Today the editors of the Wall Street Journal warn about the potential impact on the U. S. economy of the coronavirus outbreak in China:

Some of President Trump’s advisers may want to wall off the U.S. and China into separate spheres of influence, but the novel coronavirus is showing the futility of economic quarantines. Like it or not, the Chinese and world economies sniffle and cough together.

Commodities prices sank on Monday amid news that the coronavirus and resulting economic contagion are spreading. U.S. crude oil prices have fallen 20% over the last three weeks as Chinese oil demand is expected to fall by two million barrels a day and global economic growth forecasts have plunged. Copper is down 13%, and iron and steel prices have tumbled.

More than 20,000 coronavirus cases have been confirmed worldwide—an eight-fold increase over the last week—and experts say hundreds of thousands may not yet have been diagnosed. Two dozen or so countries have reported cases, and many have restricted travel from China to limit the contagion. Companies are evacuating employees from China.

Most businesses in Wuhan where the virus originated have shut down as China has quarantined 56 million or so people in the province of Hubei. Businesses across the mainland are extending the Lunar New Year holiday or directing employees to work from home. Apple, McDonald’s, Levi Strauss and Starbucks have temporarily closed stores.

U.S. manufacturers such as Ford, Apple and Tesla have temporarily halted production. One-sixth of Apple sales and nearly half of chip-maker Qualcomm’s revenues come from China. So do 80% of active ingredients used by drug-makers to produce finished medicines. Because China is the world’s largest manufacturer and an enormous consumer market, the economic freeze will disrupt supply chains and reduce corporate earnings.

I think they’re wrong or, at the very least, exaggerating but let’s dig into that a little bit more. First, these words

80% of active ingredients used by drug-makers to produce finished medicines

are made in China should fill you with dread. Just a few years ago food ingredients from China adulterated with melamine killed who knows how many dogs? To this day we don’t know whether it was an accident, malice, or fraud. There is materially no legal recourse for damage done by Chinese suppliers. We can stop doing business with them. That’s about it. Despite that experience not only most pharmaceutical active ingredients but nearly all food additives, i.e. anything that changes a food product’s taste, look, or nutritional content, is produced in China.

Who should bear the risks of supply chains that run through China? As I pointed out some time ago 98% of the economic surplus realized by that is captured by producers not by consumers. The answer is obvious: producers should bear the risk.

How much will a one week suspension of production cost Ford, Apple, or Tesla? A two week. I submit that it will cost them nothing or, at most, the costs will be temporary. I would also suggest that if those producers don’t have enough inventory to hold them through a brief hiatus they are being reckless.

Finally, I don’t recall the editors of the WSJ ever warning that there were risks associated with doing business with Chinese suppliers. Hoocoodanode? Being dependent on sole sources is a risk, too, and the reality is that all too frequently multiple Chinese suppliers are actually a single supplier with multiple nameplates. How would you ever know?

Let me also add a wisecrack I heard years ago. With the aid of a computer in a matter of seconds you can make a mistake that would have taken years to make in the past.

According to my Iowa friends the Iowa Democratic caucuses are always chaotic but last night’s appear to have been even more chaotic than usual. That’s one of the reasons I have been making the assertions I have about them. Institutional support is highly important in such an environment. And software that hasn’t been tested adequately? You astonish me. There are multiple types of software testing, the most basic of which is called “smoke testing”, a test of whether it runs at all. With the pressures for quick and inexpensive development these days it is not unheard of for software to be released into the field without even having been smoke tested.

Apparently, due to software problems with the mobile app that was being used to tabulate the more complicated than usual results and greater than normal chaos, official results in the Iowa caucuses are still not available. CBS News reports:

As Monday turned into Tuesday, there was no victor in Iowa. There weren’t even any official results.

As the campaigns came to learn, the Iowa Democratic Party found “inconsistencies” in reporting the three sets of results it promised to deliver. The information was to come from precinct captains, who were to report it through a newly developed app. But they ran into trouble as caucuses finished.

“In addition to the tech systems being used to tabulate results, we are also using photos of results and a paper trail to validate that all results match and ensure that we have confidence and accuracy in the numbers we report,” the Iowa Democratic Party said in a statement. “The underlying data and paper trail is sound and will simply take time to further report the results.”

Early Tuesday, the Iowa Democratic Party chair said results will be provided “later today,” although he did not specify what time. Price said he wanted to emphasize this is a “reporting issue, not a hack” and “this is why we have a paper trail.”

Earlier, a backup option for precinct captains to report caucus results — a hotline — ran into its own issues.

When CBS News attempted to call the Iowa Democratic Party Caucus Hotline, a recorded message said, “Thank you for calling the Iowa Democratic Party’s Caucus Hotline. All of our operators are currently busy. Your call will be answered in the order in which it was received. We look forward to talking to you soon,” before playing hold music.

One precinct captain who was trying to report his results was on hold for an hour and had apparently just gotten through to the IDP — with CNN listening as he was about to report his results — when the party hung up on him on live television.

This wasn’t an isolated incident.

I think it’s going to be a long year.

Any predictions for the Iowa caucuses? I’ve already presented mine: either 1) Biden 2) Sanders with the others following after or 1) Sanders 2) Biden with the others following.

I wanted to mention some remarks made by Rahm Emanuel yesterday, presumably in reaction to Sanders’s ongoing strength, on ABC News This Week:

Well, here’s what I think is a real challenge for Democrats on the eve of Iowa. What is the bigger threat for our party? And I come to this point, which is, are we going to nominate somebody that can’t win? Or are we going to risk a rupture in the party that is irreparable? And the real question in front of us is those two questions. Now, in 1992, ’96, 2008, 2012, and in 2018, the Democrats showed a formula for winning nationally. And the question is, are we going to follow that formula, or throw the playbook out and try something different? And I’ll say one thing about Bernie Sanders. His playbook is no different than Donald Trump’s. Both rely on the fact that you don’t need fickle swing voters, that, if you just talk to your base and energize the people that should vote for you, you can win.

He returned to that point twice again. I think he’s fighting the last war—that’s yesterday’s news. Go back and take a look at the network graph I linked to last week. Sanders’s supports are not just a threat of a schism in the party. They are in fact a schism. When you have elected officials complaining that the Democratic Party is a rightwing party, as is the case now, there is clearly a problem.

The Democrats’ problem is that they may not be able to win without Sanders’s supporters, who in 2016 did not just swallow and pull the Democratic lever, and they may not be able to win with them.

You will discern a number of themes you have heard before in Michael Barone’s Wall Street Journal op-ed on why the predicted Democratic majority hasn’t emerged, at least not yet:

The Democrats lost to Donald Trump and may do it again. How did the world’s oldest political party, which has won four of the past seven presidential elections and received popular-vote pluralities in two more, find itself in this pickle?

One symptom of the party’s ailment is that its four top-polling presidential candidates in national surveys are in their 70s and No. 5 is a 38-year-old former mayor of a city of 102,000. Why haven’t others risen? Where are the candidates with demonstrated appeal to critical segments of the electorate? One answer is that over the past decade the Democrats have had a tough time electing candidates beyond heavily Democratic constituencies.

The decision to enact ObamaCare in 2010 despite its obvious unpopularity—forced through by Speaker Nancy Pelosi over President Obama’s doubts—not only cost Democrats the House but helped prevent the election of Democratic senators and governors in marginal states and produced Republican legislative majorities that dominated redistricting after the 2010 census. It may be reasonable for a party to risk seats to achieve a major policy goal. But the 2010 losses were massive, and current Democratic complaints about health care suggest ObamaCare hasn’t been a policy success.

The Democratic Party has always been a coalition of out-groups. For almost a century after the Civil War it was an awkward alliance of Southern segregationists and Catholic immigrants. Until the 1930s, it had a hard time finding plausible presidential candidates because most of its prominent officeholders were Southerners or Catholics, then considered unelectable nationally. But in 1932 they had a New York governor who was firmly Protestant and a fifth cousin of the popular Republican President Theodore Roosevelt.

Today, with its four top contenders from the heavily Democratic Northeast—Delaware, Vermont, Massachusetts, New York—it has a similar problem. Delaware and Vermont were competitive states when Joe Biden and Bernie Sanders first sought office in the 1970s. But neither man has faced a competitive statewide race in decades.

Representing a one-party constituency tends to breed habits of complacency, which have been exacerbated by widely circulated prophecies that demographic changes will give the Democrats a reliable national majority. A careful reading of these “ascendant America” prophets— Ruy Teixeira and John Judis in 2002, the Atlantic’s Ron Brownstein and pollster Stanley Greenberg more recently—makes clear that these trends don’t operate automatically.

To prosper from demographic change, a party has to address the issues of the day convincingly and field candidates with appropriate strengths. It also needs to avoid unnecessarily alienating old constituencies. An acquaintance with history shows that when a party gains support from one growing group, the opposition party can gain even more from groups with opposing views even if they’re getting smaller.

That’s what happened in 2016. Rising percentages of Hispanics and Asians and the increasing liberalism of college graduates and unmarried women were supposed to help carry Hillary Clinton to easy victory. Instead they were offset by sharp declines in Democratic support from white voters without college degrees in Rust Belt states from Pennsylvania through Iowa, and in Florida with its many Rust Belt retirees. And as the New York Times’s Nate Cohn argued persuasively that year, noncollege whites are a significantly larger share of the electorate than exit polls have indicated—even if their numbers are slowly declining.

including that non-competitive districts make you complacent and complacency makes you stupid. One of the effects of being concentrated in the cities in safe districts is that it allows you to overestimate your strength.

One factor that Mr. Barone misses is that the very same criticisms could be made of the Republicans. They, too, are geographically concentrated and mostly are elected from non-competitive districts. What the polls tell you more than anything else is that both parties are declining while those who don’t see themselves in either political party are increasing as a proportion or the population.

Update

I had intended to conclude the post above with this thought but it slipped my mind this morning. Many years ago I heard an amusing take on the effect of television on politics to the effect that in California a political party was two people and a television set. Social media has resulted in a continuation of that process with a difference. They have resulted in a sort of perpetual Festivus, celebrated with the airing of grievances and feats of strength, typical among the feats of strength being ganging up on people with whom you disagree. I do not think this is a benign trend and it is clearly disrupting the political parties.

In political science Duverger’s Law is that first-past-the-post elections in single-member districts fosters the emergence of two party systems. Our system certainly appears to support that hypothesis. The uncomfortable conclusion is that however unrepresentative or, indeed, fractional our political parties may be without major structural reform we’re stuck with the political parties we have.

I have seen a number of articles today claiming that Social Security is safe from Trump because no one has the political will to cut benefits or that there will be little action on Social Security in the immediate future. These articles lead me to suspect that the authors don’t know how the system works.

In the absence of action on Social Security, when the trust fund is depleted and income from the payroll tax falls below notional benefits, benefits will cut themselves. That’s not a prescription, that’s just how the system is designed.

Is the assumption that politicians, fearing for their jobs, will pay promised benefits from the general fund?

CNN reports that the first death due to coronavirus outside China has occurred:

The coronavirus outbreak has killed at least 305 people and infected more than 14,300 globally, as it continues to spread beyond China. One person outside mainland China, a man in the Philippines, has died.

There’s a useful summary of what is known about the virus at the New England Journal of Medicine.

The disease is spreading exponentially. That means that in two months there won’t be 14,300 more cases but many times that.

Meanwhile at South China Morning Post Andy Xie complains that the outbreak illustrates a failure of China’s system:

China is effectively in a lockdown. From big cities to little villages, almost every community is under quarantine to a varying degree, or at least faces some travel restrictions. There is little information on how long this will last. One thing for sure is that the government is willing to keep the country in lockdown until the virus outbreak comes under control. A government mobilisation on this scale is unprecedented.
This shows the awesome power of the China model. With government power at the centre of everything, it can mould society in a way not possible in any other large or even mid-sized country. It has grass-roots party cells to implement quarantine policies in every urban compound or village. Going anywhere in the country feels like going through an international airport; someone may pop out suddenly to measure your temperature.
China’s political system allows it to put down everything else to focus on one thing. The economy can take a back seat. If the lockdown lasts for four weeks, which is an optimistic assumption, the economic loss could be around 2 per cent of the gross domestic product. If the crisis lasts longer, the cost escalates proportionately.
While overwhelming government powers are an advantage in handling a national crisis, they are not so effective at preventing one. Since the virus began to surface in early December, developments have unfolded like a sequel to the 2003 severe acute respiratory syndrome crisis, as if nothing had changed in 17 years. It shows that the China model is a blunt instrument good at doing obvious and big things, but not so effective with complex issues at micro levels.

In my view when China emerges from “lockdown” should not be determined solely by China. If the mortality rate of the Wuhan coronavirus begins to reach that of, say, the Spanish flu, which also emerged from China, there should be serious reconsideration of China’s role in the global system.

In a piece at The New Atlantis Zach Graves and M. Anthony Mills make a pitch for technocracy in this age of rising populism:

In his 2017 book The Death of Expertise, Tom Nichols, U.S. Naval War College professor and self-described Never Trumper, laments the turn of American politics toward “the worship of its own ignorance.” And libertarian-leaning Georgetown professor Jason Brennan writes in his book Against Democracy that “when it comes to politics, some people know a lot, most people know nothing, and many people know less than nothing.” Voters generally don’t know which party controls Congress, what major policy debates are about, or how federal spending is allocated. Brennan proposes the idea of “epistocracy,” a system where political power accrues more to the educated and knowledgeable — meaning, in practice, disenfranchisement schemes such as reviving literacy tests for voting, expanded to include basic economics and political science. Meanwhile, Parag Khanna, a TED Talker who describes himself as a “geopolitical futurist,” argues in his 2017 book Technocracy in America, “America has more than enough democracy. What it needs is more technocracy — a lot more…. Technocratic government is built around expert analysis and long-term planning rather than narrow-minded and short-term populist wins.”

America’s first flirtation with technocracy was in the early 20th century when there were serious proposals for a committee consisting of the heads of major corporations with the authority to control the country’s economy. You might not be surprised that these proposals came from the heads of major corporations.

“Technocracy” comes from a pair of Greek words, τέχνη (techne) and κράτος (kratos) meaning skill and power, rule, respectively, and means “rule by experts”. That immediately prompts the question who are the experts? A credential that says you’re an expert would be a start but it’s just a start. Would anyone seriously contend that an individual with a newly-minted Bachelors in Architecture was an expert in the same sense as a practicing architect with decades of experience and a track record of designing beautiful, functional building that were executed on time and within budget? Obviously not.

Some combination of education and certification, experience, and performance would seem to be a winning formula. Who would be dissatisfied with that? The answer, obviously enough, is the uneducated and the young. They would chafe at such a system and, since they had no say in the policies reached, should not be expected to support those policies.

All of the foregoing is the theory of technocracy but, as Yogi Berra pointed out, while in theory there’s no difference between theory and practice in practice there is. In practice technocracy inevitably means either rule by lawyers or rule by the connected. As evidence I would submit that Rahm Emanuel got a job in finance without a degree or prior experience in finance and became quite wealthy, purely on the basis of his political connections while Steve Rattner was placed in charge of the reorganization and recovery of General Motors without a degree or experience in the auto industry, business, finance, or General Motors. What’s the relevance of those two individuals? They represent the technocratic wing of the Democratic Party.

I would also point out that education and health care are two of the most technocratic sectors of our economy and they both have the same problems: enormous increases in costs coupled with diminishing marginal returns to additional spending.

Quite to the contrary there are significant advantages to letting policies emerge from a diversity of opinions. This has been characterized as “the wisdom of crowds”. A diversity of independent opinions can actually result in better decisions than would have been made otherwise.

In conclusion I would point out that under a technocracy Mssrs. Graves and Mills would have no role whatever in formulating the policies that would implement their suggestions. They don’t have the credentials or experience.