What’s Wrong With a High Deficit?

Martin Feldstein is on the warpath about the federal deficit in an op-ed in the Wall Street Journal:

To avoid economic distress, the government either has to impose higher taxes or reduce future spending. Since raising taxes weakens incentives and further slows economic growth—worsening the debt-to-GDP ratio—the better approach is to slow government spending growth. Defense spending and nondefense discretionary outlays can’t be reduced below the unprecedented and dangerously low shares of GDP that the CBO projects.

That the federal government deficit (the difference between income and spending) has increased should not come as a surprise to anyone. It’s been in all the papers. Sadly, Dr. Feldstein never explains why a big deficit is a problem. This is the closest he comes:

The higher long-run debt-to-GDP ratio would crowd out business investment and substantially reduce the economy’s growth rate.

but that’s not true. Since the federal government is a monetary sovereign federal deficit spending is not in competition with business for capital. The government doesn’t borrow from banks. It just issues itself more money. Paying interest (largely to itself) is a policy rather than requirement.

You know what is in competition with businesses for money? Paying interest on reserves, a policy the Federal Reserve began in 2008 in reaction to the financial crisis and which I can only characterize as evil. It means that banks can make money without bearing any risk. It discourages lending (that used to be the business that banks were in). What should have happened is that the federal government should have stepped in and closed insolvent banks. That is the way that capitalism is supposed to work. What we have is the socialization of losses and the privatization of profits.

The present level of the deficit already exceeds the growth in the economy, not a sustainable condition, so we do need to restrain the deficit.

There are also critical flaws in Dr. Feldstein’s proposed solution—raising the Social Security full retirement age to 70. The first is that most Americans aren’t college professors or bankers. People who perform physical work which includes not just factory or construction workers, miners, and truck drivers but the fastest-growing labor categories like the hospitality industry and low-wage hospital work just get tired. Their bodies wear out. And employers are aware of it. It’s increasingly difficult to be allowed to work past 60 let alone to 70.

The second is that, given the differences in life expectancy and income by race, it’s a racist policy.

The third is most damning. The Social Security actuaries have already told us that would not be enough.

The real increase in entitlement spending to which Dr. Feldstein must turn his attention is health care spending.

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Why Drug Prices Are High

I do not understand how you can write an entire post on the high prices of pharmaceuticals in the United States without mentioning the word “patent” once but Patrick Hedger manages the feat at RealClearMarkets. Here’s a snippet:

Drug prices in the U.S., which admittedly can be astronomical, are trying to tell us something. What that is exactly is certainly up for interpretation. Perhaps these prices are telling us that access to drugs is too restricted by regulation. There’s no debate that getting drugs approved by the FDA is a tedious, expensive, and usually unsuccessful endeavor. Further, drug access is significantly restricted through prescription requirements and companies thus can’t spread out their development costs over a high volume. Plenty of public policy issues abound on prescription drugs, but imposing price controls doesn’t solve any of them.

The “market-clearing price” is the price of a good or service at which quantity supplied is equal to quantity demanded. What is the market-clearing price for Humira? The answer is we have no idea. It was protected by patents until recently and its purchase continues to be subsidized by Medicaid and Medicare.

What is its high price telling us? Who knows? Remove the controls and subsidies and maybe we can find out. In the meantime let’s not appeal to market forces in talking about the high price of pharmaceuticals.

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Ideas Travel, Too

An article at Cosmos Magazine remarks on an interesting finding about the development of European agriculture:

Researchers led by Choongwon Jeong of the Max Planck Institute of the Science of Human History in Jena, Germany, analysed eight prehistoric humans, including a 15,000-year-old Anatolian hunter-gather from whom they extracted a complete genome.

They discovered that the Neolithic farmers were direct descendants of the hunter-gathers. The finding strongly indicates that farming became commonplace because the indigenous population changed its subsistence strategy, rather than because it was overrun by incomers who brought the practice with them.

But if the Anatolian farmers did not themselves physically hail from the east, the knowledge they used certainly did.

But those “Anatolian farmers” did spread what had learned throughout Europe and that’s reflected in the fossil record as far West as the Iberian peninsula and the British Isles.

In other words both people and ideas travel.

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Liberal Democracy Is Under Assault

I urge you to read Andrew A. Michta’s essay at The American Interest. Here is his peroration:

Unmoored from its cultural heritage and increasingly ignorant of its history, the West is fragmenting along racial, ethnic, and ideological lines. In the United States the process is well under way of transforming “e pluribus unum” into an American Balkans in which warring groups squabble over past grievances—real and imagined—and where a sense of patriotism and the mutuality of obligation so fundamental to a nation under a republican form of government is being purged from the culture. Here America is not alone, as similar undercurrents of unfreedom are deconstructing some of the oldest political traditions in Europe.

He cites some chilling statistics, e.g. that 90% of American colleges have speech codes that limit discourse and that 2/3s of Americans don’t think they’re free to speak their minds.

I don’t think that his concerns should be merely dismissed as insignificant.

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The Big Problem

The big problem with Ryan Cooper’s ardent defense of the Green New Deal, expressed at The Week:

If we consider climate policy realistically, then that would clearly involve considering how big the problem is, reasoning from there how fast emissions need to come down, and then what policies could get us there. If the scientists are overstating their case, then why, and by how much? If the greens are wrong about policies, which ones are better? But Stephens does not discuss details in the slightest, only gesturing vaguely towards “large-scale investments in climate resilience, such as better coastal defenses.” How about it, Bret: Would it be cheaper to decarbonize the economy, or abandon the whole of the Miami metro area to the rising seas?

But conversely, this is why the Green New Deal framework makes so much sense. It starts with the problem — greenhouse gas emissions — and sets up a goal to get them down in time, while making society more egalitarian in the process. The policy space, therefore, is ecumenical. Nothing that cuts emissions is ruled out — leaving space for a carbon tax, subsidies for zero-carbon transportation, enormous investment in zero-carbon energy (including nuclear), and moon-shot research investments to develop zero-carbon industry and agriculture that could then be adopted worldwide.

I daresay it’s a fairly pragmatic approach. If you study the conclusions of climate science even cursorily, the truth is that we have procrastinated so long that we pretty much have to go full-tilt at everything with a decent chance of getting emissions down. Penny-ante political moderation can not possibly get the job done.

is that no amount of ideological purity is a viable substitute for what works. It’s hard to make a confident statement about the GND, pro or con, in the absence of specifics but here’s a specific: we can’t maintain a global economy or modern agriculture on the basis of 100% renewables. Said another way 100% renewables means hundreds of millions of dead and dying people. Germany’s all-renewables policy thrust is resulting in its producing more carbon emissions rather than fewer. Here’s another: unless China and India stop emitting carbon nothing we do will make a damned bit of difference.

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Too Old

I agree with Richard Cohen’s assertion in his most recent Washington Post column. Joe Biden and Bernie Sanders are too old to be president:

Government statistics tell us that a man Biden’s age will live an average of 11 more years. He won’t, however, outlive Sanders, who is scheduled to kick five months later. These, though, are statistical averages, and neither Sanders nor Biden is anything of the sort. They are both white, middle-class by birth and not likely to overdose on drugs, drive drunk or get into a bar fight with someone wearing a MAGA hat, the dunce cap of our times. I am not sure if Sanders works out, but Biden sure does. I have been to the gym with him.

But while looking good may be the best revenge, it isn’t the whole story. The brain ages. It slows down. It forgets. I know men in their 90s — Henry Kissinger comes to mind — who seem as sharp as they’ve ever been, but they are not the rule. It is not necessary to have great mental energy to get elected — President Trump is an intellectual sloth — but it helps. Old age can turn the delight in doing certain tasks into a plodding burden.

The old seek their own comfort zones. I wouldn’t be surprised if Biden thought Snapchat was a breakfast cereal. I wouldn’t be surprised if Sanders thought Drake was the English pirate who defeated the Spanish Armada. (How’s that for being an influencer?) It’s fine not to know about these things, but it suggests an unfamiliarity with a world that is ever-changing. The zeitgeist is forever on the move. When you’re over 70, it may well have passed you by.

IMO all of the declared candidates have very serious flaws which their supporters would do well not to to dismiss. If whether Kamala Harris is “black enough” becomes a taboo topic, I think it brings up severe questions about whether the Democrats can win at all in 2020. And the same question may be asked of Cory Booker albeit for different reasons. Many of the candidates are lacking in relevant experience.

I like some of the candidates, e.g. Booker and Hickenlooper, for very different reasons. I can imagine myself voting for them. I can imagine myself voting for Biden. I hope that Democrats don’t make the mistake of thinking that they can throw any candidate against the wall and win in 2020. That’s not going to happen.

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The Opposite Side of the Coin

There is an obverse side of the coin I mentioned yesterday. Blacks are moving to somewhere. They’re not just leaving Detroit, Chicago, New York, and Philadelphia. In some cases blacks are moving from inner cities to the collar suburbs. From Woodlawn and Chatham to Maywood, Hazel crest, and Dolton. But about half are just moving away. They’re moving to Atlanta, Richmond, Columbia, Virginia Beach, Jackson, and, to a lesser extent, Houston, Miami, and Baltimore. They are likely to keep voting Democratic.

We already saw some of that in the 2018 mid-terms in which seats that were supposed to be easy wins for Republicans were hotly contested.

I don’t think that Chicago or Detroit will be able to stem “black flight”. They’ll just shrink. Whether Republicans can hold onto what used to be safe, Southern seats is in question. I doubt that they can.

The entire country is getting purpler.

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What They Have To Do

I am seeing quite a number of opinion pieces about what the Democrats need to do to win the 2020 presidential election. What the Dems need to do to win rural areas. What the Dems need to do to win the suburbs. What the Dems need to do to win the middle. And so on. So far I have found all of them unsightful and lacking in an understanding of basics which is why I’m not citing them here.

I daresay that a majority of the Democratic leadership believes they can win the 2020 presidential election without rural areas, suburbs, or the middle—solely on the basis of urban cores. IMO that is foolhardy and risky for a basic reason. The Democrats need a high turnout by black voters to win and they can’t just take black voters for granted. It’s less that they should worry about black voters suddenly becoming Republicans en masse. It’s that black voters may not turn out in numbers sufficient to ensure victory.

By 2020 in all likelihood a majority of the black vote will either be rural, suburban, or in the middle. I think that people will be shocked at what the 2020 decennial census reveals. For example, here in Chicago I predict that the number of blacks living in the city will have fallen below 30%, whites will be a majority, and the total population of the city will have fallen sharply—probably below 2.5 million. It may even have shrunk to a point where Houston is larger.

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Movies for St. Patrick’s Day

Here’s a list of what I think are some of the best Irish-themed movies for St. Patrick’s Day:

The Quiet Man (1952)

John Ford’s love song to Ireland. Its cast includes most of the members of the Ford repertory company (John Wayne, Ward Bond, Maureen O’Hara, his son-in-law Ken Curtis, his brother Seamus, etc.).

Top O’ the Morning (1949)

A charming romantic comedy vehicle for Bing Crosby. I presume that a Scot like Bing identified as Irish because of his Irish-American mother—ethnic identity tends to run in the maternal line.

Luck of the Irish (1948)

Tyrone Power visits Ireland and comes back with a leprechaun in tow.

Young Cassidy (1965)

From Sean O’Casey’s autobiography, with the lead played by Rod Taylor.

The Fighting 69th (1940)

The story of New York City’s Irish-American regiment during World War I. It features most of Hollywood’s “Irish mafia”, e.g. Jimmy Cagney, Pat O’Brien, Alan Hale, Frank McHugh, etc. They were the Rat Pack before the Rat Pack.

The Informer (1935)

John Ford’s version of the novel by Liam O’Flaherty about the Irish war of independence, starring Victor McLaglen. It has one of the most heart-rending endings in cinema. Ford won an Oscar as director and McLaglen as actor in this film.

My Left Foot (1989)

Daniel Day-Lewis does an incredible acting job as Christy Brown, a young Irishman born with cerebral palsy.

Waking Ned Devine (1998)

Ned Devine has won the Irish Lottery but Ned is dead. The movie is about the shenanigans as Ned’s neighbors attempt to claim his winnings.

The Siege of Jadotville (2016)

This movie is about an action during the UN peacekeeping mission in Congo, one of the few times (if not the only time) the Irish Army has faced combat.

This is not an encyclopedia. There are many, many Irish-themed movies, some good, some awful. Since I’m sure someone will mention them, there’s a group of horror movies with vaguely Irish themes (leprechauns, ghosts, banshees, Celtic paganism, etc.) Most are execrable.

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NATO Is 70

On April 4 NATO will turn 70. In honor of the event, The Economist opines:

Reaching 70 is an extraordinary achievement for the North Atlantic Treaty Organisation. Most alliances die young. External threats change; national interests diverge; costs become too burdensome. Russia’s pact with Nazi Germany survived for only two years. None of the seven coalitions of the Napoleonic wars lasted more than five years. A study in 2010 by the Brookings Institution, a Washington think-tank, counted 63 major military alliances over the previous five centuries, of which just ten lived beyond 40; the average lifespan of collective-defence alliances was 15 years.

“NATO is the strongest, most successful alliance in history”, says Jens Stoltenberg, the organisation’s secretary-general, “because we have been able to change.” It has expanded from 12 members at its birth to 29—soon to be 30 when North Macedonia joins, its dispute with Greece over its name now settled. Of the eight countries that made up its erstwhile rival, the Warsaw Pact, seven have become part of nato, as have three former Soviet republics. The eighth one, the Soviet Union itself, has ceased to exist.

They seem to view NATO expansion as a sign of success. I think it’s the opposite. NATO began as a mutual defense pact in which its members together were stronger than they were alone. Now each additional member renders mutual defense more fantastical. Against whom will NATO be defending Macedonia? With the single exception of Kosovo it is completely surrounded by other NATO members and, if it should be threatened by war, it is more likely to be by one of those. Rather than preparing to defend each other for most of its members NATO has become a means of avoiding military spending for their own defense, relying instead on U. S. military spending.

For the United States it provides an avenue for venue-shopping. Rather than a mutual defense pact NATO is now a vehicle for aggression and the violation of international law.

The reason for NATO’s longevity is that, unlike the Molotov-Ribbentrop pact, there’s a buck in it for somebody. NATO has outlived its usefulness. Time for it to end.

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