Confusing the Lightning Bug With the Lightning

The Economist says that at least looking at the early returns, the U. S. is winning Trump’s trade war with China:

WHEN Donald Trump tweeted on August 5th that tariffs were working “big time”, American media sprang into action to test the claim (see article). In China, editors were more circumspect. No major Chinese-language newspaper reported his tweets. One of his claims—that China’s stockmarket has fallen 27% in the past four months—was an exaggeration. But why would any self-respecting propagandist in Beijing dwell on that? Chinese stocks have indeed fallen sharply (see chart), which officials do not wish to emphasise.

And this is just one of a series of awkward facts for China as its trade war with America deepens. The yuan is down 8% against the dollar since April, and near its weakest in more than a year. A shrinking trade surplus produced a current-account deficit in the first half of 2018, China’s first such gap in at least two decades. More broadly, China’s growth is slowing at a time when America’s economy is expanding at its fastest pace since 2014. No wonder Mr Trump feels that he is on the right path, and that Chinese investors are jittery.

Making matters worse for China is a whiplash effect. Until recently officials and executives believed their own declarations of technological prowess. Privately, advisers were confident that Mr Trump could be placated with promises to ramp up imports from America. Now both views look wanting. An agreement for China to buy more American natural gas and soyabeans collapsed in June. Chinese officials are keenly aware of vulnerabilities; had America maintained its sanctions on sales of semiconductors to ZTE, the Chinese telecoms giant might well have gone out of business. Those with a conspiratorial mindset see things in a darker light. “The Americans don’t want a deal. They want to screw us,” says a fund manager.

The asymmetry in the trade war is another uncomfortable fact. Since America buys far more from China than vice versa, America has more scope to impose tariffs. This imbalance, long discussed in theoretical terms, is close to becoming a hard reality. Mr Trump has instructed his trade team to consider 25% tariffs on $200bn of Chinese imports as early as September, taking the total affected by its tariffs to about $250bn, with room for twice that amount. China’s threatened retaliation, announced on August 3rd, will be tariffs on $60bn of American imports. This would take the total under its tariffs to $110bn, with little room for more.

I can make no claim to understanding President Trump’s thinking. His patterns of thought are completely alien to me but that has been true for the last three presidents. For all I know it may be true that Mr. Trump is looking at trade in the strictly zero-sum manner his critics allege and that has clearly been the assumption of China’s leaders but if so they’re missing the major impact of the tariffs.

Whether or not the the tariffs change the behavior of the Chinese, they will change the behavior of Americans. Americans will consume less. They might save more although rapidly increasing state and local taxes will quickly put an end to that for all but the richest Americans.

And those tariffs may encourage entrepeneurs to invest in American productive capacity rather than in Chinese productive capacity. That is what has been missing for the last several decades and what our economy needs. We cannot flourish as a country by being a nation solely of financiers, software designers, and health care workers with all of the builders and implementers living in China, India, Vietnam, etc. For all of us to flourish we need a broader as well as deeper economy and in my opinion that should be the objective of any policy.

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Commanding the Waves to Recede

or California Dreamin’. In an op-ed at the Wall Street Journal Duke prof Steven Sexton is suspicious of the state’s assumptions underpinning its green mandate:

The California Energy Commission, which approved the rule as part of new energy-efficiency regulations, didn’t conduct an objective, independent investigation of the policy’s effects. Instead it relied on economic analysis from the consultancy that proposed the policy, Energy and Environmental Economics Inc. Its study concluded that home buyers get a 100% investment return—paying $40 more in monthly mortgage costs but saving $80 a month on electricity. If it’s such a good deal, why aren’t home buyers clamoring for more panels already? Most new homes aren’t built with solar panels today, even though the state is saturated by solar marketing.

The Energy Commission is too optimistic about the cost of panels. It assumes the cost was $2.93 a watt in 2016 and will decline 17% by 2020. Yet comprehensive analysis of panel costs by the Lawrence Berkeley National Laboratory estimated the average cost of installed panels to be $4.50 a watt for the 2- to 4-kilowatt systems the policy mandates. That is $4,000 more than regulators claim for a 2.6-kilowatt model system in the central part of the state, where 20% of new homes are expected to be built. Berkeley Lab further estimates that costs fell a mere 1% between 2015 and 2016, far short of the 4% average annual decline the regulators predict.

Now consider the alleged savings on energy bills. The commission’s analysis assumes California will maintain its net energy-metering policy, which effectively subsidizes electricity produced by a rooftop solar panel. Residential solar generators are paid as much as eight times what wholesale generators receive, according to a grid operator’s analysis of publicly available data. Dozens of states are rethinking these generous subsidies, paid by ratepayers, because they shift the costs of maintaining the electric grid to relatively poor nonsolar households. The California Public Utilities Commission is set to revisit this regressive policy in 2019—before the solar mandate takes effect.

If the subsidies are removed, solar adopters would be in the red. This is why the electricity generated by the solar mandate should be valued at the cost of its replacement from the grid—not at the subsidized rate households receive. In a presentation at the National Bureau of Economic Research earlier this year, I estimated the value of rooftop generation for each of California’s ZIP Codes using one year of price data from the grid operator. The average electricity value of the solar mandate’s model system is $12.50 a month, far less than the $80 benefit the regulators claim.

Moreover, using statistics to estimate which power plants would respond to additional solar generation, my colleagues and I also estimated the total value of the pollution avoided by the mandate’s model system to be only $6 a month. Even accepting the Energy Commission’s optimism about solar panel costs, the policy’s public benefits are only half as large.

Have no fear. When the time comes to defend the mandate, California’s politicians will defend it using some combination of sophistry, the politicians’ friend and an appeal to emotion (look at all of the people who’ve suffered from brush fires!). The practical effects of the mandate are a lot less important than showing your heart’s in the right place.

California needs to face the harsh reality that its population is already larger than the land’s carrying capacity and the state is too heavily dependent on real estate development.

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A 12 Step Program for States

The editors of the Wall Street Journal are worried about the state of New Jersey:

If the first step to recovering from an addiction is admitting you have a problem, at least a few Democrats in New Jersey are sobering up. Behold recommendations last week by a bipartisan legislative commission to scale back public-employee benefits.

Democratic Senate President Steve Sweeney convened the legislators and economists in February to examine changes to state spending and taxes. Mr. Sweeney worried that the new federal limit on the deductibility of state and local taxes will make it harder for Democrats to soak the wealthy to pay for unsustainable promises to workers.

Lo, the state’s pension and retirement health benefit liability is four times the size of its annual budget, and pension payments are forecast to double over the next four years. “We want to make sure that government spending is efficient and effective,” Mr. Sweeney said.

Democrats recently raised corporate and individual income taxes—again—so it’s no surprise that the commission punted on serious tax reforms. But the commission’s recommendations on pension and health benefits could save taxpayers money, though still not commensurate to the problem.

One idea is to shift new workers to hybrid pension plans that include a modest pension as well as a defined-contribution component. State employees and retirees currently receive platinum-plated health benefits with a 97% actuarial value. The commission recommends shifting all employees and retirees to “gold” plans with an actuarial value of 80% that are comparable to what the most generous private employers offer.

Whatever New Jersey’s problems, Illinois’s are worse. Illinois’s population is actually declining and per capita income is about what it was ten years ago. On average the income of those leaving Illinois is $20K higher than those staying. No reform measure that results in future public retirees receiving lower pensions can meet constitutional muster. And although New Jersey is undoubtedly corrupt, no state matches Illinois’s record of public corruption.

Consequently, unless the legislature amends the state’s constitution, something that’s all but unimaginable, fewer people earning lower incomes will need to pay the state’s increasing obligations. Illinois’s political leaders have already rejected the voters’ “Hail Mary” pass to save the state.

Illinois may be the first state but it won’t be the last. Rhode Island, Connecticut, and New Jersey all face serious problems. Pretty soon it will be half of the states. Then all of them.

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None Dare Call It Genocide

The editors of the Wall Street Journal are criticizing the Chinese government for its treatment of China’s Uighur population, too:

China’s ethnic Uighurs are disappearing. Over the last two years and with little world attention, the authorities have detained hundreds of thousands of the Muslim minority in the country’s northwest, leaving family members to wonder where they are and why they were targeted. A network of internment camps could hold hundreds of thousands, according to Adrian Zenz, a scholar who has studied the campaign, but officials deny the camps exist.

Information is now trickling out. A handful of prisoners released from the camps have fled abroad and described the mistreatment. Guards subject the detainees to re-education sessions urging them to renounce Islam and love the Communist Party. Resisters are abused or held in solitary confinement.

Many of the detained had been abroad or have relatives who are. Others seem to be picked at random. Some are released after a few weeks, while others are held indefinitely. The arbitrary nature of the detention increases the terror. The prominent Uighur ethnographer Rahile Dawut, who preaches tolerance and isn’t involved in politics, disappeared last December on a trip to Beijing from Urumqi and hasn’t been heard from.

These extreme measures are part of a wider program to control the northwest region of Xinjiang where Uighurs and the smaller Kazakh minority make up more than half of the population. Last year the region’s security budget nearly doubled and 30,000 new police officers were deployed to urban areas.

The authorities have also installed face-recognition cameras in public places. Residents must install tracking devices in their cars and monitoring software on their phones. A region-wide DNA database is under construction using blood samples taken during mandatory “health screening.”

The authorities say they are cracking down on Islamic fundamentalism. Some small-scale terrorist attacks may have been inspired by Islamic State or al Qaeda, and the Syrian government claimed that 5,000 Uighurs fought with Islamic State.

But Uighurs in general adhere to a moderate form of Islam and have long resisted radicalization. If that is changing, it is due in large part to the government’s punishment of any expression of Islamic faith. In recent years the authorities have forbidden Uighurs to fast during Ramadan, grow beards or give their children Islamic names. Officials search their homes for religious materials, and many mosques have been demolished.

Just in case we have forgotten who the Chinese authorities are.

Sanctioning individual Chinese officials or appealing to international accords to which China is signatory are laughably feeble measures. The Chinese Communist Party has violated so many of its international agreements it’s hard to know where to start. Let’s just say all of them.

There is plenty of hypocrisy on this subject to go around. Too many big U. S. companies are making too much money using China as a supplier. That’s the reason for all of the caterwauling about tariffs, particularly in the pages of the Wall Street Journal.

Not the least of the hypocrisy is on the part of Muslims. Islam is obviously under attack in China and Muslims have a religious obligation to defend their faith. But Uighurs are not Arabs.

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Check Your Assumptions

The editors of the Washington Post are wary about “Medicare for All”:

Predicting wildly low spending levels is just one of the questionable maneuvers required to make Mr. Sanders’s plan look feasible. One must also make very favorable predictions about achievable administrative savings and lower drug costs. And one must accept the notion that not even the super-rich should have to pay a penny for health-care. Mr. Sanders’s plan would be more affordable, discourage unnecessary health-care spending and reserve federal resources for other priorities if he demanded co-pays of upper-income people.

One also should not discount another salient fact: Such disruptive reform of the health-care system would require a national consensus to dramatically expand the government that is not foreseeable even under a hypothetical Sanders presidency. There are ways to cover everyone with far less disruption.

I have posted on this subject to death. The workability of the plan depends on your assumptions. Supporters of Medicare for All assume cost savings based on the experience in other countries. But the federal government already administers one of the world’s largest single-payer systems (Medicare) and we have a form of single-payer in education. Controlling costs has not been the strength of either system.

Who will enforce cost control? It won’t come about without enforcement. It certainly won’t be the Congress. They have exhibited exactly no will to control costs. Patients, hospitals, physicians? Attorneys? There are too many people making too much money to let the punch bowl be taken away willingly.

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Give Me the Healthy Joe From Ages Ago

I’m skeptical of the speculation of a couple of Australian scientists that Homo erectus died out because they were just too darned lazy to survive:

Findings from the Australian National University after an archaeological excavation in Saudi Arabia found Homo erectus tended to do the bare minimum to get by, while other species of human were inclined to put in the effort.

They used “least-effort strategies” for tool making and collection of resources, as opposed to Homo sapiens and Neanderthals, who would climb mountains and haul materials over dozens of kilometres to ensure they had quality goods, the research showed.

Homo erectus, in contrast to the more advanced species, tended to use a single “generic” tool for almost all purposes.

I’m skeptical for a number of reasons.

First, the yobbos appear to be drawing sweeping conclusions based on a very small sample. Second, the behaviors they’re crediting erectus with are actually pretty common among more recent hunter-gatherer societies. Look at the anthropological studies of Australian aborigines some time. They don’t exactly put in 40 hour weeks let alone the grueling work schedules that were commonplace among farmers in the 18th or 19th centuries. Third, I’m pretty sure you could find modern hunter-gatherer societies that don’t “put in the effort”, either, i.e. selection bias may be at work.

But most importantly I think there’s as much genetic variation within the modern human species as there is between modern humans and Homo erectus. Said another way, the more we learn the more likely it seems that Homo sapiens is a fairly old species that includes members like Homo sapiens neanderthalensis, Homo sapiens denisova, and, in all likelihood, Homo sapiens erectus. If that’s correct, erectus never died out. You can walk down the street and run into one.

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The Crux of the Problem

In his post at The Hill after noting that properly reckoned Medicare administrative costs aren’t that cheap, Charlie Katabi gets to the crux of the problem:

If Congress can’t muster the votes to slow the spending of a single health program, why would single-payer advocates assume they could enact a whopping 40 percent pay cut across America’s entire health care system? If Sanders’ plan was ever enacted into law, interest groups would ensure they continue to receive high compensation from the new single-payer plan, which will increase costs even further.

That’s basically what I’ve been complaining about for the last two decades. I realize how appealing grand solutions are but you don’t solve a difficult problem by making it intractable which is what M4A would do.

Rather than searching for grand solutions why not approach reducing health care costs like the old wisecrack about eating an elephant. Take it one bite at a time. Let Congress take one government program and reduce its costs. Choose a small one. My guess is that they don’t have the stomach for it.

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Move Along. Nothing to See Here

For your outrage of the day, you might want to turn to this piece at The Guardian on the situation faced by Uighur people in China:

As would soon become clear, however, such “mild” discrimination was to be the least of the Uighurs’ problems. While the regulars at Karim’s were having this discussion in the spring of 2017, their home region of Xinjiang – home to more than 10 million ethnic Uighurs – was already being subjected to what the Chinese state described as an “all-out offensive” against religious extremism and terrorism. The hard-line policies started shortly after the appointment of Chen Quanguo as Xinjiang’s party secretary, a strongman who had previously pursued similar policies in Tibet. While the government has justified its use of force as a response to a number of violent incidents, critics have claimed the measures are aimed at destroying Uighur identity.

Things would worsen considerably over the coming year, as Xinjiang was turned into an Orwellian police state and hundreds of thousands of Uighurs were gradually locked away in concentration camps for what the state calls “transformation through education”. Others have been thrown in prison or “disappeared”. Witness reports of life inside the camps and detention centres have told not only of unhealthy living conditions, but also of regular violence, torture and brainwashing. Writing in the New York Times in February, James A Millward, a scholar who has researched Xinjiang for three decades, argued that the “state repression in Xinjiang has never been as severe as it has become since early 2017”.

If even a tenth of what they report in this story is true, it makes a fine illustration of a point I have made here before. The Chinese authorities are not nice people. Their vision of China is a vision for the Han Chinese and it has no room for anyone else.

China’s population is about 1.2 billion people and more than 90% of them are Han Chinese. That means that more than 100 million people, a population greater than the population of the United Kingdom or France or Germany, aren’t.

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The Problem With Specialization

In a piece at RealClearPolicy Andy Smerick makes a very prudent observation:

There’s no doubt that academics, journalists, and pundits have a great deal to offer the national political conversation. But if they have not been shaped by the actual experience of holding governing authority, their perspectives will be incomplete. That absence will affect how they assess events, the advice they offer, and how they engage in the debate. Legendary Speaker of the House Sam Rayburn was on to something when he remarked, after being told about the brilliance and education of President Kennedy’s staff, “I’d feel a whole lot better about them if just one of them had run for sheriff once.”

I agree but I don’t think he goes far enough. I’d feel a whole lot better about our politicians if they’d done something, anything other than run for public office, held political jobs, or been academics. They don’t realize how cloistered those environments are. They are structured in ways that working in what blithely used to be called “the real world” is not. It’s a lot more like continuing in school than being a trucker or salesman is.

If you look at the careers of Supreme Court Justices, Congressional representatives, or senators, an astonishing number of them have been career politicians. They know nothing else. It separates them from us ordinary mortals in basic ways.

Whatever happened to the idea of public service being the culmination of a career rather than a career? Or, worse, a springboard to a lucrative job in lobbying or finance, trading on the contact you’d cultivated in public office? I think there is a problem with this sort of specialization and G. K. Chesterton understood it well:

We tend to have trained soldiers because they fight better, trained singers because they sing better, trained dancers because they dance better, specially instructed laughers because they laugh better, and so on and so on. The principle has been applied to law and politics by innumerable modern writers. Many Fabians have insisted that a greater part of our political work should be performed by experts. Many legalists have declared that the untrained jury should be altogether supplanted by the trained Judge.

and

The Fabian argument of the expert, that the man who is trained should be the man who is trusted, would be absolutely unanswerable if it were really true that a man who studied a thing and practiced it every day went on seeing more and more of its significance. But he does not. He goes on seeing less and less of its significance. In the same way, alas! we all go on every day, unless we are continually goading ourselves into gratitude and humility, seeing less and less of the significance of the sky or the stones.

Now, it is a terrible business to mark a man out for the vengeance of men. But it is a thing to which a man can grow accustomed, as he can to other terrible things; he can even grow accustomed to the sun. And the horrible thing about all legal officials, even the best, about all judges, magistrates, barristers, detectives, and policemen, is not that they are wicked (some of them are good), not that they are stupid (several of them are quite intelligent), it is simply that they have got used to it.

Strictly they do not see the prisoner in the dock; all they see is the usual man in the usual place.

I think that we should return to that former sensibility but I don’t know that we can. There is just too much money and power in being a professional elected official.

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Quick Takes

I don’t exactly agree with the majority of the American people. I think that Robert Mueller should complete his investigation not just end it. I think he should start at the beginning, go to the end, and then stop. I recognize that “running out the clock” is the ideal outcome for a lot of anti-Trumpers. Mueller shouldn’t do that.

At this point, just three months from the mid-term elections, I think it’s likely that the Democrats will take control of the House but fail to capture the Senate as well. Not a sure thing but likely. I also think that House Democrats will find it impossible to resist making impeaching Trump their equivalent to repealing the PPACA.

Although a fact widely ignored tariffs are more likely to change American behavior than Chinese behavior and that would be a step in the right direction.

I think that polls have jumped the shark, at least in the U. S.

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