiating sessions to feel your adversary out and get a sense of their priorities and temper. Do this, and any deal will likely result in you getting more of what you want than if you act rashly.

Biden’s behavior so far follows these guidelines perfectly. The reconciliation process gives him leverage: Talk or you’ll lose everything. The bill itself is so filled with liberal wishes and so excessive in size that even some Democratic economists have criticized it. Biden could cut the bill in half and still end with more than enough aid to help those struggling because of the pandemic. And the initial discussions with the 10 senators provided a sense of what they want (a smaller, more targeted bill) and their temper (they really want to get to yes). All of this bodes well for a deal in early March — if Biden wants one.

which raises the question: what does Biden want? Or, more precisely, what does he want more? Does he want to unify the country or the Democratic Party? I’m betting it’s the latter and that, as he moves left, the center of the party will move left faster. I don’t believe that the Sanders wing of the Democratic Party will be satisfied with $1.9 trillion or $10.9 trillion in additional spending—they’re taking the position that numbers don’t matter, that there is no amount the federal government might spend that will have adverse consequences.

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Assuming the Worst

I didn’t want Mike Pompeo and Miles Yu’s Wall Street Journal op-ed go by without comment. In it, contrary to the World Health Organization task force’s findings, they take it as a given that SARS-CoV-2 escaped from the Wuhan Institute of Virology’s labs:

The evidence that the virus came from Wuhan is enormous, though largely circumstantial, and most signs point to the Wuhan Institute of Virology, or WIV, as the source of Covid-19. In America, concern about the site is now broad and bipartisan. The Biden administration stated that it has “deep concerns” about the World Health Organization’s investigation into the early days of the pandemic, particularly Beijing’s interference with the investigators’ work.

The world has known for a long time that WIV poses a huge risk to global health. Two 2018 State Department cables warned of its biosafety problems. They even predicted that SARS-CoV-2’s ACE2 receptor, identified by WIV scientists, would enable human-to-human transmission. Yuan Zhiming, then director of WIV’s biosafety level 4 lab, warned, “The biosafety laboratory is a double-edge sword: It can be used for the benefit of humanity, but can also lead to a disaster.” He listed the shortfalls prevalent among China’s biology labs, including a lack of “operational technical support, professional instructions” and “feasible standards for the safety requirements of different protection zones and for the inoculation of microbiological animals and equipment.”

The Chinese public took note, with several bloggers alleging that WIV’s virus-carrying animals are sold as pets. They may even show up at local wet markets. After the Wuhan outbreak, one since-disappeared blogger asked a WIV researcher to debate the lab’s biosafety practices in public. The offer was ignored.

and

The Chinese Communist Party’s recklessness has already cost the world too much, and its obfuscation guarantees this won’t be the last such tragedy. It ordered the destruction of virus samples collected from the earliest patients. It banned the release of key data. It silenced journalists, doctors and scientists. And it impeded the WHO’s investigation. Beijing doesn’t want the world to know the true origin of the coronavirus and its serious biosafety lapses.

The Chinese government must change course. It must be open about its biosafety systems, fix its errors and curtail its dangerous ambitions. Lives and livelihoods across the world are on the line. We all have a responsibility to make sure that the Chinese Communist Party isn’t given a free pass.

I thought that the WHO task force’s dismissal of the WIV lab out of hand as a possible source on the grounds that it appeared to be well-run beggared credulity but tying the virus to the lab as Mssrs. Pompeo and Yu do, is excessive. The truth is that we don’t know where the virus came from and in all likelihood we’ll never know. The ruling Chinese regime has all but guaranteed that.

IMO China’s opacity is enough reason that we should be maintaining a much more at-arm’s-length relationship with China than we do. Do we need to add assumptions of perfidy to that?

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Why Is $1.9 Trillion Sacrosanct?

In an op-ed in the Wall Street Journal Republican Senator Mitt Romney characterizes the Biden Administration’s $1.9 trillion bill that has been called a “COVID relief bill” but goes well beyond, lists some of its obvious overreaches, and concludes:

Senate Republicans will support whatever is needed to expand Covid testing, accelerate vaccine delivery and support health providers. We will likewise support robust assistance for those who have been crushed financially by the pandemic, including by losing their jobs. A group of us proposed a $618 billion compromise measure that matched President Biden’s proposed health and vaccine funding, extended enhanced federal unemployment benefits, provided economic relief for those with the greatest need, and included nutrition funding, small-business assistance, and resources to get children safely back to school.

We stand ready to negotiate a plan that helps America recover, both physically and financially, from this dread disease. We are willing to compromise in an attempt to get the administration to come down from its ill-considered $1.9 trillion plan and instead provide need-based relief. We have shown a willingness to compromise—which the president and Democratic congressional leaders have yet to reciprocate.

There are those who think the Senate Republicans will reject anything the administration puts forward. There’s one sure way to find out and, coincidentally, it would be satisfying a campaign promise: unifying the country.

And I’ve got to admit that I’m puzzled by President Biden’s refusal to compromise on it. Giving aid to the rich, helping state and local governments that don’t need help, extending payments into 2022, and a $15/hour national minimum wage just aren’t essential. Why is $1.9 trillion sacrosanct?

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Open Democracy?

Just in case you think that I’m the only one who doesn’t see our present system as particularly democratic (and it has nothing to do with the Electoral College), you might want to consider Ezra Klein’s latest piece in the New York Times:

And Hélène Landemore, a political scientist at Yale, has one of those ideas. She calls it “open democracy,” and the premise is simple: What we call democracy is not very democratic.

The role of the people is confined to elections, to choosing the elites who will represent us. Landemore argues that our political thinking is stuck in “18th-century epistemologies and technologies.” It is not enough.

We’ve learned much in the last few hundred years about random sampling, about the benefits of cognitively diverse groups, about the ways elections are captured by those with the most social and financial capital. Landemore wants to take what we’ve learned and build a new vision of democracy atop it — one in which we let groups of randomly selected citizens actually deliberate and govern. One in which we trust deliberation and diversity, not elections and political parties, to shape our ideas and to restrain our worst impulses.

As I’ve said before I think that restraining our worst impulses should be effected with laws that severely circumscribe what governments can and cannot do. But our system as it presently works now basically works to create a ruling class dedicated to making the rich richer.

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