The Chinese Model

I see that Robert Samuelson is coming to share my concerns about the consolidation of American businesses, at least if his latest Washington Post column is any gauge:

The paradox is this: Corporate profits have boomed, while corporate investment (financed in part from profits) has lagged. To explain the paradox, economists have advanced various theories. With ample spare capacity, it’s argued, firms don’t need more investment. Or, the U.S.-China trade wars have discouraged investment by trade-sensitive companies. General uncertainty — reflecting, say, Brexit and President Trump’s possible impeachment — reinforces the effect.

Now comes economist Thomas Philippon of New York University , who makes an astounding claim: The real culprit is the U.S. economy, long considered the most market-oriented major economy, because it suffers from a lack of competition.

Over the past two decades, “competition has declined in most sectors of the U.S. economy, ” he writes in his new book, “ The Great Reversal: How America Gave Up on Free Markets.” Companies can afford to be complacent because they face fewer rivals that might steal their sales and profits. Nor, he argues, is the problem confined to the superstar firms that catch all the headlines. It’s widespread. One recent study of 360 manufacturing industries found that, on average, the market share of the eight largest firms had risen from 50 percent to 59 percent since the late 1990s.

Increasingly insulated against competition — a phenomenon Philippon attributes to lax American antitrust policies and a general indifference to market structure — U.S. companies have had the freedom to raise profit margins and ship hundreds of billions of dollars in profits to shareholders via higher dividends and buybacks. (Buybacks are thought to raise firms’ stock prices by reducing the number of shares outstanding.)

I don’t think the counter-examples he provides are counter-examples at all. His first counter-example is in the auto industry:

Philippon also has minimized how much competitive pressures in the United States have increased since the mid-1960s. Then there were three major automakers (General Motors, Ford and Chrysler); now the number exceeds a dozen.

There are actually only two major U. S. automakers: GM and Ford. Chrysler hasn’t been a U. S. automaker for decades. What is actually happening is that there are global production chains and a significant number of foreign automakers, in some instances grudgingly, have assembly plants in the U. S. But those companies frequently are protected in their home countries and in many cases there is little competition among the suppliers.

Or his next example:

The three major TV networks (NBC, CBS and ABC) have morphed into dozens of cable and streaming video channels.

That’s a myopic view of the actual situation. There are presently a handful of providers: NBCUniversal, National Amusement (CBS), and Disney (ABC) and they own nearly all the other channels and, increasingly, the streaming services. There’s also WarnerMedia, Fox Corporation, Netflix, and Amazon. What appears to be a bit more competition is actually substantial consolidation among sectors that used to be considered distinct: local broadcasting, national broadcasting, production, distribution, and cable. What were dozens of companies a half century ago are now a handful. And the cable providers have government-granted monopolies within their territories.

His final example is even worse:

In 1982, the country had one effective nationwide telephone network (AT&T); now there are four.

In practice there are two and both are splinters of the “one effective nationwide telephone network”. Of his four major carriers (AT&T, Verizon, T-Mobile, and Sprint) AT&T with 35% of the market is, well AT&T, Verizon also with the 35% of the market used to be Bell Atlantic, T-Mobile has 17% of the market, and Sprint, barely able to sustain operations, has 12%. Being a monopoly, even a regional monopoly, doth have its privileges.

I’ve made my views clear. I think that size is the enemy. After a certain relatively small size big companies have fully realized all economies of scale and gain a further competitive edge via rent-seeking. Big companies are inefficient and risk-averse. We should be breaking up megacorporations simply because they’re too big not to be dangerous. If we’re worried about the ability to compete with foreign megacorporations, we should bar them from doing business in the United States.

We don’t need to emulate China to be competitive with China. We can’t compete with them in China because we’re not allowed to and unless we’re willing to adopt the Chinese model fully, which means nationalization, protection, and subsidies, we can’t compete with them here, either.

6 comments

Advice From Rahm

I thought that Rahm Emanuel made a terrible mayor for Chicago but that doesn’t bar me from recognizing that he’s one of the savviest political strategists the Democratic Party has. Here’s his advice to the presidential candidates from a piece at Politico:

Every Democrat shares in the conviction that our overriding priority is making Donald Trump a one-term president. Liberal or moderate, we’re united in wanting to win. And after our big victories last November and earlier this month—which saw Democrats victorious not just in safely blue areas, but also in competitive suburban communities and battleground states—there’s no question about how to get that done.

Which is why, for the life of me, I cannot understand why our presidential candidates are failing to heed the lessons from Democrats’ 2018 and 2019 victories.

The Democratic candidates who have prevailed in battleground contests since 2016 didn’t embrace pie-in-the-sky policy ideas or propose a smorgasbord of new entitlements. They didn’t talk constantly about providing a guaranteed basic income. Or promising to make college free. Or eliminating private insurance and replacing it with a government-run health care system. Or giving $250 more each month in Social Security benefits. Or enacting the Green New Deal. Or calling for the immediate and abrupt end of fossil fuels. Or vowing to seize guns from people’s homes.

They also didn’t run on decriminalization of entering the country without authorization or anything else that might be construed as “open borders”. Okay, what should they be doing?

When Whitmer was running for governor, she made “Fix the Damn Roads!” her campaign slogan because that phrase spoke to Michiganders’ general frustration that government simply wasn’t doing its job. She wasn’t offering voters Shangri-La, in large part because she knew they wouldn’t believe any elected official could deliver it. Instead, she offered the public an appreciation that getting the basics done well would exceed most people’s expectations and help improve their lives in practical, tangible ways. By tapping into the prevailing view, Whitmer was able to fortify our party’s Metropolitan Majority—flipping a swing-state gubernatorial seat Republicans had held for eight years.

That’s why our party enjoyed so much success both in 2018 and then again this Tuesday. What’s so odd is that despite the lessons of their success, our candidates are taking positions during this primary campaign that will almost inevitably be liabilities during the general election.

The dissonance is remarkable. Compare what the candidates who won last year and this year’s elections have done to what the presidential candidates are offering ahead of 2020. On health care, successful Democrats didn’t mention Medicare for All; they explained how they would control prescription drug costs and preserve protections for pre-existing conditions. They didn’t offer free college; they spoke about equity and fairness across the educational spectrum, from early childhood to higher ed. They didn’t talk about the Green New Deal so much as they proposed to expand renewable energy and invest in the jobs and growth that come with it. They didn’t offer to guarantee anyone’s income so much as explained how they would attract good jobs that would provide for a middle-class life. They didn’t talk about confiscating guns from law-abiding citizens; they promised to support the background checks that prevent criminals from getting access to weapons.

That isn’t just politically pragmatic. It warms the cockles of my elderly heart. I believe in good, competent government. That’s why I find the claim that too many Democrats are making, that government employees should resist any policies they don’t like because they don’t like the incumbent so damaging. It isn’t conducive to good government.

Sometimes good government means less government; sometimes it means more. It means making workable policy choices and at least attempting to cobble together a consensus to support those choices rather than ruling by 50%+1.

21 comments

High Crimes

At Time Robert Ray expresses an interpretation of the House’s power of impeachment that will strike many as just wrong:

So while it is fashionable at the moment for some to argue that President Trump is removable from office simply if it is proved that he abused the power of his office during his July 25 call with Ukrainian President Zelensky, the Constitution requires more. To ignore the requirement of proving that a crime was committed is to sidestep the constitutional design as well as the lessons of history. A well-founded article of impeachment therefore must allege both that a crime has been committed and that such crime constitutes an abuse of the President’s office.

The problem for those pushing impeachment is that there appears to be insufficient evidence to prove that Trump committed a crime. Half the country at present does seem prepared to conclude, on the basis of the summary of the Trump-Zelensky call released by the White House on Sept. 25, that Trump at least raised the prospect of an unlawful quid pro quo. The theory seems to be that Trump proposed an exchange of something of personal benefit to himself in return for an official act by the U.S. government. On one side of that alleged quid pro quo would be the public announcement of an investigation by Ukraine into a rival presidential candidate, former Vice President Joe Biden, and a member of Biden’s family. On the other: the release of temporarily withheld foreign aid, including military assistance.

or at least terribly inconvenient. The view that a “high crime or misdemeanor” is anything the House says it might be is pragmatic and was first noted by Gerald Ford during the Watergate hearings. It is pragmatic but it may not be legal and it is unlikely to rally many Senate Republicans to the House’s cause.

That the Constitutional formula may have an actual meaning is the very reason that ever since the story of the Ukraine phone call broke I have been saying that it was incumbent on the House to define precisely what they objected to in the president’s words and actions. I don’t believe they can without condemning presidential negotiation with foreign heads of state as such, something clearly within the scope of presidential authority. Should it be illegal for a president to ask something of political benefit to himself in negotiations? Of personal but intangible benefit? How would that not make the negotiation of the Trans-Pacific Partnership agreement, for example, an impeachable offense?

My point is: be careful how you answer.

11 comments

Different Worlds

Continuing with my perplexed series of posts, the two different camps, Trump’s supporters and those opposing him, are living in two completely different worlds. For his opposers, he’s about to be impeached, rightfully, by the House while the Senate will clear him for purely political reasons. For his supporters, the House is engaging in a purely political exercise and Trump will be acquitted by the Senate. For his opponents Trump has been engaged in treasonous or, at least, damaging activities since before his election. For his supporters, partisan Democrats within government have been undermining Trump’s presidency since before Trump’s election. For Trump’s supporters the soon-to-be-released Department of Justice Inspector General’s report will reveal the truth about the Deep State conspiracy. For his opponents it’s all a bunch of nothing.

They hate each other.

I don’t know who is right and who is wrong or if they’re both wrong or both right.

13 comments

Science Fiction in the 1930s

At the Kirk Center John Tuttle remarks on the influence that C. S. Lewis’s Space Trilogy, beginning with Out of the Silent Planet had on the maturing of science fiction:

The 1930s was a decade sprinkled with literature of all sorts that related fantastic tales concerning the goings-on of Mars and its inhabitants. Throughout the thirties, there were several installments of Edgar Rice Burroughs’s book series John Carter of Mars. Around this time, other historic literary figures took up an interest in the Red Planet and set fictional plots in revolution around this alien world. Among these was C. S. Lewis.

So it happened that 1938 witnessed a bit of a boom in the sensationalization of Martian fiction. For one, it was that year that Orson Welles delivered his radio dramatization of The War of the Worlds by H. G. Wells. A sizeable portion of its American audience mistook the news-like broadcast to be a literal invasion of some kind. In addition to this, C. S. Lewis had his first science fiction novel published that year. It was called Out of the Silent Planet, and the alien world on which the protagonist finds himself is, in fact, Mars.

To my eye the author overstates Lewis’s influence considerably. Edgar Rice Burroughs’s science fantasies hadn’t been considered mainstream science fiction for decades by that time. By and large his works were published in adventure magazines not science fiction magazines. Ironically, I can’t help but wonder if Mr. Tuttle has actually read Burroughs’s Mars series, since Lewis’s Malacandra is remarkably similar to Burroughs’s Barsoom rather than a contrast with it.

Eschatology had been treated in science fiction since the early 19th century. That certainly wasn’t an innovation of Lewis’s. Neither was the theme of “Man as invader”—that had been a commonplace theme in mainstream science fiction at least since the 1920s.

I don’t think you can present a complete account of the transformation that took place in science fiction in the 1930s without mentioning two names: Stanley G. Weinbaum and John W. Campbell.

By the 1930s “space opera” dominated science fiction. Space opera is, essentially, westerns transplanted into outer space and other worlds. The usual comparison between space opera and horse opera is usually something like this:

Horse Opera Space Opera
“Hoofs pounding, Arizona Slim rode into the dusty streets of Alkali Flats, leapt from his horse Diablo and drew his six gun to face the desperados.” “Jets blasting, Trooper Bill Johnson emerged from his spacecraft on the desolate world of Altair IV, drew his blaster, and squared off against the space pirates.”

The movies are still dominated by space operas: both Star Trek and Star Wars are space operas.

Stanely G. Weinbaum, who died at the tender age of 32, began to change that in the mid-1930s. His short story, “A Martion Odyssey” and his few other published works were, essentially, fusions of mainstream fiction with science fiction, very different in tone and style from the dominant space operas. Although John W. Campbell’s greatest influence was as the editor of Astounding Science Fiction later renamed Analog which continues to be published to this day, as a writer his stories emphasize character, mood, and scientific plausibility. His story, “Who Goes There?” was dramatized into the movie The Thing From Another World and remains a favorite. Their work really reflects the changes in science fiction that were emerging during the 1930s.

11 comments

Are Empirically-Based Predictions of Presidential Elections Rational?

I find myself more and more perplexed these days. Contrary to Pat Moynihan everyone has their own facts these days.

As of this writing every econometric model of the 2020 presidential election predicts a solid victory by Donald Trump, in some cases by more than a standard deviation. Ray Fair’s model for the 2016 election was right on the money—it predicted that Hillary Clinton would narrowly win the popular vote.

Ray Fair and Mark Zandi, two of the primary authors of these econometric models, are both Democrats; they cannot reasonably be accused of bias. If anything their bias would be in the other direction. These econometric models are based on facts not opinions, perceptions, or biases.

Are econometric models of presidential elections rational? Are they meaningless? Or is this time different?

1 comment

“Bending the Curve” Is Wishful Thinking

In a piece at Bloomberg Noah Smith complains that reducing costs is the sine qua non of health care reform:

Why is it so hard to agree on a health-care plan? One obvious possibility: Reform plans feel as intolerable as the status quo while lacking the promise of lowering costs. The U.S.’s uniquely dysfunctional hybrid public-private system has resulted in the country devoting a much higher share of its output to health care than its rich-world peers…

Advocates of single-payer plans tend to assume that switching to national health insurance will reduce costs. This assumption features in both Warren’s and Sanders’s proposals. There is some justification for this. Health care in Canada, which has a single-payer system, costs much less; if the U.S. spent the same percent of its gross domestic product on health care as its northern neighbor, it would save more than $1.34 trillion a year.

I’ve been arguing that the foremost objective of health care reform should be to reduce spending for the last ten years now. Welcome to the fight, Mr. Smith.

Note that nobody has proposed that we adopt Canada’s system or, indeed, anything resembling Canada’s system. What has been proposed are systems with greatly expanded coverage, less “skin in the game” for patients, and overblown estimates of the savings from lower administrative costs.

Canada spends about half what we do on the administration of their system but everything in Canada’s experience tells us that economies of scale are fully realized at fewer than 50 million people covered and our knowledge of bureaucracies is that their costs increase exponentially with size.

Dare I mention that Canada is tremendously demographically different from the United States? We haven’t been as homogeneous as Canada since the 19th century if ever.

Here in the United States we spend more on infrastructure, defense, and education than anybody else, too. That’s not because we have a fragmented hybrid system.

What we don’t have is the one thing most needed for health care reform to reduce spending: a commitment to cutting spending. Politicians don’t want it, patients don’t want it, and providers don’t want it.

18 comments

There Can Be Only One

In my second example of wishful thinking this morning I heard Matt Dowd on ABC News expressing skepticism that there was room in the Democratic presidential candidate roster for Michael Bloomberg, noting that 75% of Democrats have said they are satisfied with the present group of candidates.

The problem is that Democrats will need to settle on a single candidate. Democrats can’t vote for the roster and at this point each of the leading candidates has some serious issues. At best Joe Biden is a mediocre candidate. Bernie Sanders is an angry old man and I find the notion that a non-Democrat would be the party’s standard-bearer incredible. And Elizabeth Warren has just published what I have heard waggishly called “the longest suicide note in American political history”. Will enough Democrats vote for “anybody but Trump”? Will there be enough crossover votes to elect “anybody but Trump”?

Not to mention that there is always room for a Democrat with a track record and the ability to finance his own campaign.

11 comments

Wishful Thinking

The theme for today seems to be wishful thinking. My first exhibit is this editorial from the Dallas Morning News on what to do in reaction to the murders of the Americans living in Mexico:

So how can the U.S. help Mexican authorities stem the rising tide of violence and terror?

First, it’s clear that President López Obrador’s campaign promise of using “hugs not guns” to address the break down of Mexico’s social fabric and the rule of law was considered a sign of weakness by the cartels. Last month’s decision by the Mexican government to release Ovidio Guzmán López, the son of drug kingpin Joaquin “El Chapo” Guzman, to prevent further bloodshed after eight people were killed in a botched raid in Culiacán has also emboldened the cartels.

But do the high-profile arrests and extradition to the U.S. of kingpins like El Chapo actually weaken the cartels? Jake Dizard, a fellow with the Mexico Security Initiative at The University of Texas at Austin, is skeptical. “The U.S. should continue to provide intelligence on criminal groups to Mexico,” he us, but “U.S. law enforcement should recognize the counterproductive nature of playing whack-a-mole with cartel leaders and help Mexico develop a more comprehensive, civilian-led security strategy.”

What would such a strategy look like? All the experts we spoke with agree that a joint effort to crack down on illegal U.S. gun sales to Mexico should be a high priority. Patrick McNamara, a history professor at the University of Minnesota and an expert witness on more than 100 asylum cases, says the U.S. should also “stop obsessing about Central American refugees and allow Mexico’s new National Guard to be deployed to protect Mexican civilians in northern Mexico” instead of stopping peaceful migrants from heading north.

This is nonsense. If we can’t “crack down” on cross-border illegal drugs or human trafficking, how in the heck will we do so on the illegal gun trade. We can’t even crack down on illegal guns in Chicago. Nearly all Chicago’s homicides are perpetrated using illegal guns.

2 comments

Why Do Blacks Support Biden?

In his Wall Street Journal column Jason Riley attempts to explain something I have been trying to explicate for some time:

Your typical black Democratic primary voter is likely to be middle-aged and female, and right now Joe Biden is her guy. But who’s her second choice?

There is general agreement that black voters, while a small percentage of all voters, could again play an outsize role in determining the Democratic presidential nominee and the outcome of next year’s election. Blacks are concentrated in important primary states, such as South Carolina, as well as in the cities of key battleground states like Michigan and Wisconsin.

Perhaps taking them for granted, Hillary Clinton failed to mobilize enough black voters in 2016, when black voter turnout fell in a presidential election for the first time in 20 years. Mr. Biden believes he can succeed where she failed, and perhaps he can. His popularity among blacks obviously stems from his eight-year stint as Barack Obama’s vice president. He is quick to invoke Mr. Obama’s name in front of black audiences and to defend their administration’s policy victories, such as ObamaCare. Mr. Biden is also more politically moderate than most of his rivals, which sits well with older blacks who are more likely to vote.

Blacks are more conservative than Democrats, generally, they are more religious than Democrats, generally, their rate of military service is higher than Democrats, generally, and their median level of educational attainment is lower than Democrats, generally.

2 comments