Tuesday, October 17, 2017

Marxism-Leninism And The Chinese Communist Party Congress

At this moment I am watching live on Bloomberg News the opening speech by President/Party General Secretary/Chairman of the Military Commission Xi Jinping of the once-every-five-years Chinese Communist Party Congress.  This is far more important than what one finds on other TV networks whether pro-Trump right now (how great his tax plan/tromping on immigrants and football players are) or anti-Trump (what is the latest gossip from the Mueller investigation and will Republicans in the Senate stand up to Trump).  A major theme seems to be a reassertion of party power and discipline, with a reinvigoration of the State-Owned Enterprises, with Communist Party cells to operate in nominally private enterprises, socialism with Chinese characteristics, with a reaffirmation of the foundation based on Marxism-Leninism.  Yes, he used that term.

While there all kinds of issues about the future path of economic, social, political, environmental, and military policies, and also the big question of the unveiling of the new leadership for the next five years in terms of the membership of Politburo and above it the ruling Standing Committee of the Politburo (of the Central Committee of the Communist Party of China), with all this to be ratified by the 3000 delegates at this Congress, taking place on the Great Hall of the People on Tiananman Square (with reportedly super high security there in place), the really big question is whether or not Xi Jinping will follow recent practice and plan to retire in five years and recognize a likely successor at this Congress, or will he clearly lay out a plan for him to continue in power after that.  This remains unclear as of this point, but he was just referring to Marxism-Leninism again and the heroic past of the party.  Offhand this looks like possibly laying the groundwork for becoming the new Mao and seizing greater and more permanent power.

Barkley Rosser

Iraq Conquers Kirkuk

The central Iraqi government based in Baghdad has conquered oil-rich and ethnically-mixed Kirkuk from its recent Kurdish rulers, who hoped to continue ruling it as part of their recently declared independent state of (Iraqi) Kurdistan, clearly consisting of three provinces, but which they also wanted to include the fourth one of Kirkuk province.  This now appears not to be going to happen.

Juan Cole has made an excellent discussion of this, noting 7 reasons why this is not about Iran as many commentators in the US claim.  I shall  not repeat most of his arguments here but suggest people look at the link.  I shall note the crucial point that what looked like it was going to be a major military conflict over Kirkuk thankfully turned out not to be is that the Kurdish Pesh Merga, who were ruling Kirkuk, actually are tied to the main opposition party in Kurdistan, the Patriotic Union Party (PUK) led by the Talabani  family,whose old patriarch, once a president of all of Iraq, has just died.  The Pesh Merga has simply withdrawn peacefully from Kirkuk, handing a major embarrassment to Massoud Barzani, the current president of newly independent (maybe) Kurdistan, who leads the center right Democratic Party of Kurdistan (DPK).  This suggests that while the opposition nominally supported Barzani's independence referendum, they lack enthusiasm, and Barzani may end up in trouble as things are not going well with this.  As I noted in a previous post, Barzani is in a tight position because he canceled an election in 2015, and Kurdistan's economy has been weak due to low oil prices.

I also add that apparently the fall of Kirkuk temporarily shuts down 350,000 barrels of oil per day production, which will add to the ongoing increase in world oil prices.

Barkley Rosser

Monday, October 16, 2017

The Case of the Spitting Legionnaire

A couple of days ago, the New York Times published an opinion piece by Jerry Lembcke "The Myth of the Spitting Antiwar Protester." Lembcke wrote a book a few decades ago debunking that myth but it is still going strong... stronger than ever, actually. The trope of "they're spitting on our veterans" is popular with anti-kneeling fanatics who maintain that athletes who protest during the national anthem are "spitting on the graves" of those who died to defend the flag and the freedom to do as you're told and stand during the national anthem.

I have always found Lembcke's argument and evidence compelling but I don't like to take anything for granted. So I did a little extra digging. Some of that was digging through a stash of old Amex/Canada magazines that I have held onto for 45 years or so. A Vietnam veteran named Al Reynolds wrote an account published in the May-June 1973 issue reporting on the Vietnam Veterans Against the War contingent in the "Home with Honor" parade staged in New York City at the end of March of that year.

As far as I know that is the only contemporaneously published eyewitness account of veterans being spat upon. The veterans in question were anti-war protesters and the alleged culprit was a presumably "patriotic" spectator. Reynolds' account, by the way, is substantially corroborated by the FBI's file on the VVAW. Although it doesn't mention spitting, it does refer to jeering and to three thwarted attempts by angry spectators to climb over barriers presumably to attack the protesters.

I also searched several news databases to see if I could find any other contemporaneous accounts of either that event or others. Here is where things get intriguing. The New York Times carried a review of a play by Tom Cole, titled Medal of Honor Rag that referred to an American Legionnaire in Seattle who waited at the gate in the airport to spit on returning G.I.s because they were losing the war. I suspect that this alleged "legionnaire" is actually a fictionalization of the VVAW "Home with Honor" parade episode. All of the standard elements of the spitting myth are present in Cole's play: the airport, the spitting, and the anti-war hippies screaming "baby killers" at the arriving servicemen. The one difference is that it is a pro-war "patriot" doing the spitting.

Medal of Honor Rag was first performed in Boston in April of 1975 and is supposed to be set in 1971. The first of the "Rambo" movies, First Blood was released in 1982. It contained the following transparently plagiarized bit of dialogue:

Rambo: Nothing is over! Nothing! It wasn't my war. You asked me, I didn't ask you. And I did what I had to do to win. But somebody wouldn't let us win. Then I come back to the world and I see all those maggots at the airport. Protesting me! Spitting! Calling me baby killer and all kinds of vile crap! Who are they to protest me? Huh? Who are they? Unless they been me and been there and know what the hell they're yelling about.
So there it is, folks. The making of a myth. An older woman in a fur coat, with carefully teased hair, her face distorted with rage, spitting at Vietnam veterans protesting against the war is transformed into a Legionnaire, with a red face, waiting at the airport gate to spit on returning G.I.s for not winning the war and finally into anti-war "maggots" protesting poor little John Rambo who was just doing what he had to do to win. So where does that leave us in October 2017? My, my, look at all the rhinestone Rambos!

Saturday, October 14, 2017

The Incidence of the Obamacare Subsidies

Justin Fishel and Mary Bruce covers Trump’s dismantling of Obamacare:
The White House announced Thursday night that the administration will slash Obamacare subsidy payments to insurers. The "cost-sharing reduction payments," worth an estimated $7 billion this year, are intended to reduce out-of-pocket costs for low-income Americans on Obamacare ... House Democratic leader Nancy Pelosi and Senate Democratic leader Chuck Schumer issued a joint calling the action "pointless sabotage." "Sadly, instead of working to lower health costs for Americans, it seems President Trump will singlehandedly hike Americans' health premiums," they said in a joint statement. "It is a spiteful act of vast, pointless sabotage leveled at working families and the middle class in every corner of America."
Trump’s counter is that the health insurance companies are very profitable because they are reaping the benefits of these subsidies. I would argue that health insurance company profit margins are high in large part because we have not enforced the anti-trust laws and allowed a lot of market power. Brad and Michael Delong made this point last fall:
The United States’ Affordable Care Act (ACA), President Barack Obama’s signature 2010 health-care reform, has significantly increased the need for effective antitrust enforcement in health-insurance markets. Despite recent good news on this front, the odds remain stacked against consumers ... It is not surprising, then, that in 2015 some of the largest private American health-insurance companies – Anthem, Cigna, Aetna, and Humana – began exploring the possibility of merging. If they could reduce the number of national insurers from five to three, they could then increase their market power and squeeze more profits from consumers.
Even five health insurance companies are two few. But suppose we did have real competition in the health insurance market – what would be the effect of subsidies. Let’s consider this primer on the incidence of taxes:
The tax incidence depends on the relative price elasticity of supply and demand. When supply is more elastic than demand, buyers bear most of the tax burden. When demand is more elastic than supply, producers bear most of the cost of the tax.
Most economists know this and we know how to translate this into the implications for the incidence of a subsidy. We have to admit, however, that Trump is really awful at economics. But he does have economic advisors. Trump is implicitly assuming a very elastic demand for health care or a very inelastic supply of health care. But where is his evidence for these claims? I guess when Kevin Hassett produces his “analysis, we might see a link from Greg Mankiw.

Trump Fails To Certify JCPOA Iran Nuclear Deal

I wish to be very precise here on this extremely important matter. President Trump has not "decertified" the JCPOA Iran nuclear deal.  Now Congress must ultimately be responsible. He has, after a lot of discussion and intervention by his national security team, failed to certify the deal.  This is not something that was part of the deal, but an epiphenomenon put in place by the US Congrees as part of a deal agreed to by former President Obama to get the deal through, a matter of every 90 days the US president certifying that Iran is complying with the agreement.  Two times running, President Trump certified it, confronted by the hard fact that Iran has been complying with the deal according to every official body in the world.  But, he has said he would not certify it, and reportedly he has blown up over this matter with screaming fits his c.  So his NatSec team has cooked up this partial save: OK, boy, fail to certify, putting it on Congress to really undo the deal.

In the face of way more to say than I shall here, let me point out odd items most will not. So one of those is a positive.  Even if the Congress fails to do what is right and reasonable and keeps the deal going, probably Iran will not pursue an active nuclear weapons acquisition program.  There are two reasons for this, which could easily be undone if Trump continues to insanely go after them.

The first is that this whole negotiation with Iran was an unnecessary farce to begin with.  Vilayet-al-faqih Ayatollah Ali Khamenei was issuing fatwas against the building of nuclear weapons as far back as the G.W. Bush admin.  Pres Bush even accepted two official National Intelligence Estimates (NIEs) that declared that Iran was not actively pursuing a nuclear weapons program. He did it twice.  The fatwas by Khomeini were the ultimate reason why these hard fought and deeply studied NIEs came forth, representing after all a consensus of every one of 17 plus US intelligence agencies, who have a wide variety of perspectives, some of them almost insanely hawkish.  But twice during the G.W. Bush presidency they came together to make this super official certification: Iran did not have an active nuclear weapons program, even though it had one earlier, one that dated back to the Eisenhower admin when the US supported their program under the Shah.  But, the bottom line is that while Khamenei is alive, there will be no Iranian nuclear program.

What this means is that ultimately Obama's massive effort to negotiate a halt to the nonexistent Iranian nuclear program was ultimately a worthless empty exercise, much as I have on occasion praised it.  I mean, it was a noble and heroic and difficult effort,  Obama supported John Kerry in getting the Russians and the Chinese, as well as the EU and other obvious US allies, to go along with economic sanctions, which actually had an effect, given that Iran is actually a semi-democratic regime, so that even the hardliners associated with Khameini went along and agreed.  And beyond Iran, it was a big deal, the UN officially supporting it along with the Russia, China, UK, France, Germany, and the UN Security Council (oh, sorry, a part of the UN), as well as most of the rest of the world, aside from a handful of countries (not to be listed, although in most cases their intel/militery support it).

The second is that even given this nonexistent fact that Iran was pursuing a nuclear weapons program, which all the US intel agencies said was the case, and Iran has been in full compliance with the JCPOA agreement as agreed by all observers, including even the senior US officials such as SecDef Mattis before a Congressional committee, Trumps and a few Israeli officials plus some from
 Saudi Arabia and a few others,Iran has been in full compliance with the agreement. If Trump insists on ending the agreent, he will have only the support of Israel and Saudi Arabia and a few of its immediate neighbors.

Addendum:  It would appear that to the extent Trump is even thinking, what he (and those in Israel and Saudi Arabia who support this nonsense) want is "regime change" in Iran.  It is not good enough to have a relatively moderate Islamist government that obeys a treaty that limits its nuclear program, which was not directed at weapons in the first place anyway.  In this regard they resemble the wildly messed up views of George W. Bush regarding both North Korea and Iraq.

I have posted here on this before, but it remains not widely known, that North Korea was not in violation of the nuclear agreement with it when the WBush admin went after them on the matter.  Just as there is nothing in the JCPOA about missiles, there was nothing in the 1994 agreement about uranium enrichment, although most Americans believe the North Koreans were in violation of 1994 due to their enriching uranium.  It was about plutonium, and they were following the agreement on that when WBush told South Korea's leader in March, 2001, to forget about the peace process, which Colin Powell supported, but the neocon hawks led by Cheney and Rumsfeld did not.  They wanted to pull a Soviet Union a la Reagan and Bush Senior: regime change.  That has not happened and now the North Koreans have nuclear weapons.  Imitating this nonsense, Trump is in danger of getting the same outcome, although we can hope that Khameini keeps his fatwas in place at least for awhile.

As it is, while not pursuing a nuclear weapons program and opening to the world seems to be popular in Iran as expressed in their semi-free elections that reelected the government that negotiated the JCPOA, the "Green Movement" does support civilian nuclear power and also Iran maintaining a reasonably strong military to protect against unfriendly neighbors such as the Saudis, whose current leader has openly talked of war against and even in Iran.  So, getting them to stop testing missiles and so on is not a likely outcome from any popularly elected government in Iran.  If we brought back the Shah, well, maybe, but he is dead, and I doubt the Iranians would accept his son as a leader.

In Iraq, there was a majority ready to take over when semi-democracy was put in place after the US invaded under WBush and overthrew the Saddam dictatorship.  Unfortunately, as the then Saudi leadership warned, who convinced Bush Sr. not to go all the way to Baghdad after throwing Saddam out of Kuwait, that majority is Shia and friendly to Iran.  So, now Iraq is ruled by people friendly to our supposed super enemy, Iran, and their role in Iraq is one of those things that the Israelis and Saudis are unhappy about, along with their supposed role in Syria, Lebanon, Yemen, and some other places. 

Bottom line is that if WBush had not dumped the Korean peace negotiations and invaded Iraq, our current president would probably be dealing with a less difficult situation in the Persian Gulf and maybe not even be facing a nuclear weapons armed North Korea.  But our current president seems bent on doing his best to make sure that future presidents will have to deal with both a nuclear armed North Korea (no way they are giving those babies up, even if Kim Jong Un is overthrown) and a nuclear armed Iran, not to mention a world that simply mistrusts US leaders and has not interest in any diplomatic negotiations with the US about anything.

Barkley Rosser

Friday, October 13, 2017

Enslaved to an Individualist View of Social Change

I note with some interest the debate over whether it is ethically necessary to refer to slaveholders as “enslavers” in order to convey our disapproval over their actions.  The obsessive use of the enslaving terminology in The Half Has Never Been Told (Baptist) bothered me at the time, and now I see he was part of a trend.

I understand the motivation—up to a point.  Anyone who participated in the slave system had a share in the responsibility for it.  It is not anachronistic to look at it this way, since many members of slave-owning households had the same feeling and chose to opt out.  Of course, this moral judgment applies not only to those who directly owned slaves, but also those whose livelihood was predicated on enslavement, which includes financiers accepting slaves as collateral and business owners producing goods for slave maintenance and exploitation.  To some extent, in my opinion, it even applies to workers for those slavery-based businesses: I’d like to think that I would never have taken such a job if I had been around back then.

Nevertheless, the insistence on language that parcels out responsibility to each participating individual implicitly distracts attention from the systemic, collective basis for slavery.  In what sense was an individual slaveholder an enslaver, personally responsible for the enslavement of his or her chattel?  An individual is responsible for whether they will be the one with the whip, but not whether individuals will be placed in bondage to someone.  The institutions of slavery, which encompassed the political, legal and financial mechanisms that defined, enforced and managed enslavement, took care of this.  Language that foregrounds individual responsibility backgrounds the institutional basis of the system.

The linguistic debate matters because it reflects a disagreement over how to achieve change, one that simmers today.  Emphasizing personal responsibility inclines us toward individual action: refusing to purchase slaves in centuries past, boycotting the most objectionable corporations today.  And, to be clear, I have no problem with individual action; doing good is doing good.  But collective action does the heavy lifting.  It took a civil war to (mostly) eliminate slavery in the United States, and it was the failure of the federal government to follow Reconstruction through to the end that left us with a system of massive racial inequality.  Our most important individual responsibility is the one we bear as citizens, to do what we can to change the institutions that oppress and exploit.

Just as the history of slavery is being reinterpreted as an epidemic of individual moral failing, there is a tendency today to see social and economic inequality, the unfolding horror of climate change and other urgent problems as matters of personal virtue or vice.  For instance, I sometimes give talks on child labor, and invariably, no matter how much I emphasize the systemic aspects of the problem, I get the question, “So what should I buy?”  Yes, an ethical individual cares about choices like this.  No, child labor will not be overcome by more mindful consumerism.  If you want the world’s children to have a better life, you should carry the banner for a global economic order that can eliminate mass poverty, beginning at the very least with the modest ideas of the Leading Group (of which the US has shamefully never been a member).

My hunch is that the proclivity toward viewing social problems as individual moral failings stems from the political reversals suffered by the organized left over the past four decades; it avoids what might otherwise be a painful sense of collective failure.  It helps people to feel good about themselves even if, objectively speaking, little is actually being done to reverse the drift toward ever worse outcomes.  But it also reinforces failure by redefining social change as the spread of personal virtue rather than the change in laws, institutions and flows of resources we truly need.

Thursday, October 12, 2017

IMF Fiscal Monitor: Progressive Taxation Need Not Deter Growth

The latest from the IMF is a must read for progressives even if it runs contrary to the nonsense coming out of the White House:
At the global level, inequality has declined substantially over the past three decades, but within national boundaries, the picture is mixed: some countries have experienced a reduction in inequality while others, particularly advanced economies, have seen a significant increase that has, among other things, contributed to growing public backlash against globalization. Excessive levels of inequality can erode social cohesion, lead to political polarization, and ultimately lower economic growth, but whether inequality is excessive depends on country-specific factors, including the growth context in which inequality arises, along with societal preferences. This Fiscal Monitor focuses on how fiscal policy can help governments address high levels of inequality while minimizing potential trade-offs between efficiency and equity. It documents recent trends in income inequality, including inequality both between and within countries, then examines the redistributive role of fiscal policies over recent decades and underscores the importance of appropriate design to minimize any efficiency costs. It then focuses on some key components of fiscal redistribution: progressivity of income taxation, universal basic income, and public spending policies for achieving more equitable education and health outcomes. The analysis relies on the existing theoretical and empirical literature, IMF work on inequality and fiscal policy, country experiences, and new analytical work, including various static microsimulation analyses based on household survey data. Simulations using a dynamic general equilibrium model calibrated to country-specific data and behavioral parameters illustrate the potential impact of alternative budget-neutral tax and transfer measures on income inequality and economic growth.

Hassett’s Evidence on Transfer Pricing and the U.S. Trade Deficit

In my last post, I questioned Kevin Hassett’s claim that transfer pricing manipulation was responsible for half of our trade deficit and asked what was the paper he referenced. We have the text of his speech:
There is another important factor to consider when thinking about how these changes will affect the economy. A recent NBER working paper (Guvenen, Mataloni, Raisser and Ruhl 2017) argues that profit shifting by large multinational firms causes part of their economic activity to be attributed to their foreign affiliates, leading to an understatement of U.S. GDP. Moreover, this profit-shifting activity has increased significantly since the mid-1990s, resulting in an understatement of measured U.S. aggregate productivity growth. The authors correct for this mismeasurement by “reweighting” the amount of consolidated firm profit that should be attributed to the U.S. under a method of formulary apportionment. Under this method, the total worldwide earnings of a multinational firm are attributed to locations based upon apportionment factors that aim to capture the true location of economic activity. The authors use equally weighted labor compensation and sales to unaffiliated parties as proxies for economic activity. Applying the formulary adjustment to all U.S. multinational firms and aggregating to the national level, the authors calculate that in 2012, about $280 billion would be reattributed to the U.S. Given that the trade deficit was equal to about $540 billion, this reattribution would have reduced the trade deficit by over half in 2012.
Formulary apportionment can take on many forms. One form is to allocate taxable profits by sales but this approach would likely lead to a different allocation of income than a true arm’s length approach especially for a nation that imported a lot of sourced produced abroad. Wasn’t this realization central to that debate over the Destination Based Cash Flow Tax idea? This NBER paper, however, does something else as noted by this summary:
To correct for this mismeasurement, we use confidential MNE survey data collected by the Bureau of Economic Analysis to construct apportionment factors that distribute total transactions in income on FDI among the parent and affiliates in the MNE. We consider both labor compensation and sales to unaffiliated parties as apportionment factors, as these variables are most likely to identify the real production taking place in each location.
Using BEA data to infer the extent of transfer pricing manipulation is a Herculean task so I guess we should applaud any effort to do so. And while the addition of labor compensation might improve upon the formulary approach over a pure sales based apportionment, this approach still strikes me as misleading. The value-added under arm’s length pricing can be seen as the sum of labor compensation and profits from the tangible and intangible assets created in a jurisdiction. Unless capital to labor ratios are internationally equal, apportionment based on labor compensation still misses the mark. Apportionment based on sales rewards the distribution function ignoring where the product was produced. Of course measuring the market value of capital is difficult especially if capital includes intangible assets and multinationals often transfer the rights to intangible assets to tax havens at valuations far below fair market value. As such, I would take these estimates of transfer pricing manipulation with a grain of salt. And as has been noted, the ability to manipulation transfer pricing has little to do with the effect of corporate tax rates on how productive activity is sourced.

Wednesday, October 11, 2017

Puerto Rico, Transfer Pricing, and Kevin Hassett

Scott Greenberg provided a nice summary of what section 936 was and how its expiration had contributed to Puerto Rico’s economic and fiscal difficulties:
beginning in 1976, section 936 of the tax code granted U.S. corporations a tax exemption from income originating from U.S. territories. In addition to section 936, the Puerto Rican corporate tax code gave significant incentives for U.S. corporations to locate subsidiaries on the island. Puerto Rican tax law allowed a subsidiary more the 80% owned by a foreign entity to deduct 100% of the dividends paid to its parent. As such, subsidiaries in Puerto Rico had no corporate income tax liability as long as their profits are distributed as dividends. When section 936 was in effect, U.S. corporations benefited greatly from locating subsidiaries in Puerto Rico. Income generated by these subsidiaries could be paid to U.S. parents as dividends, which were not subject to U.S. corporate income tax under section 936, and were deductible from Puerto Rico’s corporate income tax. Because of these generous tax incentives for business, Puerto Rico grew rapidly throughout the 20th century and developed a substantial manufacturing sector, though it remained relatively poor compared to the U.S. mainland. However, because section 936 made foreign investment in Puerto Rico artificially attractive – creating, in effect, an economic bubble – it left the island vulnerable to a crash if the tax provisions were ever to be repealed.
The story is that starting in 2006, the IRS would treat the Puerto Rican affiliates of life science companies as contract manufacturers which would greatly reduce the transfer pricing manipulation made legal under section 936. Greenberg notes:
2006 also marked the beginning of a deep recession for Puerto Rico, which has lasted until today. Puerto Rico’s high corporate taxes on domestic corporations along with low taxes on U.S. subsidiaries had skewed the Puerto Rican economy toward foreign investment from the U.S. When section 936 was repealed in 2006, foreign investment began to flee. Without a strong domestic corporate presence to fill the void, the economy began to contract, along with tax revenues.
Brad Setser has been examining certain trade data finding something that might seem surprising:
The largest supplier of imports to Puerto Rico? Ireland. The second largest? Singapore. Tax trumps gravity, it seems. Incidentally, Switzerland jumped into third place in the 2016 league table, leaping past other exporters of chemicals and Puerto Rico’s suppliers of fuel oil, diesel, and the like. It isn’t exactly hard to figure out what is going on here. Puerto Rico’s imports tend to be specialty organic chemicals and pharmaceutical products, and, well, they tend to be supplied from countries that are known to specialize in helping multinationals optimize their global tax bill. And, setting aside trade with the fifty states for the moment, where are Puerto Rico’s biggest export markets? Belgium and the Netherlands. The big ports and distribution centers in northwest Europe. Europe is almost certainly buying packaged pharmaceuticals—Puerto Rico’s biggest export to the world translates from trade jargon to “medicine, in measured doses, packaged for retail.” It is a bit too simple to say Puerto Rico imports active pharmaceutical ingredients from low-tax jurisdictions and exports finished pharmaceuticals to high-tax jurisdictions. The imports from Ireland and Singapore could be for pharmaceuticals destined for the U.S. market, and the active ingredients for the finished goods exported to Rotterdam and Antwerp may be coming from the United States.
Litigations between the IRS and companies such as Eaton, Guidant, and Medtronic show that certain multinationals are still trying to pretend that the Puerto Rican affiliate deserve a significant amount of profits. As Paul Krugman notes:
As Setser notes, Puerto Rico used to be a major tax haven for manufacturing corporations. Much of this tax advantage has now ended, but its legacy is still visible in trade statistics. Specifically, PR runs, on paper, a huge trade surplus in pharmaceuticals – $30 billion a year, almost half the island’s GNP. Yes, “N” not “D” – very important in this case, as in Ireland . But the pharma surplus is basically a phantom, driven by transfer pricing: pharma subsidiaries in Ireland charge themselves low prices on inputs they buy from their overseas subsidiaries, package them, then charge themselves high prices on the medicine they sell to, yes, their overseas subsidiaries. The result is that measured profits pop up in Puerto Rico – profits that are then paid out in investment income to non-PR residents. So this trade surplus does nothing for PR jobs or income.
Paul’s real issue, however, was a recent speech by Kevin Hassett – which I also noted:
What does this have to do with Hassett? Well, he told TPC – while insulting the institution and impugning its integrity – that transfer pricing driven by high nominal US corporate taxes is responsible for half the U.S. trade deficit, and that cutting these taxes would therefore be a big job creator. Never mind whether his estimate is right: even if it were, as Gleckman says, changing the transfer pricing would affect the accounting, but nothing real. It would be exactly like Puerto Rico’s pharma surplus: a phantom improvement, statistically impressive to the uninformed but signifying nothing.
Here is where I have a favor to ask for those who are better at understanding the breezy way Hassett used and abused certain literature. Paul and I both have our doubts as to this claim that transfer pricing manipulation is responsible for half of the U.S. trade deficit – a claim that Hassett made around the 19th minute of his speech to the TPC (see my post or Gleckman’s for a link to it). Hassett does mumble something about an NBER paper that used a “formulary apportionment” approach, which strikes me as not the right way to capture these things. But I want to be fair and actually read this alleged NBER paper, which alas I have not been able to find. I would love it if someone actually gave us a proper citation so we can check on this bold claim even if it has little to do with the real debate as to the alleged employment effects from corporate tax rates.

Tuesday, October 10, 2017

On Richard Thaler Receiving The Nobel Prize

This is a Sveriges Bank Prize in Economic Science in Memory of Alfred Nobel that I should approve of unequivocally, and I do approve of it.  Dick Thaler has long been known to be on the list of likely recipients since at least when Daniel Kahneman shared it with Vernon Smith back in 2002, although I sort of thought the award just a few years ago for Robert Shiller would put Thaler's off a bit.  Nevertheless, I approve of behavioral economics, so I was mistaken not see another award being given for it this soon, and with Thaler clearly a deserving and top candidate for it.

Indeed, I am the founding editor-in-chief of a journal called the Review of Behavioral Economics (ROBE), and back between 2001-2010 I edited the Journal of Behavioral Economics and Organization (JEBO).  One of Thaler's most important papers back in 1980, his fourth most cited, "The Pure Theory of Consumer Choice," in which he introduced the concept of mental accounting, the first item cited by the Nobel committee in announcing his award, and the paper that I know he long considered the one that would get him the prize (which he long expected to receive), was the second paper ever published in JEBO, which should make me even more pleased.  Indeed, I recognize that there is an important element of justice in his prize given that he "wandered in the wilderness" for many years, publishing in oddball journals such as JEBO in its beginning and Marketing Science and other such, until much later when his ideas became more accepted, and he finally began hitting the top journals.  So, he deserves credit for struggling with ideas that were not accepted and helping to make them become accepted, such as through his column in the Journal of Economic Perspectives on "economic anomalies" from 1987-1990, with some people saying he is the first  person to get a Nobel for having a column in the JEP, not entirely false that observation.

So why am I not jumping up and down as much as I probably should be and might be?  Maybe for  me this is like the prize for Paul Krugman, which I also think was deserved, but which I thought should have been shared with others.  I think that is kind of what I am thinking, although I recognize that there is a fairly long list of people who might be the others sharing, with such figures as Camerer, Rabin, Loewenstein, Fehr, Gintis, List, and more as possibilities.  It is not obvious which of these should be pushed forward to share it with him now.  Indeed, if one looks at Google Scholar citations, one finds him somewhat ahead of all  those, with over 110,000, while several of those have around 80,000 and none of them more than that.  So, they are not far behind, but they are behind, and it is not obvious again, which of them should be pushed ahead of the others.

In this regard, this prize may resemble that for Jean Tirole.  At the time many other names were pushed forward as perhaps deserving to share it with him, I shall not reproduce it, but, as with this one, the list was long, and it was not obvious which of those should be pushed forward. And, curiously, Tirole's Google Scholar citations are about as numerous as Thaler's, and he was also  clearly ahead of this other batch, many of whom were bunched together.  So, maybe I should just stop second guessing this one and simply be pleased that behavioral  economics is again getting recognition, and that one who long struggled "in the wilderness" with many good and original ideas has indeed received it.

 Addendum, 10/10:  I think I know part of what has me bothered.  It is much of the poorly informed commentary about this prize, especially claims that seem to suggest that Thaler along with Kahneman and Tversky invented or "fathered" behavioral economics, a view that has been enhanced by Kahnemans's own public comments.  When Vernon Smith, "father of experimental economics," shared the prize with Kahneman in 2002, many were worked up that Charlie Plott did not share it, but the Nobel committee made it clear the missing man was the then already dead Amos Tversky, with in effect Thaler another missing man.  So, he has clearly been way up on the list.  What he has done has probably succeeded both through JEP and his Nudge book and his public policy work and appearance in a movie, convinced lots of people that behavioral econ should be taken seriously.  That is certainly important, but being a good publicist is not the same thing as inventing, although he has been respoinsible for many new ideas in behavioral econ.

So, in 1978, the year before Thaler met Kahneman and Tversky to supposedly "father" behavioral econ, Herbert Simon received the Nobel for discovering "bounded rationality."  He also coined the term "behavioral economics," and given its then still unacceptability, his award was criticized by many economists, especially some at Chicago such as George Stigler.  Even those at MIT did not like it and continued with their usual fully rational homo economicus models, even if they were less loud about criticizing the award to Simon, who had died by the time Kahneman and Vernon Smith got their prize in 2002.  So, Simon should be viewed as the "father" of modern behavioral economics, although many earlier economists, including Keynes, but also many classicals, expressed and discussed what we now view as behavioral economics ideas.  An early classic of the view, now faddishly cited by many behavioral economists (and written about at length by Vernon Smith) is the excellent Theory of Moral Sentiments by Adam Smith, which went into three editions, and which he considered  to be his most important work, well ahead of his more orthodox Wealth of Nations. 

Barkley Rosser 

Monday, October 9, 2017

Social Justice: Debt, Solidarity or Care?

Mozi: scholar and activist

How do we think about the obligation of social justice?  The dominant American political culture is based on individualist values: you have a right to do whatever you want, and the main problem is how to prevent you and other rights-bearing individuals from getting in each other’s way.  Without extra considerations, social justice in such a universe is a matter of taste and inclination, which is to say charity.  You offer help to others when you feel like it.

But there is an important extra consideration, debt: our freedom in an individualist world is constrained by obligations to repay the debts we have incurred.  This may result from a purely financial transaction like a mortgage or a student loan, but we also recognize what might be called social or moral debts, where one person has benefitted at the expense of someone else and therefore owes compensation in return.  This might not be recognized in a court of law, but it makes an ethical claim that can cause people to feel a sense of obligation.

The you-owe-it-to-them argument is used on behalf of coffee-growers, for instance.  Those on the sipping end of the industry, when they hear stories about how hard these growers work and how little they get for it, rightfully feel obligated to go out of their way to make amends.  They buy fair-traded beans and patronize cafes that share, or seem to share, these same values.  If you benefit by drinking, you are indebted.

Ta-Nehisi Coates, who I discussed in an earlier post, strongly pushes this framing of racial justice in America.  White people benefitted from centuries of un- and underpaid black labor, and from racial domination in general, and in this way they have accrued an immense debt.  Justice will not be achieved until the debt is acknowledged and paid back.

In fact, the “white privilege” language used to analyze racial inequality implicitly draws on this same notion of debt obligation.  Inequalities are assumed to all take the form of zero-sum relationships, where some (whites) have more because others (blacks) have less.  Thus the difference in outcomes can be understood as a debt that the better-off owe to the worse-off.  It’s politically effective insofar as it appeals to this deep theme in our culture, justice as the retiring of debts.

The debt frame has considerable merit on an aggregate level.  As a country, economically and politically, America drew much of its strength from racial and other forms of exploitation.  This creates a historic obligation to reverse as much of the resulting inequalities as possible.  The reality of slavery, for instance, and its contribution to American economic development, does obligate the country to adopt policies to make up for past injustice.

One problem with relying on debt repayment as a basis for social justice, however, is that it doesn’t work well at an individual level.  America has an obligation to undo the ravages of slavery and the racial exploitation that still continues, but what about me?  How much have I personally benefitted from this history, and which individuals should I compensate?  There’s no way to answer this, because the debt is collective, not individual.  As a citizen, I have a responsibility to promote just policies, but I don’t have calculable personal debts to other individuals.  The fact that most racial inequality is not zero-sum pertains to this—indeed, if the divide-and-rule theory of class exploitation is correct, quite a few whites would be better off in a more racially equal society.

I suspect that a lot of the current unease around the politics of racial (and related) justice is due to the push to apply debt obligation to the daily life of individuals.  There is a stream of discussion about whether one form of oppression is “greater” than another, as if to determine whether a given person is a net debtor or net creditor according to some moral calculus.  The claim that you or I am personally responsible for and have benefitted from past historical crimes (whose existence I don’t for a moment question) is almost always fictitious, but doubting it is interpreted as an attempt to avoid paying up.  Worse, debt obligations are mandatory.  They must be repaid.  The casting of social injustice as accumulations of personal debt gives rise to the morally coercive tinge that justice activism has acquired.

But unmodified individualism is not the only basis for thinking about our place in the world, and debt is not the only source of personal obligation.  Here are two more framings for social justice, solidarity and equal care.

Solidarity is based on the view that our well-being largely depends on the outcome of class and other social conflicts; this is how we might obtain democracy, a fairer economy, a sustainable environment, peace, and respect for human rights.  For most of us, our power is not in wealth or position but in numbers, so to work for ourselves we need to work with each other.  This mutual support is what we mean by solidarity: I stick with you in the expectation that you will stick with me.  Racial justice, from a solidarity perspective, is part of a larger set of commitments that span multiple inequalities—class, gender, and nationality, to name just a few.  White support for blacks confronting unequal treatment would be premised on a shared ethic of standing together.  This, like historic debt, works best at an aggregate level, but it also applies to many individual situations.  If you and I are both actively engaged in an array of political or social conflicts, each of us can benefit from the other’s solidarity.  (Note the difference between solidarity and allyship, as discussed here.)

But the view of social life as an interlocking set of collective struggles that underlies solidarity is not an altogether accurate representation of how we really live.  Collective gains through conflict are only one determinant of our well-being—we do (and undo) a lot for ourselves individually as well—and the “people’s” side in one conflict doesn’t always match up with that side in others.  Consider class conflict and the struggle for a better environment, for instance.  In an ideal world it might be that the people fighting for economic equality and ecological values would largely overlap, but in this one they are often quite different.  Returning to racial justice, I wouldn’t want to hold it hostage to first achieving a congruence between this and lots of other movement constituencies.

The deepest problem with solidarity, however, is that intra- and intergroup commitments often conflict, even structurally.  The logic of collective action is that individuals need to feel they can rely on the support of others in the cause, but meaningful support is a costly commodity.  One can feel sympathetic to an unlimited number of collective struggles but provide material solidarity to only a few.  In practice, a solidarity ethic tends toward balkanization of activism, despite the noble vision of the most eloquent activists.  For every cross-racial or cross-national labor mobilization, for example, there are many others in which solidarity was only one-dimensional.  This is often blamed on the political or cultural shortcomings of the people being mobilized—with justification—but appeals to what sets a particular group apart, not what connects them to others, are often the most effective at eliciting mutual commitment.

And there is a third way to think about justice.  For this we can go back to Mozi, the legendary philosopher, political activist and opponent of offensive war who lived in China in the years surrounding 400 BCE.  As he looked at inequalities of power and wealth, Mo argued that the core problem was “unequal love”, that people cared more for those in their own family or other social group than anyone else.  In an extreme form, this led to wars of domination or conquest, since the rulers valued the soldiers and the population of the regions they were attacking less than their own kin.  War, he thought, was obviously mass murder, and yet it was viewed as glorious.  His remedy was to promote an equality of caring; given this, he thought, injustice could not be possible.

I realize there have been many formulations of this universalism in the intervening 2500 years, with greater sophistication over time, but it’s relevant that the equality-of-care basis for social justice goes back a long, long way.  Perhaps more activists have drawn on it than on any other frame.

When we think of the most powerful appeals to moral action, they typically rest on our potential to care equally for people who might otherwise be distant from us.  The famous schematic of a slave ship, used effectively by early English abolitionists, invites us to imagine ourselves or our loved ones shackled body-to-body in a nightmare cross-Atlantic passage.  The photo of a young girl fleeing a napalm attack in Vietnam works on us to the extent we see her as worthy as any child of our love and protection.  Arguably, the proliferation of cell phone videos has had a profound impact on justice activism by making oppression intimate—close visually and ethically.

Here’s another example: consider the phrase “black lives matter”.  It’s a bit ambiguous; you could interpret it in more ways than one.  Its most persuasive interpretation, however, goes like this: over and over, black people are killed by police, and the official response is inaction.  Black victims of violence are treated as if their lives are worth less than others, and this is unacceptable.  Black lives matter!  There should be just as much outrage over such murders as if the victim were rich, white and famous.  If Mozi were among us today he would immediately recognize this demand, and no doubt he would be out on the streets in support.

There are two problems with the equality of care framing, equality and care.  Humans (and other socially cognizant species) have a penchant for distinguishing between the groups they belong to and those regarded as “other”.  Family, ethnic and national preferences are widespread.  But we have also demonstrated throughout history the capacity to transcend these divisions, and over long spans of time the circles of respect and care have widened enormously.  It may be that mediated forms of communication like writing and now audio-visual depictions provide a cognitive basis for a more universal sense of who “we” are.

Perhaps the tougher nut is getting people to see they have an obligation to care.  In theory, individualism does away with that: you are obligated to care for you, and I’m obligated for me; anything else is extra.  In practice, of course, we can’t exist without care: care for the young, for the old, for the sick, for those under attack, and for people who are just stuck in one way or another, because all of us have been and will likely be in that type of situation at some point.  In the high theory of individualism—Locke etc.—this was sidestepped because an “invisible” class of people, women, were assigned the role of fulfilling care responsibilities.  Today there is no excuse for failing to see that responsibility to care has a claim on us alongside individual choice.  But it takes time for this awareness to sink in and redirect a culture based on what was always a mythical universalization of self-regard.  In the meantime, some people are more care-conscious than others, which means social justice activism has a double task: getting people to recognize that care is not optional and then getting them to extend it equally across social boundaries.  It sounds like a lot, but activists have been doing this for generations.

To sum up, there are different ways to make the claim that we are obligated to act on behalf of social justice.  The debt-based approach has merit at a collective level, but it has been overused as a basis for individual obligation and is largely counterproductive.  Solidarity has much to recommend it, especially in comparison to allyship, but there are many situations in which it has little practical force, while in others solidarities may be in conflict.  The strongest basis is equality-of-care.  It is ethically consistent and universally relevant.  True, it struggles to overcome ancient parochialisms and the presumptions of an individualistic culture, and this forces us to supplement it with other appeals when we can, but it is the value that best defines what we mean by social progress.

Does Kevin Hassett Understand Transfer Pricing?

Howard Gleckman does:
It is true that bringing US corporate rates in line with our trading partners may reduce incentives for improper transfer pricing. But there is a flaw in Hassett’s argument: While these practices are aimed at reducing tax lability, they do not represent real economic activity. And limiting income shifting won’t significantly increase domestic employment.
He was noting this presentation:
Kevin Hassett, chair of President Trump’s Council of Economic Advisers, argued today that the corporate tax cuts in the Sept. 27 Republican Unified Framework would boost overall economic growth. How? In large part because its corporate tax rate reductions would encourage firms to shift jobs from overseas to the US. But the claim is unsupported by the evidence. In a speech at the Tax Policy Center today, Hassett said that the GOP plan would not only increase domestic employment but also raise worker wages by an average of $7,000. That is quite a promise, but after unpacking his argument, it seems improbable at best. His claim: Making statutory US corporate tax rates competitive with the rest of the developed world would encourage firms to stop inappropriate transfer pricing, corporate inversions, and other income-shifting practices. Half of the US trade deficit, he said, results from transfer pricing.
Half of our trade may come from related party transactions and in some cases, transfer pricing manipulation may be significant. But to claim that half of our trade deficit is due to non-arm’s length pricing seems to be quite the stretch. Let me also suggest that this corporate inversion discussion is a distraction as all that does is to turn the tax system into a territorial one where the repatriation tax disappears. Isn’t ending the repatriation tax one of the Republican proposals? OK – we might see a lot of foreign sourced profits coming back home but this simply means shareholders get their dividend checks sooner. Any claim that it would dramatically increase investment is not only bad finance but also rejected by the evidence from our last experiment with a repatriation tax holiday. Gleckman also notes:
the territorial tax system that the Big Six outline contemplates could further encourage US firms to shift revenue to lower-tax jurisdictions since that model would exempt the income of foreign subsidiaries from US tax.
While this could be an issue with ending the repatriation tax, other nations have addressed this by more aggressively enforcing their transfer pricing rules. We could do the same if the Republican Party decides it is time to properly staff the IRS.

Friday, October 6, 2017

Why I Lack Sympathy For The Catalan/Catalunyan Independence Movement

Because like the neo-fascist Lombard League of northern Italy, they are a rich region of a nation that does not want their money going to the poorer regions of that nation.  That is it. Sorry, this is not about language suppression or  anything else.  Catalalunya/Catalonia achieved autonomy on education, health, and local law enforcement a long time ago.  The only thing they lack is all that money they are sending to the rest of Spain.

Yes, they will probably get to keep their money in the future.  I thought it was conservative Spanish  PM, Mariano Rajoy of the PP, who stupidly ordered national police to attempt to break up the independence referendum, who engaged in violence of shooting rubber bullets, clubbing people with billy clubs, and dragging people by their hair, leading to hundreds injured, although nobody dead.  This order that will probably lead to full Catalunyan independence was ordered by a Spanish national constitutional court judge who had ruled the referendum illegal.  If he really thought he was going to stop the vote, he is an idiot.  All he has done is guarantee that "reasonable people" will support the 90% outcome of the vote, with only a 42% turnout, given that opponents apparently boycotted it.  But like those who did not want Crimea annexed by Russia, boycotting a vote organized illegally by those who want a certain outcome, only plays into the hands of those who want that certain outcome.

The path to this has been a mess.  The referendum was voted for by the current Catalan parliament that has a 72-63 members split between those favoring independence and those opposing it.  Like the US, Catalonia/Catalunya favors rural voters in representation, and rural voters are more pro-independence than urban ones, largely in Barcelona.  A poll taken by the government as recently as July showed 48% opposed to independence with only 41% for it.  The pro group has at times beaten the anti group in polls, but in fact the pro group has never gotten above 50% in a poll, although they got 90% in this illegal referendum, which will be taken very seriously by world history, given that this stupid judge sent the national police in to beat people up.

The problem runs deeper.  While indeed the province has autonomy in education and language, many charge that the school system has been taken over by nationalists who are trying to eradicate the Spanish language. Still 60% of the provincial population speaks Spanish as their mother tongue.  This is a very close call, but the critics charge that the nationalists have been going out of their way to suppress their opponents in an undemocratic way.  I can dismiss the national Spanish courts and the EU supporting them, but in fact members of the current government quit in protest over the way the move to push this referendum was done in the Catalan  parliament itself was handled.  They may accuse their opponents of being remnant Franco Phalangist-fascists, but their own tactics resemble that ideology more than those of their critics, just as the Lombard League in Italy goes neo-fascist.

My own personal observations on this really involve a visit I made in 1973 to Barcelona.  I note I was taken to Spain (not Barcelona to my knowledge) in 1954 at Easter time by my parents when I was six and unaware of politics.  I remember getting upset when my sister and I were left in our car in some small town while my parents got something, and a crowd of people came and banged on our car begging for money.  I suggested to my father that we give them some, but he said that there were too many, and if we gave any to some, others would demand more than we had.  Later I saw penitents looking like KKK guys in Toledo.  We bought a figure looking like them and many decades later my grandson Charlie was frightened when young when shown this odd figure. Then in Granada, we saw people living in caves. Really.

Anyway, getting back to well-off Barcelona in 1973, Franco was in charge then, and indeed he totally suppressed  all languages other than Castellano Spanish and maintained a strongly centralized control.  Every sign was in Spanish in Barcelona, but I heard people speaking Catalan, which I figured out because the words they used were neither French nor Spanish, although more like French (and later I figured out more like Italian really).  They did so obviously when no authorities were around, and it was clearly an act of resistance against the dictatorship. I was sympathetic.

Since then they have achieved sufficient autonomy that their language is everywhere and now taught in schools.  Any claim by Catalunyan nationalists that their language is being suppressed is just a pile of horseshit, to use a technical  term.  I have seen now the opposite when visiting Barcelona: people being humiliated and rebuked for speaking Spanish in public.  This disgusts me just as much as the 1973 suppression of Catalan under Franco disgusted me.  I have no sympathy for  these rich and spoiled crypto-fascists with their arrogant public behavior toward anybody speaking Spanish openly, although I oppose any effort by anybody in the central government to engage in violence to suppress the obviously burgeoning and almost certain to succeed independence movement.

A final note is that my old friend Paul de Grauwe, one of the fathers of the euro, has posted (sorry, too lazy to link) comparing the Catalunyan independence movement to the Brexit movement, and implicitly to the Trump movement in the US.  Obviously there are differences, but the similarities are striking.  Among them are outright delusions, particularly for the Catalalunyans that once they are independent they will  be in the EU and have great economic outcomes.  Ooops, but no.  They will have one economic gain: not sending tax monies to the poorer regions of Spain.  Beyond this, they will lose. They will not be in the EU, and will not be let in soon and will not get those benefits, just like the UK, where lots of idiots voting for Brexit thought they were going to get their cake and eat it too, but are now gradually waking up to the fact that this will not happen.  They are going to pay and pay big time.  I shall not draw out in any detail the comparison with the US situation.

Anyway, I think this is tragic, and I think it is partly a response to the election of Trump in the US: irresponsible lying creeps feel free to override normal procedures and rules to seize power and push forward racist nationalist agendas all over the place.  This one is less likely to end up in outright war and people dying, aside from the several hundred injured in this referendum vote, but I fear that there will be nothing at all good  coming from this, nothing, and quite a bit bad, both for those in Catalunya/Catalonia, as well as the rest of Spain, and possibly in the rest of Europe and the world.

Barkley Rosser

Wednesday, October 4, 2017

Thoughts And Prayers For Hurricane Victims

We wish to extend our thoughts and prayers to the victims of those who have died or been injured by Hurricanes Harvey, Irma,  and Maria and to their families and friends [for real, rest is satire].  Needless to say, this means that this is not the time to discuss changing current policies regarding climate change.  Our president has decided to withdraw the US from the Paris Climate Accord, the Director of the EPA has ordered removal from all agency websites of any mention of climate change or that it might be at least partly caused by humans, and funding for research on this topic is being cut.  Certainly, as we mourn the dead from these hurricanes, it is simply inappropriate to discuss changing these policies, just as it is still too soon to discuss changing gun policies after the 2006 shooting at Virginia Tech.  Oh, I forgot, we did change policies after that, making it easier for people in many states to carry guns in more public places and purchase them without background checks, as of course it is unconscionable to block gun purchases by mentally disturbed terrorists.

As for talking about changing climate change policies, well, it would be an insult to the families of the hurricane dead to even remotely mention possibly rejoining the Paris Climate Accord or putting anything up on EPA or NOAA websites that would even remotely suggest that human activity might have had anything whatsoever in making these hurricanes stronger than they might have been otherwise.  Obviously these hurricanes were sent by God, and those who died did so at His will, and we must respect that and the hard feelings that the families and friends left behind must have to deal with in coming to terms with this hard truth.  We must all humiliate ourselves in the face of the divine and not remotely question any profits that might be accruing to any fossil fuel companies for their activities in increasing the carbon dioxide in the atmosphere, which our wise administration has determined has nothing to do with climate change whatsoever, the very suggestion of which we know is a Chinese hoax.  Let us all continue to extend our thoughts and prayers and wait for another appropriate time, as long from now as possible, to discuss these matters.

Barkley Rosser

Tuesday, October 3, 2017

Trump’s Inadequate Response to Hurricane Maria and the Posse Comitatus Act

Credit to Matthew Yglesias for his discussion of the incompetence of Donald Trump as well as the excuses for it from his defenders including:
Officials have also cited the Posse Comitatus Act as a complicating factor that helps explain why Trump was so much slower to dispatch assistance to Puerto Rico than the Obama administration was to send help to Haiti after it was devastated by an earthquake in 2010.
Except this 1878 Congressional Act does not bar the President from calling in the military as Michael Spak and Donald Spak note:
Before 1878, it was common for the United States Army to enforce civilian laws. In frontier territories, the army was often the only source of law enforcement, supplemented by occasional U.S. Marshals. Over time, marshals and county sheriffs regularly called upon the army to assist in enforcing the laws… By the time of the 1876 presidential election, Southern states were reconstituted. Many Southerners opposed both Grant, the outgoing Republican president, and Rutherford B. Hayes, the Republican presidential candidate. Federal troops actively assisted U.S. Marshals in patrolling and monitoring polling places in the South, claiming to be enforcing the federal election laws and preventing former Confederate officers from voting (as was the law at that time). Following bitter election contests in four Southern states, Hayes won the presidency by one electoral vote. Many felt that the federal troops, which supported Hayes and the Reconstructionist Republican candidates for Congress, intimidated Southerners who would have voted for Samuel Tilden, the Democratic candidate. The resulting Democratic Congress was at odds with the Republican President Hayes. In response to what was seen as undue influence over the 1876 election, Congress outlawed the practice of posse comitatus by enacting the Posse Comitatus Act (PCA) (as 20 Stat. 152) as a rider to the Army Appropriation Act for 1880. The act stated: "Whoever, except in cases and under circumstances expressly authorized by the Constitution or Act of Congress, willfully uses any part of the Army or the Air Force as a posse comitatus or otherwise to execute the laws shall be fined under this title or imprisoned not more than two years, or both." Congressional debates indicate that the PCA was intended to stop army troops from answering the call of a marshal to perform direct law enforcement duties and aid in execution of the law. Further legislative history indicates that the more immediate objective was to put an end to the use of federal troops to police elections in ex-Confederate states where civil power had been reestablished.
In other words, this PCA is an outdated piece of legislation. But there’s more:
Others suggest the act is obsolete and should be repealed because numerous legislative exemptions have eroded the underlying policy and left the PCA a hollow shell. Others insist that although there are many exceptions, the act is essential to bar misuse of the military by civilian authorities and to prevent a military dictatorship from assuming control of the nation through use of the armed forces. Still others argue that the act means only that federal military forces may not be commandeered by civilian authorities for use in active and direct law enforcement as a posse comitatus. If local authorities need military personnel for specialized operations enforcing state laws, it is argued, they may call on the state governor for the assistance of the state National Guard.
There are many exceptions and no one would think giving aid in a time of need endangers either military dictatorship or the misuse of the military by civilian authorities. This pathetic excuse from Team Trump is just another example of how he turns everything in a culture war.

Saturday, September 30, 2017

The Kurdish Independence Vote

Buried on the back pages of this busy week has been the news that in Iraqi Kurdistan on Monday there was a referendum on independence reportedly supported by 92% of the voters.  I imagine that is not inaccurate, and that there was strong support for this referendum, even as Kurdistan Regional Government (KRG) President Massoud Barzani says that it is only advisory and a prelude to negotiations with the central Iraqi government.  As it is, this vote is not being treated as such, and there has been a tremendous negative reaction not only from the Iraqi central government but from all of the neighbors of the KRG, with even their usual ally, the US, not supporting the vote (if not threatening hostile actions against it), with only Israel openly supporting it. The hostile reactions of neighbors and especially the central Iraqi government may well lead to war, even as Daesh/ISIS remains not quite completely defeated within Iraqi territory, with up until now the Kurdish Pesh Merga having been working with the Iraq National Army as well as various Iranian Shia militias against Daesh/ISIS.

Let me be clear that I have enormous sympathy with the aspirations of the Kurdish people for having their own nation.  The 35 million Kurds have long been described as "the largest ethnic group without a nation" (although technically some larger ones merely have a state in India).  They were promised a nation at the Versailles conference back in 1919, but the machinations of the British, French, Turks, and Persians (now Iranians) led to that promise not being fulfilled, and the Kurds being spread among Turkey, Iraq, Syria, and Iran today, and a history over the last century of being crushed and abandoned and lied to by many nations.  They speak an Indo-European language related to Farsi/Persian, and are mostly Sunni Muslim although with a Shia minority.  However, they are largely not as religiously fanatical as most people around them, and the parties representing them in Turkey tend to be secular and leftist.

The three provinces with a Kurdish majority in northeastern Iraq began achieving a de facto autonomy during the first Gulf war, after Saddam Hussein had used gas against them during the 1980s, leading to some of them fleeing to the US, including some to my city of Harrisonburg, Virginia, where they have a large community.  The US supported this autonomous government with a no-fly zone over it, and it achieved a more official autonomy, although not independence from Iraq, after the fall of Saddam Hussein's regime.  During the US invasion, the Kurds were the strongest allies of the US, and their Pesh Merga has been the strong arm of the anti-ISIS military movement in both Iraq and Syria, working especially closely with the US in that.

As part of their autonomy they began developing their oil industry and making deals with international oil companies separate from the Iraq central government, with their exports reaching about 600,000 barrels per day now, not enormous, but also not trivial in a world of about 85 million barrels per day.  They are supposed to share oil revenues with the Iraqi  central government, but there has been ongoing disagreement about this as well as other fiscal matters, with these festering disagreements having worsened over time.  In any case, the KRG has made its deals and exported its oil against the wishes of the Iraqi central government, largely through the Ceyhan pipeline going through  Turkey.

Another important development, arising from during the overthrow of the Saddam regime, is that the Pesh Merga took control of certain areas outside the three provinces directly ruled by the KRG. The most important of these has been the city of Kirkuk, near another center of oil production and which has long had a highly mixed population of Arabs, Turkmen, Kurds, and some others.  The Kurds claim that Kirkuk is a historic cultural center of theirs, and the Kurdish  population there has increased while other groups have left.  But it remains a highly mixed population, and is not officially part of the KRG area.

In general, especially compared to the rest of Iraq, the KRG has largely appeared to do a good job of governing, despite some longstanding internal conflicts between families and factions.  There has not been outright warfare and democratic voting and a reasonably functioning economy, fed especially by their oil exports.  However, this has been deteriorating for some time.  Current President Barzani's term was supposed to end in 2015, but he has extended it by emergency rule.  Also, low world oil prices have led to a slowdown of the economy and increased grumbling.  Also, ambitions for independence have increased as Kurds have achieved military victories in Syria and elsewhere.  All of this has led Barzani to pursue this referendum at this time, which undoubtedly will strengthen his internal  political hand, even as the KRG faces a fierce external  backlash that could lead to war.

The  backlash  includes Iraq demanding that all foreign airlines stop flying to airports in the KRG region.  It appears that those airlines are obeying this demand, and Kurdistan appears to be about to become completely isolated in terms of commercial  air transport.  While it is not clear that they have done it yet and could still back down, Turkey has declared that it will shut off the flow of oil exports through its pipeline from Kurdistan.  If they follow through on that, it will plunge the KRG economy into deep recession.  Iran has declared its opposition and refuses to allow goods to pass through it to the rest of the world and has sent troops to the KRG/Iran border.  Finally, the Iraq central government is demanding that the Kurdish Pesh Merga withdraw from Kirkuk and turn it over to  the Iraq central government.  Reportedly the Iraq army is  on its way to Kirkuk, and this is where war could break out.  Frankly, while I am sympathetic, I have to say that I think this is a terrible time to be making this referendum happen, although clearly President Barzani sees at least short term gains for himself, even if this ends up bringing about serious suffering on the part of his people.

I note as an aside to all this, and perhaps why I am especially concerned, that I have been a friend to people in the Harrisnburg Kurdish community. Back in 2006 I helped save some of them from an FBI effort to  jail them for trying to send money home to relatives in Iraqi Kurdistan.  This was my most proud post on the old Maxspeak, still behind fire walls, as it helped lead to all the local Kurdish men charged getting off. An op ed about all that was put up by me on Juan Cole' site.

Tomorrow (later today technically, Yom Kippur actually) is International Day here in Harrisonburg, when local ethnic groups show up at Hillandale Park to show off crafts and items and information and sell ethnic  food and even play music and dance. A regular highlight each year at 5 PM is when the Kurds dance, and I have joined them in the past in doing so, knowing some of them quite well.  I hope to tomorrow as well and expect them to be especially joyous given this vote.  However, while I am sympathetic and hope for the best, I am afraid that I fear the worst.

Addenda, 6:39 PM, 9/30/17

1)  I suspect that part of the recent runup in world oil prices has been in anticipation of the likely Turkish cutoff of oil coming out of Iraqi Kurdistan.  Prices are at their highest in two years, with Brent crude at between $57 an $58 per barrel yesterday and between $51 and $52 for West Texas Intermediate crude.  OPEC inventories are down, presumably with KSA sticking to their quotas, but "geopolitical uncertainties" have been invoked for part of the price increase, and the Kurdish independence vote and likely Turkish response have looked like part of that.  Until recently the price had been in the 40s for many months.

2)  While many are annoyed with Barzani for doing it prior to the final defeat of Daesh/ISIS in Iraq, it may well be that this has not been achieved playing a role in the timing.  Given the important role of the Pesh Merga in battling Daesh/ISIS Barzani may feel that this need by their erstwhile allies for continued assistance against the common enemy may give him some leverage.  OTOH, it may simply lead to the campaign to finish Daesh/ISIS off falling apart at the final point.

3)  Barzani may be calculating that the Pesh Merga may be stronger than  the Iraq National Army and will be able to hold Kirkuk, and he may be right.  OTOH, the Turks may yet be tempted to intervene due to the large Turkmen population in Kirkuk.  I doubt the Pesh Merga would be able to withstand a full press attack by the Turkish military.  As it is, apparently the Iraq National Army is trying to take control of all border crossings from Iraqi Kurdistan into neighboring Turkey and Iran, as well as with the rest of Iraq.

4)  I did attend the International Festival and I did get to dance with the Kurds there.  They were waving Kurdish flags vigorously and proudly and taking lots of selfies with them.  I spoke with my friend, Rashid, whom I helped keep out of jail and who is probably the main leader of the community.  He told me that two years ago "some ignorant people" had attacked them there because of their waving of Kurdish flags.  I did not express my concerns about what might come to pass in Iraqi Kurdistan.  They may have their fears, but today they were celebrating.

Barkley Rosser

Wednesday, September 27, 2017

How I Came To No Longer Be A Kaldorian Economist

Yes, for a period of time, according to some sources, I was a member of the "Kaldorian" school of Post Keynesian  economic thought, although I had not previously thought of myself as such, indeed, had been unaware that there even was such a school of economic thought.  But now, according to such sources, I am no longer a member of such a school.  Indeed, it is not clear that there even is such a school, if there ever was.  This is a tale of the ongoing tangle of schools of Post Keynesian economics, as well as how Wikipedia operates, and more broadly the history of economic thought.

I note that while it lasted, this matter was taken at least somewhat seriously.  So, a few years ago I was at a conference and walked into a plenary address that was being given by Tyler Cowen of George Mason.  There was a pretty large crowd, but Tyler interrupted his talk when I came in to note, "I see that Barkley Rosser has entered the room, so I had better be careful what I say about Nicholas Kaldor."  Indeed, ironically, he was just about to say something about Kaldor, and I must say that I had no serious disagreement with his remarks, although maybe he cleaned up his act, given my presence as the representative of "the Kaldorian School," if not the late Lord Kaldor's personal representative.  That was then, but this is now, and I am nothing, nothing, I tell you!

Anyway, as I said, I had not been aware of such a school, much less that I was supposedly a part of it, but then in 2014, my friend Marc Lavoie published his excellent Post-Keynesian Economics: New Foundations.  In it he provided set of supposed schools of Post Keynesian economic thought.  I note that there has long been a history of arguing and battling and generally warring among various strands of Post Keynesian thought, with some expelling others, although not necessarily totally.  Joan Robinson coined the term back in the 1950s, and for a while Paul Samuelson was using the term for an eclectic bunch of Keynesian economists of the early 1960s.  But the term became narrower as the 1960s moved on and journals were started, and battle lines were drawn.  Going into the 1980s, and focused on Post-Keynesian summer schools being held in Trieste, Italy, there was a sharp split between Sraffian neo-Ricardians based in Italy, led by the late Pierangelo Garegnani, and American Post Keynesians who focused on uncertainty and the role of money led by Paul Davidson.  In between them was a more British and Australian based group, some of whom were thought to be followers of Michal Kalecki, and probably Joan Robinson, some of whom made efforts to overcome the sharp split between these other two.  The most important leader of that group was probably Geoff Harcourt, he of the "different horses for different courses," how open-minded of him.  Anyway, those summer schools fell apart, with each of the more sharply opposed groups not attending the seminars of the other, and after this the Americans all but expelling the Italian Sraffian-neo-Ricardians from Post Keynesianism, even if they were still counted by others.

Well, Marc moved beyond this to list five different schools of Post Keynesian thought, providing a small group of people supposedly in each of these groups.  They were fundamentalists, which included Davidson (who has long emphasized going back to Keynes to see what he wrote), Kaleckians, and Sraffians, which pretty much gave us what appeared to have come out of the 1980s arguments.  But then he added two more, Institutionalists and (ah ha!) Kaldorians.  This last group had in it, of course, Kaldor himself, as well as three other dead men: Wynne Godley, Richard Goodwin, and Roy Harrod. A leading Institutionalist was John Kenneth Galbraith on his list.  As it is, I suspect that Marc coined this supposed school of "Kaldorians" because he himself identified with it.  He was disgusted, as have been many of us, with the wrangling warfare between the fundamentalists, Sraffians, and Kaleckians.  So, cook up another school.  My bet that he views himself as part of the Kaldorians is that he coauthored a lot with Wynne Godley, and he identified an interest in nonlinear dynamics as part of Kaldorianism, which indeed was an interest of Kaldor who emphasized economies of scale as breaking down neoclassical equilibrias.

Needless to say, I have long been interested in nonlinear dynamics, so that set up the next development.  That was that on the Wikipedia entry for "Post-Keynesian economics," somebody imported Marc's lists and then added to them massively, but then replaced the Institutionalists with the Modern Monetary School (MMT), led by people like Randy Wray and Warren Mosler and Stephanie Kelton.  On these longer lists, there I was in with people like Godley and Goodwin (whom I especially admire) on the list of the supposed Kaldorian strand of Post Keynesian economics. Hot stuff, whoop de doo.  Not long after that, there I was with Tyler Cowen publicly identifiying me as one, although when I discussed the matter with Marc Lavoie himself, I think he was sort of annoyed that somehow I had gotten added to this list.  As it is, I do not know who put that stuff in the Wikipedia entry, although I saw such a list put up on the internet by a blogger calling him(her?)self "Lord Keynes."  Yeah, some people are a bit full  of themselves.

I had not checked on any of this for some time but was revising a paper for a journal in which I and coauthors quoted Kaldor on equilibrium, ("Consistency and Completeness in General Equilibrium" with Simone Landini and Mauro Gallegati).  Looking at the quote I thought I would check on this on Wikipedia, only to find that those lists of schools are gone.  The verbiage starts out mentioning Kalecki, Joan Robinson, Kaldor, Davidson, Sraffa, and Jan Kregel, also noting Robert Skidelsky's role in defining Keynesianism.  It then later mentions the Cambridge capital controversy, Sraffa and the neo-Ricardians are mentioned.  Kaldor is mentioned as is Paul Davison.  Then money circuit theory is mentioned as is modern monetary theory (MMT).  Wynne Godley and Hyman Minsky (who always rejected the "Post Keynesian" label for himself) get mentioned, with final shoutouts to chartalism and functional finance, both well regarded by the MMT school (there is also a tour of nations and journals and groups).  This is followed by a list of 26 supposed "leading first and second generation" Post-Keynesian economists, of whom I note that 14 are dead.  I list them here for the record:

Victoria Chick, Alfred Eichner, James Crotty, Paul Davidson, Wynne Godley, Geoff Harcourt, Michael Hudson, Nicholas Kaldor, Michal Kalecki, Fred Lee, Augustus Graziani, Steve Keen, Marc Lavoie, Paolo Leon, Abba Lerner, Hyman Minsky, Basil Moore, Ed Nell, Luigi Psinetti, Joan Robinson, George Shackle, A.P. Thirlwall (who once wrote a book about "Kaldorian economics"), Fernando Vianello, William Vickrey, and Sidney Weintraub.

Just to further stir the pot, there is now a new post about "Post-Keynesian economics" up on Rational Wiki, whatever it is.  It has clearly been put up by strong advocates of the MMT school, whom many think view themselves as the true heirs and new leaders of Post Keynesian economics.  If that is the case, this Rational Wiki post would appear to be part of that effort.  After a very brief boilerplate opening, modern monetary theory is presented as the main idea in Post Keynesian economics.  That is it. The rest can go shove it.  The list of external links go to sites run by Warren Mosler, Stephanie Kelton, Steve Keen (more a Minsky-money circuit guy than a hard core MMT person), and two to Bill Mitchell, up there with Mosler and Kelton as an MMT leading figure.  There is a further external links list that go to John Maynard Keynes, Dean Baker, and "Market monetarism."  I think Dean Baker mostly thinks of himself as a Post Keynesian economist, but has mostly stayed out of all these controversies.

Anyway, probably this is all  just picking at minor niggling and unmportant divisions and wrangles, but standing back from it I find it curious, both in terms of the development of these labels and controversies, as well as what the heck is going on with the Wikipedia accounts of all this.  On the latter, this makes me more skeptical of Wikipedia, having also recently run into some outright errors on that source I shall not get into, but just encourages me in continuing to refuse to accept Wikipedia as a source on papers by either students or actual professional economists.

Barkley Rosser

Worse Than The Usual Hypocrisy: Trump, Puerto Rico, And The Jones Act

The Jones Act was passed 97 years ago to protect US shipping within the US from foreign-made ships.  I doubt I ever would have supported such an act, but at least back then there were plenty of US-made ships to fulfill the demand. Despite the Jones Act, the US shipping industry has collapsed in the last century so that the number of such ships is far below demand in normal circumstances, so that intra-US shipping costs are far higher than those outside the US.  Puerto Rico was covered by he Jones Act and remains so.

After Hurricanes Harvey and Irma the Jones Act was temporarily suspended for Texas, Louisiana, and Florida on orders of President Trump, going through the Department of Homeland Security.  The Jones Act is not being suspended for Puerto Rico in the wake of Hurrican Maria, although damage to PR seems to be far greater than what happened on the mainland during Harvey and Irma (with those areas also accessible to supplies and aid by ground transportation, not relying nearly as much on ocean shipping).  The supposed reason is that PR's ports are damaged, which is certainly the case, but even if suspending the Jones Act will only slightly speed up deliveries, it will certainly reduce the costs of supplies, allowing cheaper natural gas from Pennsylvania in place of more expensive oil from Venezuela, for example.

Which brings us to the worse then usual hypocrisy on the part of our president.  While he has been all worked up over football players kneeling and moved to get aid to Texas and Florida as rapidly as possible while expressing lots of sympathetic sentiments for the victims in those states, his initial reaction to Hurricane Maria, after several days delay, was to talk about how bad their infrastructure was before the hurricane and how they have a massive debt situation.  Of course, if he were really concerned about helping them, he could suspend their debt, but at a minimum, given that he is aware that they are poor and debt ridden, on top of having 80% of their crops destroyed and all their power out among other problems, he is insisting that they pay top dollar on supplies brought in by water, where almost all supplies will come.  His refusal to suspend the Jones Act for Puerto Rico after having done so for mainland US territories is far worse than the usual hypocrisy from any president, even this far more hypocritical than pretty much all others one.

Barkley Rosser

Saudi Women Can Drive

As someone who has denounced the Saudi leadership and its new crown prince, Muhammed bin Salman, for maintaining their nation's position as the only one in the world where women are not allowed to drive, I must salute them for changing their law.  They are joining the rest of the world and will allow women to drive now, by all reports the top demand by women in the kingdom for their rights.  Welcome to the rest of the world, Saudi Arabia and Prince Muhammed bin Salman, of whom it had long been rumored that he would bring this about.  It is about time, and congratulations.

Barkley Rosser

Addendum:  This new rule does not take effect until next June, and the women will need to get licenses, so it will be some time before women are actually driving in KSA.  It is not "now," but "in awhile," but it is coming.

Sunday, September 24, 2017

On Not Rising for the National Anthem

Apropos #takeaknee and the previous post:

Most of the discussion about whether NFL and other athletes should stay on their feet during the pre-game singing of the Star Spangled Banner miss the point.  Kneeling is a political statement, but so is not kneeling.

The public staging of the national anthem is a political event.  It began in professional baseball during World War I as a demonstration of support for the war effort (before the SSB was even officially the anthem), at a time when propaganda and repression against dissent were fierce.  But you don’t need to know much history to recognize “all rise for the national anthem” for what it is.

The public singing of the anthem is a nationalist ceremony.  Through it, those present confirm their loyalty to the government as a value that supersedes all others.  If we had a different song about democracy and popular sovereignty as supreme values, that might be better, but it would be political too.  Nationalism is simply one particular political value system, and the unthinking acceptance most people give to it doesn’t change that fact.

So athletes who make a show of not embracing the nationalist display are not injecting politics into anything; they are responding to one political statement with another that expresses their own point of view.  If you don’t want to mix sports and politics, eliminate the enforced display of nationalism.

Also, the SSB is a terrible song, with crappy music and lyrics.