The Risk of Miscalculation

If you want to read something cheery, this article at Financial Times on the risk of miscalculation by one or more of the parties in the “North Korean crisis” by Gideon Rachman should do the trick:

The risk that Mr Kim is miscalculating, by potentially provoking an American attack, is raised by the unpredictability of Mr Trump. He has vowed that North Korea will not be allowed to develop nuclear weapons that can threaten the US. He has also repeatedly suggested that he is prepared to stage a pre-emptive military strike, at one point threatening Mr Kim with “fire and fury”. But the US president’s efforts to use brinkmanship to force North Korea to back down are undermined by doubts about the credibility of his threats. Steve Bannon, formerly the president’s chief strategist, has stated that the US cannot attack North Korea because of the risk of massive retaliation against South Korea that could kill millions.

Mr Trump’s reaction to the latest and most powerful North Korean nuclear test has increased the dangerous confusion about US policy. Rather than stressing American unity with South Korea, the president chose to criticise Seoul for its “appeasement” of Pyongyang. This, combined with the news that Mr Trump is actively considering scrapping the US-South Korea Free Trade Agreement, risks encouraging North Korea to believe its nuclear provocations are working, by splitting the alliance between Seoul and Washington.

The president has also damaged US credibility, at a crucial moment, by tweeting that America is considering “stopping all trade with any country doing business with North Korea”. Read literally, this would involve ending trade between the US and China, the two largest economies in the world; an action that would throw the global economy into chaos. Mr Trump’s threat underlines his naivety about both trade and international relations. It also suggests the president remains buffeted by competing instincts, with his instinctive protectionism potentially overriding his desire to combat the North Korean nuclear threat.

The confusing signals from the White House increase the dangers of miscalculation, not just in Pyongyang, but in Seoul, Beijing and Tokyo. With the North Korean threat mounting, the normal reaction for South Korea would be to move in lockstep with its American protector. But if the government of Moon Jae-in concludes the biggest danger is not that North Korea will attack but that Mr Trump will stage a pre-emptive strike, then the South’s incentives change. At that point, it might become rational to break publicly with Washington.

The Chinese government faces a similarly complex set of calculations. Mr Trump has repeatedly tried to persuade Beijing to exert more economic pressure on North Korea, threatening that the US will take unilateral military action if China fails to force Mr Kim into line. China has sought to placate Mr Trump by toughening sanctions on Pyongyang. But the Chinese also have to consider how Mr Kim might react if he is forced into a corner. The risk that the North Korean leader will use nuclear weapons first will surely rise if he is faced with the prospect of the collapse of his own regime — and his own certain death.

I don’t really have a great deal to add other than to point out failing to act decisively in the event of an attack by North Korea on the U. S., its interests, or its allies would be a miscalculation as well.

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The New Opiate

At Politico Alan Abramowitz and Steven Webster point out, correctly in my view, the role of what they call “negative partisanship”:

Over the past few decades, American politics has become like a bitter sports rivalry, in which the parties hang together mainly out of sheer hatred of the other team, rather than a shared sense of purpose. Republicans might not love the president, but they absolutely loathe his Democratic adversaries. And it’s also true of Democrats, who might be consumed by their internal feuds over foreign policy and the proper role of government were it not for Trump. Negative partisanship explains nearly everything in American politics today—from why Trump’s base is unlikely to abandon him even if, as he once said, he were to shoot someone on Fifth Avenue, to why it was so easy for vulnerable red-state Democrats to resist defecting on the health care bill.

Consider, for instance, that while Trump’s approval ratings have lately been in the mid- to upper 30s, he has maintained support of the overwhelming majority of Republican voters—around 80 percent in Gallup’s tracking poll. And that’s what matters to him and to most Republican members of Congress. The president understands that as long as that Republican base remains loyal to him, he is unlikely to face a serious challenge from GOP members of the House and Senate. He also knows that the surest way to keep the support of his base is by attacking Democrats, especially the two most prominent leaders of the Democratic Party—Hillary Clinton and Barack Obama. What looks like an unhealthy Twitter obsession over “Crooked Hillary” and her emails is more likely a team-building exercise—a shrewd effort to keep his party focused on their shared enemy: Democrats. And so far, it’s working for him.

This hostile and confrontational style of politics is a by-product of the growth in negative partisanship within the American electorate. Our research has shown that since the 1980s, supporters of both major parties, including independents who just lean toward one party or the other, have grown to dislike the opposing party and its elected leaders more than they like their own party and its elected leaders. And judging from opinion polls, that trend reached a new high in 2016—an election dominated by negative feelings toward both major-party candidates.

Lest you be confused the increase in “negative partisanship” is a fine example of misdirection. Politicians who not only make a lot of promises but fail to deliver results but actively work against the interests of their supporters and constituents, avoid being booted out of their jobs by the latch that the two major political parties have on the electoral process and by directing the ire of voters against the horrors of the other party rather than against them. They then proceed to use their safe seats to ensure job continuity and to enrich themselves, their families, and their friends.

I know of no better example of those warned about in the New Testament:

Beware of false prophets, which come to you in sheep’s
clothing, but inwardly they are ravening wolves.

than today’s political leadership.

Politics has become the new opiate of the people.

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Blame Congress

The Economist points out a study that found an interesting but little commented-on aspect of the Affordable Care Act:

Hospitals in districts where a Republican congressman supported the Medicare Modernisation Act were five times more likely to receive a waiver than those in ones where a Republican lawmaker voted against. Those hospitals spent 25% more than they otherwise would have in the seven years after the law, according to the researchers. Between 2005 and 2010 the 29 hospitals that received the most lucrative waivers spent an average of $1.25bn more than if they had not received one.

Some of the windfall went on equipment and staff. The average hospital to benefit from a waiver increased its number of nurses by 16% per year from 2006 to 2010. But the splurge seems not to have improved care. No changes were registered as a result in the mortality rate for patients admitted to hospitals with a heart attack, or in the time taken to discharge those who survive one—two standard measures of quality.

Chief executives fared well, though. The average bump in bosses’ pay in the sample of hospitals benefiting most from the waiver was 81% over the same period, equating to a pay rise of about $428,000 per year above that received by bosses of similar hospitals with no waiver. Politicians benefited indirectly. Legislators with hospitals granted waivers in their district saw a 22% overall increase in campaign contributions after the act. Donations from individuals in the health industry in their state increased by 65%.

In other words in explaining the high cost of health care in the United States, your investigation should start and end with Congress. It didn’t start in 2013 or even in 2010. It began more than a half century ago when the Congress began using health care as a political lever.

Don’t expect the Congress to remedy the situation now or ever. More than anything else they want to keep their jobs.

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Summary of the Korea Situation

At RealClearPolitics Charles Lipson, whose blog Zip Dialog is in my select blogroll at right, ably summarizes the “North Korea crisis”:

We have entered the most dangerous moment in world politics since the 1962 Cuban Missile Crisis.

The nightmare is only getting worse, thanks to North Korea’s increasingly rapid development of nuclear weapons, the missiles to deliver them, and the regime’s chilling threats to use them against the U.S., Japan, and South Korea.

There’s only one paragraph in his assessment that I found controversial:

Since deterrence is almost certain to work, the real question is “Is ‘near certainty’ good enough?” If there is a 10 percent chance Seattle and Los Angeles could be destroyed in some future conflict with North Korea, should we wage preventive war now? What if the chance is 5 percent? 1 percent? No one has any idea what the odds are. No one. But we do know that preventive war now will kill tens of thousands, possibly many more, and we know the last preventive war ended badly.

I think, quite to the contrary, that deterrence is almost certain not to work in North Korea’s case because of the country’s unique political and cultural circumstances and that, absent a willingness in the United States to impose sanctions on China, North Korea’s primary sponsor and abettor in its nuclear weapons development, our alternatives are limited to preventive war or what President Obama referred to as “strategic patience”.

Preventive war is always immoral for reasons along the lines that Mr. Lipson lists and is certainly illegal. I choose patience.

Sadly, I also think that Mr. Lipson gravely underestimates the likely death toll of war with North Korea. It is far more likely to number in the millions than tens of thousands and our political leaders and media pundits are doing an awful job of preparing us for the likely outcome.

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The Limits of Compassion

The topic of the day is without a doubt Attorney General Jeff Sessions’s announcement that President Trump would end President Obama’s Deferred Action for Childhood Arrivals decree in six months, effectively throwing the hot potato into Congress’s lap. That has provoked agonistic responses from the editors of the New York Times:

President Trump didn’t even have the guts to do the job himself. Instead, he hid in the shadows and sent his attorney general, Jeff Sessions, to do the dirty work of telling the country that the administration would no longer shield from deportation 800,000 young undocumented immigrants brought to this country as children.

the Washington Post:

The president didn’t have the spine to announce his decision himself. He shuffled it to Attorney General Jeff Sessions, an anti-immigration extremist who seemed to relish sticking a knife in DACA. Mr. Trump told reporters Tuesday that he hoped “Congress will be able to help” the dreamers “and do it properly.” But his written statement — “young Americans have dreams too” — was a study in ambiguity. While saying the dreamers wouldn’t be first in line for deportation, Mr. Trump put them on a path to lose jobs, educational opportunities, and the ability to lead open and unafraid lives.

and the Wall Street Journal:

President Trump is taking flak from all sides for ending his predecessor’s Deferred Action for Childhood Arrivals (DACA) policy, thus putting some 800,000 young immigrants—so-called Dreamers—in legal limbo. Though the President and Barack Obama share responsibility for instigating the crisis, Mr. Trump and Congress now have an obligation to fix it and spare these productive young adults from harm they don’t deserve.

as well as dozens of newspaper columnists and op-ed writers including Paul Krugman, David Leonhardt, Leon Panetta, and scores of others not to mention intemperate blog posts and comments. It was also the topic of this week’s Council forum question.

My predisposition is that Congress should enact some sort of program and that the president should sign it into law. One of my fellow Council members outlined such a plan in a recent post:

First of all, DACA needs to be ended. There’s no question that it’s both illegal and unjust. And even worse, holds people in limbo, so it solves nothing.

Some of the DREAMers could be allowed to stay under certain conditions. They would have to be able to document 10 years residency in the United States from what I call unimpeachable sources; school records, health records, employment records, DMV records if available,tax returns, that sort of thing.

They would be of good character, have committed no crimes, not be members of any questionable groups or organizations, have learned to speak English, and not be on public assistance. They would not be eligible for U.S. citizenship but would receive a special permanent residence permit that would allow them to live and work in America.The citizenship restriction would not apply to illegal migrants who have served in our military and who otherwise qualify.

And it should clearly be understood that this residence permit is a one time act of clemency, not an entitlement or precedent. If necessary, legislation would need to be passed clarifying this.

As non-citizens, they would not be allowed participation in any family reunification program to bring relatives to America from overseas, to hold public office or to vote.

While it might be wise to put a numerical quota on these residence permits, I believe that anywhere from 30-50% of the DREAMers would qualify to stay in America should they choose to. It would mean they have forfeited certain rights given to legal migrants, but that they could continue to live in America.

My view is that the matter should be addressed through the political system using the ordinary legislative process, not bundled into “comprehensive immigration reform”, and not be addressed via presidential proclamation.

The end does not justify the means. President Obama’s proclamation and his subsequent edict which granted similar immunities from deportation to the parents of DACA beneficiaries, an evidentiary “slippery slope”, went far beyond presidential discretion on enforcement, an assessment with which most legal scholars have agreed. We are a country of laws not of men. Action by Congress on this matter is long overdue and should be undertaken and completed with all due haste.

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Exciting

Maybe I’m easily excited but I find this development pretty exciting. The very first zero-emissions fossil fuel power plant is nearing deployment. MIT Technology Review reports:

On a small lot between Houston and the Gulf Coast, in an industrial zone packed with petrochemical factories and gas pipelines, a little-known company is finalizing construction of a demonstration power plant that could represent a genuine energy breakthrough.

If it works as expected, Net Power’s $140 million, 50-megawatt natural gas plant will capture effectively all of the carbon dioxide it produces, without significantly higher costs, in part by relying on the greenhouse gas itself to crank the turbine that generates electricity. The technology could enable a new generation of plants that provide clean power, without the development risks of nuclear (see “Meltdown of Toshiba’s Nuclear Business Dooms New Construction in the U.S.”), the geographic restrictions of hydroelectric, or the intermittency issues of solar and wind. Crucially, future plants of this type could also rely on the nation’s abundant supply of cheap natural gas.

Such plants could produce significant amounts of energy 24 hours a day, 365 days a year regardless of weather conditions and without emitting carbon dioxide. That would add a useful element to our future power generation mix.

Any bets on whether there will be people who find other reasons to oppose them?

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Big Day

Most Americans aren’t aware of it but today is a big day for the Patient Protection and Affordable Care Act. Today is the deadline for insurers to report what they will charge on the PPACA’s insurance exchanges next year. Spoiler alert: it will be more than last year, in some cases significantly more. This passage from Sally Pipes’s post on the event at RealClearHealth caught my eye:

Obamacare’s defenders — and insurers themselves — have attributed these rate hikes to the “uncertainty” Republicans have injected into the marketplace. First with their on-again, off-again effort to repeal the law, and second with their indecision about ending the law’s Cost Sharing Reduction subsidies.

But a new analysis of premium data from the past four years provides evidence that two regulations at the heart of Obamacare are largely to blame for years of rate hikes. Those regulations are the law’s guarantee of coverage to all and its requirement that insurers charge the same premium to all people of the same age, regardless of health status or history.

The analysis was conducted by McKinsey for the Department of Health and Human Services. The consulting firm looked at rate hikes in four states: Georgia, Pennsylvania, Ohio, and Tennessee. Premiums in each had doubled or tripled since 2013 — the year before Obamacare went into effect.

Now for the those of you who don’t follow this issue closely, those two regulations have buzzwords attached to them: “guaranteed issue” and “community rating”. And they’re the very heart of the PPACA. They’re the steak.

If true, that would mean that the main problem with the PPACA is the PPACA. Said another way, the claim that the PPACA was just the slow motion withdrawal of insurance companies from the individual health care market may well have been right.

Some will see that as a bug and others a feature.

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Freak Out

At The Interpreter (hat tip: RealClearDefense) Korea analyst Robert E. Kelly presents what what I think is a solid characterization of why South Korea’s reaction to North Korean nuclear weapons development is so blasé. Basically, it boils down to that for the South Koreans North Korean bad actions aren’t news and that Americans are so unaccustomed to living with insecurity that they’re overreacting.

It was this passage, however, that caught my attention:

But no Korea analyst of any stature has argued for war.

My advice: pay no attention to the regional analysts. In 1937 I am confident that no American Germany analyst of any stature argued for war and that in 1997 no Middle East analyst of any stature argued for war with Iraq. We went to war nonetheless, invading both countries.

An American Korea analyst may know everything there is to know about Korea but understand the United States very poorly. Indeed, academic specialization being what it is, I would expect it.

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Why Has Union Power Declined?

I don’t know whether to file Lawrence Summers’s Labor Day Washington Post op-ed under “Wishful Thinking”, “Irony”, “Nostalgia”, or “Lack of Self-Awareness”:

The central issue in American politics is the economic security of the middle class and their sense of opportunity for their children. As long as a substantial majority of American adults believe that their children will not live as well as they did, our politics will remain bitter and divisive.

Surely related to middle-class anxiety is the slow growth of wages even in the ninth year of economic recovery. The Phillips curve — which postulates that tighter labor markets lead to an acceleration of wage growth — appears to have broken down. Unemployment is at historically low levels, but the Bureau of Labor Statistics reported Friday that average hourly earnings last month rose by all of 3 cents — little more than a 0.1 percent bump. For the past year, they rose by only 2.5 percent. In contrast, profits of the S&P 500 are rising at a 16 percent annual rate.

What is going on? Economists don’t have complete answers. In part, there are inevitable year-to-year fluctuations (profits have declined in several recent years). And in part, BLS data reflects wages earned in the United States, even though a bit less than half of profits are earned abroad and have become more valuable as the dollar has declined relative to other currencies. And finally, wages have not risen because a strengthening labor market has drawn more workers into the labor force.

But I suspect the most important factor is that employers have gained bargaining power over wages while workers have lost it. Technology has given some employers — depending on the type of work involved — more scope for replacing American workers with foreign workers (think outsourcing) or with automation (think boarding-pass kiosks at airports) or by drawing on the gig economy (think Uber drivers). So their leverage to hold down wages has increased.

On the other hand, other factors have decreased the leverage of workers. For a variety of reasons, including reduced availability of mortgage credit and the loss of equity in existing homes, it is harder than it used to be to move to opportunity. Diminished savings in the wake of the 2008 financial crisis means many families cannot afford even a brief interruption in work. Closely related is the observation that workers as consumers appear more likely than years ago to have to purchase from monopolies — such as a consolidated airline sector or local health-care providers — rather than from firms engaged in fierce price competition. That means their paychecks do not go as far.

On this Labor Day, we would do well to remember that unions have long played a crucial role in the American economy in evening out the bargaining power between employers and employees. They win higher wages, better working conditions and more protection from unjust employer treatment for their members. More broadly, they provide crucial support in the political process for programs such as Social Security and Medicare that benefit members and nonmembers alike. (Both were passionately opposed by major corporations at their inception.)

Before proposing measures to restore a balance you believe to have been lost, it would probably be prudent to consider what forces have upset that balance. I would suggest that most of the loss of union power can be attributed to three factors: government policy, technology, and poor leadership.

Government policy is the most obvious. Labor unions thrive when the supply of labor is constrained, indeed, they function by constraining the supply of labor. Our immigration laws whether by commission or omission have worked to expand the labor supply. It’s no accident that so many union members these days are members of public employees’ unions. Governments don’t have competition. I can’t walk across the street and start “Dave’s State of Illinois” and governments can constrain the supply of public employees in ways that private sector companies cannot.

Labor unions are also strongest in heavy industry. The system of managed trade, generally referred to incorrectly as “free trade”, which has been put in place has resulted in a general decline of heavy industry in the United States, sometimes called “deindustrialization”. The most egregious examples of this decline are in steel and the auto industry. USW and UAW used to have tens of millions of members. Now they have fewer than a million. These policies have been put in place with the support of both major political parties. When Dr. Summers was Secretary of the Treasury and again when he was Director of the National Economic Council he supported the very policies that resulted in the weakening of industrial unions. Yes, the weakening preceded Dr. Summers’s terms of office but over the last 25 years he’s contributed substantially to the weakening.

Another major factor in the weakening of the unions has been technology, particularly transportation and communication. I wouldn’t be a bit surprised if the development of shipping containers weren’t the single largest factor in the decline of U. S. industrial unions.

The third factor is union leadership. Union leaders have continued to support establishment Democratic candidates even as establishment Democratic candidates have supported policies that weakened industrial unions. They’ve bargained away millions of union jobs presumably in the interest of retaining the rest and increased their own compensation packages while doing it.

The leadership problem isn’t unique to organized labor. Big business and government are also experiencing grave leadership problems. I think it’s a civilizational issue. They guys at the top have convinced themselves they’re working for the good of their unions, their companies, and their jurisdictions when they’re actually just working for their own, personal good.

So, I wish that Dr. Summers had thought more about why unions have weakened over the years before writing his op-ed. His proposals for someday when the time is right but not now won’t do much to alter the balance of power between labor and management.

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What Should Be Done About the DREAM-ers?

Last night when my wife and I were watching the news, the reporter interviewed a teary young woman, an illegal immigrant brought to the United States as a child, who was obviously frightened about what would happen to her if Obama Administration’s Deferred Action for Childhood Arrivals (DACA) program were eliminated.

There are several things that need to be understood.

  1. It is in fact illegal to enter the United States without having your authorization to enter the country reviewed by a duly constituted officer of the federal government. It’s a misdemeanor.
  2. Re-entering the country illegally after having once been deported is a felony.
  3. The DREAM-ers do not have a right to be here.
  4. The only policy that will satisfy immigration activists is open borders whether de facto or de jure.
  5. The only policy that will satisfy anti-immigration activists is expelling all illegal immigrants and erecting a wall, whether metaphorical or physical.
  6. The conditions that immigrants to this country experience when they come to this country are very different than those the immigrants of a century ago faced.

IMO mercy requires that there be some process by which some subset of those brought here illegally as children (“DREAM-ers” from the DREAM Act) may be allowed to remain. I don’t know how large a subset that is. I think the process should be fair and reasonable and shouldn’t be a moving target. I don’t believe 100% of those brought here illegally will qualify for any workable program.

No workable reform will satisfy the activists on either side. What should be done about the DREAM-ers?

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