At RealClearHealth Andrew Langer remarks on something I’ve been complaining about for decades—certificates of need and other forms of cronyism is health care:

Generally, the goal of cronyism is simple: A large actor in an industry uses its power and influence to craft a public policy that feathers its own nest by either punishing competitors or keeping them out of the marketplace entirely. The public loses in these instances, sometimes with serious impact.

This is especially true in the realm of health care. Certificates of need are one example. New medical businesses must prove to some governmental entity that such a venture is satisfying some public need not currently being met by existing health systems.

But who gets to weigh in on whether a venture is necessary? Existing health businesses! Of course, their impetus is to protect their market share, so they use the certificate system to keep competitors at bay. The public loses as a result.

We’re also seeing cronyism in the prescription drug realm. Name-brand pharmaceutical manufacturers, ably represented in Washington by Pharma, are working overtime to keep generic drug manufacturers from bringing their products to the marketplace.

If there is a clearer example of the old wisecrack about two wolves and a sheep voting on what’s for dinner than certificates of need, I don’t know what it might be. And I wish there were a greater consciousness that patents, a presumably temporary monopoly, are not a law of nature or a right but a benefit conveyed by the government on “inventors” for the public good, not to ensure that big companies’ profits are larger. Combining two drugs both of whose patents have expired and patenting the resulting, obviously derivative product is an obvious perversion of the system. A substantial percentage of all pharmaceutical patents fall into just that classification with minimal if any innovation or therapeutic benefit. “Evergreening” should be banned.

Or consider this one by Andrew Brown at Foreign Policy on the political transformation of Sweden:

Beginning in the 1950s and 1960s, Sweden began accepting labor migrants chiefly from Finland, though also from the Balkans. This didn’t produce any great social problems, perhaps because the process was agreed on with the country’s powerful unions, which did not feel that their members’ jobs were threatened by it. Political immigration first got underway in the 1970s, with Latin American refugees from the coup against Augusto Pinochet’s Chile and other left-wingers. They were followed by Kurds and Assyrian Christians fleeing the Iran-Iraq War. Then came refugees from the Balkan wars, from Lebanon, from Somalia and the Horn of Africa, and finally from Syria.

Many Swedes look at members of these latter groups and see people who are an awkward fit with the traditional national family—not least because they assume the immigrants have loyalties that transcend it. Whether that is true, of course, is impossible to know for certain. But the mere possibility of diluted national loyalty among some portion of the population may have weakened the unquestioned bond Swedes previously felt between patriotism and socialism that had been implicit in the concept of folkhemmet from the beginning.

Immigration wasn’t the only factor, of course. Who the immigrants are, their motives, and their expectations matter as well. Finns aren’t Swedes; the Finnish language isn’t even Indo-European. But Finns share many cultural traits with Swedes among which is that they are both at least culturally Lutherans and see something wrong in accepting a bigger handout from the government than you really need. Can Sweden’s system of payments and benefits survive the absence of such a cultural consciousness? That’s what the next election and the coming years will tell us.

Additional factors that have contributed to the change include decreased deference to authority, the end of Sweden’s lengthy post-war boom, and more general openness in the society.

Interesting article.

Apparently, everyone has come back from vacation. For the last month there has been a real dearth of articles that inspired comment. Now there is a superabundance of them. Take this one, for example, from Political Calculations on the effects of Trump’s trade war:

In the absence of its strategy to minimize its economy’s intake of U.S. goods and services, the near-zero growth rate of China’s imports of U.S. goods in July 2018 would be consistent with recessionary conditions being present in that country, which was certainly suggested in early 2018 prior to the implementation of any new tariffs being imposed by either nation on the other’s goods.

However, since China’s political leaders have adopted that strategy, it is contributing to the appearance of slow growth in China’s economy from this particular data series. We can however use that data to get a sense of the extent to which the tit-for-tat tariffs that both nations have imposed on each other since the trade war between them began after mid-March 2018 by looking at the combined value of the U.S.’ imports to and exports from China, where we can use the trend established in the months before any tariffs were first imposed as a counterfactual to tell us what the value of trade would be in the absence of their budding trade war with each other.

[…]

Based on this very simple counterfactual, we think that in the absence of the U.S.-China trade war, the combined monthly value of goods and services traded between the two nations would be roughly $1 billion, or 2%, higher through July 2018 that what actually has been recorded.

or, said another way, not much. Certainly not the apocalypse that many were predicting. I’d say that it’s probably too soon to tell but if the “trade war” has had any effect, it’s been too small to measure.

In considering how unimpressed I am by partisan politics, keep in mind where I’m sitting. Here in Chicago and, indeed, in Illinois if every single Republican were to vanish mysteriously from the face of the earth it would not improve the city’s or the state’s situation one iota. The mayor of Chicago hasn’t been impeded one inch from doing whatever he or she wished by Republican intransigence in my lifetime.

No, Chicago’s and Illinois’s problems are due to bad, incompetent, or corrupt governance and that can only be remedied by good governance. I’m in no position to speak with metaphysical certitude on the subject but I strongly suspect that’s the case in California’s cities that have declared bankruptcy, in Rhode Island, Connecticut, and New Jersey as well.

I would go one step farther. I don’t think that bad, incompetent, or corrupt governance will be tamped down without changing the incentives.

As you undoubtedly know, since 1977 the Federal Reserve has operated under a dual mandate from Congress:

“promote effectively the goals of maximum employment, stable prices, and moderate long term interest rates”

and you also know, at least if you took an Intro to Econ course when I did, that those two mandates are, shall we say, in tension if not outright contradiction. In his Washington Post column Jared Bernstein remarks on a very interesting new study:

According to their work, that path courts danger, specifically, under certain conditions — like unforeseen shocks to the system — the jobless rate could fall too far and trigger so much inflation or other distortions, like bubbles in financial markets, that the Fed would have to slam the growth brakes at great cost to economic growth.

The Fed 5 humbly submit that our knowledge of the key parameters in play in this inflation/unemployment drama are poorly understood. The level of one of the most important — u* (that’s “u-star,” the lowest unemployment rate consistent with stable prices) — has long eluded economists. We don’t enough about what’s driving inflation, why its correlation with unemployment is so low, and whether it could come back to life in a truly full-capacity economy.

That’s led many of us to conclude that our “best move is … to admit the uncertainty . . . and follow the data, particularly inflation.”

But — and here’s the paradox — the Fed 5 argue that even amid the uncertainty, we’re still better off targeting u*, even though the Fed’s guesstimate of it — 4.5 percent — seems clearly too high, as unemployment has long been below that rate and their key inflation gauge has hardly accelerated. The Fed’s own forecasts have unemployment falling a point below their u* and inflation still remaining tame!

He concludes:

In fact, given the recent relative gains of minorities, the steady job growth, and the need for faster real wage gains among middle-wage workers, it’s more important than ever to sustain our favorable labor market conditions for as long as possible. We shouldn’t ignore the macroeconomic risks of very low unemployment. But until those risks are clearer and better understood, the bar to sacrificing even a smidgen of the benefits of full employment should be extremely high.

The Fed has nearly always ignored the unemployment component of its mandate in favor of controlling inflation and some economists (notably Scott Sumner) think they’ve been far too aggressive in controlling inflation and instead should be targeting nominal growth (something the Federal Reserve is not empowered to do). In my view if its mandate is to be adjusted at all, it should be that the Fed should do its job of regulating its member banks much more vigorously, the neglect of which was one of the causes of the financial crisis.

I don’t really care to say much about yesterday’s anonymous New York Times op-ed about resistance within the Trump Administration other than a few scattered bullet points.

• The op-ed doesn’t really say much that Trump’s opponents haven’t believed all along.
• Short of saying “there’s a Deep State controlling the federal government regardless of who’s president” outright, it’s hard to see what would have confirmed the president’s and his supporters’ claims of the last 18 months
• President Trump is not handling the situation as I would have advised.

Also, don’t ignore David Frum’s opening remarks on the op-ed at Atlantic:

Impeachment is a constitutional mechanism. The Twenty-Fifth Amendment is a constitutional mechanism. Mass resignations followed by voluntary testimony to congressional committees are a constitutional mechanism. Overt defiance of presidential authority by the president’s own appointees—now that’s a constitutional crisis.

If the president’s closest advisers believe that he is morally and intellectually unfit for his high office, they have a duty to do their utmost to remove him from it, by the lawful means at hand. That duty may be risky to their careers in government or afterward. But on their first day at work, they swore an oath to defend the Constitution—and there were no “riskiness” exemptions in the text of that oath.

The number of people who seem to want a sort of Praetorian Guard that determines who is president and what the federal government does concerns me deeply.

I don’t know why John Tamny rubs me the wrong way but he does. I mean I believe in free markets and free trade, too. But I also believe that those things flourish best in the hothouse environment that only government can provide. They don’t occur in the wild.

His latest column at RealClearMarkets is a case in point. Consider this sentence:

What’s obvious to those who’ve won customers in the competitive markets is frequently glossed over by government workers shielded from market signals.

So, what’s wrong with that sentence? Isn’t it just Econ 101? What’s wrong with it is that I see no evidence from any bio I’ve ever read of John Tamny that he’s ever worked in “competitive markets”. How the heck would he know? It’s what people who do tell him? Who are these people? And do they actually work in competitive markets? If they got their jobs by virtue of their MBAs from Top 20 schools, work for big companies, work for companies that got where they are by virtue of intellectual property, or because of various other laws and regulations, they aren’t. That cuts out an enormous number of people. It’s possible that Mr. Tamny has never met anyone who worked in a competitive market.

The column itself is about Trump’s wage freeze on federal workers. As symbolism it’s fine. As practical policy it’s virtually meaningless. Relatively little of federal spending is on wages. It’s almost all transfer payments, defense, or interest on the debt. Under the circumstances I have no idea why the wages of federal workers matter to him. They could be cut to zero and we’d still run a deficit.

Unlike our political parties I don’t believe that we need less government or more government. I believe we need different government and nobody is proposing that so we’ll keep pursuing the same failed strategies as we’ve followed since the end of WWII.

At Marketwatch Ed Yardeni asks six questions:

1. What if Trump’s trade war leads to less protectionism and more global prosperity?
2. What if Trump’s deregulation unchains the animal spirits of businesses?
3. What if jobs do come back to the U.S.?
4. What if the pace of technological innovation is increasing, disrupting business models in ways that keep a lid on inflation and finally boosts productivity?
5. What if the growth of distressed asset funds has created a shock absorber in the capital markets, reducing the severity of credit crunches?
6. What if baby boomers downsize and millennials remain minimalists?

As of this moment it’s impossible to answer any of those questions with confidence on anything other than an a priori basis but let’s play along. What if all of those things actually happen?

I think it will be the Democratic leadership’s worst nightmare.

Personally, I think it’s unlikely that all six of those will happen. For example, I think that #6 is in direct conflict with #2. And the overwhelming likelihood is that health care will continue to get more expensive and grow while business sectors concerned with making stuff will shrink. That in turn will lead to greater income inequality. If income inequality becomes severe enough there will be demands for somebody to do something even if it’s something that’s non-productive.

At the Chicago Tribune John Kass remarks on Chicago Mayor Rahm Emanuel’s decision not to seek re-election:

It’s always an earthquake, an explosion, a mad scramble. Desperate hands reach out to grab what they can. It all gets so tribal and ethnic. You’d think Rahm Emanuel would know this.

But he had to pull the plug. He might not have made it to the runoff. And then his Rahmulans would have no hope of holding on through someone else.

What cost him was his decision to hide that police video showing white cop Jason Van Dyke shooting black teenager Laquan McDonald 16 times, with most of the rounds penetrating the body as it lay on the ground.

Keeping the video from public view until after he’d won re-election in 2015 kept him in power. But that cost him black votes. And with the Van Dyke murder trial underway, and Emanuel fitted for the jacket if violence erupts on the streets, it was done.

Emanuel is smart. He doesn’t have to raise a moistened finger to know the direction of the wind.

but I see things much more as another Trib columnist, Eric Zorn, does:

So I was quite surprised when Emanuel bowed out, saying, “This has been the job of a lifetime, but it is not a job for a lifetime. You hire us to get things done — and pass the torch when we’ve done our best to do what you hired us to do.”

But I’m even more surprised that anyone really wants to grab that torch.

Yes, I know, power is seductive and electoral politics attracts people with sufficient self-regard to believe that they uniquely deserve it.

But the mayoral torch in Chicago is on fire at both ends. Gang violence is a chronic and seemingly intractable problem, long-term public pension obligations look likely to wallop local taxpayers in the near future, school enrollment is dropping and the teachers contract expires next June, Chicago’s poorest neighborhoods are not seeing their share of the economic good times, and many of us residents are increasingly irritated at the city’s effort to nickel-and-dime its way to solvency through exorbitant fines and fees.

The solutions are neither obvious nor painless. Whoever ultimately wins the right to grab the torch from Emanuel is by necessity going to inflame core constituencies and burn more than a few bridges. The job ain’t all ribbon-cuttings and victory parades.

Sadly, I think that Mr. Zorn is being overly optimistic in that last paragraph. I think the temptation to try to kick the can down the road again (and again and again and again) will prove irresistible. That’s how we got where we are in the first place. At this point the only force that I think can stop Chicago mayors from committing governing malpractice is the bond market.