To get a better idea of what has happened in the United States as a result of China’s mercantilist policies, read this op-ed at The Hill by Shalabh Kumar. Mr. Kumar proposed seven steps to heal the U. S. economy:

1. Place tariffs on all imports from China for six months to establish a new baseline and demonstrate America’s resolve — all means no exceptions, particularly finished goods.
2. After six months, invite them to rejoin negotiations.
3. President Trump should demonstrate his earnestness with a concession on 10 percent of the goods imported, a good-faith move to show Beijing that we will concede in some areas while retaining our right to protect long-term manufacturing.
4. All negotiations should include manufacturing experts. Our biggest mistake in trade negotiations is that we do not have these experts on the negotiating table. Lawyers are great, and are needed, but you can be assured that China has their best manufacturing minds on the table.
5. The manufacturing experts will know what makes sense for both parties to be happier.
6. Manufacturing experts will focus on how to bring back the high-tech manufacturing jobs by picking the proper Harmonized System codes to tariff — the standardized names and numbers to classify traded products — not for the benefit of Wall Street and their quarterly reports, but for long-term manufacturing renaissance in America. Some Silicon Valley CEOs will complain that their costs will go up, but that is quite minor compared to the overall growth of American economy. When America reduces its trade deficit and budget deficit, every American prospers.
7. The balance of 90 percent should be very carefully scrutinized, once again not solely by lawyers and economists but also by manufacturing experts.

I would add one more measure. I think that the purpose of the tax code should be to generate revenue rather than to change behavior or create a basis for granting political favors. If that’s how the tax code were viewed, we would abolish the corporate income tax. It is an inefficient tax.

As long as we’re committed to using the tax code for purposes other than generating revenue, at least it could be used to cultivate behaviors we want rather than those we don’t. The tax code should be changed to encourage businesses to modernize and/or expand facilities rather than encouraging them to consolidate.

In 2016 Hillary Clinton carried the following states by a majority of the vote: California, Illinois, New York, New Jersey, Vermont, Massachusetts, Connecticut, Rhode Island, Delaware, and Maryland. In the other states she carried more people voted against her than voted for her.

Update

Add this to your pipe. Here’s the rank of those states in terms of fiscal health (worst is 50—Illinois, natch):

That’s a catastrophic display of bad governing. On whom shall we depend for good government? Too many Republicans are minarchists or anarcho-capitalists for that.

There is something terribly wrong with this paragraph from Nikolas Kristof’s lament at MSN over the possibility of China’s subduing Taiwan by force of arms:

There are steps the U.S. can take that might reduce the risk of a crisis. Washington can emphasize to Beijing that Taiwan will not take any unilateral action, such as declaring itself an independent country — unless China makes a military move, in which case it will do so at once. The U.S. can also caution Beijing that if the electricity goes out in Taipei, the same may happen in Shanghai, and that if Taiwan-bound ships are harassed, they may be reflagged as American vessels.

The first and most egregious is that Taiwan is not the United States. Washington cannot “emphasize to Beijing that Taiwan” will not declare independence. It does not have that authority. That’s up to the Taiwanese.

The second is that the Taiwanese are not without agency. If they do not have the ability to defend themselves, they should cultivate it quickly.

For the last three generations the United States has maintained a precarious policy of declaring that the political situation of Taiwan was a matter to be settled between Beijing and Taipei not by the United States. We should continue that policy.

I presume that Mr. Kristof’s reaction was prompted by the situation in Hong Kong. Hong Kong is a part of China. That “one country two systems” could not be sustained was obvious 25 years ago. If we did not want Hong Kong to be subsumed into the mainland, we should never have granted China most favored nation trading status and vetoed China’s admission to the WTO when we had the chance.

If I were President Xi and if I were intent on taking control of both Hong Kong and Taiwan and the United States were to make the pronouncements Mr. Kristof proposes, I would make a pre-emptive nuclear strike, presumably an EMP attack, to neutralize the United States in one master stroke. I doubt that any of us including President Xi are prepared for that.

I don’t entirely agree with Bradley A. Thayer and Lianchao Han’s take on our trade war with China, expressed at The Hill, but I think that their statement of its sources are on target:

In 1987, China’s trade surplus with the U.S. was only $2.7 billion, one-twentieth of Japan’s. By 2018, the People’s Republic of China’s trade surplus with the U.S. had reached nearly $418 billion, 150 times what it was three decades ago. In the past 30 years, China has snatched an astronomical $4.4 trillion from the U.S. Additionally, there is an estimated $300 billion to $600 billion annual loss from China’s theft, and at least 3 million highly paid U.S manufacturing workers lost their jobs because of competition from China. Chinese government-subsidized or forced labor produced billions of dollars worth of cheap goods that have been dumped onto the U.S. market.

This newly gained wealth has helped China create a dystopian nation, modernize its military into a formidable force, take the South Sea as its inland water, expand its political influence globally, rewrite international laws and norms, export its ideology and development model to developing countries, and contend for dominance in international politics.

That didn’t need to happen and, in particular, it didn’t need to happen at the pace that it did. It was an artifact of mercantilist Chinese policies. We dug a trap for ourselves and then fell into it. Climbing out will be neither easy nor painless but it’s something we must do for the health of our own economy and society. The transition mostly involves changing our behavior.

Those who fall back onto abstract arguments in favor of free trade ignore that we have never had free trade with China. We have had trade carefully managed to ensure that the benefits of trade go mostly to China and secondarily to top managers of big corporations who’ve reaped most of whatever economic surplus the Chinese allowed to flow in this direction.

Thinking that Trump has mismanaged that trade war or is a blowhard is fair enough. But if you want to return to the status quo ante, it’s incumbent on you to explain how the 50%+ of the American people who will never get college degrees will earn a decent living. I don’t think we can do that absent a diverse economy based on more than retail, health care, and education.

The first episode of Gunsmoke on the radio was broadcast on April 26, 1952. From then until the end of its run on June 11, 1961 some 480 episodes aired including reused scripts. Roughly 420 of these are available free, streaming online at archive.org.

For the last year and a half I have been doing a lot of medium distance driving, visiting a customer in southern Wisconsin once or twice a week. During these trips I have stayed alert by listening to episodes of Gunsmoke. As of today I have listened to all of the episodes available online. I recommend them. They may give you a different view of the 1950s, radio, Gunsmoke, or all three.

IMO it’s the greatest radio drama ever aired through a combination of fine acting, scripts, and production. Throughout the entire run William Conrad (later on television narrating Rocky and Bullwinkle or starring in Cannon) portrayed Matt Dillon, Parley Baer was Chester, Howard McNear was Doc, and Georgia Ellis was Kitty. John Dehner was in so many episodes he might just as well have been considered a member of of the principal cast. He played practically everything imaginable from grizzled old buffalo hunters to gunslingers, to cavalry officers, and to Washington bureaucrats. He must have been gunned down by Matt Dillon more than anyone else in history.

Speaking of predictions, in his Wall Street Journal column William Galston makes some predictions about the 2020 presidential election:

• Turnout will be very high. I suspect he’s wrong about that. How high is high? In each of the last four presidential elections turnout has been between 54% and 58%. I think it is very unlikely that voter turnout will exceed 2008’s (58.2%). I think it’s more likely to be what it was in 2004 and 2012—right around 55%. I wouldn’t call such a turnout high. Voter turnout was around 80% in nearly every presidential election between 1840 and 1900. The sad reality is that the higher the registration, the lower the percentage turnout.
• Despite the rise of cultural issues, the economy will matter. I agree with that.
• President Trump is likely to receive significantly less than 50% of the popular vote, and a smaller share than his Democratic opponent. I have no idea whether that’s right or wrong. Hillary Clinton received 65,853,514 and Donald Trump received 62,984,828 votes in 2016. That’s a difference of 2.1% of the popular vote. That’s within the margin of error. IMO the people who are making such predictions have been reading their own press releases too long. They could be right but they could be wrong, too.

In an op-ed in the Wall Street Journal Joseph Epstein repeats a theme I have enunciated myself:

Whether economics is a science at all has long been in doubt, chiefly because the subject is heavily politicized. There are no liberal and conservative physics, no right- or left-wing chemistry, but economists do line up politically—Marxists vs. free-marketeers, Keynesians vs. Hayekians—in a way that squashes the claim to objective scientific standing.

“I much like Milton Friedman, George Stigler, Gary Becker and other of the University of Chicago economists,” my friend Edward Shils once told me. “But you know, Joseph, I fear they are insufficiently impressed by the mysteries of life.” Years ago I was at lunch with a Chicago-trained economist who asked me about an article on the subject of psychiatry going awry that was about to run in a magazine I was editing. I mentioned that one of the ways it had done so was by blithely accepting transgender surgical operations, which the author of the article argued would one day be viewed as the lobotomies of our time.

“I happen to know that until now there have been no lawsuits against physicians performing these surgeries,” my companion replied, “so I assume market satisfaction.” I gulped. Market satisfaction—surely the least interesting aspect of the complex subject of transgender surgery, and further evidence of the shortsightedness of economic thinking.

In a sense his op-ed is self-refuting. Psychology is politicized, too. All of the social sciences are politicized, especially when money is involved. As to there being no Democratic or Republican physics, give it time. That’s being worked on.

My view is that it is quite possible to be a science but not a predictive science and that economics fits that description quite neatly. It’s a descriptive science like anthropology or sociology not a predictive one like chemistry or physics.

A distinctive problem that economics has that anthropology does not is that an alarming number of economists were inspired to pursue the study by reading Isaac Asimov’s Foundation series. There are far too many would-be Hari Seldons out there, longing to direct the course of human history over a period of thousands of years. It might be that economics will arrive at that point some day but that day is millennia away.

Meanwhile, while it’s very helpful as a guide to policy to know that the higher the price, the fewer the purchases (for ordinary goods) don’t expect an economist to tell you how many sales will be lost by increasing the price of something by a dollar.

At YaleGlobal Online foreign correspondent Mike Chinoy analyzes the situation in Hong Kong:

In any case, the long-term prognosis for Hong Kong appears bleak. Indeed, diplomatic sources report that a deeper rethink is underway within the Chinese Communist Party about how to handle the territory. According to one analyst, a number of Chinese think tanks have begun to explore the concept of a “second handover,” acknowledging that, from Beijing’s perspective, the first two decades of post-colonial rule have been a failure. China could seek a new formulation under which Hong Kong would be thoroughly absorbed into the mainland, suggests one well-informed Western observer, “although precisely what Hong Kong will look like afterwards remains to be worked out.”

In the meantime, the question from China’s the 1989 democracy movement remains: How much longer will China’s communist rulers let this continue?

or, said another way, the Chinese leadership realizes that they don’t need Hong Kong any more and that the risks of a semi-autonomous Hong Kong far exceed the rewards. Or, said yet another way, international agreements with the Chinese authorities are worthless.

One thing I didn’t touch on in my posts about risk yesterday was that public pension funds have been taking bigger risks with the funds entrusted to them. At City Journal Steven Malanga explains:

Since 2001, the study found, most government pension funds have boosted their share of investments in riskier financial vehicles, from volatile stocks to real estate. During this period, pension funds achieved median annualized returns of just 6.4 percent, well below the goal of 7.5 percent to 8 percent returns. Only one pension system has met its investing goals since 2001. No wonder, then, that the indebtedness of state systems increased from $33 billion to a staggering $1.5 trillion.

The problem stems from politicians squandering the strong investment returns of the 1990s. Rather than banking pension systems’ rising surpluses in those flush years, elected leaders in California, Illinois, New Jersey, South Carolina, and elsewhere expanded worker benefits—promising that financial markets could underwrite the new costs. But economic downturns inevitably ensued, with market crashes in 2001 and 2008. The declines drained the systems of valuable assets, and when the Federal Reserve lowered interest rates, returns languished in safer investments, such as government bonds. The so-called risk-free rate of return—that is, the return that an investor earns from putting money into such instruments—fell from 5 percent in 2001 to just 2 percent today.

Forced to seek bigger gains elsewhere, pension funds have gambled more. Since 2001, the portion of state pension-fund portfolios invested in stocks and alternate financial vehicles rose by 10 points, to 77 percent. Portfolio managers chased these investments even as the pension systems matured, with a growing percentage of members nearing retirement. This approach departed from that of just about every other type of pension fund. As a 2014 study by the Society of Actuaries noted, “Public sector plans in the U.S. are unique in that they have taken additional risk as the plans have become more mature, compared to private sector plans in the U.S. and private and public sector plans in Canada, UK and the Netherlands, which have taken less risk as plans have matured.”

The stock market isn’t like an annuity. The history of equities tells us that returns come in fits and starts. There can be many years of few if any returns followed by a few spikes of great returns. But that’s not what the assumptions of public pension funds need to meet their goals. They must realize 7.5% – 8% returns every year. All but a very few public pension funds have come anywhere near that so, consequently, they’re chasing greater returns by taking more serious risks.

That’s what will inevitably happen when assumptions are unrealistic and neither those putting the pension plans into effect, the beneficiaries of the pensions, or the managers of the pensions assume any risk. Worst comes to worst they can always fall back on the taxpayer.

Or can they? Illinois’s population is declining in absolute terms and on average those leaving have higher incomes and wealth than those remaining.

What I think should happen is that the pay and pensions of legislators should be contingent on the assumptions they’ve built into the plans they’re created being met. They are, after all, the people who are able to change those assumptions and plans. They need more skin in the game. Maybe even clawbacks. Maybe even clawbacks that exceed the state pay they’ve received—many derive much more income from peddling their contacts and influence than they do at their jobs as state legislators, cf. House Speaker Mike Madigan.

But all of that is a pipedream.