Sunday, July 31, 2016

Greg Mankiw Explains Why Voters Oppose Free Trade And Globaiization

Greg Mankiw has published one of the most popular economics text books and he teaches students at Harvard the virtues of free market economics.  The New York Times provides him with many opportunities to sell his version of political economy to its readers.  According to Mankiw we live in the best of all possible worlds as we move closer to an idealized free market economy.  Not surprisingly, Mankiw is distressed by polls which show that the majority of Americans do not share his views about free trade and globalization, which he conflates with free trade.  In this article Mankiw explains why voters do not share the beliefs about free trade and globalization that are held by most economists.

Mankiw's explanation for voter apathy about free trade and globalization is, like  his treatment of economic ideas in his textbooks, short and sweet.  He cites a study which shows that opinions about free trade are colored by cultural factors which bias their views on free trade. Three cultural factors influence their opinions.  They are isolationists, nationalists and tribal in their thinking.  Consequently, they fail to appreciate the rationale used by many economists to justify free trade and globalization.  Mankiw also argues that they are less well educated than voters who support free trade and globalization.  His solution to voter apathy about free trade and globalization is to provide more of them with a better education.  Voters who read his textbooks will be stronger supporters of free trade and globalization.

The comments that follow his article come primarily from highly educated readers of the New York Times.  One may not agree with all of Mankiw's critics, but its clear that concerns about free trade and globalization are not exclusively held by the poorly educated.  There are lots of problems with free trade and globalization (which is not the same as free trade) that go well beyond the treatment of these issues in economic textbooks.  Things don't always turn out the way it is imagined by economists like Mankiw who greatly simplify reality in introductory textbooks.

A large number of voters are less sophisticated about trade and globalization than economists like Mankiw, but many who do not share his assumptions, and that includes many top economists, who have good reasons to be concerned about free trade. Moreover, globalization  has grown faster than the ability of nation states to deal with its consequences. 

Saturday, July 30, 2016

The New Prime Minister In Britain Sounds Like Bernie Sanders

Theresa May replaced David Cameron after his bet on the EU referendum failed.  In her first public statement, after accepting the Queen's request that she form a new government, she issued a statement that was very strange coming from a Tory Prime Minister.  She raised several issues about social justice that are almost identical to those raised by Democrats in their convention.  She then focused her attention on the plight of the middle class.  They are barely getting by and they are worried about job security and what the future holds for their children.  The Tory government under Cameron and Osborn was focused on "fiscal responsibility".  To them that meant lowering taxes, primarily for the rich, and cutting government spending in order to run a budget surplus.  Tory austerity programs are good for the advantaged and bad for those in need.  May will focus her attention on creating more opportunity for those who have not been lucky enough to have had wealthy parents.  She has also turned her attention to the current rules of capitalism in the UK which provide economic rents to those who have set the rules.  It will be interesting to see whether a Tory Prime Minister can alter the rules of the game in Britain.  She has taken an important first step.  She realizes that capitalism does not operate in a vacuum.  Governments set the rules which determine the form of capitalism that operates in a nation and that the rules have been set to favor the advantaged in Britain.

Friday, July 29, 2016

David Brooks Compares The GOP And Democrat Conventions

David Brooks claims that the Democratic Party has captured the summer by putting on a superior convention.  He explains how Trump has saved the Democratic Party.  Lots of bad things happened under Obama but they were able to mask them by looking much more organized than the convention put on the "Chaos Candidate" who captured the GOP nomination.

Brooks was especially displeased because Trump gave the Democrats an opportunity seize themes that had defined the GOP in the past.  They offered an optimistic view of the future. They also identified their party with middle class values. They also presented themselves as the patriotic party, capable of self rule, versus the GOP which required rescue by a savior.  The left wing fringe of the Democratic Party also was less menacing than the lunatic fringe of the GOP base captured by Trump.  Brooks blamed many Republican leaders for remaining silent while they gave their party away to Trump.

Brooks closed by asking whether it really mattered that the Democrats won the convention battle.  He suggested that the country may have changed so much that what used to win elections no longer works.

Thursday, July 28, 2016

Michael Bloomberg Explains Why He Will Vote For Hillary

Michael Bloomberg is a self made billionaire and one of the richest people in the world.  He is not a Democrat or a Republican; his is an independent but he will vote for Hillary.  He made his case against Donald Trump in this speech at the Democratic convention.  He argues that Trump cannot be trusted as a business person and that he is not morally or psychologically fit to lead our nation.

Wednesday, July 27, 2016

Bill O'Reilly Tells Us That Slaves Who Built White House Were Well Fed

Bill O'Reilly is provided with a platform on Fox News that gives him an opportunity to color events in ways that pleases Fox viewers.  This is good for business, and his coloring of events has helped to transform the Republican Party into the Trump Party.  Michell Obama delivered a powerful speech at the Democratic Convention that illustrated the progress that has been made in the US.  She and her children live in the White House that was built by slaves.  A nation that condoned slavery elected a black president.  Bill O'Reilly was not happy with the First Lady's version of progress.  He told his audience that the slaves were well fed while they built the White House.  Slavery was not so bad after all in O'Reilly's version of history.  Of course, O'Reilly has the freedom to create his own history if it is good for business and his politics.  The real history of the use of slaves to build the White House is quite different from O'Reilly's invention which deflates the progress that Michele Obama intended to convey. 

A Brief History Of A Political Party That Paved The Way For Donald Trump

A conservative intellectual, who campaigned for Marco Rubio, explains why Donald Trump is the logical heir to Republican Party.  The conservative ideals of the Republican Party are no longer the core ideas that inspire the voters who voted for Donald Trump.  The process began with Barry Goldwater's response to the civil rights movement, and it became more visible with Richard Nixon's Southern strategy.  The Republican Party's "moral majority" was built upon a foundation of white nationalism.  Donald Trump understood this better than his primary campaign opponents who based their campaigns on core conservative ideals that primary voters identified with the GOP establishment.  Trump's victory over the GOP establishment candidates spells the end of a political party based upon traditional conservative ideals.  It is doubtful that this process can be reversed.  We need a center-right political party that reflects conservative ideals, but it is unlikely that a political party that has been captured by Donald Trump will be that party.  Many conservative intellectuals recognize what has happened and they are proposing ways to return the Republican Party back to its core conservative ideals.  However, they can't win national elections without the voters captured by Trump.  Conservative intellectuals are late to the game.  They refused to recognize what was happening in the Republican Party until Donald Trump took it away from them.

Tuesday, July 26, 2016

Will Carbon Emissions Fall As Per Capita GDP Rises?

The Kuznets curve was used to argue that income inequality would decline after absolute income reaches an inflection point.  It has been discredited by the recent trends in the growth of income inequality.  It has been revived today to argue that carbon emissions will fall as a nation reaches an inflection point in per capita GDP.  This article provides a critique of the use of an environmental Kuznets curve which tells us that carbon emissions will fall as a nation gets richer.  Economists love to plot curves to explain complicated relationships between variables.  Unfortunately, there is no reason to believe that carbon emissions will fall after we reach an inflection point in per capita income.  There is nothing that would allow us to determine the inflection point. And there is little reason to believe that an inflection point exists.

Monday, July 25, 2016

Russian Hackers Release E-Mails From DNC

Computer e-mail files on servers used by the Democratic National Committee were hacked and released to Wikilinks just prior to the Democratic National Convention.  The e-mails show that DNC leaders were partial to Hillary Clinton in her campaign against Bernie Sanders.  The release of the e-mails may have been intended to drive a wedge between those who supported Sanders and Hillary Clinton.  The hackers are known to US intelligence agencies.  They have an an unofficial connection to Russian government agencies which may have sponsored their attack.  The reason for the attack is unknown but it suggests that Russian leaders may be attempting to support Donald Trump's campaign.  Trump has worked with Russian investors and government officials on major real estate projects.  He has also proposed a major change in US relationships with NATO.  In particular, Trump would not use US forces in NATO in the Baltic unless the affected nations fund any military efforts that might be required.

Saturday, July 23, 2016

Washington Post Editorial Board Explains Why Trump Is Threat To Nation

The Post lists all of the reasons why Trump should not become the President of the United States.  It is an extensive list and very damning.  I will not bother to summarize their report card.  However, it is very troubling that a significant number of Americans are not bothered by his numerous faults that are obvious to the Editorial Board and to most Republicans.  Trump has sold himself as problem solver but he has offered no real solutions to the many issues that he has raised in his campaign.  It is discouraging to find that so many Americans are willing to purchase snake oil with such a passion.

Friday, July 22, 2016

Secular Stagnation In Open Economies Implies Greater Global Coordination Of Fiscal and Monetary Policies

Global interest rates are likely to remain low during a period of secular stagnation.  Monetary policy at the zero lower bound is losing power and the push for austerity in many countries constrains expansionary fiscal policy.  This article describes the international pathways that reinforce secular stagnation and it makes a case for more international cooperation in capital movements and in the use of monetary and fiscal policies.  We have a global economy without the integration of national policies that are required to fight stagnation.

Trump's Victory Speech At GOP Convention

This article provides a good summary of Trump's speech.  It has a link to the full transcript of the speech.  Ironically, he proclaims that the Democratic Party, led by Hillary Clinton, is the Party of corporate elites who have benefited from globalization at the expense of the ordinary people who he will represent in government.  Trump is the fighter that the people need to take the country back from billionaires who exported jobs and manufacturing plants to foreign countries.  He will also protect the country from immigrants and Islamic terrorists have been encouraged by the weakness of Democratic leaders like Obama and Hillary Clinton.  He is the champion of nationalism in a globalized world that favors multiculturalism, and political correctness, over "Real Americans".  His campaign will be based upon fear and hatred along with the weakness his political opposition.

Trump is not only the strong leader and personal savior that our nation needs in a time of peril.  He is also a celebrity.  He has used his celebrity, along with his celebrity family, powerfully at the convention.  He recognizes the importance of the People Magazine crowd to his campaign.  Celebrity worship is a powerful tool that few politicians have been able to tap as well as The Donald.  We have not seen this in US politics since the Kennedy era.  His wife is even more beautiful than Jackie and his children also look like movie stars.

Mr. Republican Announces Death Of Republican Party

David Brooks has been a spokesperson for many of the ideas that he associated with his favorite political party.  The Donald Trump convention convinced him that the political party that he loved is dead.  It has no ideas that connect it together.  In fact, it is a party without ideas.  It is all about the personality of Donald Trump and hatred for the leaders and the liberalism of the Democratic Party.  The Donald would "Make America Great Again" by eliminating his political enemies in both of our political parties.  They have destroyed the nation that he will form around himself.

Brooks' obituary does not even contain a hope for a resurrection of the Republican Party.  Its leaders have caved into The Donald because their only real purpose is to win elections.  The Party nominated him and they want him to become our president because their most important idea is win elections.  It matters little to them that he does not share their ideology.  Its all about winning elections.

Brooks hopes that Ted Cruz, who he does not like, may be able to cobble the Party back again but he fails to recognize that the faction of the Party that Cruz has led is part of the reason for Trump's success.  Trump has captured many of the evangelicals and dispossessed that Cruz and others have cultivated to win elections.  They hate Liberals but they are not in love with the elites in the Party who champion many of the ideologies that have not been helpful to them.  The Republican Party destroyed itself by cultivating the Tea Party adherents who prefer Trump to Ted Cruz.

Tuesday, July 19, 2016

How The Republican Party Paved The Way For Donald Trump

Norman Ornstein is a scholar at the conservative American Enterprise Institute and Thomas Mann is a scholar the centrist Brookings Institute.  In this article they describe the evolution of the Republican Party to a political party opposed to political governance.  It has become the anti-government party.  It is not surprising that Donald Trump, who has no experience in governance, should have emerged as the GOP's nominee for the presidency.  The only candidate who challenged Trump in the GOP primary was Ted Cruz who is the leader of the "Freedom Party" wing of the GOP. 

There is no happy ending to the story that they are telling us.  Trump could become the President of the United States and that would be a disaster.  On the other hand, if Trump loses the election the Freedom Party caucus will continue to obstruct the operation of the government.  Hillary Clinton will not be able to get anything done in Congress.  The evolution of the Republican Party over the last 30 years into to the anti-government party has been completed.  It will continue to demonize the Democratic Party and its leaders ( That is what the GOP Convention is all about).  And if Trump wins the election the Democratic Party will be challenged to participate in the governance process.  There is no happy ending to this story.  It is bad for the US and for the rest of the world which looks to the US for leadership.

Sunday, July 17, 2016

How Can We Explain China's Rapid Growth?

Paul Romer raises some interesting ideas about economic growth.  For example, China's growth rate accelerated simultaneously with urbanization.  Romer then speculates about a possible relationship between urbanization and economic growth.  He suggests that new ideas lead to economic growth, and that the production of new ideas accelerated with urbanization.  The interactions between idea generating people compound when they live in large cities.  Economic growth is a function of idea generation within a system that enables the best ideas to blossom and bear fruit.  Some ideas are small but they lead to important changes that promote growth.  Meta ideas are ideas about ideas.  They foster the compounding of ideas.  For example, growth in the US was facilitated by a meta idea which created public universities that attracted large numbers of students to study science and engineering.  He suggested that a new meta idea might also promote sustainable growth.  Instead of awarding grants to universities, we might award grants to promising graduate students.  That would encourage competition between universities for the best students.  Under our current system, in which the top universities receive the most funding, we have not produced a promising new university since Stanford and the University of Chicago were created.

(Paul Romer just accepted the Chief Economist position at the World Bank}

Thursday, July 14, 2016

Exxon Enlists Congress In War On Climate Change

Lamar Smith is the head of the House Science, Space and Technology Committee.  He is also from Texas which is owned by Exxon and the energy industry.  He has issued more subpoenas during his tenure as Chair than have been issued in the last 54 years.  Many of them have been designed to discourage scientists from informing the public about climate change.  He has taken his war to a new level by issuing subpoenas to State Attorney Generals in New York and Massachusetts.  The Attorney Generals have been investigating Exxon for violating securities law in their jurisdictions.  They are attempting to determine whether Exxon has failed to properly inform investors about their exposure to financial risk from climate change.  Exxon has also been accused of failing to release data collected by their own scientists about the risk from climate change. 

Monday, July 11, 2016

What Is The Bond Marketi Telling Us?

Interest rates in the US are at a 227 year low.  There are negative interest rates in parts of Europe.  What is that telling us?  Ordinarily, interest rates are sensitive to a worry about price inflation.  We get price inflation when the demand for products and services is greater than the supply.  The bond market is telling us that investors are not worried about price inflation.  The implication is that we should not expect excessive demand to drive up prices.  In other words,  investors are not worried about rapid economic growth.  There are other factors that affect interest rates and some of those considerations are discussed in this article.  Its fairly clear, however, that the bond market is not signalling concerns about excessive demand

Sunday, July 10, 2016

Why Did George Bush Decide To Invade Iraq?

We have learned that US intelligence did not tell Bush that Iraq had weapons of mass destruction and that there was no link between Hussein and a terrorist group that was responsible for 9/11.  We also learned that Bush was warned that the invasion might increase the risk of terrorism.  If we assume that Bush and his advisors acted in the public interest there must be some reason why we were told lies in order to justify the invasion.  That is the real question about the decision to invade Iraq.  What was the public interest that motivated Bush and his team to lie to the public and take the known risks that might follow from their decision?  Some believe that Bush had a personal grudge against Hussein because he planned to assassinate his father.  That would not have motivated his top advisors to take the known risks of an invasion that would lead to the loss of American lives and large numbers of innocent civilian lives.  We still don't have a full understanding of the considerations that motivated Bush and his team of advisors.

Friday, July 8, 2016

Why Do Shareholders Condone "Excessive" CEO Compensation?

One would expect the owner of a firm to discourage excessive CEO compensation. We would also expect an owner to base executive compensation on performance relative to industry competitors. However, mutual funds and other large owners of corporate stock seldom complain about executive compensation.   This article offers a simple explanation.  Money managers usually own shares in many of the firms in the same industry.  They are more concerned about industry performance than they are about the performance of individual firms.  The last thing that they want to see is price competition between the firms that they own in a particular industry.  That would drive down industry profits.  In pursuit of shareholder value mutual funds, and other large investment firms, encourage oligopolistic competition.  They have no economic interest in basing executive compensation on performance relative to other firms in a particular industry.  Executive compensation in an industry is more closely related to firm size than it is to firm performance relative to its peers.

Thursday, July 7, 2016

How Blair Sold The War And How It Led To ISIS

This article, by a British diplomat who was involved in the Iraq crisis, describes the misinformation that was used to sell the war to Parliament and to the British public.  Hundreds of thousands of citizens were killed in the war and its aftermath.  The decision by Bush to pursue regime change in Iraq was sold as a response to 9/11 and as critical element in his war on terror.  Instead of reducing terror, the decision to invade Iraq helped to produce ISIS and many years of terror in the Mid-East and elsewhere.  This was not an unanticipated result.  Many who were involved in the process argued that the invasion would inspire terrorists.  They were ignored.

Wednesday, July 6, 2016

Britain Releases Report On Blair's Decision To Join US Invasion Of Iraq

After seven years of study Britain released its report on its decision to join the US invasion of Iraq.  The report is highly critical of Tony Blair's role in the decision.  In particular, it states that no evidence was offered to show that Iraq was producing weapons of mass destruction.  It is very clear that Blair placed its relationship with the US government above all other considerations.  The report focuses on Blair's involvement in the decision but it also provides details about the Bush Administration's decision to pursue regime change in Iraq while ignoring many of the identified problems that might arise in the aftermath of regime change.  Many of the identified problems have come home to roost in Mid-East and elsewhere.  Bush praised Blair's decision to join the US invasion as an act of leadership.  Implicitly, he viewed his decision also as an act of leadership.    

Friday, July 1, 2016

Donald Trump's New Campaign Manager And Chief Stratagist

This is a link to Wikipedia's description of the replacement for the campaign manager Trump recently fired.  The strategy is to  portray Trump as a man of the people and to describe Hillary Clinton as the voice of the establishment for 25 years whose campaign is funded by Wall Street.  Paul Manafort has a long history of advising Republican politicians and corrupt foreign leaders who need to curry favor with US politicians.  He is very good at his craft.  He may be able to convince the public that Trump represents their interests in government.  Trump will not focus on policy issues that have been widely criticized as lacking in substance and designed to reward elites.  His campaign will focus on personal issues that he hopes to use against Hillary much like he did against his Republican primary opponents. 

Donald Trump's Anti-Republican Policy Proposals And The Future Of National Populism.

Donald Trump has been endorsed by Paul Ryan who is the Republican Party's highest ranked public official.  Ryan has also supported every international trade agreement that has been proposed in recent years. Those trade agreements have also been supported by the US Chamber Of Commerce which is the largest business lobby in the US and a traditional advocate for Republican political candidates.  Donald Trump has stepped up his attacks on free trade agreements and he has accused the US Chamber Of Commerce of being controlled by special interests (most of whom are Republicans).  In other words, Donald Trump has divorced himself from the Republican Party on critical campaign issues in order to increase his chances of the winning the national election in November.  He is actually running as a nationalistic populist.  His populism is closer to Bernie Sanders than it is to Hillary Clinton's.  He hopes to expand his populist base in the Republican Party by attracting disaffected Democrats to his campaign in swing states such as Ohio and Pennsylvania which have suffered from deindustrialization.  He claims that he will "Make America Great Again" by bringing jobs back to America that have been lost by the use of "unfair currency manipulation" and broad based trade agreements provide easy access to the US market.  He claims that he will use his skills as the "great negotiator" by negotiating with each of our trading partners as a single entity. 

Trumps nationalistic populism is similar similar trends that we see in Europe.  The recent referendum in the UK provides a good example of national populism at work and it should provide a warning to Republicans.  The UKIP Party in the UK opposed Britain's membership in the EU.  It attracted disaffected conservatives, who were concerned about a loss of national sovereignty, and it appealed to many traditional Labour voters who blamed immigration for their economic problems and for a loss of national identity.  The leader of the conservative party attempted to stem the tide of UKIP by proposing a referendum on membership in the EU.  He did not expect the vote to turn out the way it did and he was forced to resign after the referendum.  The campaign against the EU was led by the conservative  Mayor of London who believed that he could enhance his political career within the Conservative Party.  He resigned after the referendum and several conservative candidates are vying for leadership in the Party.  Who knows what will become of the Conservative Party.

Donald Trump won the GOP primary by appealing to disaffected Republicans who viewed Washington in many ways like voters in the UK who did believe that they benefited from membership in the EU.  Trump supporters also believed that immigration was bad for them economically and that immigrants were dangerous threats to their safety.  They were also forced to pay taxes to the federal government which were used to provide welfare benefits immigrants and others who did share their values.  The Republican Party cannot win elections without the UKIP like members of their party who have been captured by Donald Trump.  On the other hand, a Republican Party led by Donald Trump bears little resemblance to the party that has traditionally defined conservatism for most Republicans.  It has become the Anti-Obama, Anti-Hillary party rather than a party united by a set of ideals.  If Donald Trump captures the Fox News and talk radio hosts, who have typically supported conventional Republicans, the Party will have lost its propaganda machine as will as its ideology.  It will become the Anti-Liberal Party.  The Tabloids in the UK promoted the Brexit campaign by spreading lies and misinformation that supporters of membership were unable to effectively counter.  A little bit of knowledge is a dangerous thing.  Voters everywhere are concerned about the future but there are no easy answers for many of the problems that worry them.  Trump's campaign is not based upon workable ideas that will be good for the nation.  He is all about winning the presidency by appealing to many of the fears that are common in many western nations.  Things are changing in the global economy and in the popular culture that are moving faster that the ability of national governments to manage them.