At Wired Daniel Oberhaus points out one of the challenges facing the “Green New Deal” or any other largescale plan to replace U. S. energy with something more carbon-free—the electrical grid:

The fundamental challenge with integrating solar and wind energy into the US electric grid is that the areas that are best for generating these types of clean energy are usually very remote. The Great Plains is the place to harvest wind energy, and the Mojave Desert gets sun 360 days a year, but these locations are hundreds—if not thousands—of miles away from America’s biggest cities, where clean energy is needed most. Piping this energy from wind and solar farms means building more interstate high-voltage transmission lines, which are expensive, ugly, and loud. Unsurprisingly, most people don’t want transmission lines near their homes, so new builds often face stiff political resistance from locals.

That’s also a problem with things like mass use of electrical vehicles which will inevitably place a greater load on the grid. It’s an interesting piece and you may find it informative. Something that goes unmentioned in the article is that the most efficient place in which to use energy is near where it’s captured or generated. Just conversion from direct to alternating current causes a drop.

Why is Tom Steyer running for president?

1. The House Democrats have not impeached Trump (that’s what he said)
2. He’s dissatisfied with what the present Democratic candidates are saying about environmental issues
3. He doesn’t think that Kamala Harris can cut it
4. Because it is there
5. Why not?
6. It’s a consequence of the Law of the Conservation of Democratic Presidential Candidates. When one stops running, someone else must start running.
7. All of the above
8. Other

I’m not sure that George Melloan has thought his recent remarks in an op-ed decrying “monetary stimulus” in the Wall Street Journal through completely:

After the 2009 slump, economic growth from 2010-17 averaged 2.2%, well below the 3% historical average, despite the Fed’s drastic measures.

Low interest rates certainly stimulate borrowing, but that isn’t the same as economic growth. Indeed it can often restrain growth. The national debt doubled during the Obama years and now stands at more than $22 trillion. Congress got the idea that credit somehow comes free of charge. So now the likes of Elizabeth Warren and Bernie Sanders think there is no limit to how much Uncle Sam can borrow.

Easy money not only expands debt-service costs but also encourages malinvestment. Hence America’s productivity growth rate has averaged only 1.3% since the recovery began, until its leap to 3.4% in the first quarter of this year on a resurgence of business confidence and productive investment.

The emphasis is mine. I agree with the assertion that borrowing or, indeed, credit expansion is not synonymous with economic growth and the reason (“encourages malinvestment”) is deadweight loss. That, too, is the reason I’m skeptical about infrastructure spending, defined as building roads and bridges. Some of it is investment, some is just throwing money into a hole. The exigencies of politics result in some of each but the balance between them is important. IMO nowadays we’re throwing far too much money into holes. Heroic measures to preserve a few weeks of additional vegetative life for the elderly? More people with degrees in journalism, art history, or interest studies? Throwing money into a hole. A better electrical grid is worthwhile infrastructure investment and it’s not something that private enterprise will do on its own. How do I know that? Because that’s not the direction in which the incentives point. But the electrical grid never appears on the list of infrastructure projects, possibly because no politician ever put her or her name on the electrical grid.

IMO the lowest hanging fruit for economic growth is to stop subsidizing people who don’t need subsidies and behaviors we don’t want to encourage but every subsidy has its political constituency.

Howsomever, if borrowing isn’t economic growth, what is economic growth?

The campaign for a $15 per hour minimum wage has become one of the keystones of Democratic economic policy. Its conceptual underpinning is something called in econ-speak the “downwards inelasticity of employment” with respect to wages. At the Wall Street Journal Michael Saltsman discusses a Congressional Budget Office report that to my mind demolishes the case for a $15/hour minimum wage:

Democrats pledged a $15-an-hour minimum wage while campaigning in 2018, and all but three of the party’s 2020 presidential candidates endorse the increase. But a new report from the Congressional Budget Office finds the policy could leave nearly four million workers without a job.

This week’s analysis is an update of CBO’s 2014 analysis of a $10.10 minimum wage, which said one million workers would be pulled out of poverty at the cost of half a million jobs. That conclusion was enough to tank the proposal; a Bloomberg poll at the time found that 57% of Americans viewed the jobs trade-off as “unacceptable.”

Democrats have responded to CBO’s wage warning by ignoring it. The Raise the Wage Act of 2019, introduced in January, would set a $15 minimum wage by 2024. The trade-offs from this legislation are even worse than in 2014. CBO finds a $15 minimum wage would pull 1.3 million workers out of poverty at the cost of 1.3 million jobs in the median scenario, and 3.7 million jobs in the worst-case scenario.

Here’s a verbatim quote from the report cited above:

In an average week in 2025, the $15 option would boost the wages of 17 million workers who would otherwise earn less than $15 per hour. Another 10 million workers otherwise earning slightly more than $15 per hour might see their wages rise as well. But 1.3 million other workers would become jobless, according to CBO’s median estimate. There is a twothirds chance that the change in employment would be between about zero and a decrease of 3.7 million workers. The number of people with annual income below the poverty threshold in 2025 would fall by 1.3 million.

To my eye that fails to meet the moral standards for a $15/hour minimum wage let alone the pragmatic standards. My advice: try something else. From a cost benefit standpoint an increase to $10/hour is much better although it, too, rests on shaky moral grounds.

Persisting in campaigning for a $15/hour minimum wage at this point would suggest that your actual objectives in a $15/hour minimum wage are something other than helping the people you’re claiming you want to help. Objectives that have been suggested are to render non-unionized mininum wage workers non-competitive with unionized ones which seems pretty convoluted to me or giving unions with minimum wage multiple contracts an automatic raise.

According to the Bureau of Labor Statistics, the percent of hourly workers who receive the minimum wage or less is 2.3% of hourly workers, about 1% of total workers. They tend to be young, in the South, and work in the restaurant and food service sector. It would be interesting to see the effect of increasing the minimum wage on rents since the states that have increased their minimum wages also have higher rates of homelessness.

At Bloomberg Noah Smith explains in the form of a parable why a universal basic income will not work:

Rejoice, people of Earth! News outlets are reporting that NASA is planning to visit an asteroid made of gold and other precious metals! At current prices, the minerals contained in asteroid 16 Psyche are said to be worth $700 quintillion — enough to give everyone on the planet $93 billion. We’re all going to be richer than Jeff Bezos!

OK, now for the bad news: This isn’t going to happen. Yes, 16 Psyche and other asteroids will probably be mined for their metals. But once those metals start hitting the market in large quantities, they’re unlikely to be precious for much longer. As any introductory economics student knows, price is a function of relative scarcity — flood the market with gold, and it will go from being a rarity to being a common decoration. Supply goes up, price goes down.

But in fact, there’s a more fundamental reason why a giant golden asteroid wouldn’t make the world fabulously rich. It’s because wealth mostly doesn’t come from big hunks of metal. It comes from the ability to create things that satisfy human desires.

In addition once people start buying things other than gold with all of that newfound gold the prices of those things will rise in turn and we’ll be right back where we were before all of that gold was plopped on the Earth.

It doesn’t actually matter whether an asteroid made of gold was towed back to the Earth or we just extended credit to ourselves. Sweeping plans like a universal basic income cannot work simply because of the way they are constructed.

That is not to say that nothing should be done to ameliorate the circumstances of the poor. They should! We should try all sorts of carefully designed and painstakingly regulated measures, adopting those that work and abandoning those that don’t. One thing that we might try is to stop subsidizing the rich and the near-rich. An outrageous suggestion but worth a try for the very same reason an asteroid of gold won’t do it.

The very best measure to reduce the burdens of poverty would be a meaningful job which brings benefits that do not arrive in the form of a purse of gold.

It isn’t often that you encounter genuine insight in a newspaper column but Andy Kessler may have revealed something crucially important in his latest Wall Street Journal column. In Keynesian business cycle theory, the business cycle, the periodic transition from expansion to contraction (recession) in the economy, is caused by variations in the rate of investment in turn caused by changes in the marginal efficiency of capital (expected profits) throughout the cycle. In the theory after a period of expansion the high efficiency of capital in the early part of the expansion is succeeded by lower efficiency because of shortages or bottlenecks in materials or labor or excessive outputs causing profits to be reduced.

It used to be the prevailing wisdom that the business cycle was roughly four to five years. Over the last thirty years that has expended to eight, then ten, and now who knows how long? The present expansion has been continuing for more than ten years.

Here’s where Mr. Kessler’s insight comes in. What if the increasing length of the cycle and the decreasing amplitude of its peak are due less to bankers’ cleverness in manipulating the interest rate (the cost of money) than in more effective and timely management of inventories and profits?

Did you ever wonder why we are enjoying a decadelong run? What changed? Everyone wants credit. Was it the Federal Reserve and its relentless stimulus? Nope. The Fed creates the money the economy needs, but not the need itself. Obama or Trump policies? A divided Congress? Demographic shifts? A strong or weak dollar? Actually, none of the above. The answer is just-in-time. You can thank all those freshly minted consultants you see in premium economy crisscrossing the country with their AirPods and Allbirds and airy attitudes.

In the previous era, before pervasive computing, economies would live and die by inventory cycles. Heck, biblical times record seven years of feast and seven of famine. The expansion starts, consumers buy, investment and hiring ramp up, wages and prices rise, inflation emerges, consumers buy ahead of price increases, investment peaks, inventories build, consumers are tapped out, recession starts, inventories are drawn down, and layoffs begin—then start all over every four years. Until recently, price signals didn’t travel very fast, and inventory tracking used clipboards.

In a micro version of this cycle, the videogame industry had a huge bonanza in the early 1980s that ended in ’83 with bust of the highly anticipated “E.T. the Extra-Terrestrial” game. Warner Communications literally buried about 700,000 unsold cartridges of “E.T.” and other titles, and lost more than $500 million. The semiconductor industry got stuck with loads of chips in inventory that had to be written down. It was ugly. After a similar inventory mess related to then-newfangled personal computers, the tech world started implementing just-in-time delivery. Companies like Compaq would ask for chips to be delivered Tuesday for PCs shipped on Wednesday. This gradually smoothed out the cycles of a very volatile industry.

Thirty-six years later, much of the global economy has perfected this just-in-time supply chain. Digital cash registers and bar codes log consumer purchases. Logistics software allows manufacturers to track every production detail everywhere on the globe. Data is fed into giant databases that forecast demand. Manufacturing, transportation and retail are a highly choreographed water ballet of delivering inventory right before it’s needed. Exactly the right amount of toothpaste is magically dropped onto Walmart shelves each night.

Software is now a mind-bending cornucopia of supply-chain management, enterprise-resource planning, business-process re-engineering and decision-support systems—all of which barely existed 30 years ago. But here’s the dirty little secret: Enterprise software from Oracle and SAP and just about everyone else is notoriously hard to use, nasty to implement, and a royal pain to maintain. That means a virtual Full Employment Act for consultants—tens of thousands are hired yearly by PwC, Deloitte, KPMG, Ernst & Young—add BCG and McKinsey too—to customize and implement business processes.

That ties the observed lengthening and flattening of the business cycle, the relatively low rate of capital investment compared to the past, and, possibly, even the slower rate of new business formation into one neat package. I would also observe that companies like Google, Facebook, or Goldman-Sachs aren’t much dependent on inventories. Or Disney for that matter.

Predictions of the repeal of the business cycle have always been harbingers of doom. I do not believe the business cycle will ever be repealed. But it may become a lot less cyclical than it used to be, more dependent on natural or, more likely, manmade disasters for its impetus. What may be the case is that the Keynesian theory of the business cycle is a lot less relevant to the modern economy than it was when heavy manufacturing formed the base of the economy. It would be interesting to study business cycles in the pre-industrial period. Where we are and where we’re going may be a lot more like 1730 than it is like 1930.

I did not think that at this late date we would be relitigating Emancipation, the aftermath of the Civil War, and the civil rights struggles of the 1960s and early 1970s. But we appear to be. What’s next? The reincarnation of the American Colonization Society?

I think one of the problems is the very light exposure so many present Americans have to the history, culture, and people of the United States other than the neighborhood in which they grew up and what they’ve seen on TV. We’ve made tremendous progress in social development over the last 70 years. You don’t have to take the word of an old white man for it. Ask an old black woman. She will tell you the same thing.

In Syria the battle for Idlib, the last “opposition” stronghold in Syria continues. Few doubt that it would have been over long ago but for the intervention and support of Turkey. At Al-Monitor Fehim Tastekin writes:

The Syrian regime wants Turkish troops to pull back. But the situation in the field is liable to get out of control. Russia’s role as a “guaranteeing power” to prevent clashes between Syria and Turkey is becoming more important. Although Russia continues its backing of Turkey — at least in part because of the sensitive S-400 arms deal between the two countries — it still doesn’t fully use its influence to rein in the Syrian regime.

So why are Syria and Turkey fighting, and why is the situation escalating? After clashes on April 29, the Syrian army imposed control over 20 locations including the Madik fortress in rural Hama, but Turkish-backed groups retook three areas: Tell Meleh, Jubbeyn and Zahra. In response, the Syrian army launched five offensives in June, trying to restore its control over those three locations. It failed.

The Assad government is fighting for its survival and for the survival of Syria’s Alawites. They are well aware what the Sunni opposition has in mind for them.

Iran is fighting to shore up its credentials as guarantor of the security of Shi’ite people. Nearly all of the countries of the Gulf and Mediterranean Middle East have Shi’ite populations including not just Iran and Syria but Iraq, Yemen, Saudi Arabia, and others as well.

Ergogan’s neo-Ottoman Turkish government is irredentist. It is fighting to recover lands it belongs are Turkey’s. That extends not just to Syria but, as we have seen more recently, to Libya. The civil war in Libya, as I have noted before, is actually a war between two different Ottoman provinces. Coincidentally, seizing bases in Syria helps the Turks keep the Kurds down and fragmented.

The Free Syrian Army, a masterpiece of agitprop since it is not free, Syrian, or an army, is fighting for survival. They have nowhere else to go. No one wants them. Not the Syrians, the Iranians, the Saudis (their main supporters), or anyone else.

Russia fighting to preserve the Assad government and to preserve access to the warm water port the Assad government has given it. And to keep the Americans out.

So far we have managed to stay out of the battle for Idlib although some are encouraging a more active involvement. It remains unclear to me what our interest in the conflict in Syria is. I would think that preserving the Assad government was more in our interest than in having it replaced by a Sunni government with terrorist components. Their first official act would likely be to exterminate the Alawite population.

Chemical weapons? We have never reacted that way to chemical weapons use in the past. Not in the Iran-Iraq War, not when used by Saddam Hussein against his own people, and not in Angola. The case that the Assad government used chemical weapons is about equivalent to the case that various opposition factions have used them against the SAA.

In the Financial Times the last British governor of Hong Kong, Chris Patten, writes:

The violent scenes at the Legislative Council building earlier this week played into the hands of Chinese propagandists and hardliners. But they should not distract attention from the peaceful marches by up to 2m Hong Kong citizens. Anyway, one way of dealing with minority violence and with concerns about how the demonstrations have been handled would be to establish an independent and open inquiry into what has happened in recent weeks.

The British government should press for this and argue for a complete withdrawal of the previous extradition proposals. It should also make clear, as UK foreign secretary Jeremy Hunt did in his remarks this week, that there would be serious consequences if the international and binding legal agreement with China were not to be honoured. We must hope that Britain has rediscovered its sense of obligation to the citizens whose bravery and seriousness of purpose put to shame our current insular and often delusional political debate.

Britain may have lost some of its soft power recently. It would be nice to think, however, that it still understands how to behave with integrity. Our own “golden age” with China should put more emphasis on honour and less on “fear and greed”. That is where our national interest really lies.

Reading between the lines, I think that Mr. Patten see the situation much as I do. Commercial and financial interests are likely to prevail and the United Kingdom, Germany, and France are predisposed to ignore China’s elimination of Hong Kong’s autonomy as long the supply chains remain open.

This should be a reminder to us that the only thing the Chinese authorities can be depended on to follow through with are their own interests narrowly understood.