In his most recent column in the New York Times David Leonhardt presents the history and inadequacies of some of the official economic statistics. It’s worth reading just for the history but I want to underscore his peroration:

The whole point of statistics is to describe reality. When a statistic no longer does so, it’s time to find a new one — not to come up with a convoluted rationale that tries to twist reality to fit the statistic.

The notion that our most prominent economic indicators are problematic has been around for a long time. Kuznets himself, the economist who invented G.D.P. as we know it, cautioned people not to confuse it with “economic welfare.” Most famously, Robert F. Kennedy liked to say during his 1968 presidential campaign that G.D.P. measured everything “except that which makes life worthwhile.”

That so many people especially people who quote statistics have so little understanding of basic facts about statistics (like the difference between the average and the median or what a standard deviation is) doesn’t help. And there is no way to depoliticize economic statistics. They are inherently political.

The Dow-Jones Industrial Average is a lousy proxy for national economic welfare and has become worse over time. Gross domestic product is also a lousy proxy for national economic welfare for the simple reason that it is an aggregate. Even the famous question, “Are you better off now than you were four years ago?”, has its problems.

All of this is not to say that statistics are unimportant. I’m just suggesting that they must be understood in perspective.

I am becoming lost in the twists, turns, mirrors, and triple lindies. The Brits and Americans express concern that the Syrians abetted by the Russians will use chemical weapons in their campaign to remove the terrorists from Idlib, their last stronghold in Syria. The Syrians and Russians say that the Brits are preparing a false flag chemical attack in Syria and they’ve already found multiple staging areas. I don’t know whom to believe if anyone and if anything happens I don’t know that I’ll know what happened or who did it.

See what I mean by a “triple lindy”?

I found a lot to like in James Pethokoukis’s critique at The Week of the belief among conservatives about present economic growth. For example this:

Third, blaming Obama as the main cause for a historically weak recovery is a problematic narrative, though handy for “owning the libs.” Lehman Brothers declared bankruptcy a decade ago this week, shocking the global economy. Now generally the worse a downturn, the stronger the subsequent upturn — like plucking down on a guitar string, as Milton Friedman famously analogized. This perfectly describes the bad 1980s recession and subsequent “Reagan recovery.” But research suggests recessions accompanied by systemic shocks to the banking system and housing market are different: Recoveries are painfully slow, just like the one the American economy went through. As Goldman Sachs sees it, “The post-2008 U.S. recovery has not been unusually weak or prolonged relative to other financial crisis episodes.”

and I give a thumbs-up to this:

So should Trump offer an unironic “Thanks, Obama”? Well, a 2017 research review by the Philadelphia Fed found it likely that “the economy did indeed grow more than it would have without the [2009 Obama] stimulus but likely not as much as it might have with a different type of stimulus.” So that’s something.

but on this:

Second, the best measure of whether there’s been a fundamental change in the economy’s pace and course is productivity growth, which is the key to higher living standards over the long term. Productivity growth downshifted hard in 2005 — pre-Obama, pre-financial crisis — and then barely grew over the course of the recovery. Only since summer 2016 has it perked up somewhat. It’s going to have to do a whole lot better if the economy is going to grow anywhere near as fast in the future as it has in the past given slower workforce growth. No record-setting productivity growth, no miracle economy.

I think he may be missing the boat. I think it’s possible that more of the economic crisis, more of the phlegmatic recovery from 2009-2015, and more of the stronger growth presently in place can be attributed to energy prices particularly oil prices than anybody seems willing to say.

So, let’s not count our chickens before they’re hatched, shall we? Oil prices are rising again.

At The Hill Monica Crowley quotes a statement from former insider whistle-blower Richard Higgins that I think is worthy of consideration:

Higgins says the consequences of failing to eliminate the internal threat are dire. “First, the emerging two-tiered justice system” — one protective of the elite, the other for everyone else — “will ensure that these abuses happen again.

“Second, faith in government will collapse among Trump supporters. Having been betrayed by the politicians they elected, a demographic large enough to elect a president will become completely disenfranchised.

“History will understand that the Republican Party served as the defeat mechanism of the American experiment in that they got elected on issues that they never intended to address.”

He characterizes this moment as “pivotal, but we may not fully understand the significance of current events for decades.”

Given the public confirmation of his initial warning, he offers a fresh one: “We are fighting for this country’s future as well as her past. I warned senior [officials] on the national security transition that we were storming Omaha Beach on Jan. 20, 2017. They didn’t listen, and they didn’t survive the first wave. We still have to take that beach. The very same principles are at stake.”

Americans have voted for change for the last ten years and they’ve been frustrated at every turn. Developments make it clear that the leadership of both political parties, the media, and the civil bureaucracy simply cannot be trusted.

You may castigate the results of this frustration as a violation of norms but it merely shows that our system is functioning as designed. The only thing that is not working is that too many voters are still complacent. I suspect that will change.

I found this op-ed by Luis Alberto Moreno, president of the Inter-American Development Bank, at the Washington Post troubling, raising as it does issues of sovereignty, responsibility, property rights, and moral hazard. He’s writing about the strain that the situation in Venezuela is putting on the other countries of North, Central, and South America, the burden of which increases the closer to Venezuela the countries are:

Consider this: While the United Nations estimates that 1.8 million immigrants have arrived in Europe by sea since 2014, up to 2.5 million Venezuelans have left their homeland during the same period. Roughly one-fifth of them have gone to Europe, the United States and Canada. Nearly all the rest — around 2 million individuals — have gone to Latin American and Caribbean countries. Colombia alone has received close to 1 million, while Peru, Ecuador, Chile, Brazil and Argentina, in descending order, have taken in most of the rest.

But while average per capita income in the six European countries that have received the most immigrants during this period (Germany, France, Italy, Sweden, Austria and Britain) is around $46,500, measured in purchasing power, in the six Latin American countries listed above, the figure is less than $17,000.

Europe can rely on modern civil services and well-staffed clinics and schools to process and care for immigrants. In Latin America, despite considerable progress in reducing poverty in recent decades, public services are underfunded and ill equipped to cope with local demand, much less to deal with this emergency.

In Colombia, an economist with the Inter-American Development Bank has estimated that the government will need around $1.6 billion per year to fully respond to the emergency, a sum equal to 0.5 percent of GDP. This amounts to a negative shock to the economy at a time when Colombia urgently needs to accelerate growth.

Venezuela’s neighbors have so far been sympathetic and generous toward the immigrants, not least because they remember how Venezuela welcomed millions of political exiles and economic refugees during the 20th century.

In addition to waiving many traditional visa requirements, the region’s governments have used scarce public resources to provide food and shelter for the Venezuelans, while reassigning thousands of security and health officials to deal with the surge.

Unfortunately, the situation has reached a breaking point. In recent weeks, we have seen incidents of violence and public protests against the immigrants, as overwhelmed officials struggle to prevent lawlessness and meet the needs of local residents who, in many cases, are also very poor.

That raises a number of questions that I don’t believe are easy to answer. The first, obviously, is who decides? Venezuela has brought this situation on itself. It used to be among South America’s richest countries. Now it’s among its poorest and the damage is entirely self-inflicted.

The second is who pays? Since Venezuela cannot pay its own way and its neighbors have reached the end of their willingness to pay, does that put the United States in the position of financier of last resort?

Does Venezuela have an unlimited right to screw itself up regardless of its impact on its neighbors? Do its neighbors have an unlimited responsibility to pay? Do we? Again, who decides? This is a familiar story of stockholders and stakeholders.

This passage in Tom Friedman’s most recent offering in the New York Times caught my attention:

I favor corporate tax cuts — big ones. But I would have offset them with a carbon tax, a tax on sugar and a small financial transaction tax. That way, we’d unleash the energy of our corporations while mitigating climate change, spurring the next great global industry — clean power — curbing childhood asthma and diabetes and not adding to our national debt, thereby making ourselves more resilient as a country.

When Trump simultaneously cuts corporate taxes and withdraws America from the Paris climate accord, tries to revive the coal industry by lowering pollution standards and weakens fuel economy standards for U.S.-made cars and trucks, he is vastly adding to the financial debts and carbon debts that will burden our children.

A little back of the envelope calculation should make you see what I did. Americans consume about 150 lb. of sugar per person per year in all forms. At $.65 per lb. that’s a bit less than $35 billion all told. How large a tax on sugar does Mr. Friedman have in mind? Shorter: he might want to discourage the consumption of sugar but a tax on sugar is unlikely to produce much revenue. Fun fact: we already pay more per pound for sugar than practically any other country in the world.

I’m also skeptical of his notions of the power of carbon taxes. I think he’s assuming linearity, nearly always a bad assumption. Both his sugar tax and his carbon tax are powerfully regressive and, at least in the case of a carbon tax, probably won’t have the effects he envisions.

In both cases you could probably have more effect on the consumption of sugar and the emission of carbon by lowering subsidies than you could by increasing taxes. But reducing subsidies can’t be siphoned off to benefit your cronies.

My own view is that we should abandon taxation as a method of social engineering. It carries too many unforeseen secondary effects along with it. Focus on taxation as a means of realizing revenue and take other measures to change behavior.

I see that Brookings is finally coming around to the realization that gross domestic product is a pretty crude measure of economic well-being:

In a new working paper, Karen Dynan of Harvard University and the Peterson Institute for International Economics and the Hutchins Center’s Louise Sheiner conclude that changes in real Gross Domestic Product (GDP) do a reasonable job in capturing changes in a nation’s economic well-being with one important exception. They argue that the exclusion of non-market activities that increase economic well-being merits more attention, particularly given the growing importance of such activities.

They cite several areas where measurement falls short of the conceptual ideal. First, the national accounts may mismeasure nominal GDP arising from the digital economy and the operation of multinational corporations. Second, deflators used to separate GDP into nominal GDP and real GDP may produce a biased measure of inflation. For goods and services that do not change in quality over time, current deflator methods work reasonably well. For new goods and services, or goods and services that are changing in quality, current methods may not capture consumer surplus well.

I actually think it’s easier than that to recognize the limitations of GDP. A simple thought experiment will do. What if the entirety of the increase of GDP resulted from increases in the value of a single stock? That’s not too big a stretch. That’s actually happened and the company was Microsoft. Did that result in the United States being better? There’s simply no way to tell—that requires you to do what economists call “comparing utility functions”.

I would submit that the rise of importance of GDP in policy considerations was largely a post-war phenomenon that took place during a period of American history that was very different from today when incomes were much more equal than they are and an assumption of relative equality is built into the notion. I would further submit that the rise in importance was accelerated in the 1970s when econometrics came to rule the roost in economics. There’s nothing like a pseudo-empirical measure like GDP to capture the imagination of people who aren’t particularly good mathematics and who would like to appear empirical without actually being empirical.

The complex web of quotas, set-asides, and preferences that we have today were originally strategies for solving a real, pressing problem at a specific point in time. In the 1960s the United States was beginning the long-overdue process of bringing Americans of sub-Saharan African descent, most of whose ancestors were brought here forcibly as slaves, into the mainstream of American society after a century of having been excluded legally. Sadly, we balked. Rather than addressing the problem at hand we corporately decided to avoid it yet again, this time by importing a large, more docile labor force, mostly from Mexico. This new population had not suffered the problems of the descendants of slaves but opportunists among them decided to pretend that they had.

Unsurprisingly, an entire industry has grown up around these strategies and equally unsurprisingly people who are completely undeserving of the benefits of the strategies want them.

Fast forward to today and add a dash of folk postmodernism, a culture of being rewarded simply for showing up, and a sense of entitlement and biography, effort, or ability no longer matter. You don’t need to be the descendant of slaves, have a Native American heritage, come from a Jewish family, be the smartest kid in the class, be a gifted cellist, being the winner of the race, or carry the burdens that any of those realities bring with them to imagine that you are and you do, simultaneously vitiating the effectiveness of policy, trivializing the experiences of those who genuinely have those experiences, and taking something you don’t deserve.

It’s a Brave New World. Just imagine.

I agree with James Holmes’s remark at RealClearDefense that the Chinese believe that they will have won a war with the U. S. if they can do so without firing a shot. They may be well on their way to doing so already. I’m not as confident as he about the “Chinese way of warmaking”. I don’t think that we know what it is and I don’t think the Chinese know what it is. The People’s Liberation Army is mostly focused inwards and has never seen major combat. Allow me to quote from a Western sage of warfare: no battle plan survives contact with the enemy.