At his new digs, which I’ll probably put in my blogroll today, Scott Alexander posts an open letter to Republicans. Or maybe that’s not what it actually is—it may be a warning to Democrats of the risks their party is taking. It’s titled “A Modest Proposal for Republicans: Use the Word ‘Class'”. If you’ve read Swift’s “A Modest Proposal”, the template for such, it may suggest why I question to whom it is being addressed. It’s a critique of the new incipient upper class, adherents to

a made-up mystery religion that college-educated people invented so they could feel superior to you. Why are they so sure that “some of my best friends are black” doesn’t make you any less racist? Because the whole point is that the only way not to be racist is to master an inscrutable and constantly-changing collection of fashionable shibboleths and opinions which are secretly class norms.

In the piece you’ll find a number of themes I’ve sounded here pretty regularly over the years. That insisting that jobs that don’t pragmatically don’t require a college education require one which is actually a strategy for limiting access and subsidizing college administrators. Evidence for that includes that we’re spending three times as much in real terms on college education as we did thirty years ago but that’s not reflected in the wages of college professors—it’s reflected in administration payrolls.

That populist Republicans are erring in not making common cause with people whose beliefs are closer to theirs than they are to those of the Democratic leadership which includes many of the constituencies on which Democrats have depended for the last 80 years as well as those they’re depending on for the future.

It’s long and a bit hard to excerpt but I recommend reading the whole thing.

Here’s another snippet, on how greatly separated the mainstream media are from most Americans:

67% of US families watch the Super Bowl – what percent of New York Times editors and reporters do? 20% of Americans go to religious services weekly – how many of those work for the New York Times? How come 96% of political donations from journalists go to Democrats? Your job is to take a page from the Democratic playbook and insist there is no reason any of this could be true except systemic classism, that any other explanation is offensive, and it’s the upper-class media’s moral duty to do something about this immediately.

to which I’d add that 20% of Americans drive trucks as their primary vehicles. I wonder how many New York Times, Washington Post, or CNN journalists do? He proposes redubbing the “mainstream media” as “the upper class media”, tying them to the new would-be upper class.

Joseph C. Sternberg expresses concern about the likelihood of increasing capital gains taxes in the near future in his most recent Wall Street Journal column:

Expect monetary policy to bleed slowly but surely into tax matters as well. The vector will be capital-gains taxation, which is booming in the current recession, contrary to all economic logic.

Surging capital-gains revenue helps explain why blue states such as California aren’t currently in the red. Politicians are taking notice. Minnesota’s and Washington’s governors are proposing higher capital-gains tax rates, the Journal reported this week, as are Democratic lawmakers in Connecticut. Some New York Democrats aim to leave no capital gain behind, even the unrealized sort—a plan is on the table to mark taxpayers’ assets to market and then tax paper gains every year.

Capital gains also figure prominently in most Democratic plans to tax the rich at the federal level. President Biden proposed on the campaign trail last year that wealthier filers pay a capital-gains rate equal to their ordinary income rate, which he would raise to 39.6%.

It’s a truism that if you tax something you get less of it. Do we really want less income or investment? I don’t think so. I would argue that we should want less goods consumption, particularly the consumption of imported goods which is why a national sales tax or VAT as an replacement for the income tax makes economic sense.

Unfortunately, many politicians think more like Willie Sutton than like economists so I won’t be surprised if we see an increase in the capital gains tax soon.

IMO what we could really use is reform in the law regarding capital gains so that investment, particularly domestic investment, is taxed less while money spent speculating shouldn’t be deductible at all. A lot of this would be rendered moot if the corporate income tax were to be abolished entirely as it should. But I can’t see that happening in the foreseeable future.

Let’s start this post with a simple assessment of the present situation with respect to a nuclear-armed North Korea. At this point

• North Korea has nuclear weapons.
• We don’t actually know the size of its nuclear arsenal. It’s thought to be more than 50 but fewer than 100 weapons.
• It is believed to have the missile capability of delivering a nuclear weapon anywhere in the continental U. S.

Onwards to the impetus for this post. In his Washington Post column Josh Rogin says that opening negotiations with North Korea is an urgent necessity, won’t wait until the administration is ready, and the situation is probably different than the administration is expecting:

“North Korea’s ballistic missile and nuclear weapons programs grew over the last four years,” a senior administration official told me. “The regime and its arsenal became an even greater threat.”

and

If the Biden team doesn’t make the first move, it risks being accused of returning to Obama’s pattern of “strategic patience,” waiting for Kim Jong Un to come crawling. But the record shows that North Korea is more likely to buck than buckle, and a long silence from Washington could be broken by the loud boom from a new nuclear test. That would set off a familiar escalatory cycle that could make real progress unattainable.

and acknowledges the basic challenge to negotiations:

The elephant in the room is China. Beijing is not likely to help the United States increase pressure on North Korea, as it did in 2017. Linking North Korea diplomacy to the U.S.-China relationship didn’t work in the Trump administration, and U.S.-China relations aren’t likely getting better soon.

In the past I’ve made this analogy. When you’re worried about the neighbor’s dog biting you, you don’t negotiate with the dog. The only negotiations worth conducting are with China but there are some even more basic questions I’d really like answered:

1. Is North Korea deterrable?

   North Korea has the ability to hurt the United States but we have the ability to destroy North Korea utterly. Which brings us to the even more fundamental question—

2. Do we still believe in deterrence?

I’ve written extensively about nuclear deterrence over the years. It has physical requirements, policy requirements, and psychological requirements. The physical requirement is that you must have the ability to response in case of nuclear attack. We’ve got that. The policy requirement is that you must be committed to acting decisively in the case of nuclear attack. The psychological component is that your opponent (in this case North Korea) must believe that you will they face destruction if they attack us with nuclear weapons.

I believe that we no longer plan to use nuclear weapons under any circumstances which, essentially, means we no longer believe in deterrence. The North Koreans are aware of this. At least they’re certainly acting as if that’s what they believe. Maybe they believe their bunkers will protect them. For deterrence to work we need to believe in it ourselves. I wish President Biden the best of luck in convincing his caucus that we will use nuclear weapons.

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.

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.

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.

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.

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.

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.