Tuesday, March 28, 2017

The Swamp Claims Its First Victim

Washington [is] a lot more broken than President Trump thought that it was.

— White House Budget Director Mick Mulvaney
SÃO PAULO, BRAZIL – On Friday, the much-hyped Trump/GOP Obamacare reform sank into the swamp. 
If anything keeps us from national bankruptcy, it won’t be entitlement reform.
Not under Donald J. Trump.
Next up, tax reform.

Swamp Battle

Here again, readers are advised not to hold their breath.
The same slimy swamp battles – with politicos, insiders, GOP rival factions, and President Trump himself all snapping at each other’s tails – will probably kill any serious reform.
Besides, there’s a deeper problem. Tax “reform” or tax “cuts” are useless unless spending is also cut.
Otherwise, they just shift the burden from one taxpayer to another… or from taxpayers to consumers… or from targeted tax victims to the general public.

Swamp Monsters Devour White Men

RANCHO SANTANA, NICARAGUA – Yesterday, the House put off its vote on the Republicans’ medical care bill.
Stocks barely moved.
Used car prices dropped last month by the biggest amount since 2008.
Homeownership hit a half-century low. Sears may no longer be a “going concern.”
And discount footwear retailer Payless is preparing for bankruptcy.

Deaths of Despair

Also in the news yesterday was a further report from Princeton economists Anne Case and Angus Deaton who first sounded the alarm about the shocking increase in death rates among middle-aged white men.
According to the latest figures, the death rate for a white man between 45 and 54 years old without a college degree is rising faster than any other demographic group.
And the death rates for black and Latino men the same age continue to decline.
Forget terrorism and Mexican murderers; a middle-aged white man is much more likely to kill himself than to die at the hands of foreigners.
“Deaths of despair” – from alcohol, drugs, and suicide – have more than doubled in the last 20 years. The mortality rate has risen to over 900 per 100,000.
At least one county in West Virginia has been so overwhelmed by these deaths that the funeral homes haven’t been able to keep up.

Why You Need to Care About Bitcoin

Editor’s Note: Earlier this month, Palm Beach Letter editor Teeka Tiwari told you how cryptocurrencies like bitcoin are your best defense in the War on Cash. That essay was so popular that our own Chris Lowe caught up with Teeka to find out why Diary readers need to care about cryptocurrencies.

Chris Lowe (CL): Bitcoin has been going up steadily for the last three years. What is driving bitcoin higher?
Teeka Tiwari (TT): It’s that people are waking up to the idea that they can have control over the value of the currency they use. Right now, there’s a global currency war. Countries are debasing the buying power of their currencies to try to steal growth from one another.
On top of that, you have the War on Cash, which I know you’ve reported on extensively. It’s getting harder and harder to have private ownership of your money. Central banks do not respect private ownership of your cash. There is an increasing number of bans, like the one you saw in India last November. [Catch up here.]
Meanwhile, central banks are using tools such as negative interest rates to punish savers in the hope that they’ll rush out and spend their cash to avoid being penalized with a negative rate for saving it.
There’s a backlash to all that. People are saying, “Hey, this is my money. I want to be able to hold it anonymously. I want to be able to keep it a secret from the government. I want to be in complete control of my own capital.” Bitcoin gives you that control. Unlike any other asset or currency, bitcoin does that.

Jesus Was No Deep Stater

SÃO PAULO – We arrived on Sunday morning.
São Paulo can have terrible traffic. It is a sprawling place of 12 million people.
But it was early when we pulled into town; the traffic moved swiftly.
We decided to go to mass at the old São Paulo (Saint Paul’s) Cathedral downtown.
The area is a bit rundown. Derelict. Bums and half-wits congregated in the park in front of the church… and inside the church, too.
More on that story in a minute. First, we check in on the world of mammon.
U.S. stocks have seen their sixth straight day of losses as the economic picture darkens.
Houses are selling again. But there’s a big problem: The average house buyer is less able than ever before to buy the average house.
His income, compared to the cost of buying a house, is the lowest on record. Thus housing takes up a disproportionate share of his wages, leaving less for other spending.

The Fed’s Only Escape Is to Trash the Dollar

Harry Houdini was the greatest escape artist of the 20th century. He escaped from specially made handcuffs and underwater trunks, and once escaped from being buried alive. Now, Janet Yellen will try to become the greatest escape artist of the 21st century.
Yellen is handcuffed by weak growth, persistent deflationary trends, political gridlock, and eight years of market manipulation from which there appears to be no escape. Yet, there is one way for Yellen and the Fed to break free of their economic handcuffs, at least in the short run. Yellen’s only escape is to trash the dollar. Investors who see this coming stand to make spectacular gains.
Yellen and the Fed face as many constraints as Harry Houdini did in trying to escape a potential collapse of confidence in the U.S. dollar and a possible sovereign debt crisis for the United States. Let’s look at some of the constraints on Yellen – and the possible “tricks” she might use to escape.
The first and most important constraint on Fed policy is that the U.S. economy is dead in the water. Quarterly GDP figures have been volatile over the past three years, with annualized real growth as high as 5% in the third quarter of 2014 and as low as minus 1.2% in the first quarter of 2014. We have not seen persistent growth or a definite trend – until now. Finally, there is a trend, and it’s not a good one.

The Real Reason We Have a Welfare State

The Real Reason We Have a Welfare State

BALTIMORE – Yesterday, the Swiss cast their votes and registered their opinions: “No,” they said.
We left off on Friday wondering why something for nothing never works.
 Not as monetary policy. Not as welfare or foreign aid. Not in commerce.
Not never, no how.
But something for nothing is what people most want.
The Swiss voted against awarding all citizens a “universal basic income” of about $30,000 a year, regardless of whether they have work or not. But the idea is unlikely to go away.
Two-thirds of British voters say they are in favor of the idea. And Canada’s Ontario province is set to try something similar.

Why Trade Restrictions Always Backfire

When the U.S. imposed a tariff on magazine paper from Canada in 2015, workers at a financially troubled paper mill in Maine cheered. Less than two years later, their jobs are gone and the mill is closed.
Why trade at all? If we really wanted to, we could behave like a national Robinson Crusoe.
It wasn’t supposed to happen that way. Tariffs, protectionists tell us, help the domestic economy, or at least certain industries. The truth is that restrictions on imports almost always backfire. By suppressing competition, they make domestic industries less efficient; they raise prices both on imports and the competing domestic products; they don’t spur us to fix our own problems or products but instead, they make us sloppy; and they hurt consumers who face higher prices and often fewer choices.
With so many people calling for tariffs or quotas or other protectionist restrictions on trade these days, perhaps we’re overdue to re-learn some important lessons.

A Step Back from Trump’s Start

Michael J. Boskin is Professor of Economics at Stanford University and Senior Fellow at the Hoover Institution. He was Chairman of George H. W. Bush’s Council of Economic Advisers from 1989 to 1993, and headed the so-called Boskin Commission, a congressional advisory body that highlighted errors in … read more
STANFORD – The first few weeks of Donald Trump’s presidency have contained what felt like a year’s worth of activity and rancor. The US media is “all Trump, all the time” – and they’ve had plenty of fuel. Amid Trump’s initial moves to “shake up” Washington, DC, including a five-year lobbying ban and approvals of pipelines that President Barack Obama had blocked, he has made some serious – and avoidable – mistakes.
Trump is far from the first president to arrive in the White House planning to shake things up. President Jimmy Carter tried, but immediately ran afoul of his own party’s leadership in Congress – and subsequently struggled to get anything accomplished. For example, Congress turned his proposed tax cut for dividends into one for capital gains.

America’s Bad Border Tax

Nouriel Roubini, a professor at NYU’s Stern School of Business and Chairman of Roubini Macro Associates, was Senior Economist for International Affairs in the White House's Council of Economic Advisers during the Clinton Administration. He has worked for the International Monetary Fund, the US Feder… read more
NEW YORK – The United States may be about to implement a border adjustment tax. The Republican Party, now in control of the legislative and executive branches, views a BAT – which would effectively subsidize US exporters, by giving them tax breaks, while penalizing US companies that import goods – as an important element of corporate-tax reform. They claim that it would improve the US trade balance, while boosting domestic production, investment, and employment. They are wrong.
The truth is that the Republicans’ plan is highly problematic. Along with other proposed reforms, the BAT would turn the US corporate income tax into a tax on corporate cash flow (with border adjustment), implying far-reaching consequences for US companies’ competitiveness and profitability.

Trump’s Gift to China

Kaushik Basu, a former chief economist of the World Bank, is Professor of Economics at Cornell University.
NEW YORK – US President Donald Trump’s protectionist threats against China have spurred much concern. If he follows through on his promises and, say, officially labels China a currency manipulator or imposes higher import tariffs, the short-run consequences – including a trade war – could be serious. But, in the longer term, a turn toward protectionism by the United States could well be a blessing in disguise for China.
There is no doubt that China is going through a difficult phase in its development. After three decades of double-digit GDP growth – an achievement with few historical parallels – the pace of China’s economic expansion has slowed markedly. The combination of rising labor costs and weaker demand for Chinese exports has reduced China’s annual GDP growth to 6.9% in 2015 and 6.7% last year. The Chinese government has now lowered its growth target for 2016-2020 to 6.5-7%.

Trump, Trade, and the Middle Powers

Hector R. Torres

Hector R. Torres is a former executive director of the IMF and a former WTO staff member.
ONTARIO – Donald Trump’s presidency is posing fundamental challenges to the rule-based international trading system that has buttressed global growth for decades. But while America’s protectionist maneuverings threaten a global trading regime based on legal norms, they may also, paradoxically, help to reform it.
That is because middle powers – countries with modest GDPs but global influence – have an opportunity to moderate and reorient Trump’s anti-trade firestorm. Through enhanced cooperation, the world’s middle powers can avoid becoming collateral damage in Trump’s anti-globalization offensive. And they can help to maintain the stabilizing project of international cooperation by advancing a progressive trade agenda based on the rule of law.

President Trump’s Necessary German Lessons

Hans-Werner Sinn, Professor of Economics and Public Finance at the University of Munich, was President of the Ifo Institute for Economic Research and serves on the German economy ministry’s Advisory Council. He is the author, most recently, of The Euro Trap: On Bursting Bubbles, Budgets, and Beliefs
MUNICH – US President Donald Trump has criticized Germany’s enormous current-account surplus, which he considers the result of German currency manipulation. But the president is wrong. While Germany’s external surplus, at 8% of GDP, is big – too big – it is not the result of currency manipulation by Germany. The real culprits are an inflationary credit bubble in southern Europe, the expansionary policies of the European Central Bank, and the financial products US banks sold to the world. So, instead of blaming Germany, President Trump would do well to focus on institutions in his own country.
Germany’s trade surplus is rooted in the fact that Germany sells its goods too cheaply. Here, the Trump administration is basically right. The euro is too cheap relative to the US dollar, and Germany is selling too cheaply to its trading partners within the eurozone. This undervaluation boosts demand for German goods in other countries, while making Germany reluctant to import as much as it exports.

The End of Poverty in China?

Hannah Ryder is a former head of policy and partnerships for the United Nations Development Programme in China.
BEIJING – One of the most cited statistics about China may well be the number of Chinese who have been lifted out of poverty over the last 35 years. At over 800 million, it is a huge number – and an extraordinary feat. Indeed, no other country has achieved such a level of poverty reduction in such a short period. But what about the millions of Chinese who have remained behind?
China’s government is committed to finishing the task, with the aim of reducing rural poverty essentially to zero by 2020. The authorities first made the pledge at the United Nations in 2015, and have reiterated it in subsequent official settings. But fulfilling that promise – which would now entail improving the wellbeing of about 45 million people, roughly equivalent to Sudan’s entire population – will carry significant costs.

Unlocking the Potential of Chinese Cities

Unlocking the Potential of Chinese Cities

Xiao Geng

Xiao Geng, President of the Hong Kong Institution for International Finance, is a professor at the University of Hong Kong.

Andrew Sheng, Distinguished Fellow of the Asia Global Institute at the University of Hong Kong and a member of the UNEP Advisory Council on Sustainable Finance, is a former chairman of the Hong Kong Securities and Futures Commission, and is currently an adjunct professor at Tsinghua University in Be… read more

HONG KONG – Residential property prices in China’s first-tier cities – Beijing, Shanghai, Guangzhou, and Shenzhen – are back up. A home there now runs buyers half as much as a home in the world’s most expensive cities: New York City, London, and Hong Kong. Letting some of the air out of this housing bubble, before too much pressure builds up, will require improved management of China’s rapid urbanization – and not just in the four first-tier cities.
Of course, the housing situation is most urgent in the first-tier cities. And their governments have moved quickly to cool the market. Beijing, for example, raised the required down payment for residents purchasing a second flat for investment to as much as 80% of the price, and barred non-residents from such investments altogether.

Trump's Budget Paves the Road to Fiscal Failure

President Donald Trump has issued his preliminary federal budget proposal looking to the U.S. government’s next fiscal year. What it shows is that there will likely be no attempt to reduce the size and cost of most of the American interventionist-welfare state.
On Thursday, March 16, 2017, the White House released, “America First: A Budget Blueprint to Make America Great Again.” Listening to the comments of some on the political left, you would think that the world was going to come to an end. For many on the political right, the programs placed on the chopping block for reduction or near elimination seem like a dream come true–if the budgetary proposals were to be implemented.
Neither the total amount of government spending nor the likely budget deficit is threatened with meaningful reduction.
Furthermore, the blueprint offers an insight into the mind of Donald Trump about the role of government in society. When the budget was released, Michael Mulvaney, the director of the Office of Management and Budget, said that this was Donald Trump’s fiscal vision for America. "If he said it on the campaign, it's in the budget," Mulvaney declared. "We wrote it using the president's own words."

Francis Hutcheson and a System of Natural Liberty

Scotland would seem a strange place for the emergence of a center of intellectual development that would influence the stream of ideas throughout the world. Scotland had been unified with England near the beginning of the eighteenth century. It was considered a “backwater” of European civilization.
Though he was a firm believer in revelation, he held that the best rules of conduct could be ascertained without its assistance.
But perhaps because of the strong nationalist sentiments and resentments that still lingered among many Scots, scholars and professors attempted to look beyond Great Britain for intellectual influences and associations outside the orbit and dominance of London. Thus, Scottish thinkers were familiar with, and often had personal ties with many of the leading intellectual figures on the European continent, including and especially in France.
But the emerging Scottish variation on the Enlightenment was not merely a shadow or reflection of Enlightenment ideas in France. It developed in distinct ways, especially in the circles around the universities in Edinburgh and Glasgow.

Remembering Bastiat's Successor

I have met very few people committed to liberty who are not fans of Frederic Bastiat. Whether for his writing style, particularly his mastery of reductio ad absurdum arguments, his ability to encapsulate core principles of economics in understandable terms, or his ability to identify errors of basic logic behind government policies, much about Bastiat’s work deserves approval. There are good reasons why Henry Hazlitt cited him as the inspiration for Economics in One Lesson.

Does National Defense Require the State?

Gordon Tullock used to taunt anarchists by asserting that if the USA abolished its government, people would not have to worry about the Russians taking over the country because “the Mexicans would get here first.”
Guerrilla groups might prove effective in preventing a foreign takeover.
This little story actually incorporates a common objection to anarchy—namely, the idea that because, if a country abolished its government, other countries would not necessarily follow suit, the governments of those other countries would be free to, and would, simply take over the country that, lacking a government, also lacked an effective means of defending itself against takeover by a foreign power.

What the Tea Party Has Achieved

Stephen Moore 

Tea party members on the East Front of the U.S. Capitol hold up signs and flags during a rally.(Photo: Douglas Graham/Roll Call/ Newscom/ Edited: Daily Signal)
Remember the much maligned Tea Party movement? These were the patriotic Americans—millions of them—who took to the streets and the town halls across America and revolted against President Bush’s corporate bailouts, President Obama’s stimulus spending blowout and Obamacare, and the Federal Reserve’s policy of tossing trillions of dollars out of helicopter windows (figuratively).
Good news: They helped change and maybe even slightly fix America. The latest budget deficit numbers for the fiscal year just ended find that the deficit has fallen by $1 trillion since Obama’s tragic first term. The deficit is still near half a trillion, but the hole is a lot smaller than it was before the Tea Party spontaneous combustion happened back in 2009.

The Green War Against the Working Class

Stephen Moore 

Peabody Energy, the largest U.S. coal producer, has filed bankruptcy. (Photo: Andrew Gombert/EPA/Newscom
There was a time in America—and it wasn’t even so long ago—that liberals actually cared about working class people. They may have been misguided in many of their policy solutions (i.e., raising the minimum wage) but at least their heart was in the right place.
Then a strange thing happened about a decade ago. The radical leftwing environmentalists took control. These are people who care more about the supposed rise of the oceans than the financial survival of the middle class. The industrial unions made a catastrophic decision to get in bed with these radicals and now they—and all of us—are paying a heavy price.