Tuesday, December 29, 2015

How The Wealthiest 400 Americans Have Cut Their Tax Rate By Half

Libertarians adhere to a philosophy of a limited government.  One limitation that they support is a limited Internal Revenue Service.  The IRS established a new group to monitor the tax avoidance strategies of the the ultra wealthy.  Congress came to their rescue by substantially reducing the IRS budget.  Around 5,000 jobs were cut to protect the wealthiest 400 families from the IRS's effort to do its job.  Over the last few decades the effective tax rate paid by the 400 wealthiest families has been cut in half.  Their tax rate is about the same as a family earning $100,000.  This article describes some of the tax avoidance strategies that are used by the ultra wealthy, but unavailable to most Americans.  It also shows how they have used their wealth to support friendly politicians and purchase the services of lobbyists who defend the tax loopholes that they exploit.  They contribute to both political parties but they favor Republicans by a wide margin.  All of the current candidates for the GOP presidential nomination have proposed tax plans that would make it easier for the super rich to avoid taxes and extol the virtues of limited government.

Thursday, December 24, 2015

Mr. Conservative Is Worried About The Donald

Trump's rise in the polls is no joking matter for George Will.  Many Americans are concerned that Trump would be bad for America.  Will has an even greater concern.  He believes that a Trump presidency would lead to the end of conservatism in the US.  He takes his readers on an historical journey in which a progressive Teddy Roosevelt failed to get the GOP nomination.  He then ran as third party candidate.  That split the Republican vote for Taft, who was a real conservative, and he lost the election to Woodrow Wilson who he depicts as a radical who did not believe in the form of democracy established by our founding fathers.  Conservatism declined until Barry Goldwater won the GOP nomination and lost the presidential election by a wide margin to a progressive Lyndon Johnson.  It took Ronald Reagan to restore conservatism to its proper place in America.

In order to destroy Donald Trump he argues that he is not a conservative.  He lists many of aspects of his personality that are undesirable to many Americans before he unleashes his big guns.  The cold war is not over for many Republicans so Will attacks Trump for making admiring comments about Vladamir Putin.  Trump may be a closet communist and become an authoritarian president.  If he does not get the nomination he may run as a third party candidate like the progressive Teddy Roosevelt who enabled Wilson to defeat a true conservative candidate and place another progressive Democrat in the White House.  That might lead to the end of the Conservative Party in America.

George Will's opinion articles in the Washington Post are syndicated to numerous small town newspapers in the US.  He has pulled out all of the stops to taint Trump's image with his conservative readers.  I italicized progressive because that has become a curse word for conservatives.  The opposite of progressive is regressive and apparently that is OK with Will's conservative readers.  Associating Trump with Putin and communism is also a good move.  A vote for Trump, who cannot win the general election according to Will,  would install another authoritarian and progressive Democrat in the White House.  That could lead to the worse possible disaster that Will can imagine. The end of the Conservative Party.

Like most Americans, I don't want Trump to become our next president.  But my interpretation of Trump's rise is very different from George Will's.  Trump has been successful because he is delivering a conservative message with greater enthusiasm than the other contenders for the party that  favors regressive populism over progressive populism.

Wednesday, December 23, 2015

Trump's Tax Plan Does Little For Most Of His Populist Supporters

Donald Trump has a large group of supporters who respond favorably to his tough talk on terrorism and immigration, along with his comments on social values.  If his supporters were concerned about their economic welfare, they should look elsewhere.  His tax policies, like those of the other GOP contenders, have a similar theme.  Trump's plan would reduce federal tax revenue by $12 trillion over the next decade.  He sprinkles some tax cuts to the very poor but 35% of the total reduction in taxes go to the top 1%.  Hedge fund managers and private equity managers are major beneficiaries of his tax plan.  A $12 trillion loss of tax revenue over the next decade would shrink government spending.  Those who favor a smaller government may like that result but it would inevitably put pressure on government programs like Medicare and Social Security which are very popular with most of Trump's populist supporters.  They are of little value to hedge fund and private equity managers.

Trump's staff support his plan by claiming that Larry Kudlow likes the plan. Kudlow is an extreme ideologue who was a founder of The Club For Growth which punishes GOP politicians who do not push for major tax cuts and reductions in federal spending in non-defense sectors.  Most of the GOP contenders run their tax proposals through Club For Growth for approval.  Trump and the other GOP contenders feed populist jargon to their base and they feed the social elite with dollars.

Monday, December 21, 2015

The Donald Is The New GOP

Many have been surprised by Trump's showing in the polls.  He has a strong following that is indifferent to the lack of substance in almost everything he states.  We should not be surprised.  Trump's supporters are representative of the new GOP.  His style is a bit different from the rest of the candidates but they are all trying to sell themselves to a well defined, and carefully cultivated, segment of the electorate.  They live in an alternate universe that is strange to those who do not live in the same information cocoon.  They remind us of the "Know Nothing Party" that is a forgotten party of US history.  In Europe they would belong to one of the right wing populist parties.  In our two party system they have been incorporated into the GOP.  A lot of old line Republicans are uncomfortable with the new GOP, but they are not sold on the Democratic Party either.  They are fiscal conservatives who understand that all of the GOP candidates will cut their taxes and try to shrink entitlement programs.

Friday, December 18, 2015

The US And Russia At Odds In Syria

Syria has morphed into three separate countries within its boundaries.  ISIS, President Assad, and US supported rebels, each control parts of Syrian geography.  The US and Russia have different positions about how to manage the conflict in Syria.  The US wants to eliminate ISIS, and hold a general election which might replace the Assad regime.  Russia supports the Assad regime, and is using some of its military power against the US supported rebels; Russia is less interested it using its military power against ISIS.  The US and Russia are each concerned about protecting its national interests in Syria.  It is not surprising that differences in their national interests would make it hard for them to cooperate in Syria.

This Washington Post editorial argues that the US has shifted its position on Syria in order to foster closer cooperation with Russia. Putin is the bad guy, and the US is the good guy who has ceded too much power to the bad guy.  Putin is the strong man, and Obama is the weaker of the two.  I don't know what to believe about this analysis. However, I can't imagine a solution in Syria that does not require the US and Russia to reach some kind of agreement.  Any kind of agreement will require each party to alter their positions on Syria. This editorial claims that Putin is the stronger leader and that he is winning the discussions that are underway. That story makes any efforts to reach agreement with Russia more difficult to achieve.  Each party will have to make some concessions to other.  What is the alternative if the US and Russia cannot reach agreement?

"The Big Short" Tells The Real Story Of The Financial Crisis

The preferred story about the financial crisis is that the government caused the crisis.  Wall Street supporters, mostly Republicans, place the blame on two government sponsored agencies which were in the business of purchasing mortgages from originators and packaging them into securities that were sold to investors.  According to the preferred story, those agencies were pressured by the government to purchase mortgages from minorities who had poor credit.  The financial system collapsed when the sub prime borrowers failed to make their payments and destroyed the value of the securities they sold to investors.

Sometimes fiction is closer to the truth than the lies fabricated by influential people who tell the public the wrong story.  Paul Krugman believes that Hollywood comes closer to telling the truth about the financial crisis.  The Big Short is based a book by Michael Lewis which describes the culture on Wall Street which is mainly responsible for the financial crisis.  It is a story about how one hedge fund manager worked with Goldman Sachs to develop a mortgage backed security that was designed to decline in value.  He placed a winning bet in the market for mortgage backed securities that it would decline in value.  When the toxic security lost its value, naive investors lost their shirts, and he earned over $ 1 billion on his risk free short sale.

The Big Short is not the story that Wall Street banks, which packaged and sold more toxic securities than the government sponsored agencies, would like the public to understand.  They are now lobbying the Republican Congress to put the government sponsored agencies out of business so that they can take over the mortgage backed security market with the same incentives that led to their failure.  They are also lobbying Congress to weaken the Dodd/Frank bill that was passed into law in order to prevent the next financial crisis.  The effort to weaken Dodd/Frank began early.  Krugman reminds us that two of the members on the committee from a conservative think tank (American Enterprise Institute) conspired to write the law so that it would be easier for a Republican Congress to weaken the bill in the future.  The real criminals who produced the financial crisis are the Wall Street banks that violated their own underwriting standards so that they could package and sell mortgage backed securities to naive investors.  Three of the major Wall Street banks  ( Lehman Brothers, Bear Stearn's, Merrill Lynch) went bankrupt, or were merged with other banks because they were insolvent.  The Federal Reserve and the US Treasury rescued the other major banks which were less insolvent.  Most of the mortgage originators who fed the toxic securities to Wall Street are out of business.  The rating agencies who worked with the Wall Street banks to place high ratings on the securities that they packaged are still in business.  This was a criminal enterprise that brought the global financial system close to a collapse but none of the top executives of this enterprise faced a criminal prosecution.  Unfortunately,  one of our major political parties blame the government, and the poor families who were sold mortgages they could not afford, for the financial crisis.  Hopefully, The Big Shot will make it more difficult for Fox News and other captured media enterprises to sell their Big Lie. 

Thursday, December 17, 2015

Martin Feldstein Argues That Inequality Is Less Than People Think

Martin Feldstein, who was Ronald Reagan's economic adviser, makes two conservative arguments that don't make any sense, but the Wall Street Journal provides him with a platform to logic chop his way into nonsense.  Feldstein argued that the future benefits from entitlements have a present value.  If we include that value into our calculations there is less inequality than people think.  He then argues that we do not get a good return on entitlements.  There would even be less inequality if we got rid of social security and let everyone invest in the stock market.  Noah Smith, who is not a celebrated economist, is much smarter than Feldstein.  He explains why inequality would be greater if we ended entitlements.  He also argues that the return on risk free entitlements is not as bad as Feldstein argues.  Feldstein does not consider the risk side of private accounts.  He assumes the average return on stocks in his calculations. That assumption does not account for investment return fluctuations within an individuals time horizon.  Most people are better off with the return they get on entitlements.

Why Donald Trump Appeals To Many Republicans

This article is a about a town in North Carolina which banned solar panels.  The rationale for the ban tells us a lot about the GOP primary base.  The Donald knows his audience.

George Will Extols The Virtues Of Coal And The Evil Of The Paris Agreement

George Will is the mandatory conservative on TV talk shows.  He also writes for the Washington Post as one of its conservative commentators.  His op-eds are syndicated to numerous small town newspapers to provide conservative balance to the the "liberal media".  In this op-ed he tells his readers why they should not like the Paris Agreement.  Most of the article is about the history of coal in Britain and how it fueled the industrial revolution which made all of us richer.  Having established his credentials as a scholarly historian, he offers his critique of the Paris Agreement.  He avoids the mistake of global warming denial, and goes right to the motherload of conservative ideology.  The agreement won't work because  agreements between multiple parties are impossible to enforce.  Only agreements between individuals are workable.  Individualism is king.  He goes on to tell us that the agreement is a form of socialism which is the devil to the God of individualism.  It requires a command and control system, (similar to most corporate systems), to function.  Even if it worked to reduce global warming, it would be an affront to personal freedom and the freedom of Republicans to vote against everything supported by Democrats.

It must be great to be George Will.  He has a platform to use a few simple ideas to argue against everything that government might do for the public good.  Its kind of like painting by numbers.  He just needs to fill in the lines when he pontificates about government policies.

Wednesday, December 16, 2015

Can Donald Trump Really Be A Republican?

The Donald has won the support of an important segment of the GOP base.  All of the GOP candidates are running against the "GOP Establishment" but Trump's supporters believe that he is less dependent upon the billionaires who fund the other candidates.  Jeb Bush has spent more than all of the other candidates on advertising without any effect on the polls.  Bush is regarded as Mr. Establishment but the other candidates are similarly dependent upon funding from the GOP establishment.  If we had a parliamentary system in the US, Trump, and his base, would be forming a third party for right populists much like those which have winning populist support in Europe.  Trump promised that he would not run as third party candidate if he did not win the election because a third party candidate cannot win a presidential election in the US.  However, his popularity exposes a serious problem in the Republican Party.  It is a divided party that is being pulled in two separate directions.  It is struggling to serve the interests of the Trump populists and its traditional financial supporters.  The GOP message of cutting taxes for the rich and deregulating the economy is falling on deaf ears for those who have been most seriously affected by globalization and the hollowing out of the middle class.  Moreover, the GOP brand has been damaged by associated itself with many of the social issues and the anti-intellectualism that is characteristic of right wing populism.

Tuesday, December 15, 2015

The Koch Brothers Campaign To Convince The Poor That Social Welfare Programs Keep Them Poor

This article describes the programs funded by the billionaire Koch Brothers whose father was a leader in the John Birch society that crashed and burned a few decades ago.  The John Birch Society saw communists everywhere; they even believed that a popular Republican President was a communist.  They no longer fear communism.  They want to convince the poor that they have empathy for their problems and that social welfare program keep them from taking initiatives that would enable them to become rich.  Democratic socialism is new form of imprisonment that impairs the liberty of the poor.

The Koch Brothers also preach the virtues of the free enterprise system.  They claim that government subsidies, like those that were used to rescue failed banks, are the enemy of the free enterprise system.  Their real enemy is government regulations designed to reduce carbon emissions.  That is a real threat to the mining industries that they own.  The want the freedom to pollute the environment and make the planet unsafe for future generations.

One of the big problems with their program is that all of the GOP candidates, who echo their claims about free enterprise, have proposed major tax cuts for the rich and cuts to social welfare programs that protect millions of Americans.  It may be hard for them to overcome reality when these things become clear during elections.

Trump's Lead Is Growing In Recent GOP Poll

The terrorist attacks in Paris and California have strengthened Trump's lead in the GOP primary contest.  Despite the backlash over his statements about how to deal with terrorism,  a solid majority of the GOP thinks that he is the best candidate for dealing with terrorism.  Support for Ben Carson has dropped substantially following comments which indicate that he knows little about foreign policy.  Ted Cruz, who has picked up votes from evangelists who had supported Carson.

It is still early to make accurate predictions about how voters will feel next month in many of the primary elections.  However, Trump would lose to Clinton by a wide margin if a national election were held today. 

All of the GOP candidates are trying to convince the GOP base that they would be effective in changing government if they were elected.  Trump is also winning that contest.  Right wing populists in the US and elsewhere are growing in number in response to economic issues and perceived threats from immigration and terrorists.  We seem to repeating much of the experience that we had in the 1930's.  Its hard to know how this will turn out.  

Universal Healthcare That Extends To Devleping Nations

Kenneth Arrow is arguably the most respected economist in the US.  He wrote this article, along with a colleague from the World Bank, to describe the path to universal healthcare.  Importantly, healthcare does not exist in a vacuum; it requires an infrastructure to economically deliver services, especially in poor nations. Improved access to healthcare in poor nations is preventing premature death in many places and it is also a public good.  Healthy individuals are also more productive. 

It is encouraging to see Kenneth Arrow involved in extending universal healthcare in poor nations.  It may be somewhat easier to make progress in nations without access to healthcare than it is in the US.  Arrow's fame is partly the result of his mathematical description of a perfectly competitive market in a state of equilibrium.  He also wrote a paper which explained the differences between the healthcare market and the competitive market for traditional consumer goods.  One of the problems that we have had in the US is that many of our politicians cannot accept Arrow's distinction between consumer markets and dynamics of the healthcare system which is organized quite differently in different parts of the world.  Consequently, the US healthcare system restricts access to many citizens; it is also less efficient and more costly that many other systems. 

Pennsylvania As A Snapshot Of The US Political Scene

This article describes the transformation of politics in Pennsylvania.  It used to be a state that could settle its differences through compromise.  Today it is a mirror image of what we see in Washington.  The Republicans in the state legislature are like their peers in Washington.  The legislature has been unable to pass a budget that is spartan enough to satisfy Republicans who prefer to dismantle the government.  They did not come to Harrisburg to govern; they came to cut taxes and critical public services like education.  The local school systems receive 60% of their funding from the state and they have been forced to borrow money in order stay open for business.  The state elected a Democratic governor but the legislature controls the purse strings.  The state cannot be governed without funding.  That is just what the legislature likes.  They have followed the example of the GOP controlled House in Washington.  They pass short term budgets that keep the lights on in Harrisburg but they cannot agree on compromise budget with the governor who won his election by a wide margin.  It also looks like the US in another way.  Gerrymandering has made districts safe for both parties.  The rural districts look like red states.  Social conservatism rules;  the cities and suburbs look like blue states.  The world's most important nation has become ungovernable.

Monday, December 14, 2015

Low Interest Rates In The US And Britain Are The Real Normal

This article provides a graph which tells a story about interest rates that is surprising.  The low interest rates that we see today are really the norm during most of our history over the last 200 years.  The real abnormality occurred in the 70's and 80's when interest rates averaged 7.3%.  They were elevated during that period because of high inflation.  Inflation rates determine interest rates because lenders don't want to lend money out a low rate if they believe that the money will buy less in the future because of price inflation. 

The Fed and other central banks have a target inflation rate of 2%.  They have been unable to hit the target rate for many years.  We may be in for a period of low inflation and continuing low interest rates.  That would be more consistent with most of our history.  Inflation rates typically rise when the demand for products and services exceed the supply.  Most of the global economy is stuck in a period of low demand.  We don't have shortages of critical resources such as labor and sources of energy.  The dynamics that might cause global demand to grow rapidly and produce inflation are poorly understood.  Economists have been wrong about anticipated inflation since the onset of the financial crisis.

Business Reacts To Paris Agreement

It will take some time to transition away from fossil fuels but the Paris Agreement has provided a strong signal to business and to investors.  The coal industry in the US is already feeling the pinch from natural gas which is much cleaner than coal.  Investment in new technologies will accelerate and green energy will be a growth industry.  There will be resistance in many places, for example, the US Chamber Of Commerce, which has become a lobbying organization for the most reactionary elements in the business community, signaled its intention to resist change.  However, the Paris Agreement has unleashed forces in business and government which will have their own momentum.  We may save the planet from our grandchildren.

Sunday, December 13, 2015

Why Ted Cruz Is Now The Favorite In GOP Primary

Ted Cruz has replaced The Donald at the head of the pack in the Iowa primary.  He is 10 points ahead of Trump in the most reliable Iowa poll, and he has more money available than anyone but Jeb Bush whose spending has not done him much good.  Social conservatives love him but he is not well liked within the GOP leadership.  The good news for Democrats is that he not very likable in general.  He would not have much appeal outside of red states.  If he did win the GOP primary, and also win the presidency, he would be a disaster to America and the rest of the world.  He has no interest in anything beyond his personal ambition.

Why The Paris Climate Conference Was Successful

Robert Stavins heads up the Harvard Project On Climate Agreements. He and his team were very involved in the Paris Conference.  He had been very critical of previous agreements that were unworkable.  He explains why this agreement is a huge step forward.  Since the agreement is not a treaty it does not have to go to the Senate for approval.  The GOP majority would have voted against the agreement if they had the opportunity.  Republicans will have an opportunity to block funding for certain parts of the agreement in the future.  As long as they are a majority in Congress they will be the biggest hurdle that must be overcome in an international effort to save the only planet that we have. 

Final Words
So, my fundamental assessment of the Paris climate talks is that they were a great success. Unfortunately, as I have said before, some greens and some members of the press will mistakenly characterize the outcome as a “failure,” because the 2 degree C target has not been achieved immediately.
Let me conclude where I started. The Paris Agreement provides an important new foundation for meaningful progress on climate change, and represents a dramatic departure from the past 20 years of international climate negotiations.  Of course, the problem has not been solved, and it will not be for many years to come. But the new approach brought about by the Paris Agreement can be a key step toward reducing the threat of global climate change. In truth, only time will tell.

Saturday, December 12, 2015

Key Points In Paris Climate Deal

This is a link to the key points and a link to the final agreement.

Donald Trump's Campaign Depends Upon The Fringe News Media

Democracy is dependent upon a well informed electorate.  Donald Trump's success is dependent upon a fringe media system that systematically misinforms its audience.  Moreover, the fringe news system has been successful in keeping its audience away from news media which provide a more critical source of news and information.  They refer to sources such as the New York Times and the news provided by ABC, CBS and NBC as mainstream media which have a progressive or liberal bias.  Progressiveness and Liberalism are regarded as radical doctrines which undermine the US Constitution.  Yellow journalism has become mainstream journalism for many of the Republican candidates including Donald Trump who has done of better job of using the fringe media. 

Rupert Murdoch, who is the king of yellow journalism in Anglo Saxon countries,  responded to criticism of his news media by arguing that the market can't be wrong.  He is giving consumers what they want.  The market success of Fox News is beyond criticism by appeals to more traditional journalism standards.  This article puts Fox News, talk radio and the use of social media into a system of misinformation which has isolated its audience from more objective sources of information.  It is also a major threat to democracy.  The rise of the far-right in the US is totally dependent upon a media system which maintains high levels of ignorance in a large segment of the Republican base which Donald Trump has exploited to his advantage.  

Climate Change Denial Is Primarily An Anglo Saxon Thing

The Paris conference on climate change has produced an agreement which may be the best deal that can be made by 193 nations.  The US negotiators included language in the deal which prevented the deal from being turned down by the Republican senate.  The graph below shows that climate change denial is strongest in Anglo Saxon nations.  The US is the world leader in the denial of human caused climate change.  That should not be surprising given the size of the climate change denial industry in the US.  We have more conservative think tanks, funded by tax exempt contributions, per capita than the rest of the world combined.  Moreover, climate change denial is an article of faith in the Republican Party.  The energy industry in the US is one of the largest contributors to the Republican Party.

Friday, December 11, 2015

How CEO Incentives Drive Financial And Corporate Investment Decisions

This article (via Manan Shukla) explains why F500 corporations spent a record $520 billion repurchasing their own stock.  Stock buybacks and dividend payouts were greater than capital investments and twice the amount spent on research and development.  One of the factors that determine the level of buybacks and dividend payouts is their linkage to CEO bonus payouts.  They can also affect the behavior of institutional investors who make stock investment decisions based upon the total return per share of stock.

Executive compensation was changed in 1992 by a law which placed constraints on cash salary awards and caused corporate boards to link CEO compensation to performance.  Earnings per share (EPS) is commonly used as a performance measure.  This is a good measure of performance if earnings increase due to superior operating performance.  However, EPS can also be increased by reducing the number of shares outstanding.  That is accomplished when corporations repurchase their own stock.  Stock repurchases may be a good use of capital if the stock is undervalued, or if no better use of capital is available.  This article provides several examples of corporate stock buybacks which may have been used to help a CEO hit an EPS bonus target.  In other words, some CEO's may have found a way to game the pay for performance requirement.  Hitting EPS targets also influences investors.  They may invest in firms which hit EPS targets.  This drives up the stock price and it increases the value of stock options held by CEO's.

Investor behavior has also changed.  The average holding period for a stock was 8 years in 1960.  Today the average holding period is only 1.5 years.  Many investors determine the total return on a stock investment by adding EPS to dividend payout per share.  Boosting EPS and increasing dividend payouts can increase the short term demand for a stock and drive up its price.  Unfortunately, EPS can be manipulated in ways that have little to do with operating performance. Stock buybacks are one way to increase EPS but cuts in capital spending and R&D can also boost EPS at the expense of long term growth.  Most investors are only concerned with short term performance since the average holding period is only 1.5 years.

The take away from this article is that corporate decision making is driven by CEO financial performance metrics.  The goal is to connect executive decisions to the desires of investors.  The system can be gamed, especially if corporate boards are too close to the CEO's who often recruited them to the board.  It also focuses management attention on the motivations of short term investors. That may not be good for investors who have a longer time horizon that most investors.

GOP Prepares For Brokered Convention To Select Presidential Candidate

Its likely that no candidate will have enough votesto win the GOP presidential nomination on the first ballot.  After the first ballot the rules can be changed for selecting the nominee.  The new rules will determine the process by which the candidate will be selected.  If Donald Trump continues to win delegates in state primaries, which have their own delegate selection process, he will be part of the brokering process, but he will not be a party favorite.  If Trump is unable to survive the brokering process he will become a dangerous wild card.  He could run as an independent and that would be disastrous for the GOP in a national election.  He would split the vote among Republicans, and hand the election over to Hillary Clinton.  GOP leaders will have to handle the convention very carefully if they plan to eliminate The Donald at a brokered convention.

The Myth Of National Sovereignity And The Rise Of Nationalism

Large multinational corporations are able to able to use resources across the globe and sell their products and services across national boundaries.  Many of the large US MNC's sell more products overseas than they do at home.  They also have more freedom than governments to pursue their own needs. They are not bound to a geography or to a national government. They have been able to manage their accounting strategies to locate their profits in tax havens. Globalization has been a double edged sword.  It provides desirable benefits to many of us, but it also has its discontents.  This is apparent in the EU where there has been a strong nationalistic backlash to a struggling effort to integrate the European economy without the support of effective international institutions.   Nationalism has also been on the rise in the US.  There has been a backlash to immigration and rising inequality which many attribute to the ability of MNC's to source their labor in low wage nations.  Recent terrorist attacks in Paris and in the US have made citizens more concerned about national security in a world without secure boundaries.

Thomas Piketty was interviewed about the rise of nationalism in a globalized economy.  He understands many of the concerns that have led to a rise in nationalism but he does not want to give up the benefits from globalization.  In order to make globalization work we must give up the idea of national sovereignty.  For example, nation states have little control over tax policy in a global economy.  The recent inversion by Pfizer which has merged with an Irish drug company in order to establish its corporate headquarters in the Irish tax haven is a case in point. Nation states must establish cooperative institutions on tax policy in order to prevent a race to the bottom as MNC's exploit the advantages provided by nations that use tax policies as a competitive advantage.  The social welfare programs provided by many nation states are also at risk from globalization.  They make a nation less price competitive in a global economy, and public support may erode as some of the benefits are shared with immigrants.

The message to take away from Piketty's interview is that nation states do not control their own destinies in a global economy.  The rise in nationalism is the wrong response to globalization.  If we want to maintain the benefits from globalization, we need to create more effective cross national institutions.  They have not kept up with the rapid pace of globalization.

David Brooks Describes The Two Republican Establishments And Ted Cruz

David Brooks was part of the establishment movement in the Republican Party during the 1970's.  The movement consciously build institutions to counter the liberal institutions that were dominant in the US.  Most of the conservative think tanks were part of this development.  This movement prospered during the Reagan Administration by using the levers of power available to them.  Brooks argues that Ronald Reagan was not pure enough for some conservatives and an anti-establishment movement developed that was more interested in ideological purity than in the use of power to reform government by compromising with the Democratic Party.  According to Brooks the anti-establishment wing of the GOP has become as powerful as the establishment wing of the Party.  The Heritage Foundation has moved over to the anti-establishment wing of the Party and the Club For Growth has emerged as a power center.

Brooks provides us with this history lesson in order to describe Ted Cruz and his rise to power within the anti-establishment wing of the Party.  He describes Cruz as a self centered Machiavellian who is as tactical as he is ideologically driven.  He has raised twice as much money as Mario Rubio, who Brooks tends to like.  Brooks has raised a flag about Cruz as a warning to Republicans who may want to jump on his bandwagon as the campaign develops and Trump self-destructs.  I don't think that Brooks wants to be a spokesperson for the anti-establishment wing of the GOP.  He helped to develop the establishment wing of the party during the 1970's and later.

Thursday, December 10, 2015

Donald Trump Is Not The Only Dangerous Republican

Jeb Bush's campaign has outspent his GOP rivals by a wide margin.  That is because he has raised much more money from the GOP establishment.  He is widely regarded as the moderate GOP candidate for the presidency.   Jeb Bush may be more moderate about immigration than Donald Trump but his tax proposal very radical.  It would increase after tax inequality in the US and it would reduce government tax revenue dramatically.  A study by the Tax Policy Center shows that Bush's tax proposal would make the income tax much less progressive than it was even after his brother's tax cuts for the super-rich. 

What Do Republican Primary Voters Think About Trumps Muslim Ban?

Most Americans oppose Trump's proposal for a temporary ban on Muslim entry to US.  However, The Donald knows his audience very well.  This poll shows that 65% of Republican primary voters approve of Trump's proposal.  Moreover, 52% of Republicans say that they strongly favor the proposal.  A large segment of the Republican base has been conditioned by talk radio hosts and social media to believe that the Muslim religion is hostile to Christianity and their way of life.  Many of them also reject evolutionary theory and human contribution to global warming. 

Wednesday, December 9, 2015

Donald Trump As Mussolini

Dana Milbank compares Trump's political style to Mussolini's methods of appealing to the disaffected masses in Italy.  He is on target.  Unfortunately, Trump's style is very appealing to a substantial segment of the Republican Party.  The big question is whether the Republican Party will reject Trump, and the cognitively challenged part of its base that supports him.  That is not likely to happen.  There is no viable Republican Party without a large misinformed populist base.  That political party disappeared when Richard Nixon won the presidency by turning Dixiecrats into reliable Republican voters.  Rockefeller Republicans are a minority within the GOP. 

Bill Gates Bridges Gap Between Business And Government At Paris Climate Meeting

There are many public spirited billionaires and Bill Gates knows many of them.  Gates is also well connected with many important government leaders.  This article describes one of the more promising approaches in the fight against global warming.  Gates wants governments to invest in basic research while he and other billionaires will fund investments in technologies that flow from the basic research.  Many of the investments will fail but some of them will pave the way for follow on investment.  Secretary of State John Kerry believes that renewable energy may be a greater business opportunity than the invention of the computer.

Tuesday, December 8, 2015

Denmark's Conservative Government Is Off To A Bad Start

Corporate revenues and profits often fail to meet quarterly targets.  They often respond by asking their managements to cut spending in order to protect profits.  It would appear that the government of Denmark is taking a similar approach in order to reduce its budget deficit which is 3.3% of GDP.  The head of Denmark's energy department has ordered a large cut in its renewable energy budget.  He is doing his part to reduce the budget deficit and he believes that reducing the deficit will stimulate the Danish economy which has been in the doldrums.  Denmark has been a leader in renewable energy and its exports stimulate economic growth.  It also produces jobs which increase tax revenues.  In other words, it seems foolish to cut its energy budget in the hope that it will reduce the budget deficit and stimulate economic growth. Apparently, the conservative government believes in the doctrine of expansionary contraction which has affected many countries in Europe.  Nations like Denmark, which can borrow money at close to zero, should run budget deficits when consumer spending and business investment have been contracting.  Cuts in government spending will shrink the economy.

Republican's Respond To Obama's Speech About US Terrorism

President Obama attempted to assure the public that he understood the threat from terrorists and that the government was prepared to respond to the threat.  The responses that his speech got from Republican candidates were as predictable as they were unfortunate.  The candidates took this opportunity to engage in a chest pounding contest.  Their response to the "Wicked Witch" was to look into the mirror and ask the mirror who was the toughest of them all.  Their response to terrorism is to growl at the terrorists and to elevate the level of fear in the US.  They did little to demonstrate an understanding of the problem.  In fact, they have played right into the hands of terrorists who recruit jihadists by telling them that the West is engaged in war against Islam.  As usual Donald Trump pounded his chest the loudest.  He told a cheering crowd that we should ban Muslims from entering the country.

National Front Party Gains In French Elections

Fear is a strong motivator, especially when it is coupled with economic distress.  The National Front Party, which has similarities to the populist Tea Party in the US, was the big winner in the recent French elections.  The terrorist attacks in Paris produced a strong response from President Hollande, but most of his measures were similar to policies that have been promoted by the National Front Party for some time.  The threats of terrorism and large scale immigration within, and into the Eurozone, have changed the political climate in France and other EZ nations.  Populist parties have eroded the power and authority of the major political parties which have supported European economic integration.  The situation in France resembles the tensions within the Republican Party in the US between populists and establishment Republicans.  There is little in common between Tea Party supporters and moderate conservatives.

Friday, December 4, 2015

What Are The Candidates Saying About Mass Shootings In US?

We have had two recent mass shootings in the US.  This article provides us with the responses to the mass shootings by the candidates running for the presidential nomination in their party.  Its fairly clear that we do not have the political will to take substantial actions that might make mass shootings less common in the US.  Almost anyone can obtain a gun or even military assault weapons. 

Thursday, December 3, 2015

What The Donald Has Taught Republicans

Most GOP leaders thought that Donald Trump would fade as quickly as Ben Carson.  They have been promoting Marco Rubio and Ted Cruz as the best candidate in 2016.  The Donald has not faded.  He continues to lead the polls in primary states and the national polls.  The Washington Post published a leaked memo, written by a top GOP strategist, which instructs senate candidates on how to respond to Trump's success.  The memo suggests that senate candidates should copy some of Trump's successful messages and  his use of the social media to deliver his messages.  The senate candidates are concerned about the possibility of Trump winning the nomination.  They worry about how Trump's position at the top of the ticket might affect their prospects in the 2016 election cycle.  The memo instructs them on how to deal with some of Trump's messages that might damage their campaigns.

The bottom line from the memo is that the electorate does not trust politicians.  Trump's success is partially attributed to his successful career outside of politics.  The electorate believes that most politicians have been captured by special interests who fund political campaigns.  They like Trump because they believe that his campaign is self funded.  Trump has been an effective demagogue.  He attacks many of the targets that are disliked by the GOP's populist base.  He does this with more vigor than many of the other candidates.